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CONTRACTING FOR SELF-DENIAL: ON ENFORCING “NO ORAL MODIFICATION” CLAUSES

Published online by Cambridge University Press:  17 November 2017

Jonathan Morgan
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Abstract

“No oral modification” (NOM) clauses should be enforced in English law. Parties should be permitted to impose formality requirements upon themselves. Entire agreement clauses are (rightly) enforced and this provides a compelling parallel. The reasoning of two Court of Appeal decisions holding NOM clauses unenforceable is critically analysed. The extent to which NOM clauses should be defeasible by estoppel and unfair terms legislation is considered.

Keywords

contractformalitiesno oral modification clausesentire agreement clauses
Type
Articles
Information
The Cambridge Law Journal , Volume 76 , Issue 3 , November 2017 , pp. 589 - 615
Copyright
Copyright © Cambridge Law Journal and Contributors 2017 

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Footnotes

*

University Senior Lecturer in Law, Corpus Christi College, Cambridge.

References

1 Perhaps through a combination of lip-reading and body-language sensitivity, for the sailors’ ears were stopped with beeswax against the Sirens’ songs.

2 A considerably harder question – not addressed here – is whether parties could contract for an entirely unmodifiable contract, i.e. contracting out of the power to vary altogether and not merely requiring variations to be in writing.

3 Globe Motors Inc. v TRW LucasVarity Electric Steering Ltd. [2016] EWCA Civ 396; [2017] 1 All E.R. (Comm) 601.

4 MWB Business Exchange Centres Ltd. v Rock Advertising Ltd. [2016] EWCA Civ 553; [2017] Q.B. 604.

5 Fuller, L.L., “Consideration and Form” (1941) 41 Columbia L.R. 799 CrossRefGoogle Scholar.

6 Cf. (for “magical, sacramental and psychological functions”) Perillo, J.M., “The Statute of Frauds in the Light of the Functions and Dysfunctions of Form” (1974) 43 Fordham L.R. 39, 43–48 Google Scholar (and further see 48–69).

7 See e.g. Actionstrength Ltd. v International Glass Engineering [2003] UKHL 17; [2003] 2 A.C. 541, at [6], per Lord Bingham of Cornhill.

8 See e.g. Edwards v Skyways Ltd. [1964] 1 W.L.R. 349. Fuller recognised this, noting that the “channelling” function “has no place where men's activities are already divided into definite, clear-cut business categories”.

9 Fuller, “Consideration and Form”, p. 803. Cf. Kennedy, D., “From the Will Theory to the Principle of Private Autonomy: Fuller's ‘Consideration and Form’” (2000) 100 Columbia L.R. 94, 138–39Google Scholar.

10 N.B. the “usual rules” firmly exclude evidence of what the parties actually (“subjectively”) thought they meant, e.g. Sherrington v Berwin Leighton Paisner [2006] EWCA Civ 1319, at [5]–[6], per Lloyd L.J. Formality rules merely carry further the orthodox requirement for external objective evidence of intention.

11 Rose, C.M., “Crystals and Mud in Property Law” (1987) 40 Stanford L.R. 577 CrossRefGoogle Scholar.

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13 Perillo, “The Statute of Frauds”, p. 71.

14 Cf. editorial note (1927) 43 L.Q.R. 1.

15 Chater v Beckett (1797) 7 Term Rep. 201, 204.

16 See Perillo, “The Statute of Frauds”, p. 74, on the courts’ “ingenious and creative, but often erratic and undependable, means of escaping an exaggerated statutory penalty” (i.e. voidness under the Statute of Frauds).

17 Well-known survivals include Statute of Frauds 1677, s. 4 (guarantees); Wills Act 1837; Law of Property Act 1925, s. 53 (creation of interests etc in land); Law of Property (Miscellaneous Provisions) Act 1989, s. 2 (contracts for sale of land).

18 The repeal of the Statute of Frauds 1677, s. 4 was recommended by a majority of the Law Reform Committee in 1937 (Cmd. 5449), but subsequently its retention in amended form was recommended by the Committee's 1953 Report (Cmd. 8809) and implemented by Law Reform (Enforcement of Contracts) Act 1954.

19 See e.g. for criticism of s. 2–202, Uniform Commercial Code (US), Hillman, R.A., “How to Create a Commercial Calamity” (2007) 68 Ohio St.L.J. 335 Google Scholar.

