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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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