UK Supreme Court upholds “no oral variation/entire agreement” clause

POSTED BY Stephanie Nicolson
14 June 2018

posted in Business | Caselaw | Property Law | Contract Law

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The United Kingdom Supreme Court has unanimously confirmed that “No Oral Variation” ("entire agreement") clauses are valid and enforceable in contract law.

This decision is likely to be influential in New Zealand. “No Oral Variation” clauses (often referred to as "entire agreement" clauses) are common in New Zealand contracts, so the decision is a useful confirmation that the parties' intention in adding such a clause will likely be upheld in a similar fact situation.

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24

The case concerned an alleged oral variation of a licence to occupy. Clause 7.6 of the original written licence 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, the Licensee, had been behind on its rent and presented a repayment proposal to MWB. Rock Advertising then claimed that MWB agreed to the proposal during a telephone call. The Central London County Court agreed with Rock Advertising that there had been an agreement reached on the telephone, but it held that the agreement was ineffective because it had not been recorded in writing pursuant to the clause 7.6 of the licence. The Court of Appeal overturned this decision and found that the oral variation dispensed with clause 7.6.

On a further appeal, the Supreme Court found that although there was strong US jurisprudence for the concept that: “Those who make a contract, may unmake it.”* English cases had not fully settled the matter. The Supreme Court overturned the Court of Appeal judgment holding** that, “the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation.” The Court noted that No Oral Modification clauses were extremely common and there were at least three legitimate commercial reasons for including them in a contract:

  1. Firstly, it prevents attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment.
  2. Secondly, in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms.
  3. Thirdly, a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them.

The Court also observed that if a party acted to its detriment in the mistaken belief that the parties had varied their contract orally, then there would be a safeguard for that party in the form of the estoppel doctrines.

Rock Advertising will be of persuasive authority in future New Zealand cases, although, as always, different factual situations may determine how much weight is to be placed on it. Certainly a useful authority for those who value contractual certainty.

* This passage is from Beatty v Guggenheim Exploration Co (1919) 225 NY 380, 387-388 per Cardozo J which case has been applied in Australia and Canada.

** per Lord Sumption with whom Lady Hale, Lord Wilson and Lord Lloyd-Jones agreed. The remaining Judge, Lord Briggs agreed with the majority judgment but on narrower grounds.

Image courtesy of User:Colin

POSTED BY Stephanie Nicolson
14 June 2018

posted in BusinessCaselawProperty LawContract Law

VIEWED 412 TIMES

PERMALINK

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