WILLIAMS v ROFFEY BROS & NICHOLLS

The amendment of an existing contract underpins the argument between contracting parties, when a main building contractor secures a residential refurbishment project and accepts the tender of a carpentry subcontractor’s tender, despite the low value of his submission.

Having agreed to both first and second fix twenty-seven flats within a specified time for £20,000, the respondent carried out the work on the understanding that payments were made on an arbitrary basis; and so, after six months he had first-fixed all twenty-seven flats but second-fixed only nine, while having been paid £16,200 for the work performed.

Aware that his tender was now unprofitable, the respondent renegotiated to keep his business afloat and avoid the financial penalty clause applied to the appellants should the project overrun; whereupon, both parties agreed to continue working together on condition that a further £10,300 would be paid in incremental payments of £575 for each flat completed; however, when the respondent left the project, only £1,500 had been paid and only seventeen of the twenty-seven flats were substantially completed.

Initially seeking around £33,000 in damages, the respondent reduced his claim to around £11,000, citing that the appellants had breached the terms of their oral agreement, while the appellants argued that the agreement to pay the additional £10,300 was unenforceable due to non-completion and that no consideration had been given by the  respondent during revision of the original contract. 

First argued in the Kingston-Upon Thames County Court, the judge found that while the flats had not been completed, there had been sufficient consideration to allow calculable damages of around £11,800; and so, awarded accordingly.

Presented to the Court of Appeal, the issues around payment for incomplete performance of a contract and the argument for lack of consideration were given closer examination, before the Court noted how p.126, para.183 of Chitty on Contracts, stated that:

“The requirement that consideration must move from the promisee is most generally satisfied where some detriment is suffered by him e.g. where he parts with money or goods, or renders services, in exchange for the promise. But the requirement may equally well be satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment.”

Thus, the Court dismissed the appeal, on grounds that the respondent’s agreement to continue working toward completion of the flats provided a degree of benefit to the appellants, as failure to do so rendered them subject to the penalty clause, while the Court finally reminded the parties that:

(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.”

TWINSECTRA v YARDLEY

Interference with the performance of a contract, and assistance in a breach of trust, lie central to a matter involving two solicitors and a property developer, whose triangulated relationship resulted in financial abuses and ethical ignorance by those expected to conduct themselves with nothing less than self-discipline and professionalism.

Having owned and operated a number of business ventures, the respondent had ventured to obtain a business loan for the purposes of acquiring further properties, however at the time of inquiry his bank was unable to commit to lending the money, therefore he made contact with the plaintiffs, so as to borrow the sum of £1m, to which the plaintiffs requested that the loan agreement be underwritten by a qualified solicitor.

Upon consultation with the appellant his request was denied, and so with time against him he approached another law practice, whose second partner had a business history with the defendant, and through which the partner had become liable to the defendant to the sum of £1.5m.

In order to repay the debt owed, the partner then agreed to become principle debtor to the loan by way of its underwriting, while keeping the truth of their arrangement from the plaintiffs, and so when signing the loan agreement, they were now legally subject to its terms, in which sections 1 and 2 read:

“1. The loan moneys will be retained by us until such time as they are applied in the acquisition of property on behalf of our client. 

2. The loan moneys will be utilised solely for the acquisition of property on behalf of our client and for no other purpose.”

While s. 4 further read that:

“We confirm that this undertaking is given by us in the course of our business as solicitors and in the context of an underlying transaction on behalf of our clients which is part of our usual business as solicitors.”

However, once the money had been loaned, the partner contacted the appellant, and asked that he retain the funds in a client account until such time that the plaintiff required it.

While both solicitors were aware that such a transfer was tantamount to a breach of section 1, the money was nonetheless accepted and then released by the appellant to the respondent with no proof that any of the money was being used for the purchase of properties, as per section 2 of the agreement.

At the point of initial litigation, the plaintiffs sued for recovery of the funds following non-payment by the now dissolved partner on grounds of breach of trust, and for dishonest assistance on the part of the appellant when holding the money and paying it to the respondent upon his request, despite knowledge of the initial breach prior to his receipt of the funds from the partner.

While in the first instance, the Court of the Queen’s Bench dismissed the claim on grounds that the appellant had merely acted recklessly in the course of his duties, the Court of Appeal reversed the judgment on grounds that the appellant had knowingly received money destined not for the purchase of property, and thereby in breach of s.2, and that he had wilfully closed his eyes to the facts when agreeing to both hold and transfer the funds to the respondent.

Upon appeal to the House of Lords, the appellant argued that his involvement in the matter was certainly naive and remiss but in no way unlawful, and so the House agreed to examine the details of the case for the purposes of clarity.

Turning first to Royal Brunei Airlines Sdn Bhd v Tan, the House noted that the Court of Appeal had explained how:

“A fraudulent and dishonest design is not confined to personal gain. It is sufficient if the stranger knowingly assists in the use of trust property in a way which is not permitted by the trust.”

Royal Brunei Airlines Sdn Bhd v Tan

And that in its simplest form:

“[A] trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee.”

Royal Brunei Airlines Sdn Bhd v Tan

Thus in its conclusion, the court had held that:

“[D]ishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation.”

Royal Brunei Airlines Sdn Bhd v Tan

And so it was clear that when the appellant acquiesced to the instructions of the partner, he had, whether intentionally or not, become complicit in the misuse of what was held to be trust property of the plaintiffs, while the House also also referred to Gilbert v Gonard in which the Court of Chancery had also held that:

“[I]f one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given. He may decline to take it if he likes; but if he chooses to accept the money tendered for a particular purpose, it is his duty, and there is a legal obligation on him, to apply it for that purpose.”

