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On the 20 Feb 2019, the England and Wales High Court (Chancery Division) has handed…
In Williams v Roffey Bros, the Court of Appeal departed from the traditional limits of what could constitute consideration by holding that a mere ‘practical benefit’ is sufficient to vary a contract. In so doing, the definition of consideration was made more workable in a commercial context, but threatened the existing rule in relation to decreasing pacts.
Court of Appeal judgement:  1 QB 1
Roffey, a building firm, had a building contract to refurbish 27 flats and subcontracted the carpentry work to Williams for a price of £20,000.
After finishing work on 9 of the flats, Williams got into financial difficulties. Roffey was concerned they would be liable under a penalty clause in the main building contract if Williams did not finish the remaining 18 flats in time, so promised to pay an additional £10,300. However, after finishing 8 more flats Roffey only paid Williams £1500 extra for his work. Williams therefore abandoned the work; Roffey had to engage other carpenters to finish the final 10 flats and incurred liability under the penalty clause.
Williams sued Roffey, claiming the balance of the extra sum promised. Roffey argued they provided no consideration for this extra promise, meaning they weren’t contractually bound to pay the additional amount.
The traditional authorities for consideration are Stilk v Myrick and Hartley v Ponsonby. In Stilk, the Court held an agreement by B to pay more for A’s services requires consideration to be enforced. In Hartley, the Court held that ‘extra work’ on the part of the claimant would suffice as consideration. The analysis used in Hartley v Ponsonby could not be straightforwardly applied to the facts of Williams v Roffey Bros because, while Roffey would be paying more money, Williams had offered to do no ‘extra work’. Nevertheless, the Court of Appeal held that there was consideration for the additional promise and awarded Williams damages of £3500. The Court concluded that the modification provided a ‘practical benefit’ to Roffey, which sufficed as a form of consideration.
While at first sight it might seem that Roffey received nothing in addition to what was initially promised, at  Russell LJ listed a variety of additional benefits accruing to Roffey from the agreement. In particular, resolving Williams’ financial issues Roffey avoided the inconvenience and increased costs of employing another sub-contractor at short notice. The new agreement also created a more formalised scheme of payment of a specified sum on the completion of each flat.
Similarly, Purchas LJ pointed out at  that this agreement increased the chance of quick performance. This meant Roffey would avoid incurring liability for delayed performance under the main contract. The new system of completing one flat at a time also made the process more efficient, as Roffey were able to direct the other trades to do work in the completed flats.
Upon referring back to the old consideration rules, Purchas LJ highlighted the context Stilk and Hartley were decided (). Purchas LJ highlighted the strong public policy grounds which existed in the 18th century to protect masters and owners of ships from being held to ransom by their crews.
Glidewell LJ focused on this problem of economic duress, pointing out that it would be untenable to treat as contractually valid an agreement which was reached because of a subcontractor’s unfair refusal to complete work he was already obliged to do unless the contractor agreed to pay an increased price (). However, he pointed out that in this case there was no evidence that the promise arose from fraud or duress. Furthermore, he highlighted that the doctrine of economic duress had developed to a point where it could void a contract without having to rely on a finding that the consideration was not legally sufficient ().
Russel LJ brought this analysis to a logical conclusion by stating that the rigid approach taken in Stilk v Myrick is unnecessary and undesirable. The courts should now be prepared to give effect to genuine re-negotiations where the bargaining powers of the parties are equal and a finding of consideration reflects the true intention of the parties ().
While the Court appeared to reject their narrow interpretation of economic duress, it did not dismiss the principles established in Stilk and Hartley. Both Purchas and Glidewell LJJ explicitly recognised that any objections to these authorities leave unscathed the principle that a contract is not valid without consideration ( and ). Their reformulation of the doctrine of consideration merely refined and limited its capacity to avoid contracts.
Glidewell LJ also explained that the requirement that “consideration must move from the promisee” could be met by mutual benefit without requiring a detriment to both parties. It was argued that the consideration did not move from the promisee (Williams) to the promisor (Roffey). However, Glidewell LJ pointed out that it is consideration from a third party which does not move from the promisee, and in this case the benefit arose out of their agreement with the plaintiffs. He adopted the analysis used in Chitty on Contracts: “the requirement [that consideration must move from the promisee] may be equally well satisfied where the promisee confers a benefit on the promisor without in fact suffering any detriment” ().
This view was echoed by Purchas LJ, who stated that “if both parties benefit from an agreement it is not necessary that each also suffers a detriment” ().
The Court of Appeal in Williams expanded the definition of consideration to cases were there is a ‘practical benefit’ and the parties suffer no detriment. In practice, this means good consideration will be recognised in more circumstances, making it easier to give effect to the parties’ intention to create legal relations. This can be seen as a pragmatic step which brings the law of contract up to speed with the realities of the commercial world, where it is more efficient for variations to contracts to be legally binding rather than having to draw up a fresh contract every time.
It is possible that by making it easier to establish consideration the Court in Williams has reduced the significance of the doctrine. However, to subscribe to this view would be to ignore the real practical benefit that accrues to a business when they can – for example – guarantee a subcontractor’s performance. These ‘practical benefits’ unquestionably offer more substantive value than the proverbial ‘peppercorn’.
One key issue with the Court’s decision is that it directly opposes the judgment in Foakes v Beer, which established that mere practical benefit was not good consideration for part payment of a debt. While the judgement in Williams v Roffey Bros should be regarded as a step in the right direction, the differentiation from Foakes has complicated the law of contract. In Re Selectmove, the Court of Appeal held that extending the rule in Williams v Roffey Bros would leave Foakes v Beer with no application and felt they could not overturn this rule.
It is submitted that the Court is reluctant to change the rule in Foakes based on precedent rather than disagreement with the decision in Williams. Firstly, the Court of Appeal applied the Williams v Roffey rule and found good consideration on the facts. Secondly, the Court of Appeal in MWB v Rock held that a practical benefit constituted consideration for part payment of a debt. Although this was subsequently overturned, this was not based on the consideration issue and the Supreme Court said that Foakes v Beer was ‘ripe for reconsideration’ when the right case arose.
You can read more about the Court’s decision in MWB v Rock here.