Chapter 4 Guidance for end of chapter questions

Consideration and estoppel

Question

Multi-Build plc has agreed with Blueburn Rovers, the Premier League Champions, to refurbish their sports stadium at a cost of £10 million, the work to be completed by 1 July. The stadium is to be used by the Football Association (FA) for the World Cup finals taking place in early August. In March, Multi-Build informs Rovers that, due to bad weather conditions and worker strikes, the stadium is unlikely to be ready until the end of August. Hearing of this on the national news, the FA contacts Multi-Build and offers it £1 million out of the profits of the World Cup if the work is completed on schedule. Rovers are also distraught that they may lose out on the prestige and commercial opportunities which come with hosting the World Cup finals and so they offer Multi-Build an extra £500,000 if the work is completed on schedule and a further £500,000 if Multi-Build incorporate an extra 10 snack bars into the design. Multi-Build completes the stadium (including the additional snack bars) in June.

The World Cup finals, however, fail to make as much profit as anticipated and in September the FA tells Multi-Build that as a result it can only pay £600,000. Multi-Build accepts this 'as total discharge, in consideration of the complimentary tickets and facilities provided by the FA for the directors of Multi-Build at the finals.' In October, the FA signs a lucrative sponsorship deal and Multi-Build, hearing of this, think that they should be paid the outstanding £400,000.

The World Cup has been a disaster for Rovers; their star player has broken his leg and they sold far less hot dogs and pies than they expected. They tell Multi-Build that they can only have the original £10 million and that they should count themselves lucky to get that.

Advise Multi-Build.

Answer

There are 5 main issues which you should address step by step (some issues could be conveniently split into multiple paragraphs due to the length of this question):

  1. Is the FA's promise to pay Multi-Build £1 million enforceable?
  2. Is Multi-Build's agreement to accept £600,000 instead of £1 million binding?
  3. Can the FA use promissory estoppel as a defence against Multi-Build's claim for the outstanding £400,000?
  4. Is Rovers' promise to pay Multi-Build £500,000 to complete on schedule enforceable?
  5. Is Rovers' promise to pay Multi-Build £500,000 to change the design enforceable?

Paragraph 1 - Is the FA's promise to pay Multi-Build £1 million enforceable?

  • Has Multi-Build given any consideration by completing the stadium on schedule?
  • Multi-Build were already under a duty to complete the stadium BUT this duty was owed to a third party (Blueburn Rovers); therefore the promise is enforceable following the Scotson v Pegg (1861) line of authorities.
  • Briefly discus that the distinction between the performance of a duty owed to a third party and performance of a duty owed to a party to the contract is, arguably, arbitrary and a better approach may be to look at whether there is any factual benefit to the promisor and the promise is not tainted by duress.
  • Point out that the stadium is actually completed in June - ahead of schedule - and so this is arguably a case of exceeding an existing duty. You should ultimately reject this argument because the FA did not request this early performance. Rather like in Combe v Combe, the promisee has relied upon the promise but this reliance was not at the promisor's request and so there is no bargain.
  • Conclude that the FA's promise to pay £1 million to Multi-Build is enforceable.

Paragraph 2 - Is Multi-Build's agreement to accept £600,000 binding

  • Having established that the FA's promise is enforceable, the next step is to address the issue of whether Multi-Build's acceptance of a lesser sum is binding on it so that it can no longer claim the full £1 million.
  • You should recite the well-known authorities of Pinnel's Case and Foakes v Beer and note that re Selectmove appears to have prevented any extension of the Williams v Roffey Bros. 'factual benefit' principal in this area (i.e. it is not enough to show that Multi-Build benefited by receiving £600,000 as opposed to nothing at all).
  • The fact that the £600,000 was accepted in consideration for the hospitality and tickets received by Multi-Build directors is almost certainly irrelevant because the tickets and hospitality was provided before the agreement to accept the lesser sum of £600,000 and so it is past consideration, which, as you know from Re McArdle is not good consideration. Of course, the result would be different if the directors were aware that the tickets and hospitality were to be deducted from the £1 million payable by the FA, but this is most unlikely in the circumstances.

