Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1

 

Overview

Where A and B are in and existing contract and A promises to give more to B this promise will be binding if A receives a practical benefit even though B is only doing what they promised to do under the original contract. This rule applies to variations to existing contracts only.

Facts

  • Roffey Bros contracted with a housing association to refurbish flats.
  • Roffey Bros contracted with Williams for Williams to complete carpentry work on 27 flats as part of the housing refurbishment project.
  • Roffey Bros would pay £20,000 in instalments to Williams as the work progressed.

Fig 1: the original agreement

 

  • Williams completing some of the refurbishment but encountered financial difficulties as Williams had undervalued how much the refurbishment work would cost.
  • Roffey Bros met with Williams. Roffey Bros agreed to pay Williams an extra £575 per flat completed.
  • All Williams had to do was complete to the original schedule.
  • Roffey Bros agreed to this extra payment as they needed the work completed on time – if the work was completed late, they would incur a financial penalty as part of the main contract with the housing association.

 

Issue

Was Roffey Bros agreement to pay an extra £575 per completed flat binding?

 

Outcome

  • Up until this case, agreements by A to give more in exchange for nothing new or extra in return from B would fail as B had not provided consideration.
  • The only way that such agreements could be upheld was if B had exceeded their contractual duty. In simple terms, if B had gone over and above what B had originally agreed to do.
  • In this case, Williams had not gone over and above what he originally agreed to do in the initial contract.
  • Despite this, the Court held that a Roffey’s Bros promise to pay more was binding and the extra payment was due to Williams.
  • The Court held that a promise by A to give more could be binding where the following requirements are satisfied:
    • A and B must be in an existing agreement to perform a service or supply goods
    • Before B completes his obligation under the contract, A has reason to doubt that B will be able to complete his end of the bargain
    • A promises to give more to B
    • A obtains a practical benefit or avoids a disadvantage
    • A’s promise to pay has not been made as a result of economic duress
  • As long as these requirements are satisfied then A’s agreement to pay more to B is binding.
  • In this case the Court found that Roffey Bros had received several practical benefits in agreeing to give more to Williams.
  • These included:
    • Avoiding having to pay a penalty clause to the housing association if the refurbishment work was not completed on time
    • Roffey Bros avoided having to find another contractor to complete the work
  • As Roffey Bros received practical benefits and the other requirements of the test (above) were satisfied, Roffey Bros’s agreement to pay more to Williams was binding.

 

Common Mistakes

X – the practical benefit test involves looking at the benefit that is received by the party promising more. You do not focus on whether the party receiving more has provided something of value. This test requires that you examine the benefit that the party giving extra receives only.

X – we judge the practical benefit received at the time the promise to give more is made. If this benefit actually, in fact, does not occur that is irrelevant to whether the test is passed. For example, imagine A promises B more money to complete a house refurbishment on time. A does this as they want to have a party at their home for Christmas. Imagine then that the Christmas party is cancelled. A must still pay the extra money to B as there was a practical benefit to A at the time the promise was made.

 

Critique

For Against
o   The case outcome meant that the parties’ intentions were respected. They intended to change the contract. This should be honoured by the courts.

o   The approach of the court reflects commercial reality. Contract are not frozen in time. Parties should be free to vary contracts if they wish to.

o   Contractual variations must still show offer, acceptance and intention to create legal relations in relation to the variation. These are adequate mechanisms to prevent abuse of the rule.

o   Further, the rule is kept within sensible limits. If A’s promise to give more is given as a result of economic duress then the agreement to give more is not binding.

o   Case threatens traditional principles of consideration. For example, consideration must move from the promisee. However, the promisee in this case (Williams) provided nothing of value at all in the eyes of the law and therefore contradicts this rule.

o   The test of practical benefit sets the threshold so low that all types of benefit including hypothetical benefits will always be enough to support a promise to pay more. A test can end in a result of pass or fail. As this test will never be failed, it is questionable if it is even a test at all.

o   A better approach, as opposed to contorting the rules of consideration for these type of agreements, would be to abolish the need to show consideration for agreements to pay more for the same.