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||Neutral Citation Number:  EWCA Civ 553
||Case No: B2/2014/0904
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
HHJ MOLONEY QC
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE KITCHIN
LORD JUSTICE McCOMBE
|| MWB Business Exchange Centres Ltd
||- and -
||Rock Advertising Ltd
Clifford Darton (instructed by Edward Harte LLP) for the Respondent
Henry Hendron (instructed by Direct Access) for the Appellant
Hearing date: 9 March 2016
HTML VERSION OF JUDGMENT APPROVED
Crown Copyright ©
Lord Justice Kitchin:
- This is an appeal by Rock Advertising Ltd ("Rock") from an order made by His Honour Judge Moloney in the Central London County Court entering judgment for MWB Business Exchange Centres Ltd ("MWB") on its claim against Rock for arrears of licence fees and other charges and dismissing Rock's counterclaim.
- The facts are straightforward. MWB operated managed office space in central London. Rock provided marketing services. For some seven or eight years prior to the events giving rise to these proceedings, Rock occupied as licensee premises managed by MWB. Initially these premises consisted of a relatively small suite of offices which Rock could afford. But in August 2011 it decided to expand its business and so entered into an agreement in writing for larger premises at an increased fee for a term of 12 months commencing on 1 November 2011. The licence fee to which it agreed was £3,500 per month (excluding VAT) for the first three months and then, from February 2012, £4,433.34 per month (again excluding VAT).
- Unfortunately Rock was unable to meet this financial commitment for its business did not develop as it had hoped and by late February 2012 it had incurred arrears of licence fees and other charges of over £12,000.
- On 30 March 2012 MWB exercised its right under the licence agreement to lock Rock out of the premises and shortly afterwards it gave notice purporting to terminate the agreement with effect from 4 May 2012.
- In these proceedings MWB claimed the arrears of licence fees and other charges and damages to compensate it for the other losses it claimed it had suffered. Rock disputed the claim and counterclaimed for loss and damage resulting from what it asserted to be its wrongful exclusion from the premises.
- It was Rock's case that on 27 February 2012 an oral agreement was made between MWB, acting by its credit controller, Miss Evans, and Rock, acting by its managing director, Mr Idehen, to re-schedule the licence fee payments due under the agreement over the period from February to October 2012 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 with the result that, by the end of the year, the arrears would have been cleared. Moreover, on that same day it paid £3,500 to MWB, this being the first instalment due in accordance with the revised payment schedule. In the alternative, Rock argued that by reason of its payment and MWB's acceptance of the £3,500, MWB was estopped from disavowing the variation to which it had orally agreed.
- MWB countered Rock's case in a number of ways. First, it flatly denied that Miss Evans and Mr Idehen had reached an agreement on 27 February 2012. In particular, Miss Evans accepted that she and Mr Idehen had oral discussions and exchanged e-mails on that day but maintained that no agreement was reached. Then, two days later, on 29 February 2012, she sent an e-mail to Mr Idehen in the following terms:
"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."
- The judge heard evidence from Miss Evans and Mr Idehen. He concluded that Miss Evans did agree to accept the terms and schedule proposed by Mr Idehen. Moreover, she had at least ostensible authority to commit MWB to an agreement of this kind. However, the judge continued, she very soon realised that she had gone too far and instead treated Mr Idehen's schedule merely as a proposal. She took it to her superior and he rejected it. This led to the e-mail of 29 February to which I have referred.
- MWB's second point was that the oral variation agreement was not enforceable because it lacked consideration. Again, the judge was not persuaded. He considered that Rock's agreement to pay in accordance with the revised schedule did amount to good consideration, as he explained at :
"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 judge returned to this issue a little later, at :
"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."
- Third, MWB turned to the express terms of the original written agreement. Clause 7.6 provided:
"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."
- The judge held that this was a clear clause which precluded an oral re-negotiation of a core term of the agreement, namely the licence fees payable on particular dates over the course of 2012.
- Finally, the judge dealt with the estoppel argument. He considered that the payment of the £3,500 by Rock on 27 February 2012 could not be described as a relevant detriment when it was merely a sum which Rock was already obliged to pay. The argument therefore failed.
- It followed that MWB was entitled to judgment on its claim. Rock now appeals with the permission of Moore-Bick LJ granted by order dated 12 February 2015 on two grounds. It contends first, the judge was wrong to hold that clause 7.6 precluded any variation of the contract other than one in writing in accordance with its terms. It says that it was open to the parties to vary the contract as a whole, including clause 7.6, orally or in any other way they chose and that the judge was wrong to hold that the oral agreement which he had held was made was not binding on MWB.
- Rock's second ground of appeal is that the judge was wrong to dismiss the estoppel argument. It argues that it did suffer detriment in paying the £3,500 to MWB on 27 February 2012 and the judge ought to have held it was unconscionable for MWB now to seek to enforce the terms of the original agreement.
- MWB responds that the judge was right to dismiss the claim for the reasons he gave but argues that he fell into error in finding that Rock's payment of the £3,500 and its agreement to comply with the other terms of the revised payment schedule amounted to good consideration for the oral variation. It contends that a promise to pay an existing debt by instalments and to meet future liabilities as they fall due does not amount to consideration and the judge ought so to have held.
- This appeal therefore gives rise to three issues, namely
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.
- It came to our attention shortly before this appeal came on for hearing that the point of law underlying the first issue had been raised in another appeal heard by another constitution of this court upon which judgment had been reserved, namely Globe Motors Inc and ors. v TRW Lucas Varity Electric Steering Ltd and anor. Accordingly, we so notified the parties and at the close of the hearing indicated that we would reserve our judgment until after the court had given its decision in Globe Motors and the parties had had an opportunity to file further short submissions in writing. The decision in Globe Motors was handed down on 20 April 2016 ( EWCA Civ 396) and we received further submissions on 26 April 2016.
