You don't mention if Pixsy have acknowledged that the image was released under a Creative Commons licence, but assuming that they do acknowledge that fact, the demand for £537.50 seems excessive for just failing to abide by the attribution requirement of the licence. By failing to provide the credit required you have invalidated the licence and so in theory, the photographer has grounds for asserting a claim for infringement, but since the original image was not, I assume, being made available in any other way apart from the CC licence, it is hard to put a monetary value on the use. Clearly had you applied the necessary attribution, you would not have been liable for anything and the photographer would not have made a financial loss, so it is hard to see the £537.50 demand as anything other than a punishment. English civil law does not countenance punishment as a remedy, and so it is not easy to see how a court would react if this claim were to go to trial.
Effectively, the liability you face is for a breach of the photographer's moral right (see section 77
) to be credited as the author, when this right had been asserted. This is a breach of a statutory duty (see section 103
), and the remedies which are available to the court are discretionary and certainly need not automatically lead to monetary damages being awarded. To claim damages, the photographer (and only the photographer, not some third party who might have been affected by the breach, eg a publisher) needs to show that the omission of a credit has led to an economic loss arising from a diminution of their goodwill and reputation. If the photographer is a professional, and earns a substantial part of his/her income from selling rights to use his/her pictures, this will be relatively easy to establish. However if the photographer is an amateur and in fact releases all or most of their work under CC licences, it would be very much more difficult to make a case for any economic loss arising from such a breach. The courts can also award damages as compensation for injured feelings, but again this would need to based on some measurable effect of the breach, and would usually be more applicable in cases where the image had been used in a detrimental manner which impacted on the good name of the photographer, for instance by being associated with an escort agency site etc.
Given that there is a large degree of uncertainty about how a court might decide the amount of damages in this particular case, I suggest that you should seek to negotiate a much lower fee by way of compensation for the omission of the credit. Unfortunately, as very few cases of this sort come before the courts, it is hard to point to any illustrative examples of typical damages*. The Creative Commons website
cites around a dozen such cases worldwide, none of which occurred in the UK, and many of which did involve the attribution element of the CC licence. In the majority of cases, damages were not awarded.
* Regular contributors to the forum such as Fatty and ATMOSBOB may well point to cases such as Jonathan Webb Aviation and Absolute Lofts as examples where substantial additional damages were awarded, but since neither case involved a CC licence, nor were they solely about the lack of attribution, I don't consider them helpful guides in the current context.