20 Hillman, R.A., “Article 29(2) of the United Nations Convention on Contracts for the International Sale of Goods: A New Effort at Clarifying the Legal Effect of ‘No Oral Modification’ Clauses” (1988) 21 Cornell Int.L.J. 449, 450–52Google Scholar.

21 Christou, R., Boilerplate: Practical Clauses, 7th ed. (London 2015)Google Scholar.

22 Ibid., at para. 10–072.

23 Ibid., at paras. 10–077 to 10–079.

24 Perillo, “The Statute of Frauds”, pp. 56–58.

25 N.B. that MWB Business Exchange Centres Ltd. [2016] EWCA Civ 553; [2017] Q.B. 604 was another bold relaxation of consideration (as well as holding NOM clauses unenforceable).

26 Pillans v Van Mierop (1765) 3 Burrow 1663.

27 Ibid., at p. 1670.

28 Rann v Hughes (1778) 4 Bro. P.C. 27.

29 Sixth Interim Report (Statute of Frauds and the Doctrine of Consideration) (Cmd. 5449) (1937), at [29]–[30].

30 Hamson, C.J., “The Reform of Consideration” (1938) 54 L.Q.R. 233, 247Google Scholar. Cf. P.S. Atiyah's observation that even the general public recognise a signature on a contract as a formal device binding them to it: “Form and Substance in Legal Reasoning: The Case of Contract” in MacCormick, N. and Birks, P.B.H. (eds.), The Legal Mind: Essays for Tony Honoré (Oxford 1986), 34 Google Scholar.

31 The L.R.C. of 1937 (Cmd. 5449) seemed keen to do this in principle, but decided (at [27]) that “aboli[tion] root and branch … would almost certainly abolish suspicion and hostility”. Notably, one of the “inconvenient” sub-doctrines to be “pruned away” was the “existing duty” rule for modifications, at [33]–[36].

32 Wisconsin Knife Works v National Metal Crafters, 781 F.2d 1280, 1285–86 (1986).

33 Ibid., at p. 1292.

34 See citations in The Achilleas [2008] UKHL 48; [2009] 1 A.C. 61, at [64], per Lord Walker.

35 See text to note 111 below.

36 Dubai Islamic Bank v PSI Energy Holding Co. [2013] EWHC 3781 (Comm), at [32], per Flaux J.

37 Ryanair Ltd. v SR Technics Ireland Ltd. [2007] EWHC 3089 (QB).

38 Sir Lewison, K., Interpretation of Contracts, 6th ed. (London 2015), para. 3.16Google Scholar.

39 Mileform Ltd. v Interserve Security Ltd. [2013] EWHC 3386 (QB), at [104]–[105].

40 Inntrepreneur v East Crown Ltd. [2000] 2 Lloyd's Rep. 611, at [7].

41 McLauchlan, D., “The Entire Agreement Clause: Conclusive or a Question of Weight?” (2012) 128 L.Q.R. 521 Google Scholar.

42 For another example of opportunism, however, see text to nn.48–49 below.

43 Mitchell, C., “Entire Agreement Clauses: Contracting Out of Contextualism” (2006) 22 J.C.L. 222 Google Scholar.

44 Gillespie Bros. & Co. v Cheney, Eggar & Co. [1896] 2 Q.B. 59, 62, per Lord Russell C.J.; K.W. Wedderburn, “Collateral Contracts” [1959] C.L.J. 58, 62; Law Com. Rep. No. 154 (1986), para. 2.17.

45 Peden, E. and Carter, J.W., “Entire Agreement – and Similar – Clauses” (2006) 22 J.C.L. 1 Google Scholar, emphasis added.

46 Shogun Finance Ltd. v Hudson [2003] UKHL 62; [2004] 1 A.C. 919, at [49] (“fundamental to the mercantile law of this country”).

47 North Eastern Properties Ltd. v Coleman & Quinn Conveyancing [2010] EWCA Civ 277; [2010] 1 W.L.R. 2715, at [82].

48 McGrath v Shah (1987) 57 P. & C.R. 452, 459, per John Chadwick Q.C.

49 North Eastern Properties Ltd. [2010] EWCA Civ 277; [2010] 1 W.L.R. 2715, at [81]; cf. Law of Property (Miscellaneous Provisions) Act 1989, s. 2.

50 EACs have mostly avoided analysis as a “contractual estoppel” (which does not appear to be a true “estoppel” at all): see K.C.F. Loi, “Contractual Estoppel and Non-Reliance Clauses” [2015] L.M.C.L.Q. 346, at 359.

