Posts Tagged ‘Collateral contracts’

Oral variation of contract despite clause requiring variations to be in writing

July 27, 2016

In MWB Business Exchange Centres Ltd v Rock Advertising Ltd ([2016] EWCA Civ 553, CA(Eng)) Rock was the licensee of business premises managed by MWB. Rock fell into arrears with the payments due under the licence. MWB brought these proceedings to recover the arrears. Rock’s managing director had had a telephone conversation about the arrears with MWB’s credit controller. They reached an oral agreement to the effect that Rock could pay a reduced amount for a period and then pay a larger amount later so that by the end of the period the arrears would have been cleared. It was found as a fact that the agreement had been reached and that the credit controller had authority to conclude the agreement on behalf of MWB. MWB received the first payment under the revised schedule but then wanted to revert to the payment arrangements in the original contract. The main question was whether the oral agreement was binding on MWB.

At first instance, Rock failed because the licence agreement contained the following clause:

‘This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.’

It was held at first instance that this precluded the possibility of an effective oral variation. Rock’s appeal against this conclusion succeeded. Notwithstanding the clause, the oral agreement to vary the payment terms was contractually binding. The English law on these clauses was considered in depth by the English Court of Appeal in April 2016  in Globe Motors  Inc v TRW Lucas Varity Electric Steering Ltd ([2016] EWCA Civ. 396, CA (Eng)). This respects the freedom of the parties to a contract to agree new terms (Kitchin LJ at [34]).

MWB also argued that Rock had not given any consideration for the agreement to vary the payment terms. This argument, too, was the subject of extensive comment in the judgment of Kitchin LJ and was the principal focus of Arden LJ’s judgment. MWB argued that the rule in Pinnel’s Case and the judgment in Foakes v Beer established that an agreement to accept a partial payment of a sum due under a contract was not binding unless some new consideration had been given. The judge at first instance had this in mind but thought that the arrangement did secure enough of an advantage for MWB for there to be consideration. The Court of Appeal agreed with this conclusion. The agreement would avoid a commercially harmful void period for the property and at least ensured that MWB got some of what was due to it.

The Court of Appeal also considered when the contract to revise the licence terms took effect. Kitchin LJ was of the view that the agreement was formed when the first payment was made and the promise to make further payments in accordance with the revised payment schedule was given ([49]). Arden LJ thought that this might be a collateral unilateral contract:

‘meaning that, collaterally to the licence, for so long as Rock was entitled to and did occupy the unit and paid the licence fee as renegotiated, MWB would be bound on payment of the initial £3,500 to accept the deferral of the arrears in accordance with the variation agreement. ‘ (Arden LJ at [89]).

Rock succeeded on its arguments as to the effectiveness of the oral contract. The Court of Appeal also considered, obiter, whether equity might have a part to play. Could promissory estoppel, for example, prevent MWB from going back on the agreement? As a result, there is a useful survey of the law. Kitchin LJ’s judgment contains this summary:

‘Drawing the threads together, it seems to me that all of these cases are best understood as illustrations of the broad principle that if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. It may be the case that it would be inequitable to allow the promisor to go back upon his promise without giving reasonable notice, as in the Tool Metal case; or it may be that it would be inequitable to allow the promisor to go back on his promise at all with the result that the right is extinguished. All will depend upon the circumstances. It follows that I do not for my part think that it can be said, consistently with the authorities, including, in particular, the decisions of the House of Lords in Foakes v Beer and this court in In re Selectmove , that in every case where a creditor agrees to accept payment of a debt by instalments, and the debtor acts upon that agreement by paying one of the instalments, and the creditor accepts that instalment, then it will necessarily be inequitable for the creditor later to go back upon the agreement and insist on payment of the balance. Again, all will depend upon the circumstances.’ ([61])

Here Rock did not suffer any detriment as a result of the speedy change of mind by MWB. The promissory estoppel defence would have failed ([63]).

Michael Lower