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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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MWB operated office spaces and Rock provided marketing services. MWB decided to expand its business and entered into a written agreement for larger spaces at an increased fee. The fee was agreed at £3,500 per month for the first three months and then £4,433.34 by February. Financial difficulties meant Rock struggled to make payments and was in arrears of £12,000. Credit controllers came to an oral agreement to vary Rock's plan, to allow Rock to pay less than the amount originally agreed; they would pay more later on. Rock's arrears would be cleared before the end of the year. The first instalment was paid on the day of the agreement, however, the contract stated there could be no oral variations under clause 7.6. Following late payment by Rock, MWB exercised its contractual right to exclude them from the building. They issued proceedings claiming arrears and other charges. Rock counterclaimed for wrongful exclusion from the premises, arguing that it did not breach the contract and that MWB had no right to terminate the agreement due to the agreed oral variation by MWB's credit controller.

Three key issues were considered by the Court of Appeal. Whether or not an anti-oral variation clause precluded variation of the agreement, other than the one in writing in accordance with its terms.Was good consideration provided for oral variation, and whether MWB was estopped from enforcing its rights under the original agreement. The court decided that the anti-oral variation clause does not prevent oral variation. The appellant's agreement to pay according to the revised schedule was good consideration. Secondly, practical benefits for MWB was ‘good consideration,' as the claimant was simply ‘accepting payment of money.' Finally, MWB was not estopped from whether it was inequitable to allow MWB to enforce original rights instead of only looking at detriment. It was held that where there is practical benefit, that accommodates the debtor, without enforcing the payment of the debt, the courts should find good consideration. Practical benefit derives from the payment by the defendant and the promise to make them in the future according to the agreed schedule.

Whether the anti-oral variation clause prevented oral variation was a matter of conflict because the court held MWB to have accepted oral terms of the alternative repayment schedule. Kitchin LJ was guided by Beaston LJ in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd.  He stated that contracting parties are entitled to agree to terms they choose, subject to limits imposed by public policy. This argument considered the protection of party autonomy. Contracting parties should be entitled to agree to terms they decide on. The emphasis on the notion of party autonomy in contracts, in particular where it makes commercial sense to allow such autonomy, is justified as it allows flexibility. However, those that hold a traditional view of law consider this judgment a step too far from traditional contract law.

Controversy and Impact

Controversy as a result of the decision surrounds the discounting of earlier decisions. This is argued as being ill-thought through by some. MWB v Rock demonstrates that practical benefit as good consideration for a promise to perform one's pre-existing contractual obligations to the other party is going to be embedded in law. Controversy may arise due to the extending of concepts from Williams v Roffey, posing significant challenges to the authority of Foakes v Beer. Furthermore, Arden LJ's statement that £3,500 was good consideration is perhaps flawed. It is common ground that £3,500 in payment does not serve as good consideration for larger debts.

The court ignores the opportunity cost for MWB from held to their oral agreement with Rock. It can be argued MWB had reasonable doubts over Rock's ability to pay, as arrears had accumulated over 3 months. The cheque had also bounced prior to the oral agreement. Terminating the contract and finding suitable licensees could have provided greater benefits; rather than an oral agreement, formed under conditions that did not conform with requirements under the original contract.

The case facts are similar to those in Re Selectmove and Collier.  What is different is that the judge in MWB decided that there was ‘some consideration and just enough practical benefit to MWB.' This is an issue that the decision may present in the future as it was held in Young v Bristol Aeroplane Co, Ltd that the Court of Appeal may only depart from its own judgments where there is conflicting court of Appeal decisions. This was not evident in the case. Therefore, it is difficult to see how the judgement in MWB sits with the judgment in Re Selectmove; it is likely that problems may arise due to controversy. It is clear that this is part of the trend away from the perceived austerity of the pre-existing duty rule that is present in Foakes. The decision to use recent judgments in Globe Motors and the extension of Roffey as authority when dealing with the part payment debts issue, will give contracting parties increased flexibility to renegotiate their contracts in the future.

One may consider whether or not the promisor consented to the modification of the contract, or whether modification was procured through unacceptable means. In terms of Rock, questions of factors such as duress, undue influence and the doctrine of good faith brings forth the question that if the decision in MWB is to last.  English courts may face arguments from creditors that their alleged modifications ought to be set aside as they did not consent fully to the change in terms. MWB illustrates that the more the consequences associated with not accepting and enforcing original contract's terms, the higher the benefit to them in modifying it, regardless of the express terms that forbid variation. There will be a greater focus on the vitiating factors, which could encourage future judges to look further for answers regarding consideration.

Advice for future clients

The estoppel argument should not be used as a main argument. The Court of Appeal held that £3,500 paid by Rock is not a loss as Rock was bound to pay under the contract. This specific area of law is inconstant, as emphasised by the case of Collier. The effect of promissory estoppel was inequitable but this was not held in MWB. Therefore, unfair effects of part payment are alleviated through promissory estoppel.

Parties must ensure their rights and obligations are understood. Throughout the agreement period, the contract is to be monitored. Continued use of anti-oral variation clauses will maintain fidelity. This clause is difficult to demonstrate if parties intend to vary the contract as the court requires strong evidence. The clause does not automatically suppress claims made by the opposing party.

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