England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
(HIS HONOUR JUDGE MOSELEY QC)

		Royal Courts of Justice Strand London WC2
		21st December 1993

Lord Justice Peter Gibson: This is an appeal by Selectmove Ltd. ("the Company") from the Order made on 19 January 1993 by His Honour Judge Moseley Q.C., sitting as a Judge of the Companies Court, whereby on the petition of the Commissioners of Inland Revenue as creditors he compulsorily wound up the Company. The issue before us, as it was before the Judge, is whether the debt of the Company to the Revenue is disputed in good faith on substantial grounds.

There is no doubt as to the correct approach to that issue. The jurisdiction of the Companies Court to wind up companies is not for the purpose of deciding a factual dispute concerning a debt which is sought to be relied on to found a petition. Until the petitioner can establish that he is a creditor, he is not entitled to present a petition based on a claimed debt. Accordingly the practice of the Companies Court is to dismiss a creditor's petition based on a debt which is disputed by the company in good faith and on substantial grounds (see, for example, Stonegate Securities Ltd. v Gregory [1980] Ch. 576 at 580 per Buckley L.J.).

In July 1991 the Company owed the Revenue substantial amounts of tax ("PAYE") which it had deducted from the emoluments of its employees under the P.A.Y.E. system and National Insurance Contributions ("NIC"), the arrears going back to the previous fiscal year. On 15 July 1991 Mr. ffooks, the Managing Director of the Company, met Mr. Polland, a Collector of Taxes, at the latter's office. Mr. ffooks' account of what occurred is contained in a letter dated 11 October 1991 from him to the Revenue and is verified by his Affidavit of 27 November 1992. In that letter he said that he explained to Mr. Polland that the Company was having cash flow problems, but that the Company's bank was being supportive. He said that he suggested to Mr. Polland that it could not be in anyone's interest for the Company to be put into compulsory liquidation when the typesetting market in which the company was engaged usually picked up after the summer, and that the Company had been trading "marginally profitably" since the start of the financial year. Mr. Polland, he said, asked him if he was in a position to put forward a proposal to pay back the arrears of PAYE and NIC and told him that any proposal should include the prompt payment of any future PAYE and NIC as they fell due. He further said that he told Mr. Polland that because of the lengthy credit terms usual in the publishing industry, even if the Company continued to trade at a profit, this would not be reflected in cash coming in to the Company for 4 or 5 months. He continued:

"I therefore proposed that the company would pay any future PAYE and NIC liability as it fell due commencing with the liability for August (due September) and this has been done.

I further proposed that the arrears of PAYE and NIC would be paid at a rate of £1,000 per month from the 1st February 1992.

Mr. Polland said that such a proposal went further than he would have liked and that he would have to seek approval from his superiors to whom he would recommend it considering the support that both I and our bankers were giving the company. He said he would revert to me if it was unacceptable.

To date I have not heard from him and as I have made the two payments which were due under the agreement it is clear that this agreement has come into existence."

The Revenue dispute that Mr. Polland made any agreement with Mr. ffooks. However, it was accepted that for the purpose of the hearing before the Judge the Company's version of the facts of what occurred should be taken as correct, and the same assumption has been common ground on this appeal.

