The Principle of Williams v Roffey

In this essay it will be discussed whether the principle in Williams v Roffey [1990] 2 WLR 1153 should be extend to cover the situation encountered in re Selectmove Ltd. [1995] 1 WLR 474. Essentially, it will be underlying the principle of Williams v Roffey. In spite of this, it will be covered why the Court of Appeal find impossible to extend the principle of Williams’ case to any circumstances. To firmly establish should the principle in Williams v Roffey be extended it will be defined what are the options for a possible extension.

To begin with, the foundations of the doctrine of consideration had been shaken by the principle in Williams v Roffey case. [1] In fact, the general principle under classic theory states that if a contract needs to be amended there must be a consideration. In addition, the decision taken in Stilk v Myrick [2] and altered in Williams v Roofey fits into the general principle. According to Richard Stone “Williams v Roofey is clearly very significant as regards to defining the limits of valid consideration, and undoubtedly has the effect of widening those limits.” [3]

In order to find out the principle in Williams v Roffey it has to be defined the doctrine of consideration. As a rule, the doctrine of consideration may be divided into three categories. The first is that consideration must be sufficient but it need not be adequate, the second is that past consideration is not good consideration and the third is that consideration must move from the promisee. [4]

In addition, the leading case was Stilk v Myrick (1809) 2 Camp 317, 179 ER 1168. However, in Williams v Roffey case, Stilk v Myrick was not overruled, indeed Purchas L.J. described it as a pillarstone of the of contract, and he added that the case might be differently decided today. [5] In the Court of Appeal Glidewell LJ expressed the law in the following terms: “(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 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. “ [6] In other words, the decision underlies the principle in Williams v Roffey, that a promise to perform an existing obligation owed to the promise may amount to good consideration if there are practical benefits to the promisee. [7]

Briefly, in Re Selectmove Ltd entered into negotiations with the Inland Revenue concerning the payment of taxes owed. During the negotiations the company offered to pay its tax debts by in instalments, the Collector of Taxes stating that he would come back to the company if the arrangements were found to be unsatisfactory. As a result, the company commenced paying the taxes owed by instalments but was then contacted by the Inland Revenue, who insisted that all arrears of taxes should be paid immediately; otherwise it would commence winding up proceeding against the company. In order to avoid the winding up petition the company argued that the case of Williams v Roffey was authority for the proposition that promising to perform an existing obligation could amount to good consideration, provided that promise obtained a practical or factual benefit. [8] The Court of Appeal in Re Selectmove refused to extend the principle to a case involving part-payment of a debt. [9] It was held in the Court of Appeal that the agreement to accept payment of the debt by instalments was not binding on the Inland Revenue. Their Lordships distinguished the case from that of Williams v Roffey on the basis that the present case was concerned with an existing obligation to pay a debt, whilst the Roffey case was concerned with a contract for goods and services, and because of this the court was bound by the House of Lords’s decision in Foakes v Beer [10] . On this basis the decision is correct though it is clearly inconsistent with the decision in Williams v Roffey.

The problem here is that the decision in Foakes v Beer itself ignores the reality of commercial life. Indeed, in the case itself, Lord Blackburn criticised the rule stating that part-payment of a debt was sometimes more beneficial to the creditor than strictly insisting on compliance with his legal rights. An example of this can clearly be seen in compositions with creditors and can be seen in the facts of Re Selectmove itself. [11]

Foakes v Beer was not even referred to in Williams v Roffey and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Williams’ case to any circumstances governed by the principle of Foakes v Beer. If that extension it to be made, it must be made by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission. In my judgement, the judge was right to hold that if there was an agreement between the company and the revenue it was unenforceable for want of consideration. [12]

It goes without saying, Williams v Roffey (which identifies consideration as constituted by a factual (or subjective) benefit to the promissory arising from an alteration promise) applies only to alteration promises to pay more and does not apply to alteration promises to accept less than the sum owed. [13]

However, if the Law Commission does decide to deal with the question of consideration and the performance of an existing obligation, probably there would be few possible options available. Firstly, Confirmation of the rule in Foakes v Beer, alongside Williams v Roffey, means that the question of whether a promise to perform an existing obligation owed to the promise may be good consideration is to be determined upon the arbitrary basis of the nature of the obligation in question. Secondly, a test of practical benefit. Thirdly, is simply to abolish the requirement of consideration in cases of renegotiated contracts and to test their enforceability on the basis of the principles now known as economic duress. Fourth, would be to extend the scope of promissory estoppel.

Overall, according to Edwin Peel [14] in Re Selectmove, the Court of Appeal decided that it was bound by the previous decision of the House of Lords in Foakes v Beer. After all, in the words of Peter Gibson L.J., “ 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. In the absence of authority there would be much to be said for the enforceability of such a contract. But, that was a matter expressly considered in Foakes v Beer, yet held not to constitute good consideration in law. Foakes v Beer was not even referred in the Williams case, and it is my judgement impossible, consistently with doctrine of precedent, for this court to extend the principle of the Williams case to any circumstances governed by the principle of Foakes v Beer. If that extension is to be made, it must be made by the House of Lords or, perhaps even more appropriately, by Parliament after consideration.” [15]