Journal Article Williams V Roffey Brothers Consideration PDF

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Journal of Business Law 1991

Consideration and the existing duty Richard Hooley Subject: Contracts Keywords: Consideration; Formation of contract; Promises Cases: Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 Q.B. 1 (CA (Civ Div)) Stilk v Myrick 170 E.R. 1168 *J.B.L. 19 For almost two centuries Stilk v. Myrick has been cited as authority for the pro-position that the performance, or the promise to perform, by A of an existing contractual duty which A already owes to B is no consideration for a promise made by B to A. The recent decision of the Court of Appeal in Williams v. Roffey Brothers & Nicholls (Contractors) Ltd. has turned such orthodoxy on its head. This article examines the Court of Appeal's reasoning and traces its departure from a rigid approach to consideration. Whilst this flexible approach is welcomed, the article concludes that as the court's underlying desire is to see fair dealing during contract renegotiation it must be prepared to refine other policing mechanisms to take the place of the doctrine of consideration.

Introduction When A does, or promises to do, something he is already legally bound to do, does he provide consideration for any reciprocal promise from B? This question may arise in three distinct cases. The existing duty may be imposed on A by law, through statute or otherwise, by existing contractual duty to B or by existing contractual duty to C, a third party. Recognising a greater risk of extortion in the public duty and two-party cases than in those involving a third person,1 the courts have rejected A's performance of, or promise to perform, the existing duty as being sufficient consideration to support B's subsequent promise to him in the first and second case whilst accepting it as good consideration in the third.2 When waging war on the extortionist in the public duty and two-party cases the courts have used the doctrine of consideration as the main weapon in their armoury. As in all wars the innocent suffer with the guilty. This can occur in many two-party renegotiation cases. If A and B genuinely and reasonably wish to renegotiate their contract such contractual modification may fail for want of consideration just as much as if A had extorted it. To avoid such injustice general exceptions have been grafted onto the basic prohibitive rules.3 However, such exceptions remain open to abuse by the extortionist and may be *J.B.L. 20 unknown to the parties to an innocent renegotiation. The result has been a mishmash of exceptions to a rule which ignores the commercial benefits of a genuine renegotiation (Foakes v. Beer, 4 per Lord Blackburn), is open to ridicule (Couldery v. Bartrum, 5 per Sir George Jessel M.R.) and cries out for reform (Law Revision Committee, Sixth Interim Report, 1937 at paragraphs 33-36 and 50(3)-(4)).6 It is against this background that the Court of Appeal's recent decision in Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. 7 must be considered.

The facts This was a two-party case. The defendants were main contractors engaged in the refurbishment of a block of 27 flats. The plaintiff was sub-contracted by them to carry out carpentry work for a total price of £20,000. After completing nine flats (and receiving interim payments of £16,000) the plaintiff ran into financial difficulties because the contract price was too low and because he failed to supervise his men properly. The defendants were concerned that the flats would not be completed on time and that they would incur penalties under their main contract. As a result, and with the encouragement of their own surveyor, the defendants agreed to pay the plaintiff an extra £10,300 at the rate of £575 per flat. Payment was to be made on completion of each flat. The plaintiff continued to work on the flats and although eight further flats were “substantially completed” the defendants made only one further payment of £1,500. This resulted in the plaintiff stopping work and bringing this action, inter alia, for the additional sums promised. The plaintiff succeeded before the County Court judge and the Court of

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Appeal. This article will concentrate on the main issue of the appeal: whether the plaintiff gave consideration for the defendants' promise to pay the bonus.8

