FRESH CONSIDERATION RULE: INSIGHTS FROM ITS RESURRECTION IN QUACH V MITRUX SERVICES LTD.

• Author: Wong, Anna S.P.

INTRODUCTION

Watershed moments in law are like shooting stars. They are few and far between. Many thought they had witnessed such a moment on 18 May 2018, when the British Columbia Court of Appeal handed down its decision in Rosas v Toca, (1) which did away with the requirement of fresh consideration for contractual modifications. It was deemed to be a revolutionary conclusion, one that pushed up against the bulwark of caselaw loyal to the requirement. "B.C. Court Reforms Centuries-Old Consideration Doctrine," (2) headlined one commentary; "Demise of the Fresh Consideration Rule in British Columbia," (3) clamoured another.

Two years on, it appears that what was thought to have been a watershed moment may not have been so. Having had two years to ruminate, it might have dawned on the Court that killing off the fresh consideration rule could have farther-reaching consequences than it was prepared to bear. Obliteration of the rule would mean relinquishing what had been a convenient device at its ready for blocking enforcement of contractual variations that are undesirable to enforce. And so, when the opportunity presented itself in Quach v Mitrux Services Ltd, (4) the Court seized on it to rein in Rosas, choking its reach into the employment context. It breathed life back into the fresh consideration rule.

The outcome in Quach was a sound one, considering the unique stakes involved in employment contracts generally and in the particular case. But the route that the Court took to get to there was less than ideal. There were other ways to arrive at the same outcome, ways that would not have had to lean on consideration. Not only was it unnecessary to lean on consideration, clipping Rosas in the process, the Court could have taken the opportunity to usher in its own step change to the law of contract.

As a quick sketch of what lies in the pages ahead, this article first surveys where the law is at, then crosses the bridge to explore where the law should be. It is divided into two parts accordingly. Part one begins with a discussion of the long-standing history of the fresh consideration rule, which is a subsidiary of the doctrine of consideration. It then delves into Rosas, and trailing it, into Quach. Part two considers doctrines other than the doctrine of consideration that the Court could have pressed into service in Quach, namely, unconscionability, undue influence, and economic duress. As will be shown, any one of these rescissionary doctrines would have been preferable to use. To crown the discussion, I propose two legal presumptions that would make the doctrines of unconscionability and undue influence more sensitive to the reality of employment relationships, a reality that was thrown into sharp relief in Quach.

1. PART ONE

   1. DOCTRINE OF CONSIDERATION AND THE FRESH CONSIDERATION RULE

      Countless agreements are made every day that are not, in the eyes of the law, enforceable contracts. To take a simple example from a perhaps all too commonplace occurrence: your spouse offers to do the dishes and you happily accept. The dishes are not done. Grumble and grunt as you may, there is no legal redress to be had under contract law, because one of the three core constituents of a contract is missing.

      To constitute a legally binding contract, in addition to offer and acceptance, there must be an exchange of consideration. Consideration is typically something of value that moves from one party to another. It is the price bargained and paid for the other party's promise. The definition laid out in the 1875 case of Currie v Misa still bears pertinence today:

      [Consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. (5) Consideration has been a cornerstone of contractual enforceability since the 16th century. (6) It is said to have played a predominantly evidentiary function in the olden days, (7) when many agreements were oral. Oral agreements were (and still are) difficult to prove. Consideration lightened the difficulty of the task. Evidence that the parties gave each other something of value to secure the other's assent to the agreement in question would be accepted as objective evidence of their mutual intention to make a binding agreement. Consideration helped courts distinguish bargained-for promises intended by the parties to have legal force from gratuitous promises and promises too casual to be enforced.

