In the recent Supreme Court decision, Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24, Lord Sumption finally confirmed the much debated position as to the effect of "no oral modification" clauses also known as 'a NOM clause'. These clauses provide that to effectively vary the terms of a contract, the variation must be in writing. The case-law in which the effectiveness of NOM clauses has been tested was conflicting and whether or not such clauses were effective at all was unclear.
The Supreme Court has now held that NOM clauses are effective - indeed "party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the contract allows…The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what have agreed". The practical effect of this decision is that parties wishing to vary the terms of a contract in which a NOM clause is present must comply with the terms of that NOM clause. Oral statements intended to vary the contract will not suffice.
The underlying facts of this case were concerned with the variation of the terms of a lease but given that in practice such clauses are often included in all sorts of contracts, this decision is of great importance to anybody who has entered into and is acting under a contract.
NOM clauses are used by many drafters as a standard clause; included but not debated or given much thought and often forgotten by parties altogether. It was often thought that parties to a contract could orally vary the terms of that contract, notwithstanding the existence of a NOM clause. The Supreme Court has now done away with such practice and parties would be well-advised to check their contracts for NOM clauses when intending to vary the terms.
This decision is important for all businesses, including those exploiting brands and in many ways it will be a welcomed decision as it clarifies, for everybody, a grey area of law.
Although some may consider it infuriating that parties to a contract (who after all agreed the terms of the contract) cannot simply orally waive the prohibition against oral waiver, it is worth remembering some of the safe-guard purposes of NOM clauses (as explained by Lord Sumption):
- It prevents attempts to undermine written agreements by informal means, which may be open to abuse.
- It avoids disputes between parties where there has been a misunderstanding as to the meaning and respective intended effect of oral statements made to one another.
- Requiring variations to be made formally in writing makes it easier for businesses to police internal rules restricting the authority to agree to the variations.
Interestingly, Lord Briggs agreed with Lord Sumption but for different reasons (the other judges agreed with Lord Sumption). He took a more cautious approach and perceived the possibility of parties expressly orally agreeing to waive a NOM clause or where such an implication is necessary.
It will be interesting to see how Lord Sumption's leading judgment will be applied in practice. We hope that it will tackle at least the first and second of the issues identified above with not complying with NOM clauses, but there may well be more submissions in disputes of elaborate arguments based on estoppel and the meaning of the precise words contained in a NOM clause itself.