In the recent case of Leslie v Farrar Construction Ltd, the Court found that a property developer who had paid his contractor undefined "build costs" was unable to recover sums he later alleged had been overpaid by him.
Mr Leslie and the defendant developer worked together on the basis of an oral contract to develop several sites. As the works progressed the developer would seek interim payments of round sums without a breakdown of how the costs had been incurred, and as they were within the agreed budget Mr Leslie paid them. The developer also received a share of the profits. After five successful developments, the relationship soured. They ceased to work together and each claimed that the other owed them money. Determining figures due where there was no written agreement and no evidence had ever been provided supporting the sums paid was, as the Court put it, "not straightforward".
The Court of Appeal concluded that Mr Leslie had overpaid the developer by almost £140,000. However, the Court also held that because the payments were made without investigation of the sums claimed the claimant was not acting on the basis of a mistake. He had paid the developer sums which he knew may have been more than he owed in order to "close the transaction". Choosing not to ascertain the correct sum due, where there has been no fraud or misrepresentation, is not a mistake which can found an action.
The parties engaged on an initially successful venture together. Millions of pounds of profit had been shared between the parties. However, despite the good relations between the two at the outset, the failure to set out what would be due, when and on what basis lead to the present position. The apparent ease of avoiding a written contract and substantiating payments due proved disastrous. The case is a reminder that, at the very least, the basis upon which payments are to be made and the circumstances in which they may be reviewed should be clearly set out before money changes hands; a mistaken payment may not be recoverable.
Whilst landlord and tenant relationships are usually much more tightly controlled by written agreements, not all are and there may be collateral agreements which are not documented at all. This case should serve as a reminder that no matter how good the working relationship, agreements (and any variations) should be documented and followed.