Rock Advertising v MWB

Rock Advertising Limited v MWB Business Exchange Centres Limited

mwb v rock

What was the approach taken by the Supreme Court when deciding MWB Business Exchange Centres v Rock Advertising Limited. The Supreme Court ruled in favour of MWB and revered the Court of Appeals decision. The Supreme Court stated that if a NOM clause were to be included in the original agreement then any attempted oral variations would be ineffective. The English court considered other jurisdictions when deciding to deviate from tradition on this subject, and thus this study will examine the state of the law on NOM clauses in both England and other jurisdictions. The current position laid down in MWB v Rock is that parties retain the right to vary the contract, but must do so in the manner stated in the contract.

What were the reasons for the Supreme Court’s decision?

Parties’ Intention

Majority and dissenting judgment differed when deciding the issue of the intention of the parties. Lord Sumption delivered the deciding decision, concluding that NOM clauses should be applied strictly according to their terms, overruling the Court of Appeal.  Lord Sumption, giving the majority judgment, stated that ‘the law should and does give effect to a contractual provision requiring specific specified formalities to be observed for a variation’[2] thus any purported variation that fails to satisfy this requirement is ineffective. What this means is that should the parties wish to make variations informally then they must remove the NOM clause adhering to stipulated formalities or any variation must be carried out using the same formality as the agreement itself.  However, Lord Briggs in his judgment argued that it was ‘conceptually impossible’ to prevent parties varying their contract at any point by any methods.[3]  This is because of the principle of freedom and sanctity of contract, where judges tend to not to intervene with respect to contracts. Any potential party to a contract usually enters the market using their own independent reasoning and determine which bargain would be beneficial for them.

The reasonable interpretation of Lord Brigg’s speech is that the fundamental aim of a contract is to give effect to the mutual intention of the parties.[4] Generally, judges determine the parties' intent at two distinct points in time[5]. When the initial contract is formed, and the parties agree through the incorporation of NOM clauses that they will not vary the contract unless in writing, the first point (P1) occurs. The second point (P2) in the contract, where the parties agreed to vary it verbally rather than in writing. By refusing to enforce the variation, the parties satisfy their mutual intention at the outset, when they agreed in writing not to vary the contract. Allowing variation, on the other hand, would satisfy the second point, as they would have verbally agreed to enter into a legally binding contractual variation. The issue is whether the initial intention should be prioritised over their latter intention to orally vary the agreement.[6]

Indeed, many academic such as Corbin consider variations as contract itself[7] therefore if the variation satisfies all the element of contract law i.e., ‘agreement, certainty, consideration and intention to create legal relations’[8] then it ought to be contractually binding regardless of whether the original contract contains NOM clauses. However, proving whether the variation is legally binding would depend on the channel in which such variations are made.  Therefore, it is not possible for earlier intention to prevail as parties possess freedom of contract which means they will always have the ability to mutually change their affairs.  [9]

However, the case against variation is that by including a NOM clauses parties expressed their intention to bound more formally and thus ‘prevent any attempts to undermine written agreements by informal means, a possibility which is open to abuse’.[10] There is a similar type of formality in the creation of a trust, namely a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same s.53(1) Law of Property Act 1925. Due to earlier freedom of contract, the parties now do not have the right to enter into a contract at second point. Party autonomy is important, but it only ‘operates up to the point where the contract is made… thereafter only to the extent that the contract allows’.[11] This is to say that by parties contracting they surrender an element of their freedom. Morgan opines ‘the law of contract is about permitting parties to bind themselves as to future conduct: that is, the law enlarges contractual autonomy precisely by limiting freedom later on’.[12]

Analogy to statutory form requirements

Earlier decision in Court of Appeal made the analogical argument about the ability of the Parliament to ‘stipulate for formality despite the potential injustices and hard cases that can result’[13], they went onto suggest that the contract is formed through consent and ‘how much more should the parties themselves, by consent, be able to adopt such a regime’.[14] Morgan agreed with this statement stating it was ‘both cogent and compelling  ‘as parties should be much more confident when choosing the appropriate NOM clause than of a statutory formality rule’.[15] This was adopted by Lord Sumption who states ‘that there is no reason why the parties should not adopt the same principle’[16] as there are many cases, such as contracts of the sale of land, where it is prescribed by statute.

