Laura Jenkins speaks to Lexis Nexis about the recent Rock Advertising v MWB Business Supreme Court judgment dealing with ‘no oral modification’ (NOM) clauses. The judgment held that licence fee payments could not be varied by oral agreement between the parties as the contract contained a no oral modification clause. The case will have wide ramifications for all types of contracts.
In the article, Laura notes that “the judgment produces two different reasonings, with Lord Briggs’ test demonstrating the ‘practical realities of business conduct’, and Lord Sumption’s being ‘cleaner’”.
“The majority of the Supreme Court reason, through the judgment of Lord Sumption, that an oral variation of a NOM clause is invalid because to give effect to the oral variation would override the parties’ intentions as to future changes in their contractual relations.
“The reasoning adopted by Lord Briggs, who nonetheless reached the same conclusion on the facts, would permit oral variation of a NOM clause in circumstances where the parties expressly agree to the variation (albeit orally) or by strictly necessary implication.
“With a view to avoiding litigation, businesses might at face value prefer the reasoning of Lord Sumption who provides a cleaner test. However, Lord Brigg’s alternative reasoning may better reflect the practical realities of business conduct, giving more scope for the particular facts of an orally agreed variation to be considered.”
The consideration issue
The judgment gives rise to a further issue of consideration, on which Laura comments:
“It is a shame that the Supreme Court did not have the opportunity to address the second issue as to whether or not an agreement to vary a contract to pay money by substituting an obligation to pay less money or the same money later is supported by consideration but Lord Sumption’s conclusion that such an important issue should not be considered as an obiter dictum is well understood.”
A welcome clarification for lawyers and businesses
The decision has been welcomed as having avoided the floodgates to uncertainty. Laura adds:
“If a business wants to protect itself against the effects of oral misunderstandings or informal attempts to undermine what was previously agreed or if it wants to ensure that those amending contracts can only be those individuals familiar with their terms then it can now rely on the insertion of a NOM clause into its contracts to give effect to that intention.
“Lawyers will now also be able to give less equivocal advice as to the effect of an agreement where the written contract contains a NOM clause.”
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