When properly written, agency and distributorship agreements (and, indeed, a swathe of other commercial agreements) often contain what are called No Oral Modification (“NOM”) clauses. These are provisions which state that the agreement cannot be amended orally and, indeed, change is possible only if the parties have agreed to do so in writing. Some NOM provisions go further and require the writing to be signed by principal and agent or supplier and distributor.
For some time, English court judgments highlighted a growing trend to allowing NOM clauses to be overridden by a subsequent oral variation. The rationale was that of so-called party autonomy. In other words, if the court considered that the contracting parties had reached the point where they had an intention to vary their original agreement, it was also the case that they intended not to be bound by any contractual formalities that such variation had to be in writing.
In the case of agency and distributorship agreements, the ability of the parties to find themselves in this type of situation was considerable given the regular interchange which usually occurs during the performance of an agency or distributorship agreement between principal and agent and supplier and distributor respectively.
However, the above trend has now come to something of a stop as a result of a recent judgment of the Supreme Court.
Departing from the judgment of the Court of Appeal, the Supreme Court decided that a NOM clause in an agreement had the effect of preventing a subsequent oral variation from being effective (and, as such, amending the original written agreement).
However, the Supreme Court also decided that if the contracting parties do agree an oral variation in contravention of a NOM provision, a party may be prevented (estopped) from enforcing the agreement except as varied. Accordingly, if, say, principal and agent have performed the agreement as varied, and the agent has relied on the purported variation to his detriment, the principal will be prevented from enforcing the unvaried agreement.
Take home points
- It is rare that unwritten agency or distributorship agreements will work to the advantage of principal or supplier. The default position in both cases is that the law favours the agent or distributor.
- Written agency and distributorship agreements should as a matter of course contain a No Oral Modification (“NOM”) clause.
- If a written agency or distributorship agreement does not contain a NOM clause, it would be worthwhile principal or supplier seeking to vary the existing agency or distributorship agreement (as the case may be) to include a NOM provision.
- Even if a NOM clause is contained in an agency or distributorship agreement, care should be taken by principal and agent and supplier and distributor not to act on an oral agreement which has the effect of varying the agency or distributorship agreement as they may be prevented from enforcing the agreement except as varied.