Judgment comment - Rock Advertising Limited v MWB Business Exchange Centres Limited [2018 ] UKSC 24 PDF

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

As Lord Sumption said : “Modern litigation rarely raises truly fundamental issues in the law of contract. This appeal is exceptional. It raises two of them.” Indeed, it is exceptional that a recent case makes such a significant contribution to Anglo-Saxon contract law. Moreover, the words used by Lord Sumption at the beginning of his judgment reflect the pre-eminence of his decision in Rock Advertising Limited v Business Exchange Centres Limited [2018] UKSC 24. Thus, this judgment delivered on 16th May 2018, deals mainly with the efficiency of an oral variation of a contract in the presence of a No Oral Modification (NOM) clause, and in the alternative, with consideration and estoppel. In the present case, the dispute concerned a licensing agreement (the "licence") between MWB Business Exchange Centres Limited ("MWB"), a property management company acting as licensor, and Rock Advertising Limited ("Rock"), the licensee. MWB operates offices in London. Rock entered into a licence agreement with MWB to occupy office space for a fixed term of 12 months. Besides clause 7.6 of the agreement provided : “This Licence sets out all the terms as agreed between MWB and [Rock]. No other rep resentations 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.” In the aftermath, Rock accumulated license fee arrears. Rock's sole administrator called a MWB credit controller and offered her a deferred repayment schedule for arrears. Rock argued that this payment schedule had been accepted as a variant of the licence. MWB did not accept the revised payment schedule, blocked Rock off-site, terminated the permit and took legal action for all arrears. Rock sought damages for unjustified exclusion, based on the oral amendment of the licence. At first instance, in the London County Court, Justice Moloney QC concluded that a verbal agreement to amend the licence had been reached, but that such an amendment was rendered ineffective by the NOM clause contained in the licence. Then, Rock successfully appealed to the Court of Appeal, which held that the oral amendment was also an agreement to remove clause 7.6. It results that MWB was bound by the oral variation. The Court of Appeal overturned the first instance decision, holding that the NOM clause did not prevent the parties from agreeing, independently, to make oral amendments to the contract. The Court of Appeal's decision was based on the common law principle that the validity of a simple contract is not formally required and the parties have the right to agree on the terms of their choice, including the right to subse quently amend previous contractual terms. The Court of Appeal relied heavily on obiter dicta in the recent decision in Globe Motors Inc. and ors. V TRW Lucas Varity Electric Steering Ltd and anor to conclude that the NOM clause was ineffective. Finally, MWB appealed to the Supreme Court. The issues were : (i) whether a contractual term precluding amendment of an agreement other than in writing (a “No Oral Modification” or “NOM” clause) is legally effective; (ii) whether the variation of an agreement to pay money, by substituting an obligation to pay either less money or the same money later, is supported by the necessary “consideration.”

Ultimately, the Supreme Court unanimously allowed MWB's appeal. But the reasons for doing so under Lord Briggs' judgment are narrower than those set out in the majority judgment, which was rendered by Lord Sumption. In the main, the central conclusion of the majority is that "the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation". Through this decision, the Supreme Court established the supremacy of the NOM clauses over any oral amendment (I-), while nevertheless recognizing that this supremacy can be tempered (II-). I - The supremacy of NOM clauses over any oral variation This supremacy, which is based on the binding force of the contract (A-), has interests that may prove to be tricky for the parties (B-).

