Material Facts
Roffey Bros. & Nicholls (Contractors) Ltd. (Roffey Bros) subcontracted the carpentry work in 27 flats to Williams, along with some work to the roof; the total price originally agreed for the work was £20,000. The price was too low for Williams to complete the work and they ran into financial difficulty. Roffey Bros were aware that the price was too low. They would suffer a financial penalty under the main contract if the work was not completed on time. In order to avoid this penalty, they made an oral agreement to pay an additional £10,300 to Williams, which would be paid in installments of £575 following the completion of individual flats. Williams continued work and substantially, but not completely, finished work on another 8 flats and received further payment of £1500. Williams then abandoned work on the flats due to Roffey Bros failing to maintain their promise of further payment. Roffey Bros employed alternative carpenters to complete the work although this was not completed on time and as such Roffey Bros suffered a financial penalty under the main contract.
The Decision
Williams (the claimant) attempted to sue Roffey Bros in the County Court for the sum of £10,847.07. Roffey Bros (the defendant) counter claimed for the sum of £18,121.46. The judge awarded £3500 in damages plus £1400 interest and costs to Williams, and dismissed Roffey Bros counter claim. Roffey Bros challenged the decision on the basis that there was no consideration from Williams for their later agreement to pay an additional sum and that the additional payments were dependent on completion of individual flats, none of which had been wholly completed. The Court of Appeal dismissed the appeal.
The Ratio Decidendi
Glidewell L.J gave the leading judgment. On the issue of substantial but not entire completion of the remaining flats, Glidewell L.J agreed with the the trial judge in the lower court that substantial completion entitled Williams to payment. His Lordship cited the case of Hoenig v Isaacs as authority for this (Williams’ representative advanced this reasoning).
On the issue of lack of consideration, his Lordship found that Williams’ agreement to continue to work on the flats was supported by consideration. He supported this reasoning based on his interpretation of the judgments in three previous cases (Ward v Byham; Williams v Williams; Pao on v Lau Yiu Long). He circumvented the rule in Stilk v Myrick contending that the doctrine of consideration should be developed in its application with reflection to the historic maritime circumstances in which the decision in Stilk was reached. He went on to assert the law in this area stating that an agreement to continue to perform an existing obligation for increased payment was not void for lack of consideration provided that, inter alia; the agreement to pay more was not based on economic duress or fraud, and the party promising to pay more obtained some benefit or avoided some detriment as result of their promise. His Lordship’s view was that the benefit obtained or detriment avoided amounted to additional consideration to support the new agreement. His Lordship also dismissed a further argument put forward by the defence that the consideration had not moved from the promisee. His reasoning was that the consideration was not a result of a third parties’ actions and therefore provided by the promisee and such was valid.
Russell L.J agreed with Glidewell L.J on the issue of substantial but not entire completion of the flats. His Lordship hesitated on the issue of consideration however he concluded that Roffey Bros retaining the services of Williams and the implementation of a formalised payment scheme based on successive completion of individual flats were advantages to Roffey Bros that amounted to valid consideration. It is notable that during his judgment he considered the unraised argument of estoppel and also attached significance to Roffey Bros’ admission that the original price was unreasonable. This demonstrates that his Lordship’s decision was influenced by equitable principles.
Purchas L.J agreed with Glidewell L.J and Russell LJ’s judgments and reasoning on all aspects and added nothing noteworthy in his discussion on the rationale for this decision.
The combined reasoning on the significant issue of consideration was that contractual relationships that are renegotiated should not be void for lack of consideration, although no new obligations are created, provided that some benefit is obtained or detriment avoided.
The Implications
This case is not novel in its broadening of the rule from Stilk that existing obligations do not amount to consideration. Glidewell L.J’s assertion of the law was simply a re-statement of how it had developed in the cases of Ward v Byham, Williams v Williams and Pao On. The majority in all three cases found extra consideration in the promise to perform an existing duty. However, it is noteworthy that in the two former cases Denning L.J dissented from the reasoning of the majority (but not on the decision) maintaining his view that a promise to perform an existing duty should be enforceable.
