HT-2020-000448 - [2024] EWHC 2025 (TCC)

DBS argues that pursuant to Clause 3.3 of Schedule 2-4, there is no obligation to pay that element of an invoice which is disputed. The obligation to pay, in respect of a disputed invoice, is limited to the undisputed amount. In these circumstances, non-payment of the disputed element does not create a debt, and there is therefore no qualifying debt for the purposes of the 1998 Act.

TCS contends that this analysis is wrong. Clause 3.3 of Schedule 2-4, it argues, sets out the immediate steps to be taken in the event of a disputed invoice. One of those steps is immediate payment of the undisputed amount. However, nothing in Clause 3.3 provides that the disputed amount is not payable; it simply recognises that the question of whether it is payable is disputed. It contends that Clause 3.3 does not say that upon a dispute, the invoice becomes invalid; rather, it says that DBS may raise a dispute and propose amendments to an invoice; if it does so and TCS accepts the proposed amendment, it then raises a “replacement” valid invoice. Absent such a replacement invoice, the position is that the invoice stands and accrues interest. TCS further submits that DBS’s construction is inconsistent with Schedule 2-9 (the Dispute Resolution Procedure) which is drafted on the premise that ‘the parties shall continue to comply with their respective obligations under the Agreement regardless of the nature of the Dispute and notwithstanding the referral of the Dispute to the Dispute Resolution Procedure’ (Clause 1.3) and the ability to commence or continue litigation or arbitration proceedings (Clause 3.20). TCS asks rhetorically, on DBS’s construction, from what point does interest begin to run after the dispute? The Dispute Resolution Procedure is silent on this issue. TCS contends that the answer must be the date that the invoice should have been paid absent the dispute (i.e. 30 days from invoice).

If, contrary to this, Clause 3.3 of Schedule 2-4 operates so as to remove the payment obligation in respect of disputed invoices, such that they are not “qualifying debts”, then TCS contends that the provision is void. That is because the process that is engaged when an invoice is disputed provides for no payment of any interest. TCS argues that Section 8 of the Act cannot be circumvented by providing that disputed debts are non-payable, any more than it can be circumvented by providing for applicability of the Act in relation to undisputed debts (Clause 16.3); in both cases, the substantive position would be the same – namely, no remedy for a sum due by way of charges under the contract.

A debt arises where a contractual obligation to pay is not met. The existence of a debt is necessary for there to be a qualifying debt which engages the 1998 Act, pursuant to Section 3 which states:

The starting point of the analysis is therefore, by definition, to identify what the obligation upon DBS to pay a valid invoice submitted by TCS is. The obligation to make payment in consideration of the services provided by TCS is set out in Clause 16.1:

Clause 16.3 of the Agreement then states:

Clause 3.3 of Schedule 2-4 (Invoicing) of the Agreement states:

The obligation to ‘pay all valid invoices’ in Clause 3.1 is qualified by the words which follow it: ‘in accordance with the provisions of this Schedule…’. Clause 3.3 of the Schedule deals specifically with what happens if an invoice is disputed. If any element of a valid invoice is disputed, the express obligation to make payment attaches only to any undisputed amount. The disputed amount is then dealt with by the procedure which follows, and in turn the Dispute Resolution Procedure under Clause 27. There are simply no words to give rise to a contractual obligation to pay the disputed part of an invoice. TCS argues that nothing in Clause 3.3 provides that the disputed amount is not payable, but this is the wrong way round: nothing in Clause 3 provides that DBS is obligated to pay the disputed element of an invoice, in clear contradistinction to the express obligation to pay the undisputed element. TCS is right that the invoice does not suddenly become ‘invalid’ – it is just that there is no contractual obligation to pay the invoice unless it is, or it becomes, ‘undisputed’. This is not inconsistent with Clause 1.3 of Schedule 2-9 because this merely provides that the parties must continue to comply with their obligations. It is therefore necessary to consider what those obligations are, and this returns to Clauses 3.1-3.3. Clause 1.3 of Schedule 2-9 is entirely neutral on what the parties’ obligations are.