The Company did not hear further from the Revenue until 9 October 1991. By then, on 19 August 1991, it had duly paid PAYE and NIC for August 1991 amounting to £2,309, but it had not paid PAYE and NIC for September 1991 although that had become due on 19 September 1991. On 9 October 1991 the Revenue wrote to the Company, demanding payment of PAYE and NIC arrears totalling £24,650 and threatened a winding up petition if payment was not made. It was to that letter that Mr. ffooks was responding by his letter dated 11 October 1991 in which the agreement between Mr. ffooks and Mr. Polland was alleged. On 11 October 1991 the Company paid the September PAYE and NIC in the sum of £1,821. On 22 November 1991 a further payment of PAYE and NIC for October and November in the sum of £2,699 was made, again late. In 1992 7 cheques of £1,000 each were paid to the Revenue, the first two on 3 March 1992. Again there were failures by the Company to honour what Mr. ffooks said was agreed with Mr. Polland, viz. the payment of £1,000 per month from 1 February 1992. On 18 October 1991 the employees of the Company were given notice of dismissal and on 24 October 1991 the Company sold all its work in progress to another company, the intention of the sale agreement being, according to the Company's solicitor, Mr. Stockler, to provide £1,000 per month to settle the Revenue's claim. However the Revenue continued to press for payment and served a statutory demand for payment of £19,650.15. On 7 September 1992 the Revenue presented its winding up petition based on a claimed debt of £17,466.60.

On behalf of the Company it was contended before the Judge that it had an arguable case that the Revenue had accepted the proposal put by Mr. ffooks to Mr. Polland on 15 July 1991. The Revenue took two points on this contention, each of which was accepted by the Judge. The first was that no agreement was concluded by the silence of the Revenue in response to Mr. ffooks' proposal. The second was that if there was an agreement there was no consideration therefor. The Company also argued in the alternative that by reason of the agreement between Mr. ffooks and Mr. Polland the Revenue is estopped from relying on the debt as due. That argument too was rejected by the Judge on the ground that there was no agreement or promise by the Revenue to give rise to any estoppel.

Similar contentions were advanced by Mr. Nugee for the Company before us, and I shall consider in turn the following issues:

(1) Was there an acceptance by the Revenue of Mr. ffooks' proposal?

(2) If there was an agreement, was it supported by consideration moving to the Revenue?

(3) If there was no agreement, is the Revenue estopped from asserting that its debt is due?

(1) Acceptance

The Judge referred to the Affidavit evidence of Mr. ffooks in which he had stated what had occurred at the meeting with Mr. Polland on 15 July 1991 and the absence of any communication from the Revenue at any time before 9 October and had asserted that the offer had been accepted. The Judge said: "It is not asserted.... that Mr. Polland said anything to the effect, "if you do not hear from me, take it that there is an agreement between us."" But that seems to me to be what necessarily is the effect of Mr. ffooks' assertion of the acceptance of the offer.

The question is whether an agent who makes clear to an offeror that he lacks the principal's authority to accept the offer can, by indicating that he would refer the offer to his principal and that he would come back to the offeror only if the offer was not acceptable, bind the principal to accept the offer by the agent's subsequent silence. Mr. Charles, for the Revenue, drew our attention to the general rule that silence will not normally amount to acceptance of an offer since acceptance cannot be inferred from silence alone "save in the most exceptional circumstances" (Allied Marine Ltd. v Vale do Rio Doce S.A. [1985] 1 W.L.R. 925, 937 per Robert Goff L.J.). But the authorities that support the general rule are cases where an offeror sought to impose on the offeree a term as to acceptance by silence. For my part, as at present advised, I would accept the observation of Evans J. in Gebr. van Weelde Scheepvaartkantor B.V. v Cia. Naviera Sea Orient S.A. [1985] Lloyds L.R. 496 at p.509: "The significance of silence, as a matter of law, may also be different when there is an express undertaking or an implied obligation to speak, in the special circumstances of the particular case". Where the offeree himself indicates that an offer is to be taken as accepted if he does not indicate to the contrary by an ascertainable time, he is undertaking to speak if he does not want an agreement to be concluded. I see no reason in principle why that should not be an exceptional circumstance such that the offer can be accepted by silence. But it is unnecessary to express a concluded view on this point.

