You have my word: Oral Variations of Licence

There has been some uncertainty on whether anti-oral variation clauses are binding. In 2000 and 2002 the Court of Appeal delivered conflicting judgments on the matter. However, this year we have been treated to two judgments in as many months. This article reviews the decision in MWB Business Exchange Centres Limited v Rock Advertising Limited [2016] EWCA Civ 553 and considers its impact for property lawyers.

Clearly anti-oral variation clauses have a commercial value. They provide parties with certainty. They ensure that the parties know what they need to do to vary the agreement and usually ensure that everything is in writing so there cannot be arguments later on about what was said in oral discussions. However, they do not necessarily reflect the reality of how parties conduct their dealings and the Court of Appeal has held that parties will not be bound by a clause which seeks to provide that oral variations of contracts will not be effective.

In the case of MWB v Rock, the Defendant occupied serviced offices as a licensee which were owned by the Claimant. Rock fell into arrears of licence fees and other charges. Rock claimed it had come to an oral agreement with the Defendant that they would be permitted to pay the debt by way of instalments. However, MWB relied upon the express terms of the original written agreement. MWB purported to terminate the agreement and take back occupation of the office space. MWB subsequently issued proceedings for the arrears. In response, Rock issued a counterclaim relying upon the oral agreement. Clause 7.6 of the Licence provided:

“This licence sets out all of the terms as agreed between MWB and the licensee. 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.”

The Judge at first instance agreed with MWB that this clause had the effect of precluding an oral renegotiation of a core term of the agreement and that no other representations or terms should have effect. Rock appealed to the Court of Appeal arguing that the court at first instance was wrong to hold that clause 7.6 precluded any variation of the contract other than one in writing in accordance with its terms. Rock argued that it was open to the parties to vary the contract in any way they chose including orally. MWB argued in reply that the parties to a contract may agree whatever they like as to how the contract may be varied and in this case the parties had agreed to variations in the terms in the manner set out in clause 7.6.

In the event, the Court of Appeal found in favour of Rock. They found that the anti-variation clause was, like all clauses in a contract, was itself capable of variation if the parties agree. They decided that it was sufficiently clear from the conversations that had taken place that there had been an intention by both parties to vary the payments under the licence agreement and in doing so the parties had waived reliance on the anti-oral variation clause. Kitchen LJ held that the most important factor was “party autonomy”.

The Court considered by obiter whether equity might have been a defence against MWB’s claim. However, it concluded that Rock did not suffer any detriment from MWB’s change of heart because they reneged quickly.

The Court also turned its mind to the issue of consideration in MWB v Rock. It is settled law that consideration is required for a variation of a contract. However, in this case, the rescheduling of the debt amounted to Rock agreeing to pay money which was already due under the licence. The Court acknowledged this but found that there was in fact an additional benefit to MWB because they would recover some money immediately and potentially the remainder in the future. Further, the arrangement would permit Rock to remain in the premises and therefore MWB did not suffer ongoing losses.

This willingness to find consideration is surprising. It does seem to be an effort to clutch at the straws of consideration as there really is very little here which a) is not what Rock were already obliged to do under the licence and b) actually truly benefits MWB. In terms of benefit, essentially the court has said, the benefit is that MWB get some money now and the rest later which is better than having to pursue the money through the courts where they would have to wait until the end of the case or settlement to get the money. However, this is the case in almost any commercial transaction.

This is a useful decision for property lawyers to be aware of for those cases where property related contracts can be altered orally and are not subject to more formal requirements. This decision is of assistance in that it means that a party cannot act with impunity in reaching oral agreements with another party who may not have actual knowledge of an anti-oral variations clause. However, while a court is likely to require strong evidence before concluding that the parties waived reliance on an anti-oral variation clause, the decision does increase the prospect of frivolous or false claims of oral variations having been agreed.