When an agreement is not an agreement

26 October, 2018

Parties often enter into contracts which provide that variations can only be made in writing.  Such clauses can appear in a variety of different contexts.  The question for the Supreme Court in Rock Advertising Limited v MWB Business Exchange Centres (2018) was whether the existence of such a clause prevented the parties from agreeing a variation orally.

In the Court of Appeal it was held that, despite the existence of a clause which provided that all variations to the licence must be agreed and set out in writing to be effective, an oral agreement between the parties had effected a variation to the licence.  The court’s decision was based on the fact that all of the requisite formalities for the creation of a contract were present in relation to the variation and by agreeing to such a variation it was implicit that the parties had agreed to dispense with the no oral variation provision.

The Supreme Court decided unanimously the other way, deciding that the correct decision was to strike down the oral variation on the basis that to do so would override the parties’ clear intentions.  Up to the point when the contract was entered into, the parties were free to conduct themselves in any way they chose.  However, that autonomy was to be read as subject to the contractual terms thereafter.  If the parties wished to conduct their affairs in a manner that was inconsistent with their relying upon such a clause then there had to be clear conduct under which it was clear that both parties had chosen to give effect to it and had relied upon the oral variation as binding upon them both.  In this particular case, the Supreme Court decided that there was no such evidence.

The Supreme Court did not hold that the existence of a no oral variation clause could not be ignored, but rather that there had to be clear evidence that the parties had agreed to dispense with the effect of the clear agreement on documenting variations recorded in the contract.  While in a property context certain contracts require a variation to be in writing (eg contracts by deed), the safest course in all cases is to ensure that the contractual provisions regulating variations are followed.