The outcome of the Dispute Resolution Procedure will mean, by agreement or determination, a sum does or does not become ‘undisputed’. Once it becomes ‘undisputed’ the contractual payment obligation under Clause 3.1 operates (unless varied by the terms of any settlement or determination) to require payment in accordance with Clause 3.1 of Schedule 2-4, and pursuant to Clause 16.3, the 1998 Act interest will run at that point to the extent the obligation to pay is not met, and a debt is created.

‘Disputed’ has, as TCS correctly contends, an ordinary and natural meaning. However, it may be that, implied into Clause 3.3 of Schedule 2-4, is a requirement that a ‘dispute’ be a ‘genuine’ or ‘bona fides’ one. Indeed – although it is not necessary for me to decide on the facts of this case – possibly even a ‘reasonable’ one. The language I use in the remainder of the Judgment is not intended to preclude this being the proper construction: in some cases (albeit not this one) it may be an important distinction.

This construction does not ‘oust’ the Act. In conjunction with Clause 16.3, the 1998 Act only applies to ‘undisputed’ sums because there is no obligation to pay a disputed sum, pursuant to the procedure in Clause 3.3 of Schedule 2-4. In the absence of an obligation to pay, non-payment cannot create a ‘debt’, and there is no qualifying debt for the purposes of Section 3 of the 1998 Act. There is no avoidance of the payment of interest on a qualifying debt because there is no qualifying debt. In any event, even if I am wrong about this, for the reasons I set out further below, I consider that an overall remedy which seeks to distinguish between sums that are undisputed and those which are disputed for the purposes of the application of the 1998 Act is nevertheless a ‘substantial’ remedy.

Whether the invoices relevant to the sums in issue in this case were ‘disputed’ for the purposes of Clause 3.3 (triggering the contractual right not to pay) is a question of fact. TCS relied, in its argument before this point arose, upon its notification of the entitlement to charge 1998 Act interest on invoices by reference to a letter dated 31 July 2018, in which Mr McCarthy of TCS identified ‘Overdue Invoices’ which were all more than 30 days overdue. The letter said:

This elicited a response from DBS that:

Mr Croall asserted, and it was not disputed, that TCS did not respond to this letter. I consider that this letter, contrary to Mr Cogley’s submissions, was plainly seeking to engage the contractual distinction between ‘disputed’ and ‘undisputed’ amounts for the purposes of Clause 3.3 of Schedule 2-4, and by implication the claim for interest under Clause 16.3, which TCS themselves had specifically raised - rightly or wrongly - as the basis to their entitlement to interest under the 1998 Act. On 7 September 2018, BCLP on behalf of TCS proposed that the Dispute Resolution Procedure in respect of the Charges Variation Dispute be waived and Bristows, on behalf of DBS, consented to this. The Charges Variation Dispute included the Clause 2.8.8 issue.

On the basis of the limited evidence before me on this application to amend, it is likely that the parties were operating on the basis that those elements of the invoices which were not being paid because of the parties’ known differing positions on the proper construction of the contract relating to the VBSC were ‘disputed’ for the purposes of Clause 3.3 of Schedule 2-4. This being the case, there was no obligation upon DBS to pay the sums and there is therefore no qualifying debt to which the 1998 Act applies. It follows that TCS is not entitled to 1998 Act interest.

Insofar as the factual position is, in reality, more complicated in relation to whether or not the invoices were ‘disputed’ then it is a matter which would require further witness evidence and the potential exploration of that evidence by cross-examination. It is now too late for that. The need for further evidence relating to whether or not an obligation to pay arose would be a decisive reason, at this late stage and in the absence of any good reason, to refuse the application to amend.

That is sufficient to deal with the 1998 Act issue, but in deference to the remainder of the arguments advanced by the parties, I consider them further below.