Protecting Advance Payments
Have you ever been asked to pay a sum of money in advance for a contract that is yet to be finalised? A recent NSW Court of Appeal decision reminds us of the importance of communicating clear intentions about the exact point in which advance payments of money will be refundable. To pay in silence may place your money at risk!
Nu Line Construction Group Pty Ltd v Fowler [2014] NSWSC 51
This case involved a company called Nu Line Construction and a husband and wife, called Fowler. The parties begun negotiations for the sale of a parcel of land owned by the Fowlers. Negotiations continued over a number of years, during this time, Nu Line made a number of advance payments. The advance payments made constituted approximately one third of the contract price. However, the contract was never finalized between the parties. Years later, when negotiations had not progressed further, Nu Line wished to be repaid for the advance payments. The company sought restitution and the matter escalated to the New South Wales Court of Appeal.
Outcome
A party will be able to make a claim for restitution at the point in which a contract ‘fails to materialise’. Normally, ‘failure to materialise’ means the point in which the negotiations have failed between the parties and it becomes apparent that the contract cannot go ahead.
The problem in this case was that it was suggested that the negotiations had not failed completely. On the facts, there was some suggestion that contract between the parties could potentially resume in the future. The judges found it difficult to identify the exact point in which the contract had ‘failed to materialise’ – Nu Line had paid the money to the parties without clarifying an end-point in negotiations and the fate of the money. Nu Line was able to claim restitution but importantly, this was for a number of other reasons.
The key point is that this was a situation which could easily have been avoided had the parties made their intentions clear from the very beginning. This would have saved much time and expense!
Implications
We suggest clarifying the terms for repayment before making a payment in advance for a contract that is yet to be finalized. Ensure that the circumstances in which a repayment of the money will come into effect are clearly outlined. This might include specifying end-dates for negotiations and dates for the execution of the contract itself. Without this agreement, advance payments may not be returned as the ‘failure to materialise’ may not be apparent, as was the case with Nu Line.
What Should I Do Next?
Contact us if you would like further legal advice on the approach while making a payment in advance for a contract so that your interest and intention well secured. Our lawyers at You Legal will be happy to assist you in whatever way we can.
* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.