Williams v. Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, Court of Appeal
The defendant building contractors entered into a contract with the plaintiff carpenter under which the plaintiff agreed to carry out the carpentry work on the refurbishment of twenty[1]seven flats. The contract price for the carpentry work was agreed at £20,000. After he had completed part of the work, and been paid £16,200 by the defendants, the plaintiff ran into financial difficulties. The trial judge found that there were two principal causes of his difficulties. The first was that the contract price was too low to enable him to operate satisfactorily and make a profit. The second was that he failed to supervise his workmen adequately. The defendants wished to ensure that the plaintiff completed the work on time because a failure to do so would result in them incurring liability under a ‘penalty clause’ to the employer. The defendants called a meeting with the plaintiff and they promised to pay him a further sum of £10,300 to be paid at the rate of £575 for each flat in which the carpentry work was completed. The plaintiff continued with the work and was paid a further £1,500. The plaintiff then walked off the site. The defendants employed other contractors to finish off the work, albeit that they incurred liability under the ‘penalty clause’ as a result of their completion of the works one week late. The plaintiff brought a claim against the defendants for damages of £10,847.07. The Assistant Recorder found that before he ceased work the plaintiff had substantially completed the work on eight flats after the defendants had made their promise of additional payment.
He accordingly awarded the plaintiff damages of £4,600 (consisting of 8 x £575) ‘less some small deduction for defective and incomplete items’ and held that the plaintiff was entitled to a reasonable proportion of the £2,200 outstanding from the original contract price.
The defendants appealed to the Court of Appeal on two principal grounds. The first was that they submitted that there was no consideration for their promise to pay an additional £575 per completed flat. The second was that the money was only payable upon completion of each flat and that, since the work had not been completed on any flat, no payment was due. The Court of Appeal dismissed the appeal and held that the plaintiff was entitled to be paid because he had substantially completed the work on eight of the flats and had provided consideration for the defendants’ promise of additional payment.
Glidewell LJ [set out the facts, decided that substantial completion of the eight flats entitled the plaintiff to payment and continued]
Was there consideration for the defendants’ promise made on 9 April 1986 to pay an addi[1]tional price at the rate of £575 per completed flat?
The judge made the following findings of fact which are relevant on this issue. (i) The subcontract price agreed was too low to enable the plaintiff to operate satisfactorily and at a profit. Mr Cottrell, the defendants’ surveyor, agreed that this was so. (ii) Mr Roffey (managing director of the defendants) was persuaded by Mr Cottrell that the defendants should pay a bonus to the plaintiff. The figure agreed at the meeting on 9 April 1986 was £10,300. The judge quoted and accepted the evidence of Mr Cottrell to the effect that a main contractor who agrees too low a price with a subcontractor is acting contrary to his own interests. He will never get the job finished without paying more money. The judge therefore concluded:
‘In my view 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. This is what happened in the present case, and in my opinion the agreement of 9 April 1986 does not fail for lack of consideration.’
In his address to us, Mr Evans [counsel for the defendants] outlined the benefits to his clients, the defendants, which arose from their agreement to pay the additional £10,300 as: (i) seeking to ensure that the plaintiff continued work and did not stop in breach of the subcontract; (ii) avoiding the penalty for delay; and (iii) avoiding the trouble and expense of engaging other people to complete the carpentry work.
However, Mr Evans submits that, though his clients may have derived, or hoped to derive, practical benefits from their agreement to pay the ‘bonus’, they derived no benefit in law, since the plaintiff was promising to do no more than he was already bound to do by his sub[1]contract, i.e., continue with the carpentry work and complete it on time. Thus there was no consideration for the agreement. Mr Evans relies on the principle of law which, traditionally, is based on the decision in Stilk v. Myrick (1809) 2 Camp 317 . . .
[he set out the facts of the case and the judgment as reported by Campbell and continued]
In North Ocean Shipping Co Ltd v. Hyundai Construction Co Ltd [1979] QB 705, Mocatta J regarded the general principle of the decision in Stilk v. Myrick, 2 Camp 317 as still being good law. He referred to two earlier decisions of this court, dealing with wholly different subjects, in which Denning LJ sought to escape from the confines of the rule, but was not accompanied in his attempt by the other members of the court . . .
