Case law: overpayments to subcontractor may not be recoverable

By: Anthony Mullinder

Date: 19 June 2009

Businesses must check their subcontractors’ invoices carefully, as they may not be able to recover amounts inadvertently overpaid, according to a recent Court of Appeal decision.

In this case, subcontractors provided services to the main contractor, and submitted invoices calculated on the basis of a daily rate, although there was no record of the number of hours’ work on which the daily rate was calculated. When the subcontractors told the contractor that they wanted to increase their daily rate, the contractor responded with a claim that the daily rate used for the previous six months’ invoices, most of which had been paid, was too high, and that the subcontractors owed them money. A judge in the county court decided that the contractor was entitled to have the invoices re-assessed on the basis of the work actually done by the subcontractors, and could use the difference to reduce the amount payable on the outstanding invoices. However, the Court of Appeal ruled that the judge had been wrong not to distinguish between paid and unpaid invoices; in the absence of any misrepresentation or mistake by the subcontractor, he had no right to permit the contractor to re-open the invoices that had already been paid. Furthermore, the court found that the contractor had made a further substantial payment to the subcontractors after it became aware of the issue of overpayment, which meant that it had waived any claim to recover the money.

This case acts as a useful reminder to businesses to check invoices carefully and, wherever possible, ensure that charges, and the basis on which they are payable, are agreed in writing beforehand.

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