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Can we have our money back please, Mister? Payment by mistake

Rainer Evers

The Court of Appeal has looked at payment by mistake. In Graham Leslie v Farrar Construction,Mr Leslie agreed to acquire building sites. He would pay Mr Farrar the “build costs” of developments on those sites, and the parties would split the subsequent sale proceeds 50:50.

For a while, all went well. Mr Farrar sent Mr Leslie figures for aggregated alleged “Build costs” and Mr Leslie deducted them from sale proceeds without enquiry. However, things turned bad. Mr Leslie refused to fund certain existing developments and claimed repayment of “build costs” which, he alleged, exceeded the actual amount Mr Farrar had spent on development. The question for the Court of Appeal was whether any over payments were made because of a mistaken assumption of fact. If they were, Mr Leslie was entitled to restitution.

The answer was no. The court held that what Mr Leslie had actually done was choose not to go to the effort and cost of enquiring whether the actual build costs had been less than those claimed. Rather, he had agreed to accept that “build costs” were equal to the budgeted costs and agree to split the profits – calculated on this assumption. When he agreed this, he consciously took the risk that this might be to his disadvantage.

In short, the court confirmed past authority that a payment made under mistake of fact (or mistake of law) can be recovered. But there are a number of exceptions to this, including when the payment is made by someone who has decided not to ask whether the “factual” basis on which he was operating was correct. The court noted other exceptions, for example, when someone chooses to settle proceedings, or to settle rather than begin proceedings, rather than contest a claim. The fact that later developments show that he would have done better to dispute the point does not entitle him to make a claim based on a mistake of fact. “An incorrect prediction of future events [does] not constitute … a mistake” which can support a claim for restitution.

here is another point about this case. The parties carried out several development projects involving millions of pounds. Not a word of their agreement was in writing. There is a saying: “the only thing more expensive than using a lawyer is not using a lawyer.” This may well have been coined by a lawyer. But that doesn’t mean it’s not true.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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