[he considered Ward v. Byham [1956] 1 WLR 496, p. 161, Section (b)(ii) and, after setting out passages from the judgments of Denning LJ and Morris LJ, stated]
As I read the judgment of Morris LJ, he and Parker LJ held that, although in maintaining the child the plaintiff was doing no more than she was obliged to do, nevertheless her promise that the child would be well looked after and happy was a practical benefit to the father which amounted to consideration for his promise.
[he then considered Williams v. Williams [1957] 1 WLR 148, p. 162, Section (b)(ii) and continued]
It was suggested to us in argument that, since the development of the doctrine of promissory estoppel, it may well be possible for a person to whom a promise has been made, on which he has relied, to make an additional payment for services which he is in any event bound to render under an existing contract or by operation of law, to show that the promisor is estopped from claiming that there was no consideration for his promise. However, the application of the doctrine of promissory estoppel to facts such as those of the present case has not yet been fully developed…. Moreover, this point was not argued in the court below, nor was it more than adumbrated before us. Interesting though it is, no reliance can in my view be placed on this concept in the present case.
There is, however, another legal concept of relatively recent development which is relevant, namely, that of economic duress. Clearly if a subcontractor has agreed to undertake work at a fixed price, and before he has completed the work declines to continue with it unless the contractor agrees to pay an increased price, the subcontractor may be held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he will cause if he does not complete the work. In such a case an agreement to pay an increased price may well be voidable because it was entered into under duress. Thus this concept may provide another answer in law to the question of policy which has troubled the courts since before Stilk v. Myrick, 2 Camp 317, and no doubt led at the date of that decision to a rigid adherence to the doctrine of consideration.
This possible application of the concept of economic duress was referred to by Lord Scarman, delivering the judgment of the Judicial Committee of the Privy Council in Pao On v. Lau Yiu Long [1980] AC 614.Lord Scarman… referred to Stilk v. Myrick, 2 Camp 317, and its predecessor Harris v. Watson (1791) Peake 102, and to Williams v. Williams [1957] 1 WLR 148, before turning to the development of this branch of the law in the United States of America. He then said, at pp. 634–635:
‘Their Lordships’ knowledge of this developing branch of American law is necessarily limited. In their judgment it would be carrying audacity to the point of foolhardiness for them to attempt to extract from the American case-law a principle to provide an answer to the question now under consideration. That question, their Lordships repeat, is whether, in a case where duress is not established, public policy may nevertheless invalidate the consideration if there has been a threat to repudiate a pre-existing contractual obligation or an unfair use of a dominating bargaining position. Their Lordships’ conclusion is that where businessmen are negotiating at arm’s length it is unnecessary for the achievement of justice, and unhelpful in the development of the law, to invoke such a rule of public policy. It would also create unacceptable anomaly. It is unnecessary because justice requires that men, who have negotiated at arm’s length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress. If a promise is induced by coercion of a man’s will, the doctrine of duress suffices to do justice. The party coerced, if he chooses and acts in time, can avoid the contract. If there is no coercion, there can be no reason for avoiding the contract where there is shown to be a real consideration which is otherwise legal. Such a rule of public policy as is now being considered would be unhelpful because it would render the law uncertain. It would become a question of fact and degree to determine in each case whether there had been, short of duress, an unfair use of a strong bargaining position. It would create anomaly because, if public policy invalidates the consideration, the effect is to make the contract void. But unless the facts are such as to support a plea of “non est factum”, which is not suggested in this case, duress does no more than confer upon the victim the opportunity, if taken in time, to avoid the contract. It would be strange if conduct less than duress could render a contract void, whereas duress does no more than render a contract voidable . . .’
It is true that Pao On is a case of a tripartite relationship that is, a promise by A to perform a pre-existing contractual obligation owed to B, in return for a promise of payment by C. But Lord Scarman’s words, at pp. 634–635, seem to me to be of general application, equally applicable to a promise made by one of the original two parties to a contract.
Accordingly, following the view of the majority in Ward v. Byham [1956] 1 WLR 496 and of the whole court in Williams v. Williams [1957] 1 WLR 148 and that of the Privy Council in Pao On [1980] AC 614 the present state of the law on this subject can be expressed in the following proposition: (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 per[1]formed 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 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.
