Verbal warning

Global Publication June 2018

In Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24 the Supreme Court had the last word on ‘no oral modification’ - or “NOM” - clauses in contracts.

Rock occupied offices under a written licence agreement. The agreement stated that "All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect" - a common enough clause in commercial contracts, but is it enforceable?

Rock fell into licence fee arrears and orally agreed a revised schedule of payments with the licensor’s credit controller spreading the accumulated arrears over the remainder of the licence term. The licensor subsequently challenged the oral variation, terminated the licence for breach and sued for the arrears.

Was the licensor bound by the oral variation?

The Supreme Court stated that there were sound commercial reasons for NOM clauses, not least that they prevent attempts to undermine written agreements by informal means, avoid disputes as to exact terms and make it easier for corporations to police their own internal rules restricting the authority to agree variations. The law of contract does not normally obstruct the legitimate interests of businessmen except for overriding reasons of public policy. The NOM clause was legally effective and the oral variation was invalid for not complying with it.

A welcome decision in terms of commercial clarity and risk management but also a warning to comply with the formalities of any NOM clause if varying a term in an agreement no matter how friendly the parties, to avoid a possible future challenge.

As a footnote, bear in mind that agreements for the sale or other disposition of an interest in land have their own rules: they, and any variations to them, must always be in writing and comply with strict statutory formalities to be effective.

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