Contractors’ Questions: Is my client acting unlawfully by ceasing payment with no notice?

Contractor’s Question: I’m a limited company contractor supplying a bank, contracting through a supplier and my contract has a 20-day notice period. This notice period is in place (I assume) to protect me, the bank and the supplier.

But the bank stopped all payments with less than a 24-hour notice period; is this legal? What do I need to look for, clause-wise, to see if a challenge is possible? Would a challenge be recommended, otherwise what’s the point of the contract?

Expert’s Answer: Since you have contracted through a supplier, your rights and any ability for you to challenge depends on the agreement you have with the supplier.

Presumably, it is the supplier that is liable to pay you under the contract and the supplier which is responsible for managing your notice periods.

Due to the outbreak of covid-19, we are in uncertain times and a lot of companies are relying on force majeure clauses to get out of their contractual obligations. This clause allows parties to a contract to avoid their obligations or justify not carrying out the promises they have made under the contract.

Check, and ask (yourself) questions

The application of the clause depends on the wording in the contract and it is not included in every contract, so check to see if the contract has a force majeure clause firstly.

If it is included, read the wording and consider whether it justifies ‘non-performance,’ i.e. non-payment. What are the conditions? Must it be totally impossible? Should you have been notified? Consider whether these conditions have been breached.

You should also check the Payment Terms and Supplier Obligations sections. Look out for anything that states the supplier will not be required to pay you until it has received payment from the bank, for example.

Nothing in writing?

Alternatively, if the stoppage is permitted by the agreement and if an invoice has already been issued, it might be possible to consider a breach of contract or debt recovery claim. Or, even if there doesn’t seem to be anything in writing in the contract that explicitly protects you or shows a party has breached the contract, there might be other legal options. Quantum meruit claims can be made in situations of non-payment, which are not dependent on a contract, and allow a party to obtain reasonable payment for the value of work already completed on the basis of fairness.

Please note, in this format, it is not possible to fully advise on options without checking the contract and properly analysing the facts surrounding the termination. It is therefore unfortunately not possible to say here whether the bank’s current conduct is lawful or not. To give you that answer, it would be necessary to review the contractual documents, any relevant correspondence and the circumstances surrounding the non-payment and termination. Is it due to fault or poor performance, for example?

Resolution...

Almost needless to say, it could prove very useful to get legal advice and a proper analysis of the situation, to consider what options there are, in bringing a claim either against the supplier (who seems to be the party you are contractually bound to), or the bank. Or whether the matter can simply be resolved through correspondence or even an official letter, seeking payment, sent from a lawyer. Best of luck with how you choose to proceed.

The expert was Komal Shemar, legal consultant at law firm Gerrish Legal.

Profile picture for user Komal Shemar

Written by Komal Shemar

Komal is a legal consultant at Gerrish Legal, holder of an LL.B in Law and French Law from the University of Birmingham, and a candidate for the French Bar preparation at the Sorbonne Law School, Paris. She currently specialises in commercial contracts, data protection and intellectual property in the tech, e-commerce, recruitment and fashion industries.

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