The Court of Appeal has overturned a decision of the Central London County Court as to the effect of a clause requiring amendments to be in writing, finding that the autonomy of contracting parties to amend the terms of their agreement is paramount: MWB Business Exchange Centres Ltd v Rock Advertising Ltd  EWCA Civ 553.
This decision confirms the non-binding view expressed by the Court of Appeal earlier this year in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396 (see our blog post on that decision) thereby settling an issue on which there was previously conflicting Court of Appeal authority.
In light of this decision, commercial parties should note that including a clause requiring amendments to be in writing will not always prevent oral amendments taking effect. However, the court acknowledged that such a clause can make it more difficult to demonstrate that the parties intended to vary the contract through oral discussions.
The Court of Appeal also found that, in the circumstances of this case, an agreement to accept payment of an existing debt by instalments was supported by consideration as the creditor received a practical benefit beyond merely accommodating the debtor. Although the court expressly did not depart from the established rule that part payment of a debt is not good consideration for the release of the whole, the decision may indicate an increasingly flexible view as to what will amount to additional consideration so as to result in a binding variation.
Rachel Lidgate, a senior associate in our dispute resolution team, considers the decision further below.
The claimant (MWB) operated and managed office space in central London. The defendant (Rock) was a provider of marketing services and had occupied premises managed by MWB for a number of years. Rock entered into a written agreement with MWB to take on larger premises (at an increased fee) for 12 months from 1 November 2011. However, Rock's business did not expand as expected and it was unable to meet the increased fee payments, incurring arrears and other charges of over £12,000 by late February 2012. MWB exercised its contractual right to exclude Rock from the premises and sought to terminate the agreement.
In this action, MWB claimed the arrears and other charges and damages in respect of the unpaid licence fees while Rock counterclaimed for loss and damage suffered as a result of being, in its view, wrongfully excluded from the premises. Central to Rock's case was the claim that, on 27 February 2012, an oral agreement was made between the parties to reschedule the licence fee payments due under the original agreement. On the same day, Rock paid £3,500 to MWB on the basis that this was the first instalment due under the revised payment schedule. However, just two days later, MWB purported to reject what it characterised as Rock's "proposed payment schedules".
In the County Court, HHJ Moloney found that an oral variation had been agreed but could not take effect due to a clear clause in the agreement precluding any oral variations. He also held that MWB was not prevented, or 'estopped', from enforcing its strict rights under the licence agreement by reason of accepting the £3,500 payment from Rock. Rock appealed against both of these findings.
The judge also found that, if the oral variation was effective, the £3,500 payment and agreement to comply with the other terms of the revised payment schedule amounted to good consideration for it. MWB challenged that finding on appeal.
The Court of Appeal unanimously allowed Rock's appeal on the first ground, holding that the oral amendment to the licence contract was effective despite the express contractual provision requiring amendments to be in writing.
The court considered the recent ruling in Globe and decided that it would require "a powerful reason" to come to a different conclusion in this case, which had not been shown. The autonomy of commercial parties was the most important consideration. This demanded that parties be able to amend their contracts even in situations where they had previously agreed only to do so by specific means.
On Kitchin LJ's analysis, with which McCombe LJ agreed, the oral variation agreement was binding on MWB so long as Rock continued to meet its obligations thereunder. Arden LJ accepted that this was a possible interpretation of the contractual position but added that her provisional view was that the parties had entered into a "collateral, unilateral contract" by which MWB was bound on receiving the £3,500 payment to accept the rescheduling of licence payments, so long as Rock occupied the premises and paid the licence fee as renegotiated. However, Arden LJ acknowledged that the question of a 'collateral, unilateral contract' was not raised by the parties and Kitchin and McCombe LJJ said they preferred not to base their decision on that issue.
Having established that the terms of the licence agreement did not preclude an oral variation of the payment schedule, the Court of Appeal determined that the trial judge had been entitled to find that parties had reached an oral agreement. The next question for the Court was whether there was adequate consideration to make this agreement binding.
The court considered the authorities on adequacy of consideration and concluded that, although part payment of a sum already due is not normally good consideration, MWB obtained an additional practical benefit in this case, namely that Rock's continued occupation of the property would mean that it did not lie vacant. On that basis, the Court of Appeal was satisfied that there was adequate consideration.
Having concluded that the parties had validly agreed to reschedule the licence payments, the court did not need to rule on Rock's second ground of appeal with regard to the alleged unfairness of MWB enforcing its contractual rights. Nevertheless, Kitchin and Arden LJJ set out their views of this element of the case, concluding that Rock had not suffered any prejudice in paying an amount to MWB that it was already due to pay. Accordingly there would have been no basis in promissory estoppel, waiver or proprietary estoppel to prevent MWB enforcing its rights under the contract.