The main argument At first sight it is difficult to see how the plaintiff could have succeeded. Purchas L.J. himself remarked that “ Prima facie this would appear to be a classic Stilk v. Myrick case ” 9 In Stilk v. Myrick 10 the plaintiff seaman failed to recover a bonus promised to the crew by their captain when two of their *J.B.L. 21 number deserted. Lord Ellenborough held that by merely continuing to perform their existing contractual duties the crew had failed to provide sufficient consideration for the captain's promise. As a result the crew could not recover the bonus. The case has been subject to much criticism and on one view Lord Ellenborough, in any event, may have based his decision on public policy grounds alone.11 But the courts have continued to interpret Stilk v. Myrick as authority for the proposition that the performance by A of a contractual duty which A already owes to B is no consideration for a promise made by B to A, even though A's performance may in fact benefit B.12 Does not Williams v. Roffey fall firmly within this principle? The purported consideration in performing, or promising to perform, an existing contractual duty was insufficient because “in the eye of the law” 13 it proved no detriment to the promisee or benefit to the promisor under the modified contract. Without legal wrongdoing or the promisor's concurrence the promisee could not avoid or modify his obligation to perform. By contrast when the promisee is bound by an existing contractual duty to a third party he suffers a detriment by fettering his chance to avoid or modify performance through renegotiation with the third party without legal wrongdoing or the concurrence of the new promisor.14 Although Stilk v. Myrick concerns the creation of executory duties, identical reasoning as used to support that decision applies equally in the case of a sole creditor agreeing to discharge a debtor on payment of a lesser sum: Pinnel's Case. 15 The contrast is that the rule in Pinnel's Case concerns the discharge as opposed to the creation of contractual duties. Sir Frederick Pollock was one of the first to express regret at the extention of the doctrine of consideration from the formation of contracts to the regulation and restraint of their discharge.16 The cases based on an action in assumpsit and those in debt may have different historical origins but they are now intimately linked in the theory and public policy which seek to justify them.17 In seeking to ensure that the plaintiff continued to work and did not stop in breach of the sub-contract, avoiding the penalty for delay and avoiding the trouble and expense of engaging other people to complete the carpentry work, the defendants in Williams v. Roffey obtained factual benefits out of the renegotiation with the plaintiff. It was the defendants' case that these factual benefits were to be ignored as they could not obtain any legal benefit out of the plaintiff's promise to perform his contractual obligations.

*J.B.L. 22 The decision Glidewell, Russell and Purchas L.JJ. were not prepared to ignore such factual benefits. The lead judgment was given by Glidewell L.J. who stated that: “ the law on this subject can be expressed in the following propositions: (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain and (iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time and (iv) as a result of his giving his promise B obtains in practice a benefit, or obviates a disbenefit, and (v) B's promise is not given as a result of economic duress or fraud on the part of A, then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding.”18 In so summarising what he considered to be the present state of the law, Glidewell L.J. purported to follow “ the view of the majority in Ward v. Byham and of the whole court in Williams v. Williams and that of the Privy Council in Pao On v. Lau Yiu ” 19 In so far as propositions (iii) and (iv) can be interpreted as being drawn from Ward v. Byham 20 and Williams v. Williams 21 in this way, the

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accuracy of that summary is doubtful.