51 Inntrepreneur [2000] 2 Lloyd's Rep. 611, at [7].

52 G. McMeel, “Documentary Fundamentalism in the Senior Courts: The Myth of Contractual Estoppel” [2011] L.M.C.L.Q. 185.

53 McLauchlan, “The Entire Agreement Clause”, p. 530.

54 Cf. Peekay Intermark Ltd. v Australia & New Zealand Banking Group Ltd. [2006] EWCA Civ 386; [2006] 2 Lloyd's Rep. 511.

55 McMeel, “Documentary Fundamentalism”, pp. 187–88.

56 Macaulay, S., “Non-Contractual Relations in Business: A Preliminary Study” (1963) 28 Am.Soc.Rev. 1 CrossRefGoogle Scholar.

57 Macaulay, S., “The Real and the Paper Deal: Empirical Pictures of Relationships, Complexity and the Urge for Transparent Simple Rules” (2003) 66 M.L.R. 44 CrossRefGoogle Scholar.

58 Mitchell, “Entire Agreement Clauses”.

59 McLauchlan, “The Entire Agreement Clause”, p. 531.

60 E.g. Bernstein, L., “Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms” (1996) 144 Univ.Penn.L.R. 1765 CrossRefGoogle Scholar; Bernstein, L., “Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions” (2001) 99 Michigan L.R. 1724 CrossRefGoogle Scholar.

61 Collins, H., “Objectivity and Committed Contextualism in Interpretation” in Worthington, S. (ed.), Commercial Law and Commercial Practice (Oxford 2003), 193 Google Scholar.

62 See J. Gava and J. Greene, “Do We Need a Hybrid Law of Contract? Why Hugh Collins Is Wrong and Why It Matters” [2004] C.L.J. 605.

63 McMeel, “Documentary Fundamentalism”, p. 207.

64 Mitchell, “Entire Agreement Clauses”.

65 Ibid.

66 Peden and Carter, “Entire Agreement”.

67 Ravennavi Sp.A. v New Century Shipbuilding Co. Ltd. [2007] EWCA Civ 58; [2007] 2 Lloyd's Rep. 24, at [25].

68 J.R. Spencer, “Signature, Consent and the Rule in L'Estrange v. Graucob” [1973] C.L.J. 104; Loi, “Contractual Estoppel”, pp. 363–65; McLauchlan, “The Entire Agreement Clause”, pp. 531–33.

69 L'Estrange v F Graucob Ltd. [1934] 2 K.B. 394; Peekay Intermark Ltd. [2006] EWCA Civ 386; [2006] 2 Lloyd's Rep. 511.

70 Ibid.

71 McLauchlan, “The Entire Agreement Clause”, p. 523.

72 Peekay Intermark [2006] EWCA Civ 386; [2006] 2 Lloyd's Rep. 511, at [43], per Moore-Bick L.J.

73 Prime Sight Ltd. v Lavarello [2013] UKPC 22; [2014] A.C. 436, at [47], per Lord Toulson.

74 Raiffeisen Zentralbank Osterreich A.G. v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm); [2010] 1 Lloyd's Rep. 123, at [314]–[315], per Christopher Clarke J.

75 Beale, H., Mistake and Non-Disclosure of Fact (Oxford 2012)CrossRefGoogle Scholar.

76 O'Sullivan, J., “Unconsidered Modifications” (2017) 133 L.Q.R. 191 Google Scholar.

77 McLauchlan, “The Entire Agreement Clause”, p. 527.

78 Cf. Section V(C) below.

79 E.g. Regalian Properties Plc. v London Docklands Development Corporation [1995] 1 W.L.R. 212.

80 RTS Flexible Systems Ltd. v Molkerei Alois Müller GmbH & Co. K.G. [2010] UKSC 14; [2010] 1 W.L.R. 753.

81 Ibid., at para. [1].

82 Ibid., at para. [55].

83 Ibid., at paras. [86]–[87].

84 G. Percy Trentham Ltd. v Archital Luxfer Ltd. [1993] 1 Lloyd's Rep. 25, 27; cf. RTS Flexible Systems Ltd. [2010] UKSC 14; [2010] 1 W.L.R. 753, at [50].

85 P.S. Davies, “Anticipated Contracts: Room for Agreement” [2010] C.L.J. 467.

86 Ibid.

87 Regalian Properties Plc. [1995] 1 W.L.R. 212, 231.

88 Cf. Langbein, J.H., “Substantial Compliance with the Wills Act” (1975) 88 Harvard L.R. 489, 515–26Google Scholar (analysis of the formalities’ intended purposes, and whether these would be defeated by finding “substantial compliance”).

