Rock Advertising Ltd rented serviced office space from MWB. It struggled to make ends meet. It fell behind in its licence payments to MWB.
Rock proposed rescheduled licence payments which would mean it would pay less overall to MWB than it had agreed to agreed in the original contract. A credit officer at MWB agreed the reschedule over the phone, but subsequently her line manager rejected it. MWB terminated the lease, locked the Rock out and put its feet up.[1]
Rock sued, citing the binding amendment to the licence agreement. MWB defended citing a no oral modification clause in the licence agreement which, it contended, meant the the oral conversation between the credit officer and Rock was not an effective amendment because it was not in writing.
Anxious to avoid addressing the “difficult” question of whether a unilateral reduction in the net value of Rock’s payment obligations could be said to be accompanied by consideration, the court focused squarely on the no oral modification clause.
Could it really work? Surely, contracting merchants are sovereign: they must be free to vary their affairs in a way the common law. If the evidence is clear that they agree, and there is consideration, it doesn't matter how they agree. Could contracting parties really double-entrench themselves?
The Court of Appeal thought not. A fellow can agree whatever he chooses, however he chooses – in writing, orally or by conduct[2]. Following that general principle, a “no oral modification” clause (a “NOM” clause) would not prevent him later making a new oral contract to vary the original contract.
Good, that’s that all sorted and we can now all move on to more important issues of the d —
BUT WAIT. The Supreme Court thought differently. Lord Sumption dismissed this “fallacious” reasoning: a chap’s autonomy operates until he has made his contract; thereafter only as far as the original contract allows.
“The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed.”
But what if contracting parties have relied on an oral variation in good faith, and by conduct abided by it for a good period? As have so many of his brother judges in the past, here Lord Sumption looked lovingly towards the courts of chancery in a clean-handed defendant’s aid. A wronged party might seek to argue an equitableestoppel. However, the scope of this estoppel will be limited:
“... at the very least, 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.”
Common sense has taken a bit of a battering, but this is all good news for we learned wordwrights who can now be prayed upon to paper otherwise unnecessary amendment agreements for merchants to vouchsafe their obvious commercial intent.
