No oral modification clauses: an Australian response to MWB Business Exchange Centres v Rock Advertising

• Author: George Pasas
• Position: UNSW BCom (Distinction)/LLB (Hons I); Tipstaff to the Hon Justice McDougall. My particular thanks to his Honour and to Professor John Carter for their comments on an earlier draft of this note. All views and errors are, of course, my own
• Pages: 141-156

NO ORAL MODIFICATION CLAUSES: AN AUSTRALIAN

RESPONSE TO MWB BUSINESS EXCHANGE CENTRES V

ROCK ADVERTISING [2018] 2 WLR 1603

GEORGE PASAS*

ABSTRACT

The strict enforcement of No Oral Modification clauses offers considerable

commercial benefit. It also simultaneously conflicts with the fundamental common law

principle of party autonomy. In 2018, the UK Supreme Court appeared to resolve that

conflict, and heralded a new era wherein such clauses are given their proper effect.

This note contends that that decision misapplies principles of contract law and reverses

developments made in equity. It should not be followed by Australian courts.

I INTRODUCTION

Consider the case where two parties make an agreement containing a

stipulation that any modification or variation to it must be recorded in writing (a

‘NOM clause’: no oral modification).1 Such clauses are, of course, common place

in the commercial and construction worlds. Some months later, without having

removed the requirement for writing, those tasked with administering the contract

orally agree to vary it. A dispute arises, and one party considers, with the benefit of

hindsight, that their position would be legally or commercially superior if the

variation was of no effect. In those circumstances, should a court enforce the

parties’ clearly expressed former intention that any variation is ineffective unless

recorded in writing, or should a court instead favour the parties’ latter intention to

vary the contract?

At this point, a divide emerges between Australian law and English law. The

Australian approach favours the latter intention,2 considering that an agreement to

vary a contract in non-compliance with a NOM clause also contains an implied

agreement to dispense with that NOM clause. Consequently, although NOM

* UNSW BCom (Distinction)/LLB (Hons I); Tipstaff to the Hon Justice McDougall. My particular thanks

to his Honour and to Professor John Carter for their comments on an earlier d raft of this note. All views

and errors are, of course, my own.

1 In truth, the phrase ‘NOM clause’ is misleading as such clauses purport to deny efficacy to any variation

not in writing, not simply those which take place orally. One common example is a variation by conduct.

Nevertheless, for consistency wit h the literature and the case law, this note will retain the language of

NOM clauses.

2 The authorities here are many. To pick on e from most jurisdictions, we have: Ryder v Aphrodite Gold

[2017] WASC 377 at [228] per Banks-S mith J; Harrop Engineering Australia v Beauville [2016] VSC 17

at [60] per Elliot J; Alstom v Yokogawa Australia [2012] SASC 49 at [1519] per Bleby J; Mathews Capital

Partners v Coal of Queensland Holdings [2012] NSWSC 462 at [39] per Black J; Australian Medic-Care

Company v Hamilton Pharmaceutical (2009) 261 ALR 501 at 561-2 [ 257] per Finn J. The rationale for

this position is clearly explained in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty

Ltd (2003) 128 FCR 1 at 61 [213] - 63 [223] per Finn J.

University of Western Australia Law Review Vol 45(1):141

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clauses play an evidentiary role in determining whether a variation was actually

agreed,3 they have no capacity to ultimately exclude that variation. In direct

contrast, since May 2018, the English approach favours the former intention,

considering that an oral variation made in non-compliance with a subsisting NOM

clause is legally ineffective: MWB Business Exchange Centres v Rock Advertising.4

Given the respect traditionally paid to pronouncements of England's highest

court,5 as well as the commercial importance of the issue, it is worth considering

whether Rock Advertising should be followed in this country. That consideration is

made more pertinent because there is an existing Australian proceeding which

raises the point, and which could provide the opportunity for modifying domestic

law.6 Unfortunately, despite the considerable allure of the new English rule from

both a commercial and a public policy perspective, the steps taken to reach it

misapply and undermine fundamental principles of contract law. Consequently, this

note suggests that neither the plurality judgment delivered by Lord Sumption nor

the concurring judgment of Lord Briggs should be followed by domestic courts.

II BACKGROUND TO THE SUPREME COURT'S DECISION

Before diving into the legal treatment of NOM clauses, it is helpful to first set

the stage by discussing their purpose: why might contracting parties impose

formality requirements that seek to restrict their ability to modify their contract?7

A The Benefits of Enforcing No Oral Modification Clauses

The most obvious reason is to address the inherent uncertainty associated with

oral agreements and variations.8 When an agreement is in writing, the parties can

disagree on its legal meaning, but cannot reasonably disagree on its actual terms. In

contrast, when an agreement is oral, any dispute between the parties (whether

litigated or not), alongside any consequential uncertainty, now operates at both of

those levels. This is necessarily productive of greater commercial inefficiency.

3 Matthews Capital Partners v Coal of Queensland Holdings [2012] NSWSC 462 at [39] per Black J; GEC

Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at 62 [221] per Finn

J.

4 [2018] 2 WLR 1603; [2018] UKSC 24 (‘Rock Advertising’).

5 In Miller v The Queen (2016) 259 CLR 380, five members of the High Court said that it was ‘appropriate’

(at [3]) to reconsider the doctrine of extended joint criminal enterprise after UK Supreme Court’s decision

in R v Jogee [2017] AC 387. It is likely that Rock Advertising will provide a similar stimulus.

6 Cenric v TWT Group [2018] NSWSC 1570. That decision is presently on its journey to the NSW Court

of Appeal and could well be a contender for special leave. Indeed, during the course of submissions in the

Supreme Court (at T371.23), Mr Newlinds SC alluded to this prospect when he noted that he did ‘like a

special leave point in every case’.

7 For a more detailed answer to this question, see Florian Wagner-von Papp, ‘European Contract Law: Are

No Oral Modification Clauses Not Worth the Paper They Are Written On’ [2010] Current Legal Problems

511 at 544-53; Lon Fuller, ‘Consideration and Form’ (1941) 41 Columbia Law Review 799 at 800-6.

8 Rock Advertising [2018] 2 WLR 1603 at 1609 [12].