Oral amendments to written contracts?

by Graham Cunningham

May 2018

The Supreme Court has confirmed as valid, a contractual term which made it clear that a written agreement could not be varied unless such variation was made in writing.

In MWB Business Exchange Centres Ltd. v Rock Advertising Ltd 2018 UKSC 24, MWB operated serviced offices in London. It entered into a contractual licence with Rock in 2011. Under the licence Rock had the right to occupy office space for a fixed 12 month term and the licence fee was paid by monthly instalments.

The agreement specified in clause 7.6 that all variations had to be agreed by both parties, should be set out in writing and should be signed by both parties before they took effect.

Rock was clearly in some financial difficulties. Within a year it had accumulated arrears of licence fees. Rock’s sole director proposed a revised payment schedule to MWB and stated that he believed this had been accepted by an MWB employee over the telephone.

However, a more senior MWB employee promptly rejected the Rock proposal. MWB locked Rock out of the premises, terminated the licence and sued for the arrears. In its turn Rock sued for damages for wrongful exclusion.

Why should this issue have reached the Supreme Court?Is it not a straightforward point ? It is worth looking at the previous decisions. Essentially, the County Court judge found that an oral agreement had been made to vary the licence, the MWB employee had ostensible authority to do this, there was adequate consideration, but the variation was ineffective as it was not in writing.

The Court of Appeal’s view was that there was consideration but the oral agreement dispensed with clause 7.6. Therefore, MWB was bound by the variation.

The Supreme Court took the view that English Law should give effect to a contractual provision which required specified formalities to be to be observed for any variation. This followed a familiar pattern where statute determined that certain contracts had to be in writing. Why should the same principle not be adopted by parties to an agreement?  Furthermore, there were good reasons for including such a term. These were:

  1. It prevented attempts to undermine written agreements by informal means, which was open to abuse;
  2. Discussions could easily give rise to misunderstandings and crossed purposes. A “no oral modification” clause avoided disputes about whether a variation was intended and also set out its exact terms
  3. Formality made it easier for organisations to police internal rules restricting the authority to agree to modifications.

Overall, the Court felt there was no mischief in oral modification clauses and they did not frustrate or contravene any legal policy. There was also no conceptual inconsistency between a general rule allowing  contracts to be made informally and a specific rule that effect would be given to a contract requiring writing for it to be varied.

If you have any concerns about your own agreements, we would be pleased to assist.  Please contact Graham Cunningham (graham.cunningham@jurit.com) in the first instance.

 

 

 

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