Can contracts be varied orally?
Common practice
No oral modification (NOM) clauses - which are sometimes called no oral variation clauses - are fairly common in commercial contracts. They essentially restrict how variations to the agreement can be made, i.e. in writing only, and render any verbally agreed changes null and void. The primary purpose of these clauses is to protect the parties and maintain the original contract.
Long-running case
For some years, there’s been a debate amongst legal experts as to whether NOM clauses are enforceable and this has been the central issue in a long-running case involving MWB and Rock (R). MWB, which operates several offices in London, agreed that R could occupy some of its office space under a licence for a period of twelve months. The contract contained a NOM clause which stated: “All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect” .
Into arrears
R failed to make the agreed payments under the contract and fell into arrears of around £12,000. It verbally negotiated different terms with MWB but they were never put in writing. A dispute later arose between the parties. R argued that MWB had accepted the oral variation and the new payment terms; MWB contended that it considered the new terms to be “a proposal” . As there were still arrears, MWB locked R out of the premises, terminated the licence and sued for payment. R counterclaimed for damages, breach of the licence and wrongful exclusion from the premises.
A courtroom saga
The High Court, which dealt with the case initially, ruled in MWB’s favour. R then appealed to the Court of Appeal. It overturned the High Court’s ruling and stated that it was open to the parties to a contract to agree variations any way they wished. We reported on this ruling in January 2017 ( yr.18, iss.7, pg.1 , see The next step ). Unhappy with this outcome, MWB made a further appeal to the Supreme Court.
Supreme Court’s ruling
Importantly, it has now reversed the Court of Appeal’s decision and ruled that NOM clauses are binding (see The next step ). So, once again, MWB is the winner in this case.
Tip 1. This ruling doesn’t mean that a contract which contains a NOM clause can’t ever be varied. But for any variation to be effective, the parties must fully comply with the terms of the NOM clause. In this case, all variations needed to be put into writing and signed by both parties before they could take effect. A similar requirement is put in most commercial contracts.
Tip 2. Since this ruling, it’s been suggested that our contract law has now become quite restrictive. On the contrary, this ruling - which confirms the effectiveness of NOM clauses - brings clarity and certainty to the parties to a contract. It also closes the door on potential lengthy and costly litigation over NOM clauses.
For the previous article on the Court of Appeal’s ruling and for Supreme Court’s ruling in this case, visit http://tipsandadvice-business.co.uk/download (CD 19.19.02).
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