Rock Advertising claimed that MWB had orally agreed to reschedule arrears under a written office licence which required any variation to be set out in writing and signed. The Supreme Court held that this no oral modification clause made the oral arrangement ineffective, so MWB could stand on the original payment terms.
MWB Business Exchange Centres Ltd operated serviced offices in central London. On 12 August 2011 it granted Rock Advertising Ltd a 12-month licence of space at Marble Arch Tower from 1 November 2011, at £3,500 a month for the first three months and £4,333.34 a month thereafter. Clause 7.6 provided that the licence set out all the agreed terms and that every variation had to be agreed, set out in writing and signed on behalf of both parties before it took effect. Clauses of this kind are commonly called no oral modification clauses.
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By 27 February 2012 Rock owed more than £12,000. Its sole director, Mr Idehen, proposed to Natasha Evans, an MWB credit controller, that part of the February and March payments be deferred and the arrears spread over the rest of the term. Taking account of the cost of waiting, Rock’s promise to pay would be worth slightly less to MWB. Mr Idehen said that Ms Evans accepted the schedule by telephone. She denied that, treated it as a proposal still being negotiated, and referred it to her manager, who rejected it. On 30 March 2012 MWB locked Rock out for non-payment and terminated the licence from 4 May 2012. MWB sued for the arrears and Rock counterclaimed for wrongful exclusion. The fate of the counterclaim, and therefore of the claim, turned on whether the alleged variation was legally effective.
The decisions below
Judge Moloney QC, in the Central London County Court, found that Ms Evans had made the oral agreement and had ostensible authority to do so. He held that it was supported by consideration, because it brought MWB a practical advantage in enhancing the prospect of eventually being paid, but that clause 7.6 made it ineffective. MWB could therefore claim the arrears without regard to the revised schedule. The Court of Appeal (Arden, Kitchin and McCombe LJJ) agreed about consideration. It held, however, that the oral agreement to revise the schedule was also an agreement to dispense with clause 7.6, so MWB was bound by the variation and was not entitled to claim the arrears when it did.
Lord Sumption: the clause means what it says
Lord Sumption, with whom Lady Hale, Lord Wilson and Lord Lloyd-Jones agreed, held that a clause requiring specified formalities for a variation is legally effective. The Court of Appeal’s approach overrode the parties’ intentions. Party autonomy operates up to the making of the contract and, after that, only so far as the contract allows. Parties can bind themselves to a course of action, and they can also agree the form which a future change must take. There is no principled reason why they cannot do by agreement what statute sometimes requires.
Such clauses are common for practical reasons. They reduce the scope for informal assertions to undermine a written agreement, including as a defence to summary judgment. They limit disputes, caused by oral misunderstandings, about whether a variation was intended and about its exact terms. They also help companies control who has authority to agree a change. Lord Sumption saw no public policy against enforcing them.
The argument for disregarding them was conceptual: a variation is itself a contract; the common law generally requires no formality; and an informal variation must be taken to dispense with a writing clause. Lord Sumption rejected that. The clause does not forbid the parties to speak. It makes an oral variation invalid. Agreeing orally is the situation to which the clause applies, not an implied agreement to abandon it. The natural inference is that the parties overlooked the clause or, if they remembered it, accepted the risk that the variation would be invalid. Other systems allow informal contracts generally while still giving effect to a no oral modification clause, including article 29(2) of the Vienna Convention on Contracts for the International Sale of Goods, which the United Kingdom has not ratified, and the UNIDROIT Principles.
Enforcing the clause can cause hardship if one party acts on an informal variation and then cannot enforce it. In English law the safeguard is estoppel, not a rule that the clause is ineffective. The courts below had rightly held that Rock’s minimal steps were not enough to support an estoppel. Lord Sumption added that estoppel must not be so wide as to destroy the certainty for which the parties stipulated. At the least, there would have to be words or conduct unequivocally representing that the informal variation was valid, and something more than the informal promise itself. The variation found by Judge Moloney was therefore invalid for want of the writing and signatures required by clause 7.6.
Lord Briggs: a narrower route to the same result
Lord Briggs agreed that the appeal should be allowed, but on narrower grounds which he thought would not have significant consequences except perhaps on very unlikely facts. In his view, parties who can bind themselves can also release themselves, and they can agree orally to remove a no oral modification clause. They do not do so merely by agreeing, orally and without mentioning the clause, to vary the substance of the contract. Until they expressly agree to remove it, or such an agreement is strictly necessary, the clause remains. The oral variation then has no immediately binding force, any more than an agreement made subject to contract.
Here the conversation said nothing about clause 7.6. Mr Idehen and Ms Evans were probably entirely unaware of it, and there was no urgency requiring performance to change before a written variation could be signed. Lord Briggs would not imply that the clause had been dispensed with. He regarded Lord Sumption’s view, that the parties cannot remove the clause orally at all, as a sharper break with the analysis in most other common law jurisdictions. On these facts the difference did not matter.
Consideration was not decided
Because the variation was invalid, neither judge decided whether it was supported by consideration. Both thought it undesirable to do so. The only matters MWB could be said to have received were expectations of practical value, not contractual entitlements: payment was more likely if the arrears were loaded onto the end of the term, and MWB was less likely to be left with vacant premises while it sought a new licensee.
Lord Sumption identified the difficulty. In Williams v Roffey Bros & Nicholls (Contractors) Ltd the Court of Appeal held that an expectation of commercial advantage was good consideration. He said that a practical expectation of benefit was the very thing the House of Lords held not to be adequate consideration in Foakes v Beer. In In re Selectmove Ltd a differently constituted Court of Appeal declined to follow Williams v Roffey. He considered Foakes v Beer probably ripe for re-examination, but said that if it is to be overruled or substantially modified, that should be before an enlarged panel and in a case where the decision would be more than obiter dictum.
Verdict: The Supreme Court unanimously allowed MWB’s appeal and restored the trial judge’s order. The attempted oral variation was ineffective under the licence. The Court left consideration undecided.
Source: Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24
