MWB Business Exchange Centres Ltd v Rock Advertising Ltd

MWB and Rock Advertising.

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 – a Step Too Far?

 

By John Ong

 

The Court of Appeal has stated that agreements to accept less might be binding if the promisor receives a practical or commercial benefit. John Ong argues the court may have been wrong in MWB v Rock Advertising.

 

The Facts

 

On 21 June 2016 the Court of Appeal (Civil Division) of England and Wales was afforded an opportunity to revisit the issue of whether the practical benefit test could be applied to agreements to accept less. This was in the key case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd. The appellant (Rock Advertising Ltd) was a licensee of premises maintained by the respondent MWB. In August 2011 Rock Advertising Ltd sought an agreement to move into larger business premises to facilitate anticipated expansion of their business.

 

In MWB v Rock Advertising the new agreement was to begin in November 2011. The appellant agreed to pay £3,500 from November to January. This would be followed by nine payment of £4,433.34 from February 2011 to October 2011. The agreement entered into force on 1 November 2011 and the appellant paid rent as it fell due under the agreement. However, by February 2012 Rock advertising Ltd had accrued £12,000 of arrears.  At the end of March 2012 the respondent exercised their right to lock the appellant out of the premises. Finally, the agreement was terminated on 4 May 2012.

 

Rock’s case was that on 27 February 2012 an oral agreement was entered into between Miss Evans of MWB, acting in her capacity as credit controller, and Mr Idehan, the Managing Director of Rock Advertising Ltd, to modify the terms of the agreement. The appellant asserted that an agreement was reached whereby for the first few months the appellant would pay less than the originally agreed contractual rent. Thereafter it would would pay more so that by the end of the term the arrears and contract price would be satisfied.

 

The case was appealed directly from the Central London County Court. HHJ Maloney QC was persuaded that the agreement to pay as per the revised schedule amounted to good consideration. He held that:

 

“I also note that there is an element of possible commercial benefit [emphasis added] to [MWB] in retaining an existing tenant, even if a questionable payer, in the hope of perhaps recovering its arrears [emphasis added] rather than getting rid of them, probably saying goodbye to the arrears [emphasis added] and allowing the property to stand empty for some time at further loss to themselves.”

 

Arden LJ reviewed the authorities on this issue in order to elucidate how practical benefit should be applied to decreasing pacts. The judge characterised Williams v Roffey as a case in which the promisor received a benefit which was requested. Or as a minimum desired from the renegotiation process.

 

MWB and Rock Advertising.
The actual flats from Williams v Roffey.

 

 

The judge then emphatically rejects the restriction of the practical benefit test to increasing pacts, declaring that:

 

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 where 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.

 

Arden LJ in her formulation of the practical benefit test for decreasing pacts is moving away from traditional form of consideration. Traditionally, it was stated in terms of detriment to the promisee. Her formulation recognises that where a practical benefit is secured to the promisor which is requested or desired then this is sufficient to uphold the promise.

 

MWB Rock Advertising
Lady Justice Arden.

 

She dismisses concern that this shift might lead to enforcing contracts that have been made under improper pressure by insisting that the doctrine of economic duress can police such agreements. In MWB v Rock Advertising the judge also dismisses concern that the trial judge described the practical benefit as ‘just enough’. She concluded that the law looks for adequate consideration only and not whether a good bargain has been struck. She concludes in this respect that ‘the important point is that the practical benefit was an additional item.’

 

Comment

 

In MWB v Rock Advertising the old debate about whether practical benefit should be enough to support a promise to accept less is reborn. The law has made a distinction between decreasing pacts and increasing pacts. Each body of law is internally coherent but the difference between the rules applied to both situations is not.

 

There is a catalogue of literature on the fallacy of the distinction. Nevertheless, the law is clear. Agreements to accept less require accord and satisfaction to bind.

 

I have two main issues with Arden LJ’s judgment.

 

First, she indicates that practical benefit or ‘avoiding the void’ is enough. However, she conveniently forgets that in Williams v Roffey there were 5 requirements for the agreement to be supported by consideration. Practical benefit was only one of those. Therefore, her application of Williams v Roffey is flawed.

 

Second, let us assume I am wrong on the first point. If practical benefit is enough to uphold a promise to accept less, then what of the need for a ‘horse, hawk or a robe’. Something extra needs to be given to support a promise to accept less. If we accept practical benefit – which can be any benefit including illusory benefits – then the hundreds of cases that show fresh consideration is required are obsolete. That is not an acceptable outcome.

 

As it stands, it seems the rule in Foakes v Beer is restricted to debt in the narrow sense of the word. Those engaged in service contracts, leases, licenses and other periodic payments should take note. MWB v Rock Advertising represents common sense in what it was trying to achieve but at the expense of legal certainty.