The rationale in Roffey appears challenge the decisions in Pinnel’s Case and Foakes v Beer. In both these cases it can be contended that a practical benefit was conferred upon the corresponding parties; although neither case was discussed in the judgments in Roffey.
Subsequent Developments
The subsequent cases of Anagel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) and Simon Container Macinery Ltd v Emba Machinery AB followed the precedent in Roffey. It was held in each case that not withdrawing from the contract was a practical benefit and therefore amounted to sufficient consideration. However, this extension of the doctrine of consideration has been met with some resistance from the judiciary. In both Adem Opel GmbH v Mitras Automotive (UK) Ltd and South Caribbean Trading Ltd v Trafigura Beheer BV the court expressed discontent with the finding of extra consideration in a pre existing obligation. Nevertheless they conceded that they were bound by it as it was a Court of Appeal decision.
The disparity between Roffey and Foakes v Beer culminated in Re Selectmove. In Re Selectmove it was held that part payment of a debt does not amount to a practical benefit. The result is that in an existing contractual relationship, renegotiations that increase the obligations of one party need not be mirrored with further obligation(s) from the other. However, a renegotiation that reduces the obligations of one party without a corresponding reduction are invalid. This does leave the law somewhat contradictory.
Evaluation
In this section the erroneous distinction between Stilk v Myrick and Roffey will be considered. In addition to this, alternative reasoning which could have provided the same result without such a wide expansion of the doctrine of consideration will be discussed. In my view the decision in Roffey was appropriate because it would be unjust to allow a party to renege on a promise that has been made with the intent, or purported intent, of being legally binding. Furthermore, it is contrary to doctrine of freedom of contract to disallow parties to renegotiate existing contracts notwithstanding lack of further obligation from one party.
The court attempted to distinguish Stilk v Myrick on the basis that it was decided for public policy reasons (in order to prevent the extortion of extra wages from captains whilst at sea). Duress was only mentioned in Espinasse’s (probably incorrect) report of Stilk; contradictorily the judges cited Campbell’s report of Stilk which makes no mention of duress. Although the court in Roffey unanimously insisted that that they had not overruled Stilk there is a broad consensus among academics that Roffey has de facto overruled it. The decision in Roffey rendered the precedent insignificant because of the far broader interpretation of consideration following the case. If Stilk v Myrick were decided today on the facts as reported by Campbell, and following the decision in Roffey, it is highly likely that consideration would be found in the benefit conferred upon the captain by the seamen’s continuation with their existing duties. For these reasons, I find the courts distinction of Stilk v Myrick unfounded and illusory.
Roffey stipulates that there must be a practical benefit (if not legal) conferred upon the party which increases their obligations under contractual renegotiation. The practical benefits found to amount to consideration in this case were: continued performance, avoidance of finding replacement contractors, avoidance of the penalty clause under the main contract and the implementation of a more formalised method of payment based on successive completion of the flats. All but the latter were benefits that would have arisen under the original agreement and thus could not amount to further consideration. Chen-Wishart argues that the potential detriment avoided from the continued performance of a contract should not amount to consideration for which the party who may breach can use to obtain additional contractual benefits. Hird follows the same reasoning describing the notion as insulting and illogical. This is correct as the implications of allowing such benefits to amount to consideration could result in intentional tendering at unrealistic rates in order to secure contracts. The party tendering would be sheltered by the knowledge that a higher amount would likely be offered in order to avoid further losses. The notion that consideration can arise from the avoidance of a potential breach of contract is inequitable and could produce unjust outcomes in subsequent cases.
