My word is my bond?

As agricultural and rural businesses have expanded and diversified over the years, so too has the array of legal formalities that farm owners need to consider in order to protect themselves and their businesses.

These days it is not uncommon for a rural business owner to find themselves in multiple business agreements as part of the operation of their farm; from tenancies, to supply agreements and employment contracts. Whilst a gentleman’s agreement or a promise that ‘my word is my bond’ might have been enough of an assurance for both parties to uphold their side of the deal in days gone by, you would be hard pushed to find a legal professional who would advise that this an appropriate course of action today!

The recent Supreme Court case of Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24 is a reminder of the importance of having legally binding agreements in place rather than relying on goodwill. In this case, the court cast doubt on the old adage ‘my word is my bond’ and held that a clause in an agreement which prevented any verbal variation of the agreement was fully effective.

What happened in the Rock Advertising case?

Rock Advertising occupied serviced offices which were run by MWB. Rock Advertising had a licence agreement with MWB which contained a fairly standard ‘non-variation clause’. The licence agreement stated that “All variations to this Licence must be agreed, set out in writing and signed behalf of both parties before they take effect.”

Rock Advertising ran up arrears of the licence fee. It said that it had discussed the arrears situation with MWB and agreed an arrears repayment plan with them. MWB said that no such agreement had been reached. In any event, MWB said that the non-variation clause in the agreement prevented any variation to the terms of the licence taking effect, as nothing had been set out in writing nor signed by both parties. The terms of the licence agreement had not been strictly adhered to, and so legally no variation of the agreement had taken place. MWB locked Rock Advertising out of the premises, and terminated the licence.

The Supreme Court held that if an agreement requires any variation to be in writing, then it must be in writing for it to be effective. The legal formalities stipulated by the agreement had to be fully observed, including:

• Whether one or both of the parties can amend the terms of the agreement;
• The procedure that must be followed; and
• How the amendment must be documented.

So, why do rural business owners need to consider the outcome of this case? It highlights how a requirement of all parties to adhere to the written terms which had been agreed between them can protect everyone involved; mainly by:

• Preventing attempts to get round the terms of the written agreement by informal discussions with individuals at varying levels of authority within an organisation or company;
• Avoiding disputes about whether a variation had or had not taken place, and if it had, what the exact terms of the variation were; and
• Providing certainty as to what the business dealings were between the parties, and the consequences of any non-compliance.

Estoppel: An exception to the rule

Estoppel is a doctrine which has been relied on by the Courts to step in and prevent an injustice: a party can, in certain very limited circumstances, be found by the Courts to be “estopped/prevented” from denying what has happened.  Reliance on this doctrine can still occur where words or conduct unequivocally represent that the variation was valid, even though the required legal formalities have not been complied with.

Why is the Rock Advertising case important?

If you want to change any agreement you have entered into, check its terms to see how this can be done legally, and do not rely on informal discussions or emails. To do so, you put yourself at risk in relying on the goodwill, or not, of the other party – because their word might very well turn out not to be their bond.

You should seek legal advice before entering into, or seeking to vary, any legally binding agreement with other parties.

This article was first published in the September edition of South East Farmer.

This content is correct at time of publication