Clause 7.6 and oral variation
- There has for some time been a considerable degree of uncertainty in this country as to whether an agreement in writing which contains an anti-oral variation clause such as clause 7.6 can be varied other than in accordance with the terms of that clause. That uncertainty may be attributed at least in part to two inconsistent decisions of the Court of Appeal. In the first, United Bank Ltd v Asif and anor. (11 February 2000, unreported), it was held that in light of such a clause no oral variation of the written terms of the agreement could have any legal effect. In the second, World Online Telecom v I-Way Ltd  EWCA Civ 413, it was held, apparently in ignorance of the decision in United Bank, that the law on this issue was sufficiently unsettled to render it unsuitable for summary determination. These decisions, the principles underlying them and other relevant authorities have now been considered in detail by the court in Globe Motors and it is convenient to address them in that context.
- The dispute in Globe Motors concerned an exclusive supply agreement under the terms of which TRW Lucas agreed to purchase all of its requirements of certain electric motors from Globe Motors. The trial judge, HH Judge Mackie QC, found that TRW Lucas was in breach of this agreement by purchasing particular motors, known as Gen 2 motors, from a third party. He also found that a subsidiary of Globe Motors, referred to as Porto, had a cause of action under the agreement because the parties had treated Porto as a party to the agreement in their dealings over a long period. The judge made this finding despite the presence in the agreement of a term (Article 6.3) which stated that the agreement could only be amended by a written document which specifically referred to its provisions and was signed by both parties. He held that it was possible for parties to agree to vary or waive a requirement such as that in Article 6.3 and that to decide otherwise would be inconsistent with the principles of freedom of contract.
- On appeal, this court (Moore-Bick, Beatson and Underhill LJJ) held that the judge had fallen into error in deciding that the agreement extended to the Gen 2 motors bought from the third party. It was therefore not necessary to decide whether Article 6.3 meant that it was not open to the parties to amend the agreement orally and by conduct. The court nevertheless proceeded to express a considered view on this issue in light of the inconsistent decisions in United Bank and World Online Telecom and the fact that the court had heard full argument upon it. All members of the court expressed their conclusions.
- Beatson LJ approached the issue in a structured way, considering first, principle and policy; second, the existing authorities; third, questions of proof; and finally, the issue of precedent. In the course of his analysis, he recorded the argument advanced by counsel for Globe Motors that anti-oral variation clauses promote certainty, avoid false or frivolous claims of an oral agreement and can usefully prevent a person in a large organisation producing a document which unwittingly and unintentionally is inconsistent with a provision in a contract between the organisation and a counterparty. Nevertheless, he reasoned that, as a matter of general principle, parties have freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth or by conduct. In his view it followed that in principle the fact that a contract includes a term such as Article 6.3 does not prevent the parties from later making a new contract varying the original contract by oral agreement or by conduct.
- Turning next to the authorities, Beatson LJ noted that since the Judicature Acts it has been possible to vary a deed orally; recorded the opinion of the editors of Chitty on Contracts (32nd ed., paragraph 22-045, note 196) that "the better view would appear to be that it is possible for parties to waive compliance" with a clause such as Article 6.3; and explained how that opinion was supported by the decision in World Online Telecom and by the observations of Gloster LJ in Energy Venture Partners Ltd v Malabou Oil & Gas Ltd  EWHC 2118 (Comm) at  to  and Stuart-Smith J in Virulite LLC v Virulite Distribution  EWHC 366 (QB) at . He also drew attention to the supportive decision of the High Court of Australia in Liebe v Molloy (1906) 4 CLR 347.
- In the course of his review, Beatson LJ explained that United Bank and World Online Telecom were both appeals from decisions about summary judgment. One of the striking features about the decision in United Bank (an appeal from a decision of Wright J upholding the decision of a Master giving the bank summary judgment against the guarantors of a company's debts to the bank) was the adoption by the court (Thorpe and Mantell LJJ) of the reasons given by Sedley LJ for refusing permission on the papers without any further exposition. Beatson LJ summarised the decision in these terms (at  to ):
"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."
- World Online Telecom concerned an appeal against the refusal by Mitting J to give summary judgment to World Online Telecom on its claim against I-Way for a sum in excess of £1 million on the basis that it was entitled to 80% of a rebate from a telephone operator and that I-Way was only entitled to 20%. I-Way defended the claim saying that it had been agreed orally that it should have 30% of the rebate instead of 20%, to which World Online Telecom responded that any such oral variation could not be effective in light of an express term in the agreement that "… no addition, amendment of modification of this Agreement shall be effective unless it is in writing and signed by or on behalf of both parties". Dismissing the appeal, Sedley LJ (with whom Charles J and Schiemann LJ agreed) said at  that in a case like the present the parties have made their own law by contracting, and can in principle unmake or remake it. He continued at :
"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…. "
- There is no indication that the attention of the court was drawn to the earlier decision in United Bank but it seems that the successful respondent did deploy in its skeleton argument textbook and judicial support for its contentions.
- Reverting to Globe Motors, Beatson LJ observed at  that the decision in United Bank had not been referred to in World Online Telecom. He considered that World Online Telecom was nevertheless positive support for the effectiveness of an oral variation despite the presence of an anti-oral variation clause, and with fuller reasoning than that in the United Bank. He also observed that as a result of the Court of Appeal's decision in World Online Telecom there was a trial in the Commercial Court. At the conclusion of that trial, Steel J held that, notwithstanding the clause, the conditions in the contract had been varied by the oral agreement: see  EWHC 244 (Comm).
- Beatson LJ was also fully conscious of the concern about false allegations of oral variation, noting (at ) that in World Online Telecom Schiemann LJ recognised the argument had force although he agreed with Sedley LJ as to the outcome. Beatson LJ also observed (at ) that difficulties of proof might arise whenever it is claimed that a contract has been made orally or by the conduct of the parties, and that the facts have to be determined by the trial judge in light of all of the evidence. He did not endorse the statements of HH Judge Mackie QC in Spring Finance Ltd v HS Real Company LLC  EWHC 57 (Comm) at  and in the summary judgment decision in World Online Telecom ( EWHC 3134 (QB) at ) that the court would require "strong evidence" before finding that there had been an oral variation of such a clause and preferred instead Gloster LJ's inclination in Energy Venture Partners to regard such a clause as effective "where the evidence on the balance of probabilities established such variation was indeed concluded". He noted too that Stuart-Smith J had expressed the same view in Virulite at  and he recorded his agreement with both of them.