Paragraph 3 - Can the FA use promissory estoppel as a defence against Multi-Build's claim for the outstanding £400,000?

  • Make it clear that you understand that Multi-Build may claim the outstanding £400,000 because they are not bound by their promise to accept £600,000 in full discharge of the debt, but that the FA may use promissory estoppel defensively against Multi-Build's claim (i.e. the FA are not using estoppel to claim money from Multi-Build, they are simply using it as a reason not to pay money claimed by Multi-Build.
  • Quickly go through the requirements of promissory estoppel: there must be an intention that the promise is binding; an intention for it to be acted upon; actual reliance by the promisee; the promisor must attempt to act inconsistently with the promise; it must be inequitable for the promisor to insist on his strict legal rights; and the promise must be clear and unequivocal.
  • You should focus on the reliance of the FA (the promisee in this case) and the inequitable issue because it is clear that Multi-Build intended their promise to accept £600,000 in discharge of the full debt was clear, intended to be binding and acted upon and that they now seek to act inconsistently with their promise by claiming the outstanding £400,000.
  • We are not told whether the FA altered their financial position in reliance of the promise by Multi-Build not to demand the full £1 million and it is possible that they could do so. It is important to discuss if reliance need be detrimental, and if so it will be difficult to show that paying off part of an enforceable debt is detrimental to the FA.
  • The question of whether it is inequitable for Multi-Build to go back on their word is really down to the facts - point out that there was no bad faith as in D&C Builders Ltd. v Rees and the FA only promised the money to encourage Multi-Build to do something they had already promised to do for another party.
  • The suspensory or extinctory nature of promissory estoppel is also important here - should the change in the FA's fortunes affect matters? You could argue that the estoppel is suspensory and that although Multi-Build were originally estopped from claiming the £400,000, once the FA received a lucrative sponsorship contract it no longer became inequitable for Multi-Build to claim the money.
  • We personally are not attracted to this argument as it leaves a sword of Damocles hanging over the debtor which will fall should he ever be foolish enough to improve his position, but you should briefly state your view on the matter - and at least demonstrate that you are aware of competing arguments even if you are unsure which one should prevail (which is quite an acceptable position in an area such as consideration which deals with many difficult and fundamental questions).

Paragraph 4 - Is Rovers' promise to pay Multi-Build £500,000 to complete on schedule enforceable?

  • This is the classic Stilk v Myrick. type of promise - Rovers have promised extra money in return for Multi-Build performing their pre-existing obligation owed to Rovers. You should mention that the general rule under Stilk is that the promise is unenforceable because it lacks consideration but the real questions is whether the promise can be enforced following Williams v Roffey Bros. on the basis that Rovers received a 'practical benefit' when Multi-Build finished the stadium in time for the world cup.
  • You can compare the facts; for example the penalty charges and favourable payment scheme in Roffey Bros, and come to a reasoned conclusion as to whether the current case falls within the exception. You might also make the argument that the Stilk orthodoxy assumes that there is no doctrine of economic duress but, now that we have such a doctrine, it may be more appropriate to recognise that a promise to perform an existing duty owed to the promisor does not lack consideration and may be enforceable if, as in the current case, there is no suggestion of duress.

Paragraph 5 - Is Rovers' promise to pay Multi-Build £500,000 to change the design enforceable?

This promise is clearly enforceable because Rovers' of Glasbrook Brothers Ltd. v Glamorgan CC, where the police promised to provide more protection than they were obliged to, requested an additional benefit and Multi-Build have promised to do more than they originally promised to do (as in the public duty case do under their general public duties). This type of renegotiation is very common in construction contracts, although the difficulty is often working out exactly what was promised in the original contract.