Contract Update – Written vs Oral Variations

What happens when a contract says that all variations must be in writing, but the parties then try to vary that contract orally? Can they do this? The UK Supreme Court recently looked at this and decided the answer is "no".

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24, the Supreme Court held that a "no oral modification", or "NOM", clause is legally effective, overturning the Court of Appeal's ruling that such a clause did not prevent a valid variation by oral agreement. 

Rock Advertising Ltd ("Rock"), entered into a licence agreement to occupy premises managed by MWB Business Exchange Centres Ltd ("MWB") with a NOM clause inserted stipulating that "all variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect". 

Rock argued that the parties had orally agreed to vary the schedule of payments after it fell into arrears of licence payments. MWB considered that the revised schedule was merely a proposal, so locked Rock out of the premises and issued proceedings for payment of the balance of arrears. Rock counterclaimed for damages for wrongful exclusion from the premises, in reliance on the oral agreement which they said varied the contract. 

The first instance court judge ruled in favour of MWB, but Rock appealed successfully to the Court of Appeal which held that the oral agreement to vary the payments also amounted to an agreement to dispense with the NOM clause, meaning that the oral variation was binding. 

MWB appealed to the Supreme Court, which unanimously allowed the appeal.  They said that the aim of a NOM clause is to restrict the manner in which future changes to an agreement can be achieved. The main issue before the Supreme Court was whether the NOM clause was legally effective, or if any such clause would automatically be set aside if the parties varied the contract by word of mouth. 

The Supreme Court concluded that the oral variation was invalid, because the procedure prescribed by the NOM clause in the licence agreement had not been followed.  They said there was no principled reason why contracting parties could not prescribe a particular form of agreement.  

There are good commercial reasons for using NOM clauses – by requiring that all variations are made in writing, they create certainty and avoid disputes about whether a contract has actually been varied (and, if so, on what terms). 

This decision therefore provides very helpful clarity in relation to NOM clauses. It confirms that, where such a clause is used, if parties wish to vary an agreement, they must follow the formal procedures contained within the contract.  You can see how there may be arguments about estoppel in these situations, but it is unlikely that the scope of an estoppel could be so broad as to undermine the certainty provided by an NOM clause.

Read our latest articles on contract and construction