- That brought Beatson LJ to the issue of precedent. He concluded that the court was not bound either by the decision in United Bank or by that in World Online Telecom for two reasons: first, because United Bank and the World Online Telecom were inconsistent; and second, because it appeared that the court in World Online Telecom had acted in ignorance of United Bank. He then expressed his own conclusion at :
"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  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  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."
- Underhill LJ agreed with Beatson LJ that the decision in World Online Telecom was correct and should be followed for the reasons he gave. He reached that conclusion with some hesitation, however, for it seemed to him entirely legitimate that parties to a formal written agreement should wish to insist that any subsequent variation be agreed in writing as a protection against subsequent ill-founded allegations. On the other hand, he recognised that the arguments in favour of a flexible approach were also strong. In the end and even if it were desirable to treat provisions of this kind as entrenched, he could not see "a doctrinally satisfactory way" of achieving that result. He also made these observations at :
"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."
- Moore-Bick LJ was also of the view that the decisions in United Bank and World Online Telecom were inconsistent and that the decision in World Online Telecom was to be preferred for all of the reasons given by Beatson LJ. He agreed with Beatson LJ that Article 6.3 did not prevent the parties from varying the agreement orally or in any other informed manner, and continued at :
"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."
- Upon this appeal, Mr Henry Hendron, who appeared on behalf of Rock, and Mr Clifford Darton, who appeared on behalf of MWB, both recognised that the opinions and conclusions expressed by the members of the court in Globe Motors on this issue were not essential to the decision and are therefore not binding on this court. Nevertheless, Mr Hendron urged us to follow them.
- Mr Darton submitted that, subject to some principle of law or statute to the contrary, two parties who enter into a contract may agree what they like. Here, he continued, the parties agreed by clause 7.6 that any variation of the licence must be in writing and signed by both parties and there are good policy reasons for upholding that agreement, as Schiemann LJ recognised in World Online Telecom. He also submitted that clauses such as this do not preclude the operation of the doctrines of waiver and estoppel but that for them to apply there must be something on the facts that renders it unconscionable for one party to enforce against the other the terms of their original agreement.
- I find myself unable to accept Mr Darton's submissions. The relevant principles, the material policy considerations, the earlier authorities and the issue of precedent were considered in depth and with the benefit of very full argument in Globe Motors and for my part I consider it would require a powerful reason for this court now to come to a conclusion or adopt an approach which is different from that of all members of the court in that case. In my judgment and despite the attractive way Mr Darton developed his arguments, none has been shown. To the contrary, I respectfully agree with Beatson LJ that the decision of this court in World Online Telecom was correct and should be followed for the reasons he gave. To my mind the most powerful consideration is that of party autonomy, as Moore-Bick LJ explained it. Indeed that explanation seems to me to echo the words of Cardozo J nearly 100 years ago in the New York Court of Appeals in Alfred C Beatty v Guggenheim Exploration Company and others (1919) 225 NY 380. In a judgment with which Hiscock Ch J, Chase, Collin and Crane JJ concurred (Cuddeback and Hogan JJ dissenting), Cardozo J said this (at pages 387 to 388):
"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… "
- It only remains to consider whether, subject to the issue of consideration, there was an oral agreement in this case. The judge found that there was. As I have said, he held that Miss Evans did agree the terms and the schedule proposed by Mr Idehen and that she had at least ostensible authority to do so. That was a finding that he was entitled to make on the evidence and the documents before him.
- I am therefore satisfied that the judge fell into error on the first issue. Clause 7.6 did not preclude any variation of the original agreement other than one in writing and in accordance with its terms.
- Mr Darton contended that the judge fell into error in his approach to consideration and in support of that submission relied primarily upon the decision of the House of Lords in Foakes v Beer (1884) 9 App Cas 605 and the decision of this court in In re Selectmove Ltd  1 WLR 474.
- In Foakes v Beer the House of Lords approved the rule in Pinnel's Case (1602) 5 Co. Rep. 117a that "payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole". Mrs Beer obtained a judgment against Dr Foakes in the sum of £2090 19s. A little while later Dr Foakes asked for time to pay, whereupon Mrs Beer agreed to take no action on the judgment if Dr Foakes made an immediate payment of £500 and thereafter payments of £150 every six months until the whole of the sum "shall have been fully paid and satisfied". Some six years later and after Dr Foakes had paid the whole sum of £2090 19s. in instalments, as he had agreed, Mrs Beer demanded and subsequently brought a claim for interest upon her judgment. The House of Lords upheld the decision of the Court of Appeal that Mrs Beer was entitled to judgment for the interest and her costs. Dr Foakes was under an antecedent obligation to pay the whole debt and payment of that debt on the deferred dates and by the forbearance of Mrs Beer could not amount to consideration unless the payment of the £500, at the time of the signing of the agreement, was itself consideration. The House of Lords held it was not, for payment of part of a sum which is owed, even though the debtor might otherwise not pay it or possibly become insolvent, cannot, of itself, amount to good and valuable consideration.
- It is clear that Lord Blackburn, in particular, felt a considerable degree of unease at this conclusion. As he said (at page 622):
"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."
- In 1937 the Law Revision Committee (chaired by Lord Wright MR) expressed the opinion that Lord Blackburn's view remained as valid as it was some 50 years earlier and recommended that legislation should be passed to give effect to it. However that recommendation was not implemented and Foakes v Beer has been followed in many cases subsequently, including in the decisions of this court in Vanbergen v St Edmunds Properties Ltd  2 KB 223, D&C Builders Ltd v Rees  2 QB 617 and In re Selectmove Ltd  1 WLR 474.
- Nevertheless, the rule in Pinnel's Case is confined. For example, it is well established that although a creditor is not in general bound by a promise to accept part payment in full settlement of a debt, the performance by the debtor of some other act he was not bound by the contract to perform may constitute good consideration.
