Introduction
The doctrine of consideration is a fundamental element for the formation of a legally binding contract in English law. It requires that for a promise to be enforceable, the promisee must provide something of value in return. While this principle seems straightforward, its application, particularly concerning the variation of existing contracts, has become complex. This essay will examine the most recent significant case concerning consideration, MWB Business Exchange Centres Ltd v Rock Advertising Ltd (2018), to show how the courts have recently approached this doctrine. It will argue that while the case provided an opportunity to clarify the law on ‘practical benefit’ consideration, the Supreme Court ultimately left the central question unresolved, leaving the law in a state of uncertainty.
The ‘Practical Benefit’ Principle
Traditionally, the performance of an existing contractual duty was not considered good consideration for a new promise (Stilk v Myrick, 1809). Similarly, a promise to accept part payment of a debt in full satisfaction of it was unenforceable for lack of consideration, as established in Foakes v Beer (1884). However, the Court of Appeal’s decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) created an important exception. The court held that a promise to make bonus payments to ensure the other party performs their existing contractual duty on time was enforceable. This was because the promisor obtained a ‘practical benefit’ or avoided a ‘disbenefit’. In Williams v Roffey, this benefit included avoiding a penalty clause for late completion and not having to find an alternative contractor. This decision seemed to relax the strict requirements of consideration but was stated not to apply to cases of part payment of debt, where Foakes v Beer was still the leading authority.
The Court of Appeal’s Decision in MWB v Rock Advertising
The tension between Williams v Roffey and Foakes v Beer was directly addressed by the Court of Appeal in MWB Business Exchange Centres Ltd v Rock Advertising Ltd (2016). In this case, Rock Advertising, a tenant, was in arrears with its licence fee payments to MWB. Rock’s director agreed orally with MWB’s credit controller to reschedule the payments, paying less initially but clearing the arrears over the coming months. MWB later demanded the full arrears and sought to terminate the licence. The issue was whether the agreement to reschedule the payments was supported by consideration from Rock.
The Court of Appeal found that it was. The court held that MWB obtained a practical benefit from the revised payment schedule that went beyond simply receiving part of the debt. Kitchin LJ argued that the practical benefit was that MWB would have its property occupied, avoiding the loss that would arise from it being empty, and would recover all the arrears over time rather than risking getting nothing if Rock defaulted entirely. The court applied the reasoning from Williams v Roffey to a part-payment-of-debt scenario, which was a significant step as it directly challenged the long-standing House of Lords authority in Foakes v Beer.
The Supreme Court’s Judgment
The case was appealed to the Supreme Court. Many legal academics and practitioners hoped for a definitive ruling on whether the 'practical benefit' concept could now be officially extended to cases involving the part payment of debt. However, the Supreme Court resolved the appeal on a different ground. The original licence agreement contained a ‘No Oral Modification’ (NOM) clause, which stated that all variations to the licence must be in writing. The Supreme Court, in a judgment led by Lord Sumption, held that such clauses were legally effective. Consequently, the oral agreement to vary the payment schedule was invalid, regardless of whether it was supported by consideration.
Lord Sumption explicitly stated that the question of consideration was ‘difficult’ and that the line of reasoning from Foakes v Beer and Williams v Roffey was probably ‘ripe for re-examination’. However, because the case was decided on the NOM clause issue, the court decided it was not the right time to undertake that re-examination. This means the Court of Appeal’s ruling on consideration was set aside (as part of the obiter dicta) and Foakes v Beer remains binding law for now.
Conclusion
In conclusion, MWB v Rock Advertising is a crucial recent case that highlights the ongoing tensions within the doctrine of consideration. The Court of Appeal showed a clear desire to extend the ‘practical benefit’ principle from Williams v Roffey to promises to accept less, which would modernise the law and reflect commercial realities. However, by choosing to decide the case on the narrower ground of the NOM clause, the Supreme Court deliberately avoided clarifying this difficult area. As a result, the law remains in a state of flux. The strict rule in Foakes v Beer technically remains good law for part payment of debt, but the persuasive reasoning of the Court of Appeal in MWB suggests that the judiciary may be willing to depart from it in a future case. Therefore, the most recent significant case has served more to highlight the problem than to provide a solution.
References
Foakes v Beer (1884) 9 App Cas 605.
McKendrick, E. (2020) Contract Law: Text, Cases, and Materials. 9th edn. Oxford University Press.
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553.
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24.
Stilk v Myrick (1809) 2 Camp 317.
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.