      In modern times, with many more contracts than before taking the written form or having written traces (e.g., referenced in email correspondence between the parties), there is arguably lesser need for consideration to serve as proof of the existence of a contract. Why, then, did the doctrine of consideration stick? One can only speculate, but it might have something to do with the fact that besides its evidentiary role, there are other functions that consideration can fulfill: (8)

      Cautionary: consideration acts as a check against inconsiderate action as the giving of something of value encourages people to engage in some degree of deliberation before entering into binding agreements. (9) Channeling: consideration furnishes a simple test of enforceability and a channel for legally effective expression of intention. (10) Substantive: consideration is a way to further policy objectives such as non-enforcement of promises made impulsively and without proper deliberation, extorted promises, and gratuitous promises that are unproductive in generating new value and are, in economic terms, inefficient to enforce. (11) So long as it served or could serve one or more these functions, there was arguably utility in keeping the requirement of consideration. (12) Thus, despite attempts to soften the rigours of the doctrine of consideration over the centuries, perhaps most famously made by Lord Mansfield (13) and Lord Denning, (14) the requirement for it stood.

      While the consideration exchanged need not be of any particular worth, (15) for a peppercorn will do, (16) where a party is already under a legal obligation to perform a service or deliver a good, promising again to do it will not qualify as consideration. Put another way, a benefit conferred or a detriment incurred under an existing contract will not be regarded as valid consideration for a new or modified contract. Fresh consideration must be given to render the subsequent agreement enforceable. This has been variously expressed as the fresh consideration rule, the pre-existing duty rule, or the principle in Stilk v Myrick (17) from which it originated. Instinctively, the rule seems to make sense: party A promising party B something that he is already bound to give party B is giving nothing new. You cannot sell what you have already sold.

      Whatever instinctive appeal the rule may have, its flaws surfaced when courts had to apply it to a wide range of situations. There are two main flaws. First, the rule operates as a blunt instrument insofar as it bans enforcement of all consideration-free modifications to existing contracts, be they extorted agreements or fair bargains that benefit both sides. From an ethical and policy point of view, the latter deserves enforcement while the former does not. But the undiscerning fresh consideration rule treats them the same, at times occasioning injustice. As Justice Pennell lamented in Gilbert Steel Ltd v University Construction, "[h]opefully there will come a time when law will give effect to what ethics has wrought." (18) In that case, in light of the fresh consideration rule and the absence of new consideration on the facts, he had no choice but to rule in favour of the defendant, who had thumbed its nose at a contractual variation deliberately made. It was a result that aroused indignation.

      Second, the fresh consideration rule fails to accord with commercial reality. Going-transaction adjustments are not just common, especially when the parties are in a long-term contractual relationship, they are sometimes critical in order to preserve the relationship. (19) Gaps or unsatisfactory provisions of a contract often come to the fore only when the parties begin performing the contract. Variations are then made to the contract to keep the objective of the contract alive. Parties reasonably and legitimately expect those variations to be enforceable and adhered to. The law, for its part, should readily facilitate such contractual variations, rather than erect a barrier. Since courts do not inquire into the adequacy of consideration, a requirement that extra consideration be provided--which can be a dollar--does little to cull out variations made for valid and sound commercial reasons from those that are not. The difference between an enforceable variation and a non-enforceable one could well turn on whether a party had access to legal advice so as to know to give a dollar. All told, the rule makes little commercial sense and does little to protect the legitimate expectations of commercial parties. (20)

      Sure enough, the fresh consideration rule has garnered a great deal of scholarly criticism. (21) It has been described as "that adjunct of the doctrine of consideration which has done most to give it a bad reputation." (22) Small wonder, then, that some jurists, perhaps urged on by the sawy advocates who appeared before them, have deployed a number of "avoidance techniques" to circumvent the rule, (23) while others began to stretch and chip away at it, one case at a time, in order to mitigate its harshness. Williams v Roffey Bros & Nicholls (Contractors) Ltd (14) is a notable example of the rule being stretched and pounded at.

      Roffey involved a contract in the construction context where modifications to ongoing arrangements are prevalent. The subcontractor in Roffey had run into financial difficulties partway through the project. Mindful of their...