BACKGROUND & SUMMARY
The appellant in this matter was MWB Business Exchanges Centres Ltd (“MWB”), a company who managed serviced offices in London. The respondent in this matter was Rock Advertising Limited (“Rock”). MWB and Rock entered into a licence agreement (the “Agreement”) for the occupation of certain office space (the “Premises”) for a fixed term of 12 months. In terms of the Agreement, legal ownership and the possession of the Premises remained with the licensor (i.e. MWB), unlike a lease agreement wherein a tenant generally has exclusive possession of the relevant property.
The Agreement contained a ‘No Oral Modification’ clause (“NOM clause”) requiring that “all variations to the Agreement must be set out in writing and signed on behalf of both parties before they take effect”. Rock had fallen into arrears in respect of its fees payable in terms of the Agreement. Rock’s sole director proposed a revised payment schedule (the “Revised Schedule”) and discussed the Revised Schedule with MWB’s credit controller telephonically (“Oral Agreement”). Rock’s director understood such telephonic conversation as constituting an oral amendment to the Agreement and proceeded to make a payment of £3500 in accordance with the terms of the Revised Schedule, however MWB’s credit controller was not of the same understanding. MWB’s credit controller proceeded to treat the Revised Schedule as a mere proposal in a continuing negotiation, which was ultimately rejected by her superior. Subsequently, MWB locked Rock out of the Premises for failure to pay the arrears and terminated the Agreement. MWB then instituted proceedings against Rock and sued for the arrears. Rock then counterclaimed damages for wrongful exclusion from the Premises, relying upon the Oral Agreement. This case considered whether the Oral Agreement constituted an amendment to the Agreement, despite the Agreement containing the NOM Clause.
The Central London County Court, being the court of first instance, (the “Court”) ruled in favour of MWB. The Court found that the Oral Agreement had been concluded between Rock’s director and MBW’s credit controller to vary the Agreement, and that MBW’s credit controller possessed the required authority to enter into such an agreement. However, the Court held that such an amendment was ineffective because it was not reduced to writing and signed on behalf of both parties, as dictated by the NOM Clause in the Agreement.
The Court of Appeal (the “Appeal Court”) overturned the Court’s decision and held that the Oral Agreement also amounted to an agreement to dispense with the NOM clause. It followed that MWB were bound by such agreement and were not entitled to claim the arrears from Rock. The Appeal Court relied on the following points in arriving at their decision:
- for a contract to be enforceable under English law there must be consideration between the parties thereto. The Agreement was to be worth slightly less to MWB with the Revised Schedule, however Rock was more likely to be able to make the payments under the Agreement; and
- furthermore, by keeping Rock as a tenant, MWB would be less likely to have a period in which the Premises was left vacant.
The Appeal Court held the Rock’s payment of £3500 in terms of the Revised Schedule and its promise for further payments constituted sufficient consideration. Therefore, the Oral Agreement was binding for as long as due payments were made by Rock. The Appeal Court held that the principle of party autonomy dictates that parties are free to agree out of a NOM clause, and that in situations where parties have not expressly waived the NOM clause, that it can still be claimed their intention to do so by the parties reaching an agreement which is in breach of the NOM clause.
The matter was subsequently appealed by MWB and was heard before the Supreme Court of the United Kingdom (the “Supreme Court”).
The Supreme Court held the variation of the Agreement by the alleged Oral Agreement in was ineffective due to the following reasons: firstly, the Agreement contained a NOM Clause, such that all variations to the Agreement had to have been agreed upon, reduced to writing and then signed by both parties before such variation may take effect. Secondly, the Oral Agreement was never reduced in writing and not signed by Rock or MWB. The Supreme Court, held that where the provisions of the Agreement specifically say that it cannot be amended orally, that the courts should infer that, because the parties have failed to observe this formal requirement to put the alteration in writing, both parties had not intended to dispense with the NOM Clause, but rather that the parties had overlooked such clause. Thus rendering the Oral Agreement ineffective and not binding on either party.
Parties can now be more certain that their written agreements fully reflect the terms of their agreement. This is especially relevant for larger organisations who potentially have more than one person with the required authority to bind the organisation.
The Supreme Court further noted that the enforcement of NOM clauses will likely reduce litigation in the future. This is partially due to the increased certainty the enforcement of such clauses brings. Furthermore, the number of cases in which parties can argue there has been an oral variation of a contract will be reduced as a result of this decision.
Written by Michal Asoulin and supervised by Amber Freeman, 7 November 2018