CASE payment? The Court of Appeal, namely Denning

CASE SUMMARY of: Williams v Roffey Bros & Nicholls
(Contractors) LTD 1991 1 Q.B. 1

 

1. FACTS

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In
this particular case, the claimant, namely Williams entered into a subcontract
with the defendants, namely Roffey Bros & Nicholls to carry out carpentry
work on twenty seven flats for an agreed price of £20,000. Unfortunately, the claimant
was suffering from financial difficulty and was unable to complete the
carpentry work before the deadline date. The main contract contained a time
penalty clause so the defendants made an oral agreement to pay an additional
sum of £10,300 at the rate of £575 for each flat where carpentry work was
completed. The claimant substantially completed eight more flats however the
defendants only paid £1,500 resulting in the claimant to cease work on the
flats. The claimant sued the defendants for the additional sum that was
promised and the defendants appealed.  

 

2.
ISSUES

1)   
Whether
entire performance was a condition precedent to payment?

 

2)   
Whether
there was consideration for the defendants’ promise to pay an extra £10,300, at
the rate of £575 per completed flat on 9 April?

 

3)   
Whether
the defendants’ had gained a practical benefit in law for the agreement made on
9 April?

 

4)   
Whether
promissory estoppel could be raised as a defence?

 

5)   
Whether
the claimant put the defendants under economic duress?

 

3.
DECISION

1.   
The
Court of Appeal dismissed the appeal and all the Judges, namely Glidewell LJ,
Russell LJ and Purchas LJ agreed found in favour of the claimant where it was
held that the payment of the additional sum was enforceable and that there was
sufficient consideration present.

 

4.
REASONING

1)           
Whether
entire performance was a condition precedent to payment?

 

The Court of Appeal, namely Denning
L.J was correct to see that the promise to complete the work set out by the defendants
was a term of the contract and not a condition. Also, the defendants can only
refuse to pay the claimant if the breach goes to the “root of the contract”
such as refusing to complete the work. Denning refers to the example in a
contract where payments are made throughout the process of completing work and
retention money to be kept until completion. He reiterates the statement that the
claimant is only allowed to receive any sort of payment once the work they are
contracted to do is completely finished without any faults. Romer L.J agrees
with both Denning L.J in applying the principle that derived from the H Dakin
& Co Ltd v Lee 1916 1 K.B 566 case that “when a man fully performs his
contract… he supplies all that he agreed to supply… he supplies is subject to
defects… he can be said to have substantially performed his promise.” This
means that as long as the claimant has completed all the work they have been
contracted to without any faults, they are subject to payment and their entire
performance is the work completed.

 

2)           
Was
there consideration for the defendants’ promise to pay an extra £10,300, at the
rate of £575 per completed flat on 9 April?

 

Glidewell L.J states that the
defendants’ promise to pay the extra £10,300 was “supported by valuable
consideration and constituted as an enforceable agreement.” Glidewell L.J was
correct to establish that the subcontract price agreed between the claimant and
the defendants’ was very low to allow the claimant to carry out his contractual
duties. He came to the conclusion that “where the original subcontract price is
too low, and the parties subsequently agree that additional moneys shall be paid
to the subcontractor, this agreement is in the interests of both parties.” He
also states that this does not mean that consideration was not present between
the parties. Russell L.J stresses to the courts the importance of finding
consideration that “reflects the true intention of the parties and believes
there was consideration for the agreement. He states that the “defendants
recognised that the price agreed originally with the plaintiff was less… There
was a desire…to retain the services of the plaintiff so that work could be
completed without the need to employ another subcontractor.” This shows that
there were advantages to the defendants identified by Russell L.J which exposes
the defendants’ true intentions and correctly establishes “an advantage arising
out of the continuing relationship… the new bargain will not fail for want of
consideration.” Purchas LJ agrees with Glidewell LJ and refers to the judgement
of Denning LJ in Ward v Byham 1956 1 W.L.R 496 which has a similar decision
to Williams v Roffey Bros & Nicholls Ltd with regards to consideration.
Denning LJ states that the claimant looking after the child was something she
was legally bound to do which shows there was sufficient consideration in the
agreement made by the defendant to pay £1 per week. This is due to the claimant
performing their existing duty in ensuring the child was well looked after and
happy which can be seen as practical benefit to the defendant.

