LIMITATION PERIOD RUNS FROM DATE OF COMPLETION OF WORK: AGREED TERMS FOR PAYMENT DO NOT EXTEND LIMITATION PERIOD

February 18, 2018 · by · in Appeals, Limitation

In  Ice Architects Ltd v Empowering People Inspiring Communities (Rev 1) [2018] EWHC 281 (QB) Mrs Justice Lambert found that the six year contractual limitation period ran from the date of completion of work and not the date of invoice.   A salutary tale for anyone thinking of waiting for more than six years before issuing proceedings on a contractual debt claim.

 

KEY POINTS

  • In a contract for services the limitation period started to run when the services were completed, not the date of invoice.
  • An agreement that a party would pay 30 days after being invoiced did not serve to extend, or indeed affect, the limitation period.

SECTION 5 OF THE LIMITATION ACT 1980

“5 Time limit for actions founded on simple contract.

An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”

THE CASE

The claimant provided architectural services to the defendant. On the 23rd April 2009 the claimant sent an invoice for £42,375 plus vat. The invoice was was disputed. After an adjudication process the claimant was awarded £24,033.85. On the 21st May 2015 the claimant issued proceedings for the balance it alleged was due. At a trial on a preliminary issue the circuit judge held that the action was statute barred under section 5 of the Limitation Act 1980.

 

THE LETTER THAT THE CLAIMANT RELIED UPON

The defendant had written the claimant a letter prior to the work starting.

“You will invoice EPIC on a monthly basis for work completed to date. The basis of payment proposed in the appendix to the document described above is acceptable. EPIC Ltd will endeavour to make payment within 30 days of receipt (unless otherwise stated)”.

One of the arguments that the claimant was attempting to use was that this letter added to the limitation period.  It meant that the limitation period started to run 30 days after the invoice.

THE ARGUMENTS BEFORE THE CIRCUIT JUDGE
    1. The central argument advanced by EPIC before HHJ Parfitt was that the cause of action relied on by ICE arose at the latest when the relevant design work (for which payment was claimed in the invoice) was completed. The Judge found (and it was not disputed before me) that, whilst some of the work may have been completed as late as December 2008, most of the work in respect of which payment was sought had been completed in March 2008. Given that proceedings were commenced on 21st May 2015, nothing turned on the Judge’s conclusion on this point: whether completed in March 2008 or December 2008, if the cause of action accrued at the conclusion of the design work, the claim was statute barred. ICE contended before HHJ Parfitt that the relevant limitation period was 12 years on the basis that the parties had entered into an agreement to that effect (the Project Partnering Agreement); alternatively, that the cause of action did not accrue until 30 days after receipt of the invoice either because “RIBA SFA 99” had been incorporated into the agreement or because this is what had been agreed by the parties in the letter of 10th July 2007.
    2. HHJ Parfitt found that neither the terms of the Project Partnering Agreement nor RIBA SFA 99 had been incorporated into the parties’ agreements. ICE does not appeal the Judge’s conclusions on those two points. The sole focus of the arguments on the appeal before me therefore related to the Judge’s conclusions on the effect of the letter of 10th July 2007 on the time of accrual of the cause of action.
    3. On this point, HHJ Parfitt found, as follows (at paragraph 26 of his judgment):
i) on the authority of Coburn v Colledge [1897] 1 QB 702, in the absence of agreement to the contrary, the starting point is that a provider of services is entitled to be paid once the work has been done and so its cause of action for payment arises at that time;

ii) the agreement reached between the parties in Henry Boot Construction Ltd v Alstom Combined Cycles Ltd[2005] EWCA Civ 814provided an illustration of an agreement to the contrary;

iii) in Coburn the Court of Appeal identified a material distinction between (as described by HHJ Parfitt) “facts which are a necessary part of the right to be paid and those matters which might bar that right (such as limitation itself but also facts such as a failure to comply with statutory requirements eg statutes about solicitors bills in Coburn).”

