Extracting money from clients can be challenging. When is calling in the heavies the only solution?
There are a number of precautions architects can take to secure trouble-free payment for a job, before resorting to legal action. It’s not simply a matter of regular invoicing and tight credit control - the foundations of proper remuneration must be laid when the appointment is entered into.
When taking on new work, you should first establish precisely who your client is and whether they have the resources to pay your fees. Sometimes instructions appear from one company stating it is acting for another, or you are requested to invoice another company altogether. Where an offshore trust company owns a property for tax purposes, it is your client on paper. In this case, the beneficiary of the trust, who may regard the property as his current or future home, is not legally entitled to intervene or give instruction to the architect.
A properly drafted appointment, recording all the terms of the agreement, is a construction contract as defined by the Housing Grants, Construction and Regeneration Act 1996 (Construction Act). The Act implies certain terms into any such agreement, like the right
to stage payments, the right not to set off any payments against invoice sums without due notice in writing, and the prohibition of terms that make payment dependent on the client first being paid by another.
If no contract has been agreed, you are still entitled to payment of a reasonable fee, detailed in Section 15 of the Supply of Goods and Services Act 1982, provided that the work was commissioned by the client and not submitted speculatively. Although you may invoice
in accordance with a payment schedule agreed in your contract, a tribunal will not necessarily order payment of outstanding fees if the equivalent work has not yet been carried out. In general terms, if you have issued an invoice, you must demonstrate that the work
it represents has been done.
If your employer has given no indication of the work that is expected or due (as required by the Construction Act), you are not absolved of the responsibility to complete the work in question. But your employer cannot argue that, because you have caused him a loss, he can set the loss off against your fees - unless he has served a notice of ‘set off’ under the Construction Act. Equally, it should not be possible for a client to argue that, because you have done the work badly, your fees should be reduced or abated.
A written appointment should:
• Identify the client;
• Assert your ownership of copyright for the design drawings and their licence for use - and your ability to suspend or withdraw that licence;
• Detail terms and form of payment, including rates for additional works, e.g. lump sum, percentage of construction costs, or hourly rate subject to a ceiling;
• Set out the scope of services to be provided and the circumstances in which these may change;
• If the work is speculative, determine what the payment trigger event is, e.g. obtaining a grant, receiving planning permission, concluding a
Section 106 Agreement
If fees are due and unpaid, you can, with due notice, suspend your services until payment is made. It is possible to terminate the appointment if non-payment is persistent, but the requisite contractual steps must be followed. You can also suspend or withdraw the licence that your client may have to your copyrighted drawings, or exercise a lien over documents sought by your client. A solicitor’s letter before action can also be effective.
If you are forced to invoke legal proceedings, you should claim interest on the full payment due. Commercial clients can be made to pay 8 per cent over bank base, plus a fixed nominal fee under the Commercial Debts (Interest) Act 1998. With domestic clients, you are limited to seeking contractual interest or the 8 per cent awarded in court.
An alternative to court proceedings is to adjudicate. This is now a right under all professional appointments since 1998, the exception being appointments to residential occupiers - people who live in the home you are working on. The contract must be in writing, or at least include
a provision permitting adjudication. It is possible to have such a provision written into an appointment with a residential occupier, but the full implications of adjudication must be explained to the client beforehand.
Adjudication is a relatively quick procedure and can be concluded within 35 days, but the timetable and procedure of appointment for the adjudicator must be adhered to in order to ensure an enforceable decision. Adjudicators cannot, in most cases, award costs and an adjudicator’s decision is not final - the two parties can still take their dispute to litigation or arbitration, but in the majority of cases they do not. The decision is not a judgement, and if not paid, needs to be converted into a judgement by an application for summary judgement. Most of these applications are granted, save where the adjudicator has no jurisdiction or has failed to act fairly between the parties.
If your appointment contains an arbitration clause, a fee claim can be pursued in arbitration where costs are recoverable. The outstanding fees can be pursued by litigation. Parties are required to fully document their case and attend a ‘without prejudice’ meeting. In many cases, this leads to settlement, and costs are, in principle, recoverable.
It may sometimes be appropriate to serve the paying party with a statutory demand - the precursor to making the company or individual bankrupt. It is a potent threat, and should only be exercised if the fees are indisputably due and there is no possibility of a cross-claim. If either of these possibilities exists, the defendant can obtain an injunction to set aside the statutory demand and be awarded the costs of such an application against you. The defendant can bring up cross-claims that he could not in adjudication or litigation, for example a claim
for set-off where no notice has been served.
HOW CAN I RECOVER FEES?
A legal process whereby a neutral party (adjudicator) reviews evidence from both parties and makes a decision. The decision is not final, but is binding and may be converted into a judgement if necessary
An alternative form of dispute resolution where the parties refer the dispute to an arbitrator, by whose decision they agree to be bound
A civil action brought before a court and presided over by a judge. A range of court orders may be issued to enforce a right, award damages, impose an injunction, or prevent or compel an act
A statutory demand gives a person 21 days to pay the debt. If it expires and the debt remains unpaid, the demand can be
followed by a bankruptcy petition
Robert Stevenson is a partner at Berrymans Lace Mawer and an advisor on the RIBA Legal Helpline. He can be reached
at Berrymans Lace Mawer on 020 7638 2811