ReSolution Issue 19, November 2018 | Page 36

acknowledged the potential for injustice in cases where a party has relied on an oral variation but finds itself unable to enforce it. The safeguard in these cases lies in the various doctrines of estoppel.
The impact
The importance of this decision should not be underestimated. It provides some very helpful clarity on the approach parties should take when agreeing and adhering to the terms of an agreement. In the background lies the issue of certainty, to ensure commercial parties are able to work together knowing the terms on which they are to operate are reasonably clear.
Before the decision in Rock Advertising, No Oral Modification clauses were often found to be ineffective and, in practice, often ignored if not merely overlooked. However, the Supreme Court’s decision, means this can no longer be the case. Parties must take care to check the terms of their existing contracts and ensure that No Oral Modification clauses are adhered to (as necessary) to ensure any amendments or variations to their agreements are effective. Even to adopt an approach whereby an oral variation is agreed and later put into writing would, in Lord Sumption’s words, be “courting invalidity with [one’s] eyes open“. This is because there is a real risk that a party may act to its detriment on a purported oral variation only for it to be held to the terms of the original contract.
But the decision does not only impact No Oral Modification clauses, it extends to other parts of a contract which similarly regulate commercial certainty. Entire Agreement clauses, for example, usually seek to exclude prior ‘agreements’ or oral representations from the bargain to ensure all sides proceed on the same footing. There have been a recent series of cases involving parties trying to circumvent entire agreement clauses, claiming the existence of oral collateral contracts sitting alongside a set of terms which have been clearly and carefully reduced to writing. Often the result of some misunderstanding between parties, the potential for disagreements to arise in respect of ‘collateral contracts’ in the face of Entire Agreement clauses creates uncertainty and risk which commercial parties would prefer to avoid. It is easy to understand why.
Although the outcome of this case may introduce some additional administrative burden in ensuring stricter compliance with the terms of an agreement, commercial parties should take comfort knowing that there is now only limited scope to depart from the terms of an agreement as a result of oral discussions. The decision in favour of supremacy of contract gives healthy clarity and certainty.

ABOUT THE AUTHORS

Nick Storrs
Senior Associate

Johnny Shearman
Lawyer

Signature is a specialised niche firm handling major and complex litigation, arbitration and regulatory investigations.