Facts of the Case
In July 1991, Selectmove Ltd owed the Inland Revenue substantial arrears in income tax (PAYE) and national insurance contributions (NIC). Mr ffookes, the company’s managing director, met with Mr Polland, a collector of taxes, to discuss the debt. ffookes proposed a payment plan: the company would pay all future tax liabilities as they fell due, and it would pay off the existing arrears at a rate of £1,000 per month starting in February 1992.
Mr Polland stated that he did not have the authority to agree to the proposal himself and would have to seek approval from his superiors. He told ffookes he would “revert” to him if the proposal was unacceptable. The Revenue did not contact the company again until October 1991, at which point they demanded immediate payment of the full arrears (£24,650) and threatened a winding-up petition. The company argued that an agreement had been reached through the Revenue’s silence and that this agreement was legally binding.
Key Legal Issues and Decision
1. Acceptance by Silence and Authority
The Court of Appeal held that no agreement had been concluded. While silence can amount to acceptance in “exceptional circumstances”—specifically where the offeree (the Revenue) suggests that their own silence should be taken as consent—this did not apply here. Crucially, Mr Polland had made it clear he lacked the actual authority to bind the Revenue. The court found he also lacked ostensible authority, as the Revenue had made no representation to the company that he could accept such a proposal or bind them through silence.
2. Consideration: The Pre-Existing Duty Rule
The company argued that even if it was already legally bound to pay the tax, its promise to do so by instalments provided a “practical benefit” to the Revenue, as they were more likely to recover money from a trading company than a liquidated one. They relied on Williams v Roffey Bros, which allowed practical benefit to count as consideration.
However, Peter Gibson LJ held that the rule in Foakes v Beer (a House of Lords decision) remained the governing authority for debts. He ruled that a promise to pay a sum which the debtor is already bound by law to pay is not good consideration. He distinguished Williams v Roffey as being confined to contracts for goods and services, arguing that extending it to the payment of debts would effectively leave the principle in Foakes v Beer with no application.
3. Promissory Estoppel
The estoppel claim failed for two reasons:
- Because Polland lacked authority to make the agreement, he also lacked the authority to make a promise that could found an estoppel.
- Selectmove had failed to stay current with its September 1991 tax payments, meaning it had not even honoured its own proposed plan; therefore, it was not inequitable for the Revenue to resile and demand the full debt.
Academic Discussion and Implications
- The Conflict of “Increasing” vs. “Decreasing” Pacts: Re Selectmove highlights a stark inconsistency in English law. Under Williams v Roffey, a promise to pay more for the same service is enforceable if it provides a practical benefit. Conversely, under Selectmove (following Foakes), a promise to accept less of an existing debt is unenforceable, even if it provides an identical practical benefit.
- The “Bird in the Hand” Rationale: Academics like Adams and Brownsword argue that the law should recognise the commercial reality that “a bird in the hand” (instalment payments from a struggling debtor) is often more valuable than the theoretical right to sue for a larger sum from an insolvent one.
- Judicial Restraint and Precedent: The Court of Appeal in Selectmove was clearly sympathetic to the “practical benefit” argument but felt strictly bound by the doctrine of precedent. Peter Gibson LJ noted that any extension of the Roffey principle to debts must be made by the Supreme Court or Parliament.
- Future Impact: The case solidified the wall between debt modification and contract-for-services modification. This wall was only partially breached later in MWB v Rock Advertising, where the Court of Appeal found consideration for a debt reschedule because there was an “additional” practical benefit (keeping the property occupied) beyond mere payment.
Related Cases
- Foakes v Beer (1884): The primary authority that part-payment of a debt (a “decreasing pact”) is not good consideration for a promise to forego the balance.
- Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991): Established that a promise to pay more for the same service (an “increasing pact”) is enforceable if the promisor obtains a practical benefit.
- MWB Business Exchange Centres Ltd v. Rock Advertising Ltd (2016): Distinguished Selectmove by finding that retaining a tenant provided a benefit “over and above” the mere payment of the debt, thus satisfying the requirement for consideration.
- D & C Builders v Rees (1966): Reaffirmed Foakes v Beer, holding that a creditor was not bound by a promise to accept a smaller sum when the debtor had used economic duress.
- Felthouse v Bindley (1862): The classic authority on the rule that silence does not amount to acceptance, cited during the Selectmove arguments.
- Vanbergen v St Edmunds Properties Ltd (1933): Affirmed the principle that a debtor provides no consideration by performing an act they are already bound by law to do.