In the current market conditions one of the most significant issues for business is the late payment of invoices. A recent case involving Ruttle Plant Hire and DEFRA is therefore a timely reminder of the legislation specifically implemented to address this issue.
The Late Payment of Commercial Debt (Interest) Act 1998 (‘the Act’) makes provision for recovery of interest and compensation on commercial debts which are unpaid on the date the invoice falls due, or 30 days after the date of the invoice, whichever is the later. The legislation provides that the interest rate payable should be 8% above base rate but to simplify claims the rate is fixed for six month periods at the rates in force on the preceding 31 December and 30 June. The current rate is therefore 10%.
In the Ruttle Plant Hire case the contract had been arranged in a hurry and there was some confusion as to some of the rates payable. The upshot of this was that Ruttle raised some invoices that were wrong. They commenced proceedings to recover the sums due on the invoices and claimed interest under the Act. The court held that the Act did not apply where invoices had been wrongly calculated. Ruttle appealed.
The Court of Appeal held the invoice did not have to be correct and that a strict reading of the Act should not be adopted. The appeal judges emphasised that a debtor should pay the amount it considers to be due and leave only the disputed amount outstanding and request an explanation as to what is seen as incorrectly claimed. A paying party can withhold payment for sums reasonably in doubt, or not properly settled, but cannot withhold payment entirely. The Court of Appeal held that there should be a reduction only if the supplier has created or allowed uncertainty. There should be no reduction in respect of sums which, from the paying party’s point of view were clearly payable and owing. In this case that meant there should be no reduction.
Key points when delivering invoices
- Make sure you make a clear claim for the sums due and where appropriate set out the various items charged.
- Provide supporting documentation where necessary or when requested.
Key points when receiving invoices
- Check invoices upon receipt and pay any sums that are irrefutably due.
- If there is a genuine dispute as to the amount claimed in an invoice, give clear notice and request an explanation.
- Withholding payment of the full balance will leave you exposed to interest and compensation under the Act.
- Further withholding payment leaves you exposed to the real danger of court and/or insolvency proceedings especially bearing in mind current market conditions. Creditors are more likely to initiate legal proceedings sooner than in the past and when a balance of £750 or more is undisputed and is outstanding, a petition to wind up a company may be presented.
One final note is that even if the Act had not applied the Court of Appeal acknowledged that the supplier in this instance could have claimed interest under the Supreme Court Act 1981 at 2% above base rate but under this provision interest may accrue from when the work is finished not when payment is demanded. Ruttle Plant Hire Ltd v The Secretary of State for Environment, Food and Rural Affairs (2009)