Payments under a mistake of law – on appeal

Leslie v Farrar Construction Ltd [2017] BLR 21, Court of Appeal

Facts

We covered this case in our Newsletter in 2016. Farrar and Leslie had a deal whereby Farrar would design and construct housing on sites located, put through planning and acquired by Leslie.  Each side’s costs would be deducted from the proceeds of sale and the profit balance shared 50:50.

Eventually Mr Leslie, having cheerfully paid all of Mr Farrar’s “build costs”, decided he had been over charged and asked for a repayment on the basis of a mistake of law. Having lost in the High Court he went to the Court of Appeal.

Held

1. The Judges found, as a matter of fact, that Leslie was aware that the claims might be for more than he owed, but as he was getting a good deal out of the situation he chose not to take the time to correct the exact amount. He was therefore not entitled to recover overpayment. There had not been any mistake of law as such.
2. Where a claim is made for a refund of money paid under a mistake of law, the classic defences are either that the payer could have contested this liability in proceedings but chose not to do so; or that he made the payment in order to close down a claim (in other words, reached a settlement or compromise). Both defences were available here.

Comment

The key point in the Judges decision was that Mr Leslie was not interested in asking for a breakdown of the build costs, as long as the figure did not go beyond his budget and his outturn profit would still be a good one.

In other words, a mistake of law claim will only work if on very close analysis of the facts, you are confident of demonstrating that the party did consider whether he was legally liable, before taking the decision to do so.

For more specialist legal advice call Keith Bishop, Head of Construction & Engineering, on

0191 211 7983 or email [email protected]