Bristows' SnippITs: Crossed wires and missing numbers (the importance of complying with payment formalities)

This post is part of the Bristows' SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

The case of Netomnia Ltd v MJ Quinn Integrated Services Ltd provides a cautionary tale for parties who depart from strict compliance with their contracts, particularly for key operative clauses such as those concerning how and when payment obligations arise. The case also highlights the difficulties of establishing an estoppel by convention in the absence of a consistent approach being taken to any relaxation of the contractual requirements. 

Key takeaways

• Operate the contract: technology contracts often include detailed provisions dealing with acceptance, when milestones are deemed to be met and when payment obligations are triggered. Parties who consistently fail to operate these provisions risk creating uncertainty, leading to costly disputes.  
• Draft to protect against estoppel: the MSA in this case included provisions stating that no waiver or amendment to the MSA would be effective unless it was in writing. The court did not need to consider these provisions in the case, but where facts for an estoppel are established, these clauses can protect parties from inadvertently giving up contractual rights. The effect however, will depend on the exact wording of the clause and the nature of the estoppel so parties should not assume that these provide complete protection. For example, a standard non-waiver clause (stating that no delay or failure to act will be deemed as waiver) is unlikely to have applied to Netomnia’s active conduct of accepting applications and making payment in this case.
• Customers beware: customers of technology projects should be weary of the supplier informally relaxing contractual rules or requirements. Absent a consistent pattern of behaviour, it is unlikely that sporadic failures to enforce different requirements will lead to a “common assumption” that can be relied on as an indicator of future conduct.

Background 

Netomnia, a fibre-optic network operator contracted with MJ Quinn under a Master Services Agreement (MSA) for the construction and installation of cabling for its network.  The MSA provided for a system for interim payments whereby MJ Quinn would send an application for payment, following which Netomnia was required to make payment within 14 days. 

The MSA required that applications for payment included the following details (the AFP Requirements):

1. The sum considered due.
2. The basis on which the sum was calculated
3. A breakdown of the activities performed.
4. Any documentation and other information reasonably required to verify the accuracy of the invoice.
5. A reference to the corresponding Purchase Order (PO).

MJ Quinn submitted an application for payment for £3,770.84 (the AFP). This was one of 168 applications for payment submitted on the same day, totalling over £4.7 million. Netomnia refused payment of each of the applications on the basis that they were invalid because they were missing the PO number (ATP Requirement 5) as well as a Polygon ID and Feature ID (identification codes which Netomnia stated were necessary to fulfil AFP Requirement 4). 

MJ Quinn referred the dispute to adjudication, dealing just with the AFP (the parties expected any decision to inform the treatment of the further 167 similarly formatted applications). The adjudicator found that the AFP had been valid and payment was therefore due. Netomnia then brought High Court proceedings seeking a declaration that the AFP did not meet the AFP Requirements. 

MJ Quinn made the following arguments:

1. That it was not necessary to provide the Polygon ID and Feature ID to meet the AFP Requirements and it had further not been possible to reference a PO number so this was also not required by the MSA in the circumstances. 
2. Alternatively, the MSA failed to provide an adequate mechanism for determining what payments had become due and, as a consequence of this, relevant legislation meant that MJ Quinn did not need to submit an application for payment at all.
3. Failing the above, the parties’ dealings gave rise to an estoppel by convention whereby Netomnia was precluded from contending that the absence of a PO number, Polygon ID and Feature ID meant that the AFP did not comply with the AFP Requirements. 

MJ Quinn’s estoppel case was based on the fact that Netomnia had previously made payments following applications where those applications did not include all of the AFP Requirements (including the PO number). Netomnia denied that an estoppel by convention had arisen on the facts. Alternatively, it argued that that the provisions of the MSA providing that there could be neither waiver of the requirements of the MSA nor amendment of the MSA other than in writing, together with the entire agreement clause, meant no estoppel argument could be advanced.

Decision – Estoppel by Convention 

The court rejected the first two arguments, finding that the AFP Requirements remained effective and that the AFP had failed to satisfy those requirements. The court then turned to MJ Quinn’s argument on estoppel.

MJ Quinn had to show that the parties conducted their dealings on the basis of a shared understanding or assumption communicated (expressly or impliedly) between them from which it would be unfair or unjust for Netomnia to depart. 

The court found that for the estoppel argument to be capable of being advanced at all MJ Quinn would have to show that there was a practice of Netomnia accepting and making payment in respect of applications which contained none of the missing elements from the AFP i.e. the PO number, Polygon ID or Feature ID. All MJ Quinn claimed it was able to demonstrate was that there were occasions when an application was made and accepted without a PO number - there was no practice of payment for applications which also lacked a Polygon ID and/or a Feature ID. This meant that Netomnia was not estopped from requiring compliance with the AFP Requirements and the ATP was invalid.