- Moreover, 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 benefit, then that benefit is capable of constituting consideration for the promise: Williams v Roffey Bros & Nicholls (Contractors) Ltd  1 QB 1. In that case a carpenter was engaged to provide carpentry services to a building contractor in return for the payment of a fixed sum. The carpenter got into financial difficulties before he had completed the work he was contractually obliged to carry out. The contractor recognised that the agreed price was low and wished to retain the services of the carpenter so that the work could be completed without it having to employ another subcontractor. It therefore promised to pay to the carpenter a further sum over and above the contract price. For his part, the carpenter did not undertake to carry out any work additional to that specified in the original agreement. Nevertheless, this court held that the practical benefits accruing to the contractor amounted to good consideration for its promise to pay the additional sum, with the result that the promise was legally binding. Glidewell LJ (with whom Purchas and Russell LJJ agreed) summarised the law in the following proposition at pages 15-16:
"(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."
- In re Selectmove concerned a company which owed the revenue substantial amounts of tax. In July 1991 the managing director of the company met a collector of taxes and proposed that the company would pay any future liability as it fell due and would pay the outstanding tax in monthly instalments from February 1992. It was accepted for the purposes of the appeal that the collector said he would revert if this proposal was unacceptable yet the company heard nothing further until early October 1991, at which time the revenue wrote to it threatening that the company would be wound up unless all of the arrears were paid. By that time the company had paid the tax due for August but had failed to pay the tax due for September. The company responded claiming the agreement had come into effect and, at the same time, it paid the tax due for September. Over the following months it made further payments although there were failures to honour the agreement it claimed had been made. In the autumn of 1991 all of its employees were given notice of dismissal and it sold all of its work in progress in an endeavour to provide the moneys to meet the monthly instalments and so settle the claim. Nevertheless, the revenue continued to press for payment and in late summer of 2002 it presented a winding up petition. The company opposed the petition, contending that it was arguable that the revenue had accepted the proposal made by its managing director, or in the alternative the revenue was estopped from relying upon the debt as due. The revenue disputed these contentions and argued that it had never accepted the proposal and that even if there was an agreement there was no consideration for it; and further, there was nothing to give rise to an estoppel. The judge agreed with the revenue.
- An appeal to the Court of Appeal by the company was dismissed. So far as the agreement was concerned, it was held the judge was right to conclude that there was no acceptance of the proposal because the collector had no actual or ostensible authority to convey the revenue's acceptance of the offer by his silence. Further and more relevantly to this appeal, even if there was an agreement it was unenforceable for lack of consideration. Counsel for the company submitted that an additional benefit to the revenue was conferred by the agreement in that the revenue stood to gain practical benefits from it, and that it was likely to recover more from not enforcing its debt against the company, which was clearly in financial difficulty, than from putting the company into liquidation. He also submitted, relying on the decision in Williams v Roffey, that a promise by B to perform an existing obligation could amount to good consideration provided that there were practical benefits to the promisee A. He acknowledged that the principles explained by Glidewell LJ in Williams v Roffey were confined to a case where B was to do work for or supply goods or services to A but contended that the same must apply to the case where B's obligation was to pay A. Powerful though these submissions undoubtedly were, they did not find favour with the court. Peter Gibson LJ (with whom Stuart-Smith and Balcombe LJJ agreed) rejected them in these terms (at page 481):
"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.  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  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."
- The court also rejected the estoppel argument. It held that it could not succeed for at least two reasons: first, the collector had no actual or ostensible authority to make the promise said to found the estoppel; and secondly, the company had failed to honour its promise and so it was not inequitable or unfair for the revenue to demand all of the arrears
- Founding himself on these authorities, Mr Darton submitted that it is clear that the judge was wrong to find that Rock's payment of the £3,500 and its agreement to comply with the other terms of the revised payment schedule amounted to good consideration. The benefits conferred on MWB were, said Mr Darton, just the kind of practical benefits which Lord Blackburn in Foakes v Beer and this court in In re Selectmove recognised might flow from an agreement for the payment of a debt by instalments to accommodate the debtor, yet in both cases they were held not to amount to good consideration. Further, he continued, if the rule in Williams v Roffey is to be extended to the circumstances governed by Foakes v Beer, it must be by (what is now) the Supreme Court or by Parliament.
- I have to say that I was initially much attracted by these submissions. However, upon reflection, I have come to the conclusion that they fail to take proper account of the full extent of the factual findings of the judge. He was clearly of the view that the oral variation agreement would have a number of beneficial consequences for MWB. First, MWB would recover some of the arrears immediately and would have some hope of recovering them all in due course. But secondly and importantly, Rock would remain a licensee and continue to occupy the property with the result that it would not be left standing empty for some time at further loss to MWB.
- There has been no suggestion that MWB was at any material time operating under any kind of duress. Rather, acting by Miss Evans, it had for some time been trying to find a way to accommodate Rock's financial difficulties. There was, so it seems to me, a commercial advantage to both MWB and Rock in reaching an agreement if that could be achieved. MWB would receive an immediate payment of £3,500, it would be likely to recover more from Rock than it would by enforcing the terms of the original agreement and it would also retain Rock as a licensee. Rock would remain in occupation of the property, continue its business without interruption and have an opportunity to overcome its cash flow difficulties. Accordingly this is not a case in which the only benefits conferred on MWB by the oral variation agreement were benefits of a kind contemplated by Lord Blackburn in Foakes v Beer and by this court in In re Selectmove. MWB derived a practical benefit which went beyond the advantage of receiving a prompt payment of a part of the arrears and a promise that it would be paid the balance of the arrears and any deferred licence fees over the course of the forthcoming months. This is therefore a case where, as in Williams v Roffey, Rock's immediate payment of £3,500 and its agreement to perform its obligations under the revised payment schedule conferred a practical benefit on MWB which amounted to good consideration, so rendering the oral variation agreement enforceable.
- I conclude that the judge was right to find that the payment by Rock of the £3,500 and its promise to make further payments in accordance with the revised payment schedule conferred upon MWB a benefit which constituted sufficient consideration to support the oral variation agreement. In my judgment the oral variation agreement thereupon became binding upon MWB and it would remain binding for so long as Rock continued to make payments in accordance with the revised payment schedule. I would add that I agree with the judgment of Lady Justice Arden on this issue at  to  below. I prefer to express no view as to whether the oral variation agreement can properly be characterised as a collateral unilateral contract, however, for this is a point upon which we heard no submissions.
