Nom nom: Court grills Kebab

Kabab-ji argued, unsuccessfully, that provisions of good faith (found in a franchise agreement and in the UNIDROIT principles) meant that the court should apply a broader test than the one set out in MWB v Rock.

The dispute related to whether, following a corporate reorganisation, Kout was now a party to a franchise agreement originally entered into between Kabab-ji and an entity that had subsequently become a subsidiary of Kout. No formal agreement to amend the terms of the franchise agreement to make Kout a party was ever entered into, despite the franchise agreement containing a no oral modification clause.

Kabab-ji argued that Kout was a party to the franchise agreement, because it contained an express provision that the parties act in good faith (and was supported by similar provisions within the UNIDROIT principles, which also applied to the franchise agreement) which, when considered alongside Kout’s conduct in appearing to act as a party to the franchise agreement, overrode the no oral modification clause.

The court held that clearly worded no oral modification clauses can only be overridden if the estoppel test set out in MWB v Rock is satisfied and that principles of good faith cannot be used to set aside such clauses on broader grounds. Further, the court held that the UNIDROIT principles do not specify any principles which are broader than the estoppel test set out in MWB v Rock.

Update October 2021: This decision was upheld by the Supreme Court on appeal, see Failure to comply with no oral modification provision prevented effective novation