01 July 2016 #Dispute Resolution
The Court of Appeal has again – this time in the case of MWB Business Exchange Centres Limited –v- Rock Advertising Limited, confirmed that parties will not be bound by a clause in a contract purporting to provide that oral variations will be ineffective.
In this case the defendant, Rock Advertising, occupied serviced offices maintained by the claimant, MWB. Rock Advertising fell into arrears and claimed that it had reached an oral agreement with the defendant to re-schedule the outstanding licence fees.
The licence agreement contained the following clause:
“This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this license must be agreed, set out in writing and signed on behalf of both parties before they take effect”.
Such clauses are inserted in agreements for good reason: it makes sense to ensure that the parties (a) know what they have to do to vary the agreement and (b) have to do so in writing so that there is no dispute about oral discussions at a later stage.
There has for some years been uncertainty about whether such “no oral variation clauses” are binding. Indeed in 2000 and 2002 there were two conflicting decisions in the Court of Appeal on this. However earlier this year, in the case of Globe Motors –v- Lucas, the Court of Appeal reviewed the authorities and decided that such clauses were not binding on the parties so that even if a clause contains a contract in these terms it is still possible for the parties to vary it by oral discussions. It is therefore not a great surprise that in this latest case handed down on 21 June, the Court of Appeal have come to the conclusion that the Globe Motors case has settled the law on this. A party seeking to rely on such an oral variation will still have to prove it, and this is likely to cause uncertainty in many cases. It is also important to note that some contracts, for example many relating to interests in land, cannot be varied orally in this way because they are subject to more stringent formality requirements.
One additional interesting feature of the MWB case is the argument before the Court on the issue of “consideration”. Wherever there is a contract, or a variation of a contract, contract law requires there to be “consideration” : in this case something of value provided by Rock Advertising in return for MWB’s agreement to re-schedule the debt. In practice all that Rock Advertising were agreeing to do was to pay money that was acknowledged to be already due under the licence agreement. However the Court found that even though this was the case, there was still some additional benefit to MWB in this deal: they would recover some of the arrears immediately and would have a hope of recovering the balance in due course. Rock would also remain a licensee and continue to operate the property so that MWB did not suffer ongoing losses. To lawyers brought up on traditional notions of “consideration” this seems very flimsy indeed since it really is difficult to see how it goes beyond what Rock Advertising were already obliged to do. However it is a timely reminder of the fact that judges in commercial matters are now prepared to find that there has been “consideration” on very limited evidence.