Simantob v Shavleyan

Forbearance from advancing a claim or defence can constitute consideration for a compromise even if the contention is later held to have no real prospect of success. The validity of the consideration is assessed when the compromise is made, rather than by reference to a subsequent judicial decision or later breach.

The forbearing party must reasonably believe that the contention may succeed, genuinely intend to pursue it if necessary, and surrender it through the compromise. Public policy discourages threats based on claims or defences known to be worthless. It also favours reasonable settlements and the enforcement of commercial bargains. A genuine forbearance of this kind is an added benefit capable of taking an agreement outside the rule governing a creditor’s acceptance of part payment of an undisputed debt.

The parties, both dealers in Islamic antiquities, entered into a settlement under which the respondent owed US$1.5 million and, following default, US$1,000 for every additional day. After part payments, they orally agreed in April or May 2014 that the respondent’s remaining liability would be capped at US$800,000 and paid through post-dated cheques.

Master McCloud subsequently rejected the respondent’s penalty defence and entered summary judgment for US$600,000 plus interest. Following a trial, Kerr J held in [2018] EWHC 2005 (QB) that the variation was legally binding. Its consideration included the respondent’s forbearance from challenging the daily-payment clause as a penalty.

The appellant appealed, principally contending that a defence later found to have no real prospect of success could have no value as consideration. The central issue was whether the respondent’s forbearance supplied good consideration when assessed at the date of the variation.

1. Appeal dismissed. The respondent’s forbearance from relying upon the penalty defence was sufficient consideration for the April or May 2014 variation agreement.

2. Whether a concluded agreement is supported by consideration must be determined as at the date of that agreement. Later conduct, including an alleged breach by advancing the compromised defence, does not alter whether consideration existed when the contract was made. The subsequent summary determination that the defence had no real prospect of success was likewise immaterial.

3. A distinction exists between a threatened claim or defence in which its proponent has no confidence and a doubtful or undecided contention which the proponent reasonably believes may succeed and genuinely intends to pursue. The judge had found that the respondent raised genuine concerns about the US$1,000-per-day clause, had intimated a penalty defence and intended to advance it if proceedings were brought. By compromising, he surrendered the ability to pursue that defence and consolidated the debt at US$800,000.

4. Public policy discouraging unreasonable threats must be balanced against the policies of holding parties to their commercial bargains and encouraging reasonable settlements. Consideration in such cases lies in surrendering the claim to a disputed right, whose existence remains untested, together with the avoidance of the monetary and personal costs of litigation. A reasonable compromise does not cease to be binding because the surrendered contention later fails.

5. There was genuine legal doubt when the variation was made as to whether the daily-payment clause was a penalty. The clause could require payment of US$1,000 per day even if only US$1 of principal remained outstanding. The later decision in Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis, [2016] AC 1172, post-dated the compromise.

6. The case concerned consideration in the form of forbearance from a penalty defence. It did not engage the uncertainty about practical benefit mentioned in MWB Business Exchange Centres Ltd v Rock Advertising Ltd, [2018] UKSC 24, or require determination of the correctness of Foakes v Beer, (1884) 9 App Cas 605.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the conclusion that the April or May 2014 variation was supported by consideration.

2. Queen’s Bench Division: Kerr J held in [2018] EWHC 2005 (QB) that the parties had made a legally binding oral variation. The respondent’s forbearance from advancing challenges to the original settlement supplied consideration.

3. Master McCloud: On an application under Part 24 of the Civil Procedure Rules, the Master rejected the penalty defence and entered summary judgment for US$600,000 plus interest. The remaining issues were directed to trial.