- It follows that it is not necessary to consider whether, had the oral variation agreement not been enforceable, MWB would have been estopped from enforcing its rights under the original agreement. Nevertheless, we heard full argument on the point and so I will address it, and will do so on the assumption that, contrary to what I have found to be the case, the oral variation agreement was not enforceable.
- Mr Hendron developed a number of arguments before this court, namely that MWB was precluded from enforcing its rights under the original licence agreement by the doctrine of promissory estoppel, alternatively that MWB had waived its rights to require payment of the arrears or future licence fees other than in accordance with the new payment schedule, or in the yet further alternative that MWB was precluded from enforcing its rights under the original licence agreement by the doctrine of proprietary estoppel. I will address them in turn but I will focus particularly, as did Mr Hendron, on the doctrine of promissory estoppel.
- The doctrine of promissory estoppel was explained by Lord Cairns LC in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 in these terms at page 448:
"… 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."
- A more recent formulation is that of Goff J in BP Exploration (Libya) v Hunt (No2)  1WLR 783. He said (at page 782) that the principle of promissory estoppel presupposes three things:
"(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 doctrine may be applied and indeed has been applied in cases where the representee has suffered no detriment although, as Peter Gibson LJ explained in David Emery and Anor v UCB Corporate Services Ltd  EWCA Civ 675 at , the fact that the representee has not altered his position to his detriment is plainly most material in deciding whether it would be inequitable for the representor to be permitted to act inconsistently with his representation.
- Central London Properties Trust Ltd v High Trees House Ltd  KB 130 was, however, the first case in which it was suggested that the doctrine could be applied so as to mitigate the rule in Foakes v Beer. A landlord had let a block of flats to the defendant. In 1940, as a result of the prevailing war conditions, the defendant had let only a few of the flats to tenants and found itself unable to pay the rent reserved by the lease out of the rents it was receiving. So the parties entered into negotiations and agreed the rent reserved by the lease should be reduced. By the beginning of 1945 all of the flats had been let and in September of that year the landlord wrote to the defendant notifying it that the rent would be restored to its original rate, and subsequently it sought payment at that original rate for the last two quarters of the year. Denning J, relying on Hughes v Metropolitan Railway, among other cases, held the agreement was binding notwithstanding the absence of consideration, but it was understood by all only to apply under the conditions prevailing at the time it was made, and they had passed away by early 1945. However, he made this more general comment at page 135:
"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."
- It is quite clear, however, that the effect of a promissory estoppel may only be suspensive. Hence in Tool Metal Manufacturing v Tungsten Electric Co Ltd  1 WLR 761 the proprietor of a patent licensed its use on terms that if the licensee sold more than a certain quantity of licensed material then it would pay compensation on the excess. In 1942 the patentee agreed to suspend enforcement of the compensation payments until the parties had made a new agreement. In 1945, there was litigation between them and in 1946 the patentee counterclaimed for compensation under the terms of the licence agreement. This counterclaim failed on the basis that that when it was delivered the waiver was still continuing. But some three years later the patentee began further proceedings claiming compensation from 1947. This action succeeded, the House of Lords holding that as soon as the counterclaim was delivered, the licensee must be taken to have known that the period of suspension was at an end and that it was to put its house in order.
- D & C Builders Ltd v Rees  2 QB 617 was, as I have said, a case in which the rule in Foakes v Beer was applied once again. The claimant, a builder, carried out work for the defendant and then rendered its account. A few months later a substantial sum was still outstanding. Knowing the claimant was nearly insolvent, the defendant offered a lesser sum in settlement of the whole and the claimant accepted that offer. In this action the claimant nevertheless sought payment of the balance, to which the defendant responded that the claim was precluded by the settlement. The Court of Appeal held that the claimant was entitled to the balance. The majority (Danckwerts and Winn LJJ) held that payment of the lesser sum could not be a satisfaction of the whole debt. But Lord Denning MR (with whom Danckwerts LJ also expressed agreement) explained that the harshness of the common law had been relieved by equity and that the principle explained by Lord Cairns LC in Hughes v Metropolitan Railway Co could be applied not only to suspend legal rights but also to preclude their enforcement, and that the court could apply this principle in a case where a debtor agreed to accept a lesser sum in discharge of a greater. He put it this way (at page 624):
"… 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."
- After referring to the decision in the High Trees case, Lord Denning continued:
"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 final authority to which I must refer is Collier v P & M J Wright (Holdings) Ltd  EWCA Civ 1329,  1 WLR 643. The case concerned an application to set aside a statutory demand. In 1999 the applicant and two of his partners consented to an order requiring them to pay their firm's debt (amounting to nearly £48,000) to a creditor company by monthly instalments of £600. The applicant duly started to make monthly payments to the creditor of £200 and he continued to do so for five years. In the meantime the partnership ended and the other two partners became bankrupt. In 2006 the creditor served a statutory demand for the balance of the judgment debt and interest. On his application to set the demand aside, the applicant contended that in 2000 he had agreed with the company that he would be severally liable for only one third of the debt and that the company would pursue the other partners for the balance. He also maintained that by paying his regular monthly instalments he had paid off his share of the debt. The judge dismissed the application on the basis that the agreement upon which the applicant relied was unenforceable because it was unsupported by consideration.