A - The binding force of the contract through NOM clauses The Supreme Court described its decision in this case as "truly fundamental... in contract law". It provides essential clarity regarding the effectiveness of NOM clauses. It is common for parties to use NOM clauses, especially in commercial or business relationships. However, what is less common is that the question of the effectiveness of NOM clauses was definitively decided here in Rock v. MWB. In this regard, previous case law was divided on the issue. This is reflected in Global Motors Inc v TRW Lucas Varity Electric Sterring Ltd, which considered that the amendment of a contract stipulating a NOM clause was possible verbally or through conduct, or conversely United Bank Ltd v Asif, which undoubtedly considered that in the presence of a NOM clause, no oral amendment of the contractual terms had legal effect. As it is, in Rock v. MWB itself, the validity of the NOM clause had been established at first instance, so that any oral amendment was inoperative because of the writing and signature requirements, while the Court of Appeal had adopted the opposite solution by adopting the reasoning held in Globe Motors. In this respect, the key point of the decision was the prevalence of the autonomy of will expressed by the parties. Thus, Justice Kitchin LJ relied on the considerations of Justice Cardozo in Alfred C. Beatty v. Guggenheim Exploration Co. This latter more or less explained that, given the absence of any particular formal requirement for contractual conclusion in the common law, and that the amendment of a contract is considered as a contract in it self, the parties must then be perceived as having waived the NOM clause simply because of their acceptance of an amendment contrary to the provisions of that clause. Actually, Lord Sumption and Lord Briggs, through this Supreme Court decision, both supported the full effectiveness of the NOM clauses or at least their effectiveness in principle, which undoubtedly sets a precedent case for the lower courts to follow. However, to reach such a conclusion they adopted a significantly different approach. Thus, Lord Sumption pertinently considered that the contract intrinsically constitutes a limitation on the autonomy of the parties, and that a fortiori the real infringement of the autonomy of the parties would be to think that they cannot be linked to the form of any contractual modification when this is what they have agreed.

Both also support the authority of NOM clauses by comparing them with other formal provisions. Lord Sumption makes this comparison with the "full agreement" clauses binding the courts until the ancillary agreement can operate independently. Lord Sumption hits the nail on the head when he argues that just as the purpose of NOM clauses is to limit the parties' contractual modification for the future, so a contrario contractual clauses more generally aim to take into account only the parties' latest intentions. Lord Briggs favours a comparison with contract negotiations, which seems to be the most appropriate. To this end, it is fair to argue that when the substantive provisions of the amending agreement are accepted by the common law, they become legally binding once the formalism freely assumed by the parties has been respected. Therefore, what the parties contractually agree on for their future relations is deferred until the required formalism is completed. Also, this binding force of contract expressed by NOM clauses have advantages that may be tricky.

B - The interests and the perverse effects of NOM clauses At first sight, the effectiveness of NOM clauses would imply greater contractual predictability, as well as greater stability in commercial or business relations, hence a guaranteed legal certainty between the parties. In this regard, the Anglo-Saxon doctrine of contract law has recently identified several merits in using NOM clauses in business relationships.Thus, NOM clauses would be widespread for three main purposes : (i) they prevent attempts, including abusive attempts, to undermine written agreements by informal means; (ii) they avoid disputes not just about whether a variation was intended but also about its exact terms; (iii) they make it easier for corporations to police their own internal rules restricting the authority to agree variations. It being specified that contract law does not normally obstruct the legitimate intentions of businessmen, except for overriding reasons of public policy. NOM clauses do not frustrate or contravene any policy of the law. However, there is no clear conceptual contradiction between the common law principle that does not require any formalism for contractual procurement and a special pro vision making NOM clauses effective. Thus, in this sense, there are legal systems, including international codes that have been extremely taken up and that reflect this legal subtlety (the Vienna Convention about international sale of goods or the UNIDROIT principles of international commercial contracts for instance). While these advantages conferred by NOM clauses are consequently considerable, they still present risks and disadvantages that are easily perceptible. Indeed, these clauses may prove to be sources of contractual rigidity or even to be at the origin of a lockdown of business relations between the parties if they are poorly drafted. However, what priority parties to commercial relations are looking for is flexibility, speed and fluidity. Hence the need for the proper drafting of these NOM clauses, which is crucial.

