Case Note: MWB Business Exchange Centres Ltd v Rock Advertising Ltd

In MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, Rock Advertising (‘Rock’) licensed office space from MWB. Rock hit financial difficulties and struggled to make the licence payments. Representatives from Rock and MWB came to an oral agreement to vary Rock’s payment plan in such a way that for the first few months Rock would pay less than the amount originally agreed but thereafter it would pay more. In doing so, Rock’s arrears would have been cleared by the end of the year. Rock paid the first instalment (£3,500) of the new payment plan on the same day of the oral agreement. However, the contract provided there could be no oral variations. Following late payment, MWB exercised its contractual right to exclude Rock from the building and issued proceedings claiming the licence fee arrears and other charges, as well as compensation. Rock counterclaimed for what it asserted to be its wrongful exclusion from the premises. MWB were successful at first instance. Rock appealed.

Three issues, mimicking those at first instance, were considered by the English Court of Appeal. First, whether an anti-oral variation clause precluded any variation of the agreement other than one in writing in accordance with its terms. Second, whether Rock provided good consideration for the oral variation. Third, whether MWB was estopped from enforcing its rights under the original agreement.

On the first, the Court held that the anti-oral variation clause does not prevent an oral variation. On the second, that ‘practical benefit’ can amount to good consideration, even in Foakes v Beer (part-payment) situations. On the third, that MWB was not estopped from enforcing its right under the original agreement; the Court needed to consider whether it would be ‘inequitable’ to allow MWB to enforce original rights, instead of looking only at detriment.

In sum, the Court of Appeal, by sleight of hand, found that where ‘practical benefit’ can be found that rests outside ‘the mere fact of accommodating the debtor and not having to enforce payment of the debt’, then the court should find good consideration.

On the anti-oral variation clause, Kitchin LJ endorsed the obiter remarks in the recent Court of Appeal case of Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd & Anor, namely, that oral variation is permitted for various reasons, particularly freedom of contract (‘party autonomy’) and where ‘the evidence on the balance of probabilities established such variation was indeed concluded’. An anti-oral variation clause does not therefore prevent an oral variation.

Assuming the decision in MWB stands, it can be said that anti-oral variation clauses are unlikely to perform the definitive role they were originally designed to fulfil (i.e. to confine variations to variations by writing). They may, however, continue to perform a meaningful evidential function, particularly when a party is attempting to encourage the court to find that there was no variation, and where the evidence of such a variation is weak or questionable. The corollary is that the inclusion of an anti-oral variation clause may mean that the practical ease of discharging the burden of proof is markedly increased with respect to the party seeking to establish that a variation did take place.

On consideration, Kitchin LJ rehearsed the rule in Pinnel’s case as affirmed in Foakes v Beer, that ‘payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole’. However, he stated that the rule was ‘confined’, noting that ‘it is well established that … the performance by the debtor of some other act he was not bound by the contract to perform may constitute good consideration’. However, he did not explain how, or indeed if, this applied to the present facts.

Kitchin LJ then recounted the rule in Williams v Roffey that ‘if a party to an agreement promises to make an extra payment in order to secure the other party's promise to perform his existing contractual obligation to provide services and as a result secures a [practical] benefit, then that benefit is capable of constituting [good consideration]’. His Lordship held that MWB had received two such practical benefits: first, recovering some arrears immediately; and second, avoiding the property being empty.

It followed that the oral variation was valid, though only for so long as Rock continued to make the payments. Clearly, consideration would cease if a party were to stop paying. However, it is unclear whether if Rock had paid a sum less than that agreed under the new payment plan, the court would have still found good consideration.

There are three principle points to note. First, this case reinforces Cardozo J’s famous proposition that ‘those who make a contract, may unmake it,’ even in ways not permitted by the wording of the contract itself (Alfred C Beatty v Guggenheim Exploration Company and others). Second, it serves as a reminder of the fact that when it comes to commercial matters, the courts are increasingly prepared to find ‘good consideration’. Third, that the operation of Foakes v Beer, if it was not before, is likely to be heavily ‘confined’ in the future. It is possible that this will spark welcome movement in the tectonics of the law of consideration, but the Court’s reasoning leaves much to be desired.

Kitchin LJ, with respect, seems to have glossed over any distinction that exists between Foakes v Beer and Williams v Roffey. After having been ‘initially attracted’ to MWB’s argument his Lordship rejected it, rather curiously, on the basis that he took into proper account ‘the full extent of the factual findings of the judge [at first instance]’. In other words, he did not apply the requirements of Foakes v Beer to the facts at all. Indeed, the steps he took to arrive at his conclusion of allowing the appeal three paragraphs later remain a mystery. Further, Kitchin LJ rejected the estoppel argument (obiter), stressing that Rock’s paying of the £3,500 was merely paying a licence fee that was already due.  Surely the same reasoning would seem to contradict his finding of good consideration.

Arden LJ’s reasoning is also, with respect, equally unsatisfying, having distinguished Foakes v Beer based on how it was pleaded. Namely, that the ‘only suggested consideration [in Foakes v Beer] was the debtor’s promise to pay part of his existing debt’. Indeed, based on the tenor of the judgment, it seems that the Court, if faced with the facts of Foakes v Beer now, would have found that Mrs Beer obtained a ‘practical benefit’ of being able to direct that money to some other cause, whether that be buying a last-minute holiday to Aruba, or paying off her mortgage, so long as counsel argued the point.

However, this is, it is submitted, a true reflection of what the Court in Pinnel’s case meant when it endorsed the idea that: ‘the gift of a horse, hawk, or robe, &c., in satisfaction is good, for it shall be intended that a horse, hawk, or robe, &c., might be more beneficial to the plaintiff than the money, in respect of some circumstance, or otherwise the plaintiff would not have accepted of it in satisfaction’.

The implication of this seems to be that the finding of consideration might be based only on whether there is a subjective benefit to the creditor for having accepted part-payment or a substitute. A fortiori, is there not a further implication if a party does accept a part-payment, or a rescheduling of payments as MWB did here, then it must have done so because it felt it benefitted it in some way, and we need not actually look for evidence of it at all? If that were not the case and MWB did agree, it would be likely that MWB was subject to some sort of economic duress, for which we now have a distinct doctrine. It seems likely that this fed greatly into the Court’s decision to confine Foakes as far as it did. Indeed, this is reflective of the sentiments of Glidewell and Purchas LJJ in Williams v Roffey who, comforted by the existence of an independent doctrine of economic duress (Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and The Sibotre)), felt able to relax the doctrine laid down in Stilk v Myrick.

In any case, the likely result of MWB is that Foakes v Beer has been ‘confined’ almost out of existence, namely to situations where the party who wishes to enforce the new agreement does not have the wherewithal to submit to the court any possible ‘practical benefit’ that may have been derived by the other party. This is likely to be a low to almost non-existent threshold in commercial contexts. Alas, perhaps it should be. After all, the recognition of ‘practical benefits’ is entirely in line with commercial reality: most parties really do think that a bird in the hand is worth two in the bush.

It follows, that while the reasoning of the court is far from stellar, the decision is the right one. It remains to be seen whether the rule in Pinnel’s case will make its way up to the Supreme Court, where it might be more conclusively overruled.