The more substantial objection taken by Mr. Charles is as to the want of authority of Mr. Polland. That he had no authority to agree to the proposal Mr. Polland had made clear to Mr. ffooks. It is not suggested by Mr. Nugee that Mr. Polland had actual authority to conclude the agreement or otherwise to bind the Revenue by his silence. He has to assert that Mr. Polland had ostensible authority and he submits that such authority extended to conveying his principals' acceptance by his subsequent silence. The difficulty that I have with this submission stems from the fact that it is trite law that ostensible authority involves a representation by the principal as to the extent of the agent's authority and no representation by the agent as to the extent of his authority can amount to a holding out by his principal (see, for example, Bowstead on Agency (15th ed.) p.286). In Armagas Ltd. v Mundogas S.A. [1986] AC 717 the House of Lords expressly approved (at p.779) the following remarks by Robert Goff L.J. (at pp. 730-731):

"the effect of the judge's conclusion was that, although Mr. Magelssen did not have ostensible authority to enter into the contract, he did have ostensible authority to tell Mr. Jensen and Mr. Dannesbøe that he had obtained actual authority to do so. This is, on its face, a most surprising conclusion. It results in an extraordinary distinction between (1) a case where an agent, having no ostensible authority to enter into a relevant contract, wrongly asserts that he is invested with actual authority to do so, in which event the principal is not bound; and (2) a case where an agent, having no ostensible authority, wrongly asserts after negotiations that he has gone back to his principal and obtained actual authority, in which event the principal is bound. As a matter of common sense, this is most unlikely to be the law."

In the present case I am not aware of any fact which would enable Mr. ffooks reasonably to believe that the superiors, to whom Mr. Polland referred, were themselves making a representation that Mr. Polland had their authority to accept the offer or to convey their acceptance by his silence. Accordingly, I would hold that the Judge was right to conclude that there was no acceptance, though my reasons differ from those of the Judge.

(2) Consideration

There are two elements to the consideration which the Company claims was provided by it to the Revenue. One is the promise to pay off its existing liability by instalments from 1 February 1992. The other is the promise to pay future PAYE and NIC as they fell due. Mr. Nugee suggested that implicit in the latter was the promise to continue trading. But that cannot be spelt out of Mr. ffooks' evidence as to what he agreed with Mr. Polland. Accordingly the second element is no more than a promise to pay that which it was bound to pay under the fiscal legislation at the date at which it was bound to make such payment. If the first element is not good consideration, I do not see why the second element should be either.

The Judge held that the case fell within the principle of Foakes v Beer (1884) 9 App Cas 605. In that case a judgment debtor and creditor agreed that in consideration of the debtor paying part of the judgment debt and costs immediately and the remainder by instalments the creditor would not take any proceedings on the judgment. The House of Lords held that the agreement was nudum pactum, being without consideration, and did not prevent the creditor, after payment of the whole debt and costs, from proceeding to enforce payment of the interest on the judgment. Although their Lordships were unanimous in the result, that case is notable for the powerful speech of Lord Blackburn who made plain his disagreement with the course the law had taken in and since Pinnel's Case (1602) 5 Rep. 117a and which the House of Lords in Foakes v Beer decided should not be reversed. Lord Blackburn (at p.622) expressed his conviction that "all men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole". Yet it is clear that the House of Lords decided that a practical benefit of that nature is not good consideration in law.

Foakes v Beer has been followed and applied in numerous cases subsequently, of which I shall mention two. In Vanbergen v St. Edmunds Properties Ltd. [1933] 2 K.B. 223 at p.231 Lord Hanworth M.R. said "It is a well established principle that a promise to pay a sum which the debtor is already bound by law to pay to the promisee does not afford any consideration to support the contract." More recently in D. & C. Builders Ltd. v Rees [1966] 2 QB 617 this Court also applied Foakes v Beer, Danckwerts L.J. (at p.626) saying that the case "settled definitely the rule of law that payment of a lesser sum than the amount of a debt due cannot be a satisfaction of the debt, unless there is some benefit to the creditor added so that there is an accord and satisfaction."

