Last year, the NSW Court of Appeal provided a useful reminder of the need to ensure that parties agree, in advance, about what happens to money paid in anticipation of a contract that is never finalised.

The case of Nu Line Constructions Group (Nu Line) concerned money paid by Nu Line in anticipation of a contract to buy land from Fowler.  Despite the payments by Nu Line, and negotiations over many years, no contract was ever finalised.

Nu Line eventually asked for its money back.

Because the parties had no agreement about what was to happen to the money if the contract “failed to materialise”, the court first had to determine when that “failure” occurred.

Only at that point would the law recognise Nu Line’s right to restitution.

Although negotiations about the sale of the land had gone quiet for a long period of time, the seller had not suggested they had ceased, and a number of actions had been taken by both parties which indicated they may resume.

Highlighting the risks of saying nothing when paying money in anticipation of a contract, the judges did not agree about when the contract “failed to materialise.”

Nu Line was successful - but only by a majority decision based on the specific facts of the case.

Resolution of the dispute involved a costly trial and then an appeal.  Both may have been avoided if the parties had thought about the risks and reached an agreement about the fate of the money before it was paid.

This case is a warning to parties thinking of paying money in the expectation of signing a contract to ensure there is a clear cut off date or end-point in negotiations for the contract and a process in place to allow money to be repaid if the contract is not finalised.