Ward v. Byham; Williams v. Williams In Ward v. Byham 22 the parents of an illegitimate child separated. The defendant father agreed that the plaintiff mother could have the child and further promised to pay the plaintiff a weekly allowance provided she could prove “that the child will be well looked after and happy and also that she is allowed to decide for herself whether or not she wishes to come and live with [the plaintiff].” The majority (Morris and Parker L.JJ.23 ) found “ample consideration” to support the defendant's promise of a weekly allowance in that the plaintiff's compliance with the stipulated conditions exceeded her statutory duty. Under the relevant legislation the mother would not, for example, be obliged to prove that the child was well looked after and happy. In short, the plaintiff incurred an additional detriment. However, it is implicit in the judgments of the majority that through the plaintiff incurring obligations beyond her strict legal duty the defendant gained a benefit he would not otherwise have received. This was not the view of Denning L.J. For him the benefit accruing to the defendant arose out of the very fact that the plaintiff was doing what she was legally bound to do. The mere promise to perform an existing duty, or the performance of it, was to be regarded as good consideration because it was a benefit to the person to whom it was given. *J.B.L. 23 According to Denning L.J.24 as the defendant “gets the benefit for which he stipulated, he ought to honour his promise.”25 In Williams v. Williams 26 a wife deserted her husband. By agreement between them the husband agreed to pay the wife maintenance of 30s. per week. In return the wife, inter alia, agreed that she would “support and maintain herself and will indemnify the husband against all debts to be incurred by her and will not in any way at any time hereafter pledge the husband's credit.” Hodson and Morris L.JJ., together with Denning L.J. as an alternative ground for his decision, accepted that the wife's agreement to accept maintenance of 30s. a week restricted her to a greater extent than if she had merely been deprived of maintenance by her desertion. The wife always had the option to offer to return to the husband and if he unreasonably refused such an offer his obligation to pay maintenance would reoccur. But the wife's agreement meant that should this “real contingency” (per Hodson L.J.27 ) arise the agreed figure of 30s. would be regarded by the courts as prima facie the correct figure for maintenance so long as the agreement subsisted. Again the reasoning of Hodson and Morris L.JJ., and the alternative reasoning of Denning L.J., turns on detriment to the promisee. Any benefit to the husband arose as a result of the wife's detriment. It is submitted that Hodson and Morris L.JJ. would not have been prepared to recognise a benefit to the husband without such a reciprocal detriment to the wife. But Denning L.J. would give recognition to a benefit which arose out of the promise to perform an existing duty.28 Although complying with her existing duty the wife might still have applied for public assistance or pledged the husband's credit. The husband could then have been called before the National Assistance Board or been sued in the County Court. As the wife was in desertion he would have had an answer to such claims but, according to Denning L.J.,29 the benefit of the wife's promise was that he now had “an added safeguard to protect himself from all this worry, trouble and expense.” Hodson L.J.30 would not accept that a husband could benefit from his wife's agreement not to make invalid claims on him. There could be no detriment to the wife and no benefit to the husband. But in Callisher v. Bischoffsheim 31 Cockburn C.J. held that avoidance of the trouble and expense of litigation was sufficient benefit to support a compromise agreement even if the original claim is bound to fail so long as it was made on reasonable grounds and was in good faith *J.B.L. 24 believed by the claimant to have a fair chance of success. This would lend more support to Denning L.J.'s reasoning than to that of Hodson L.J.32 The view of Morris, Parker and Hodson L.JJ. followed an established line of authority. In Hicks v. Gregory 33 Wilde C.J. and Maule J. found consideration not in a mother's agreement to maintain her child but in her undertaking to bring the child up in a proper manner whilst herself being of good character. The father benefited as he was relieved from being compelled to support the child. But the benefit stemmed from the mother's undertaking to do more than her strict legal duty compelled. Similar reasoning was applied by Cockburn C.J. in Smith v. Roche. 34 In this case the mother of an illegitimate child agreed to maintain it whether she was able to do so or not. This undertaking went beyond her obligation under the Poor Law legislation and thereby relieved the father of being harrassed by maintenance proceedings. Cockburn C.J.35 laid emphasis on this detriment to the promisee which she would not have suffered otherwise than as a result of her undertaking to the

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father. It is submitted that whilst Denning L.J.'s sole reasoning in Ward v. Byham and primary reasoning in Williams v. Williams concentrated on benefit to the promisor, the other members of the Court of Appeal in both cases (the “majority”) looked to detriment to the promisee as the foundation of consideration. Implicitly in Ward v. Byham and explicitly in Williams v. Williams the majority found additional benefits accruing to the father/husband, i.e. benefits which he would not otherwise have received but for the mother/wife's undertaking. But the majority were only prepared to recognise such benefits because they stemmed from additional detriment to the mother/wife, i.e. detriment which she would not otherwise have suffered but for her undertaking. But in Williams v. Roffey the plaintiff was doing no more than performing an existing obligation, i.e. to complete the flats on time.36 It is far from clear that the plaintiff even repeated his promise to perform at the time of the renegotiation.37 Although Glidewell L.J. declared that he was following what has been described as the majority opinion in Ward v. Byham and Williams v. Williams it is submitted that by his emphasis on benefit to the promisor without the promisee doing more than performing, or promising to perform, an existing duty his propositions (iii) an (iv) are more akin to the views of Denning L.J. than those *J.B.L. 25 of the majority. The benefits identified by the majority in Ward v. Byham and Williams v. Williams were additional or fresh benefits38 which only accrued to the promisor as a result of the promisee's undertaking. None of the benefits so identified would have accrued to the father/husband if the mother/wife had merely performed her existing obligations.