 

3)           
Whether
the defendants’ had gained a practical benefit in law for the agreement made on
9 April?

 

Glidewell L.J was correct to see that
the defendants’ had gained no practical benefits in law as the claimant was
promising no more than he was already bound to do which was continuing with the
carpentry work and ensuring it was completed on time suggesting there was no
consideration for this particular agreement. This was based on the decision
from Stilk v Myrick 170 E.R. 1168, (1809) 2 camp. 317; where it was held there
was no consideration for the captain’s promise as the claimants’ had an
established contract which was to undertake all of the emergencies under the
voyage to and from their destination. This desertion of some of the crew was
perceived as an ’emergency’ and any crew who remained were seen to have been bound
by the original contract. The detriments avoided by the defendants’ in Williams
v Roffey Bros & Nicholls as outlined by Mr Evans include preventing a
breach of the subcontract, “avoiding a penalty for delay” and “avoiding the…
expense of engaging other people to complete the carpentry work.” However,
Judge Purchas was correct to see that the defendants did gain practical
benefits from their agreement on 9 April, therefore avoiding a detriment.
Purchas states that “The defendants were on risk that as a result of the
bargain they had struck, the plaintiff… could not comply with his existing
obligations without further finance” which suggests that they had a “commercial
advantage.” Purchas reiterates the fact that “where there were benefits
deriving from each party… even though one party did not suffer a detriment,
this would not be fatal to the establishing of sufficient consideration to
support the agreement” which supports the previous issue mentioned regarding
consideration.

 

4)           
Whether
promissory estoppel could be raised as a defence?

 

Judge Glidewell identified the
possible use of promissory estoppel and suggested that if “a person to whom a
promise has been made… which he has relied, to make an additional payment for
services which he is… bound to render under an existing contract… to show that
the promisor is estopped from claiming that there was no consideration for his
promise.”  Unfortunately, promissory
estoppel could not be applied to this particular case as the concept had not
been developed properly which is supported by Syros Shipping Co. S.A v Elaghill
Trading Co 1981 3 AII E.R. 189. This case held that claimant’s claim was in
contract however no actual contract was enforced so the claim could not be
enforced in law. Judge Russell agrees with Glidewell and would have regarded
the use of promissory estoppel on the basis that the defendants were stopped
from raising this defence that their payment of an extra £10,300 was not
binding.  In order to support his
decision of not using promissory estoppel, Russell LJ refers to the judgement
by Robert Goff J in Amalgamated Investment and Property Co Ltd v Texas Commerce
International Bank Ltd 1982 QB 84 in which he states “its effect may be to
enable a party to enforce a cause of action which, without the estoppel, would
not exist” further demonstrating the need for development.

 

5)           
Whether
the claimant put the defendants under economic duress?

 

Glidewell L.J identified this concept
as relevant and simply stated that if a subcontractor, who has already agreed
to carry out work for a fixed price, then refuses to continue if they do not
receive extra payment, this agreement will be void as “it was entered into
under duress.” However, Glidewell was correct to see that “there is no
suggestion… the promise was given as a result of fraud or duress” which was the
extra £10,300 the defendants agreed to pay to the claimant if they complete
their obligations. Glidewell L.J supports this with an example that if A enters
a contract with B to complete work and B can see that A may not be able to
complete the work and promises extra payment in order to finish the work. B
gains a benefit and if the agreement is not “as a result of economic duress”,
the promise is legally binding. Purchas L.J agrees with Glidewell L.J that
economic duress cannot be used as a defence by the defendants because the
agreement of paying an extra £10,300 at the rate of £575 on the completion of
each flat did not derive from the claimant and firmly stated that “it would
not…lie in the defendants’ mouth to assert a defence of duress” thus further
supporting Glidewell L.J.

 

5.
RATIO DECIDENDI

When one party has an existing
contract with another party to carry out duties that have been contracted for
an agreed price and then a promise is made by one of the parties to make an
additional payment in order for existing duties to be completed, thus avoiding
a detriment and securing practical benefits. The promise to make the additional
payment does constitute as sufficient consideration.

