Introduction
A “No Oral Modification” (“NOM”) Clause is a contractual provision stipulating that any changes to the contract entered into, must be made in writing and signed by all parties involved. It is a boilerplate clause, found in generally all the contracts entered into by Parties across the World, prohibiting them from making any amendment(s) in the contract, except by way of writing. NOM clauses can be found in various types of contracts such as, joint ventures, partnerships, supply and service agreements, modification of financial terms and settlement agreement, etc. On event of any amendment being made except in written from, it is likely that the NOM clause might be enforced by any party to the contract. However, in today’s time, wherein the businesses dealings and relations are growing at an exponential rate globally, it is not always feasible for the parties to always make amendments to the contract, in writing, and parties may choose to mutually modify terms and conditions as and when the situation so demands, either through oral agreement or through implicit or express communication and subsequent conduct based upon such modification as agreed by the parties. Therefore, there have been events and cases wherein parties have made amendments to the contract by way of oral modification or through their conduct and have thus done away with the NOM clause, through mutual consent, in that manner. Therefore, there exists a debate as to whether the NOM clause can be waived by the parties by way of their conduct or they should be strictly enforceable. Some judgements have upheld the strict enforceability of NOM Clause, some on the other hand have stated that, the parties can mutually choose to do away with the applicability of NOM clause, and have thus opined against the strict enforceability of NOM clause. As per common law principles, parties are at a liberty to make or unmake any contract mutually, provided the essentials of a valid contract are fulfilled.
This article firstly, deals with position of NOM clauses in India, then discusses landmark judgements delivered both, in favour of and against the enforceability of NOM clause, further the article proceeds and discusses various exceptions to the enforceability of NOM clauses in the common law jurisprudence and reaches a conclusion as to what can be the ideal way to deal with enforceability of NOM clauses in contractual relationships.
Enforceability of NOM Clauses in India
In India, the contractual relationships between the parties are governed by the Indian Contract Act, 1872 (“Act”). Though the Act does not explicitly contain any provision pertaining to NOM clause in a contract, but there exist a few provisions which aid indirectly in dealing with matters pertaining to NOM clause in a contract and their enforceability. The Section 10 of the Act, provides for essentials of a valid contract. It could be said that, NOM clauses are valid if parties mutually agree to incorporate it into the contract, which is validly entered into. Further, Section 62 of the Act, provides for effect of novation, rescission and alteration of a contract. This section allows contracts to be altered, rescinded, or substituted by mutual agreement of the parties. A NOM clause can be overridden if both parties mutually agree to modify the contract, even orally or by conduct. This provision supports the idea that contracts are flexible and modifiable by the parties themselves.
In India, both, written and oral contracts are held legally valid under the Act. Therefore, the parties to the contract are at liberty to make and unmake any contract, and even modify it, be it in written manner, oral manner or through their conduct, as long as the essentials for a valid contract are fulfilled and the parties are consensus ad idem. The Indian judiciary, however, has not extensively ruled on the enforceability of NOM clauses. In general, the Indian Courts, as long as the parties carefully adhere to the provisions of the Act and the decision taken by them is not ultra-vires to the provisions therein, would not restrict or limit the conduct of the parties and their decision-making power with respect to their business. Given India’s common law heritage, Indian Courts often consider precedents from other common law jurisdictions, such as the U.K., the U.S.A., Singapore, etc. when faced with similar legal questions or dilemma. For dealing with questions relating to NOM clauses also, the decisions of Common Law Courts can hold persuasive value. One such example, where Indian Judiciary was faced with similar question was in case of John Distilleries Pvt. Limited vs. The Brihan Maharashtra Sugar Syndicate Limited where the Bombay High Court referred to the case of Rock Advertising (infra), when it had to deal with the question of enforceability of NOM Clause. Post that, the Delhi High Court in Oil and Natural Gas Corporation Ltd. vs. United Drilling Tools Limited referred to the judgement of Rock Advertising (infra) for dealing the with question of NOM Clause and Estoppel. Later, the High Court of Orissa, in the case of GMR Kamalanga Energy Ltd. vs. SEPCO Electric Power Construction Corporation also referred to the ratio of Rock Advertising (infra), to decide the issue at hand. The concept of waiver and estoppel were also discussed. The Court opined that, for waiver of NOM Clause the parties mandatorily have to be consensus ad idem. Thus, it is evident that, time and again the Indian Courts have referred to the judgements delivered by Common Law Courts, to decide similar questions. Therefore, the judgements delivered by Common Law Courts, would have persuasive value in matters before the Indian Courts in absence of direct Indian precedents. It could, therefore be said, that the question of enforceability can be dealt differently from case to case, based on facts and the conduct of the parties to the contract therein, on the basis of the Act and Common Law Principles.
Judgements based on Common Law Jurisprudence
In the U.K., in the case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd. (2018) (“Rock Advertising”) the majority opinion, delivered by Lord Sumpton, upheld the strict enforceability of the NOM clause, stating that, the NOM clause can’t be waived, in any manner except written modifications. And that, the autonomy of the parties to the contract does not go beyond the provisions/terms of the contract. However, Lord Briggs, in his minority opinion stated that, parties to the contract can impliedly waive the NOM clause through mutually, thus stating completely opposite of what Lord Sumpton had delivered. The rationale being that, the parties can, through consensus and mutual decision, choose, agree and decide to not to bind themselves, to the terms of any agreement they previously entered into.