- An appeal to the Court of Appeal was allowed. It was held that the judge was right to find that the alleged agreement could not be a binding agreement in law for the reason he gave. However, the applicant had raised a triable issue that the claim was barred by the doctrine of promissory estoppel. Arden LJ explained (at  to ) that the effect of a promissory estoppel is usually suspensory only, but if the effect of resiling is sufficiently inequitable, a debtor may be able to show that the right to recover the debt is not merely postponed but extinguished. Here it was arguable that there was an accord and satisfaction since (if he could prove the agreement had been made) the applicant had now paid his share of the judgment and the creditor had voluntarily agreed to accept that sum. Arden LJ also observed at :
"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"
- Drawing the threads to together, it seems to me that all of these cases are best understood as illustrations of the broad principle that if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. It may be the case that it would be inequitable to allow the promisor to go back upon his promise without giving reasonable notice, as in the Tool Metal case; or it may be that it would be inequitable to allow the promisor to go back on his promise at all with the result that the right is extinguished. All will depend upon the circumstances. It follows that I do not for my part think that it can be said, consistently with the authorities, including, in particular, the decisions of the House of Lords in Foakes v Beer and this court in In re Selectmove, that in every case where a creditor agrees to accept payment of a debt by instalments, and the debtor acts upon that agreement by paying one of the instalments, and the creditor accepts that instalment, then it will necessarily be inequitable for the creditor later to go back upon the agreement and insist on payment of the balance. Again, all will depend upon the circumstances.
- I come then to apply these principles in the context of the present case. The judge expressed himself in very concise terms and limited his consideration to whether Rock had suffered detriment. In my judgment he should have considered the question in broader terms and asked himself whether it was inequitable for MWB to assert its legal rights under the original contract against Rock. So this court must consider the question for itself.
- I believe the material matters may be summarised as follows. As we have seen, by 27 February 2012 the arrears of licence fees and other charges amounted to in excess of £12,000. In addition Rock had from this time agreed to pay licence fees of £4,433.34 each month, excluding VAT. On that day MWB did not agree to accept a lesser sum in satisfaction of the debt which had accrued. Nor did it agree to forgo any part of the ongoing licence fees. Rather, it agreed to the payment of the debt and the ongoing licence fees in accordance with the revised schedule of payments; in short, it agreed to defer payment of the debt and, for a few months, payment of the full monthly licence fee. I accept that on the day of the new agreement Rock paid £3,500 in accordance with the revised schedule but, on the judge's findings, it did not suffer any detriment thereby, for this was a sum it was in any event bound to pay. Further, only two days later, MWB sought to re-impose its legal rights under the original agreement by sending the email of 29 February. In that email MWB gave Rock clear and unambiguous notice that it must pay at least the ongoing licence fees plus VAT and Rock was in this way given reasonable notice that it must henceforth comply with the terms of the original agreement, at least to the extent of paying the ongoing licence fees. That it failed to do. Moreover, Rock could be restored to the position it was in before the further agreement was made and it could not say that it had suffered any prejudice by relying upon it. In all these circumstances I have come to the conclusion that MWB would not have been precluded by the doctrine of promissory estoppel from taking the action it did.
- I can deal with the other defences much more shortly. As for waiver (as opposed to variation which must be supported by consideration), this is akin to promissory estoppel and, in the context of a case such as the present, the party forbearing is in my judgment entitled, upon reasonable notice, to require the other party to comply with the original mode of performance unless the original mode of performance is no longer possible or for any other reason it would be inequitable for him to be required to do so. I therefore believe that in this case the defence of waiver would have added nothing to that of promissory estoppel.
- Turning to proprietary estoppel, this may be taken to be founded on three main elements, namely a representation or assurance made by one person to another; reliance upon it by that other person; and detriment to that other person in consequence of his (reasonable) reliance: see, for example, Thorner v Major  UKHL 18,  1 WLR 776 per Lord Walker at . Further, as Lord Scott said in Cobbe v Yeoman's Row Management Ltd  UKHL 55,  1 WLR 1752 at , an estoppel becomes a proprietary estoppel if the right claimed by the person entitled to the benefit of the estoppel is a proprietary right. This is not such a case and in any event I am not persuaded that Rock has suffered any detriment. There is no finding in the judgment to the effect that it has suffered any detriment. To the contrary, it has done no more than pay the £3,500 by way of a licence fee, a sum less than that which it was obliged to pay under the original agreement. As in the case of waiver, I am satisfied that in the context of this appeal the contention that the circumstances gave rise to some kind of proprietary estoppel would have added nothing to the case based upon promissory estoppel.
- In my judgment clause 7.6 did not preclude any variation of the original agreement other than one in writing and in accordance with its terms. Further, the oral variation agreement was supported by consideration and it was binding upon and enforceable against each of the parties. I would allow the appeal.
Lord Justice McCombe:
- I am most grateful to Kitchin and Arden LJJ for their judgments both of which I have read in draft. I agree that the appeal should be allowed for the reasons given by Kitchin LJ and those given by Arden LJ in paragraphs 69 to 87 of her judgment. I would prefer not to base my own decision upon the issue of "collateral unilateral contract" with which Arden LJ deals in paragraphs 88 to 90 of her judgment.
Lady Justice Arden:
- I am very grateful to Lord Justice Kitchin for his comprehensive judgment, with which I agree. In particular I agree with him on issue (ii). In this judgment, I add some further reasoning on that issue. There are also some matters which I wish to add on issue (iii). I will use the same abbreviations as Lord Justice Kitchin, follow his identification of the issues and not repeat case references which he has already given.
Consideration: practical benefit to MWB of variation agreement was good consideration in law
Summary of my conclusion
- MWB contends that the judge was wrong in law to hold that the variation agreement was supported by consideration and that for this reason it was not bound by its promise to accept deferred payments in that agreement.
- In agreement with Lord Justice Kitchin, I consider that this contention is unsound. In summary, the practical benefit which the judge found that MWB derived from the variation agreement constituted good consideration: see Williams v Roffey Bros & Nicholls (Contractors) Ltd. Neither the Rule in Pinnel's case nor Foakes v Beer nor Re Selectmove prevents that conclusion. Furthermore, the variation agreement may be a contract between the parties which is properly analysed as a collateral unilateral contract.
- On consideration, there are three steps in my reasoning:
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.
