MH Dispute Resolution

Tuesday 7th August, 2018

Buyer Beware – The Supreme Court enforces a “no oral variation” clause

Introduction:

In the recent judgment of Rock Advertising Ltd (Respondent) v MWB Business Exchange Ltd (Appellant)[1], the Supreme Court unanimously held that an implied oral variation of a written licence was invalid, thereby upholding the effectiveness of the licence’s “no oral modification”, or NOM clause.

Summary:

Rock Advertising Ltd (“Rock”) and MWB Business Exchange Centres Ltd (“MWB”) entered into a licence to occupy office space for a fixed term of 12 months. The licence, which was signed by both parties, contained a NOM clause. The County Court held that during a telephone conversation between representatives of the two parties, which took place half way through the term of the licence, the payment schedule was varied by oral agreement. However, MWB did not accept this alleged oral variation as valid and therefore terminated the licence, locking Rock out of the premises.

Decision:

The Supreme Court’s judgment overturned that of the Court of Appeal – the latter having considered that in principle a NOM clause in a written contract cannot be valid because it can itself be varied orally by the contracting parties. The Supreme Court held that contracting parties are free to bind their future conduct by agreement, and that this includes incorporating a NOM clause into agreements. Lord Sumption in particular praised the certainty that a NOM clause can provide contracting parties and as a result, the risk of litigation may reduce. In a nutshell, a NOM clause should prevent contracting parties from orally varying a contract unless of course the NOM clause is itself varied by written agreement.

It is worth noting that Lord Briggs held that a NOM clause can be varied orally, but only in certain circumstances that would not apply to this case, for example if the parties were to make express reference to the NOM clause being varied. As the Supreme Court deemed that the alleged oral variation in this case was invalid, it was not required to examine whether a practical benefit, such as an increased chance of payment, can be regarded as good consideration and therefore fulfil one of the elements of a binding contract, including a variation agreement. However, it was noted by the Court that this area of law is “ripe of re-examination” in a future case.

The decision in the Court of Appeal had caused a stir, and posed the danger of opening the floodgates to claimants attempting to seek compensation through the oral variation of their contracts. This subsequent decision by the Supreme Court could be said to have considerably hindered the prospect for the spread of litigation of this nature. However, from a commercial perspective, this case brings a degree of contractual certainty to contracting parties and their advisors. Contracting parties can now be more confident that written contracts and other such documents in their possession reflect the full terms of their agreements. This case is also an excellent reminder that should parties wish to vary their contracts for whatever reason, they would be wise to check whether there are any formal stipulations for variations. Parties who wish to get rid of a NOM clause contained in any of their contracts should agree this expressly and record it in writing.

[1] [2018] UKSC 24

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