UK Supreme Court Enforces “No Oral Modification” Clause in a Licence Agreement

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd, [2018] UKSC 24, the UK Supreme Court has found a clause in a commercial agreement that prohibited oral modification of the agreement to be enforceable, thereby restoring the finding of the county court, which had been reversed by the Court of Appeal.

The Court of Appeal found that the parties had agreed, orally, to dispense with the “no oral modification” clause. While the Supreme Court accepted that the parties had so agreed, it found that such a variation was invalid, stating: “What the parties to such a clause have agreed is not that oral variations are forbidden, but that they will be invalid”. The Court went on to state “The mere fact of agreeing to an oral variation is not therefore a contravention of the clause. It is simply the situation to which the clause applies”.

The Court recognized the risk that a party may act on the contract as varied, for example by performing it, and then find itself unable to enforce it. However, it asserted that, in England, the safeguard against such injustice lies in the various doctrines of estoppel.

A second issue in play in the case was whether an agreement whose sole effect is to vary a contract to pay money by substituting an obligation to pay less money or the same money later, is supported by consideration. The Court acknowledged that this was a difficult issue in light of long-standing precedents such as Foakes v Beer, which have found a lack of consideration in such circumstances. The Court of Appeal had confined and distinguished Foakes v Beer, although the Supreme Court stated that Foakes v Beer was “probably ripe for re-examination”, it was found to be unnecessary and inappropriate to address such a significant issue in this context as any related decision would be obiter dictum.

Summary By: Tom Feather