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07Nov2018

Written Contracts Reign Supreme

Written Contracts Reign Supreme

The recent decision by the Supreme Court in Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24 reaffirmed and solidified the importance of the adherence to terms of a written agreement and one of the most fundamental basis of contract law; certainty.

Background

MWB Business Exchange Centres Limited (“MWB”) operates serviced offices in central London. In August 2011, Rock Advertising Limited (“Rock”) entered into a contractual licence with MWB to occupy office space in a west London location for a fixed term of 12 months.

Clause 7.6 of the Licence notably provided a No Oral Modification (“NOM”) clause:

‘This Licence sets out all of the terms as agreed between MWB and Licensee. No other representations or terms shall apply to form part of this Licence. All variations to this Licence must be in writing and signed on behalf of both parties before they take effect’.

By February 2012 Rock was in arrears amounting to over £12,000. Rock’s sole director proposed a revised schedule of payment to MWB’s credit controller. During the course of a telephone conversation between the two, Rock’s director contended that MWB had agreed to vary the licence in accordance with the revised schedule. MWB’s credit controller denied this and treated the schedule as a proposal in a continuing negotiation, which was ultimately rejected by MWB.

On 30 March 2012, MWB locked Rock out of the premises and terminated the licence with immediate effect from 4 May 2012. MWB then issued proceedings against Rock for the arrears and Rock counterclaimed for wrongful exclusion.

What followed was whether ‘The fate of the counterclaim, and therefore of the claim, turned on whether the variation agreement was effective in law’.

Procedural History of the Claim

The matter first came before Judge Moloney QC in the Central London County Court, who awarded judgment in favour of MWB i.e. that there had been no oral modification to the licence.

Rock then appealed the decision and the Court of Appeal overturned the ruling of Judge Moloney QC on the basis that the oral agreement to revise the payment schedule also amounted to an agreement to dispense with Clause 7.6 referred to above. MWB was therefore bound by the variation and should not have claimed the arrears when it did.

MWB then appealed the Court of Appeal’s decision.

The Supreme Court decision

The Supreme Court unanimously allowed the appeal. It found that:

  1. The NOM clause in the licence was legally effective; and
  2. The parties had not dispensed with compliance by means of their oral discussions.

Lord Sumption provided the leading judgment. In his judgment he highlighted the importance of including NOMs in agreements and their commercial relevance, as:

  1. ‘it prevents attempts to undermine written agreements by informal means’;
  2. ‘in circumstances where oral discussions can quite easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms’; and
  3. ‘a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them’.

Comment

NOM clauses provide parties with commercial certainty. Including them within contracts allows parties to avoid disputes and such clauses provide entities with a mechanism by which to monitor their internal rules and procedures relating to authority to agree variations.

The Supreme Court decision highlights the importance and consideration parties should give to the clauses that are included within a contract at the outset as they must be adhered to. It allows parties to work together in the knowledge that they are clear of the terms by which they are bound.

Whilst it may impose a more arduous burden on parties at the outset of negotiating a contract, they should be comforted that there is a very limited scope to depart from the written terms by means of oral discussions at a later date.

If you would like any more information about this article, please contact Tamrah Woolfe who will be able to assist.

This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.

Tamrah Woolfe Partner Dispute Resolution & Litigation 0203 440 9755