Case law analysis: Furmans Electrical Contractors -v- Elecref Ltd.

Summing up

The case:

Furmans Electrical Contractors -v- Elecref Ltd [2009] EWCA Civ 170.

The issue:

Can invoices that have already been paid be reopened and/or can payments made be recovered?

The implication:

In this case, where no agreement existed as to the number of hours on which the subcontractor's daily rate was based, there was no basis on which to reopen the invoices already paid or for Elecref to recover overpayments. Only those invoices that had not been paid could be challenged.

Agreements are not always properly recorded by the parties who make them, providing grounds for unnecessary confusion and costly disputes. A case in point was Furmans Electrical Contractors -v- Elecref Ltd, which resulted in a dispute over relatively modest sums being finally determined in the Court of Appeal.

Furmans was subcontractor to Elecref, which was itself subcontractor supplying electrical items on various contracts. Furmans installed the cabling. It was originally paid on the basis of the quantity installed, and during that period Furmans' men worked as long as it took them to install the cabling.

From about July 2004, Elecref employed Furmans on the basis of daily rates. Furmans' men normally worked a nine-hour day and Elecref paid Furmans daily rates of £650 for four men per day and £700 if the site was far away, to include for accommodation.

Nothing was mentioned as to the hours on which Furmans' daily rate was based. Furmans issued invoices charging the daily rates and Elecref paid them for a considerable period of time, until September 2007. Almost all of the invoices had markings on them confirming they had been checked by Elecref's site supervisors. None of Furmans' invoices identified the actual hours worked or the actual hours being charged.

In September 2007, there was a sum outstanding on the basis of Furmans' invoices. At about this time, Furmans notified Elecref that it wished to increase its daily rate. Elecref responded by stating the daily rate should be reduced because Furmans' men were working fewer hours, leaving early on Fridays and charging for accommodation on Fridays even though it was not used. Elecref did not make a claim for repayment for any overcharged amounts. Despite its response about overcharging, in October 2007, Elecref paid a further £26,129.99 but refused to pay further invoices relating to the period from late August 2007 to late October 2007.

Proceedings issued

In November 2007, Furmans issued proceedings in the County Court claiming £23,203.31 in respect of six invoices issued between August 2007 and October 2007. Elecref considered it had been overcharged and counterclaimed £40,529.37, as Furmans had acted in breach of a verbal agreement that the daily rate was based on its men working 11 or 12 hours.

Furmans maintained its position that the daily rate was based on a nine-hour working day and that this was established by a course of dealing (by submitting invoices which were paid). The County Court judge found that daily rates had been agreed, but that neither a verbal agreement existed nor or any course of dealing existed (as the hours claimed were not identified on any invoice) as to the number of hours on which the daily rates were based.

The judge decided that the £650 per day should have been based on the 11 hours per day, not nine. He then made an assessment of Furmans' claim, taking into account Elecref's counterclaim, which resulted in the repayment by Furmans to Elecref of sums already paid. In undertaking his assessment, he did not distinguish between the paid and unpaid invoices.

The judge was found to be wrong in failing to distinguish between the paid and unpaid invoices, as the Court of Appeal considered that no basis existed to reopen the invoices already paid to Furmans; Elecref had failed to establish any oral agreement as to the number of hours on which the daily rate was based or any mistake or other representation; and Furmans' invoices claiming the daily rates were not contrary to any agreement or representation.

Further difficulty

Elecref was faced with the further difficulty in that the invoices were paid after checking by its site supervisors, resulting in Elecref having assumed the risk of any mistake. However, what put an end to the matter was that Elecref had made a substantial payment after it had raised a complaint about being overcharged, rather than making a claim for the return of the money. In making payment, Elecref waived any claim to recover the money and had assumed the risk of any mistake. The unpaid invoices were unaffected and Elecref was entitled to pay a reasonable sum to Furmans in respect of them.

In circumstances such as these, the payer is unlikely to be able to reclaim payment and will be taken to have waived its claim to recover payment or to have assumed the risk of any mistake. If in doubt, a payer should reclaim overcharged amounts or pay a reduced amount to reflect the overcharging.