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MWB v Rock: Consideration and Promissory Estoppel on the Move

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About The Author

Jamil Mustafa (Private Law Editor)

Jamil is currently undertaking pupillage at a commercial chancery chambers, after obtaining an Outstanding on the BPTC at BPP University and a Distinction on the BCL at Oxford. His main legal interests are contract, tort and equity. Before the law, Jamil graduated with an MPhil in American History with Distinction from Clare College, Cambridge, and with First Class Honours in Government and History from the LSE. Outside academia, Jamil enjoys cricket, rugby and rowing and is a staunch supporter of Manchester United FC.

[Read More]

Keep every promise you make and only make promises you can keep.

Anthony Hitt

MWB Business Exchange Ltd v Rock Advertising Ltd [2016] has since been appealed to the Supreme Court. See "It's All Just Talk: No Oral Modification Clauses in MWB v Rock".

Criticised as unnecessary by a number of notable legal thinkers, including Lord Goff in White v Jones [1995], the doctrine of consideration nonetheless remains a distinguishing feature of the English law of contract. In its simplest form, it holds that a promisor (A) is bound by an accord that is accompanied by requested consideration that is sufficient, not past, and which moves from the promisee (B). So, if A asks B for – as per the typical example – some peppercorns in exchange for a future payment of £1000, and B agrees, A is bound to pay £1000.

The traditional understanding of consideration further stipulates that, to be valid consideration, an item or service must constitute a benefit to one party and a detriment to the other ‘in the sense of the law’, as Lush J explained in Currie v Misa [1876] 1 App. Cas. 554. Consequently, performance of an existing contractual duty provides no consideration for a new promise; a person does not suffer any legal detriment when they perform a duty that they are already obliged to perform for another, who equally derives no legal benefit from performance to which they are already entitled.

A prime example of this comes from the famous case of Stilk v Myrick [1809]. Here, a master of a ship promised his crew that, following the desertion of two seamen, he would divide up the wages of the deserters equally between them if they worked the ship back to London. They obliged, but the master did not pay up so a member of the crew sued for the promised extra wages. But their claim failed: the crew had done nothing more than what they had promised to do when the ship set sail from London and so had offered no consideration for the master’s promise of the deserters’ wages.

However, the law in this area has evolved since the 19th century, most notably with the acceptance of practical benefit as good consideration in Williams v Roffey Brothers & Nicholls (Contractors) [1989], and the revival of promissory estoppel  an alternative equitable means of enforcing otherwise gratuitous promises  by Denning J in Central London Property Trust v High Trees House [1946].

Nonetheless, the law of consideration has remained stuck in the past in its application to the relationship of creditor and debtor through zealous adherence to the controversial rule laid down in Foakes v Beer [1884]. The Court of Appeal attempted to use the law of equity to provide a more just solution in Collier v P & M J Wright (Holdings) [2007]. However, as a result the pendulum has swung too far the other way; from favouring the creditor to favouring the debtor: the Collier precedent rendered consideration in a state of confusion.   

It was this state of affairs that the Court of Appeal recently sought to rectify in the case of MWB Business Exchange Ltd v Rock Advertising Ltd [2016], an appeal against whose decision is pending before the Supreme Court. This article examines this judgment in detail, after having scrutinised in depth how the law in this area ended up in such a tangled mess.

Two in the Bush Worth More than One in the Hand?

In Williams v Roffey Brothers & Nicholls (Contractors) [1989], it was held that a ‘practical benefit’ could be valid consideration for performance of a pre-existing duty. Williams (W), the claimant, was hired to perform carpentry work on flats for Roffey (R), the defendant sub-contractor. However, W ran into financial trouble and asked for an additional payment in return for completion of the contracted work, which R initially agreed to pay. However, when R subsequently reneged upon this agreement, W sued for the sum arguing that it was owed under a valid contract. R challenged this on the grounds that no consideration had been provided by W.

Although W had promised to do nothing more than what he was obliged to do, Glidewell LJ held that W had given consideration for R’s promise and that the sum was owed. In his view, the completion of the flats constituted a practical benefit to R, helping R to avoid any contractual liability to the main contractor for which it worked. While Stilk v Myrick [1809] was not overruled, Russell LJ stated that the law had moved on; this has been borne out in practice.

