World Online Telecom Ltd v I-Way Ltd

A contractual term requiring variations to be made in signed writing does not necessarily justify summary judgment against a party relying on a later oral variation or variation by conduct. The legal effect of such a term was unsettled, and the parties remained capable in principle of remaking their contractual arrangements.

Summary disposal is inappropriate where construction depends on the contractual matrix or where an estoppel defence turns on disputed dealings and reliance. A pleaded set-off for unliquidated damages may also justify a trial where immediate enforcement of a substantial counterclaim could cause financial ruin.

I-Way supplied an internet-access hardware platform under a written agreement with Localtel, which World Online later replaced as contracting party. I-Way alleged that the agreed share of telephone rebates had subsequently been increased from 20 per cent to 30 per cent by an oral agreement or conduct. World Online denied any binding variation and sought summary judgment for more than £1.2 million on its counterclaim.

Mitting J refused summary judgment, notwithstanding a clause requiring contractual modifications to be in signed writing. He also struck out parts of I-Way's claims for misrepresentation and negligent misstatement while giving liberty to amend.

World Online appealed the refusal of summary judgment. I-Way cross-appealed against the strike-out and the costs order. The principal issue was whether the written-variation clause conclusively prevented reliance on an oral variation or variation by conduct.

1. Disposition. Lord Justice Sedley, with whom Mr Justice Charles and Lord Justice Schiemann agreed, dismissed World Online's appeal. I-Way's cross-appeal failed on the strike-out issue but succeeded to the limited extent of varying the costs order.

2. The law concerning the effect of a clause requiring signed written variations was unsettled. The parties had made their own contractual law and could in principle unmake or remake it. A consensual oral variation was itself an exercise of freedom of contract. The court therefore declined, on an interlocutory appeal, to hold that the clause conclusively invalidated any later oral variation or variation by conduct.

3. The correspondence and conduct relied upon by the parties raised disputed factual issues. Whether they evidenced a variation or an unequivocal course of conduct required a trial. Construction could also be sensitive to the factual matrix of the contract.

4. I-Way's pleaded estoppel supplied a separate reason for refusing summary judgment. Although an estoppel could not found a cause of action, it could answer World Online's counterclaim. Whether the parties' transactions and reliance established an estoppel by conduct or convention depended on contested evidence and was unsuitable for summary disposal.

5. I-Way had also pleaded a set-off based on its unliquidated damages claim. The court could not be confident that ordering immediate payment of more than £1 million before that cross-entitlement had been tried would avoid financially ruinous consequences. This provided a further reason for allowing the dispute to proceed to trial.

6. Mitting J had been entitled to strike out the defective misrepresentation and negligent-misstatement pleading while granting liberty to amend. His order precluded an issue estoppel against the proposed amendment. A party which can preserve a pleading only by amendment will ordinarily bear the associated costs.

7. The order that the costs below should lie where they fell did not reflect the substantial outcome, because World Online had failed both to stifle the claim and to obtain summary judgment on its counterclaim. I-Way was awarded one half of its costs below, and its costs of the appeal.

• Court of Appeal (Civil Division): In [2002] EWCA Civ 413, unanimously dismissed World Online's appeal from the refusal of summary judgment. It dismissed I-Way's substantive cross-appeal but allowed its cross-appeal to the limited extent of varying the costs order.
• High Court, Manchester District Registry: Mitting J refused World Online's application for summary judgment on its counterclaim. He struck out defective parts of I-Way's misrepresentation and negligent-misstatement claims with liberty to amend, and ordered the costs to lie where they fell.