Court of Appeal allows the parties to vary their agreement orally even though their agreement contained an "anti-oral variation" clause

In this interesting decision by the Court of Appeal, which places emphasis on contracting parties' freedom to agree terms, it decided that an anti-oral variation clause did not preclude the subsequent oral variation of the agreement. The oral agreement was supported by consideration.

After the appellant, Rock Advertising Ltd (a marketing services company), incurred arrears of licence fees and other charges, the respondent, MWB Business Exchange Centres Ltd (a company managing office space in London), exercised its right under the licence agreement to lock Rock Advertising out of the premises and gave notice. MWB claimed for arrears and damages. Rock Advertising counterclaimed for loss and damage for wrongful exclusion from the premises, claiming that an oral agreement had been made with the respondent's credit controller to re-schedule the licence fee payments to clear the arrears and that it had paid £3,500 on the same day in accordance with the revised payment schedule. MWB denied this, arguing that such an agreement would be unenforceable as it lacked consideration and that an oral variation to the licence was expressly prohibited by the written agreement.

The Court of Appeal held that on the question of the variation of contracts with anti-oral variation clauses, previous decisions on this point (United Bank Ltd v Asif (2000) and World Online Telecom Ltd (formerly Localtel Ltd) v I-Way Ltd (2002)) were inconsistent. World Online was correct and should be followed. The most powerful consideration was party autonomy and the principle of freedom of contract entitling parties to agree whatever terms they chose subject to certain limits imposed by public policy. The judge found that there was an oral agreement and the credit controller had the ostensible authority to agree the terms and the proposed payment schedule. The Court held that the anti-oral variation clause did not preclude any variation of the original agreement.

Secondly, if a party to an agreement promised to make an extra payment in order to secure the other party's promise to perform his existing contractual obligation to provide services and, as a result, secured a benefit then that benefit was capable of constituting consideration for the promise. The judge found that the oral variation agreement would have a number of beneficial consequences for MWB in that it would recover the arrears and that it would retain Rock Advertising as a licensee so that the property would not be left empty. Rock Advertising's payment of £3,500 and its promise to make further payments conferred a benefit on MWB which constituted sufficient consideration to support the oral variation agreement. The oral variation agreement thereupon became binding on MWB and remained binding for so long as Rock Advertising continued to make the payments in accordance with the revised payment schedule.