Incorrect amounts in invoices not fatal to success of debt claims
A recent decision in the Commercial Court provided some comfort to invoice financiers facing technical arguments in litigation as to the accuracy of invoices submitted to debtors
Technical challenges based on some alleged defect in the substance or procedure relating to litigation claims have become more and more common in recent years, and in some situations they can have serious consequences on liability for costs.
There were several such technical challenges in Rolls-Royce Holdings Plc v Goodrich Corporation  EWHC 1637 (Comm) (3 July 2023) (Foxton J). In essence and as part of a larger dispute, Goodrich Corporation (Goodrich) sought payment of sums due in respect of aeroplane spare parts and services it had supplied to Rolls-Royce Holdings Plc (RR).
The parties’ agreement established varying prices at which such parts would be supplied and provided for RR to submit orders from time to time, specifying both what was required and the price due. Goodrich would supply the parts and invoice for them.
Goodrich’s invoices reflected the sums stated in RR’s orders, but these sums were too low, because RR had applied the incorrect rates when calculating them. Goodrich claimed the difference between the invoiced amounts and the amounts due under the terms of the agreement. RR’s defences included that no debt claim accrued to the extent that Goodrich did not submit an invoice at the correct price.
The judge held that the supplier could claim, as a debt, the difference between the sums mistakenly invoiced and the sums properly due.
Failure to invoice the sums claimed
In relation to the failure to invoice the sums claimed, because property (title) in the goods had passed to the buyer, the seller could commence an action for the price of the goods pursuant to section 49(1) of the Sale of Goods Act 1979.
The judge conceded that an agreement could provide that the right to the price should not accrue, despite the passing of title and delivery, until some further event had occurred (presumably such as submission of an invoice).
However, because an arrangement by which the price does not become due after the passing of property and delivery is prejudicial to the supplier, it would require a “clear provision to this effect”, which was missing from the parties’ contract.
In particular, if the right to payment of the price did not accrue until some significant period after the transfer of property and delivery, a termination of the contract in the intervening period would have the effect that the buyer would acquire the goods without having come under an obligation to pay for them. A court would not readily be persuaded that this is what the parties to a commercial contract intended.
The judge cited case law on the supply of services where the contract requires the service provider to invoice and the service recipient to pay within a specific period. The cases suggest that very clear words are required before such a provision would prevent the debt accruing until the invoice had been issued and the credit period had expired.
A similar approach to that taken for services contracts was appropriate for sale of goods (particularly where a clause addresses payment for both services and goods, as the clause does in this case).
Effect of incorrect amount being invoiced
As to the effect of a mistake in an invoice, getting the amount due wrong does not mean that nothing is owing:
“If an invoice has been submitted in too high an amount, it seems unlikely that the effect is to prevent any debt at all becoming payable, certainly to the extent that the party receiving the invoice is able to work out the amount due”.
Ultimately, the effect of an error in the invoice depends on construction of the relevant contract and possibly also whether the creditor was responsible for including the incorrect amount.
In this case, the relevant clause did not expressly link payment to the submission of an accurate invoice, but rather to delivery or completion of the services. The buyer was obliged to pay “provided the invoice is accurate”, but this wording merely made it clear that an inaccurate invoice does not itself create a payment obligation which does not otherwise exist. Conversely, such wording did not destroy an existing payment obligation.
This case is a welcome example of a sensible practical approach being adopted by the courts in relation to challenges to the existence or accuracy of invoices at the trial of a debt claim.
Whilst the case turned to some extent on the particular terms of the contract involved, it is likely to be followed in other cases in which purely technical and unmeritorious challenges to rights to enforce debt claims are raised.
Nevertheless, in the current context of the courts’ careful scrutiny of costs allowable to the successful party in litigation, it is always sensible to ensure that accurate particulars of debt claims are set out from the outset in any potential litigation, to avoid debtors’ arguments that they were misled as to the nature and extent of claims.
Contact our Invoice Finance team.