No Oral Modification (NOM) clauses are binding

The Supreme Court recently decided that “No Oral Modification” clauses are binding, meaning that changes to a contract containing a NOM clause that are agreed orally will not be enforceable.

In order to offer some certainty, it is common to see clauses in all sorts of contracts stating that variations to the contract may only be made in writing, signed by the parties. There have been conflicting views about the effectiveness of NOM clauses. A common view has been that a variation resulting from a verbal agreement could itself be a contract, which is not required to be in writing in order to be binding. The new verbal contract has the effect of varying the old written contract, despite the NOM clause.

The case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd suggests that there should be no doubt in future that the clauses are enforceable and that oral changes to the contract will not be effective.

Rock took a licence of offices in a building operated by MWB. The licence contained a NOM clause. When Rock fell into arrears, the owner had a conversation with an employee of MWB, to discuss rescheduling the overdue payments. Rock claimed that the MWB employee agreed his proposal. MWB changed the locks and excluded Rock from the premises, on the basis that its employee had not agreed to the rescheduled payments, and Rock was
in breach of its licence by failing to pay on time. 

MWB sued for the arrears and Rock counterclaimed for wrongful exclusion from the premises. The Judge in the County Court decided that the MWB employee had agreed the revised terms but they were not effective, because they were not in writing, as required by the NOM clause. The Court of Appeal disagreed, deciding that the oral agreement to revise the payments was also an agreement to dispense with the NOM clause, and binding on MWB.

The Supreme Court decided that the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation. Here, the NOM clause should be upheld and the lack of writing and signatures meant that the revised payment schedule was not binding on MWB, which was entitled to its arrears.

A party might still be prevented from relying on a NOM clause where their conduct has led the other party to act in a different way (a concept known as an ‘estoppel’), but more than the informal variation itself would be required to give rise to such a right. The position can be further complicated in consumer contracts. A NOM clause can be considered to be an unfair clause, and not enforceable under the consumer protection regulations, if the business routinely agrees variations with consumers orally. For business to business contracts, there is now a clear warning that oral changes to contracts with a NOM clause will not work.

I am based at our Chelmsford office can be reached on 01245 453817 or alternatively you can email me  [email protected].