As I have said, Mr Evans accepts that in the present case by promising to pay the extra £10,300 his client secured benefits. There is no finding, and no suggestion, that in this case the promise was given as a result of fraud or duress. If it be objected that the propositions above contravene the principle in Stilk v. Myrick, 2 Camp 317, I answer that in my view they do not; they refine, and limit the application of that principle, but they leave the principle unscathed e.g. where B secures no benefit by his promise. It is not in my view surprising that a principle enunciated in relation to the rigours of seafaring life during the Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement and limitation in its application in the present day. It is therefore my opinion that on his findings of fact in the present case, the judge was entitled to hold, as he did, that the defendants’ promise to pay the extra £10,300 was supported by valuable consideration, and thus constituted an enforceable agreement . . .
For these reasons I would dismiss this appeal.
Russell LJ
I find [the] primary argument relating to consideration much more difficult. It is worth rehearsing some of the facts . . . [he set out an extract from the defendants’ pleading and continued] There is no hint in that pleading that the defendants were subjected to any duress to make the agreement or that their promise to pay the extra £10,300 lacked consideration. As the judge found, the plaintiff must have continued work in the belief that he would be paid £575 as he finished each of the 18 uncompleted flats (although the arithmetic is not precisely accurate). For their part the defendants recorded the new terms in their ledger. Can the defend[1]ants now escape liability on the ground that the plaintiff undertook to do no more than he had originally contracted to do although, quite clearly, the defendants, on 9 April 1986, were prepared to make the payment and only declined to do so at a later stage? It would certainly be unconscionable if this were to be their legal entitlement.
The submissions advanced on both sides before this court ranged over a wide field. They went far beyond the pleadings, and indeed it is worth noticing that the absence of consideration was never pleaded, although argued before the assistant recorder, Mr Rupert Jackson QC. Speaking for myself—and I notice it is touched upon in the judgment of Glidewell LJ—I would have welcomed the development of argument, if it could have been properly raised in this court, on the basis that there was here an estoppel and that the defendants, in the circumstances prevailing, were precluded from raising the defence that their undertaking to pay the extra £10,300 was not binding . . . whilst consideration remains a fundamental requirement before a contract not under seal can be enforced, the policy of the law in its search to do justice between the parties has developed considerably since the early 19th century when Stilk v. Myrick, 2 Camp 317 was decided by Lord Ellenborough CJ. In the late 20th century I do not believe that the rigid approach to the concept of consideration to be found in Stilk v. Myrick is either necessary or desirable. Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflects the true intention of the parties.
What was the true intention of the parties when they arrived at the agreement pleaded by the defendants . . .? The plaintiff had got into financial difficulties. The defendants, through their employee Mr Cottrell, recognised the price that had been agreed originally with the plaintiff was less than what Mr Cottrell himself regarded as a reasonable price. There was a desire on Mr Cottrell’s part to retain the services of the plaintiff so that the work could be completed without the need to employ another subcontractor. There was further a need 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. These were all advantages accruing to the defendants which can fairly be said to have been in consideration of their undertaking to pay the additional £10,300. True it was that the plaintiff did not undertake to do any work additional to that which he had originally undertaken to do but the terms upon which he was to carry out the work were varied and, in my judgment, that variation was supported by consideration which a pragmatic approach to the true relationship between the parties readily demonstrates.
For my part I wish to make it plain that I do not base my judgment upon any reservation as to the correctness of the law long ago enunciated in Stilk v. Myrick. A gratuitous promise, pure and simple, remains unenforceable unless given under seal. But where, as in this case, a party undertakes to make a payment because by so doing it will gain an advantage arising out of the continuing relationship with the promisee the new bargain will not fail for want of consideration. As I read the judgment of the assistant recorder this was his true ratio upon that part of the case wherein the absence of consideration was raised in argument. For the reasons that I have endeavoured to outline, I think that the assistant recorder came to a correct conclusion and I too would dismiss this appeal.