  1. HHJ Parfitt considered the authority of Legal Services Commission v Henthorn [2011] EWCA Civ 1415, noting the obiter statement of Lord Neuberger MR that, save where it is the essence of an arrangement between the parties that a sum is not to be paid until demanded, “clear words would normally be required before a contract should be held to give a potential or actual creditor complete control over when time starts to run against him“. He considered Levin v Tannenbaum [2013] EWHC 4457, albeit briefly, commenting that the case was an application of the so-called Coburn principle. He then set out the question which he considered was at the heart of identifying the time of accrual of the cause of action: “what has to happen for an entitlement to be paid to arise?”. He said that in a case where the right to payment is based on a demand, or the issue of a certificate, then it was those facts which are essential to the cause of action; when however the entitlement to be paid is based on work having been done then, once that work is done, the entitlement and right to be paid for it arises.
  2. It was against this legal framework that HHJ Parfitt considered the construction of the relevant section of the letter of July 2007. He set out in paragraph 30 of the judgment the following: “the invoicing arrangements provided for by the 10th July 2007 letter are to invoice monthly for work completed to date. The issuing of the invoice is not the fact which entitles the Claimant to be paid (although the non-issue of the invoice might provide the Defendant with a defence to the claim) but the fact that work has been done both entitles the Claimant to be paid and the Claimant toissue an invoice”. He concluded that the fact that invoices were to be paid monthly made no relevant difference as the invoices related to work done; nor did it make a difference that the 30 days were given for payment. He considered that this provision may be a matter of “potential defence” but it did not impact on the Claimant’s substantive right to be paid for what it has done. Accordingly, the Judge ruled the Claimant’s cause of action to be statute barred.
THE JUDGMENT ON APPEAL
  1. I do not accept Mr Wright’s submission that, on an objective interpretation of the relevant paragraph of the letter of 10th July 2007, the parties were agreeing that ICE’s entitlement to payment did not arise until 30 days after receipt of the invoice. A reasonable person in the position of the parties would have understood the words in the letter to be an agreement concerning only the process of billing and payment, namely the monthly provision of an invoice with payment within 30 days thereafter. This construction arises from a plain reading of the section of the letter under scrutiny. Further, in the context of the letter, it is common sense that both parties would have wished to reach some agreement concerning the billing and payment arrangements; the design work was not a single piece of work, but a rolling design project which was to be ongoing over a period of many months. In these circumstances, some agreement concerning billing and payment would have been important and on an objective construction of the intention of the parties the payment terms of the letter reflect just such an agreement. The letter elsewhere refers to the budgeting constraints which affected EPIC and the agreement to the costings proposed by ICE only on the condition that Council funding was available. Monthly invoicing would therefore have been important, certainly for EPIC, as a means of keeping a running check on the financial outlay on design services.
  2. Nothing in the language of the relevant paragraph, viewed in isolation or in the context of the letter as a whole therefore suggests that the parties were intending that ICE’s entitlement to payment did not arise when the work was done. I do not accept that the phrase “Basis of Payment” bears the construction which Mr Wright imposes on it, namely, that it shifts ICE’s entitlement to payment until the end of the 30 day period for payment. The phrase, in context, is consistent with an arrangement as to the mechanics of payment. Mr Wright relies upon the further reference to “basis of payment” within the paragraph in which Ms Moyes cross refers to the design proposal which had been submitted by ICE and which sets out the modules of design work and associated monthly costings. The use of the phrase in that context suggests only that she is accepting the proposed specification and associated monthly fees and not that ICE only become entitled to payment 30 days after the receipt of an invoice.
  3. Further, I accept Mr Finn’s submission that the obiter statement of Lord Neuberger in Henshaw, that clear words are needed if the timing of the accrual of the cause of action in an action for work or services is to be displaced, is relevant. Mr Wright relies upon the requirement in the letter that invoices should be provided by ICE each month as an answer to the potential mischief that otherwise the creditor would have control of the time at which the limitation period starts running. However, this is not a satisfactory answer to the point. Chitty LJ in Coburn was clear that the central purpose of the statutory limitation regime is to provide the creditor with a degree of protection by the certainty (my emphasis) of a fixed period during which a claim can be brought and to avoid the Courts becoming embroiled in collateral issues such as, in the context of Coburn, whether there was unreasonable delay in submitting a bill of costs or, in the context of the appeal, whether the invoice had, in fact, been delivered within a month of completion of the relevant work; if not, whether there was a reasonable explanation or excuse; whether the Respondent had paid within 30 days or “endeavoured” to do so, or otherwise stated (which is the relevant term in the letter of 10th July 2007). In these circumstances, it seems to me that clear words are needed if the Court is to construe an agreement between the parties in such a way as to give the creditor control over the start of the limitation period and/or to avoid the Courts becoming engaged in determining satellite issues which deprive the limitation provisions of their central purpose: certainty and the avoidance of stale claims. Such clear words do not appear in the letter.
