This advice addresses two separate legal issues confronting Bedrock Developments Ltd. (‘Bedrock’), both of which will be analysed under the governing law of England and Wales. The first issue concerns Bedrock’s right to recover an outstanding debt of £4.5 million from Brentwell Energy (‘Brentwell’) after agreeing to accept a lesser sum in full settlement. The second issue concerns whether ReadyPour Ltd. (‘ReadyPour’) is relieved of its contractual obligations to Bedrock due to a supervening event which has made performance significantly more expensive.
Bedrock v Brentwell Energy: Recovery of the £4.5 Million Debt
Introduction to the Issue
Bedrock is seeking to recover the £4.5 million balance of an £18 million debt, having previously agreed to accept £13.5 million from Brentwell in final settlement. The advice will consider the common law rule on part-payment of debts, the potential application of promissory estoppel, and whether the agreement was made under economic duress.
The Rule in Pinnel’s Case and Foakes v Beer
The starting point is the long-established common law rule, confirmed by the House of Lords in Foakes v Beer (1884) 9 App Cas 605, that part-payment of a debt is not valid consideration for a promise to forgive the remainder of the debt. A creditor can therefore go back on their promise and sue for the full amount. This is because the debtor has only done what they were already contractually obliged to do—pay the money they owed—and has not provided any fresh consideration for the creditor’s promise to accept less.
Applying this rule to the facts, Brentwell owed Bedrock £18 million. By paying £13.5 million, Brentwell has not provided any consideration for Bedrock’s promise to waive the £4.5 million balance. On this basis alone, Bedrock’s promise is not contractually binding, and it should be able to recover the outstanding sum.
Potential Defences for Brentwell
Brentwell may seek to rely on two main arguments to prevent Bedrock from recovering the balance: the doctrine of practical benefit and promissory estoppel.
First, Brentwell might argue that its payment conferred a ‘practical benefit’ on Bedrock, which should count as good consideration. In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the Court of Appeal held that a promise to perform an existing contractual duty could be good consideration if it resulted in a practical benefit to the promisor. Here, the practical benefit for Bedrock was receiving £13.5 million immediately from a company in financial distress, rather than risking receiving nothing if Brentwell became insolvent. However, the Court of Appeal in Re Selectmove Ltd [1995] 1 WLR 474 held that the Williams v Roffey principle cannot be extended to agreements concerning the part-payment of debts. To do so would contradict the House of Lords' decision in Foakes v Beer. This position was considered but not overruled by the Supreme Court in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24. Therefore, as the law currently stands, the 'practical benefit' of receiving some of the money is not sufficient consideration to make Bedrock's promise binding.
Second, Brentwell could raise the equitable doctrine of promissory estoppel as a defence. This doctrine may prevent a party from going back on a promise which was intended to be binding, intended to be acted on, and was in fact acted on (Central London Property Trust v High Trees House [1947] KB 130). For this defence to succeed, Brentwell would need to show that (1) Bedrock made a clear promise to waive its legal right to the full sum; (2) Brentwell relied on this promise by paying the £13.5 million; and (3) it would be inequitable for Bedrock to go back on its promise.
On the facts, there was a clear promise and Brentwell relied on it. The key question is whether it would be inequitable for Bedrock to now demand the remainder. At the time of the agreement, Brentwell was in "severe financial difficulties". However, eighteen months later its position has "greatly improved". Promissory estoppel is generally seen as a suspensory doctrine, meaning it suspends the promisor’s rights rather than extinguishing them permanently. When the circumstances that made it inequitable to enforce the original rights have changed, the promisor may be able to revive their rights. Since Brentwell's financial difficulties have passed, it is arguable that it is no longer inequitable for Bedrock to demand payment of the balance. The estoppel would have simply suspended Bedrock’s right to the £4.5 million during Brentwell's period of hardship.
