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

Key point

Facts

  • MWB (C), the licensor, and Rock Advertising (D), the licensee, entered into a licensing agreement for the use of business premises with anti-oral variation clause (which excludes variation of contract terms by oral agreement)
  • After D ran into financial trouble and started missing payments, C agreed over phone to allow payment of arrears in instalments with a reduction in initial payments, backloaded to later instalments
  • C later claimed that D breached the original contract by making insufficient payment, removed D from premises and initiated proceedings to claim arrears

Held (Court of Appeal)

  • C’s claim dismissed; the oral agreement was valid

Kitchin LJ

Oral variation clause is non-binding

  • The oral terms were binding despite the oral variation clause as the principle of freedom of contract should not be curbed

Consideration

  • In this case a practical benefit was conferred to the C in having premises remain occupied, which went beyond the advantage of receiving prompt payment, which was the kind of advantage in Foakes v Beer and re Selectmove

Held (Supreme Court)

  • Appeal allowed; oral agreement was not binding

Lord Sumption

Oral variation clause is binding

  • There is a valid commercial reason for its enforcement, they help avoid inadvertent variation
  • The conceptual reason cited by the Court of Appeal should not take precedence over the business purposes of the parties

No consideration (in obiter)

  • His Lordship recognised the possibility of C obtaining practical benefit from the greater likelihood of payments being made and having its premises occupied while it sought a new licensee, however, but declined to overrule Foakes v Beer and re Selectmove, preferring to leave it to a larger panel of the Supreme Court where the decision would not be obiter dictum
  • He did acknowledge that the points of distinction between the practical benefit in this case and in Williams v Roffey are forced

Commentary

Arguments for overruling Foakes v Beer

  1. The distinction drawn between promises to accept less and promises to pay more is unprincipled
    • As Mindy Chen-Wishart points out, both promises decrease the relative value of the promisee’s obligation to the benefit he receives
  2. Problem of opportunism can be prevented by the doctrine of duress
    • Although unscrupulous persons might threaten to breach their contracts so as to extract more favourable promises, but as was pointed out by Glidewell LJ in Williams v Roffey, the doctrine of economic duress protects the promisor
  3. Giving effect to the intention of the parties
    • If the purpose of consideration is to ensure that contracts are seriously entered into, then the practical benefit of obtaining a higher chance of payment from financially distressed debtors should evidence serious intention
    • As Russell LJ pointed out in Williams v Roffey, courts must be more ready to find the existence of consideration to reflect the intention of parties to contract