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Rock Advertising Ltd V MWB Business Exchange Centres Ltd [2018] UKSC 24: The Triumph Of Reality

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24: the triumph of reality

Matthew Isaacs

Matthew Isaacs

Matthew achieved a first in law from Cambridge University. His main interest is in Private Law topics, with a particular focus on the tort of negligence.

In Rock Advertising v MWB Business Exchange Centres, the Court of Appeal and Supreme Court were given the rare opportunity to comment on multiple aspects of Contract Law. In a case which cemented certainty of contract, broadened our understanding of consideration, and enhanced the more nuanced doctrine of estoppel, the Courts have ultimately guided us to a position which properly reflects the reality of a transaction.

Court of Appeal judgement: [2016] EWCA Civ 553
Supreme Court judgement: [2018] UKSC 24

The facts

MWB Business Exchange owned a set of offices in London, over which they granted a licence to Rock Advertising. Clause 7.6 in the contract read:

“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 accrued arrears in licence payments. They subsequently proposed a revision to the payment schedule, offering to pay the accumulated debt over the remainder of the contract, which was orally accepted by MWB. MWB then locked Rock Advertising out of the premises and sued for the arrears. Rock Advertising counter-claimed for damages for breach of contract.

There were three issues for the court: (1) what was the effect of the ‘no oral variation’ (NOM) clause; (2) whether the agreement to vary and reduce the payment schedule was supported by consideration; and (3) whether MWB were estopped from enforcing their rights under the contract.

Court of Appeal decision: held in favour of Rock Advertising

1 – No-oral variation (‘NOM’) clauses

The Court of Appeal followed dicta in Globe Motors Inc v TRW Lucas Electricity Steering Ltd [2016] EWCA Civ 396, concluding that NOM clauses could be varied by an oral agreement between the parties.

Approving their analysis, Kitchin LJ, with whom McCombe and Arden LJJ agreed on this point ([67] and [68]), concluded the most persuasive factor was that of party autonomy ([34]). Kitchin LJ referred to Cardozo J in the New York Court of Appeals in Alfred Beatty v Guggenheim Exploration Company and others (1919) 225 NY 380:

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 … Whenever two men contract, no limitation self-imposed can destroy their power to contract again… (pp 387-8)

2 – Consideration

The Court of Appeal concluded that there was good consideration for the agreement.

The Court acknowledged the House of Lords’ decision in Foakes v Beer, which established that part payment of a debt alongside a promise to pay the remainder in the future did not constitute good consideration and therefore was not enforceable in contract. They also recognised that the Court of Appeal upheld this rule in In Re Selectmove [1993] 1 WLR 474. The Court did not reject that analysis, but instead felt able to distinguish the facts of this case.

The Court applied the rule from Williams v Roffey Bros and Nicholls [1991] 1 QB 1, which held that a ‘practical benefit’ constituted good consideration. MWB obtained a practical benefit more than just part payment and a promise to pay off the debt. Kitchin LJ highlighted the immediate recovery of some money, avoidance of a period where the property was empty, and the commercial advantage of the two parties continuing their (then positive) relationship ([47]-[48]). Arden LJ focused on the benefit of not leaving the property empty, during which time MWB would make no money ([74]-[75]). McCombe LJ agreed with both Arden and Kitchin LJJ.

Arden LJ concluded (albeit without legal argument) that the agreement could be explained as a collateral unilateral contract ([88]-[90]), although this was not supported by Kitchin and McCombe LJJ.

3 – Estoppel

Given the Court’s previous conclusions, it was not necessary to decide whether MWB were estopped from enforcing its rights under the contract. Nevertheless, the Court considered this case.

Kitchin LJ outlined the general principles, which Arden LJ agreed with ([92]), as such:

if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. It may be the case that it would be inequitable to allow the promisor to go back upon his promise without giving reasonable notice, as in the Tool Metal case; or it may be that it would be inequitable to allow the promisor to go back on his promise at all with the result that the right is extinguished. All will depend upon the circumstances. ([61]).

Focusing on whether it was “inequitable” for MWB to assert its legal rights ([62]), Kitchin LJ concluded MWB were not estopped. He highlighted that Rock Advertising were given reasonable notice that it must comply with the original contract and they were not prejudiced by having to rely on that agreement.

Supreme Court decision: held in favour of MWB

Lord Sumption, with whom Lady Hale, Lord Wilson and Lord Lloyd-Jones agreed, overturned the Court of Appeal’s decision on the first point, concluding that Clause 7.6 rendered their subsequent oral agreement ineffectual. This meant the original payment schedule between MWB and Rock Advertising still applied, and MWB were permitted to lock Rock Advertising out of the premises and sue for damages.

Lord Sumption explained the biggest barrier to NOM clauses had been conceptual. He therefore explained that NOM clauses rendered any subsequent oral agreements between the parties invalid [15], providing the conceptual grounding for this approach. This, he said, was consistent with party autonomy:

Party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the contract allows. Nearly all contracts bind the parties to some course of action, and to that extent restrict their autonomy. The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed. ([11])

Lord Sumption recognised the problematic case where parties make an oral collateral agreement irrespective of a NOM clause, and subsequently act upon the new agreement. This scenario, he felt, could be adequately dealt with through the doctrine of estoppel ([16]), although Lord Sumption agreed with the Court of Appeal that there was not an estoppel in this case. Lord Sumption’s only warning what that the doctrine of estoppel should not be used to circumvent NOM clauses, or other causes included for the purpose of certainty.

Lord Briggs agreed with Lord Sumption’s conclusion, but offered an alternative analysis. He concluded that party autonomy required that NOM clauses could be varied through any unanimous agreement between the parties ([25]-[26]), or implicitly where a subsequent agreement must “necessarily” have varied the NOM clause. On the facts, he concluded that the agreement to vary the payment schedule did not meet this strict test of necessity.

Given this decision, both Lord Sumption and Lord Briggs refused to deal with the issue of consideration ([18] and [20]).

Analysis

Lord Sumption’s affirmation of no-oral variation clauses, alongside the recognised role for the doctrine of estoppel, is welcomed. His analysis is to be preferred to that of Lord Briggs. Lord Briggs’ analysis introduces a second value judgement based on “necessity” alongside the question of whether a party had been “inquitable”; the effect might only be to elongate and confuse legal cases. Lord Sumption instead provides a much simpler for contract (reducing the number of cases reaching the Court). However, his approach still allows the Court to consider the reality of the transaction through the more nuanced analysis available in the doctrine of estoppel. This gives the Court flexibility to adapt its application based on the subsequent actions of the two parties.

The Supreme Court refused to comment on the consideration issue, which means the Court of Appeal’s analysis remains valid. Nevertheless, Lord Sumption did say:

The problem about [the Court of Appeal’s decision] was that practical expectation of benefit was the very thing which the House of Lords held not to be adequate consideration in Foakes v Beer (1884) 9 App Cas 605: see in particular p 622 per Lord Blackburn. There are arguable points of distinction, although the arguments are somewhat forced. ([18])

It is submitted the cases were sufficiently different. In Foakes, Beer’s debt to Foakes accrued from a Court judgement, rather than based on some existing (and potentially future) relationship. By contrast, at that time MWB and Rock advertising had an ongoing relationship which had the potential to later provide mutual benefits (in the form of continued occupancy). In these circumstances, it seems right for the Court to recognise the reality of the transaction.

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