The defendant company entered into a contract, by way of a licence agreement to occupy premises managed by the claimant company, with a “no oral modification clause” inserted in clause 7.6 stipulating that “all variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”. After the defendant fell into arrears of licence payments there was a telephone conversation between one of the claimant’s employees and the defendant’s sole director which the latter understood as having resulted in the parties agreeing to a revised payment schedule so that the early payments were reduced and the difference loaded onto the later payments. The employee’s manager, however, did not agree to any such variation and, in reliance on the terms of the written licence agreement evicted the defendant and sue for the arrears. The defendant counterclaimed for damages for wrongful exclusion from the premises, in reliance on the oral agreement. The judge held that the employee had ostensible authority to agree to a variation of the terms of the licence, that she had in fact done so, but that the variation had not been effective because it was not in writing as required by clause 7.6 and so the claimant had been entitled to rely on the original written agreement to evict the defendant for arrears. The Court of Appeal allowed the defendant’s appeal, holding that the principle of freedom of contract entitled parties to agree to depart from a previously-agreed no oral modification clause, that clause 7.6 therefore did not preclude an application of the revised agreement, and that the claims were to be remitted to the judge for determination on that basis.
On the claimant’s appeal—
Held, appeal allowed. (1) (Lord Briggs JSC dissenting) Although at common law there were no formal requirements for the validity of a simple contract, which could be made orally or in writing, there was no principled reason why parties could not agree to bind themselves to a provision laying down specified conditions for any subsequent variation of their contract. “No oral modification” clauses were in common use because they served a legitimate business purpose. They did not cause any mischief nor conflict with any overriding public policy and the law of contract did not normally obstruct the legitimate purposes of businessmen in such circumstances. There was no conceptual inconsistency between a general rule allowing a contract to be made informally and a specific rule that effect would be given to a contract which required writing for a variation. A no oral modification clause was intended to achieve contractual certainty about the terms agreed, as was the case with “entire agreement” clauses which sought to nullify prior collateral agreements relating to the same subject-matter, which the courts would enforce. Safeguards lay to prevent unjust reliance on a no oral modification clause to the extent that the injustice fell within the ambit of estoppel. It was therefore to be recognised in English law that effect would be given to a contractual provision requiring specified formalities to be observed for a variation, including a no oral modification clause (paras, 7, 10–15).
(2) Applying that declared law, and since there was no ground for any claim by the defendants that the claimant was by its conduct estopped from relying on clause 7.6 of the licence agreement, the parties were bound by its provisions. Accordingly, the parties’ revised agreement was invalid for want of the writing and signatures prescribed by clause 7.6 (paras 17, 19, 20).
Per Lord Briggs JSC. That result would follow even had a narrower test been adopted of upholding a no oral modification clause save where all parties expressly, or by necessary implication, agreed to dispense with the clause (para 20).
Clifford Darton and Sally Anne Blackmore (instructed by Edward Harte llp, Brighton) for the claimant.
Michael Paget and Zoë Whittington (instructed by DH Law Ltd) for the defendant.