MWB Business Exchange Centres v Rock Advertising Limited

“Modern litigation rarely raises truly fundamental issues in the law of contract.  This appeal is exceptional.  It raises two of them”: MWB Business Exchange Centres v Rock Advertising Limited [2018] UKSC 24, [1] (Lord Sumption). Article written by Samantha Dawkins of Edward Harte LLP; Clifford Darton and Sally Blackmore from Ely Place Chambers represented the successful Appellant in this case.

Background

MWB is a limited company which owns serviced office space in Central London.  In August 2011, MWB entered into a licence agreement with Rock Advertising  - another limited company – for Rock to share such office space and receive services from MWB for a monthly licence fee.  Pursuant to clause 7.6 of the licence agreement, all variations of the licence agreement had to be agreed, set out in writing and signed by both parties before they would take effect.  By clause 2.15, MWB was entitled to determine the licence agreement immediately upon any breach of the terms by Rock.

Rock quickly fell into arrears which, by February 2012, were more than £12,000.  MWB exercised its right to determine under clause 2.15 by re-entering.  Proceedings were issued to recover the arrears; Rock counterclaimed for damages for wrongful exclusion of the premises relying on their contention that the licence agreement had been varied by way of an oral agreement to alter the payment schedule, pursuant to which, Rock had made a payment of £3,500.  The case turned on whether there had been any oral agreement and whether that agreement was effective in law.

At first instance, HH Judge Moloney decided that the parties had entered into an oral agreement whereby there was a revised payment schedule for the repayment of the arrears, and that there was consideration for that agreement (notably, he was not referred to Williams v Roffey Bros [1991] 1QB 1 or In re Selectmove [1995] 1 WLR 474.  However, any purported variation was ineffective because of the operation of clause 7.6.  Accordingly, MWB were not bound.

Further, he decided that the payment of £3,500.00 made by Rock Advertising to MWB was not a detriment because Rock Advertising was simply honouring its existing obligations and would have been liable to pay that sum in any event.  Estoppel, accordingly, did not arise.

Rock appealed successfully (save as to the question of estoppel) to the Court of Appeal. Arden, Kitchin and McCombe LJJ were considerably influenced by the judgment of Beatson LJ in Globe Motors Inc v TRW Lucas Varity Electrical Steering Ltd [2016 1 CLC 712, which was handed down shortly after MWB was heard.  Giving the lead judgment, with which both other judges agreed, Kitchin LJ placed great emphasis on the importance of “party autonomy” [34].  Arden LJ’s judgment is primarily concerned with whether Rock had given consideration for the purported variation.

MWB appealed to the Supreme Court and was granted permission in January 2017.  The appeal raised two fundamental issues of contract law:

1. whether a contractual term prescribing that an agreement may not be amended save in writing and signed on behalf of the parties is legally effective; and
2. whether an agreement whose sole effect is to vary a contract to pay money by substituting an obligation to pay less money or the same money later, is supported by consideration.

 Outcome

The appeal was heard on 01 February 2018 and was unanimously allowed by the five judge panel. Judgment was handed down on 16 May.

MWB’s arguments focused on the need for certainty in both a legal and commercial context, a certainty which no oral modification clauses go some way to provide. These clauses do not prevent parties from varying a contract; rather, they provide for the method by which any variation needs to follow in order to be effective. Rock relied – not surprisingly – on the Court of Appeal decision in Globe Motors Inc Ors v TWR Lucas Varity Electric Steering Ltd & Anor [2016] EWCA Civ 396 and concentrated on the importance of party autonomy in contending that the Court of Appeal’s decision should stand.

The leading judgment, given by Lord Sumption, is clearly commercial. He does not accept that a no oral modification clause prevents party autonomy and refers to the idea that they might as “a fallacy” ([11]). The real offence against party autonomy is the suggestion that parties may not “bind themselves as to the form of any variation, even if that is what they have agreed” ([11]).

Lord Briggs agreed with the result, but did not agree, in principle, that a contract which included a no oral modification clause could not be varied other than in writing.  In his view, were the parties specifically to turn their minds to the question of the effect of the no oral modification clause – and decide that it should no longer pertain – they could orally vary the contract to this effect and, having done so, make other oral variations.  What would not be implied, however, was that parties must have impliedly determined to waive or vary a no oral modification clause by an apparent decision orally to vary another term or other terms of the contract.

Because of the decision on the first issue (the no oral modification clause), any decision on the consideration point could have been no more than obiter.  With that in mind, and in light of the complexity and importance of the issue, the Court declined to deal with it.

Further reading

• Contract law in the Supreme Court—a sensible break with the common law? (Rock Advertising Ltd v MWB Business Exchange Centres Ltd)
• No oral modification clause case will have ‘wide ramifications for all types of contracts’

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Samantha Dawkins of Edward Harte LLP; Clifford Darton and Sally Blackmore from Ely Place Chambers represented the successful Appellant in this case.