Contract Payment Terms: Beware, The Clock Is Ticking! – Trials & Appeals & Compensation

The Court of Appeal (CA) has confirmed that in a claim for
payment for work done and services rendered, the cause of action
arises when the work is complete. Absent express words to the
contrary, the limitation period does not start to run from expiry
of a contractually agreed period within which payment should be
made.

In Consulting Concepts International Inc. (CCI) v Consumer
Protection Association (CPA) (Saudi Arabia), the claimant
(CCI) issued a claim against the defendant (CPA) seeking payment of
outstanding invoices. CPA applied to strike out the claim on the
basis that it was time-barred. The Court at first instance and the
CA agreed. The cause of action accrued when the work was complete,
not when the time for payment had passed.

While a contractual payment term might provide a defence for the
recipient of works/services to a claim brought by the provider
before that payment term has expired, it does not postpone the
accrual of the cause of action for limitation purposes. Service
providers therefore need to be aware, especially where long
contractual payment periods are agreed, that any claim in respect
of unpaid invoices for work done/services provided will need to be
issued within six years of work being completed.

Background

In June 2013 the parties entered into an agreement (the
Agreement), providing for consultancy services by CCI to CPA in
relation to the improvement of asthma services and treatment in
Saudi Arabia.

The Agreement included a provision confirming, “All
invoices submitted by CCI will be paid within 90 days if funds of
Stakeholders are available”. All work undertaken by CCI, in
respect of which it sought payment from CPA, was completed by 17
December 2013. All bar one of the invoices submitted by CCI to CPA
were submitted less than 90 days before 27 December 2013. At all
material times “funds of Stakeholders” were
available.

On 27 December 2019, CCI issued a claim against CPA seeking
payment in respect of the invoices submitted in 2013, all of which
remained outstanding. CPA applied to strike out the claim. Both
parties accepted that the services had been provided by CCI more
than six years before the claim was issued and, as a result, CPA
asserted that the claim was time-barred.

CCI argued that the parties had included a provision in the
Agreement stipulating a time for payment of the invoices; in this
case 90 days. Any cause of action would not therefore arise until
that time had passed and there was a default in payment, which
meant that most of CCI’s claim had been brought within the
limitation period.

The judge at first instance granted CPA’s strike out
application. The judge found that the cause of action for payment
in respect of the services performed by CCI accrued when the
services were provided and therefore by no later than 17 December
2013. CCI appealed the decision to the Court of Appeal.

Court of Appeal decision

The CA dismissed the appeal and upheld the strike out decision.
The CA confirmed:

1. Section 5 of the Limitation Act 1980 provides that “an
   action founded on a simple contract shall not be brought after the
   expiration of six years from the date on which the cause of action
   accrued”.




2. The work done, for which CCI seeks to be paid was completed by
   17 December 2013.




3. The case of Coburn v Colledge (1897) affirmed the
   basic principle that in the absence of a special term of the
   agreement to the contrary, the right of a service provider to
   payment for the work undertaken arises as soon as the work is done.
   The right to payment does not depend on the making of a claim for
   payment or a demand by the party that provided the work or
   services.




4. The limitation period had, therefore, expired by the time the
   claim was issued on 27 December 2019.

The CA did not accept CCI’s submission that the basic
principle as to when the cause of action arose applied only in
cases where the contracting parties had not included a provision in
the contract stipulating a time or deadline for payment. There was
no such qualification in the Coburn case or in the many cases that
have followed that decision and had applied its principles. The CA
was clear, the debt accrues when the work is done; the time at or
by which the debt must be discharged is a different matter
altogether. The right to sue for payment may not arise until any
agreed time for payment has elapsed, but that does not affect the
accrual of the cause of action.

The CA accepted there might be a special term in an agreement,
which produces a different result – 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. However, parties will
not be taken to have deviated from a principle that has been
established for more than 100 years – unless they have
clearly spelled out their intention to do so. In this case, the
parties agreed that all invoices would be paid by CPA within 90
days. They did not agree that payment would not fall due until the
90^th day.

There is a difference between terms that are conditions
precedent to the right to payment arising (which must be clearly
expressed) and terms that impose conditions for the bringing of
proceedings. The latter are procedural obstacles, but do not
(unless covered by one of the exceptions in the Limitation Act
1980) prevent time from running.

What impact will this decision have on limitation going
forwards?

This decision does not impact on the current laws governing
limitation, but it is a clear and welcome reminder to service
providers of the need to ensure that any claim in respect of unpaid
invoices for work done will need to be issued within six years of
the work having been completed. It is also a stark reminder of the
danger of being even a few days late on issuing a claim where there
is a potential limitation defence in play. If there is any doubt as
to when the cause of action may have accrued, use the earliest
possible date of breach – do not leave limitation to
chance.

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