It is possible that the case could have been decided without such a treacherous expansion of the doctrine of consideration. The completion of the flats in a progressive manner may amount to sufficient consideration because it was extra to what had already been agreed. This view is supported by Russell L.J in his judgment where he states that although no additional work was agreed, the variation as to how the work would be carried out amounted to sufficient consideration. Purchas L.J agreed and stated that Roffey Bros obtained a benefit by being able to direct other trades into the flats that would have otherwise been inaccessible. It was therefore not necessary for the judges in this case to invent consideration under the new doctrine of practical benefit in order for them to deliver the outcome they desired. Although this alternative would be a slight expansion on the existing precedent relating to consideration and pre-existing contractual duties, it would not entirely redefine consideration in the way that Roffey has. Although it would be advantageous, this alternative reasoning could also produce undesirable consequences because a party to a contract may intentionally resist minor alterations requested in their performance with the intent of securing further payment.
The possible role of promissory estoppel in this case was considered but not applied. The accepted view is that promissory estoppel, as an equitable doctrine, is a shield and not a sword. This means it can only be used to prevent the enforcement of obligations rather than create new ones. It is however argued that where existing contracts are renegotiated, promissory estoppel should be able to create new obligations. Australian courts have embraced this notion; in Waltons Stores (Interstate) Ltd. v Maher promissory estoppel was used to enforce an obligation rather than merely protect against the enforcement of one. Promissory estoppel also has the advantage of being an equitable doctrine and therefore can not be used by a party that has acted unconscionably.
To conclude, I believe that the result in Roffey was correct the but the rationale was flawed. As a result of this unsound reasoning the doctrine of consideration has been expanded to the extent that entirely trivial benefits may amount to valid consideration in future cases. Furthermore, the ill-defined doctrine of practical benefit has proven difficult to apply and this creates uncertainty for contracting parties. It is unfortunate that the court did not pursue an expansion of the doctrine of promissory estoppel. It could have provided the same outcome and set a precedent to mitigate the harshness of the doctrine of consideration whilst still maintaining certainty in contract law.
Word Count: 1993
Bibliography
• ——, ‘Consideration and Modification of Contracts’ (2005) Building Law Monthly 11
• Adams J and Brownsword R, ‘Contract, Consideration and the Critical Path’ (1990) 53 MLR 536 536; Richard Hooley, ‘Consideration and the existing duty’ (1991) JBL 19 29
• Adem Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3205
• Anagel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No.2) (2007) 230 CLR 89
• Blair A and Hird N, ‘Minding your own business – Williams v Roffey re-visisted: consideration re-considered’ (1996) JBL 254
• Chen-Wishart M, ‘Consideration: Practical Benefit and the Emperor’s New Clothes’ in Daniel Friedman and Jack Beatson (eds) Good Faith in Contract Law (Oxford: Clarendon 1st edn OUP 1995) 125
• Foakes v Beer (1884) 9 App Cas 605
• Giancaspro M ‘For Your Consideration: Old Rules, Practical Benefit and a New Approach to Contractual Variation’ (DPhil Thesis, University of Adelaide 2014) 105
• Hoenig v Isaacs [1952] 2 All ER 176 (CA)
• McKendrick E, Contract Law Text, Cases and Materials (6th edn, OUP 2014) 175
• Ogilvie M. H, ‘Of What Practical Benefit is Practical Benefit to Consideration?’ UNBLJ 62 (2011) 131
• Pao on v Lau Yiu Long [1979] 3 All ER 65
• Phang A, ‘Consideration at the crossroads’ (1991) 107 LQR 24
• Pinnel’s Case (1602) 77 ER 237
• Re Selectmove [1995] 1 WLR 474
• Simon Container Macinery Ltd v Emba Machinery AB [1998] 2 Lloyd’s Rep 429
• South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128
• Stilk v Myrick (1809) Camp 317
• Ward v Byham [1956] 2 All ER 318 (CA)
• Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA)
• Williams v Williams [1957] 1 All ER 305 (CA)
Roffey Bros. & Nicholls (Contractors) Ltd. (Roffey Bros) subcontracted the carpentry work in 27 flats to Williams, along with some work to the roof; the total price originally agreed for the work was £20,000. The price was too low for Williams to complete the work and they ran into financial difficulty. Roffey Bros were aware that the price was too low. They would suffer a financial penalty under the main contract if the work was not completed on time. In order to avoid this penalty, they made an oral agreement to pay an additional £10,300 to Williams, which would be paid in installments of £575 following the completion of individual flats. Williams continued work and substantially, but not completely, finished work on another 8 flats and received further payment of £1500. Williams then abandoned work on the flats due to Roffey Bros failing to maintain their promise of further payment. Roffey Bros employed alternative carpenters to complete the work although this was not completed on time and as such Roffey Bros suffered a financial penalty under the main contract.