However, when closely examining Lord Sumption’s assertion it can be said that this analogy is misconceived. As case law relating to the consequence of non-compliance with formal requirement which is imposed by statute has no correlation to the legal effect of self-imposed formal requirements.[17] This is because with statutory imposed restriction the courts will look at the intentions of the parties, however, in cases involving NOM clauses the parties essentially made their own law and therefore they can in principle unmake or remake it.[18]

Authority

Furthermore, Lord Sumption asserted that it is ‘conceptually impossible’ for the parties disregard informal variations when other jurisdictions uphold such exclusions.[19] However, he fails to clearly engage with the ‘conceptual’ challenge to NOM clauses as critics are not claiming that NOM clauses cannot be made ‘impervious to subsequent information variations as a matter of positive law’[20] but rather it is not supported by doctrine- which is essential to making the law more than ‘arbitrary aggregate  of discrete posited rules’.[21] Also, in regard to other jurisdictions overcoming the conceptual difficulty does not provide us with full picture, that many have overcome this difficulty through statutory rule. This is emphasised by Lord Briggs’ judgment, stating that in order to give effect to NOM clauses requires ‘a clean break with something approaching an international law consensus, unsupported by any societal or other considerations peculiar to England and Wales’.[22]

For instance, when looking at some of the other jurisdictions highlighted by Lord Sumption such as Canada, the issues of NOM clauses are not dealt with Supreme Court of Canada rather it is obiter statement. The leading judgment on NOM clauses in Canada is the decision by Ontario Court of Appeals case Shelanu Inc v Print Three Franchising Corp[23], which stated that there cannot be a waiver unless it is signed by all the parties.[24] In regard to NOM clauses the court stated, ‘two contractors cannot by mutual agreement limit their power to control their legal relations by future mutual agreement’.[25] Further they stated that this is the correct principle to follow as ‘the parties have amended the written agreement through their conduct’[26] and that the written agreement ‘no longer represents the intention of the parties’.[27] The court felt that by enforcing NOM clauses would be ‘contrary to the classical theory of contract interpretation which emphasises that courts should ascertain and give effect to the intention of the parties’[28]. Shealnu has been followed twice in the Supreme Court without any negative treatment. In regard to Australia, Federal Court of Australia denied the effect of NOM clauses, stating that they may still have ‘significant evidentiary effect’.[29] Furthermore, Lord Sumption refers to international regimes: the UNIDROIT Principles of International Commercial Contracts and the Vienna Convention on Contracts for the International Sale of Goods (CISG).[30] Lord Sumption states that, ‘these widely used codes suggest there is no conceptual inconsistency’. However, Turnbull argued that the adoption of these principles is indeed statutory.[31]

Analogy to entire agreement clauses

After asserting that other jurisdictions shows that there is no conceptual inconsistency in enforcing NOM clauses, Lord Sumption went onto to talk about entire agreement clauses which he stated would give rise to similar issues. Entire agreement clauses are used in ‘boilerplate’ provisions and requires the written contract to ‘set [s] out the entire agreement between the parties and supersede[s] all proposals and prior agreements, arrangements and understandings between the parties’.[32] Lord Sumption asserted that an abbreviated form of this clause is contained in the ‘first two sentences of clause 7.6 of the agreement’[33] and usually these clauses are combined with NOM clauses to address the position after the contract is made. He asserted that both of the clauses are ‘intended to achieve contractual certainty about the terms agreed, in the case of entire agreement clauses by nullifying prior collateral agreements relation to the same subject-matter’.[34] However, this analogy between EACs and NOM clauses is misguided as entire agreement clauses focuses on the present content of the parties’ contractual relationship and it is not concerned with the parties power to contract again and therefore ‘does not give rise to conceptual difficult of the type which affects a NOM clause’.[35] Furthermore, Lord Sumption overlooks the fact that EACs and NOM clauses affect the agreement at different times. EAC clauses rely on earlier understandings or agreement between parties and the latest agreement would prevail. Whereas NOM clauses have the opposite effect as the earlier agreement (containing the NOM clause) is preferred as supposed to most recent agreement of the parties[36].

In need of further consideration

The Supreme Court also decided whether Rock had provided consideration for the variation agreement. This formed the controversial part of the Supreme Court’s judgement. ‘The decision was…eagerly awaited’, as it was the opportunity to provide overdue clarity in this area. Adams and Brownsword maintain that the court took a 'robust approach' in expanding the principal Williams v Roffey[37] beyond the traditional doctrine of consideration’[38]. On the other hand, one could argue that Roffey is accomplishing a significant objective. It ensures that a contracting party who makes a promise under no duress in a commercial context is obligated to keep it, even if there is little or no consideration. This creates a problem because it appears to conflict with the traditional common law position of consideration. More recently, in South Caribbean Trading Ltd v TrafiguraBeeher BV (‘SCT')[39], Colman J questioned the decision in Williams v Roffey Bros. He noted that the decision violated a long-standing rule requiring consideration to shift away from the promisee. He also noted that the House of Lords had not yet declared Williams v Roffey Bros to be erroneous.

