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Insights // 06 December 2016

Contracts: The Dangers of Making Payments That ‘Complete’ Transactions

Partner Debbie Brett, in our Corporate and Commercial team, highlights the importance of attention to detail in commercial agreements.

In the recent case of Leslie v Farrar Construction Ltd (“Farrar”) Mr Leslie made payments to Farrar voluntarily, knowing that they may be more than he owed, but choosing not to ascertain the correct amount. He sued to recover the excess that he had paid but, the conclusion of the case was that he was not entitled to recover the overpayments he had made.

The facts of the case:

  • In 2008, Mr Leslie entered into an oral agreement with Farrar to complete five property developments over five years. 
  • Farrar would periodically submit requests for interim payments for “build costs” to Mr Leslie. These requests were not supported by evidence of what costs had been incurred. 
  • Mr Leslie paid the invoices on the basis that they appeared reasonable and were in budget.
  • Relations broke down and Mr Leslie refused to continue to fund the remaining developments.
  • Mr Leslie issued a claim for repayment of the overpayments he had made.
  • Farrar counterclaimed for damages for repudiation and additional sums due.

The Court’s decision:

Q. Was Mr Leslie entitled to recover the overpayments he had made to Farrer in respect of the “build costs”? Mr Leslie claimed that these had been paid by mistake (because of a mis-understanding of what constituted “build costs”, a term that was never defined due to the unwritten nature of their agreement).

A. The basic legal position is that if X, owing to mistake, pays money which is not due to Y, X can recover that money (unless one of the recognised defences applies). However, where X voluntarily makes payment to Y knowing that it may be more than he owes, but choosing not to ascertain the correct amount due, X cannot ordinarily recover for overpayment. This is not the case if there are elements of fraud or misrepresentation.

The Court concluded that Mr Leslie had made a conscious decision to pay the sums requested without investigation, because that suited his purposes. He had chosen to pay the money without investigation, despite the fact that investigation may have revealed that Farrar was not entitled to the sums claimed. 

The Court of Appeal therefore held that Mr Leslie had intended that Farrar should have the money in all events; the final payments being agreed in order to 'close the transaction'. The lesson to take away from this case was emphasised in the Court’s closing remarks; be “bothered to go into the details”.

For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800. 

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.

Debbie Brett

Debbie Brett

Partner, Commercial & Regulatory Law

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