Shall I stay or shall I go?: Bad payment

I bet this comment will ring a bell with you: “Not one payment was made on time; most were inordinately late.” So said the Court of Appeal in one of those “little” disputes about very modest sums of money that somehow bubble up to the giddy heights of this very senior court. And remember, what this court says is very important for following cases. So let’s see what happened in this case of late payments.

Dr Pollard is a chartered engineer. He entered into a professional services contract with Alan Auld Associates. He was advising the company in a long-term remedy involving grouting and sealing concrete shafts against the ingress of groundwater at the Dounreay nuclear power station. The deal was to pay Dr Pollard a fee per hour, plus expenses. His invoice went in every month. Known to everyone was that the energy folk were prompt payers. And if Dr Pollard had been paid at about the same time as Alan Auld was paid, he would have been a happy chappy.

Well, that didn’t happen. None of his 19 invoices were paid on time. Half were paid over four months late; some nine months late. Like you would, Dr Pollard complained. He got promises and platitudes, but not the money. Dr Pollard was, said Lord Justice Tuckey, using a very legalistic phrase, “understandably fed-up”. There was still another year of work to do. He was out of pocket to the tune of £21,000.

What to do? Dr Pollard could have used an old-fashioned phrase or two to tell his client where to go. He simply said it was all over. He defected to another engineering firm retained to provide Alan Auld with technical advice. He did the same work through that firm. And since Alan Auld needed the technical expertise and since it was now only available through another firm, it ended up paying somewhat more per hour for the same expert engineer. Alan Auld was peeved; it sued Dr Pollard for the extra cash it had to shell out. He defended, saying the bad paying was enough to bring the deal to an end; lawyers call it common law repudiation. He said Alan Auld was the author of its own misfortune and to pay up the outstanding cash. So the battle commenced … for very modest sums.

Now, the ordinary rule of contract is that late payment or underpayment of an account during continuing work isn’t enough to end the relationship. Walking away because your customer is a bad or dilatory payer will give your lawyer a fit of the willies. Mind you, some standard form contract documents do give the express right to shout “it’s all over” to a bad payer. Absent that, Dr Pollard has taken a brave step.

Remember, if he had no right to walk away, he was in for paying damages and for all the legal costs. Certainly Alan Auld was in breach of contract, but ought Dr Pollard have put up with it and simply claimed interest? Out came the law books. “Would a reasonable person conclude that the behaviour of the party in default no longer intends to be bound by the contract provisions?” So look for evidence of conduct. If, say, the customer does intend to fulfil the contract, but in his own sweet way, that’s enough to walk away. The big but is that even a deliberate breach may not be enough to quit if that breach can be appropriately compensated by payment of damages. Complicated? Yes, I know; it’s all this law game that does it. So Dr Pollard had a customer who was refusing to keep to the rules of its deal, but was it an out-and-out refusal to perform its side of the bargain?

The ordinary rule of contract is that underpayment or late payment of an account during ongoing work is not enough to end the relationship

Courts are interested in a case of bad paying from the point of view of the cumulative effect, but only if this effect is sufficiently serious or severe. Building contracts will look at breaches along the way to forecast or justify the inference that the contractor will continue to deliver a substantial performance. Iffy work remedied is not enough until more and more iffy work crops up.

The history here was enough to carry the day for Dr Pollard. The engineer was a “soft target” said the court. He made repeated complaints, which were followed by broken promises. The fellow was entitled to assume that he would be treated in the same way for the remainder of the project. He was being used to fund his client’s business. He was right to bring it all to an end.