The Supreme Court is being asked to decide whether contract clauses that require any variation to be in writing are a “slam dunk” that automatically defeat any claim to have agreed changes orally.
The case, which has potentially wide-ranging effects, centres on a licence agreement under which marketing company Rock Advertising occupied central London office space.
The agreement contained a clause stipulating that all variations to the licence must be made in writing, but Rock succeeded in persuading the Court of Appeal that this did not forbid oral variation of the contract.
Now Lady Hale, Lord Wilson, Lord Sumption, Lord Lloyd-Jones and Lord Briggs are being asked to decide whether an agreement in writing which contains an anti-oral variation clause can be varied other than in accordance with the terms of that clause.
Wide interest
Emma Humphreys, partner at Charles Russell Speechlys, said that the challenge to the Court of Appeal’s decision in the case – MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553; [2016] EGLR 45 – is of “wide interest”.
She said: “Many people – not just lawyers – come across contracts containing a clause which says that the agreement cannot be varied orally through discussions between the parties.
“In MWB and other previous Court of Appeal cases, it has been found that these so-called ‘no-variation clauses’ do not prevent a subsequent variation of the contract being made orally or by conduct.
“However, this is now the chance for the Supreme Court to rule on the issue.”
She added: “The Supreme Court has previously shown some reluctance to depart from the clear terms of a contract, for example in the case of Arnold v Britton [2015] UKSC 36; [2015] EGLR 53.
“It will be interesting to see how it approaches the question of enforcing those terms, and there are certainly good reasons why no-variation clauses can be useful to parties. For example, these clauses encourage a consistent approach when it comes to varying a particular contract and should therefore help to avoid future disputes between the parties.
“They also emphasise that the party who wants to argue that there has been a variation of the contract is the one with the burden of proving it to the court.
“We await with interest to see how the Supreme Court approaches the status of no-variation clauses and the guidance it offers as to their limitations.
“If it upholds the Court of Appeal’s finding that such clauses are not a ‘slam dunk’ when it comes to defending claims that a contract has been varied through discussions or conduct, then we expect to see a lot more arguments based on estoppel principles, ie where a party is prevented from going back on a promise where the other party has relied on that promise to their detriment.”
Further questions
Humphreys said that another interesting question for the Supreme Court to consider is whether there was a practical benefit in the circumstances of this case which could amount to consideration at law, given the principle that a promise to pay an existing liability cannot amount to good consideration.
She said: “This is relevant because a party who wants to vary a contract must show the same elements that go to form a contract in the first place, namely offer, acceptance, consideration and intention to create legal relations.
“In MWB, the Court of Appeal accepted the benefit to the landlord of not having empty premises as sufficient consideration for the variation, and it will be interesting to see whether the Supreme Court agrees with this.”
Rock occupied as licensee premises managed by MWB Business Exchange Centres, but fell behind on its payments. The parties discussed over the telephone rescheduling the debt and Rock paid MWB the first instalment due under this proposed schedule.
However, MWB then purported to exercise its right under the licence agreement to lock Rock out of the premises and gave notice to terminate the agreement.
MWB issued proceedings to recover the arrears, but Rock successfully argued at the Court of Appeal that the licence had been orally varied by telephone on 27 February 2012 so that it had not been in breach of the varied agreement.
Lord Justice Kitchin ruled that the key clause “did not preclude any variation of the original agreement other than one in writing” and that the oral variation agreement was supported by consideration and binding on each of the parties.
Widest possible application
Opening the appeal on behalf of MWB, Clifford Darton said that in relation to the effect of the anti-oral variation clause, there is no precedent binding on the court, adding: “The issue has not been before the Supreme Court or the House of Lords.
“This is a point that will ultimately be decided by this court on principle and policy.”
He said that the decision will have the “widest possible application” as the ruling below constitutes a finding that no anti-oral variation clause is ever going to have effect, other than insofar as it has evidential value in a contract dispute.
The Supreme Court is expected to give its judgment on the appeal later this year.
To send feedback, e-mail jess.harrold@egi.co.uk or tweet @jessharrold or @estatesgazette