Additional or fresh benefits But the benefits listed by Glidewell L.J.39 (set out above) as accruing from the plaintiff's performance of his contractual duty are benefits the defendants would have received in any event if the contract had been performed as originally agreed. If at the time the original agreement was made the parties had projected their minds forward to their anticipated completion of performance then the benefits identified by Glidewell L.J. would be benefits which would have been anticipated in any event. On that scenario there is no element of additional or fresh benefit to the defendants beyond that which they were already due to receive. In particular the expense of the penalty clause or in finding alternative contractors would still have been avoided if the plaintiff had performed as originally required. Much was made of the avoidance of liability under the penalty clause. But it is submitted that a similar argument failed in North Ocean Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 40 Mocatta J. rejected the submission that the shipowners received consideration from the yard in the performance of the contract which meant that the vessel would be available to fulfil the Shell charterparty and so avoid the shipowner's potential liability of $8,000,000 to Shell if the vessel had not been completed on time. Russell and Purchas L.JJ. did purport to recognise such additional or fresh benefits. Russell L.J.41 found that it was beneficial to the defendants to replace “ what had hitherto been a haphazard method of payment by a more formalised scheme involving the payment of a specified sum on the completion of each flat.” But only the bonus was to be paid on completion of each flat, payment of the remaining part of the original price of £20,000 does not appear to have been covered by the renegotiation. It is difficult to see how the mere mode of payment of that bonus alone brought any advantage to the defendants. Purchas L.J.42 found that by completing one flat at a time rather than half completing all the flats the defendants “ were able to direct their other trades to do work in the completed flats which otherwise would have been held up until the plaintiff had completed his work.” This was a benefit. But if, because of the renegotiation, the plaintiff was now obliged to complete the flats one at a time and he had not previously been obliged to do this, it is difficult to *J.B.L. 26 see any problem with this case as the plaintiff had clearly incurred an additional detriment for the defendants' promise. This takes the case wholly outside the principle set out in Stilk v. Myrick. But as noted above the learned Lord Justices emphasised that the plaintiff continued to do what he was contractually obliged to do. In that case completion of one flat at a time was a benefit to be obtained under the original contract and not an additional or fresh benefit accruing out of the renegotiation.

Stilk v. Myrick refined and limited Glidewell L.J. emphasised that: “If it be objected that the propositions above contravene the principle in Stilk v. Myrick, I answer that in my view they do not: they refine and limit the application of that

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principle, but they leave the principle unscathed, e.g. where B secures no benefit by his promise.”43 It is respectfully submitted that Glidewell L.J. went beyond mere refinement or limitation. Glidewell L.J. recognised as benefits, that which the defendants would have gained or avoided if the original contract had been performed according to its terms. In Stilk v. Myrick the captain44 gained similar benefits. As a result of the captain's promise the ship reached its destination and he was relieved of the time, trouble and expense of making alternative arrangements to get the ship there. These were benefits directly akin to those listed by Glidewell L.J. but were ignored by Lord Ellenborough. To recognise such benefits in Williams v. Roffey draws a coach and horses through Stilk v. Myrick. Alternatively, to cite Stilk v. Myrick merely as authority for the proposition that “a gratuitous prom ise, pure and simple, remains unenforceable unless given under seal,” as do Russell and Purchas L.JJ.,45 is to miss the whole point of the case. In so far as the defendants merely received what they would have received if the contract had been properly performed then they received no additional or fresh benefit. But such an analysis focuses upon the time of the original agreement without any regard to changing circumstances at the time of the renegotiation. In Williams v. Williams Hodson L.J.46 recog...