Court of Appeal holds right to payment for services accrues when work is done

In Consulting Concepts International Inc v Consumer Protection Association (Saudi Arabia) [2022] EWCA Civ 1699, the Court of Appeal considered when a cause of action arises for payment for work done and services rendered. The Court held that the cause of action arises when the work is done and is not delayed until an invoice or demand is submitted or the time period for payment expires, unless there is a special term with clear words to the contrary.

Background

The claimant had provided services to the defendant which were completed by 17 December 2013. The claimant issued invoices for the work during 2013. The contract provided that invoices submitted by the claimant would be paid by the defendant within 90 days. The invoices were not paid and on 27 December 2019, the claimant issued a claim form seeking payment. The question for the Court was whether the claim was brought outside the 6 year limitation period and therefore time barred. The services had been provided more than 6 years previously. However, all but one of the invoices had been submitted by the claimant less than 90 days before 27 December 2013 (the deadline for limitation purposes). The claimant argued that the cause of action for payment did not arise until the end of the 90 day period, with the result that its claim for payment would fall within the 6 year limitation period.

Court’s decision

Relying on the earlier cases of Coburn v Colledge [1897] 1 QB 702 and Henry Boot Ltd v Alstom Ltd [2005] EWCA Civ 814, the Court of Appeal confirmed the basic principle that, absent a special term of the agreement to the contrary, a service provider’s right to payment accrues as soon as the work is done. This basic principle applies equally to contracts where a period for payment is specified. The “special term” to the contrary has to be one which means that the right of the service provider to be paid for the work arises at some later time, or is dependent upon the fulfilment of a condition. Whether there is a special term of the contract which has this effect is a question of construction.

The Court held that the clause in the contract which provided for invoices submitted by the claimant to be paid by the defendant within 90 days was not such a special term. The Court emphasised that there is a critical distinction between terms which are conditions precedent to the right to payment arising (so that time only begins to run when the condition is satisfied) and terms imposing conditions on the bringing of proceedings for payment (where time will already have started to run). Terms imposing conditions on bringing proceedings are procedural obstacles, which do not prevent time running unless covered by one of the exceptions in the Limitation Act 1980. Even if a debtor is afforded a certain amount of time to pay that does not postpone the accrual of the cause of action, though it may provide a defence to a claim which is brought before the payment period expired.

The clause was therefore a procedural obstacle: the parties had agreed that invoices would be paid within 90 days, not that payment would not fall due until the 90th day.

By way of contrast, the Court referred to the case of Henry Boot as an example of a condition precedent to the right to payment arising. In that case, the right to payment (and thus the cause of action) was contingent on third party certification of the value of the work done.

The Court of Appeal also rejected the claimant’s argument that the cause of action accrued only on the deadline for payment of the invoice, on the grounds that it would lead to an uncommercial result. The claimant could in theory indefinitely postpone the limitation period running by not submitting an invoice.

Key Takeaways

Parties to agreements for services should be aware that the cause of action for payment will usually arise as soon as the relevant services are provided, and not, for example, when an invoice is issued or at the end of the period for payment agreed in the contract. If a dispute arises, the date of the work is the one claimants should keep in mind for limitation purposes. This basic principle can be displaced, but as a matter of construction of the contract, clear wording will be required to change the date as to when the right to payment arises.