Practical Benefit and Promissory Estoppel - Coursework Example

Practical Benefit and Promissory Estoppel Consideration has been described in terms of benefit and detriment; for instance in the case of Currie v Misa it has been stated to be some “interest, profit or benefit accruing to the one party” with a corresponding “forbearance, detriment, loss or responsibility” undertaken by the other party1. Earlier cases may have suggested that both benefit and detriment must be demonstrated, for instance the case of Shadwell v Shadwell2, where the dissenting opinion expressed by Bayles J suggested that the Judge was not convinced there was a corresponding detriment to the other party by failure of promise of the first party. But in general, if one party can demonstrate that it suffered some detriment in reliance of the promise of the other party, this is sufficient to establish the right to claim the consideration promised3. This is also the basic principle that was applied in UBC (Construction) Ltd v Sing Foo Kee Ltd4 where the defendants’ promise was held to be enforceable because they had avoided a detriment as a result of making the promises. It has been held that for the purpose of determining consideration, there is a difference between legal and practical benefit. The latter is not strictly recognized as consideration because there is no legal benefit to the promisor. In the case of Williams v Williams5 the Court found in favor of the wife, in enforcing the monthly payments that were being sent to her by her husband on the grounds that he was deriving some practical benefit from the arrangement. He was able to protect himself from the “worry, trouble and expense” that could have fallen upon him if his wife has pledged his credit or failed to live a chaste life.6 Similarly, in the case of Pitt v PHH Asset Management Ltd7 avoiding trouble, worry and nuisance value was deemed to be good consideration. This precedent was further corroborated in the case of Williams v Roffey Bros and Nichols (Contractors) Ltd8, which established a general proposition that the performance of an existing duty would qualify as good consideration of it conferred a practical benefit on the other party. This principle was also applied in the case of City Polytechnic of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd9 where the implied undertaking by a public body in Hong Kong amounted to consideration on the basis of practical benefits accruing to the other party. But since a benefit derived against what one is already owed is not strictly a legal benefit, the question of practical benefit can sometimes be questionable and defendants may be able to rely on case precedent to establish that they are not liable to make the additional payments, whether or not practical benefit can be adduced. For instance, Defendants could rely on the precedent established in the case of Stilk v Myrick10. In this case, a seaman Stilk agreed to sail with Myrick, but during the journey two men deserted. Myrick made a promise to pay Stilk additional wages for honoring his contract despite the desertions, but refused to do so on the grounds that Stilk was only performing a duty he had originally contracted to do. It was held that the claim for additional promised sums must fail due to lack of consideration. The practical benefit that Myrick derived from Stilk honoring his contract in light of the desertions was not held to be a valid legal ground in this instance, to enforce additional payments. In Hartley v Ponsonby11 a recovery of additional sums against fresh promises was allowed only because the nature of the circumstances that had arisen was such that the promise could have refused to carry out his obligations under the contract. The precedent applied in the case of Roffey above, which has been extended to UBC is that the performance of an existing contractual duty owed to the promiser is not good consideration for a fresh promise given by a promisor. But the defendants have strong grounds to argue against the award of consideration for practical benefits derived, because the decision rendered by the Court of Appeal in this case12 is not clear on what exactly is the practical benefit that has been gained, apart from avoiding troublesome litigation.13 Hence, avoiding trouble, as in the Williams case, or avoiding a breach of contract or the levying of a penalty clause cannot necessarily be equated to a “practical benefit”14, since in the Roffey case, the original contract also stipulated a time limit for completion bit additional payment was made for adhering to the time clause. It may be argued that if economic duress exists on the basis of which the promise of additional payment was extracted, then it should be rejected.15 The case of Roffey does not change the law in terms of describing what exactly would constitute a practical benefit, hence additional payments as consideration should require “something more than performance of contractual duty”.16 On this basis, the defendants can then argue that awarding additional sums to the plaintiff on the basis of their threatening to stop work because they were in financial difficulties, would amount to economic duress, which would qualify for a rejection applying the precedent established in Atlas Express v KafCo(Importers and Distributors) Ltd17In this case, the plaintiffs agreed to carry 400 to 600 cartons per load for 1.10 pounds, but despite there being only 200 cartons on the first trip, the plaintiffs agreed to continue the work only if they were paid additional sums. The Defendants agreed but later declined to pay the additional amounts. Grounds of economic duress were held to be adequate to reject the claim for additional payments, because in this instance the revised agreement was not one that could be categorized as providing a practical benefit, rather it was a revised agreement arising out of economic duress. It was the absence of threat in the case of Roffey that tilted the balance in favor of “practical benefit” rather than “economic duress”, where the former allows additional payments while the latter does not. Defendants can argue that additional payments are not due since economic duress existed. Defendants can also argue that the UKC agreement is a tripartite one, since a duty is owed in this case to a third party rather than to the claimant itself, hence the net result is that the plaintiff obtains an additional benefit to which it may not have any legal entitlement since it cannot be enforced otherwise. This was also the criticism of Roffey offered by Colman J in the case of South Caribbean Trading Limited v Trafigura Beeher BV18 While