Rock Advertising Ltd v MWB Business Exchange Centres Ltd
Supreme Court
Citations: [2018] UKSC 24; [2019] AC 119; [2018] 2 WLR 1603; [2018] 4 All ER 21; [2018] 1 CLC 946; [2018] CILL 4145; [2018] 2 P & CR DG17; [2018] CLY 553.
Facts
The defendant was a company which entered into a licence agreement with the claimant. The agreement permitted the defendant to occupy property managed by the claimant. It contained a ‘no oral modification’ (‘NOM’) clause which stated 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 fell behind on the licence payments. They had a phone conversation with one of the claimant’s employees, agreeing on a revised payment schedule. The defendant began making payments under this revised schedule, but a more senior employee refused to assent to any variation of the contract.
The claimant locked the defendant out of the property and claimed the outstanding sum. The defendant argued that the parties varied the contract over the phone, and that the NOM clause did not stop this. This was because either NOM clauses are inherently unenforceable, or because the claimant had waived or was estopped from relying on the clause.
Issue(s)
- Are NOM clauses binding?
- Was the claimant estopped from relying on the NOM clause?
- Had the claimant waived their right to rely on the NOM clause?
Decision
The Supreme Court held in favour of the claimant. The NOM clause was binding. The claimant was not estopped from relying on it. The clause was not referenced at all in the phone call, so the claimant had not waived their right to rely on it.
This Case is Authority For…
NOM clauses are binding as long as they meet the other requirements of contractual validity (such as certainty). They serve legitimate commercial purposes and do not conflict with any public policy.
Unjust use of such a clause might be unenforceable if it meets the requirements of promissory estoppel. Additionally, it is possible for the parties to orally waive the right to rely on a NOM clause. However, this requires express words or necessary implication that the clause has been waived or that the agreement is to be binding even though it is oral.
Other
The Supreme Court, in making this decision, overturned the ruling of the Court of Appeal. The Court of Appeal had made some comments on the meaning of ‘practical benefit’ for the purposes of the consideration rule in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, as applied to ‘promises to pay less’. However, the Supreme Court did not rule on consideration, so it is unclear whether these remarks are valid. Lord Sumption merely noted that the area of law is ‘ripe for re-examination’.
Lord Sumption explained that a separate agreement might still be enforceable despite the existence of a ‘entire agreement clause’ – a clause designed to ensure that the agreement is limited to what is provided in one document. This will be the case if the separate agreement amounts to a collateral contract in its own right (supported by consideration).
Lord Briggs differed from the majority on why the NOM clause was binding in this case. He thought that it was possible to remove a NOM clause from a contract by oral agreement, but that this would need to be done expressly or by necessary implication. It would not normally be enough that the parties agreed to vary the substance of the contract. As the parties in this case had not explicitly agreed to remove the NOM clause, it was binding.
By contrast, the majority thought that it was not possible to orally remove a NOM clause from the contract, but possible to orally waive reliance on it in a particular instance. This could be done by agreeing to vary the substance of the contract, if the circumstances necessarily implied that they were waiving reliance on the NOM clause.
Briggs speculated that if ‘the orally agreed variation called for immediately different performance from that originally contracted for, before any written record of the variation could be made and signed, then necessity may lead to the implication of an agreed departure from the NOM clause, but the same facts would be equally likely to give rise to an estoppel, even if not.’
