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Between a rock and a hard place; no oral modification clauses

Between a rock and a hard place; no oral modification clauses

Paris Bradley

08/10/2018

Most contract law students will know the tantalising case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd ([2016] EWCA Civ 553), which questioned whether:

  • a contract can be orally varied by the parties even when it contains a no oral modification (NOM) clause; and
  • an agreement to accept less to receive a practical benefit is binding.

In 2018 the Supreme Court answered no to both of these questions. This decision will have broad ramifications for all types of contract.

Background

For those who are unfamiliar with Rock, it concerned a property licence agreement. MWB managed office space which Rock occupied as a licensee. Rock became unable to pay the rent, falling into arrears. MWB terminated the arrangement and sued for arrears. 

Rock claimed that it had made an oral agreement with MWB to adjust the repayments to allow the arrears to be cleared over a longer period. The revised agreement involved Rock paying a lump sum of £3,500 on the same day on which the revised agreement was discussed. MWB still went on to evict Rock, which counterclaimed for wrongful exclusion from the premises.

MWB denied the revised oral agreement, stating that had there been a variation of the contract, it would have had to have been in writing as oral variations were not permitted (NOM clause) and there was lack of consideration to support any variation.

Court of Appeal decision

The Court of Appeal held that the NOM clause did not preclude variation, placing weight on party autonomy. Further, if one party derives a benefit from a promise to pay less money (in this case, the practical benefit of the premises being occupied), this will be sufficient consideration as per Williams v Roffey Bros. Therefore, the oral variation was binding.

Supreme Court decision

Fast forward to 2018; Lady Hale, Lord Wilson, Lord Sumption, Lord Lloyd-Jones and Lord Briggs allowed MWB’s appeal and upheld the NOM clause. Subsequently, because the oral variation was found to be invalid, it was unnecessary for the court to deal with the thorny issue of consideration. According to Sumption:

In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the Court of Appeal held that an expectation of commercial advantage was good consideration. The problem about this was that practical expectation of benefit was the very thing which the House of Lords held not to be adequate consideration in Foakes v Beer (1884) 9 App Cas 605… The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer. It is probably ripe for re-examination. ([2018] UKSC 24[18].)

I would advise readers (with a big cup of tea and plenty of time) to check-out the historic cases of Williams and Foakes. 

Comment

The benefit of the Rock judgment is that contract uncertainty has been curtailed, albeit at the expense of reducing flexibility between contracting parties. The Supreme Court touched upon the latter, by highlighting that parties which are bound by a NOM clause can conclude a later agreement to vary the terms. However, this must include an express agreement between the parties to remove the NOM clause.

Unfortunately for Rock, the oral variation did not mention the parties’ NOM clause.

The moral of the story for law students is that in order to avoid ‘he said, she said, they said’ situations, parties should write down variations and agree to give the NOM clause the chop.