Court confirms its appetite to uphold NOM clauses
The courts have reiterated their position regarding no oral modification (NOM) clauses and entire agreement clauses in a recent case concerning a dispute between the NHS and a dentistry practice (NHS Commissioning Board v Vasant (t/a MK Vasant and Associates) and others  EWCA Civ 1245). Whilst clearly not a construction contract, the case does provide a helpful reminder as to the interpretation and effect of such clauses, which are often included in construction contracts.
The case itself concerned two separate contracts that were entered into by the parties, and then a variation agreement form (VAF) that purported to merge the services covered under the second contract into the terms of the first contract. The NHS argued that the VAF failed for uncertainty, as it did not provide enough detail of the services to be provided; whereas Vasant argued that the VAF had effectively varied the first contract to include the services being provided under the second contract. The court at first instance and the Court of Appeal both agreed with Vasant, the consequence being that the NHS was stuck with the termination provisions of the first contract, which required there to be some default on the part of Vasant, rather than the provisions under the second contract which allowed them to terminate on one month’s notice.
The relevance of this to construction contracts is that parties may often seek to vary contract terms or the scope of works or services. NOM clauses (i.e. variation only in writing) are standard in many construction contracts, with many requiring any oral instructions to vary the works to be confirmed in writing as part of a detailed “change” procedure. However, what if one party acts on an oral instruction which is not then confirmed in writing, and finds itself unable to obtain payment? It may need to try and rely on the existence of a collateral contract, or argue that there was an implied promise to pay. This is where the entire agreement clause kicks in, which has the effect of limiting the parties’ agreement to those terms written in the contract. The party seeking payment has to therefore argue that the parties waived their rights to rely on the NOM clause and the entire agreement clause.
Any required amendments should therefore be made clearly, in line with the requirements of the contract and perhaps in a case such as this one, the parties should consider whether to draft a new contract rather than incorporate elements of one existing contract into another.
In the construction industry, where the scope of the contract works is often amended verbally, parties should therefore ensure that that any such oral variations are subsequently confirmed in writing. It can be dangerous to assume that just because both parties agree something orally and then perform the contract in accordance with that agreement, they have waived the right to rely on the formalities of the written agreement.Back to Our Thinking →