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02 Jul 2018

Spare any change? Are clauses prohibiting oral changes to written agreements effective?

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You've got a deal…

You run a substantial business.

You regularly enter into agreements to both buy and sell products and services. You need certainty, so you make sure that all your agreements are in writing and clearly set out who is obliged to do what, when and how much it's all going to cost.

You have a "NOM" clause …

To avoid confusion about what has or hasn't been agreed, you also include a "no oral modification" ("NOM") clause in your standard agreements, to say that all variations must be "agreed, set out in writing and signed on behalf of both parties before they take effect".

Enforcement

So far, so good. But then you have a dispute because a payment that you're due hasn't been made. You turn to the contract, which clearly supports your case. 

Wriggle room…?

"Ah, yes…" says your opponent, "…the written contract does say that, but don't you remember that we discussed this, and you agreed to accept smaller payments over a longer period"? You agree that there were discussions, but that was just to explore options. Anyway there has been no written variation of the agreement so you can rely on the NOM clause, right? Right.

NOM clauses are effective…

The Supreme Court recently confirmed that NOM clauses are valid and legitimate in the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd, which was based on similar facts to those described above.

…but that's not quite the end of the matter…

Whilst the starting point is that NOM clauses are effective, if a party acts on the mistaken assumption that a contract has been effectively varied, so called "estoppel" arguments might arise to prevent unfairness. In practice, this means that if a person bringing a claim has given some clear representation by words or conduct that the variation is valid, they will be "estopped" (i.e. prevented) from denying the validity of the variation at a later stage.

Moral

For important agreements where you want certainty, NOM clauses are helpful. They're an effective way of avoiding confusion and disputes by ensuring that informal chat is not given legal effect. They also make it easier for businesses to ensure that only those with appropriate authority can vary agreements.

Remember though that NOM clauses can cut both ways and can be used against you. The overriding moral is that, if you think you've agreed a variation to a contract, make sure that the variation is properly documented in writing.

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