We have previously dedicated blog posts to so-called "No Oral Modification" or "NOM" clauses. You can find our previous post focusing on the Supreme Court judgment in MWB Business Exchange Centres v. Rock Advertising  UKSC 24 here.
The validity of contractual modifications is a recurring theme in commercial disputes. A recent English Court of Appeal judgment in Kabab‑Ji S.A.L (Lebanon) v. Kout Food Group (Kuwait)  EWCA Civ 6 considered this issue.
The NOM clause in Kabab‑Ji was not unlike clauses often seen in commercial contracts. It read as follows: "The Agreement may only be amended or modified by a written document executed by duly authorised representatives of both Parties". The contract also imposed good faith and fair dealing obligations on the parties.
In the underlying arbitration proceedings, Kabab‑Ji claimed against KFG, a company which was not (originally) party to the agreement out of which the dispute arose. Kabab‑Ji argued that KFG had become party to the agreement even though the parties failed to follow the NOM procedure for amending the contractual terms.
On the facts of this case, the Court of Appeal upheld the NOM clause with which the parties had failed to comply and found the purported modification, which would have made KFG a party to the agreement, to be ineffective. In doing so, it applied the Supreme Court Judgment in Rock Advertising.
It is clear that the standard set out in Rock Advertising is high. And the courts are taking a hard-line approach in applying it. To meet the standard and comply with the terms of a NOM clause, it will generally not be sufficient to show that the other party acted consistently with the purported modification. It is not even sufficient when the party acted consistently with the purported modification and the agreement specifically required the parties to act in accordance with good faith and fair dealing as was the case in Kabab‑Ji.
Even if a party seeks to rely on the defence of estoppel, its scope is limited. A party is to show "some words or conduct unequivocally representing that the variation was valid notwithstanding its informality." A party pleading estoppel should show something more than reliance on the informal promise itself (and it is difficult to see what that could be). At the same time, the estoppel "cannot be so broad as to destroy the whole advantage of certainty" which the parties sought to achieve when agreeing a NOM clause.
Since the 2018 Supreme Court judgment in Rock Advertising, the effect of NOM clauses has become more certain. The argument that the parties who initially agreed on a specific NOM procedure can then choose to make modifications without following the said procedure, is no longer prevalent. We recommend parties keep this in mind when drafting/amending contracts and set out below some practical advice in light of the recent case law.
- A NOM clause serves an undoubted benefit in that it will help you stay in command of the contractual terms. You will find this particularly important in more complex deals and larger projects when different departments are responsible for different tasks. NOM clauses will help you avoid instances where actors whose responsibilities do not include contract negotiation inadvertently modify contractual terms.
- Highlight NOM clauses to your contract managers in the same way you would highlight payment or delivery deadlines. Failure to comply with NOM clauses can have severe consequences.
- To be able to rely on the modifications you intend to make, remember to formalise them by complying with the NOM clause. NOM clauses usually require a written form and a signature by the contracting parties. Do not neglect following through. On the other hand, be wary of the broad interpretation of what "in writing"/"signature" can mean. An email and an email containing a signature block may suffice.
- Do not be tempted to rely on mutual understanding or course of dealings. The bar is high for the court to find a modification effective where the parties have not complied with the contractual formalities.
- As always, it is sensible that you record any negotiations in writing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.