Another formidable obstacle with which the parties will undoubtedly be confronted is the application of the NOM clause to any revision of the NOM clause itself. Anglo-Saxon contract law does not in principle hinder the legitimate intentions of businessmen and traders, except for compelling reasons of public policy. Also for Lord Sumption, the NOM clauses do not contradict any public policy of the law. Since no reluctance of the NOM clauses in terms of public policy is expressed by Lord Sumption, he deliberately draws all the legal consequences for their effectiveness. In this respect, following Lord Sumption's instructions, it appears that the freedom of the parties to modify their contract, whether procedural or formal contractual provisions, is limited by compliance with the procedural contractual provisions themselves, including the NOM clauses. In other words, the pure and simple amendment or deletion of a NOM clause is only possible by virtue of the requirements of the NOM clause itself. Lord Sumption's formalist and relatively harsh view of contractual relations has a particular resonance when he argues that a written amendment is easy, except in the case of a complex amendment for the average businessman. But this approach is even more significant when he reports that the NOM clause remains fully effective even in cases where a party has wrongly invoked an oral amendment agreement. The only limitation is the theory of estoppel to which he refers without declaring its potential legal consequences. Nevertheless, it is possible to imagine that it would only be valid to correct the extent or the scope of the commitments made, and not to prevent the application of the NOM clause unless there is irrefutable evidence of unambiguous terms or conduct. Lord Briggs is much less categorical in his approach. He is not in favour of an almost absolute effectiveness of the NOM clause, which would prevail in all circumstances, unlike Lord Sumption. This regard could then temper the supremacy of NOM clauses over party autonomy, or at least over their recent or current intentions. In this way, he allows us to nuance this judgment.

II - A contribution of the judgment to be qualified In this sense, however, the Supreme Court's decision about the supremacy of NOM clauses has yet to be tempered (A-), especially since it has failed on the issue of consideration (B-).

A - A supremacy of the NOM clauses to be tempered In contrast to Lord Sumption's radical and refractory approach to the effectiveness of the NOM clause, Lord Briggs is relatively liberal and flexible on this issue. Indeed, the diligence he shows with regard to the scope of the NOM clause is justified by his desire to reconcile the autonomy of the parties at the conclusion of the contract with that prevailing during its performance. Thus, he favours a balance between the parties' willingness to bind themselves and their willingness to untie themselves from conduct. To this end, the NOM clause should apply for as long as the parties agree, with the possibility of excluding the NOM clause itself or rather removing it, by means of a legally accepted formalism, either by word or by conduct.

In other words, in the present case, Rock v. MWB, the even oral deletion of the NOM clause (of the licence agreement) would have been possible even though the said clause prevents any oral modification, if the sole director of Rock and the credit controller of MWB had expressly agreed on this deletion. For once, Lord Briggs' point of view seems to be the most appropriate as it is more respectful of the real or at least current will of the parties, compared to Lord Sumption's. He was then more concerned than Lord Sumption about the willingness of the parties to govern their future relations while preserving their right to escape this restriction. It is surprising, moreover, that despite the obvious opposition between their respective arguments, Lord Briggs maintains that it would most probably not have any major implications for the common law. For if we follow Lord Sumption's example, this would indeed be an incongruous limitation on the autonomy of the parties' will, considering that a clause can only be revised or abandoned by virtue of its own provisions. This would inevitably lead to the denial of a fact of the commercial and business world which is that company representatives regularly change from the conclusion of the contract to its revision. Although Lord Briggs and Lord Sumption rightly concluded that the parties' violation of the NOM clause was hardly characterized by a manifest desire to override it, except by their common ignorance. Nevertheless, only Lord Briggs seems to draw the legal conclusions that this consideration is incumbent on him. In this respect, he admits that the modification of a NOM clause may be implicit. But he adds only by "strictly necessary involvement". To do so, he had relied on the comparison with the contractual negotiations. Thus, this would be the case in particular where the contractual variation implies an instantaneous performance different from the initial performance, even before the contractual variation can be recorded in writing and signed. This certainly amounts to considering in our case Rock v. MWB, that the parties had in no way agreed to the deletion of the NOM clause because of their oral agreement to change the payment schedule. Also, Lord Briggs' reasoning is all the more brilliant because it overcomes the inappropriate option left by Lord Sumption to the effectiveness of the NOM clauses. That is, the theory of estoppel as a safeguard, which moreover, according to him, has a scope that cannot be sufficiently broad to destroy all the advantage of the certainty of a NOM clause. Being specified in this Supreme Court judgment Rock v. MWB, the possibility of estoppel in the event that the parties have agreed on a NOM clause, with always according to Lord Sumption, the requirement of irrefutable proof of terms or categorical conduct that blocked a party in the application of the NOM clause. This rule is also based on the case of Actionstrength Ltd v International Glass Engineering In Gl En SpA. Finally, notwithstanding the effectiveness in principle of the NOM clauses recognised in this judgment, it remains that this effectiveness should be nullified only in the situa tion where the parties have expressed their common intention, either expressly or by necessary implication, that their commitment should no longer be governed by this restriction. This is probably why, in the present case, this possibility was not considered for the parties, since it is likely that they were not aware of the existence of the NOM clause when they had orally modified the licence binding them.

