Payments made under a mistake of law – what is a mistake?

Leslie v Farrar Construction (2016) Construction Industry Law Letter Court of Appeal

Facts

Mr Leslie was a property developer who did a deal with Farrar Construction.  He would acquire building sites.  Farrar would design and construct housing in accordance with agreed “build costs”.  On completion the build costs and Mr Leslie’s costs would be deducted, and the profit divided equally. This worked very well but Leslie and Farrar fell out over money after 5 projects.  Farrar said that he had paid various financial demands for “build costs” under a mistake of law as he believed he was legally obliged to make the payments. He now knew that these build costs were exaggerated and sued for the return of £297,000.

Court of Appeal Held:

1. Mr Leslie was a businessman, he negotiated the final building cost payment on each of the 5 developments and “took a conscious decision to pay the sums requested without investigation, because that suited his purposes”. The point being that he was happy that he was making a good profit so decided not to bother to investigate.
2. Accordingly this was not a normal “mistake of law”. Where the payer voluntarily makes a payment to the payee knowing that it might be more than he owes, and choosing not to ascertain the correct amount due, he cannot claim repayment in the absence of fraud or misrepresentation.

Comment

The right of a mistaken party to recover a payment under a mistake of law only goes so far.  The payer must show that he was genuinely mistaken.  To allow otherwise would be unfair and thus contrary to inequity.

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