Supreme Court confirms that parties can agree a "No Oral Modification" clause
The parties entered into a contract which included a clause that all variations to the contract "must be agreed, set out in writing and signed on behalf of both parties before they take effect". Such a clause is commonly called a "No Oral Modification" clause and the issue in this case was whether it was effective. One of the parties argued that it was not because: " (i) a variation of an existing contract is itself a contract; (ii) precisely because the common law imposes no requirements of form on the making of contracts, the parties may agree informally to dispense with an existing clause which imposes requirements of form; and (iii) they must be taken to have intended to do this by the mere act of agreeing a variation informally when the principal agreement required writing". Those arguments have been accepted in other countries, such as Australia, Canada and Germany and also found favour in the Court of Appeal in this case.
However, the Supreme Court (by a 4:1 majority) has now allowed the appeal from that decision. Lord Sumption, giving the leading judgement said that "In my opinion the law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation". He further commented that the reasons advanced for disregarding No Oral Modification clauses "are entirely conceptual" and "there is no conceptual inconsistency between a general rule allowing contracts to be made informally and a specific rule that effect will be given to a contract requiring writing for a variation".
The same principle also applied to entire agreement clauses: "Both are 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".
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