News and Insights

It is an unusual title, but this is a story about contracts and why detail matters.

This is a tale about an agreement granted to occupy an office near Marble Arch in London. The agreement was for payment of a monthly fee, but the occupier soon fell into arrears. The owner of the building used a managing agent and that agent’s credit controller chased for payment. The occupier agreed with the credit controller to pay a sum that day and a schedule of payments to settle the debt. The payment was made that afternoon. Meanwhile, the credit controller referred the matter to her manager. He refused the arrangement; cancelled the agreement and asked the occupier to leave the offices. The central question was whether the agreement which was made with the credit controller (who had authority to negotiate) could be enforced.

What is a NOM?

“NOM” stands for “no oral modification” and the agreement for occupation of the office contained the following clause. The “nom” is shown in bold:

“This Licence sets out all of the terms as agreed between MWB and the Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”

If you read the small print carefully, most important contracts will contain a clause similar to the above.

The question which the Supreme Court[1] had to decide was whether the written agreement was enforceable or whether the later deal with the credit controller was enforceable?

What is required to make a valid agreement?

The Supreme Court first confirmed what was required to make a contract under English common law. The answer is that there is no formality. For example, when you buy a Mars Bar from the shop you go to the till and pay for it. There is no written contract. We make contracts every day which are solid and enforceable without the need for a written agreement. If there is no need for formality, then surely the agreement reached with the credit controller was valid and enforceable?

The Devil is in the detail

The Court noted that although English law allows flexibility in contract law there are some situations where formality is required. You would not, for example, buy a house without a written contract. If some contracts are formalised, can the parties to it restrict their ability to contract in the future?

The Court concluded that the scene was set by the clause above. Although a verbal contract had been made to vary the agreed payments under the original agreement, the written agreement pre-agreed that the parties’ rights to make any changes to it had to be in writing. The Court decided that these clauses performed an important function in business to make sure that the dealings between the parties were always clear and in black and white.

What does this mean in Jersey?

Contract law here is not quite the same but the common sense principals put forward by the English Supreme Court are likely to be followed in the Island. If your contract contains a similar clause be careful to make sure that any changes are in writing.

For expert advice on all aspects of commercial and contract law, contact Advocate James Lawrence.

[1] Rock Advertising v MWB