Can a contract, requiring a parties to agree variations in writing (‘no oral modifications clauses’) and under signature, be varied orally?
The Supreme Court has recently reviewed this issue in the case of Rock Advertising Limited v MWB Business Exchange Centre Ltd UKSC24 (“RA v MWB”).
MWB operates serviced offices. RA entered into a licence with MWB to occupy an office space for 12 months with a licence fee of £3,500 for three months, followed by £4,333.34 for 9 months. The licence contained a clause providing that there was to be no variation to the licence unless such variation was in writing and signed by the parties.
RA fell into arrears of in excess of £12,000. A director of RA made a revised proposal for payment, which was worth slightly less to MWB. There were some telephone conversations that followed this proposal, in which RA claims the contract was orally varied, and MWB claims that it was not.
MWB changed the locks and sued RA for the arrears and RA brought a counter claim for wrongful exclusion from the premises.
The Court considered the arguments and position in a variety of jurisdictions. Arguments put forward for treating such clauses as ineffective are:
– That the variation of an existing contract is in itself, a contract;
– Parties may agree to dispense with existing clauses imposing requirements of form;
– Parties must be taken to have intended for the clause to be dispensed with by the mere act of agreeing
a variation informally when the original agreement required it to be in writing.
This position has not been widely accepted by English case law and there have been numerous cases that have considered this issue. English law has been inclined to support the notion that oral variations could not have legal effect in the face of a ‘no oral modification clause’.
In this case, the Court set out many grounds in support of no oral modification clauses, including the following:
– They prevent attempts informally to undermine the written terms of an agreement;
– Oral discussions give rise to misunderstandings and such clauses assist in avoiding disputes;
– They assist corporations internally, regarding authority to agree variations;
– There is no implied term that a ‘no oral modifications clause’ would be varied merely by the oral variation
of other terms of the agreement.
The Court held that any oral variation was invalid in the face of the clause forbidding it.
This case raised another question as to whether an agreement, whose effect is to vary a contract to pay money by substituting a requirement to pay less or later, is supported by consideration. Whilst the Court touched on this issue it made no decision on this issue – because it was held that the oral variation was invalid, there was no need to consider it.
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