Payment terms on invoices could leave a sting in the tail…

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The Facts

Consulting Concepts International Inc (“CCI”) v Consumer Protection Association (Saudi Arabia) (“CPA”) was a Court of Appeal case between a New York corporation and an agency of the Kingdom of Saudi Arabia. The case related to a collaboration agreement which was made subject to the “laws of the United Kingdom” (the “Agreement”).
On 27 December 2019, CCI issued a claim at court for payment of various invoices:

  • $15.13m for services provided by CCI before 17 December 2013.
  • $43.05m (in Saudi Riyals) pursuant to an undated undertaking in which CPA undertook (i.e., promised) to pay this sum by 31 December 2013.

Notably:

  • All CCI’s work, which was the subject of the invoices, was completed by 17 December 2013; and
  • It was a term of the Agreement that all CCI invoices submitted to CPA would be paid within 90 days.

Save for one invoice, all invoices were submitted by CCI to CPA less than 90 days before 27 December 2013.

Why are the dates important?

27 December 2019, when the claim was issued (i.e., commenced) at court, fell six years after 27 December 2013, when CCI said that all apart from one of its invoices had not yet become due for payment (i.e., the claim was brought less than six years after payment was due on the majority of its invoices).

What was argued?

CPA (the defendant) said that the entire claim was time barred and it had no reason in law to pay any of the invoices.

It argued that all sums claimed by CCI were for payment pursuant to a contract for services. Section 5 of the Limitation Act 1980 therefore applied, which meant that claims “cannot be brought more than 6 years from the date on which the cause of action accrued.

The judge in the High Court agreed and said that the cause of action (i.e., the crystallisation of facts that would give rise to a claim) for payment of CCI’s services accrued when the services were provided, and therefore no later than 17 December 2013. Six years after this would, of course, be 17 December 2019 (10 days before CCI issued its claim).

Caselaw provides that: “[W]here A does work for B at B’s request on terms that A is entitled to be paid for it, his right to be paid for it (i.e., his cause of action) arises as soon as the work is done “unless there is some special term of the agreement to the contrary”.

Appealing the High Court decision, CCI argued that CPA failed to pay after 90 days of delivery of the invoices and it was at that point (i.e., on day 91) that its cause of action arose, not before. This would mean it was in time to claim payment for the majority of its invoices.

The Court of Appeal judges rejected this contention and confirmed the general position that a right to payment accrues as soon as work is complete. Providing an invoice and terms for payment after that date only delays the time by which payment can be demanded. It has no effect on the overall time within which a claim must be brought to court.

The ‘special term’ referred to in the caselaw requires the service provider’s right to payment to be delayed, for example, a condition to be fulfilled. A classic example is a condition precedent that works done are to be certified by a third party.

In summary:

As surmised by CPA’s barrister, “the invoicing provision is logically… an arrangement as to payment which temporarily limits the creditor’s right to recover sums by action before an invoice is issued and sufficient time has passed.”

This means invoicing and providing payment terms limits the right to claim for services rendered for a period, it does not stop the clock running on the legal right to claim payment. The clock starts upon completion of work – and, a later undertaking to pay by the paying party does not alter this position.

Key Takeaways:

Service providers should issue invoices promptly after completion of works. Whilst internal records should note the deadline for payment, they should also record the date of completion of works – as it is the latter which is of utmost importance if a claim needs to be brought for payment at court.

Also, consult a lawyer is if obtaining payment of invoices is becoming difficult – and remember to provide all facts, including when the relevant services were provided.

If you need additional information or support within your business, we can help. Get in touch with our team of expert lawyers for bespoke advice.