However acceptance of the Williams v Roffey principle has not been universal. The notion of practical benefit was criticised as incoherent in Adam Opel v Mitras Automotive [2007] and rejected in WRN Ltd v Ayris [2008] in favour of the traditional approach in Stilk v Myrick [1809]

Furthermore, the courts have most consistently resisted the introduction of the practical benefit principle from Williams v Roffey in relation to the contractual relationship between a creditor and debtor. The most famous incident of resistance came from Peter Gibson LJ in Re Selectmove [1993], where he stated:

If the principle of the Williams case is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v Beer [1884]without any application.

Peter Gibson LJ judgment in this case was a tilt of the hat to the classic authority of Foakes v Beer [1884]. There, the House of Lords had held that the part-payment of a debt is not good consideration for the full balance owned. This makes sense when considering Stilk, since by part-payment, the debtor does no more than what they are obliged to do. Thus in Foakes, although Mrs Beer agreed that she would accept a payment of £500 from Dr Foakes in lieu of taking action to recover a larger debt, the House of Lords held that the above principle meant she was not barred from later claiming interest on that debt.

With this in mind, Peter Gibson LJ reasoned that if he were to extend Williams v Roffey, a creditor would always see a practical benefit in accommodating a debtor due to fear of not getting any money back. This would render Foakes obsolete, which was a step he could not take.

However, while he may have succeeded in disposing of the case before him, he left open discussion of the merits of Foakes. Why decline to recognise the practical benefit to a creditor of a bird in the hand as opposed to two in the bush? After all, Lord Blackburn had even opined in Foakes that the decision seemed at odds with commercial pragmatism:

[A]ll men of business, whether merchants or tradesmen, do every day recognise and act on the ground that prompt payment of a part of their demand may be more beneficial to them than it would be to insist on their rights and enforce payment of the whole.

Nevertheless, it is important not to exaggerate the effect of Foakes. It can be circumvented at common law by application of the exception to the rule in Pinnel’s Case [1602] 5 Co. Rep. 117a, which states that a gift or performance by a debtor of some other act he was not bound by contract to perform can constitute an ‘additional benefit’ and therefore consideration.

But, this solution is unsatisfactory. It permits the absurdity that consideration would be provided where a debtor paid £20,000 in full remittance of a debt of £100,000 a day before the contractually appointed date for repayment, but not if payment of £95,000 was made on the affixed date.

The Intervention of Equity

Therefore, where possible, courts have turned to the equitable doctrine of promissory estoppel as an alternative to the common law. Denning J revived the doctrine in Central London Property Trust v High Trees House [1946], taking as his basis the remarks of Lord Cairns LC in Hughes v Metropolitan Railway Co [1877]. It simply stated that if a promisor makes an unequivocal and clear statement to another with whom there is a subsisting legal relationship, and that statement is intended to affect their legal relations, then the promisor is prevented from resiling from his promise should to do so be inequitable.

Denning J was swift to recognise promissory estoppel was likely to clash with Foakes v Beer [1884]. Indeed, Central London Property Trust involved an agreement of a landlord to accept a reduced rent from the defendant compared to that which it was entitled under their agreement for the duration of the Second World War. Denning J avoided such clash by making clear the effect of the doctrine was suspensory. The landlord had foregone his rights to arrears amounting to the normal rent due as the war continued, but he had not foregone his right to the full amount once it ended.

Furthermore, Denning LJ clarified in D & C Builders v Rees [1965] that any agreement must be freely entered; neither party can pressure the other into agreement. Denning LJ took the view that Mrs Rees had bullied D & C Builders into accepting part-payment, and so there had been no true accord.

However, the role of ensuring there is such an accord is now largely the remit of economic duress.

Collier v Wright: The Death of Foakes?

The case of D & C Builders v Rees [1965] was also notable in that Denning LJ was alone in applying promissory estoppel; Danckwerts and Winn LJJ, the other judges, simply applied Foakes v Beer [1884]. The case highlighted the potential for a crossover between the two approaches in equity and at common law.

