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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> MWB Business Exchange Centres Ltd v Rock Advertising Ltd (Rev 1) [2016] EWCA Civ 553 (21 June 2016) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2016/553.html Cite as: [2017] QB 604, [2016] EWCA Civ 553, [2016] WLR(D) 330, [2016] 2 Lloyd's Rep 391, [2016] 3 WLR 1519, [2016] L &TR 27 |
[New search] [Printable RTF version] [View ICLR summary: [2016] WLR(D) 330] [Buy ICLR report: [2016] 3 WLR 1519] [Buy ICLR report: [2017] QB 604] [Help]
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
HHJ MOLONEY QC
2YK00170
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE KITCHIN
and
LORD JUSTICE McCOMBE
____________________
MWB Business Exchange Centres Ltd |
Claimant/ Respondent |
|
- and - |
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Rock Advertising Ltd |
Defendant/ Appellant |
____________________
Henry Hendron (instructed by Direct Access) for the Appellant
Hearing date: 9 March 2016
____________________
Crown Copyright ©
Lord Justice Kitchin:
"Morning Christian, I had a debt review with my finance director last night. We have to have a minimum payment of £5,320 [this being the licence fee plus VAT] on account each month to cover the cost of the licence fee. He is not happy to allow you to accumulate anymore debt on the account and said £4,000 is not acceptable as you are not covering your contractual expectations. Please confirm that you will make payments for no less than £5,320.01 each calendar month. It is £1320 more in March as per your schedule and £320 more for April and May as per your proposed payment schedules. Please confirm by return as I have to update the finance director at 4.00pm today."
"I also note that there is an element of possible commercial benefit to [MWB] in retaining an existing tenant, even if a questionable payer, in the hope of perhaps recovering its arrears rather than getting rid of them, probably saying goodbye to the arrears and allowing the property to stand empty for some time at further loss to themselves."
"There is just enough practical benefit here to [MWB] to constitute adequate consideration passing in its direction, even though it is fair to say it is doing no more than accepting payments of monies that [Rock] was contractually obliged to pay in any event (whether as licence fees for the future or payment of arrears in the past). Still, there is some consideration in this situation in the benefits of having some of one's debtors' obligations honoured and some hope of having them all honoured rather than abandon hope entirely."
"This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect."
i) whether clause 7.6 precluded any variation of the agreement other than one in writing in accordance with its terms;
ii) whether Rock provided any good consideration for the oral variation; and
iii) whether the judge ought to have held that MWB was estopped from enforcing its rights under the original agreement.
Clause 7.6 and oral variation
"102. … Thorpe and Mantell LJJ dismissed an appeal from the order of Wright J who had upheld the decision of a Master giving the bank summary judgment against the guarantors of a company's debts to the bank. The deed of guarantee provided that "no variation … shall be valid or effective unless made by one or more instruments in writing signed by the parties …". The guarantors' defence was that there had been fraud by a Mr Lateef, the Bank's Chief of Special Assets Management who had orally agreed to vary the terms of the guarantee by extending the time for payment of a sum which was an agreed compromise in discharge of the debt. Wright J held that the allegations of fraud at the centre of the defence were clearly unsubstantiated, the alleged oral discussions could not amount to a valid variation, and Mr Lateef had no authority to bind the bank.
103. On the "no oral variation" clause, Wright J stated only that he simply could not accept the submission that it was open to an officer of the bank to effectively disregard the express provision requiring writing and to vary the deeds orally. When refusing permission to appeal on the papers, Sedley LJ stated:
"Wright J was incontestably right in concluding
(a) that no oral variation of the written terms could have any legal effect, and
(b) that in any event Mr Lateef had no authority, either actual or ostensible, to bind the Bank.
This being so, nothing in the arguments advanced below or now advanced can afford a defence."
Permission to appeal was subsequently given by Potter LJ. In his judgment dismissing the appeal, Thorpe LJ, with whom Mantell LJ agreed, adopted the reasons given by Sedley LJ."
"The previous position [that is to say, prior to adoption of the United Sates Uniform Commercial Code] at common law in the United Sates, we are told, did allow the informal overriding of a written clause excluding any unwritten modification. Although this appears in its time to have been an American and not an English doctrine, it does to mind illustrate well enough, in the absence of decisive English authority, that there is room for debate and movement on the question…. "
"As between the approaches in the two cases, the considerations of principle to which I have referred lead me to prefer the approach in the World Online Telecom case which recognised that in principle a contract containing a clause that any variation of it be in writing can be varied by an oral agreement. I also observe that, as Buxton LJ stated in R (Kadhim) v Brent LBC Housing Benefit Review Board [2001] QB 955 at 965, it is the reasons and not the outcome that determine the status of a decision. In the United Bank case Thorpe LJ's judgment on this point effectively consisted of an a priori proposition. Neither he nor Wright J appear to have considered any authority on the effectiveness of an oral variation of a contract containing a "no oral variation" clause, the position of oral variations of deeds, or the applicable principles of contract. By contrast, (see [104] above) in the World Online Telecom case the Court had the benefit of both textbook and judicial support for the approach of the successful respondent."
"117. It does not follow that clauses like the second sentence of Article 6.3 have no value at all. In many cases parties intending to rely on informal communications and/or a course of conduct to modify their obligations under a formally agreed contract will encounter difficulties in showing that both parties intended that what was said or done should alter their legal relations; and there may also be problems about authority. Those difficulties may be significantly greater if they have agreed to a provision requiring formal variation."
"The governing principle, in my view, is that of party autonomy. The principle of freedom of contract entitles parties to agree whatever terms they choose, subject to certain limits imposed by public policy of the kind to which Beatson LJ refers. The parties are therefore free to include terms regulating the manner in which the contract can be varied, but just as they can create obligations at will, so also can they discharge or vary them, at any rate where to do so would not affect the rights of third parties. If there is an analogy with the position of Parliament, it is in the principle that Parliament cannot bind its successors."
