Contract – Variation – NOM clause – Respondent occupying office premises under licence from appellant – Parties entering into new licence agreement for larger premises at increased licence fee – Appellant terminating agreement for arrears and claiming unpaid licence fee and charges – Respondent relying on alleged oral agreement to vary payments – Whether reliance on such agreement precluded by clause that all variations to be in writing (NOM clause) – Appeal allowed
The respondent occupied office premises under a licence agreement with the appellant, a company that operated managed office space in London. In August 2011, the respondent entered into a new licence agreement with the appellant for the occupation of larger premises, for a term of 12 months from November 2011, at an increased licence fee. That agreement provided in clause 7.6: “This licence sets out all of the terms as agreed… No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”. By early 2012, the respondent was more than £12,000 in arrears. The appellant exercised its right under the licence agreement to lock the respondent out of the premises and gave notice to terminate the agreement.
The appellant brought a claim against the respondent for arrears and damages. The respondent counterclaimed for wrongful exclusion from the premises. It relied on an oral agreement to reschedule the licence fee payments under which it was to pay a lesser sum for several months, and then more, to clear the arrears by the end of the year. It asserted that, as a result of its payment of the first agreed instalment, and the appellant’s acceptance of the same, the appellant was estopped from denying the existence of the oral agreement.
The county court found that the parties had agreed orally to the revised schedule; but held that the appellant could claim the arrears without regard to that oral variation, because it did not satisfy the formal requirements of clause 7.6. The respondent appealed successfully to the Court of Appeal, which held that the oral variation had also amounted to an agreement to dispense with clause 7.6. It followed that appellant was bound by the oral variation: [2016] EWCA Civ 553; [2016] EGLR 45.
The appellant appealed to the Supreme Court. The main issue was whether a contractual term precluding amendment of an agreement other than in writing (a” no oral modification” or “NOM” clause) was legally effective.
Held: The appeal was allowed.
(1) The law gave effect to a contractual provision requiring specified formalities to be observed for a variation. The effect of the Court of Appeal’s approach in the present case was to override the parties’ intentions. They could not validly bind themselves as to the manner in which future changes in their legal relations were to be achieved, however clearly they expressed their intention to do so. In many cases, statute prescribed a particular form of agreement such as contracts for the sale of land. There was no principled reason why contracting parties should not adopt the same prescriptions by agreement.
(2) NOM clauses, like clause 7.6, were commonly included in written agreements: (i) they prevented attempts to undermine written agreements by informal means; (ii) in circumstances where oral discussions could easily give rise to misunderstandings and crossed purposes, they avoided disputes not just about whether a variation was intended but also about its exact terms; and (iii) a measure of formality in recording variations made it easier for corporations to police internal rules restricting the authority to agree them. NOM clauses did not frustrate or contravene any policy of the law.
(3) The argument for disregarding NOM clauses was that it was conceptually impossible for the parties to agree not to vary their contract by word of mouth because any such agreement would automatically be destroyed upon their doing so. However, some legal systems imposed no formal requirements for the validity of a commercial contract, and yet gave effect to NOM clauses. That suggested that there was no conceptual inconsistency between a general rule permitting informally created contracts and a specific rule requiring variation to be agreed in writing. In a purely English context, entire agreement clauses, which gave rise to very similar issues, were commonly coupled with NOM clauses addressing the position after the contract was made. Both were intended to achieve contractual certainty about the terms agreed, in the case of entire agreement clauses by nullifying prior collateral agreements relating to the same subject-matter: Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] PLSCS 192; [2000] 2 Lloyd’s Rep 611 considered.
(4) Where parties agreed an oral variation in spite of a NOM clause they did not necessarily intend to dispense with it. What the parties agreed was that oral variations would be invalid, not forbidden. The mere fact of agreeing to an oral variation was not therefore a contravention of the clause. The natural inference from the parties’ failure to observe the formal requirements of a NOM clause was they had overlooked it. If they had it in mind, they were courting invalidity with their eyes open.
(5) The enforcement of NOM clauses carried with it the risk that a party might act on the contract as varied, for example by performing it, and then find itself unable to enforce it. The safeguard against injustice lay in the various doctrines of estoppel. The scope of estoppel could not be so broad as to destroy the whole advantage of certainty for which the parties stipulated when they agreed upon terms including the NOM clause. At least, there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality. Something more would be required than the informal promise itself: Actionstrength Ltd v International Glass Engineering In Gl En SpA [2003] 2 AC 541 applied.
(6) Accordingly, the oral variation agreed in the present case was invalid for want of the writing and signatures prescribed by clause 7.6 of the licence agreement. The order of the county court would be restored.
Clifford Darton and Sally Anne Blackmore (instructed by Edward Harte LLP, of Brighton) appeared for the appellant; Henry Hendron and Zoë Whittington (instructed by DH Law Ltd) appeared for the respondent.
Eileen O’Grady, barrister
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