MWB Business Exchange Centres Ltd v Rock Advertising Ltd

Court of Appeal

Citations: [2016] EWCA Civ 553; [2017] QB 604; [2016] 3 WLR 1519; [2016] 2 Lloyd’s Rep 391; [2016] L & TR 27; [2016] CLY 442.

Facts

The defendant and claimant agreed to allow the defendant to occupy property managed by the claimant. The contract contained a ‘no oral modification’ (‘NOM’) clause. This clause provided that ‘all variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect’.

The defendant began missing payments under the agreement. Over the telephone, they agreed on a revised payment schedule with one of the claimant’s employees. The defendant began paying under this revised schedule. Later, however, the claimant denied that the agreement had been varied.

The claimant sued for the outstanding payments. The defendant argued that the parties varied the contract over the phone. The claimant responded that the NOM clause prevented this. Alternatively, they contended that there was no variation because the defendant provided no consideration: they were already bound to pay a higher amount.

The defendant countered that the NOM clause was ineffective, for either of two reasons: either NOM clauses are inherently unenforceable or the claimant had waived or was estopped from relying on the clause. They also argued that paying under the revised schedule conferred the claimant a ‘practical benefit’ – within the meaning of Williams v Roffey Bros [1990] 2 WLR 1153 – which was good consideration to vary an existing agreement.

Issue(s)

1. Are NOM clauses binding?
2. Was the claimant estopped from relying on the NOM clause?
3. Did the defendant confer a practical benefit or other consideration on the claimant?

Decision

The Court of Appeal held in favour of the defendant. The principle of freedom of contract meant that NOM clauses could not fetter the parties’ ability to vary the contract by any means. The NOM clause did not, therefore, preclude the contract being varied over the phone. The defendant’s payment conferred sufficient practical benefit on the claimant to amount to good consideration for the variation. The claimant was therefore unable to recover the higher sum.

Arden LJ and Kitchin LJJ considered that if the agreement had not been varied, promissory estoppel would not have applied. This was because it was not inequitable in the circumstances for the claimant to go back on their promise. Factors which influenced this conclusion included the fact that the defendant had not suffered any detriment and the claimant had given reasonable notice that they intended to insist on their full legal rights.

This Case is Authority For…

This case were overruled by the Supreme Court. As such, it is not binding authority on any point.

Other

The most significant aspect of this decision if the Court’s discussion of what ‘practical benefit’ means and its application to ‘promise to pay less’ cases. The Supreme Court declined to comment on the consideration issue, meaning that the Court of Appeal’s discussion may still be influential in later cases. There are two possible ways of interpreting ‘practical benefit’:

• The benefit of obtaining performance rather than having to sue for or deal with a breach;
• Some additional benefit which is external to the parties’ bargain or something beyond the mere benefit of avoiding a breach.

Additionally, it is controversial whether a practical benefit should be good consideration in ‘promise to pay less’ cases. So far, those cases have been governed by the rule in Pinnel’s Case [1602] 5 Co Rep 117a, not the rule in Williams v Roffey Bros [1990] 2 WLR 1153.

Arden LJ and Kitchin LJ appeared to adopt the second definition, and thought that the practical benefit doctrine could apply in ‘promise to pay less’ cases.