No oral modification clauses – firmly set in stone

August 9, 2018

MWB Business Exchange Centres Ltd v Rock Advertising Ltd

The case of MWB Business Exchange Centres Ltd v Rock Advertising Limited saw the Supreme Court make a ruling on a fundamental issue in the law of contract.  It held that a clause in a contract that required modifications to that contract in writing and signed by the parties invalidated a subsequent oral agreement to amend the contract.

Facts

Rock Advertising Limited (“Rock”) licenced office space owned by MWB Business Exchange Centres Limited (“MWB”). Rock sought to expand its business and entered into an agreement with MWB to occupy a larger premises. The contract contained a No Oral Modification (“NOM”) clause that required all modifications to the contract to be in writing. Rock fell behind with licence payments and so the parties entered into an oral agreement where Rock would pay less than the original sum for a period of time and then would pay more to clear arrears. MWB disputed this agreement and sued Rock for breach of contract in Central London County Court. Rock argued that the oral agreement meant they had not breached the contract.

HHJ Moloney held that the parties did make an oral agreement that was supported by consideration. However, clause 7.6 of the written agreement rendered this oral agreement unenforceable as it required all modifications to be in writing. The County Court ruled in favour of MWB and Rock appealed.

Court of Appeal decision

The Court of Appeal reversed the previous decision of London County Court and held that the oral variation amounted to an agreement to waive the NOM clause. The decision relied heavily on the notion of party autonomy. It held that parties had the power to alter contracts by whatever means they decided to do so despite the contract stating that it can only be altered in writing.

The Supreme Court decision

The Supreme Court allowed the appeal and held that NOM clauses should not be ignored. The Court addressed the notion of party autonomy and held that it would be a greater offence against party autonomy if the parties could not bind themselves to the form of contractual variation stipulated in the contract. The decision focused on the commercial reasoning for including NOM clauses. Lord Sumption gave the leading judgment and was supported by Lady Hale, Lord Wilson and Lord Lloyd-Jones. He noted that NOM clauses prevent attempts to undermine written agreements by informal means and they help to avoid disputes regarding whether a variation had been intended and the exact terms of such. Finally, Lord Sumption specified that NOM clauses help to provide formality in recording variations that have been made to a contract. He noted that this will make it easier for corporations to police their own internal rules restricting the authority to agree to variations.

Lord Briggs gave a separate concurring judgment. He agreed that the NOM clause prevented the variation in this case from being valid. However, he came to this conclusion on different grounds. He held that a NOM clause could be varied orally by making an express reference to it.

Effect of judgment on businesses

The decision of the Court of Appeal risked opening the floodgates to claimants seeking relief for alleged oral variation of contracts. Therefore, the decision of the Supreme Court helped to narrow the scope for claims surrounding variation of contracts. It helps to provide certainty and clarity for those parties who have NOM clauses in their contracts. Parties must ensure that they comply with the formalities stated in the contract or they risk the variations being found to be ineffective.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Corporate Team at Cleaver Fulton Rankin for further advice or information.

Rachael Clements, Solicitor, Aimee Donaldson, Trainee Solicitor, Corporate Team, Cleaver Fulton Rankin, Solicitors.