"Those who make a contract, may unmake it. The clause which forbids a change, may be changed like any other. The prohibition of oral waiver, may itself be waived … What is excluded by one act, is restored by another. You may put it out by the door, it is back through the window. Whenever two men contract, no limitation self-imposed can destroy their power to contract again… "
Consideration
"What principally weighs with me in thinking that Lord Coke made a mistake of fact is my conviction that all 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. Even where the debtor is perfectly solvent, and sure to pay at last, this often is so. Where the credit of the debtor is doubtful it must be more so. I had persuaded myself that there was no such long-continued action on this dictum as to render it improper in this House to reconsider the question. I had written my reasons for so thinking; but as they were not satisfactory to the other noble and learned Lords who heard the case, I do not now repeat them nor persist in them."
"(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B's promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding."
"I see the force of the argument, but the difficulty that I feel with it is that, if the principle of Williams v. Roffey Bros. & Nicholls (Contractors) Ltd. [1991] 1 QB 1 is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v. Beer, 9 App Cas 605 without any application. When a creditor and a debtor who are at arm's length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v. Beer yet held not to constitute good consideration in law. Foakes v. Beer was not even referred to in Williams v. Roffey Bros. & Nicholls (Contractors) Ltd [1991] 1 QB 1, and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Williams's case to any circumstances governed by the principle of Foakes v. Beer, 9 App Cas 605. If that extension is to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission."
Estoppel
"… if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict legal rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who might otherwise have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties."
"(1) a legal relationship between the parties; (2) a representation, express or implied, by one party that he will not enforce his strict rights against the other; and (3) reliance by the representee (whether by action or by omission to act) on the representation, which renders it inequitable, in all the circumstances, for the representor to enforce his strict rights, or at least to do so until the representee is restored to his former position."
"The logical consequence no doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration: and if the fusion of law and equity leads to this result, so much the better."
"… when a creditor and a debtor enter upon a course of negotiation, which leads the debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so."
"Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them. "
Lord Denning held that it was not inequitable for the claimant to demand payment of the balance, however, for it had been held to ransom and there had been no true accord.
"The facts of this case demonstrate that, if (1) a debtor offers to pay part only of the amount he owes; (2) the creditor voluntarily accepts that offer, and (3) in reliance on the creditor's acceptance the debtor pays that part of the amount he owes in full, the creditor will, by virtue of the doctrine of promissory estoppel, be bound to accept that sum in full and final satisfaction of the whole debt. For him to resile will of itself be inequitable. In addition, in these circumstances, the promissory estoppel has the effect of extinguishing the creditor's right to the balance of the debt"
Conclusion
Lord Justice McCombe:
Lady Justice Arden:
Consideration: practical benefit to MWB of variation agreement was good consideration in law
Summary of my conclusion
i) the judge's findings,
ii) practical benefit as good consideration in law and
iii) Pinnel's case, which does not apply as there is good consideration.
Judge's findings
I also note that there is an element of possible commercial benefit to [MWB] in retaining an existing tenant, even if a questionable payer, in the hope of perhaps recovering its arrears rather than getting rid of them, probably saying goodbye to the arrears and allowing the property to stand empty for some time at further loss to themselves. ..The … point taken is that the [debt rescheduling] agreement cannot be commercially enforceable because it lacked consideration….I am not persuaded….[O]n the findings I have reached, the deal proposed had some attraction for [MWB]. I note that Miss Evans and her predecessors had been willing to enter into negotiations with a view to finding some accommodation for [Rock], admittedly hoping for much better terms than I have held they eventually negotiated or at least the ones they eventually accepted were the best [Rock]could pay. There is just enough practical benefit here to [MWB] to constitute adequate consideration passing in its direction, even though it is fair to say it is doing no more than accepting payments of monies that [Rock] was contractually obliged to pay in any event (whether as licence fees for the future or payment of arrears in the past). Still, there is some consideration in this situation in the benefits of having some of one's debtors' obligations honoured and some hope of having them all honoured rather than abandon hope entirely.
Practical benefit can be good consideration in law
Where [the debtor's conduct did not constitute economic duress], and the promisee has in fact conferred a benefit on the promisor by performing the original contract, then the requirement of consideration is satisfied and there seems to be no good reason for refusing to enforce the new promise.
Pinnel's case does not have to be considered where there is good consideration
Was the variation agreement a collateral unilateral contract?
Estoppel: not inequitable for creditor to go back on promise after first payment
i) I pointed out (in [42(2)]) that the creditor must voluntarily accept the offer i.e. the offer to make part payment in settlement of the debt. As Lord Justice Longmore said in his judgment in Collier v Wright at [47], there had to be true accord on the question whether part payment discharged the debt.
ii) The judge in that case had decided that there did not need to be a trial because the creditor was bound to succeed. But there was evidence from the debtor that, if the creditor had not, as the debtor alleged, agreed to accept part payment from him of one-third of the debt, he would have pursued the other partners to ensure that they paid their share of the debt and that he had potentially been prejudiced because he was no longer able to do so ([14]). All such matters (including any evidence brought forward subsequently that it was not inequitable for the creditor to resile from his agreement) remained to be investigated and considered at trial.
iii) Because the issue in Collier v Wright was whether there should be a full trial, (and the reference to "the facts" at the start of paragraph 42 of my judgment has to be read as a reference to the limited material which the Court had before it at that stage) the Court did not need to consider all the points that might be raised at trial; thus for instance the Court in that case left open the argument as to whether the reliance had to be detrimental.
Conclusion: appeal should be allowed on the consideration point