Mr. Nugee however submitted that an additional benefit to the Revenue was conferred by the agreement in that the Revenue stood to derive practical benefits therefrom: it was likely to recover more from not enforcing its debt against the Company, which was known to be in financial difficulties, than from putting the Company into liquidation. He pointed to the fact that the Company did in fact pay its further PAYE and NIC liabilities and £7,000 of its arrears. He relied on the decision of this Court in Williams v Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 Q.B.1 for the proposition that a promise to perform an existing obligation can amount to good consideration provided that there are practical benefits to the promisee.

In that case the defendant, which had a building contract, subcontracted work to the plaintiff at a price which left him in financial difficulty and there was a risk that the work would not be completed by the plaintiff. The defendant agreed to make additional payments to the plaintiff in return for his promise to carry out his existing obligations. The plaintiff sued for payment under the original agreement and the further agreement. The defendant argued that its promise to make additional payments was unenforceable and relied on Stilk v Myrick (1809) 2 Camp. 317, in which Lord Ellenborough C.J. held to be unenforceable for want of consideration a promise by a ship's captain to seamen, hired to crew the ship to and from the Baltic, of extra pay for working the ship back from the Baltic after two men had deserted. This Court rejected that argument without overruling Stilk v Myrick. Glidewell L.J., with whom Purchas and Russell L.JJ. agreed, expressed the law to be this (at pp. 15-16):

"(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."

Mr. Nugee submitted that although Glidewell L.J. in terms confined his remarks to a case where B is to do the work for or supply goods or services to A, the same principle must apply where B's obligation is to pay A, and he referred to an article by Adams and Brownsword in (1990) 53 M.L.R. 536 at pp. 539-540 which suggests that Foakes v Beer might need reconsideration. I see the force of the argument, but the difficulty that I feel with it is that 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 the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes v Beer was not even referred to in the Williams case, and it is in my judgment impossible, consistently with the doctrine of precedent, 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 after consideration by the Law Commission.

In my judgment, the Judge was right to hold that if there was an agreement between the Company and the Revenue it was unenforceable for want of consideration.

(3) Estoppel

Mr. Nugee submitted that if the agreement was unenforceable for want of consideration the Revenue is nevertheless estopped by the doctrine of promissory estoppel. As I understood him, he was saying that the Revenue could not go back on its implied promise not to enforce the debt, given as it was in return for the Company's promise to pay the future PAYE and NIC as they fell due and to pay the arrears by monthly instalments of £1,000 from 1 February 1992. He said that the Company had acted on the Revenue's promise and it would be inequitable to allow the Revenue to renege on its promise.

Mr. Charles did not accept that the Revenue could be estopped as a matter of private law from performing its statutory duty, but he accepted that as a matter of public law the Revenue could be prevented from acting unfairly. He did not suggest that an objection of unfairness could not be taken in the present proceedings.

It is unnecessary to consider the rival arguments in further detail as in my opinion Mr. Nugee's submission cannot succeed for at least two reasons. First, as Mr. Polland had no actual or ostensible authority to make the agreement claimed by the Company, he had no authority to make the promise said to found the estoppel against the Revenue. Second, because the Company failed to honour its promise to pay the September PAYE and NIC as they fell due, it was not inequitable or unfair for the Revenue on 9 October 1991 to demand payment of all the arrears, nor, in the light of the further late payments of the October and November PAYE and NIC and of various of the monthly instalments of £1,000, was it unfair or inequitable to serve a statutory demand and present a winding up petition to enforce the debt.

For these reasons despite the able and well-sustained arguments of Mr. Nugee I would dismiss this appeal.

Lord Justice Stuart-Smith: For the reasons given in the judgment of Peter Gibson L.J. I agree that this appeal should be dismissed.

Lord Justice Balcombe: I agree.

Lord Justice Balcombe: For the reasons which are given in the judgment which has been handed down this appeal will be dismissed.

ORDER: Appeal dismissed; respondent's costs in the appeal to be costs in the liquidation; no order for the appellant's costs; leave to appeal to the House of Lords refused.

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