A brief summary of the principles, recent developments and practical tips relating to the use of clauses prohibiting contractual amendment by oral agreement.
Principles
- Commercial contracts commonly include provision that the agreement may not be amended except in writing signed on behalf of the parties.
- Such clauses are commonly known as “No Oral Modification” or NOM clauses.
- Recent English case law has been equivocal as to the effectiveness of NOM clauses.
- The trend of authority was to suggest that a NOM clause did not prevent a subsequent oral variation taking effect as the parties could orally agree to disapply the NOM clause.
Recent developments
- In Rock Advertising Limited v MWB Business Exchange Centres Limited, the Supreme Court considered the effect of NOM clauses.
- In that case, a contract with a NOM clause had been purportedly varied by a subsequent oral agreement.
- The Supreme Court held that the NOM clause in that contract did indeed prevent the subsequent oral variation from being effective to amend the written contract.
- However, if the parties to a contract do purport to agree an oral variation contrary to the terms of a NOM clause, the doctrine of estoppel may prevent a party from enforcing the written contract except as (invalidly) varied.
What this means
- This decision brings much needed clarity to the effectiveness of NOM clauses and there are now likely to be far fewer cases where it will be alleged that a contract agreed in writing has been subsequently varied orally contrary to a NOM clause.
- Contracting parties who have used a NOM clause no longer have to worry that an employee with ostensible authority might amend a contract, such as extending a deadline for performance, during a conversation with a representative of the other party.
- However, the doctrine of estoppel may take effect to prevent one party enforcing the unvaried contract if the parties perform the contract as varied and the other party has relied on the purported variation to its detriment.