However, Lord Sumption stated in his ruling on NOM clauses ‘made it unnecessary to deal with consideration’[40]. Lord Sumption stated that MWB might have received practical benefits pursuant to Williams, but these benefits are the very thing Foakes prevented.[41] He did not expand on this put but merely stated that Foakes ‘is probably ripe for re-examination’.[42] Academics such as Roberts have stated that the Supreme Court missed an opportunity to clarify this area of law and that the Supreme Court could have given some guidance. However, Davies argued that any guidance may have created more confusion.[43]

Footnotes

[1] Rock Advertising Limited (Respondent) v MWB Business Exchange Centres Limited (Appellant) [2018] UKSC 24

[2] Ibid [10]

[3] Ibid [26]

[4] HG Beale (ed) Chitty on Contracts (32nd ed, Sweet & Maxwell, London, 2015)at [1-025]

[5] Ibid

[6] Snyder David, ‘The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver and Estoppel’ [1999] Wisconsin Law Review 607

[7] Arthur Corbin ‘The Parol Evidence Rule’ [1944] 53 Yale LJ 603 at 607

[8] Stephen A Smith, Aityah’s Introduction to the Law of Contract (6th ed, Clarendon Press, Oxford, 2005) at 93

[9] Pasas George, ', No Oral Modification Clauses: An Australian response to MWB Business Exchange Centres v Rock Advertising' [2019] 45(141) University of Western Australia Law Review

[10] Ibid [12]

[11] Ibid [11]

[12] Jonathan Morgan “Contracting for self-denial: On enforcing ‘no oral modification’ clauses” (2017) 76 CLJ 589 at 607

[13] Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd, above n 29, at [97]

[14] Ibid [37]

[15] Jonathan Morgan “Contracting for self-denial: On enforcing ‘no oral modification’ clauses” (2017) 76 CLJ 589 at 607.

[16] Ibid [11]

[17] James Fisher “Contract variation in the common law: A critical response to Rock Advertising v MWB Business Exchange” (2018) 47 Common Law World Review 196 at 200.

[18] Fisher J “Contract variation in the common law: A critical response to Rock Advertising v MWB Business Exchange” (2018) 47 Common Law World Review 196 at 200.

[19] Ibid [14]

[20] Ibid at 18, p 198

[21] Lawson F (1968) Legal orthodoxy. Houston Law Review 6(1): 1–27

[22] Ibid at [32]

[23] Shelanu Inc v Print Three Franchising Corp [2003] OJ No 1919 (Ont CA)

[24] Ibid at [42]

[25] Ibid at [50]

[26] Ibid at [50]

[27]Ibid at [54]

[28] ibid at [55] citing Sullivan R ‘Contract Interpretation in Practice and Theory’ [2000] 13 SCLR (2d) 369.

[29] GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd, above n 37, at [221]

[30] International Institute for the Unification of Private Law (UNIDROIT) Principles of International Commercial Contracts (4th ed, 2016); and United Nations Convention on Contracts for the International Sale of Goods 1489 UNTS 3 (opened for signature 11 April 1980, entered into force 1 January 1988)

[31] RD Turnbull “MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24; [2018] 2 WLR 1603” (2018) 92 ALJ 434 at 434

[32] Ibid [14]

[33] Ibid

[34] Ibid

[35] Ibid [28]

[36] Davis P, ‘Varying contracts in the Supreme Court’, [2018] Cambridge Law Journal, p.2

[37] Williams v Roffey Bros and Nicholls (Contractors) Limited [1990] 1 All ER 512

[38] Adams and Brownsword ‘Contract, consideration and the critical path’ (1990) 53 MLR 540

[39] South Caribbean Trading Ltd v TrafiguraBeeher BV (‘SCT') [2004] EWHC 2676

[40] Ibid. [18]

[41] Ibid.

[42] Ibid. [18]

[43] P S Davies, ‘Varying Contracts in the Supreme Court’ (2016) 75(3) Cambridge Law Journal 455, 456-457 (Varying).