The Decision
Williams (the claimant) attempted to sue Roffey Bros in the County Court for the sum of £10,847.07. Roffey Bros (the defendant) counter claimed for the sum of £18,121.46. The judge awarded £3500 in damages plus £1400 interest and costs to Williams, and dismissed Roffey Bros counter claim. Roffey Bros challenged the decision on the basis that there was no consideration from Williams for their later agreement to pay an additional sum and that the additional payments were dependent on completion of individual flats, none of which had been wholly completed. The Court of Appeal dismissed the appeal.
The Ratio Decidendi
Glidewell L.J gave the leading judgment. On the issue of substantial but not entire completion of the remaining flats, Glidewell L.J agreed with the the trial judge in the lower court that substantial completion entitled Williams to payment. His Lordship cited the case of Hoenig v Isaacs as authority for this (Williams’ representative advanced this reasoning).
On the issue of lack of consideration, his Lordship found that Williams’ agreement to continue to work on the flats was supported by consideration. He supported this reasoning based on his interpretation of the judgments in three previous cases (Ward v Byham; Williams v Williams; Pao on v Lau Yiu Long). He circumvented the rule in Stilk v Myrick contending that the doctrine of consideration should be developed in its application with reflection to the historic maritime circumstances in which the decision in Stilk was reached. He went on to assert the law in this area stating that an agreement to continue to perform an existing obligation for increased payment was not void for lack of consideration provided that, inter alia; the agreement to pay more was not based on economic duress or fraud, and the party promising to pay more obtained some benefit or avoided some detriment as result of their promise. His Lordship’s view was that the benefit obtained or detriment avoided amounted to additional consideration to support the new agreement. His Lordship also dismissed a further argument put forward by the defence that the consideration had not moved from the promisee. His reasoning was that the consideration was not a result of a third parties’ actions and therefore provided by the promisee and such was valid.
Russell L.J agreed with Glidewell L.J on the issue of substantial but not entire completion of the flats. His Lordship hesitated on the issue of consideration however he concluded that Roffey Bros retaining the services of Williams and the implementation of a formalised payment scheme based on successive completion of individual flats were advantages to Roffey Bros that amounted to valid consideration. It is notable that during his judgment he considered the unraised argument of estoppel and also attached significance to Roffey Bros’ admission that the original price was unreasonable. This demonstrates that his Lordship’s decision was influenced by equitable principles.
Purchas L.J agreed with Glidewell L.J and Russell LJ’s judgments and reasoning on all aspects and added nothing noteworthy in his discussion on the rationale for this decision.
The combined reasoning on the significant issue of consideration was that contractual relationships that are renegotiated should not be void for lack of consideration, although no new obligations are created, provided that some benefit is obtained or detriment avoided.
The Implications
This case is not novel in its broadening of the rule from Stilk that existing obligations do not amount to consideration. Glidewell L.J’s assertion of the law was simply a re-statement of how it had developed in the cases of Ward v Byham, Williams v Williams and Pao On. The majority in all three cases found extra consideration in the promise to perform an existing duty. However, it is noteworthy that in the two former cases Denning L.J dissented from the reasoning of the majority (but not on the decision) maintaining his view that a promise to perform an existing duty should be enforceable.
