B2B Service Provider Abandoning Pre-Paid Services

[Ausmo87]

Hi there, hope you can help.

I work for company A, which up until recently, received services from company B. Company B gave A a number of different services (3 in total), which were all supplied under 3 different sets of contracts agreements / terms of business.

For a while, company A ran into a bit of a cash-flow issue, and accrued some debt for 2 of the 3 service lines provided by company B. However, one of the service lines provided by company B was critical to company A's continued viability, and so company A pre-paid for those services in full, up-front.

Company A is now on the pathway to recovery, but due to poor service delivery from company B, company A has decided to switch supplier to company C.

Company B, understandably, isn't very happy at this, as we still owe them money for 2 of the 3 services they provided, which we acknowledge we need to pay; either via installments, or in full. However, company B has now decided to halt work on the service which was pre-paid in full, and up-front, as an "incentive" to pay up the debts which were incurred on the other 2 service lines.

I have had a check of the terms of business signed between company A and B, for all 3 service lines, and there is nothing in writing which states that company B can do this. However, company B is being obstinate, and sticking to this line. It is now beyond critical that company B delivers the services which have been pre-paid.

Company A would like either:

1) To receive a full refund for the pre-paid service, such that it can be handed off to another supplier + to arrange a payment plan / full payment with company B for other monies owed for the other 2 services.

OR

2) Somehow "encourage" company B to continue to carry out the works on the pre-paid service line.

I think company A is in the right here, and that company B doesn't have any legal grounds upon which to stop pre-paid services. I think company A is within it's rights to ask for 1 above, or demand 2 above, but I'm not sure about the legal language / terms / case law that I should cite in which to demonstrate this.

Can anyone point me in that direction?

Much appreciated

[atticus]

Was there a specific written agreement that B would continue to provide the particular service on terms that A paid in advance? If so, you have an argument here.

If not, I expect B will argue that it is entitled to treat the amounts that A regards as prepayment as payment towards A's overall debt.

Maybe your employers should take legal advice.

[Ausmo87]

Hi Atticus, thanks for your response.

As far as I'm aware, there wasn't anything specific that said they would provide the service which was paid in advance in all circumstances, but then at the same time there wasn't anything which gave them the ability to do the opposite neither: to stop that service line, if debt was accrued in the other service lines.

This is only now happening because company A is changing supplier from company B to company C. The debt owed to company B by company A has existed for some time (around 12 months). Again, there doesn't seem to be anything in writing which governs how debts would be treated in this circumstance. Company B have called it an "advance credit facility" in e-mails, but this is just a name that the credit controller I think made up, as there's no mention of such a facility or the rules which govern it, in any of the 3 service lines' terms of business.

[atticus]

As far as I'm aware, there wasn't anything specific that said they would provide the service which was paid in advance in all circumstances, but then at the same time there wasn't anything which gave them the ability to do the opposite neither: to stop that service line, if debt was accrued in the other service lines.

Therein lies the problem. What you say indicates that B is entitled to terminate all arrangements and apply money that it holds in reduction of A's overall debt.

This is only now happening because company A is changing supplier from company B to company C. The debt owed to company B by company A has existed for some time (around 12 months). Again, there doesn't seem to be anything in writing which governs how debts would be treated in this circumstance. Company B have called it an "advance credit facility" in e-mails, but this is just a name that the credit controller I think made up, as there's no mention of such a facility or the rules which govern it, in any of the 3 service lines' terms of business.

No. This is only happening because A has not been able to pay what it owes.

B has decided to take action to reduce its potential loss. A's actions will not be filling it with confidence about the prospect of being paid in full.

Is A the employer you posted about in August last year?

[R0b]

Hi

The starting point should the terms of the contracts, what they say (if anything) about non-payment, and whether Company B can effectively suspend services.

Quite often a B2B provider supplying multiple services, might have included in the terms and conditions that if the customer is not up to date with payments, then they could suspend not only the service that is in arrears but also any other services they provide to the customer under different agreements.

At the end of the day, you cannot force Company B to perform the services if they choose not to, unless you go to court to order them to do that. The alternative is to sue for breach of contract and claim losses incurred as a result of the breach. How much and the type of losses will depend on what was agreed in the contract. You should expect to see a limitation of liability clause in the contract setting out both party's liability to the other.

If you are confident that there is absolutely nothing in any of the contracts that allows Company B to stop the performing the pre-paid services, then it sounds like Company B is in breach of contract. The fact that they have simply stopped and refused to perform without being paid under another agreement, could amount to what is known as a repudiatory breach, which goes to the heart of the contract and entitles Company A to terminate. You need to be careful with claiming repudiatory breach because if you get it wrong, then Company a could be in breach themselves for wrongful termination.

As an alternative, you could obtain the services of a third party to perform the job Company B is supposed to do and then recover that amount back by way of legal proceedings. I would expect Company B to counterclaim for the debt outstanding as well to offset that loss.

Can't add much more since there's only limited information you have provided, but if in doubt, seek independent legal advice as to Company A's rights.

[atticus]

NB If A sues B, B will counterclaim for what A owes, and will raise a set-off in respect of the money A claims!