Posts Tagged ‘no oral modification clauses’

‘No oral modification’ clauses: Rock Advertising v MWB Business Exchanges Ltd (Part 1)

June 15, 2018

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd ([2018] UKSC 24) the UK Supreme Court had to consider the effects of a ‘no oral modification’ (‘NOM’) clause in a contract. This blog post (part 1) sets out the facts and the essential features of the judgments. The next blog post (part 2) will set out the underlying issues identified in the judgments.

Facts

MWB Business Exchange Business Centres Ltd (‘MWB’) operated serviced offices in central London. It entered into a contractual licence with Rock Advertising Ltd (‘Rock’) containing the following NOM clause:

‘This licence sets out all the terms as agreed between MWB and 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.’

Rock fell into arrears with payment of the licence fee.

Rock’s sole director spoke to a credit controller at MWB to propose a revised schedule of payments. It was found at first instance that an oral agreement had been concluded to vary the licence in accordance with the revised schedule.

 

Issues and conclusion

The question was whether this oral agreement was effective. This raised two fundamental issues in the law of contract: (1) whether the oral agreement could be effective given the NOM clause; and (2) whether Rock could be said to have given consideration for the variation.

The UK Supreme Court found in favour of MWB since the oral agreement was rendered ineffective by the NOM clause. While there was unanimity as to this conclusion, Lord Briggs did not wholly agree with the reasoning of the majority (who agreed with Lord Sumption).

The Court declined to consider the consideration issue. Given the conclusion as to the effect of the NOM clause, any discussion of the question of consideration would have been obiter.

 

The NOM clause: the majority approach

Lord Sumption (and the majority) concluded that:

  1. NOM clauses are effective: ‘the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation’ ([10]);
  2. ”if the collateral agreement is capable of operating as an independent agreement, and is supported by its own consideration, then most standard forms of entire agreement clause will not prevent its enforcement’ ([14]);
  3. ‘But if the clause is relied upon as modifying what would otherwise be the effect of the agreement which contains it, the courts will apply it according to its terms and decline to give effect to the collateral agreement’ ([14]);
  4. Estoppel might come into play where the parties have acted on the oral variation ([16]).

Lord Sumption declined to deal with the question as to whether or not Rock had given consideration for the variation: ‘[t]he reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer … if it is to be overruled or substantially modified, it should be before an enlarged panel of the court and in a case where the decision would be more than obiter dictum’ ([18]).

 

Lord Briggs’ analysis

Lord Briggs reached the same conclusions as the majority but for different reasons. Lord Briggs was ready to accept that a contract containing a NOM clause could be orally modified. It all depended on whether the necessary unanimous intention to agree an oral variation despite the NOM clause could be shown.

This intention would not be inferred from the fact that the parties had reached an oral agreement. This intention will not be lightly inferred where the oral agreement was made without express reference to the NOM clause ([27]).

It might be inferred where there was evidence of necessity, where it could be shown that there was some urgent reason for the parties to agree to an oral variation before the written record could be made and signed. The same facts would be equally likely to give rise to an estoppel ([30]).

Michael Lower

Advertisements