“Boilerplate clauses” are a standard part of most written
contracts and are rarely given much thought.
They provide the basic provisions which are considered appropriate in nearly
all contracts. A common one provides
that any variation to the agreement must be in writing and signed by or on
behalf of the parties. This is known as
a “No Oral Modification” clause, or “NOM”.
Its purpose is to reduce the potential for future disputes where one
party seeks to argue that the other had orally agreed to their departing in
some way from the terms of the written contract. This helps create certainty (which is the
point of putting contracts in writing), but the problem is that in practice the
parties don’t read their contracts (and especially not the boilerplate clauses,
which are considered “legalese”) and so do sometimes actually agree such oral
variations, which they then proceed to act upon.
Take this example:
“All variations to this Licence must be agreed, set out in
writing and signed on behalf of both parties before they take effect.”
This wording was in a licence to occupy serviced offices in
central London granted by MWB Business Exchange Centres Ltd to Rock Advertising
Ltd. Rock fell into arrears and claimed
to have agreed a revised payment schedule over the phone with MWB’s credit
controller. The credit controller’s boss
didn’t approve the proposed payment schedule, and MWB evicted Rock and claimed
the arrears. Rock counterclaimed for
wrongful eviction. The judge found there
was indeed an oral agreement to vary the licence, which the credit controller
had authority to conclude, but it was ineffective as it didn’t comply with the
NOM.
The case went all the way up to the Supreme Court, as there
was no clear authority under English law whether NOM clauses were
effective. The general view, supported by
recent cases (and by the Court of Appeal in this case), was that they were not
– because the parties had freedom to contract orally and so could agree a
subsequent oral contract which would impliedly override the NOM. But lawyers still included NOMs in contracts
– just in case they did work.
The Supreme Court, in Rock Advertising Ltd v
MWB Business Exchange Centres Ltd [2018] UKSC 24, held 4 to 1 that NOM
clauses did indeed work (so we lawyers were right to include them all
along). Lord Sumption, delivering the
lead judgment, explained his view that:
“What the parties to such a clause have agreed is not that
oral variations are forbidden, but that they will be invalid. The mere fact of
agreeing to an oral variation is not therefore a contravention of the clause.
It is simply the situation to which the clause applies. It is not difficult to
record a variation in writing, except perhaps in cases where the variation is
so complex that no sensible businessman would do anything else. The natural
inference from the parties’ failure to observe the formal requirements of a No
Oral Modification clause is not that they intended to dispense with it but that
they overlooked it. If, on the other hand, they had it in mind, then they were
courting invalidity with their eyes open.”
Lord Briggs disagreed with this analysis, but agreed the
appeal should be allowed. He took the
view it was theoretically possible to agree orally to dispense with a NOM
clause, but the Courts would only imply that the parties had done so where “strictly
necessary”, rather than as a matter of course just because they had not
complied with the NOM. He therefore
agreed with the majority that the oral variation was ineffective in this case.
So we now have clear authority that NOMs work, and that you
can’t agree to delete them except in writing.
This is good for legal certainty, but is likely to create problems in
those cases where the parties have agreed an oral variation anyway and gone
ahead and acted upon it.