Regrettably however, Arden LJ in Collier v P & M J Wright (Holdings) [2007] transformed this crossover into conflict. She held that whenever a creditor made an unequivocal and clear promise to remit a debt, then the creditor would be prevented from resiling from their promise if the effect of resiling was sufficiently inequitable. Moreover, if a creditor unequivocally promised to accept less in full satisfaction, they would extinguish their right to recover the total amount. In a stroke, Arden LJ undermined the suspensory nature of the doctrine.

Following Arden LJ’s approach, Foakes would be supplanted in many of the cases where it is most relevant. Where promissory estoppel is raised as a defence or counter-claim against a creditor seeking full payment after a purported agreement to remit the balance of a debt in exchange for part-payment. This is not to say the two cannot co-exist. They clearly can where, for example, the promisee acts inequitably – as was the case in Rees  – but the propensity for the two to clash post Collier was overwhelming in most circumstances, with equity taking precedence.  

Thus while Foakes endured at common law, it had in practice ceded much ground to equity following Collier. Needless to say the law remained in an unsatisfactory status; it had been over-corrected from favouring the creditor to favouring the debtor, thereby entertaining contradictory approaches at common law and in equity. It was this mess that the Court of Appeal sought to remedy in MWB Business Exchange Ltd v Rock Advertising Ltd [2016].

Between a Rock and a Hard Place

The facts of MWB Business Exchange Ltd v Rock Advertising Ltd [2016] are straightforward. A licensor (MWB) and licensee (Rock) of office premises had orally agreed to vary a license agreement, so that Rock, who had begun to suffer financial difficulties, would pay arrears of license fees it owed in accordance with a revised schedule. Matters to be decided included:

  1. Whether the oral variation was precluded by an anti-oral variation clause in the license agreement (the trial judge concluded it was; the Court of Appeal took the opposite view).
  2. Whether Rock had provided any consideration for the variation.
  3. Whether MWB was estopped from resiling on its promise to accept the revised schedule.

It is the last two matters that are of present concern. With respect to the first of the two, the Court of Appeal unanimously agreed that Rock had provided consideration for the promise of MWB by their payment of the initial sum due under the schedule and promise to keep up payments notwithstanding they were obliged to pay the arrears in any event.

The Court of Appeal took the leap that Peter Gibson LJ dared not in Re Selectmove [1993], extending the notion of practical benefit to a similar promise of a licensor to accept contractually due sums in line with a revised payment schedule. However, Kitchin LJ argued, unlike in Re Selectmove, that MWB received a practical benefit over and above the ‘nominal benefit’ of accommodating the debtor’s financial state, namely the immediate payment, a greater likelihood of recovering the total arrears, and the retention of Rock as a licensee, so the property was not left empty at further loss. Justifying this approach, Arden LJ stated that Peter Gibson LJ had rejected only the argument before him in Re Selectmove because he:

[C]ould not reject the general principle that, where there was other consideration, which the law recognised was sufficient to support a contract, that was good consideration for a promise.

This meant that Arden LJ felt she could go further and argue that the Court of Appeal’s decision was therefore also consistent with Foakes v Beer [1884] because of Pinnel’s Case [1602]. Arden LJ argued that there was no difference in principle between an additional benefit of a 'gift of a horse…, hawk, or robe' and the conferral of practical benefit in the sense defined in Williams v Roffey Brothers & Nicholls (Contractors) [1989]; the latter merely represented the modern incarnation of the former.

That’s all Foakes

Crucial to Arden LJ’s argument that the Court of Appeal's decision in MWB Business Exchange Ltd v Rock Advertising Ltd [2016] was consistent with Foakes v Beer [1884], which was accepted by Kitchin LJ, was her rejection of any distinction between agreements where the promisee agrees to render the same or lesser performance  in effect, pay less  and where the promisor agrees to pay more for the same performance – as in Williams v Roffey Brothers & Nicholls (Contractors) [1989]. This rejection rendered conflation of practical and additional benefit possible, evading inconsistency with Foakes via the use of Pinnel’s Case [1602].

