Contractors' Questions: Do I have to return the client's overpayment?

Freelancer’s Question: For my Plan B, I supplied a firm on a short contract in September 2017. The following July, they emailed to say they had paid me twice in error and asked that I pay back the difference.

I checked my bank account statements and the client was correct, but the money had already been spent. At the time of their repayment request, I was between contracts and unable to pay. When I told the firm this, they gave me a two-week deadline to pay in full, which I ignored.

The firm is now threatening legal action. I’ve offered to repay via instalments, but they want much more per month than I can afford. Do I have any rights or recourse? The mistake was theirs, not mine, and my invoicing was correct.

Experts’ Answer: The short answer is ‘no.’ You do not have any rights or recourse here and you will have to pay the money back. As an overpayment, it was never legally yours in the first place. This is a remedy in law known as ‘restitution,’ on the ground of unjust enrichment, meaning that you are obliged to repay the sum representing the amount by which you were ‘enriched.’

There are very limited defences to claims for unjust enrichment, in this case there may be a potential defence known as ‘Change of position’. When the receiving party (you) has changed its position following receipt of the enrichment, it can be argued that it would be inequitable (unfair) to require the party to repay the sum received in error.

But a word of warning if you decide to rely upon this defence: the courts will consider this on a case-by-case basis, and they will expect to see detailed information and evidence to show that you have changed your position. If by some circumstance you were now unable to work, this might be enough to argue change of position, but we suspect if you are now working again you will find this avenue is probably closed to you.

If you accept that you owe the debt and make a reasonable offer of repayment, the creditor is obliged to consider your offer before taking legal action against you. If your last offer of repayment was genuinely all you can afford, then we would suggest you respond to their most recent correspondence and restate this offer and if possible, include an income and expenditure form that outlines your current financial situation. You can find one on the Money Advice Service here.

If they remain unhappy with the payment schedule offered and take the court route anyway, then we would recommend you seek independent legal advice from a solicitor or support service such as the Citizens Advice Bureau. If proceedings are issued, you can continue to make an offer of staged payments, and the court will then decide if the offer is acceptable or not.

If you are concerned about having a CCJ issued against you, say because you work in a sensitive financial sector, then you may want to look at agreeing to a repayment plan in the form of a Tomlin Order if legal proceedings are issued.

This is a formal agreement between you and the creditor that would potentially allow you to continue making staged payments, without the County Court Judgment being issued against you, as long as you maintain the payments. But again, you would need the agreement of the creditor and ultimately you may find you are held liable for the creditors court costs and any additional legal fees incurred in agreeing and finalising the order between the parties. Best of luck.

The experts were Adam Home of debt recovery specialists Safe Collections Ltd and Gaynor Williams of law firm Bennett Williams Solicitors.

Tuesday 9th Oct 2018