In the recent case of Rock Advertising Ltd v MWB Business Exchange Centres Limited the Supreme Court considered a "truly fundamental issue in the law of contract". The case raises the fascinating philosophical question of whether legal certainty should trump parties' autonomy to contract as they please.
The facts of the case were as follows:
Rock was the licensee of serviced offices, managed by MWB pursuant to a written licence agreement which included a clause which required that the agreement could only be varied in writing. This is known as a No Oral Modification clause or "NOM". Rock was suffering from financial difficulties and fell into arrears with the licence fee. Representatives of Rock and MWB agreed over the telephone a reduced licence fee for a period. The licence fee would later increase above the original level so that the licence fee arrears would be cleared by the end of the year. Rock paid the first instalment of the reduced licence fee but MWB then denied Rock access to the premises and purported to terminate the licence in reliance upon the NOM.
At first instance, the trial judge found that the telephone agreement was not valid due to the existence of the NOM. The Court of Appeal took a different view and held that the parties’ contractual autonomy allowed them to agree to disapply the NOM clause. Essentially, freedom to contract meant (in the Court of Appeal's view) that the parties could agree to set aside the NOM. The Supreme Court’s view, however, was that a contact containing a NOM clause could only be varied by the method prescribed by that NOM clause. As Lord Sumpton noted in his judgment, “party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the contract allows.”
In most instances, the parties to a contract will prefer the certainty that this decision brings – if a contract says it cannot be orally varied, then that will be upheld and the written agreement cannot be undermined. Misunderstandings and uncertainties will be avoided and it will be easier to police contractual arrangements. However, contracts are living, breathing arrangements and it is very common for parties to agree minor variations, on a day to day basis, to oil the wheels of commerce. Going forward, where a contract contains a NOM, the parties will need to ensure that any changes to the agreement are documented in writing.
Contractual certainty is desirable but so is a world where oral promises given for consideration cannot be avoided. Where the two principles collide, certainty will win, unless there are rare grounds where an estoppel may have arisen. In this case, there were no such grounds and the termination of Rock's licence was upheld.
“The word of a gentleman is as good as his bond; and sometimes better.” ―Charles Dickens