But such an argument is hard to accept. In her defence of Foakes from the advances of Williams v Roffey, Janet O’Sullivan rightly takes issue with the assumption agreements to accept less and pay more are ‘mirror images’ of one another; indeed, MWB Business Exchange Ltd provides a demonstration of why they are not. Implicit within the notion of practical benefit  vindicated by Kitchin LJ’s attempted distinction between ‘nominal’ and genuine practical benefit  is the requirement that any practical benefit from a variation must be in some sense additional. Thus, in Williams v Roffey, the completion of unfurnished flats that would otherwise have remained unfinished was an additional benefit in practice insofar as it constituted a benefit that would not have materialised but for the extra payment.

It could be suggested that R could have sued for performance rather than pay extra. However, this situation was highly unlikely; indeed it is more likely that R would have incurred liability to the main contractor. Conversely, in MWB Business Exchange Ltd, Rock remained a licensee and MWB stood to recover the arrears whether it accepted the revised schedule or not. So even if there was a benefit in practice accruing from the revised schedule it cannot be said any such benefit was additional.

Consequently, there can be no co-existence between Foakes and Williams v Roffey. The extension of practical benefit to agreements to accept less undermines Foakes, and so the law remains uncertain. This is problematic; where the law is certain and gives clear answers it saves people futile and expensive legal battles. Where the opposite is true, the costs can be substantial.

It is therefore submitted that Foakes ought to remain good law and the extension of Williams v Roffey should be resisted. There is a fundamental difference between agreements to pay more and accept less. In the former, the instigator of such agreements is typically the party to whom performance is owed; in the latter, it is the party who has yet to perform, and as a matter of policy, the law should protect the position of the party to whom performance is owed, which in the context of agreements to accept less, is the creditor. Otherwise contractual obligations would be meaningless.

[REC_AD]

Good Riddance Collier

While coherence may have eluded the common law, MWB Business Exchange Ltd v Rock Advertising Ltd [2016] did herald a welcome return to orthodoxy as far as promissory estoppel is concerned. Kitchin LJ affirmed that it could not be argued that:

[I]t will necessarily be inequitable for the creditor later to go back upon the agreement and insist on payment of the balance…all will depend upon the circumstances.

His remarks are best regarded as a not so subtle criticism of Arden LJ’s judgment in Collier v P & M J Wright (Holdings) [2007], where she suggested the converse was true. Kitchin LJ averred that MWB were not precluded from resiling; Rock only agreed to defer payment and could easily be restored to the position it was in before the oral variation, because in either case it had to pay the full arrears.

Arden LJ agreed with Kitchin LJ, but argued there was no inconsistency with Collier for three reasons. In MWB Business Exchange Ltd there was no ‘true accord’, while Collier was also about whether the issue was triable, and was equally decided to rectify an error of the trial judge. However, to appropriate the argument her ladyship made against Peter Gibson LJ, she could not distinguish the decision in Collier at a level of general principle. The principle in Collier was clearly rejected in MWB Business Exchange Ltd, proscribing the clash between Foakes v Beer [1884] and promissory estoppel that her ladyship had made almost inevitable in Collier.

Where Are We Now?

The Court of Appeal’s efforts in MWB Business Exchange Ltd v Rock Advertising Ltd [2016] yielded mixed results. On the one hand, the sceptre of perennial conflict between the common law and equity has been averted. On the other, the judgment only postponed the conflict between Williams and Foakes.

Maybe this is for the best. Settling this conflict could raise the broader question of why English law remains subject to a doctrine of consideration; Lord Goff famously stated in White v Jones [1995] that such a doctrine was 'unnecessary', while some civil law jurisdictions – most notably, Germany – have no such concept. Indeed, Professor Patrick Atiyah has notably argued consideration was just a means by which courts could enforce promises that seemed worth enforcing with a veneer of doctrinal sanction; perhaps it has outlived this purpose.

Resolution of conflicting common law authority in this area is clearly a matter of huge significance, both intrinsically and for the questions it could collaterally raise, and deserving of Supreme Court attention. It is just as well an appeal against the Court of Appeal’s judgment is pending. Watch this space.

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Tagged: Contract Law, Courts, Supreme Court

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