Contract law clarified

Lawyers have welcomed a Supreme Court ruling that a ‘no oral modification’ clause overrides an informal variation to a contract.

In a case that has implications for all types of contract, the Justices held that the clause trumped an oral agreement made between a licensee and the licensor’s credit controller over unpaid rates for managed office space operated by MWB, in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24.

Rock Advertising said it had made an oral agreement to adjust the licence fee payments so it could clear the arrears over a period of time. MWB said any agreement had to be in writing since oral variation was forbidden under the terms of the contract.

Giving the lead judgment, Lord Sumption said: ‘In my opinion the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation.’

Counsel for MWB, Clifford Darton and Sally Anne Blackmore, of Ely Place Chambers, said: ‘Any large organisation—from the biggest multinational to the smallest local authority—which enters into contracts of whatever nature should at least heave a sigh of relief if not whoop for joy upon hearing the result of the case. 

‘The Supreme Court’s judgment means parties that contract for the protection of a no oral modification clause may be confident that they will remain bound by the terms they agreed to unless or until they specifically turn their minds to the question of varying the agreement and go through previously determined formalities to effect any variation. Had the decision gone the other way, confusion and expense must have followed.’

Tanya Wilkie, commercial lawyer at Charles Russell Speechlys, said: ‘Small businesses and consumers in particular should look out for this seemingly innocuous clause, which they might otherwise overlook.

‘Even if the other party appears amenable and cooperative to changing the terms of the contract informally, it is important to double check the procedure set out in the contract as to how it can be varied as it may require the agreed position to be in writing and signed by the parties.

‘In this case, the parties could have chosen to formally remove the “no oral modification” clause, allowing them the freedom going forward to vary the terms of the deal with nothing more than a spoken agreement. However, with such freedom would come added uncertainty.’

Emma Humphreys, property litigation partner at Charles Russell Speechlys, said the decision was ‘a welcome clarification of the law’. 

‘There may be concern arising from this judgment for those who agree to vary arrangements in good faith and subsequently find the other party trying to avoid the revised agreement on the basis of a “no oral modification” clause,’ she said. ‘However, the Supreme Court recognised this and emphasised that the principle of estoppel still has a role to play in safeguarding against injustice in such situations.’