The Supreme Court observed that it is rare for fundamental issues in the law of contract to be raised in modern litigation, but that the issue of oral variation of contracts containing a NOM clause was an exception. In the present case, one of the main issues before the Court was whether the contractual term precluding amendment of an agreement other than in writing (i.e. the NOM clause) was legally effective. The appeal was allowed unanimously, holding that the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation to a contract.
It was noted by the Court that NOM clauses are common in business agreements and are recognized as effective in many legal codes around the world for three reasons:
- they prevent attempts, including abusive attempts, to undermine written agreements by informal means;
- they avoid disputes not just about whether a variation was intended but also about its exact terms; and
- they make it easier for corporations to police their own internal rules restricting the authority to agree variations.
In addition to finding that the above points represented legitimate commercial reasons for parties to agree to a NOM clause, the Court held that the “law of contract does not normally obstruct the legitimate intentions of businessmen, except for overriding reasons of public policy. Yet there is no mischief in No Oral Modification clauses, nor do they frustrate or contravene any policy of the law”.
The Court held that the approach by the Court of Appeal was to override the parties’ intentions to bind themselves as to the manner in which future changes in their legal relations are to be achieved, and in doing so deferring to powerful considerations in favour of party autonomy. This was, in the view of the Court, a fallacy, with party autonomy only operating up to the point when the contract is made, but thereafter only to the extent that the contract allows. Nearly all contracts, for example contracts for the sale of land and certain regulated consumer contractors, bind the parties to some course of action and to certain extent restrict their autonomy. There is no principled reason why the parties should not adopt the same principle by agreement.
Further, parties who agree an oral variation in spite of a NOM clause do not necessarily intend to dispense with that clause. What the parties agreed was that oral variation will be invalid, not that they are forbidden. The Court further reasoned that the natural inference from a failure to observe a NOM clause is not that the parties intended to dispense with it, but that they overlooked it. And if they had it in their mind, then they were “courting invalidity with their eyes open”.