Binding effect of non-variation except in writing clause endorsed by the UKSC
Rock Advertising Ltd entered into a contractual licence with MWB to occupy office space at Marble Arch Tower in Bryanston Street, London W1, for a fixed term of 12 months.
The licence fee was £3,500 per month for the first three months and £4,333.34 per month for the rest of the term.
Clause 7.6 of the agreement provided:
“This Licence sets out all of the terms as agreed between MWB and Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”
Rock Advertising accumulated arrears of licence fees amounting to more than £12,000.
The company’s sole director, proposed a revised schedule of payments to a credit controller employed by MWB.
Rock contended that MWB orally agreed to vary the licence agreement in accordance with the revised schedule
Judge Moloney QC, in the Central London County Court decided in favour of MWB.
He found that an oral agreement had been made but that the variation was ineffective because it was not recorded in writing signed on behalf of both parties, as required by clause 7.6. MWB were therefore entitled to claim the arrears without regard to it.
The Court of Appeal (Arden, Kitchin and McCombe LJJ) overturned him.
They considered that the oral agreement to revise the schedule of payments also amounted to an agreement to dispense with clause 7.6. It followed that MWB were bound by the variation and were not entitled to claim the arrears at the time when they did.
The UKSC restored the judgment at 1st instance.
Lord Sumption referred to Cardozo J’s well-known judgment in the New York Court of Appeals in Beatty v Guggenheim Exploration Co (1919) 225 NY 380, 387-388:
“Those who make a contract, may unmake it. The clause which forbids a change, may be changed like any other. The prohibition of oral waiver, may itself be waived. ‘Every such agreement is ended by the new one which contradicts it’ (Westchester F Ins Co v Earle 33 Mich 143, 153). What is excluded by one act, is restored by another. You may put it out by the door; it is back through the window. Whenever two men contract, no limitation self-imposed can destroy their power to contract again …”
Lord Sumption was not convinced by this reasoning and referred the United States Uniform Commercial Code, the UNIDROIT Principles of International Commercial Contracts, 4th ed (2016), and academic writing.
He concluded that there were sound reasons why the parties should be held bound by the rules they choose to make about their future conduct relating to the variation of their contract.
The most obvious of these was perhaps the prevention of Houdiniism.
Lord Briggs delivered a short judgment in which he concurred in the outcome but disagreed that it was conceptually possible to eliminate the effect of future changes of mind as per the reasoning of Cardoso J. There might be situations where parties expressly or by necessary implication agree to change the ground rules of their contract.
Lord Sumption’s answer to this was that these situations could be adequately managed by the rules of estoppel.
Interestingly, Lord Sumption, while referring to case law in Canada and Australia omitted the South African Appellate Division case of SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren (1964) which supports his reasoning.
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