Whilst, the Courts have long held that parties are free to make and unmake (or vary) commercial contracts as they see fit, the most recent guidance from the UK Supreme Court last year means that where the original contract has a NOM Clause the parties to the contract are bound by it.
A typical example of a NOM Clause is:
"This Contract sets out all of the terms as agreed between Party A and Party B. No other representations or terms shall apply or form part of this Contract. All variations to this Contract must be agreed, set out in writing and signed on behalf of both parties before they take effect.”
Essentially a NOM Clause is a provision in a contract which requires any changes to the contract to be in writing.
There are a number of valid reasons for including a NOM Clause in a contract and the UK Supreme Court recognised this. The reasons identified by the Supreme Court were:
- a NOM Clause prevents informal attempts to undermine written contracts;
- the requirement for written variations reduces misunderstandings which may arise when there are oral variations; and
- the requirement of formality makes it easier for organisations to police the variation of commercial contracts entered into.
A NOM Clause is not unusual term within a construction contract but in practice such clauses are regularly ignored. There are many reasons why a NOM Clause is ignored, these include:
- an urgency to progress the works on site;
- the variation in question requiring input from a number of different individuals prior to being signed off;
- the need for pragmatic responses to issues arising on site; and
- it is an additional administrative burden.
Consequences of ignoring a NOM Clause
Following the Supreme Court's determination, the consequences of ignoring a NOM Clause could be significant. If parties ignore a NOM Clause, it could lead to difficulties when it comes to trying to enforce an oral agreement.
It is common for parties to have discussions in relation to revised payment schedules or variations. Previously, if an agreement was reached to vary existing written terms, that was considered to be effective. However, if there is no written evidence of the agreement, this may lead to arguments as to whether or not an agreement was actually reached or what the precise terms of that agreement was. The Supreme Court's decision makes clear that contractual certainty is of the upmost importance and oral agreements in these circumstances will not be effective.
Despite the Supreme Court's decision, there are still likely to be disputes where the parties have reached an agreement orally and one party disputes that agreement at a later date. In these circumstances, given the position of the Supreme Court, it will be very difficult to enforce the oral agreement, where the underlying contract contains a NOM Clause.
Practical tips for dealing with NOM clauses
Best practice is always to document any agreement in writing. We understand the practicalities of running a construction project means that decisions often have to be made quickly and there may not always be time to set out in writing what has been agreed. However where an oral agreement is made, parties should follow up as quickly as possible to have the agreement recorded in writing. This provides some record to rely on but it would always be preferable if this written record of the agreement was signed and dated by both parties. Where a contract has a NOM Clause this is the only protection to aide the enforcement of an amended contract.
It is also worthwhile considering if a NOM Clause is really practical in the circumstances of the project. If parties subsequently agree that the NOM Clause just does not work in practice, they can agree to remove it, however such agreement would have to be recorded in writing and signed by both parties to have any effect.