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How could ‘No Oral Modification’ clauses assist you and your business?

04/06/2018
Business sales and purchases

In the recent Supreme Court case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd, a no oral modification clause was held to be effective. Ravinder Heer, trainee solicitor in the Lodders Corporate and Commercial team, explores the case and what it could mean for you.

Under basic contract law parties are able to vary the terms of a contract by agreement in writing or orally, provided certain formalities are complied with.

Most modern contracts contain a no oral modification (‘NOM’) clause. This type of clause seeks to restrict oral variations to contracts with the overall aim of reducing informal amendments.

In this case, Rock Advertising Ltd (‘Rock Advertising’) had accumulated licence fee arrears amounting to just over £12,000 and proposed a revised schedule of payments which deferred the payments and spread the arrears over the remaining licence term. Rock Advertising stated this amendment had been agreed orally, whilst MWB Business Exchange Centres Ltd (‘MWB’) disputed this, arguing that the revised schedule was merely a proposal. MWB took the following action:

  • terminated Rock Advertising’s licence;
  • locked Rock Advertising out of the premises for failure to pay the arrears; and
  • sued Rock Advertising for arrears.

Rock Advertising issued a counterclaim for damages for wrongful exclusion. A County Court judge found an oral agreement had been made to vary the licence; however found it to be ineffective as it had not been in writing in accordance with the NOM clause.

Rock Advertising appealed to the Court of Appeal (‘COA’) on the grounds that the oral agreement to vary the payment amounted to an agreement to dispense with the NOM clause altogether. The COA held that the oral variation to the licence was effective, despite the presence of the NOM clause.

In the final twist, MWB appealed to the Supreme Court who allowed their appeal and refused to allow the NOM clause to be ignored.

This case is a useful reminder to clients to include NOM clauses within their agreements to avoid:

  • disputes about whether variations have been intended;
  • informalities in recording variations; and
  • attempts to undermine written agreements by informal means.

A NOM clause can assist in ensuring all parties understand their respective rights and obligations. Careless informal conversations between parties can cost a substantial sum of money if a NOM clause is not present within the respective agreement. It is therefore sensible to ensure this type of clause is included in contracts for transparency.

For more information on this story, contact Ravinder Heer on 01789 206137 or via email. Alternatively, click here to find out more about Lodders’ Corporate and Commercial services.

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For more information on this story, contact Ravinder Heer on 01789 206137 or via email. Alternatively, click here to find out more about Lodders’ Corporate and Commercial services.