 

6.
ANALYIS

     
I.       
This
case is still current law. The concept that derived in this case when a party
gains ‘practical benefits’ and avoids a detriment, this is still perceived as
sufficient consideration in an agreement between two parties. It does not
change the overall concept of consideration however provides further detail as
what can constitute as consideration in an agreement. Williams v Roffey Bros
& Nicholls Ltd is still considered or applied in cases today such as Stevens
drake Ltd v Hunt 2016 EWHC 1111 (Ch) and Sutton Re 2014 B.P.I.R. 1349. In
Sutton Re, it was held at the Chancery Division, namely Chief Register Baiter
that an agreement to persuade a third party do something which the debtor would
have undertook differently from “an obligation that was enforceable simply
against the debtor and was not supported (however indirectly or loosely) by a
third party.” This was perceived as a practical benefit to the promisee, even though
there was hope for money to be recovered which demonstrates the principle used
in Williams v Roffey Bros & Nicholls Ltd.

 

   
II.       
Cases
that have followed the decision in Williams v Roffey Bros are the MWB Business
Exchange Centres Ltd v Rock Advertising Ltd 2016 EWCA Civ 553 and Scomadi Ltd
v RA Engineering Co Ltd 2017 EWHC 2658 (IPEC). Other cases that have applied
Williams and Roffey Bros are Sutton Re 2014 B.P.I.R. 1349. Adam Opel GmbH v
Mitras Automotive (UK) Ltd 2008 Bus. L.R. D55 and Simon Container Machinery
Ltd v Emba Machinery AB 1998 2 Lloyd’s Rep. 429.

 

  
III.       
A
case which has distinguished the decision reached in Williams v Roffey Bros
& Nicholls Ltd is Re Selectmove 1995 1 W.L.R 474. In this case,
Selectmove owed Inland Revenue large sums of tax. It was accepted at a meeting
that liquidation was not an option. It was agreed with a collector of taxes for
the company to pay instalments of £1,000 per month due to Selectmove’s cash
flow problems in order to pay off arrears. Selectmove made two payments under
this agreement. Afterwards, Inland Revenue demanded payment of arrears and
threatened to wind up a petition against Selectmove however they believed there
was sufficient consideration in the agreement made. Peter Gibson L.JJ heavily
refers to Foakes v Beer (1884) 9 App. Cas 605 where it reiterates the principle
established in the Pinnel’s Case (1602) 5 Co Rep 117a that part payment of a
debt is not good consideration to forgo any balance expect at a promisor’s
request. He states that “When a creditor and a debtor who are at arm’s length
reach agreement on the payment of the debt by instalments to accommodate the
debtor, the creditor will no doubt always see a practical benefit to himself in
so doing.” This differentiates from Williams v Roffey Bros & Nicholls based
on the practical benefits gained because the defendants agreed to pay an
additional sum of money to the claimant (subcontractors) in order to complete
work from an existing contract and gained benefits as a result. Whereas, in Re
Selectmove, when dealing with debts, consideration is not needed as support for
an agreement for something a party is already legally bound by and a practical
benefit of gaining money from instalments cannot be seen as good consideration
which is why this case distinguishes from Williams v Roffey Bros & Nicholls
Ltd as that case concerned a subcontract deal where there was obvious practical
benefits to the defendants of the work not being completed on time.

 

Another case that distinguishes itself
from Williams v Roffey Bros & Nicholls Ltd is Stilk v Myrick (1809) 2 camp
317, 170 ER 1168 which can be perceived as old law by some courts. In this
particular case, two sailors deserted a ship which was on a voyage from London
to the Baltic. Afterwards, the captain of the ship promised the remaining
sailors that he would share the wages of those who deserted amongst the rest of
the crew when the voyage was completed. However, the captain made no payment
and Lord Ellenborough held that the “agreement is void for want of consideration.”
This differentiates from the Williams and Roffey case because the sailors were
already bound by an existing contract which stated that the sailors would do
everything they could in the case of an emergency. The desertion of some of the
crew was clearly seen as an emergency of the voyage so the sailors were bound
by their contract to ensure the voyage continued even if they had to work extra
hours. Furthermore, the captain did not gain practical benefits from the
completion of the voyage due to the sailors already agreeing to undertake all
emergencies on the ship unlike the Roffey Bros who did not have to find
subcontractors and avoided penalty clauses’ thus gaining practical benefits.
Unlike Williams and Roffey Bros, the captain gained a factual benefit, namely
the promise from the sailors to ensure the ship completes its voyage which
derives from the original contract.

 

 

 

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