Re Selectmove Ltd [1993] EWCA Civ 8 (21 December 1993)

A company owing tax argued it had an enforceable agreement to pay arrears by instalments. The court held the tax collector lacked authority to bind the Revenue, and that an agreement to pay an existing debt is not supported by consideration.

Facts

Selectmove Ltd owed substantial arrears of PAYE and National Insurance contributions to the Inland Revenue. The company’s managing director, Mr Ffooks, met with a tax collector, Mr Polland, on 15 July 1991. Mr Ffooks proposed that the company would pay its future tax liabilities as they fell due, and would pay the arrears in instalments, suggesting a rate of £1,000 per month from 1 February 1992. Mr Polland indicated that he would need to seek approval from his superiors and that he would inform the company if the proposal was unacceptable. Selectmove subsequently made several payments of £1,000. However, in October 1991, the Inland Revenue demanded payment of the entire arrears of over £24,000 and subsequently presented a petition to wind up the company.

Issues

The Court of Appeal considered three principal legal issues:

1. Did the tax collector, Mr Polland, have the authority to make a binding agreement on behalf of the Inland Revenue to accept payment of the arrears by instalments?
2. If he did have such authority, did his silence after the meeting constitute an acceptance of the company’s offer?
3. If an agreement was formed, was it supported by valid consideration, or was it unenforceable under the rule in Foakes v Beer? Specifically, could the ‘practical benefit’ doctrine from Williams v Roffey Bros & Nicholls (Contractors) Ltd apply to a promise to pay an existing debt?

Judgment

Authority and Acceptance

Lord Justice Peter Gibson, giving the lead judgment, held that the company had failed to demonstrate that Mr Polland had the actual or ostensible authority to bind the Inland Revenue to the agreement. The evidence suggested Mr Polland was a subordinate official who had explicitly stated he needed to seek approval from his superiors. Furthermore, the court held that acceptance could not be inferred from the Revenue’s silence. While acknowledging that silence could, in exceptional circumstances, constitute acceptance where it was intended to do so, that was not the case here. Mr Polland had stated he would contact the company if the offer was unacceptable, placing the onus on the company to ascertain whether it had been approved.

Consideration and the Rule in Foakes v Beer

The most significant part of the judgment concerns the doctrine of consideration. The company argued that the agreement provided a ‘practical benefit’ to the Revenue (i.e., it was more likely to recover some of the debt than if it proceeded immediately to a winding-up), and this benefit constituted good consideration, following the principle established in Williams v Roffey.

Lord Justice Peter Gibson firmly rejected this argument. He held that the Court of Appeal was bound by the House of Lords’ precedent in Foakes v Beer (1884), which established that a promise to pay a sum which the debtor is already bound by law to pay is not good consideration. He explicitly distinguished the situation from that in Williams v Roffey:

The principle of the Williams case… was that where there was a contract for the supply of goods or services and the party (A) undertaking the supply has got into difficulties and the other party (B) agrees to pay A an additional sum to ensure that the supply is completed, and as a result B obtains a benefit in fact or obviates a disbenefit, B’s promise to pay the extra sum is binding, the promise not being obtained by fraud or duress.

He reasoned that the principle in Williams v Roffey concerned contracts for goods and services, not the part-payment of a debt. Applying it to debt cases would effectively abolish the long-standing rule in Foakes v Beer, a step that only the House of Lords or Parliament could take.

If the principle of the Williams case is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v. Beer without any application. When a creditor and a debtor who are at arm’s length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing… In my judgment, it is not for this court to extend the principle of the Williams case to any circumstances governed by the principle of Foakes v. Beer. If that extension is to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament.

Implications

The decision in Re Selectmove is of major importance in the English law of contract. It clarifies and confines the scope of the ‘practical benefit’ doctrine from Williams v Roffey. The case establishes a clear dividing line: the ‘practical benefit’ principle applies to promises for additional payment for goods or services, but the traditional rule from Foakes v Beer continues to govern agreements for the part-payment of debts. A promise to pay what one already owes remains insufficient consideration for a creditor’s promise to forbear or accept less. This creates a somewhat uneasy distinction in the law, but provides certainty by preventing the lower courts from undermining a House of Lords precedent.

Verdict: The appeal was dismissed, and the winding-up order against Selectmove Ltd was upheld.

Source: Selectmove Ltd, Re [1993] EWCA Civ 8 (21 December 1993)