Civil procedure – validity of contract – no oral modification – whether a contractual term prescribing that an agreement may not be amended save in writing signed on behalf of the parties is legally effective
The case concerns a variation of an existing contract which contained a ‘No Oral Modification’ clause. MWB operates serviced offices in Central London. Rock entered a contractual licence with MWB to occupy office space in Marble Arch, and had accumulated licence fees in arrears. Rock’s sole director proposed a revised schedule of payments and discussed the proposal with MWB’s credit controller over the telephone. Subsequently, Rock contended that an agreement was concluded, albeit orally, meaning that the licence agreement was varied in accordance with the revised schedule; however, MWB’s credit controller denied this. She proceeded to treat the revised schedule as a proposal in a continuing negotiation, and took it to her boss who rejected it. MWB locked Rock out of the premises and sued for the arrears. Rock counterclaimed damages for wrongful exclusion premises, relying upon an oral agreement.
The crux of the dispute is whether the variation agreement was effective in law.
The case came before the Central London County Court, which decided it in favour of MWB. It found that an oral agreement had been made with the credit controller to vary the licence in accordance with the revised schedule, and that she had ostensible authority to make such an agreement. However, The County Court held the variation was ineffective because it was not recorded in writing signed on behalf of both parties, as required by the contractual terms.
The Court of Appeal ( QB 604) overturned the County Court’s decision the oral agreement to revise the schedule of payments also amounted to an agreement to dispense with the ‘No Oral Modification’ clause. It followed that MWB were bound by the variation and were not entitled to claim the arrears at the time when they did.
Held, allowing the appeal and restoring the order of the Central London County Court:
- The Supreme Court held the alteration by oral agreement was ineffective.
- The reason being the original licence agreement contained a ‘No Oral Modification’ clause, such that “All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”
- The oral agreement was not reduced in writing and signed by both parties.
- The Supreme Court, held that altering the original contract orally, where the terms say that it cannot be modified orally, the Courts should naturally infer that, because the parties have failed to observe this formal requirement to put the alteration in writing, both parties had not intended to dispense with the ‘No Oral Modification’ clause, but they had overlooked it.