Squaring the circle: Supreme Court backs "no oral modification" clauses

Two parties enter into a written contract. It includes a clause stating that any variations have to be made in writing and signed by the parties. Subsequently, representatives from each party purport to agree to vary a particular term over the telephone. Is that variation legally effective? 

In Rock Advertising Limited v MWB Business Exchange Centres Limited, the Court of Appeal thought such an oral variation was effective. Freedom of contract is paramount - parties have the freedom to agree whatever terms they choose in whatever manner they choose – in writing, orally or by conduct. Following that general principle, the Court of Appeal reasoned that a "no oral modification" clause (a "NOM" clause) in a contract does not prevent the parties from later making a new oral contract to vary the original contract.

The Supreme Court disagrees. Lord Sumption gave the majority judgment, dismissing the party autonomy reasoning in these circumstances as "a fallacy"; party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the original contract allows. "The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed." 

Similar treatment was given to the argument that it is conceptually impossible for the parties to agree not to vary their contract orally because any such agreement would automatically be destroyed when they orally agree a variation. Other legal systems had managed to square that particular circle – having a general rule allowing contracts to be made informally, but a specific rule giving effect to a contractual term requiring writing for a variation – and there was no reason why English law should not do the same. 

In allowing the appeal and confirming that NOM clauses are legally effective, the Supreme Court held that any variation that does not comply with the terms of the NOM clause is invalid - "the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation".

But what if contracting parties have relied on a non-compliant variation in good faith? Lord Sumption also had an answer for that; a contracting party in that position may rely on estoppel arguments. However, the scope of this estoppel will be limited; "at the very least, there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality and  something more would be required for this purpose than the informal promise itself".

NOM clauses play an important role in preserving the bargain made by the parties as documented in the written agreement. They promote certainty and help avoid false or frivolous claims of subsequent oral agreements. By confirming their binding legal effect, the Supreme Court has continued its trend of holding parties to their contractual bargain and reinforcing the need for contractual certainty.