Incorrect invoicing – claiming the difference between sums mistakenly invoiced and sums correctly due under agreement terms

Rolls-Royce Holdings Plc v Goodrich Corporation [2023] EWHC 1637

The question

When a supplier invoices a lower sum than the figure due under the agreement, can the customer defend a claim in debt based on incorrect invoicing? 

The key takeaway

Incorrect invoices rendered may not affect the obligation to pay the higher amount correctly due under the agreement. 

The background

Rolls Royce and Goodrich Corporation (Goodrich) were involved in a joint venture whereby Goodrich manufactured and sold engine control equipment to Rolls Royce and provided aftermarket services for built plane engines.

Goodrich and Rolls Royce had agreed pricing provisions under the engine repair services agreement (the Agreement). Rolls Royce was required to include in its orders the price to be paid by it. 

Clause 9.5 of the Agreement provided: 

“[Goodrich] shall post invoices to [the RR Entities’] purchase accounts department at the address on the Order on the day on which the Aftermarket Services are despatched or completed. Providing the invoice is accurate, [the RR Entities] shall make payment to [Goodrich] on the fifteenth (15th) day of the second (2nd) month following the month in which the relevant Aftermarket Services are despatched, or completed in accordance with the lead times in the Contract. For the avoidance of doubt, an accurate invoice must include, amongst other things, the Order which relates to the invoice”.

Rolls Royce issued orders for parts and incorrectly included in its orders a price lower than was provided for in the Agreement, for certain items. Goodrich did not acknowledge the error and subsequently issued invoices, which replicated the incorrect prices for the goods supplied. Goodrich subsequently claimed the difference between the amounts invoiced and the correct sums due from Rolls Royce as damages for Rolls Royce’s breach of contract. Because a claim in damages requires loss to be proved and mitigation of loss, Goodrich also sought to advance a debt claim.
Rolls Royce’s position was that the only amount due was that contained in the incorrect invoices which it had paid. 

The decision

The court was satisfied that the specifying of the incorrect price by Rolls Royce in the order did not affect the price payable under the Agreement. Further, a debt claim did accrue despite the fact that Goodrich had not submitted invoices at the correct price. Clause 9.5 did not affect the point in time at which the debt arose because the clause linked the payment obligation not to the provision of the invoice as such, but to the time when the goods were despatched or the services completed. Goodrich was therefore entitled to bring an action for the price of the goods under s 49(1) of the Sale of Goods Act 1979 because the goods had passed to Rolls Royce. 

Goodrich providing incorrect invoices was held to be no defence, enabling Rolls Royce to avoid paying the amount owed to Goodrich. Clause 9.5 did not expressly link the payment obligation to the rendering of an accurate invoice, but to delivery or completion of the services, and the words “provided the invoice is accurate” were intended to do no more than make it clear that an inaccurate invoice did not itself create a payment obligation which did not otherwise exist. The court considered that the parties could not have intended that the amount due for the supply of the spare parts would not become payable unless invoiced in full if the reason for the inaccurate invoice was Rolls Royce’s own breach of contract in specifying the wrong price in the order. This would permit Rolls Royce to take advantage of its own wrong. 

Under a separate clause, the court found that Rolls Royce was expressly obliged under the Agreement to specify the correct price in its orders. The price specified by Rolls Royce in its order for spare parts was highly likely to be the price invoiced by Goodrich, and assuming that specification of the correct price in the invoice was necessary for that price to be recoverable as a debt, the argument for interpreting the clause as imposing an obligation to specify the correct price was found to be particularly strong. As between Rolls Royce and Goodrich, Rolls Royce was far better placed to determine what the spare parts were being ordered for and therefore what price applied. Rolls Royce was therefore in breach of contract for specifying incorrect amounts on its invoices.

Why is this important?

While it’s important to invoice the correct amount in accordance with the contract, this case highlights that invoicing (and being paid) an incorrect amount may not prevent suppliers from recovering the correct, higher contractual price for the items and services delivered.

Any practical tips?

If it is the intention of the parties that the passing of property or delivery of goods/ services do not provide the basis for price to become due, a clear provision to that effect should be included in the contract. 

When using words such as “provided the invoice is accurate”, bear in mind that the court found these words did no more than make it clear that an inaccurate invoice does not itself create a payment obligation which does not otherwise exist.

Consider whether the contract should include a mechanism for reconciling amounts payable, invoices and payments, whether there are any time limits after which amounts are deemed confirmed, and the consequences of any discrepancies.

Winter 2023