In the recent case of Rock Advertising Limited v MWB Business Exchange Centres Ltd [2018] UKSC 24, the Supreme Court overturned the Court of Appeal’s ruling that a No Oral Modification (‘NOM’) clause did not prevent the parties from varying the contract containing the clause by way of oral agreement.
Varying Contracts
The parties to a contract may vary its terms by mutual agreement, provided that (i) consideration is given (or the variation is made by way of a deed), and (ii) any necessary formalities are complied with. Such variations can be oral or in writing.
Commercial agreements often include NOM clauses, which seek to preclude variations to the contract other than by way of agreement of the parties in writing.
Facts
MWB Business Exchanges Centres Limited (‘MWB’) operated serviced offices in central London and entered into a contractual licence permitting Rock Advertising Limited (‘Rock’) to occupy office space.
Rock fell into licence fee arrears and proposed a revised schedule of payments, contending in court that MWB had accepted such proposals orally. MWB asserted that the revised schedule had been considered only as a proposal in the continuing negotiations, prior to being rejected.
MWB eventually terminated the licence and sued for the arrears. Rock counterclaimed damages for wrongful exclusion from the premises.
The licence included a NOM clause, providing that “all variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”
Decision
Lord Sumption noted in his leading judgment that the case raised “truly fundamental issues in the law of contract”, including whether “a contractual term prescribing that an agreement may not be amended save in writing” is legally effective.
He concluded that the law “should and does give effect to contractual provisions requiring specified formalities to be observed for a variation.” The Court of Appeal’s assertion to the contrary and in the interests of party autonomy was a fallacy; autonomy operated up to the point where the contract was made, but thereafter only to the extent that the contract allowed.
Lord Sumption noted that NOM clauses legitimately:
It was held that there was no conceptual inconsistency between a general rule allowing for contracts to be made informally, and a specific rule that effect would be given to contracts requiring variations to be made in writing.
It did not therefore follow that parties, in orally varying a contract containing a NOM clause, must also have intended to dispense with the clause – Lord Sumption commented that “the natural inference from the parties’ failure to observe the formal requirements of a No Oral Modification clauses is not that they intended to dispense of it but that they overlooked it. If, on the other hand, they had it in mind, then they were courting invalidity with their eyes open.”
The Court allowed MWB’s appeal and held that the NOM clause could not be ignored.
Comment
Parties should generally take care when varying commercial contracts to ensure that any procedural requirements within the relevant agreement are followed. While failures to comply with such requirements do not necessarily invalidate such variations, they do raise questions as to the effectiveness of the proposed amendment.
This decision establishes that NOM clauses are effective and parties should therefore seek to comply with NOM clauses where applicable. Such compliance not only safeguards against ineffective variations, but also avoids the pitfalls inherent in oral amendments which, being unrecorded, can be equivocal and difficult to enforce.
For assistance in varying written agreements and commercial contracts generally, please contact our business team:
https://www.foskettmarr.co.uk/index.php/our-team/business-solicitor-essex/
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