Facts
- Rock Advertising Ltd was in arrears under a license agreement with MWB Business Exchange Centres Ltd for the use of commercial premises.
- An oral agreement was reached to reschedule Rock's payment obligations, allowing reduced initial payments, with the intention that shortfalls would be made up later.
- MWB subsequently alleged Rock had breached the original contract by failing to make adequate payment, disregarding the oral variation.
- The dispute centred on whether the oral payment rescheduling constituted a legally binding modification to the original contract.
- The original license agreement contained a clause prohibiting oral variations (an anti-oral variation clause).
Issues
- Whether an oral agreement to accept less than the contractual sum owed could legally vary a contract containing an anti-oral variation clause.
- Whether the rescheduled payment plan amounted to good consideration, sufficient to uphold the contract variation, despite Rock only agreeing to pay what they were already contractually obliged to pay.
- Whether the doctrine of “practical benefit,” recognized in Williams v Roffey Bros, could extend to promises to accept less under a pre-existing duty, despite the precedent set by Foakes v Beer.
Decision
- The Supreme Court held that the oral agreement to vary the payment schedule was not binding due to the anti-oral variation clause.
- The Court recognized valid commercial reasons for upholding such clauses, to prevent inadvertent contractual modifications.
- In obiter dicta, the Supreme Court declined to extend the “practical benefit” principle to cases involving agreements to accept less than a contractual debt, leaving the Foakes v Beer precedent intact.
- The decision overturned the Court of Appeal’s ruling, which had found for Rock on the basis of practical benefit and contractual freedom.
Legal Principles
- A contract containing an anti-oral variation clause cannot be informally varied by oral agreement; such clauses are enforceable.
- The principle from Foakes v Beer remains authoritative: a creditor’s agreement to accept less than is owed does not constitute good consideration and is not binding without an independent consideration.
- The “practical benefit” doctrine developed in Williams v Roffey Bros does not apply to part-payment of debts following Foakes v Beer and In Re Selectmove.
- Freedom to contract does not override clear, express anti-oral variation clauses in commercial agreements.
Conclusion
The Supreme Court in MWB v Rock Advertising Ltd confirmed that anti-oral variation clauses are enforceable and that the longstanding rule in Foakes v Beer still prevents practical benefit from constituting good consideration in cases of part payment of debt, leaving the doctrine of consideration for contract modification unchanged unless overruled by a larger Supreme Court panel.
