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errors in invoices not fatal to claims for late payment interest

4 March 2009

In tough times cash is king. Deterring late payers is one way of improving cash flow. Since 2002, businesses of any size have been able to charge penal interest on unpaid invoices under late payment legislation. The Late Payment of Commercial Debts (Interest) Act 1998 and associated Regulations are designed to discourage late payers by imposing a high rate of interest on commercial debts that are not paid on time. Currently, the statutory rate is a hefty 8 above base rate and if the customer does not pay up, the supplier can claim it through the courts.

To claim statutory interest the supplier must notify the customer of the sum due and what it relates to. But what if there is some uncertainty about the amount due or the invoice sent to the customer is defective in some way? Can the customer sit back and pay nothing and avoid statutory interest by claiming that the invoice is not completely perfect? The Court of Appeal examined this question in a judgment handed down last week.

The case of Ruttle Plant Hire Ltd v DEFRA concerned late payment interest on a contract to supply plant and machinery to combat the outbreak of swine fever in August 2000. Ruttle undertook decontamination work for the Government, digging disposal pits on farms, and the contract was arranged in such a hurry that the terms were not fully settled. In early 2001 there was an outbreak of foot and mouth disease and Ruttle was assigned to that work too. Ruttle was doing so much work that it had to suspend its invoicing process. Subsequently, the parties got into a dispute about how much the Government owed Ruttle for the work, when the debt fell due and how much interest was payable. Ruttle issued proceedings for some £5 million in interest, mostly claimed under the late payment legislation.

The High Court ruled that interest under the late payment legislation did not run until the paying party had received proper notification of the amount due. The parties had argued about the rates payable and Ruttle had ended up reissuing certain invoices. The High Court denied Ruttle some of the interest claimed and, to the extent it did allow interest, it reduced the rate right down to 2 over base.

Ruttle appealed successfully. The Court of Appeal noted that all of the invoices issued by Ruttle had been supported by documentation detailing the hours worked and the machinery used, so DEFRA could have worked out what it considered was payable to Ruttle. The relevant section of the legislation gives two alternatives for triggering statutory interest: the date on which the purchaser is given either (1) "notice of the amount of the debt", or (2) "(where that amount is unascertained) the sum which the supplier claims is the amount of the debt". The latter, said the Court of Appeal, meant that a provisional view of an amount due fell within the legislation. If the sum due is not ascertained, the supplier just has to give notice of what he claims to be due. The legislation did not require the invoice to be perfect before interest could run. Otherwise, the paying party could look for the smallest detail of error in an invoice and, if he found one, he could delay payment of the whole sum and avoid the statutory interest. This made no sense and would frustrate the purpose of the legislation. The wrong invoice might result in a reduced amount of statutory interest being awarded, but there was no need to read the amount as meaning the true amount, the whole true amount and nothing but the true amount. The Court of Appeal observed that in the real world errors in invoices were common and that was why they were often accompanied by underlying documentation so that the paying party could check.

So, as the customer, what should you do if it is unclear whether an invoice is correct? In this situation, the Court of Appeal advised, the customer should pay the minimum he considers to be due, and ask the supplier to substantiate the rest. If there is supporting documentation, at the very least, any reasonable customer should make a spot check and, if all seems well, pay up and check the fine detail later. What a customer cannot do, is withhold all payment and expect to escape punitive interest on sums which are due on any view. It would be different if the contract said that nothing was due, unless a correct invoice was supplied, but that was not the case here.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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