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.
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:
- 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".
- The work done, for which CCI seeks to be paid was completed by 17 December 2013.
- 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.
- 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 90th 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.
To discuss any of the points raised in this case further, please get in touch with Emma Carr and Sean Adams.