AWA: Academic Writing at Auckland

Farmhands 215 Ltd (FH) has requested advice on two matters.  The first involves an agreement where they were to provide water in exchange for money from Mr Flay (MF).  MF was unable to fulfil his obligations and it was agreed by both parties that he would pay less for the same amount of water.  The second matter involves an agreement that Groan Ltd (GL) would complete topdressing for FH at a set price.  Due to a mechanical breakdown GL was unable to complete the task and requested more money, which FH agreed to pay.  This opinion will discuss FH’s obligations in each matter; explore FH’s option and the potential consequences; and advise FH on a course of action in each case.

I. Whether FH is bound by the Variations to the Original Contract with MF.

Consideration is an essential part of a contract.  It is defined as:

An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.[1]

Under the original contract between FH and MF the mutual promises to provide water and money were consideration for each other.  But under the variation FH is providing the same water but MF is paying less.  Stilk v Myrick[2] deals with consideration relating to existing contractual obligations.  It says that a promise by one party to do that which they are already contractually bound to do is not good consideration.  Applying Stilk it seems that FH has not provided good consideration for the variation because they are providing nothing more than what they have already agreed to.  Based on this it seems that the variation is unenforceable.

However the concept of consideration has been altered.  In Williams v Roffey Bros[3] the Court held that a promise to perform an existing obligation may be enforceable if a practical benefit is gained or a detriment is avoided.  This case found favour in New Zealand in Antons Trawling Co Ltd v Smith[4].  Although the position in New Zealand was not clearly defined, Baragwanath J held that either Roffey Bros applies, in which case consideration will be found in practical benefits, or Professor Coote’s argument[5] applies, in which case consideration is not required for a variation.[6]  Baragwanath J clarified the position in Antons in his judgement in Ross Bindon Ltd v PB & CS Properties Ltd[7] where he said that the position in Antons was that consideration was not required for a variation to an existing contract where there was no evidence of oppression.  This leads to the conclusion that the variation to the original contract would not be unenforceable for lack of consideration, which reflects the intention of the parties at the time the variation was agreed to.

Another possible option for FH is to argue accord and satisfaction.  The traditional rule, which has been applied in New Zealand[8], is that an agreement to accept part payment of a debt in satisfaction of the full amount is unenforceable.[9]  Applying this rule to the present case, FH could argue that their agreement to release MF from his obligation to pay the contracted amount, the accord, was not supported by valuable consideration, or satisfaction.[10]  However as has been found before in New Zealand[11] this does not seem to be a Foakes situation.  It seems that the actual amount owed has been renegotiated and this is reflected by the ongoing nature of the arrangement.

If accord and satisfaction could be proven MF may have a remedy in promissory estoppel.  In D & C Builders Ltd v Rees[12] Denning MR found that where a creditor voluntarily agrees to accept a lesser sum in payment of a debt and the debtor acts on that agreement by paying the lesser sum, the creditor will not be able to claim the outstanding amount if it would be inequitable to do so.  It will be inequitable where there has been a true accord between the parties.  It seems that there was an accord between FH and MF and based on Denning MR’s position it would be inequitable for FH to claim the outstanding amount after the fact.  While this is not New Zealand law it is persuasive.

MF may also have a remedy in the Judicature Act 1908.[13]  This Act states that a debt may be satisfied by part payment where the creditor has actually received the part payment, it was acknowledged in writing and that this acknowledgement stated that it was in satisfaction of the whole debt.[14]  If the new agreement complies with these requirements this would prevent FH from claiming accord and satisfaction.

Based on the cases mentioned above it would seem that the variation to the original contract is binding.  While the exact position in New Zealand is unclear it is likely that the Courts will not hold the variation unenforceable for want of consideration.  In addition to this it is unlikely that an argument of accord and satisfaction would succeed, but if it did MF may have a remedy in promissory estoppel or statute.

II. Whether FH must pay Groan Ltd (GL) the $18,000 claimed or the $15,000 originally agreed to.

Before any advice can be given to FH regarding this issue I would need to know more information about the nature of the contract which they entered into with GL.  If the contract contains a price variation clause in the event of mechanical breakdown then GL’s request for extra funding would appear to be valid and binding.  If no mention is made of a potential price variation, or the actions to occur in the event of a breakdown, then perhaps FH has a case.

