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No oral variation clause found to be effective (Supreme Court)

The Supreme Court has found that a no oral modification clause is valid, overturning the Court of Appeal’s earlier decision. (Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24.)

The Supreme Court has held that a no oral modification (NOM) clause is legally effective, overturning the Court of Appeal’s ruling that a NOM clause did not prevent a valid variation by oral agreement.

The NOM clause stated 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 was in arrears under the licence and proposed a revised payment schedule. The Court of Appeal had found that the oral agreement to vary the payments was valid and amounted to an agreement to dispense with the NOM clause. The Supreme Court disagreed, upholding the trial judge’s decision that a NOM clause is effective.

NOM clauses are common in agreements because:

• They prevent attempts, including abusive attempts, to undermine written agreements by informal means.
• They avoid disputes about whether a variation was intended and about its exact terms.
• The measure of formality makes it easier for corporations to police their own internal rules restricting the authority to agree variations.

The Supreme Court’s decision, while establishing that NOM clauses are effective, also recognised that they carry the risk that a party may act on the contract as varied orally. In the future we might expect to see parties seeking to rely on the doctrine of estoppel in such cases. Although, the Supreme Court has pointed out that the scope of estoppel cannot be so broad as to destroy the whole advantage of certainty stipulated by the parties when they agreed the terms of the no oral variation clause.

Source: Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24 (16 May 2018).

Practical Law (PLC) 22.4.18