The Supreme Court has held that a clause in a contract, which required modifications to that contract be in writing and signed by both parties, invalidated a subsequent oral agreement to vary the contract. Specifically, the issue before the court was whether the No Oral Modification (NOM) clause was legally effective.
Rock Advertising entered into a licence with MWB to occupy office space for a fixed term of 12 months. The licence contained a clause requiring all variations to be set out in writing and signed on behalf of both parties.
However, it was later agreed that the payment schedule would be varied. Despite this, MWB treated the variation as merely a proposal and rejected the new schedule before excluding Rock Advertising from the premises for failing to pay the arrears. Ultimately, MWB terminated the licence.
At first instance, the County Court found that the oral agreement did not satisfy the formal requirements of the NOM Clause. The Court of Appeal subsequently reversed the decision, holding that the oral variation amounted to an agreement to dispense with the NOM clause. MWB consequently brought proceedings to the Supreme Court.
The case focused on whether the agreement to vary the payment schedule was effective, despite being in breach of the requirements of the NOM clause.
The Supreme Court overturned the Court of Appeal’s decision, unanimously holding that the absence of the writing and signatures required by the NOM clause rendered the oral agreement to vary the contract invalid. In doing so, Lord Sumption found that the proper understanding of party autonomy is that parties may agree to bind their future conduct, however that agreement will be definitive. Consequently, as the contract stipulated that variations to the contract were to be in writing, the oral variation was deemed invalid.
In this instance, Rock Advertising argued that MWB acted on the agreement and that the doctrine of estoppel should therefore apply to prevent unfairness. Specifically, they contended that MWB should not be able to rely on the NOM clause to invalidate the oral variation. However, the court ruled that estoppel did not arise on the facts of this case.Rather, the court held that for estoppel to arise, there needed to be evidence of words or conduct which unequivocally represented the variation as valid, and that it needed to be something more than the informal promise itself.
This case serves as a timely reminder for businesses whose contracts are governed by English law, that they should seek to ensure all stakeholders are aware that informal and oral variations to contracts containing NOM clauses will not be enforceable. They should also note that the defence of estoppel may be difficult to establish and should be careful to follow the strict provisions of any NOM clause.
Ultimately, it provides that where a contract contains a NOM clause, the parties can be certain that the written contract represents the contract in entirety.