The main argument is that, in accordance with Stilk, this agreement fails for lack of consideration.  In this case FH has agreed to pay GL $15,000 for topdressing.  GL consequently asked for more money to complete the same job.  This seems like exactly the situation which Stilk aimed to prevent.  However if we apply Roffey Bros it may be argued that by not having to find another contractor to finish the task FH has avoided a detriment.  Applying Antons to the present facts means that if Roffey Bros does not apply in this situation then perhaps, as an agreed to variation to the original contract, consideration is not required at all.[15]  Based on these cases it would appear that FH must pay GL 8,000.

However, both Roffey Bros[16] and Antons[17] require that the promise is not given under duress.  The elements required for duress in New Zealand were defined by the Court of Appeal in Pharmacy Care Systems Ltd v Attorney-General[18].  There must be an improper threat or pressure that displaces the victim’s freewill and forces him to assent.  This threat or pressure must be grave enough to justify the victim’s assent, effectively leaving no other alternative.[19]

Applying this it seems that if GL have threatened to breach the contract if they aren’t paid more and that FH agreed to pay more based on this pressure then this may be a case of duress.  However the question is whether GL told FH that they would not complete the job unless they were paid more or whether they said that they could not complete the job unless they were paid more.[20]  In the first case there may be a case for duress.  In the second case it seems similar to Roffey Bros and FH agreement to pay more would likely be taken as an enforceable variation.

Finding an agreement unenforceable due to duress is not a step the Courts take lightly.[21]  While it seems unfair that FH should have to pay extra to get something they were already entitled to, they willingly agreed to pay more and felt that it was still a fair deal.  It is unclear whether the Courts would find duress in this case but it is possible that they would not and the law from Roffey Bros indicates that they would be bound by their agreement to pay more.

III.     Conclusion and Advice

It seems that FH agreements to accept less in the first case and pay more in the second case will both be enforceable.  Although it is unclear how the New Zealand Courts might lean in these particular instances, Roffey Bros and Antons seem to indicate that the Courts are more likely to try and give effect to the intentions of the parties, even if they have to manufacture consideration to do so.[22]  Accordingly, on the first issue I would advise FH that the variation will likely be binding. An option may be to approach MF and discuss the possibility of amending the terms again now that the market is better.  A possible solution is that the $110,000 difference be divided equally between years 2 – 10; however MF has no obligation to accept this and would only do so to repay the kindness shown by FH in varying the original contract.  On the second issue I would check the original contract to see whether it contained a price variation.  If it did I would advise FH that they are bound and must pay the requested sum.  If it did not I would look into GL and see if they have a history of similar mechanical breakdowns on other jobs.  This may point to dishonesty and make a claim of duress more viable.[23]  Failing this it is likely that FH agreement to pay $18,000 will also be binding.

[1] John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at 112.

[2] Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168 (KB).

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

[4] Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA).

[5] Brian Coote “Consideration and the Variation of Contracts” [2003] NZ Law Review 361 at 372.

[6] Antons Trawling at [93].

[7] Ross Bindon Ltd v PB & CS Properties Ltd (in liq) (2006) 7 NZCPR 850 (HC) at [36].

[8] HBF Dalgety Ltd v Morton [1987] 1 NZLR 411 (HC).

[9] Foakes v Beer (1884) 9 App Cas 605.

[10] Burrows, Finn and Todd at 766.

[11] Machirus Properties Ltd v Power Sports World (1987) Ltd (1999) 4 NZ ConvC 193,066 (HC).

[12] D & C Builders Ltd v Rees [1966] 2 QB 617 (CA).

[13] Judicature Act 1908, s 92.

[14] Burrows, Finn and Todd at 142-143.

[15] Antons Trawling, above n 6.

[16] Williams v Roffey Bros per Glidewell LJ.

[17] Antons Trawling at [93].

[18] Pharmacy Care Systems Ltd v Attorney-General (2004) 2 NZCCLR 187 (CA).

[19] At [98].

[20] Burrows, Finn and Todd at 424.

[21] Moyes and Groves Ltd v Radiation NZ Ltd [1982] 1 NZLR 368 at 372.

[22] Williams v Roffey Bros per Russell LJ.

[23] Burrows, Finn and Todd at 424.