The rationale in Roffey appears challenge the decisions in Pinnel’s Case and Foakes v Beer. In both these cases it can be contended that a practical benefit was conferred upon the corresponding parties; although neither case was discussed in the judgments in Roffey.
Subsequent Developments
The subsequent cases of Anagel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) and Simon Container Macinery Ltd v Emba Machinery AB followed the precedent in Roffey. It was held in each case that not withdrawing from the contract was a practical benefit and therefore amounted to sufficient consideration. However, this extension of the doctrine of consideration has been met with some resistance from the judiciary. In both Adem Opel GmbH v Mitras Automotive (UK) Ltd and South Caribbean Trading Ltd v Trafigura Beheer BV the court expressed discontent with the finding of extra consideration in a pre existing obligation. Nevertheless they conceded that they were bound by it as it was a Court of Appeal decision.
The disparity between Roffey and Foakes v Beer culminated in Re Selectmove. In Re Selectmove it was held that part payment of a debt does not amount to a practical benefit. The result is that in an existing contractual relationship, renegotiations that increase the obligations of one party need not be mirrored with further obligation(s) from the other. However, a renegotiation that reduces the obligations of one party without a corresponding reduction are invalid. This does leave the law somewhat contradictory.
Evaluation
In this section the erroneous distinction between Stilk v Myrick and Roffey will be considered. In addition to this, alternative reasoning which could have provided the same result without such a wide expansion of the doctrine of consideration will be discussed. In my view the decision in Roffey was appropriate because it would be unjust to allow a party to renege on a promise that has been made with the intent, or purported intent, of being legally binding. Furthermore, it is contrary to doctrine of freedom of contract to disallow parties to renegotiate existing contracts notwithstanding lack of further obligation from one party.
The court attempted to distinguish Stilk v Myrick on the basis that it was decided for public policy reasons (in order to prevent the extortion of extra wages from captains whilst at sea). Duress was only mentioned in Espinasse’s (probably incorrect) report of Stilk; contradictorily the judges cited Campbell’s report of Stilk which makes no mention of duress. Although the court in Roffey unanimously insisted that that they had not overruled Stilk there is a broad consensus among academics that Roffey has de facto overruled it. The decision in Roffey rendered the precedent insignificant because of the far broader interpretation of consideration following the case. If Stilk v Myrick were decided today on the facts as reported by Campbell, and following the decision in Roffey, it is highly likely that consideration would be found in the benefit conferred upon the captain by the seamen’s continuation with their existing duties. For these reasons, I find the courts distinction of Stilk v Myrick unfounded and illusory.
Roffey stipulates that there must be a practical benefit (if not legal) conferred upon the party which increases their obligations under contractual renegotiation. The practical benefits found to amount to consideration in this case were: continued performance, avoidance of finding replacement contractors, avoidance of the penalty clause under the main contract and the implementation of a more formalised method of payment based on successive completion of the flats. All but the latter were benefits that would have arisen under the original agreement and thus could not amount to further consideration. Chen-Wishart argues that the potential detriment avoided from the continued performance of a contract should not amount to consideration for which the party who may breach can use to obtain additional contractual benefits. Hird follows the same reasoning describing the notion as insulting and illogical. This is correct as the implications of allowing such benefits to amount to consideration could result in intentional tendering at unrealistic rates in order to secure contracts. The party tendering would be sheltered by the knowledge that a higher amount would likely be offered in order to avoid further losses. The notion that consideration can arise from the avoidance of a potential breach of contract is inequitable and could produce unjust outcomes in subsequent cases.
