Contractual Autonomy – A Novel Approach to Variation Clauses
MWB Business Exchange Centres Ltd v Rock Advertising Ltd, Court of Appeal,  EWCA Civ 553, 21 June 2016.
In this case, the Court of Appeal had two points to decide on: firstly, whether a licence agreement which contained an express preclusion of oral-variation could be effectively varied by an oral agreement. Secondly, if such a variation was found to be effective, whether there was sufficient consideration for the variation to the original agreement.
The Respondent, MWB Business Exchange Centres Ltd (“MWB”) operated a managed office space which the Appellant, Rock Advertising Ltd (“Rock Advertising”) occupied as a licensee. Rock Advertising had entered into an agreement with MWB for office space into which it planned to expand its business. However, Rock Advertising became unable to afford the agreed rates and fell into arrears on payments of the licence fees and charges.
In exercise of its rights under the licence agreement, MWB gave notice to Rock Advertising, locked the licensee out of the building, and brought a claim for arrears and damages. Rock Advertising counterclaimed for loss and damage for wrongful exclusion from the premises.
Rock Advertising claimed that an oral agreement had been made with MWB’s credit controller to adjust the licence fee payments so as to allow them to clear the arrears. Rock Advertising claimed that they had paid an agreed sum of £3,500 on the same day in accordance with this revised ‘agreement’ as to payment of licence fees. MWB denied there being any revised agreement and stated that if there had been such an agreement: a) variation of the original written contract had to be in writing and oral variation was precluded by the terms of the agreement; and b) it would be unenforceable for a lack of consideration.
At first instance it was decided that MWB’s credit controller had agreed to a variation with Rock Advertising. However, despite the judge considering that there was adequate consideration for the variation, the written agreement expressly precluded oral variation and as such it was held that the variation was not effective.
Rock Advertising contended on the first point that the judge at first instance was incorrect to find that the clause in the agreement precluded any oral variation of the contract. MWB argued on the second point that the judge was wrong in finding that Rock Advertising's payment of £3,500 and its agreement to comply with the terms of a revised payment schedule amounted to good consideration for the contractual variation.
Could the agreement be effectively varied by an oral variation?
LJ Kitchin provided the main commentary and judgment in which he considered a number of previous inconsistent decisions in case law.
MWB’s counsel put forward the idea that two parties may agree what they choose and that the parties in this case agreed to an express preclusion of oral variations. On that basis, the agreement between the parties cannot simply be disregarded, except in the circumstances of estoppel or waiver. However, LJ Kitchin was unable to accept such submissions and the overriding consideration was that of party autonomy.
It was concluded on the first point that the clause precluding oral variation did not in fact prevent the parties from agreeing otherwise. The court found this answer in contemplation of party autonomy and in the words of Cardozo J “whenever two men contract, no limitation self-imposed can destroy their power to contract again”. LJ Kitchin and the concurring judges held that there was an effective oral variation.
Was there sufficient consideration for the variation?
In order to identify sufficient consideration, it was necessary to identify a benefit conferred on MWB. Taking into account the full extent of the facts, it was concluded that the oral variation agreement would in fact have a number of beneficial consequences for MWB. Arrears would be recovered sooner and MTB had the opportunity to recover all arrears in due course. Furthermore, Rock Advertising would remain a licensee and continue to occupy the property and as such the premises would not be left standing empty for some time at a further loss to MWB while they sought new occupants. The payment by Rock Advertising of the initial £3,500 and the promise to make further payments in accordance with the revised payment schedule was therefore a benefit to MWB which the Court found constituted sufficient consideration to support the oral variation agreement.
The decision places additional emphasis on the notion of party autonomy in respect of contracts, in particular where it makes commercial sense to allow such autonomy. However, for the more traditional lawyer, the decision may demonstrate a step too far by judges to find a commercially viable solution. This case presents a more flexible approach to contractual variations, however with such flexibility inevitably comes uncertainty. Is this the end of clauses preventing contract variations that are not by written agreement of the parties?
This article was written by Tanya Wilkie. For more information please contact Tanya on +44 (0)20 7203 5058 or at firstname.lastname@example.org