On 16 May 2018, in their decision in Rock Advertising Ltd v MWB Business Exchange Centres Ltd  UKSC 24, the Supreme Court provided clarity for parties seeking to rely on a clause which prevents a contract from being orally varied. In a decision which unanimously overturned the Court of Appeal's previous ruling in the same case, the Supreme Court upheld the effectiveness of "no oral modification" clauses.
The case centred on the effectiveness of clauses requiring variations to a contract to be in writing and whether contracts containing these clauses can be amended orally.
The starting point for the validity of a contractual variation is that:
- both parties to the original contract must agree to the variation;
- consideration is provided, or, the variation is executed as a deed; and
- any required formalities must be adhered to.
There is no general prohibition against variations being made orally. It is common for commercial contracts to make note of whether one or more of the parties are able to alter the agreement's terms and whether any extra procedural formalities are required in order for such variation to be valid.
Background to the Case
MWB Business Exchange Centre (MWB) was the operator of serviced offices, which Rock Advertising (Rock) occupied under a licence.
The Licence contained the following no oral modification clause:
"This Licence sets out all the terms as agreed between MWB and [Rock]. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect."
Rock fell into arrears with its licence fees and proposed a revised payment schedule. The proposed schedule detailed that some future payments would be deferred and the existing arrears would be spread out over the remainder of the licence term. Rock's covenant to pay would be worth slightly less to MWB because of the interest costs involved in deferral.
MWB locked Rock out of building and terminated the licence for failure to pay arrears. Rock argued that a representative of MWB had orally agreed to the variation; MWB argued the proposed schedule was only a proposal. MWB subsequently sued Rock for arrears; Rock counterclaimed for wrongful exclusion damages.
Lower Court Judgments
The County Court ruled that the variation was ineffective as it was not in writing, such as was required by the no oral modification clause. The County Court thereby upheld the no oral modification clause, by ruling that the licence would have been validly varied had such a clause not been present in the licence.
Rock appealed to the Court of Appeal. The Court of Appeal found that the oral agreement to alter the payments was coincidentally an agreement between the parties to remove the no oral modification clause from the judgment. The Court of Appeal held that the oral agreement to vary the payments was valid and was an agreement to dispense with the NOM clause.
Judgment and Reasoning
The Supreme Court overruled the Court of Appeal's decision and upheld the County Court ruling that the no oral modification clause was effective.
Rock's representatives argued that the no oral modification clause was ineffective as it fell away when the parties purportedly orally agreed to vary the contract; to uphold the no oral modification clause would be to fetter the contracting parties' autonomy at the time of variation. The Justices in the Supreme Court held that such an argument was flawed; such autonomy existed until such time as a contract was entered into. In other words, the parties were free to bind themselves to requiring extra formalities to alter their later contractual position; the parties' autonomy is, thereafter, limited to the level allowed by the original contract.
A comparison was drawn between the English legal system and other legal systems where there are slim to no formality requirements for valid contract formation; these jurisdictions do not hold that specific agreements to disallow oral variations are null and void despite requiring few formalities for the initial contract to be entered into. A similar contrast was drawn with "entire agreement clauses" in English law which serve to disallow any prior collateral agreements.
The judgment recognised that there is sound commercial reasoning for clauses prohibiting oral modification of contracts, including:
- Avoiding informal tampering with written contracts;
- Preventing dispute regarding whether a variation was intended and its precise terms; and
- Simplifying internal processes for companies to keep an eye over who is exercising apparent corporate authority.
Although all of the Law Lords found in MWB's favour unanimously, Lord Briggs concurred with the decision but for different reasons. Lord Briggs' dissenting ratio hinged on his conviction that both parties to an agreement could agree to remove a no oral modification clause but, if one party disagreed, the clause would remain. Lord Briggs argued that MWB and Rock did not agree at any point that the no oral modification clause would be amended, therefore it remained in force at the time of the purported variation.
Obiter - Discussion of estoppel
The justices noted the perceived injustice that could arise if parties were to act upon the contract as though it were orally varied but could not then rely on such a variation at a later date. It was concluded that, in such instances, the parties could fall back on the doctrine of estoppel. However, the Court did emphasise that estoppel's scope is not wide enough to nullify the benefit of certainty sought by parties agreeing to a no oral modification clause.It was explained that the issue of estoppel was not to be discussed in detail, but that, in brief, Rock had not taken sufficient steps to rely on estoppel. At the very minimum:
- "There would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality; and
- Something more would be required for this purpose than the informal promise itself." (Actionstrength Ltd v International Glass Engineering IN Gl En SpA  2 AC 541)
This judgment upholds the autonomy which commercial parties are deemed to have under English law and provides a greater degree of certainty for contracting parties and legal representatives alike. It represents commercial good sense and puts a lid on the Pandora's Box opened by the Court of Appeal's confusing diversion from established drafting principles.