In case of Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd (2016)
The UK Court of Appeal suggested (in obiter) that parties could waive a NOM clause through clear and unequivocal conduct.
The judgement of the Singapore Court of appeal in Charles Lim Teng Siang v Hong Chon Hau (2021) (“Teng Siang”), took a liberal view with respect to NOM clause and laid down completely opposite of what has been held in Rock Advertising. The Court held that, the parties to a contract can, through mutual agreement, impliedly waive the NOM clause through oral modification.
These differing approaches underscore the tension between formalism and flexibility in contract law. On comparing the stances taken by judges in the above two judgements of Rock Advertising (supra) and Ten Siang (supra), it could be inferred that, the U.K. ruling in Rock Advertising aligns with civil law traditions that strictly enforce contractual formalities, while the Singapore Court’s decision in Teng Siang aligns with common law principles that prioritize party conduct and intention over rigid adherence to formalities. This divergence has significant implications for international commercial contracts, as it raises questions about the extent to which NOM clauses should be upheld or whether exceptions should be recognized based on waiver, estoppel, and subsequent conduct.
Exceptions to the enforceability of NOM clause
Exceptions to the enforceability of No Oral Modification (NOM) clauses arise from various principles, legal doctrines, and statutory frameworks, often rooted in the realities of contractual relationships and equitable considerations. Waiver is one such exception, where one party voluntarily relinquishes its right to enforce the NOM clause. This waiver can be explicit, made through clear communication, or implicit, based on the conduct that demonstrates an intention to not enforce the clause. If the other party acts on an oral modification without raising any objection, courts may find that the NOM clause has been waived.
Another exception is estoppel, which prevents a party from relying on a NOM clause and enforcing it when their actions or representations have led the other party to reasonably rely on an oral modification to their detriment. In any case, for estoppel to apply, three key elements must be satisfied: (i) a clear representation or conduct indicating that the NOM clause will not be enforced, (ii) reliance on this representation by the other party, and (iii) resulting detriment to the relying party if the representation is not honoured.
Courts also recognize subsequent conduct of parties, as evidence of a mutual agreement to vary the contract, even in the presence of a NOM clause. The actions of both parties that are inconsistent with the original contract terms can indicate an understanding to modify or waive the clause. Similarly, executed modifications, where an oral modification has been fully performed by both parties, serve as strong evidence of mutual intent to modify the agreement, making it difficult to deny the validity of the modification.
Additionally, parties may explicitly or implicitly agree to modify or waive the NOM clause itself, given that the clause is a term within the contract and therefore subject to alteration by mutual agreement. This flexibility underscores the principle that contractual terms, including NOM clauses, can be adjusted when both parties demonstrate a clear intent to do so. This reiterates the idea behind the provisions of the Act that, if parties are consensus ad idem, they can not only choose to make and unmake any contract but also choose whether to bind or unbind themselves to the express terms and provisions of the contract.
Finally, in jurisdictions that recognize the doctrine of good faith and fair dealing, enforcing a NOM clause may be deemed inequitable if both parties have clearly relied on and acted upon an oral modification. The doctrine serves to protect the legitimate expectations of parties and ensure that one party is not unfairly prejudiced by rigid adherence to the NOM clause in the face of conduct that demonstrates mutual agreement to deviate from it.
In essence, these exceptions such as: waiver, estoppel, subsequent conduct, executed modifications, statutory exceptions, implied agreements to modify, and good faith illustrate the nuanced ways in which NOM clauses can be rendered unenforceable to reflect the practical and equitable realities of contractual relationships.
Conclusion
Though the importance and value of written amendments can’t be ignored or denied, but at the same time, the fact of requirement of taking prompt decisions and making quick changes to save time, and as per changing and evolving commercial circumstances, in today’s time also can’t be ignored. Therefore, any question with respect to enforceability of NOM clause in any case should be answered and determined based on the facts of the cases and conduct of the parties, for if the decision of incorporating the NOM clause in the contract was the mutual decision of the parties, which is legally valid, then the mutual decision of the parties to not bind themselves by NOM clause can’t be outrightly deemed to be invalid and proper study and adjudication of facts should take place, before reaching the conclusion of making any sort of non-written agreement of modification to be invalid. Given the prevalence of informal modifications in fast-paced business environments, strict enforcement of NOM clauses may not reflect how agreements operate in practice. Incorporating exceptions to the enforceability of NOM clauses would serve to balance party autonomy, practical realities, and fairness in contractual relationships. Allowing exceptions promotes efficiency by minimizing unnecessary litigation and enabling dispute resolution based on intent and performance rather than mere technicalities. This is particularly relevant in long-term contracts, where adaptability is crucial to maintaining business relationships. Ultimately, exceptions to NOM clauses ensure that equity prevails over rigid formality, reinforcing the broader principle that contract law should uphold fairness, practical necessity, and the true intent of the parties involved.
To know more about our research and articles on various topics of taxation, international taxation, arbitration, commercial law, contracts, IPR, baking, project finance etc., you may visit https://rdlawchambers.com/research-articles/.
*The content of this article is intended to provide general information. No reader or user should act or refrain from acting on the basis of the information written above without first seeking legal advice from a qualified law practitioner.
Author: Ms. Riju Lodha
Guided by: Advocate Ravish D. Bhatt, Managing Partner, R & D Law Chambers LLP
Email – info@rdlawchambers.com
*R & D Law Chambers is a firm providing Legal advisory and International and Domestic Tax Advisory services. To know more visit https://rdlawchambers.com/