E-Nik Ltd v Department for Communities And Local Government

A contractual minimum purchase obligation is not reduced to nil by wording which merely explains how the minimum was calculated. A minimum annual obligation in a fixed-term contract may be pro-rated for a final part-year where that reflects the commercial purpose of securing availability. A supplier may claim the unpaid minimum as a debt where it kept the contracted services available and the contract did not require a specific request before payment became due. A take-or-pay provision is not necessarily a penalty where it is commercially justified and freely negotiated. VAT is not recoverable in addition to a contractual price without an express or implied agreement. An inaccurate invoice may still trigger statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998.

The claimant, an information technology consultancy, contracted with the defendant on 1 April 2009 to provide consultancy services. The contract required the defendant to purchase a minimum of 500 consultancy days per year at a rate of at least £850 per day. The fixed term ended on 30 September 2011.

The claimant sought summary judgment for unpaid invoices totalling £760,920 inclusive of VAT. The defendant disputed the construction of the minimum-days obligation, contended that any claim was for damages rather than debt, alleged that the arrangement was a penalty, and challenged the VAT and statutory-interest claims. The court also considered whether the minimum should be pro-rated for the final six months and whether interest should be remitted.

1. Construction of the minimum obligation. The words “based on project requirement” explained how the minimum had been calculated. They did not make the obligation subject to an arbitrary decision by the defendant or permit it to be reduced to nil. The defendant’s construction deprived “minimum” of meaning and was commercially unreasonable. The first issue was therefore decided for the claimant.
2. Final part-year. The obligation to purchase 500 days per year was pro-rated for the final six months of the fixed term. The claimant was entitled to payment for a minimum of 250 days during that period. The contrary construction was inconsistent with the commercial purpose of securing the claimant’s availability.
3. Debt and availability. The claimant’s claim was properly framed in debt. The contract did not make payment dependent on a specific request for each day. The claimant had kept its services available throughout the term. Under White & Carter (Council) Ltd v McGregor [1962] AC 413, it was entitled not to accept any repudiatory failure to call off the minimum services while the contract remained un­terminated. The defendant’s cross-application on this issue was dismissed.
4. Penalty. The minimum-payment clauses were commercially justifiable. The claimant had maintained the capacity to provide the services, the rates were at or below its usual rates, and the parties had comparable bargaining power. The provisions were not oppressive or in terrorem and were not penalties.
5. VAT and interest. There was no express or implied agreement that VAT was payable in addition to the £850 rate. Summary judgment was therefore given for the defendant on the VAT element. The remaining debt was nevertheless a qualifying debt. Following Ruttle Plant Hire Ltd v Secretary of State for the Environment (No. 2) [2010] 1 AER (Comm) 444, the inclusion of an additional, non-recoverable sum did not invalidate the invoices or prevent statutory interest accruing. No remission was ordered under section 5(4).
6. Result. Summary judgment was given for the claimant for the sum claimed, save for VAT, and the claimant’s VAT claim was dismissed.

First-instance summary judgment decision. No appellate history is stated in the judgment.