Late Payment of Commercial Debts

Andrews & Arnold Ltd vs Cenpo Ltd 23rd Feb 2005

Background

The defendant took ongoing service from us in 2003. They had no credit terms and invoices were all "due now". They paid their initial invoice within a week with no problem. The next three invoices were paid in one go, all more than 30 days late. The next two invoices were paid in one go all more than 30 days late. This meant five invoices were late and late payment charges made accordingly. Over the next year invoices were paid promptly until the last three invoices before service was terminated which were all paid after 30 days. This made a total of 8 late invoices.

After the late payment charges were issued for the initial 5 invoices, we agreed to credit these charges.

Defence

The primary defence is that we were supposed to have agreed to not only credit the initial 5 charges, but also agree not to make charges for late payment in the future. The defendant refused to pay any charges.

Claim

As we were taking them to court I decided that we would take action for all 8 charges, even though we had initially credited the first 5 of them. This not just to be a complete bastard, but because it would help clarify the situation on what could and could not be agreed in relation to late payment charges.

Our position is that the agreement to waive the charges was:-

In return for paying on time in future, which they did not do
Was not a contract as there was no consideration (they were already bound to pay on time in future)
Was not valid under 8(1) of the Late Payment of Commercial Debts (Interest) Act 1998 as it effectively meant a clause in a contract that was trying to exclude statutory interest

Proceedings

The defendant chose not to attend and asked for the case to proceed in their absence. This meant that the case was argued between us and the judge.

Argument

The main defence was based on the agreement we were supposed to have made. I argued that the agreement was not valid, and also that it was not for future penalties. I had spotted 8(3) in the Act which stated that the parties cannot agree to waive charges. So, not only it is not valid to make a contract that excludes charges in the first place, you cannot then agree to change the contract to waive the charges later.

The judge read through the Act, and pointed out that the whole of section II (which includes part 8) was subject to a provision which was that it only applied up until each debt is created. The parties are at liberty to deal with the debt in other ways once the debt is created.

This meant that the case for the first 5 charges hinged on whether out agreement to waive the charged was a contract. Our assertion of it being on the basis that future invoices would be on time is clearly not a contract as paying on time is part of the existing contract and so not consideration. The defence was however that they considered agreeing to continue to take service was consideration. We could argue that as not specific time frame for continued service was agreed that this was not consideration, but this is a tenuous argument as service did continue for around a year. I decided not to pursued that argument in this case.

Ruling

The rulings was therefore that the final 3 late payment charges would stand, but that we had agreed to waive the initial 5. This meant a partial award, and costs. A good result.

Lessons

One important lesson is ensuring the contract terms are clear and available at the hearing. The first question was to see the terms, as without knowing what payment terms were agreed the judge cannot consider if the payments are late. In this case no payment terms had been agreed, making this difficult. We need clearer terms that include cases when payment is due now. However, the judge congratulated us on the clarity of our key contract terms on two occasions - we made a good impression with these.

The other lesson is that we can cancel charges, but only after the fact and only in return for something from the customer. The web site will be updated to explain this point in more detail. Customers cannot rely on our policy of crediting the first charge as we are not allowed to make any agreement in advance that will exclude penalties - only once the debt is created. However, it does mean that cancelled charges can, in some cases, give customer some assurance that penalties are not hanging over their head.

Late Payment of Commercial Debts

Home Tips Excuses Stories Disclaimer	Andrews & Arnold Ltd vs Cenpo Ltd 23rd Feb 2005 Background The defendant took ongoing service from us in 2003. They had no credit terms and invoices were all "due now". They paid their initial invoice within a week with no problem. The next three invoices were paid in one go, all more than 30 days late. The next two invoices were paid in one go all more than 30 days late. This meant five invoices were late and late payment charges made accordingly. Over the next year invoices were paid promptly until the last three invoices before service was terminated which were all paid after 30 days. This made a total of 8 late invoices. After the late payment charges were issued for the initial 5 invoices, we agreed to credit these charges. Defence The primary defence is that we were supposed to have agreed to not only credit the initial 5 charges, but also agree not to make charges for late payment in the future. The defendant refused to pay any charges. Claim As we were taking them to court I decided that we would take action for all 8 charges, even though we had initially credited the first 5 of them. This not just to be a complete bastard, but because it would help clarify the situation on what could and could not be agreed in relation to late payment charges. Our position is that the agreement to waive the charges was:- In return for paying on time in future, which they did not do Was not a contract as there was no consideration (they were already bound to pay on time in future) Was not valid under 8(1) of the Late Payment of Commercial Debts (Interest) Act 1998 as it effectively meant a clause in a contract that was trying to exclude statutory interest Proceedings The defendant chose not to attend and asked for the case to proceed in their absence. This meant that the case was argued between us and the judge. Argument The main defence was based on the agreement we were supposed to have made. I argued that the agreement was not valid, and also that it was not for future penalties. I had spotted 8(3) in the Act which stated that the parties cannot agree to waive charges. So, not only it is not valid to make a contract that excludes charges in the first place, you cannot then agree to change the contract to waive the charges later. The judge read through the Act, and pointed out that the whole of section II (which includes part 8) was subject to a provision which was that it only applied up until each debt is created. The parties are at liberty to deal with the debt in other ways once the debt is created. This meant that the case for the first 5 charges hinged on whether out agreement to waive the charged was a contract. Our assertion of it being on the basis that future invoices would be on time is clearly not a contract as paying on time is part of the existing contract and so not consideration. The defence was however that they considered agreeing to continue to take service was consideration. We could argue that as not specific time frame for continued service was agreed that this was not consideration, but this is a tenuous argument as service did continue for around a year. I decided not to pursued that argument in this case. Ruling The rulings was therefore that the final 3 late payment charges would stand, but that we had agreed to waive the initial 5. This meant a partial award, and costs. A good result. Lessons One important lesson is ensuring the contract terms are clear and available at the hearing. The first question was to see the terms, as without knowing what payment terms were agreed the judge cannot consider if the payments are late. In this case no payment terms had been agreed, making this difficult. We need clearer terms that include cases when payment is due now. However, the judge congratulated us on the clarity of our key contract terms on two occasions - we made a good impression with these. The other lesson is that we can cancel charges, but only after the fact and only in return for something from the customer. The web site will be updated to explain this point in more detail. Customers cannot rely on our policy of crediting the first charge as we are not allowed to make any agreement in advance that will exclude penalties - only once the debt is created. However, it does mean that cancelled charges can, in some cases, give customer some assurance that penalties are not hanging over their head.