89 Globe Motors Inc. [2016] EWCA Civ 396; [2017] 1 All E.R. (Comm) 601.

90 MWB Business Exchange Centres Ltd. [2016] EWCA Civ 553; [2017] Q.B. 604.

91 Globe Motors Inc. [2016] EWCA Civ 396; [2017] 1 All E.R. (Comm) 601, at [100].

92 Ibid., at paras. [97], [99]

93 Although these are now allowed (if “proportionate”) when there is a “legitimate interest” in discouraging breach: Cavendish Square Holding B.V. v Makdessi [2015] UKSC 67; [2016] A.C. 1172.

94 Compare now Contracts (Rights of Third Parties) Act 1999, s. 1(1)(a).

95 Globe Motors Inc. [2016] EWCA Civ 396; [2017] 1 All E.R. (Comm) 601, at [120].

96 MWB Business Exchange Centres Ltd. [2016] EWCA Civ 553; [2017] Q.B. 604, at [34].

97 Alfred C. Beatty v Guggenheim Exploration Co., 225 N.Y. 380, 387–388 (1919).

98 For modern US law, cf. text to note 32 above.

99 Globe Motors Inc. [2016] EWCA Civ 396; [2017] 1 All E.R. (Comm) 601, at [116].

100 Ibid., at para. [117].

101 J.A. O'Sullivan emphasises the rather weak evidence for the oral variation accepted by the Court of Appeal in MWB Business Exchange Centres Ltd. [2016] EWCA Civ 553; [2017] Q.B. 604: (2017) 133 L.Q.R. 191, 196–97.

102 e.g. Virulite L.L.C. v Virulite Distribution Ltd. [2014] EWHC 366 (QB); [2015] 1 All E.R. (Comm) 204, at [55]–[60].

103 Ibid., at para. [60], per Stuart-Smith J.

104 Lord Hoffmann, book review (2017) 133 L.Q.R. 516–17.

105 Energy Venture Partners Ltd. v Malabu Oil and Gas Ltd. [2013] EWHC 2118 (Comm), at [274]. (Banking was the context for the enforcement of a NOM clause in the first impression case of United Bank Ltd. v Asif (unreported, Court of Appeal, 2000).)

106 Cf. Hillman's distinction between different industries’ practices: notes 122–123 below.

107 Virulite L.L.C. [2014] EWHC 366 (QB); [2015] 1 All E.R. (Comm) 204, at [59].

108 J.A. O'Sullivan, “In Defence of Foakes v. Beer” [1996] C.L.J. 219; O'Sullivan, “Unconsidered Modifications”.

109 O'Sullivan, “Unconsidered Modifications”, p. 195.

110 Respectively (1884) 9 App. Cas. 605; (1809) 2 Camp. 317.

111 F. Wagner-von Papp, “European Contract Law: Are No Oral Modification Clauses Not Worth the Paper They Are Written On?” [2010] C.L.P. 511.

112 Shogun Finance Ltd. [2003] UKHL 62; [2004] 1 A.C. 919 at [49].

113 Hillman, “Article 29(2)”, p. 463.

114 Ibid.

115 Cf. Rose, “Crystals and Mud in Property Law”.

116 D.V. Snyder, “The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver and Estoppel” [1999] Wisconsin L.R. 607.

117 Wisconsin Knife Works 781 F.2d 1280, 1294 (1986).

118 Actionstrength Ltd. [2003] UKHL 17; [2003] 2 A.C. 541; Statute of Frauds 1689, s. 4.

119 Ibid., at para. [26].

120 Ibid., at para. [9], per Lord Bingham, at paras. [52]–[54], per Lord Walker.

121 AXA Sun Life Services plc. v Campbell Martin Ltd. [2011] EWCA Civ 133; [2011] 2 Lloyd's Rep. 1, at [50].

122 Hillman, “How to Create a Commercial Calamity”, p. 248.

123 Ibid.

124 See Mitchell, “Entire Agreement Clauses” and corresponding text.

125 Mitchell (George) (Chesterfield) Ltd. v Finney Lock Seeds Ltd. [1983] 2 A.C. 803, 815–16, per Lord Bridge.

126 Cf. Union Eagle Ltd. v Golden Achievement Ltd. [1997] A.C. 514, 519, per Lord Hoffmann (equitable relief from forfeiture).

127 Raiffeisen Zentralbank Osterreich A.G. [2010] EWHC 1392 (Comm); [2010] 1 Lloyd's Rep. 123, at [313].