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Case law: Contractual party lost right to reclaim overpayments made by mistake once transaction is complete

Parties to a contract should ensure they can justify any interim payments made to the other side while the contract is performed, as they risk losing the right to reclaim any overpayments mistakenly made once the contract is complete.

Legal Alert

This update was published in Legal Alert - January 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A contractor was commissioned to design and build various housing developments. The contract was verbal and provided that the other party (the developer) would pay the ‘build costs’, and the two parties would split the profits equally. Regrettably, the parties did not agree a definition of the build costs.

The contractor invoiced for interim build costs as the developments unfolded. The invoices were for round figures, with no detailed narrative. However, the developer — who was expecting the developments to come in within budget and make healthy profits — paid them without questioning them.

However, over time, the forecast profits shrank and the developer claimed he had overpaid in relation to seven of the developments (five of which had been finished and two had not). He said he had paid by mistake, believing the sums were properly payable. He claimed the overpayments back.

The Court of Appeal accepted that he could claim for overpayments in the developments that were still ongoing. However, it ruled that he could only claim back overpayments made on the completed developments if he could show that there was either fraud or misrepresentation by the contractor because these were ‘closed transactions’.

Operative date

  • Now

Recommendations

  • Parties to a contract should ensure they can justify any interim payments they make to the other side during the transaction, as they risk losing the right to reclaim any overpayments made by mistake once the transaction is complete

Case ref: Graham Leslie v Farrar Construction Ltd [2016] EWCA Civ 1041

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.