Late payment: Court of Appeal clarifies the issue

The Court of Appeal has given judgment in a case concerning interest allowed under the Late Payment of Commercial Debts Act 1998. It provides some very useful guidance on the proper application of the Act and on claims for interest in general.

 Following the decision of the High Court in Ruttle Plant Hire v Secretary of State for Environment Food & Rural Affairs, the case has now been heard by the Court of Appeal; its judgment was released on 27 February.
The Ruttle case involved the hire of equipment by Ruttle to DEFRA (formerly MAFF) to deal with an outbreak of swine fever and later foot and mouth disease.
The orders were placed in a hurry and, as is so often the case, the terms were not settled with precision before the supply began. A dispute arose on the payment of the invoices, which contained numerous errors, resulting in proceedings being issued for payment and interest.
The case involved a number of issues, however. Those concerning interest were originally heard by Mr Justice Coulson in March 2008. Judge Coulson decided not to award interest on large parts of the claim, in particular on claims that had not been ‘properly’ made, and to use his discretion to remit the interest rate down from the statutory maximum (currently 8% above base rate) to 2%.
Not all aspects of the decision were appealed, though. For example, Ruttle decided against appealing the judge’s finding that they were not entitled to interest on the 35% that they had discounted in the initial invoices, or on the amounts which they had under-claimed, until 30 days after notice of the claim was first made at the correct rate. The Court of Appeal indicated that Ruttle was wise not to pursue those points.
So the position remains that, in order to secure statutory interest, the claim for payment must be made clearly. However, it is not necessary for invoices to be ‘perfect’.
Ruttle had sent a number of incorrect invoices in which they had overstated either the rate or the number of hours. They were sent with supporting documentation to explain the charges, which would have revealed their miscalculation.
At the Court of Appeal, Lord Justice Jacob found that the judge had erred when he refused to allow interest on those imperfect invoices. The court held that the paying party could have worked out the correct rate from the supporting documents, and that in effect the claim had been ‘properly made’ for the purpose of the statute and did not have to be perfectly accurate.
Lord Justice Jacob said it was sufficient notice under the Act for the supplier to state what he “…claims is the amount of the debt”. The Act does not require an invoice to be perfect before interest can run, and an error on the invoice is not a sufficient justification to delay payment on the entire debt. The appeal judges accepted that in the ‘real world’ errors in invoices are common.
Lord Jacob went further, saying that what DEFRA should have done was pay the sum it thought due, then queried the balance. The court would then be likely to exercise its discretion to remit the interest so that the paying party would not be penalised.
In the original judgment, Justice Coulson reduced the interest allowed to 2% above base rate. Ruttle successfully appealed that aspect. Although the Appeal Court held that in certain cases it would be appropriate to exercise the discretion under the Act (Section 5) to reduce the statutory interest, it found that the judge had not given adequate reason for having done so in this case.
In coming to this conclusion, Lord Jacob placed considerable emphasis on the fact that Ruttle had supplied the supporting paperwork in order to enable DEFRA to calculate the sum properly due, that the mistakes on the rates arose from a mistaken but honest belief and that DEFRA had failed to identify a period of ‘culpable delay’.
It is not clear at this stage if there is to be any further appeal.