No oral variation clauses more effective than we thought

A common view has long been that clauses requiring that contracts can only be varied in writing would not be effective. However, a recent Supreme Court judgment has demonstrated that they are much more robust than previously thought.

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, the Supreme Court overturned a Court of Appeal ruling that a no oral modification clause was ineffective.

In the case, an operator of serviced offices had received a revised payment schedule for licence fees in relation to some of its space. The tenant argued that the operator had orally agreed to the variation, but the operator contended that it had merely received a proposal. The operator terminated the licence to occupy its premises and locked the tenant out. It then sued for arrears, and the tenant counter-sued for wrongful exclusion.

Rather surprisingly the case worked its way up the Court system until it reached the Supreme Court. While the judges had slightly different reasoning, they agreed that contractual terms which require specific formalities to be complied with if a variation is to be binding are effective. Otherwise the parties’ intentions could have been overridden. They also noted that such clauses have legitimate commercial purposes such as preventing attempts to undermine written agreements by informal means, avoiding disputes about whether a variation had been intended and its exact terms, making it easier to police what variations are agreed.

It is still possible that estoppel arguments could be successfully used when a party has relied on an oral variation. However overall this case provides welcome certainty for parties to agreements. As ever, ensuring that things are done properly at the time is the best way to avoid issues further down the line.

If you have any further questions or concerns regarding the above topic please contact any member of the Edwin Coe Corporate & Commercial team.

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