the performance of a duty owed to a third party may be good consideration, this will not necessarily be the case in the performance of a contractual duty owed to the promisor. It may thus be concluded on the basis of the above that defendants have three main grounds to contest the application of Roffey in this case. Firstly, the question of whether merely avoiding trouble or penalties for late completion are adequate grounds for the “practical benefit” doctrine to be applied. Secondly, since UKC exerted economic pressure by threatening to stop work, was the additional payment agreed to under economic duress – because under such a criterion, the additional amount would not be payable. Thirdly, the existence of a tripartite agreement raises the question of whether UKC can claim additional benefits which are not due to it but can legally be extended only to the third party. The defendants stand a good chance of getting the decision overturned because they should be able to persuasively formulate a strong argument to have the decision favoring additional payments to be over turned. 2. Since defendants may be able to avoid making good on their promise to make additional payments, this raises the issue of part payment of the amounts due to UKC. Part payment cannot strictly be construed as totally discharging a debt19 because all due amounts have not been paid. In this instance, UKC has not been paid what it was promised and this, the entire debt has not been discharged. Allowing Sing Foo Kee to get away with only a part payment, without paying the additional amounts it has agreed to pay, especially after it has also been able to gain some practical benefit, might be unnecessarily harsh.20 In this case, the doctrine of promissory estoppel may apply, as a law of waiver or giving up one’s rights in the interests of equity, so that when a promise has been made to make additional payments, going back on that promise may not be an acceptable option.21 In the case of Central London Property trust Ltd v High Trees House Ltd, it was held that “a promise intended to be binding, intended to be acted upon, and in fact acted upon……is binding so far as its terms properly apply.”22 The defendants in the UKC case had promised to make additional payments and such promise was intended to be binding, in reliance of which UKC completed the work. Hence Sing Foo Kee’s right to now force UKC to accept only partial payments in discharging its debit may be unacceptable on the grounds set out by Lord Cairns in the case of Hughes v Metropolitan Railway where enforcing a partial payment may be “inequitable having regard to the dealings which have taken place between the parties.”23 In the case of Ferguson v Davies24 the Plaintiff started a court action to revoke a debt for 1745 pounds. The defendant sent 150 pounds and tried to establish this as full payment for his debt, alleging that by this Plaintiff agreed to forego any further claims. This may be applied in the UKC case, where Sing Foo Kee can claim UKC’s partial acceptance of payment as an agreement to forego further claims because the doctrine of practical benefits has failed. But in the Ferguson case, the Court did not allow this part payment to serve as consideration for any other promise to settle the dispute. Hence on this basis, it can be concluded that partial payment of a debt cannot be construed to be a discharge of an entire debt. IKC would therefore still be able to recover the balance of the debt on the grounds of promissory estoppel, i.e, because Sing FooKee has agreed to pay the additional amounts in order to enable the contractual obligations to be discharged. Since a promise has been made, the promiser can go back on its promise only if some other consideration was supplied in return for the creditor’s agreement to accept a lesser sum than what it was promised.25 Since there is no other consideration that has been paid to UKC apart from the payments already made and the additional payments that have been promised, no other consideration exists and therefore, there are slim grounds for Sing Foo Kee to go back on its promise to pay the additional amounts to fully discharge its debt. Another issue that will also arise in this case is the issue of the tripartite agreement, Since there are also third parties involved in this instance, it may be argued that if a third party intervenes to pay off the debt to UKC, although it may be with a lesser sum than that originally promised by Sing Foo Kee, this could serve as a situation where the rule in Foakes v Beer26, i.e, that a payment of a lesser sum cannot be satisfaction for the whole, may be waived27. UKC can also ensure that promissory estoppel is applied in this case to make Sing Foo Kee pay the additional amounts it has promised, by establishing detrimental reliance, i.e, that it relied upon the promise by Sing Foo to its detriment. On this basis, UKC will not be strictly relying upon an execution of contractual provisions, which do not specify the additional payments, but rather will reply upon the promise of additional payments it relied upon to its detriment in completing the contracted building work. This may ensure that promissory estoppel can be applied in this instance to get Sing Foo to either pay the additional amounts promised or to make further payments through a third party, although this may be with a lesser sum that the originally promised additional payments. This would enable UKC to recover at least part of its expenses. Bibliography * Fisher, Michael G and Desmond, G, 2008. “Contract law in Hong Kong”, Hong Kong University Press * Stone, Richard, 2005. “The Modern Law of Contract”, Routledge Cavendish Cases cited: * Atlas Express v KafCo(Importers and Distributors) Ltd (1989) 1 All ER 641 * Central London Property trust Ltd v High Trees House Ltd (1947) KB * Currie v Misa (1875) LR 10 Ex 153 * City Polytechnic of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd (1994) 3 HKC 423 * Ferguson v Davies (1997) 1 All ER 315 * Foakes v Beer (1884)9 App Cas 605 * Hartley v Ponsonby (1857) 7 E&B 872 * Hughes v Metropolitan Railway (1877) 2 App Cas 439 at pp 448 * Pitt v PHH Asset Management Ltd(1993) 4 All ER 961 * Shadwell v Shadwell (1860) 9 C.B. (N.S.) 159 * Simon Container Machinery Ltd v Emba Machinery AB (1998) 2 Lloyds Rep 429 * Stilk v Myrick (1809) 2 Camp 317; 170 ER 851 * South Caribbean Trading Limited v Trafigura Beeher BV (2004) EWHC 2676 * UBC (Construction) Ltd v Sing Foo Kee Ltd (1993) 2 HKLR 207 * Williams v Williams (1957) 1 All ER 305 * Williams v Roffey Bros and Nichols (Contractors) Ltd (1991) 1 QB 1 * Welby v Drake (1825) 1 C & P 557 Read More