Economic Duress
Bedrock might consider arguing that its agreement to accept the lesser sum is voidable for economic duress. This requires showing that it was subjected to illegitimate pressure which was a significant cause for entering the agreement, leaving no practical alternative. Bedrock felt "constrained to agree", which suggests compulsion. However, the pressure must be 'illegitimate'. Brentwell stated that it "may otherwise be unable to pay the debt." This appears to be a frank statement about its financial reality, rather than a threat to breach its contract in bad faith. Pressure arising from difficult market conditions, without an illegitimate threat, will generally not amount to economic duress. It is unlikely that a court would find Brentwell's statement to constitute illegitimate pressure.
Conclusion on the Debt
Bedrock has a strong case for recovering the remaining £4.5 million. The common law rule in Foakes v Beer supports its claim. While Brentwell may raise promissory estoppel as a defence, its improved financial position significantly weakens the argument that it would be inequitable for Bedrock to enforce its full rights. The doctrine's suspensory nature suggests Bedrock's right to the full debt was merely paused, and has now revived.
Bedrock v ReadyPour: Frustration of Contract
Introduction to the Issue
ReadyPour claims it is relieved from its obligation to supply concrete to Bedrock because an unforeseen event has made performance dramatically more expensive. This requires an analysis of the doctrine of frustration.
The Test for Frustration
A contract may be discharged by frustration where a supervening event occurs, without the fault of either party, that renders performance of the contract impossible or "radically different" from what was undertaken in the contract. The leading test was set out by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696. The courts apply this test very strictly; the fact that performance has become more difficult or expensive is not sufficient.
Application to ReadyPour’s Contract
The Cambodian government’s ban on sand exports is a supervening event outside the control of either party. The central question is whether this event makes ReadyPour's performance "radically different".
The contract is for the supply of ready-mix concrete. The written contract does not specify the source of the sand. Although both parties knew ReadyPour intended to use Cambodian sand, this shared assumption does not automatically become a term of the contract. The situation is comparable to Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93, where the closure of the Suez Canal made a contract to ship groundnuts much more expensive and lengthy, as the ship had to go around the Cape of Good Hope. The House of Lords held the contract was not frustrated because the method of performance was not a fundamental part of the contract; the obligation was simply to get the goods to their destination.
Similarly, here, ReadyPour’s obligation is to supply concrete. It can still do so by sourcing sand from Vietnam. This will be five times more costly and will result in a "huge loss", but it is not impossible. The courts have consistently held that a contract becoming unprofitable or a bad bargain is not a ground for frustration (Davis Contractors). The law does not exist to rescue a party from an unfortunate commercial risk they have undertaken.
The outcome would likely be different if the contract had specified "concrete made with sand from Cambodia." In that scenario, performance of the specific contractual obligation would have become illegal and thus impossible. But as the source was not specified, ReadyPour’s core obligation to supply concrete remains possible.
The user-requested case of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407 concerns the doctrine of common mistake, which applies where parties are mistaken about a fundamental fact at the time of contracting. It is not directly relevant here, as the sand ban was a supervening event that occurred after the contract was made. However, the very narrow approach to common mistake in Great Peace reinforces the judiciary’s general reluctance to let parties escape from what turn out to be bad bargains, an attitude that is mirrored in the strict test for frustration. Similarly, the recent decision in Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), where the court held that Brexit did not frustrate a long-term lease, confirms that the threshold for frustration remains extremely high.
Conclusion on Frustration
It is highly unlikely that ReadyPour’s claim of frustration will succeed. The contract has become more expensive to perform, but not radically different from that which was agreed. ReadyPour remains contractually bound to supply the ready-mix concrete to Bedrock. If ReadyPour fails to perform, it will be in breach of contract, and Bedrock will be entitled to sue for damages to cover its losses, for example, the extra cost of sourcing concrete from another supplier.
References
Bell v Lever Brothers Ltd [1932] AC 161
Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch)
Central London Property Trust v High Trees House [1947] KB 130
Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696
Foakes v Beer (1884) 9 App Cas 605
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407
McKendrick, E. (2020) Contract Law. 14th edn. Palgrave Macmillan.
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24
Re Selectmove Ltd [1995] 1 WLR 474
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
