Most commercial contracts include a provision that the contract may not be amended except in writing and signed by the parties. Such provision is known as a ‘no oral modification’ or ‘NOM’ clause.
The aim of this clause is to prevent informal, and perhaps inadvertent, oral variations being made to the contract.
Up until recently, the position had been that a NOM clause in a contract did not necessarily prevent a valid variation by oral agreement, as the parties could orally agree not to apply the NOM clause. In today’s fast-paced world this may seem to be an attractive way of instantly amending the terms of an existing contract.
However, a recent Supreme Court decision has highlighted that a contract containing a NOM clause can only be varied by the method prescribed by that NOM clause.
Failure to follow NOM provisions means that a party seeking to rely on an oral variation is left in a difficult position, opening themselves up to considerable risk of the oral variation not being enforceable.
It should be noted, however, that an oral variation could still, in limited circumstances, give rise to an estoppel – a legal doctrine which prevents a person from going back on his or her word. In these circumstances a party may be prevented from relying on a NOM clause if they have represented that an oral variation is valid and the other party has reasonably relied on this.
In light of the Supreme Court’s decision, my advice would be to take particular care to check the terms of your contracts for NOM clauses. Going forward, you will need to ensure that any changes to contracts are expressly documented in writing.
If you require any assistance with commercial contracts, do not hesitate to get in touch.