- The material findings are in paragraphs 14 and 20 of the concise judgment of the judge. I shall set those paragraphs out in the next paragraph of this judgment. In brief, the judge found that the variation agreement conferred on MWB the practical benefit of continuing occupation by Rock and thus of "avoiding a void". Those are my words. I use the noun "void" in the sense it is used in property management to refer to unoccupied and therefore unproductive property, which may cause loss in the form of loss of rent and in other ways. To use words extracted from the judgment of the judge, this is the problem of "allowing property to stand empty" (see the passage from the judge's judgment cited in the next paragraph). Depending on conditions in the letting market, a "void" may have significant commercial consequences for a property management business, such as that of MWB.
- Thus at paragraphs 14 and 20 of his judgment (I am setting out the citation again in order to include some parts of paragraph 20 not in my Lord's citation), the judge found:
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.
- Though the judge's findings are not wholly clear, I agree with Lord Justice Kitchin that we should give weight to them. In my judgment, the reference to "some consideration in this situation" is a reference to consideration over and above that of simply accommodating Rock, and refers to the possible commercial benefit of having Rock continue in occupation for the reason stated at the start of the citation.
- In the space of his short judgment, the judge gave significant emphasis to consideration, and it seems therefore unlikely that he did not have in mind that MWB obtained some benefit over and above that simply derived from accommodating the debtor. The benefit to the licensor was thus that it would not be at risk that the unit previously occupied by Rock would stand empty for some time at loss to itself, and that it (the licensor) would have an improved prospect of obtaining payment of the licence fee arrears. There was therefore an identifiable, practical benefit to the creditor over and above the mere acceptance of the reality that the defaulting debtor was not in a position to pay more than the variation agreement stipulated. The judge clearly considered that the parties had reached an accord on this.
- We have practically none of the documentation that was before the judge at trial, such as witness statements so I have been unable to read the judge's findings in context. However no party challenges the judge's findings and we do have later correspondence from April 2012 which is in the bundle which shows that MWB wished to "avoid terminating the [licence] if possible" and was prepared to allow a return to the premises if a compromise could be agreed. MWB stated that it "remains willing to resolve matters and resume the terms of the licence agreement" (subject to agreeing on the schedule for the amounts due and to become due, and described itself as having "endeavoured to compromise and negotiate a solution to the outstanding arrears". So, while Rock initiated the negotiations with MWB when it knew of its cash flow difficulties, and, while no doubt MWB was involuntarily placed in the position of having to manage a situation where it had an insolvent licensee, it is apparent that MWB pragmatically accepted Rock's financial problems and was not an unwilling party to the renegotiations and indeed that it desired a settlement if one could be negotiated which would mean that Rock would go back into occupation. This case was not therefore the case of a trade creditor who is faced with a part payment plan which it has no commercial interest in accepting. In those circumstances, in my judgment it was open to the judge to infer what I have called the benefit to MWB which I have referred to as "avoiding the void".
Practical benefit can be good consideration in law
- The law requires that the promisee (here Rock) must provide consideration to make a promise by the promisor enforceable in law. So Rock had to show that it gave consideration for MWB's agreement to accept the terms of the variation agreement.
- In my judgment, this requirement is satisfied where the promisee shows that his renewed promise to perform an existing obligation results in the promisor receiving a benefit which he requested or at least indicated he wanted from the renegotiation. That is what happened in Roffey (see above, ). I do not need to set out the facts again, but the essential point is that this Court held that the carpenter gave consideration for the building contractor's promise to pay more money because his renewed promise to perform his original contractual obligation conferred a practical benefit on the building contractor. It was not just a case of making the building contractor sleep more easily at night about the carpenter's performance of his promise. The building contractor was only a subcontractor on the site and there was a penalty clause in its contract with this main contractor which put him at risk of being held liable in damages. The carpenter's renewed promise reduced that risk and that was one of the benefits to the building contractor.
- There are other illustrations of this form of consideration in the case law, including Ward v Byham  1 WLR 496. Reference may also be made to the observations of the Privy Council in Pao On v Lau Yiu Long  AC 614 at 631 to 632. Glidewell LJ discussed both these cases in Roffey. The development of this form of consideration is comparatively modern, but it is confirmed in Roffey. The principle that a benefit can in law be consideration for a promise must logically apply whatever the nature of the contract. It must also apply whether the promisee has at the same time agreed to render the same performance as he originally promised or to render a lesser performance, and whether the promisor has renewed his original promise or, as in Roffey, agreed to pay more.
- Professor G.H. Treitel at paragraph. 4-070 of Chitty on Contracts, vol 1, 32nd edition sums up the modern state of the law in relation to consideration for agreements to perform obligations already due under the original contract in the following words, with which I respectfully agree:
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.
- On different facts, reliance on consideration in the form of securing a benefit to the promisor which the promisor wants, rather than the more conventional form of consideration consisting of a detriment to the promisee, might result in the enforcement of a contract that had been made ill-advisedly or under improper pressure. However this concern should not be overstated since in the latter situation at least a remedy now exists for economic duress which may protect the disadvantaged creditor. I am also not concerned that in this case the judge describes the practical benefit as "just enough" to constitute adequate consideration since on general principle the court is not required to ask whether MWB made a good bargain in this situation: the important point is that the practical benefit was an additional item.
Pinnel's case does not have to be considered where there is good consideration
- The argument for MWB amounts to this: the variation agreement was a promise to pay a smaller amount than originally agreed in that the time value of money has the effect that an agreement to defer payment of a due debt is in effect an agreement to pay a smaller sum. MWB invokes the well-known rule in Pinnel's case for the proposition that in those circumstances there is no good conclusion in law: see Foakes v Beer (above, ).
- Furthermore in re Selectmove, this Court drew a distinction between obligations to perform work and obligations to pay money and it held that the practical benefit to the creditor of (my words) "a bird in the hand rather than two in the bush" did not mean that a contract to pay a lesser sum than originally agreed was enforceable. The critical passage in the judgment of Peter Gibson LJ, with whom Stuart Smith and Balcombe LJJ agreed, is set out in  above.
