Claims for payment for services provided; when does the cause of action arise?

A service provider’s terms of business often include a provision requiring invoices to be paid within a prescribed period. Does that mean that a claim for payment only accrues at the expiry of that prescribed period? Or does the cause of action accrue when the work is done regardless of the terms of business or invoicing arrangements? The point was addressed by the Court of Appeal in December 2022 in the claim of Consulting Concepts International Inc (Claimant) -v- Consumer Protection Association (Saudi Arabia) (Defendant) [2022] EWCA Civ 1699. 

Background

By an agreement dated 10 June 2013, the parties agreed to ‘collaborate to develop and implement strategies, programs and public policies to address the root causes of Asthma’ and related issues. The agreement provided that the Claimant would be remunerated for its work as follows:

‘All invoices submitted by [the Claimant] will be paid within 90 days if funds of Stakeholders are available, by [sic] submission of said Invoice by [the Defendant] to a Bank account designated by [the Claimant]’ (Payment Clause).

The Claimant raised invoices in late 2013, which the Defendant failed to pay.

Legislation sets out time periods (or ‘limitation periods’) within which legal action must be brought. For claims arising under an agreement, the general rule is that claims must be brought within six years of the ‘cause of action’, being the date of breach of the agreement (section 5, Limitation Act 1980).  

On 27 December 2019, the Claimant issued a claim form seeking payment of three unpaid invoices for services provided to the Defendant prior to 17 December 2013 (and a further sum said to be due under an undertaking). All bar one of the invoices were submitted to the Defendant less than 90 days before 27 December 2013.

The Defendant asked the court to strike out, or grant summary judgment of, the claim principally on the basis that it was time barred because the services were provided prior to 17 December 2013 and the claim was issued more than six years later. The question for the High Court was when did the cause of action accrue; when the services were provided (on or prior to 17 December 2013) or after the 90-day period set out in the Payment Clause (and so, in the main, after 27 December 2013 subject to the availability of funds). 

The legal position

The question of when a cause of action accrues for payment of services is not a new one. In 1897, the Court of Appeal was asked to consider the impact of a restriction contained in the Solicitors Act 1843 on a claim commenced by a solicitor for unpaid fees (Coburn -v- Colledge). The 1843 Act prohibited the commencement of a suit for the recovery of fees after the expiry of one month from the delivery of a bill to the client. The Court of Appeal held the Act did not prevent time from running for limitation purposes. In the absence of a special term of the agreement to the contrary, the right of the service provider to payment for his work arises as soon as the work is done. In other words, the 1843 Act did not affect the cause of action, rather it postponed the right to commence action for at least one month from delivery of the bill.

More recently, in Henry Boot Ltd -v- Alstom Ltd [2005] the court held ‘[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.’’

Therefore, absent a ‘special term’ in the agreement between the parties, the right to payment does not depend on the making of a claim for payment or demand by the party that provided the work or services, ie by the service of an invoice. 

In line with these authorities, in the hearing of the Defendant’s application for strike out/summary judgment on 3 March 2022 the High Court held that the cause of action for payment in respect of services performed by the Claimant accrued when the services were provided, and so on or before 17 December 2013. Limitation expired six years later, ie on or before 17 December 2019. The Defendant’s application was successful, leading the Claimant to appeal to the Court of Appeal.

Decision of the Court of Appeal

The Claimant argued that the basic principle as to when the cause of action arose applied only in cases where the contracting party had not included a provision in the agreement stipulating a time for payment. If the parties do stipulate a time for payment, as they did in this case, there is no cause of action until that time has arrived and there is a default in payment. On that basis, it was the position of the Claimant that the breach of the agreement would become actionable once the Defendant failed to pay within 90 days after delivery of the invoice, despite being in funds from its stakeholders to do so. 

The Court of Appeal disagreed; it held that the alternative and more natural interpretation of the agreement was that the Defendant was given up to 90 days from receipt of each invoice in which to make payment for the work, and day 91 would be the point at which the Claimant would be entitled to sue (subject to arguments about being in funds). The Payment Clause did not affect the Claimant’s right to payment for the work it had performed but only, potentially, the time at which it could enforce that right. 

In summary, ‘…the starting point of the analysis is the established principle that the right to payment accrues as soon as the work is complete…it is a question of construction whether the terms of the contract produce a different result. 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’. Clear words were needed to displace this default position. By way of example of a ‘special term’ the court referred to a situation in which the right to payment depends on the certification by a third party of the value of the work done.

The Court of Appeal went on to state that terms which are concerned with limiting the creditor’s right to bring an action are procedural obstacles which do not prevent the running of time (unless they are covered by one of the exceptions in the Limitation Act 1980). The fact that the debtor is afforded a certain amount of time to pay does not postpone the accrual of the cause of action, though it may afford him a defence to a claim which is brought before the expiry of the period of credit.

What does this mean for service providers?

• Absent clear terms to the contrary, payment for services provided are due when the work is complete. 
• Contract terms may restrict a service provider’s ability to commence legal action for a prescribed period or put in place other procedural obstacles. Generally, that will not affect the date of the accrual of the action and so the debtor’s liability for the fees.
• From a practical point of view, invoices ought to be raised promptly following the provision of services. Unpaid invoices should be pursued without delay and, in any event, before the expiry of the relevant limitation period (generally six years for breach of contract claims) based on the date the work was provided, rather than the date of any invoice or prescribed period for payment within an agreement (again, absent any ‘special term’ to the contrary).   

For further information on this topic, please contact Kate Steele.