  4. Mr Wright also submitted that, if ICE’s entitlement to be paid arose on completion of the works then, on the authority of In Re A Debtor, ICE could still have served a statutory demand and obtained payment from EPIC within 21 days notwithstanding the contractual agreement as to a payment “window”. He argued that, in these circumstances, any objective interpretation of the timing of the entitlement to be paid other than that for which he contended, would be wrong. I do not agree with him. This argument was not advanced before HHJ Parfitt, nor did it feature in the Grounds or the Appellant’s skeleton argument (neither of which were written by Mr Wright). However, the decision In Re A Debtor itself leads to an incongruous result. S. 69 of the Solicitors’ Act 1974 prevents a solicitor from commencing an action for his fees for a period of one month but does not prevent a solicitor from taking earlier, alternative, modes of enforcement which were considered by the Court In Re A Debtor to be distinct and separate from pursuing an action which was hedged with statutory procedural hurdles. As Mr Finn has submitted, a similar incongruity or disjuncture between the Appellant’s right to serve a statutory demand and the agreement as to a payment window of 30 day may also arise. It does not however affect the timing of the accrual of the cause of action.
  5. I do not accept Mr Wright’s submission that HHJ Parfitt’s analysis of the legal principles was wrong. Although in paragraph 26(c), the judge refers to the distinction between facts “which are a necessary part of the right to be paid and those matters which might bar that right“, as Mr Wright accepted in his submissions to me, had HHJ Parfitt added “to bring an action” then no complaint could be made. Although the words do not appear, it is clear that HHJ Parfitt was drawing the Coburn distinction between facts necessary to complete the cause of action and procedural bars to the action. He goes on to describe in parenthesis the sorts of matters which “might bar the right“. All of them are procedural bars: “limitation itself but also facts such as the failure to comply with the statutory requirements e.g statutes about solicitor’s bills in Coburn“.
  6. Nor do I accept that HHJ Parfitt was wrong in his analysis of either Boot or Henthorn. Although the cases were not the subject of a detailed analysis, this should be understood in the context of a hearing and a judgment which considered two other substantial arguments deployed by the Claimant in support of its case that the claim was not statute barred. It is common ground that whether the cause of action accrues on completion of the work, or at some other time, is a matter of construction of the relevant contractual term or other statutory provision. Boot and Henthorn were both examples of the Court undertaking that exercise. In both of those cases, the outcome of the objective construction exercise was bolstered by common sense and logic. In neither case could it be sensibly concluded that the cause of action accrued at the time of completion of the works or services in question. In neither case could the quantum of the debt have been identified at the completion of the work in question. In Boot the entitlement was not to the true value of the work completed but the value attributed to the work by the engineer. Likewise in Henthorn the extent of the recoupment of the sums paid on account could only be known following taxation. No such difficulty arises in respect of the ICE invoices which require no further analysis or assessment.
  7. Finally, I do not accept that, as submitted by the Appellant, the Judge was wrong to describe Levin as an application of the Coburn principle.Coburn is authority for the proposition that, absent a special term of the agreement, the cause of action accrues at the time of completion of works in a services agreement. Levin did not concern an action for works or services but an action on a number of guarantees. However, in Levin the Court undertook a similar exercise of determining the intention of the parties on an objective construction with a view to ascertaining the question which, correctly, HHJ Parfitt considered to be at the heart of identifying the time at which the cause of action accrues, namely, what has to happen for an entitlement to be paid to arise. To that extent, HHJ Parfitt was correct in saying that the case is an application of the Coburn principle. Even if HHJ Parfitt was wrong to consider that Levin reflected an application of Coburn, Levin is distinguishable as a claim under a guarantee against a party whose liability was secondary rather than a claim under an agreement for works and services. In the latter, clear words are required before the Court will infer that the parties intended the creditor’s cause of action to accrue after the date upon which the works were completed.
  8. I therefore dismiss this appeal for the reasons stated. It follows that I make no ruling on the need for a Respondent’s Notice nor, if needed, on the application for permission to serve the Notice late. My judgment is sufficient to dispose of the appeal without the need for me to consider those arguments.
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