Variation clauses: MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553

Does a standard anti-oral variation clause prohibit oral variations?

The facts

Rock was a marketing business that ran its operations from licensed premises managed by MWB. Rock fell into arrears on the rental payments and MWB sought to terminate the agreement, and claimed for the arrears and resulting losses. Clause 7.6 of the contract stated:

“All variations… must be agreed, set out in writing and signed on behalf of both parties before they take effect”.

Rock argued that there had been an oral agreement (which MWB disputed) that Rock would start to make decreased monthly payments that would later increase to payments higher than those agreed, in order to pay off the arrears. Under this arrangement, Rock would not pay any more than originally agreed under the contract. Rock had made an initial payment of £3,500 when MWB sought to terminate the agreement.

The High Court held that an oral agreement had been reached and the £3,500 payment was adequate consideration, despite being part of an existing payment obligation, as it conferred the commercial benefit on MWB of recovering arrears and securing continued occupancy. However, the High Court ultimately found for MWB as clause 7.6 precluded any oral variation of the agreement.

Rock appealed.

The decision

The Court of Appeal relied on the obiter reasoning of the Court of Appeal in Globe Motors v TRW (considered previously) and held that, even if the clause says an agreement can only be amended in writing, it can still be amended orally or by conduct. The Court of Appeal held that the principle of party autonomy meant that parties should have the power to make and unmake agreements.The Court of Appeal also agreed with the trial judge that the £3,500 payment conferred suffcient benefit upon MWB to amount to adequate consideration to support the oral variation agreement.

Why is this important?

The Court of Appeal has now confirmed the principle that was put forward obiter in Globe Motors.

This decision clarifies that anti-oral variation clauses do not automatically preclude any subsequent oral variations or variations by conduct. The Court recognised that there may be evidential diffculties for a party in demonstrating that an agreement had been varied informally, particularly where the parties have agreed a formal variation procedure, but this can happen.

Any practical tips?

Anti-oral variation clauses are still worth including within agreements for evidential purposes. But it is important that business teams are aware that their words and actions may lead to a variation of the underlying agreement, even if formalities have not been followed.