In short, this valve to the NOM clause brilliantly proposed by Lord Briggs is more satisfactory for the parties in general, and more particularly for the practice of the business world, than the estoppel proposed by Lord Sumption, whose scope is shrinking. In this sense, it is therefore regrettable that the first did not win the majority opinion of the Lords in this case, whereas this is the most widespread view in other common law countries. If the judgment of the Supreme Court is then decisive on the question of the effectiveness of NOM clauses, the fact remains that it ignores the question of consideration. And all indications are that this impasse is not neutral on the part of the highest British court.

B - A deafening silence on the consideration issue that says a lot In an attempt to fully appreciate the Supreme Court's motivation to avoid the question of consideration, it is necessary both to return to the fluctuating case law in this area and to the case in which it was not considered crucial. Precisely by taking a closer look at the proceedings in this case, it was judged both at first instance and on appeal that the assent to a deferred payment schedule offering a better guarantee of payment was a sufficient consideration, given the expected practical benefit. And this in respect of the Williams v Roffey Bros & Nichols test. In this case, a builder and his subcontractor had agreed to the payment by the first of additional costs necessary for the completion of the work. While the builder did not benefit from anything new, it was recognized that he was still benefiting from "practical advantages" by exempting him from late payment penalties and expenses in the solicitation of a carpenter. This is the theory of the practical advantage of considera tion. It is this same theory that found application in Rock v. MWB. Thus, the agreement to revise the payment schedule could also lack consideration, as MWB did not seem to obtain any significant benefit from this agreement, so that MWB received less money than initially planned. However, the Court of Appeal surprisingly took sufficient consideration in alleging that MWB had received "practical advantages" in collecting its arrears and exempted it from seeking a new licensee. Since the highest British court had been led, without success, to rule on this original conception of consideration in Wiiliams v Roffey Bros , the Supreme Court's judgment on the question of consideration in Rock v. MWB was therefore eminently awaited. However, the Lords have remained silent on the issue. This silence on the part of the Supreme Court, which is repeated here, can however be defended if the facts of the case are only to be taken into account and not the scope of the consideration. Thus, as Lord Sumption attests, the revision agreement was in itself inapplicable under the NOM clause. He therefore considered that the review of such an old decision should be entrusted to "an extended court in a case where the decision would be more than an obiter dictum". This characterized refusal to deal with consideration is certainly justified in view of its inconsistency as to the facts. Nevertheless, the Lords of the Supreme Court, with Lord Sumption at the head, should certainly have been more scrupulous, given the confused and disorganized jurisprudence on the issue.

Thus, by Lord Sumption's own admission, there is a fracture between Williams and the Foakes v. Beer, noting that this issue was raised in Selectmove where the Court of Appeal declined to hear the Williams case. To be more exhaustive on this jurisprudential dissonance, it was generally held by the courts that the partial payment of a debt was insufficient to co...