Oral Contracts - i don't think so: Supreme court rejects once more a common contractual workaround
By Nick Storrs & Johnny Shearman
In recent years, the Supreme Court has shown a keen enthusiasm for going back to legal first principles to consider fundamental issues of law which have affected commercial parties over the years. A recent significant decision of the Supreme Court has continued this trend. In May 2018, the Supreme Court gave its judgment in the case of Rock Advertising Limited (“Rock“) v MWB Business Exchange Centres Limited (“MWB“) [2018] UKSC 24, a case which explored the effect and impact of “No Oral Modification” clauses. A No Oral Modification clause is one which precludes oral variations to a contract. The Supreme Court in its judgment found that these should be given legal effect.
At first blush this may seem unsurprising. However, this decision lies against a background of jurisprudence which had introduced uncertainty into commercial relationships, particularly in cases where misunderstandings have arisen between commercial parties who have through the course of their relationship ‘agreed’ matters orally. The Supreme Court’s decision has now given parties helpful guidance as to how they should understand the interaction between a pre-existing contractual commitment and their continuing freedom to agree matter. At the heart of this lies an issue of fundamental
importance: which rules supreme, an agreement or a party’s autonomy to agree? Background The dispute arose under a licence agreement in which MWB permitted Rock to occupy office space in London for a fixed term of 12 months. The licence agreement contained a No Oral Modification clause requiring all variations to be “agreed, set out in writing and signed on behalf of both parties before they take effect“. After some time Rock fell into arrears and was unable to pay the rent due under the licence agreement. To try and resolve the issue one of Rock’s Directors called MWB’s credit controller and proposed orally to revise Rock’s rent payment schedule. When Rock then started making payments in accordance with the revised schedule, MWB terminated the licence agreement and evicted Rock from the property. A dispute arose as to whether the revised rent proposal had been agreed by MWB. This led to MWB initiating proceedings for the unpaid rent and Rock counterclaiming for wrongful exclusion. The decision at first instance went in favour of MWB but that decision was overturned by the Court of Appeal. The Court of Appeal