Consideration Not A Requirement For Valid Contractual Amendment

Consideration Not A Requirement For Valid Contractual Amendment

On March 20, 2008 the New Brunswick Court of Appeal released the very important contract decision in NAV Canada v. Greater Fredericton Airport Authority Inc., 2008 NBCA 28 (on the web at http://www.gnb.ca/cour/03COA1/Decisions/march2008-e.asp) . The decision considers Canadian and United Kingdom decisions in considerable detail.

The Court’s decision is lengthy, careful and worth reading in full but can be summarized as follows, at para 31:

“a post-contractual modification, unsupported by consideration, may be enforceable so long as it is established that the variation was not procured under economic duress.”

By removing “fresh consideration” as a condition precedent from contract variation, and focussing on bargaining power the Court has changed the basic analysis that needs to be considered in reviewing a variation of an ongoing contract.

Whether the analysis will adopted across Canada is uncertain but the case requires close consideration – the Court expressly recognizes that it is changing longstanding law but suggests that the change is incremental and warranted.

At para 30 the Court holds:

“The doctrine of consideration and the concept of bargain and exchange should not be frozen in time so as to reflect only the commercial realities of another era. If the courts are willing to formulate and adopt new contractual doctrines, they are equally capable of modifying the old. To the extent that the old doctrines interfere with the policy objectives underscoring the new, change is warranted.”