Gilbert v Gonard

Although the House drew the distinction that unlike civil courts, equity relies less upon the mens rea of a man and more on his behaviour, and while the appeal was founded upon a breach of trust and dishonest assistance, there was insufficient evidence to suggest certainty as to the mind of the appellant when carrying out his part of the agreement.

However, the House did conclusively note that under the circumstances there was ample grounds for a liability under wrongful interference with a contract and for assisting in a breach of trust, therefore the court of appeal judgment was upheld and reversed in part, while the House held that:

“[E]quity looks to a man’s conduct, not to his state of mind.”

And:

“Where a third party with knowledge of a contract has dealings with the contract breaker which the third party knows will amount to a breach of contract and damage results, he commits an actionable interference with the contract…”

ALASKA PACKERS ASSOCIATION v. DOMENICO

The legal enforcement of a binding contract requires consideration to both bargaining parties, and so on this occasion, the demands of an established labour force prove their undoing when overlooking the fundamental principles of any written agreement.

In 1900, a commercial fishing enterprise recruited the services of a number of seamen and deck hands for the purposes of catching salmon. Before departing San Francisco, the now appellants accepted and signed individual employment contracts, on grounds that they would be paid between $50-$60 per person, with two additional cents for every salmon caught.

After docking in Alaska a month later, the men ceased working and demanded that the ship’s superintendent pay them $100 each, or risk losing them entirely. With no means with which to replace them, and after failing to placate their objections, the superintendent agreed to pay the increased sums; after which, duplicate contracts were printed and signed before the local Shipping Commissioner, despite the superintendent stressing that he was unauthorised to endorse the new contracts.

Upon return to San Francisco, the appellants demanded their increased payments; however, the respondent employers refused to acknowledge anything other than the original contract; and so, litigation was bought against them on grounds that the fishing nets supplied were defective and therefore counter to their chances of earning extra money, as per the original agreement.

The Northern California District Court took issue with the principles of the appellants claims, as to provide defective nets would by effect, have reduced the employers profits and subsequent means of operation, therefore it was held that refusal to perform the contract was unlawful; however, the court also held that:

Under such circumstances, it would be strange, indeed, if the law would not permit the defendant to waive the damages caused by the libelants’ breach, and enter into the contract sued upon, a contract mutually beneficial to all the parties thereto, in that it gave to the libelants reasonable compensation for their labor, and enabled the defendant to employ to advantage the large capital it had invested in its canning and fishing plant.”

At which point, judgment was made in favour of the appellants, despite glaring disparities of fact.

Upon further challenge, the court of appeals drew reference to the statements made by the superintendent, and noted that any contract entered into under duress and without due consideration was, without question, unenforceable, as had been outlined in King v. Railway Co. where the court ruled that:

“No astute reasoning can change the plain fact that the party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party.”

King v. Railway Co.

And so therefore:

“There can be no consideration for the promise of the other party, and there is no warrant for inferring that the parties have voluntarily rescinded or modified their contract. The promise cannot be legally enforced, although the other party has completed his contract in reliance upon it.”

King v. Railway Co.

Thus, it was for this simple and perhaps obvious reason, that the appeal was dismissed and judgment reversed back in favour of the respondents.

KRELL v HENRY

Performance of a contract since frustrated through unexpected events, lies at the heart of a matter between a landlord and potential tenant, who having secured a room for the purposes of viewing a landmark event, was left unable to realise it when those plans were thwarted through a sudden cancellation.

In 1902, the appellant had negotiated the private use of a room within a property owned by the respondent, who for reasons of convenience, had recently offered the whole property for rent for a six-month period.

Having been aware that the King’s Coronation procession was expected to pass along the Pall Mall, the appellant read that the respondent was offering a single room for a fixed time and sum to those wishing to take advantage of the view afforded.

By means of letter, the two parties agreed upon the arrangement; after which, the appellant paid by cheque, a sum of 25l with a further 50l outstanding.

Unfortunately, the date of the procession was put back; at which point, the appellant refused to pay the outstanding 50l, thereby prompting the respondent to seek recovery of the balance owed, while the appellant counter-claimed for the 25l on grounds that the contract was unenforceable and the deposit due for return.

In the fist hearing, the court awarded in favour of the respondent on both counts, relying upon the principle that the contact rested upon the presence of the Coronation procession, which for the reasons stated had not occurred; therefore, the contract was unable to be completed to the satisfaction of both parties.

Taken to the Court of Appeal, the facts were revisited, along with the earlier facts of Taylor v Caldwell; in which, it was remarked:

“[W]here, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless, when the time for the fulfilment of the contract arrived, some particular specified thing continued to exist, so that when entering into the contract they must have contemplated such continued existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.”

Taylor v Caldwell

It was this approach that gave effect to the cancellation of the Coronation procession as being an event that was, as stated in Baily v De Crespigny:

“[O]f such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made, and that they are not to be held bound by general words which, though large enough to include, were not used with reference to the possibility of the particular contingency which afterwards happened.”

Baily v De Crespigny

While in ‘Taylor on Evidence’ (vol II) it was also stressed that:

“It may be laid down as a broad and distinct rule of law that extrinsic evidence of every material fact which will enable the Court to ascertain the nature and qualities of the subject-matter of the instrument, or, in other words, to identify the persons and things to which the instrument refers, must of necessity be received.”

So, it was for these fundamental reasons that the Court agreed with the previous decision, and ruled again in favour of the respondent, while reminding the parties that:

“[W]hatever is the suggested implication – be it condition, as in this case, or warranty or representation – one must, in judging whether the implication ought to be made, look not only at the words of the contract, but also at the surrounding facts and the knowledge of the parties of those facts.”