It is possible that the case could have been decided without such a treacherous expansion of the doctrine of consideration. The completion of the flats in a progressive manner may amount to sufficient consideration because it was extra to what had already been agreed. This view is supported by Russell L.J in his judgment where he states that although no additional work was agreed, the variation as to how the work would be carried out amounted to sufficient consideration. Purchas L.J agreed and stated that Roffey Bros obtained a benefit by being able to direct other trades into the flats that would have otherwise been inaccessible. It was therefore not necessary for the judges in this case to invent consideration under the new doctrine of practical benefit in order for them to deliver the outcome they desired. Although this alternative would be a slight expansion on the existing precedent relating to consideration and pre-existing contractual duties, it would not entirely redefine consideration in the way that Roffey has. Although it would be advantageous, this alternative reasoning could also produce undesirable consequences because a party to a contract may intentionally resist minor alterations requested in their performance with the intent of securing further payment.
The possible role of promissory estoppel in this case was considered but not applied. The accepted view is that promissory estoppel, as an equitable doctrine, is a shield and not a sword. This means it can only be used to prevent the enforcement of obligations rather than create new ones. It is however argued that where existing contracts are renegotiated, promissory estoppel should be able to create new obligations. Australian courts have embraced this notion; in Waltons Stores (Interstate) Ltd. v Maher promissory estoppel was used to enforce an obligation rather than merely protect against the enforcement of one. Promissory estoppel also has the advantage of being an equitable doctrine and therefore can not be used by a party that has acted unconscionably.
To conclude, I believe that the result in Roffey was correct the but the rationale was flawed. As a result of this unsound reasoning the doctrine of consideration has been expanded to the extent that entirely trivial benefits may amount to valid consideration in future cases. Furthermore, the ill-defined doctrine of practical benefit has proven difficult to apply and this creates uncertainty for contracting parties. It is unfortunate that the court did not pursue an expansion of the doctrine of promissory estoppel. It could have provided the same outcome and set a precedent to mitigate the harshness of the doctrine of consideration whilst still maintaining certainty in contract law.
Word Count: 1993
Bibliography
• ——, ‘Consideration and Modification of Contracts’ (2005) Building Law Monthly 11
• Adams J and Brownsword R, ‘Contract, Consideration and the Critical Path’ (1990) 53 MLR 536 536; Richard Hooley, ‘Consideration and the existing duty’ (1991) JBL 19 29
• Adem Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3205
• Anagel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd (No.2) (2007) 230 CLR 89
• Blair A and Hird N, ‘Minding your own business – Williams v Roffey re-visisted: consideration re-considered’ (1996) JBL 254
• Chen-Wishart M, ‘Consideration: Practical Benefit and the Emperor’s New Clothes’ in Daniel Friedman and Jack Beatson (eds) Good Faith in Contract Law (Oxford: Clarendon 1st edn OUP 1995) 125
• Foakes v Beer (1884) 9 App Cas 605
• Giancaspro M ‘For Your Consideration: Old Rules, Practical Benefit and a New Approach to Contractual Variation’ (DPhil Thesis, University of Adelaide 2014) 105
• Hoenig v Isaacs [1952] 2 All ER 176 (CA)
• McKendrick E, Contract Law Text, Cases and Materials (6th edn, OUP 2014) 175
• Ogilvie M. H, ‘Of What Practical Benefit is Practical Benefit to Consideration?’ UNBLJ 62 (2011) 131
• Pao on v Lau Yiu Long [1979] 3 All ER 65
• Phang A, ‘Consideration at the crossroads’ (1991) 107 LQR 24
• Pinnel’s Case (1602) 77 ER 237
• Re Selectmove [1995] 1 WLR 474
• Simon Container Macinery Ltd v Emba Machinery AB [1998] 2 Lloyd’s Rep 429
• South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128
• Stilk v Myrick (1809) Camp 317
• Ward v Byham [1956] 2 All ER 318 (CA)
• Williams v Roffey Brothers & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA)
• Williams v Williams [1957] 1 All ER 305 (CA)
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