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Musumeci v Winadell Pty Ltd

(1994) 34 NSWLR 723

Overview

The Musumeci's leased a shop in a shopping centre run by Winadell. Winadell subsequently leased another shop in the centre to a competing business. Musumeci's asked for a rent reduction (by one third) to compensate for this and Winadell agreed. 

When a dispute later arose Winadell sought to terminate the lease and Musumeci sought damages for breach, relying in part on Winadell’s promise to charge a reduced rent.

Questions arose as to whether there was an agreement for rent reduction and, if so, whether it was supported by valid consideration.

The court held that there was an agreement and there was consideration. In this case Winadell received a practical benefit that could constitute consideration; agreeing to the rent reduction meant it remained viable for the Musumeci's to remain in occupancy which avoided the prospect of a vacancy.

Fruit and vegetables

 

Facts

The Musumeci’s leased a shop in a shopping centre run by Winadell. Winadell subsequently leased another shop in the centre to a competing business. Musumeci’s asked for a rent reduction to compensate for this and Winadell agreed. 

When a dispute later arose Winadell sought to terminate the lease and Musumeci sought damages for breach, relying in part on Winadell’s promise to charge a reduced rent.

 

Judgment (Santow J)

Noted parties relied on the decision in Williams v Roffey Bros (Santow J observed that unless the Musumeci’s could rely on this exception, the Stilk v Myrick decision would apply and prevent the establishment of ‘consideration’ here). In this case it was argued that Winadell obviated a disbenefit by reducing rent, even though not obliged to do so.

Santow J then considered whetherWilliams v Roffey Bros should be followed in Australia.  He noted there are three reasons why a contract to perform existing obligations should not be enforced:

(1) To protect the promisor from extortion (threatening breach to extract promise)

Santow J considered duress was sufficient protection (combined with fraud, undue influence and unconscionable conduct) against this sort of extortion

(2) Because the promisee suffers no legal detriment in performing what was already due and promisor receives no legal benefit in receiving what was already due

Here Santow J considered that the fact that a concession is given to P without extortion supports an inference that real and practical consideration has been provided for that concession.

(3) Because a ‘benefit which is merely the hoped-for end result of the performance cannot constitute consideration'.

Santow J did not accept that – as it would be an argument against consideration in any form.

Justice Santow J then indicated that he would add an element to Glidewell’s criteria in Williams v Roffey Bros.  The fourth element should make it a requirement that, as a result of giving this promise, A suffers a practical detriment.

[page 745] ... What then is a sufficient practical benefit to B, so as to take the situation beyond a wholly gratuitous promise by B? ... It is indeed inherent in the situation posed by Williams v Roffey itself (and indeed in Stilk's case itself, despite the decision). There the subcontractor A's performance was worth more to B (the principal contractor) than likely damages, even taking into account the cost of any concession to obtain greater assurance of the performance. This suggestes [sic] that should be an additional to element (iv) of gildewell [sic] LJ's formulation by adding this proviso at the end: "provided that A's performance having regard to what has been so obtained is capable of being viewed by B as worth more to B than any likely remedy against A (allowing for any defences or cross-claims) taking into account the cost to B of any such payment or concession to obtain greater assurance of A's performance".

Justice Santow then noted that it was 'long settled that detriment to teh promisee suffices as consideration', so that included both a benefit to B (as above) or a detriment to A:

As a result of giving his promise, A suffers in practice a detriment (or obviates a benefit), provided that A is thereby foregoing the opportunity of not performing the original contract in circumstances where such non performance, taking into account B’s likely remedy against A (and allowing for any defences or cross-claims) is being capable of being viewed by  A as worth more to A than performing that contract, in the absence of B’s promised payment or concession to A.’ 

With those clarifications, Williams v Roffey Bros 'should be followed in allowing a practical benefit or detriment to suffice as consideration'.

In this case, applying Roffey, the practical benefit Winadell gained by promising lower rent was said to be the 'enhanced capacity of [the Musumeci's] to stay in occupation, able to carry out their future reduced lease obligations' notwithstanding the new competition.  This enhanced the capacity of Winadell to keep a full shopping centre.  Santow J concluded that there was a practical benefit; there was valid consideration for varying the lease.