Simantob v Shavleyan
Court of Appeal
Citations:  EWCA Civ 1105.
The parties were Islamic antiquities dealers. They entered into a dispute over the sums due from the Shavleyan to the Simantob. They reached a settlement, which required payment of $1,500,000 by a particular date. If Shavleyan did not pay on time, the agreement imposed a penalty of $1000 for each late day. Shavleyan failed to pay, triggering the penalty clause. Shavleyan then made some payments, but by the penalty continued to accrue in full. Eventually, the amount owed as a penalty was higher than the amount Shavleyan originally owed.
Shavleyan began objecting that the penalty clause was unfair. The parties renegotiated the settlement, agreeing that the Shavleyan could now settle the debt if he paid Simantob $800,000. In return, Shavleyan agreed not to challenge the validity of the penalty clause in court.
Simantob later demanded full payment of the overdue penalty money. Legal proceedings ensued in which Shavleyan challenged the validity of the penalty clause. At a preliminary hearing, a Master found this challenge to have no prospects of success. Shavleyan then argued that he was not bound to pay, because the parties had agreed to vary the agreement. Simantob contended that this agreement was not binding. This was because Shavleyan had provided no consideration. Simantob argued that the agreement not to challenge the validity of the penalty clause had no real value since there was no chance it would succeed.
- Can an agreement not to pursue a defence or claim in court which has no merit constitute good consideration?
The Court held in favour of the Shavleyan. He reasonably believed he could challenge the validity of the penalty clause when the parties reached their agreement. This was good consideration. It did not matter that he later turned out to be wrong.
This Case is Authority For…
There are public policy reasons not to allow parties to threaten unreasonable claims. However, there are also public policy reasons to hold people to their commercial bargains. As such, where a party reasonably believes that they have a good claim or defence, an agreement not to pursue that claim or defence is good consideration. It does not matter that the claim or defence is later ruled to be untenable.
The court will judge whether something is consideration at the time of contracting. Subsequent events which affect the nature or value of the consideration are not relevant.