Leslie v Farrar Construction Ltd

Factual and Procedural Background

This appeal arises from a dispute between a wealthy businessman ("Plaintiff") who embarked on developing a property portfolio and a construction company ("Defendant") owned and directed by a principal individual ("Director"). In 2008, the Plaintiff and Director entered into an oral agreement ("Framework Agreement") whereby the Plaintiff would acquire suitable sites, and the Defendant would design and construct housing on those sites to an agreed scheme design and budget. The Plaintiff would pay the Defendant's "build costs" and, upon completion, profits would be shared equally after deducting acquisition and build costs.

The parties never recorded the Framework Agreement in writing, nor did they define "build costs" precisely. Over five years, five developments were completed, with the Plaintiff paying the Defendant interim payments based on budgeted costs without detailed substantiation. The Plaintiff was content with this arrangement as the developments yielded substantial profits.

Relations deteriorated in 2013, leading the Plaintiff to cease funding ongoing developments and initiate legal proceedings seeking repayment of overpayments made under the Framework Agreement. The Defendant denied liability and counterclaimed for additional sums and damages.

The trial took place before a High Court judge in the Technology and Construction Court, who considered extensive factual and expert evidence and decided on thirteen issues, only one of which—the Plaintiff's entitlement to recover overpayments on the five completed developments—is before the appellate court.

The trial judge found that the term "build costs" meant direct costs of labour and materials plus site-specific preliminaries, excluding overheads and capital expenditure. The Defendant had included impermissible items, inflating costs by 22%, resulting in an overpayment by the Plaintiff. Despite this, the judge held the Plaintiff could not recover these overpayments, concluding that the parties had effectively closed their accounts on each completed development by agreeing to treat build costs as equivalent to budget costs.

After netting off sums owed on various developments, the judge awarded judgment to the Defendant for £139,428.16. The Plaintiff appealed only the decision that recovery of overpayments on the five completed developments was not permitted.

Legal Issues Presented

1. Whether the Plaintiff is entitled to recover overpayments made on the five completed developments under the Framework Agreement.
2. Whether the overpayments were made under a mistake of fact or law, entitling recovery.
3. Whether the Plaintiff waived the right to recover overpayments by agreeing to treat build costs as budget costs.
4. Whether the Defendant can rely on estoppel to prevent recovery of the overpayments.
5. Whether there was a failure of consideration for the overpayments made by the Plaintiff.

Arguments of the Parties

Appellant's Arguments

• The judge correctly allowed recovery of overpayments on two uncompleted developments and should have treated the five completed developments similarly, considering all developments under the Framework Agreement as a whole.
• The overpayments on the five completed developments were made under a mistake, entitling the Plaintiff to recover them.
• The judge erred in finding that the Plaintiff waived his right to recover overpayments.
• The judge erred in finding that the Defendant could rely on estoppel as a defence.
• There was a failure of consideration for the overpayments made by the Plaintiff.

Respondent's Arguments

• The parties treated each development as a separate, closed transaction once completed, with final agreement on costs and profit share.
• The Plaintiff knowingly accepted the risk of paying budgeted amounts without detailed investigation and chose to pay the sums without requiring substantiation.
• The Plaintiff waived any right to detailed inquiry or recovery of overpayments by agreeing to close accounts on that basis.
• Estoppel applies because the Defendant relied on the Plaintiff’s acceptance of the budgeted figures to its detriment.
• The overpayments do not amount to a failure of consideration as the Plaintiff received property developments and profit shares consistent with the agreement.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by reviewing the factual matrix, emphasizing the absence of a written agreement and the parties' differing understandings of "build costs". The trial judge found that the term encompassed direct labor, materials, and site-specific preliminaries but excluded overheads and capital expenditure. The Defendant had included impermissible costs, resulting in a 22% inflation of build costs and an overpayment by the Plaintiff.

However, the court focused on the conduct of the parties during and after the developments. The Plaintiff consistently paid interim and final sums based on budget figures without requesting detailed substantiation, trusting the Defendant and valuing expediency and profitability over precision. The parties effectively agreed to treat the budget figure as final, closing accounts on each completed development.

The court held that this constituted a voluntary payment by the Plaintiff, who knowingly accepted the risk of overpayment for the sake of convenience and business practicality. The Plaintiff’s conscious decision to forego detailed inquiry and accept round sums equated to a waiver of the right to recover overpayments. This was supported by established legal principles from leading cases, including Kelly v Solari and Woolwich Building Society v IRC, which distinguish recoverable mistaken payments from voluntary payments intended to close transactions.

The court also considered and upheld the applicability of estoppel, finding that the Defendant had relied to its detriment on the Plaintiff’s implied representation that no further inquiry would be made. The Plaintiff’s failure to investigate and insist on detailed accounting precluded recovery of overpayments.

The court rejected the argument that the overpayments amounted to a failure of consideration, noting that the Plaintiff had received valuable property developments and profit shares consistent with the agreement, albeit with some inflated build cost payments.

Accordingly, the court affirmed the trial judge’s finding that the Plaintiff owed the Defendant a net sum, dismissing the appeal.

Holding and Implications

The Court of Appeal DISMISSED THE APPEAL, upholding the trial judge's decision that the Plaintiff was not entitled to recover overpayments made in respect of the five completed developments.

The direct effect is that the Plaintiff remains liable to pay the Defendant £139,428.16. The decision confirms that where parties voluntarily close accounts on the basis of budgeted figures without detailed substantiation, the payer assumes the risk of overpayment and cannot later recover such sums on grounds of mistake.

No new legal precedent was established; the court applied well-settled principles concerning mistaken payments, voluntary payments, waiver, and estoppel. The ruling underscores the importance of clear contractual terms and thorough accounting in complex commercial arrangements.