The courts have, over the past two centuries, formulated, refined and applied the principle that, if someone mistakenly pays another money that is not due, he can recover that money, unless the payee has a valid defence to the claim. Leslie v Farrar Construction Ltd [2016] EWCA Civ 1041; [2016] PLSCS 293 concerned overpayments of building costs incurred during multiple development projects.
The parties, an investor and a building contractor, had agreed to work together to identify sites for development. Once the investor had acquired the land, the contractor constructed housing on it, in accordance with an agreed scheme and budget. The investor paid the build costs and, on completion of each development, the parties agreed its open-market value and, after deducting the cost of acquiring and funding the development, divided the profit between themselves.
Unfortunately, the parties never reduced their agreement to writing, which caused problems when profits began to drop. By that time, the parties had completed five developments; they were working on two more projects and both believed that they were out of pocket.
The investor had made interim payments, in round sums, as work on each development progressed. The contractor’s demands for payment had not been supported by details or evidence of costs incurred, but the investor paid up because the amounts requested appeared reasonable and were within budget. Furthermore, on completion of each project, the investor did not require, and the contractor did not produce, any form of schedule setting out the build costs. Both proceeded on the basis that the build costs equalled the budget costs.
The trial judge ruled that the investor had paid £298,000 too much for build costs on completed projects, as a result of misunderstandings about qualifying expenditure, but rejected the investor’s claim for restitution. The Court of Appeal upheld the decision, applying the longstanding principle that, where one party voluntarily makes a payment to another, knowing that it may be more than he owes, but choosing not to ascertain the correct amount due, he cannot ordinarily recover the overpayment. Different considerations would arise if there had been fraud or misrepresentation, but that was not the case here.
The parties had treated each development separately and the investor had made a conscious decision not to enquire about build costs because it suited him not to do so. He was happy with the profits and had no wish to grind through the figures with professional assistance, even though it is widely known that budget costs and actual costs are likely to differ. He had chosen to run the risk of paying more than was due and had made final payments to close the books when developments had been completed.
Parties should not be relieved of risks knowingly run and the mere fact that the investor had made a bad bargain did not vitiate the parties’ agreement in respect of the completed developments. However, two of the projects were still ongoing and the investor would be entitled to recover any overpayments in respect of those developments.
Allyson Colby is a property law consultant
