Rock Advertising Limited (Rock) occupied offices as a licensee managed by MWB Business Exchange Centres Ltd (MWB).
Rock was unable to meet its financial commitments and had incurred arrears of licence fees and other charges. MWB orally agreed with Rock's credit controller to reschedule the licence fee payments to clear arrears by year end. An immediate lump sum payment was made, which MWB accepted.
MWB however then locked Rock out of the premises and in March 2012, commenced proceedings for rent arrears and other charges. MWB won in the High Court; Rock appealed to the Court of Appeal.
The licence agreement contained an anti-oral variation clause stating that 'all variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect'. Rock argued that an oral agreement had been reached and that MWB's acceptance of payment estopped it from disavowing the variation.
The Court of Appeal considered three main issues:
- whether an anti-oral variation clause precludes any variation of a commercial agreement other than one in writing;
- whether there is a requirement for good consideration for an oral variation; and
- whether the principle of estoppel is applicable to enforce an oral agreement.
Anti-oral variation clause
The authorities on construing oral variations to contracts have been rather inconsistent. The Court of Appeal considered Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396. In that case, the Court remarked obiter that parties have the freedom to agree or vary or waive a term of an agreement notwithstanding an anti-oral variation clause. Just as parties may create obligations at will, so they should be free to vary or discharge them notwithstanding a clause to the contrary.
I-Way Ltd v World Online Telecom UK Ltd (formerly Localtel Ltd)  EWCA CIV 413 addressed concerns about proving the parties came to an agreement when relying solely on oral variation. The Court acknowledged that difficulties of proof might arise, but disagreed with earlier judgments that 'strong evidence' was needed for an oral variation to be valid. Whether or not a contract had been orally varied should be assessed on a balance of probabilities.
Kitchin LJ, who gave the leading judgment in this decision, noted that 'the most powerful consideration is that of party autonomy'. He also highlighted the importance of the variation being made by someone who has (at least) ostensible authority to do so. On the facts of the case, the Court of Appeal found that MWB's credit controller did have ostensible authority to validly amend the terms.
MWB sought to rely on Foakes v Beer  UKHL 1 citing the rule in Pinnel's Case that 'payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole'. There was no consideration for any oral variation, whether enforceable or not. The Court of Appeal remarked that the Pinnel's Case rule was not applicable, as this was not a situation where part payment was made purportedly in full settlement of a debt.
A practical benefit can be good consideration in law following the decision in Williams v Roffey  EWCA Civ 5 (although notably this was a case regarding the supply of goods and services rather than just payment). In this case:
- Rock would recover some arrears immediately with the hope of recovering all arrears in the future
- the property would not be left standing empty, at further loss to MWB.
The Court of Appeal's interpretation here struck a balance between enforcing promises and enabling debtors to rely on the creditor's promises; and protecting creditors from debtors seeking to gain an unfair advantage over their creditors.
Obiter, the Court of Appeal also addressed the estoppel argument advanced by Rock ie that MWB's acceptance of £3,500 shortly after the 'oral variation' estopped MWB from enforcing its rights under the original licence.
It concluded that on the facts there had been no detrimental reliance; Rock was only paying a sum it was already due and bound to pay pursuant to the agreed licence terms. It would not have been inequitable, having regard to all the circumstances, for MWB to renege on its promise even after the first payment.
This case is a useful reminder that the inclusion of an anti-oral variation clause will not necessarily preclude any variation of the original agreement other than in writing.
It does not follow that an anti-oral variation clause has no value at all. Its inclusion means that the party seeking to rely on a subsequent oral variation will have to show, on a balance of probabilities, that both parties intended that what was said should alter their legal relationship.
It should be noted that the court did not reach the decision on consideration lightly and the case should not be viewed as a trailblazer for those who seek to rely on oral variations. However, it is a useful reminder to creditors that they should be cautious when negotiating or discussing potential variations to an agreement (particularly payment terms).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.