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Loose Lips Sink Ships - Court Finds that Anti-Oral Variation Clause does not Prevent an Oral Variation to a Contract

on Tuesday, 30 August 2016.

MWB Business Exchange Centres Ltd v Rock Advertising,

In the case of MWB Business Exchange Centres Ltd v Rock Advertising, the Court of Appeal has concluded that an anti-oral variation clause, which prevents a contract being amended save by an agreement in writing signed by the parties, does not prevent a contract from being varied by an oral agreement between senior employees with the requisite authority.

The Facts

MWB and Rock entered into a licence whereby Rock would use a suite of offices managed by MWB. Rock later failed to pay the value of rent stipulated in the licence agreement and MWB served notice on Rock that it was terminating the licence. Rock claimed that the termination was not lawful because, before the termination, senior employees at both organisations had agreed to reduce the monthly licence payments for a limited time. Rock had paid the reduced amount as required.

MWB rejected this argument and claimed that the licence contained a clause which prevented any changes to the contract except those agreed in writing and signed by both parties. As a result, an oral variation was ineffective. The High Court agreed with this argument and decided that MWB was entitled to terminate the licence. Rock appealed.

The Appeal

The Court of Appeal concluded that in accordance with recent case law, a term requiring variations to be agreed in writing does not necessarily prevent variation by oral agreement by a senior employee who has authority to make such a change. Even though the licence payment was not sufficient consideration for the change (payment of a sum already owed is not good consideration for a contract), the fact the MWB would make a commercial benefit by agreeing to the change - it would continue to have a paying tenant in the property - was considered by the Court of Appeal as good consideration for the change agreed verbally.

Practical Points

This kind of case can be worrying for a commercial organisation - as it should be. It reaffirms a similar decision in the recent case of Globe v Lucas that the basic position at law is that the parties are free to contract as they please if the basic principles of contract formation are present: offer, acceptance and consideration by a person with the requisite authority to make a contract binding.

However, contracts can be easily amended by discussion rather than going through a formal written change. Senior employees should therefore be careful when discussing potential new terms under the illusionary comfort of a contract containing an anti-oral variation clause. The fact this is the second of two cases to reaffirm this shows that this type of error is a clear and present danger for commercial organisations.

For more information, please contact Laura Barrell on 01923 919 313.

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