Purchas LJ [set out the facts and continued]
The point of some difficulty which arises on this appeal is whether the judge was correct in his conclusion that the agreement reached on 9 April did not fail for lack of consideration because the principle established by the old cases of Stilk v. Myrick, 2 Camp 317 approving Harris v. Watson, Peake 102 did not apply. Mr Makey, who appeared for the plaintiff, was bold enough to submit that Harris v. Watson, albeit a decision of Lord Kenyon, was a case tried at the Guildhall at nisi prius in the Court of King’s Bench and that Stilk v. Myrick was a decision also at nisi prius albeit a judgment of no less a judge than Lord Ellenborough CJ and that, therefore, this court was bound by neither authority. I feel I must say at once that, for my part, I would not be prepared to overrule two cases of such veneration involving judgments of judges of such distinction except on the strongest possible grounds since they form a pillar stone of the law of contract which has been observed over the years and is still recognised in principle in recent authority: see the reference to Stilk v. Myrick to be found in North Ocean Shipping Co Ltd v. Hyundai Construction Co Ltd [1979] QB 705, 712 per Mocatta J. With respect, I agree with his view of the two judgments by Denning LJ in Ward v. Byham [1956] 1 WLR 496 and Williams v. Williams [1957] 1 WLR 148 in concluding that these judgments do not provide a sound basis for avoiding the rule in Stilk v. Myrick, 2 Camp 317. Although this rule has been the subject of some criticism it is still clearly recognised in current textbooks of authority: see Chitty on Contracts, 28th ed. (1989) and Cheshire, Fifoot and Furmston’s Law of Contract, 11th ed. (1986). By the same token I find myself unable to accept the attractive invitation . . . to follow the decision of the Supreme Court of New Hampshire in Watkins and Sons Inc v. Carrig (1941) 21 A. 2d 591.
In my judgment, therefore, the rule in Stilk v. Myrick, 2 Camp 317 remains valid as a matter of principle, namely that a contract not under seal must be supported by consideration. Thus, where the agreement upon which reliance is placed provides that an extra payment is to be made for work to be done by the payee which he is already obliged to perform then unless some other consideration is detected to support the agreement to pay the extra sum that agreement will not be enforceable. The two cases, Harris v. Watson, Peake 102 and Stilk v. Myrick, 2 Camp 317 involved circumstances of a very special nature, namely the extraordinary conditions existing at the turn of the 18th century under which seamen had to serve their contracts of employment on the high seas. There were strong public policy grounds at that time to protect the master and owners of a ship from being held to ransom by disaffected crews. Thus, the decision that the promise to pay extra wages even in the circumstances established in those cases, was not supported by consideration is readily understandable. Of course, conditions today on the high seas have changed dramatically and it is at least questionable . . . whether these cases might not well have been decided differently if they were tried today. The modern cases tend to depend more upon the defence of duress in a commercial context rather than lack of consideration for the second agreement. In the present case the question of duress does not arise. The initiative in coming to the agreement of 9 April came from Mr Cottrell and not from the plaintiff. It would not, therefore, lie in the defendants’ mouth to assert a defence of duress. Nevertheless, the court is more ready in the presence of this defence being available in the commercial context to look for mutual advantages which would amount to sufficient consideration to support the second agreement under which the extra money is paid . . .
In the light of those authorities the question now must be addressed: Was there evidence upon which the judge was entitled to find that there was sufficient consideration to support the agreement of 9 April . . . what consideration has moved from the plaintiff to support the promise to pay the extra £10,300 added to the lump sum provision? In the particular circumstances which I have outlined above, there was clearly a commercial advantage to both sides from a pragmatic point of view in reaching the agreement of 9 April. The defendants were on risk that as a result of the bargain they had struck the plaintiff would not or indeed possibly could not comply with his existing obligations without further finance. As a result of the agreement the defendants secured their position commercially. There was, however, no obligation added to the contractual duties imposed upon the plaintiff under the original contract. Prima facie this would appear to be a classic Stilk v. Myrick case. It was, however, open to the plaintiff to be in deliberate breach of the contract in order to ‘cut his losses’ commercially. In normal circumstances the suggestion that a contracting party can rely upon his own breach to establish consideration is distinctly unattractive. In many cases it obviously would be and if there was any element of duress brought upon the other contracting party under the modern development of this branch of the law the proposed breaker of the contract would not benefit. With some hesitation . . . I consider that the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment. In my judgment, on the facts as found by the judge, he was entitled to reach the conclusion that consideration existed and in those circumstances I would not disturb that finding. . . . For these reasons and for the reasons which have already been given by Glidewell LJ I would dismiss this appeal.