- In my judgment, Selectmove is distinguishable from the present case and decides only that the benefit which a creditor obtains from a promise to pay an existing debt by instalments is not good consideration in law. In that case, there was no finding by the trial judge that there was any extra benefit to the Inland Revenue in having an instalment agreement with the taxpayer. The question of practical benefit only arose in this Court in Selectmove because counsel for the taxpayer argued that there was consideration because the instalment agreement was beneficial to the Inland Revenue in the sense that it had a promise to make payments in discharge of the existing debt in accordance with an agreed schedule, which would obviate the need for it to take steps to enforce payment of the amount owed to it. It was that argument that Peter Gibson LJ rejected. Peter Gibson LJ could 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. There can be no coherent distinction between agreement to pay debts and agreements to do work in this context. The strength of that general principle may well explain why in Roffey this Court did not refer to Foakes v Beer.
- My conclusion that Selectmove can be distinguished in this case is not inconsistent with Foakes v Beer, where the only suggested consideration was the debtor's promise to pay part of his existing debt. Nor is it inconsistent with the dictum of Lord Coke LC in Pinnel's case itself. After stating that "payment of a lesser sum…in satisfaction of a greater, cannot be any satisfaction for the whole," Lord Coke had added a rider that "the gift of a horse, hawk or robe, etc in satisfaction is good for it shall be intended that a horse, hawk, or robe, etc might be more beneficial to the plaintiff than the money." The House of Lords in Foakes v Beer approved both the statement of general rule and the rider. As the law of consideration now stands, the gift of the horse, hawk or robe is no different in principle from the conferral of an benefit or advantage, a point in fact made by Lefroy CJ in Corporation of Drogheda v Fairclough 8 Ir. C. L. R. 98, 110, 114, cited with approval by Lord Fitzgerald in Foakes v Beer (at 629). In accepting that a practical benefit can be good consideration for part payment of a debt, all I am doing is replacing the words "the gift of a horse, hawk or robe" with a more modern equivalent in line with the responsibility which Glidewell LJ in Roffey (at 16) described as refining and limiting the common law but leaving the principle (the actual Rule in Pinnel's case) unscathed.
- The judge held that MWB did not enter into the variation agreement simply to accommodate Rock. I accept that in the light of Selectmove it may be difficult for any benefit solely of that kind to constitute a practical benefit for the purposes of the law of consideration. On the judge's findings it did so in its own interests in order to, as I put it above, avoid a void and that this was a practical benefit to MWB. In those circumstances there was in my judgment on the judge's findings a binding contract in law.
- As I explained in Collier v Wright, the Rule in Pinnel's case is controversial and the Sixth Interim Report of the Law Revision Committee in 1937 under the chairmanship of Lord Wright MR made recommendations for its reform, which Parliament has not accepted or implemented. If my Lords agree that I have correctly stated the law, the necessary result of this is that there will be cases in the future, of which this is one, where agreements to pay a lesser sum than was due under a previous contract will be held to be enforceable because there has been shown to have been consideration in the form of a practical benefit to the creditor which he sought and which is an identifiable benefit over and above the mere fact of accommodating the debtor and not having to enforce payment of the debt. This may well strike a satisfactory balance between on the one hand enforcing promises and enabling debtors to rely on their creditors' promises and on the other hand of protecting creditors from debtors who seek unfairly to gain an advantage from their creditors.
- That leads to the question whether MWB was bound to accept the deferred payments provided for in the variation agreement as soon as Rock paid the sum of £3,500 and even if it made no further payment. That would not have been a sensible commercial agreement. Accordingly it is unlikely that the parties made an agreement in those terms. (The case was argued on the basis that the payment of £3,500 had to be made before the agreement became binding: it was not argued that the variation agreement became binding merely on the exchange of promises and so I do not need to deal with that still less sensible result). Lord Justice Kitchin has addressed this problem by holding that the variation agreement contained a term that the rescheduling arrangement would be binding on MWB only so long as Rock performed its side of the bargain (paragraph 49 above). I agree that that is one interpretation and analysis which addresses the problem. But there is another possible interpretation and analysis which would lead to the same result that Rock would have to perform the whole of its side of the bargain. That would be the case if the variation agreement took effect as a collateral unilateral contract (binding on MWB once the sum of £3,500 was paid), and accordingly that is the question which I next consider.
Was the variation agreement a collateral unilateral contract?
- Rock was not bound to continue as licensee of its unit for more than the contractual term, which was shorter than the period over which its arrears were rescheduled. The variation agreement, conferring as it did on MWB the advantage of "avoiding a void" meant that Rock had to be the occupier. Rock did continue to occupy its unit until the licence was terminated. To reconcile the parties' legal positions, my provisional view (in the absence of argument) is that Rock's acceptance of MWB's promise gave rise to a "collateral unilateral contract," meaning that, collaterally to the licence, for so long as Rock was entitled to and did occupy the unit and paid the licence fee as renegotiated, MWB would be bound on payment of the initial £3,500 to accept the deferral of the arrears in accordance with the variation agreement. This seems to me to be the legal effect of what the parties agreed, which was confirmed by Rock's immediate payment of £3,500 to MWB. Although the effect of the variation agreement if it was supported by consideration was not the subject of submissions, it was not suggested by either party that Rock could take the benefit of the variation agreement without performing its side of the bargain, or that MWB could withdraw from the variation agreement so long as Rock was complying with it.
- I gratefully adopt the concept of "collateral unilateral contract" in this context from a helpful article: M Chen-Wishart, Reforming Consideration – No Greener Pastures in S Degeling, J Edelman and J Goudkamp (eds), Contract in Commercial Law (Sydney, Thomson, 2016) (Publication pending). Since writing this judgment I have also seen A Bird in the Hand: Consideration and Contract Modifications (Andrew S Burrows and Edwin Peel (eds) Contract Formation and parties (OUP, 2010) page. 89-113) by the same author, which also discusses this point.
Estoppel: not inequitable for creditor to go back on promise after first payment
- The judge rejected the estoppel argument on the basis that there was no detrimental reliance: Rock did no more than pay a sum it was already due to pay.
- I agree with the judgment of Lord Justice Kitchin on the general principles that he sets out at ( above). I do not see any inconsistency between that paragraph and paragraph 42 of my judgment in Collier v Wright, set out at  above, for the following reasons:
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 , 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 (). 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
- In conclusion, I would make the order that Lord Justice Kitchin proposes.
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