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Article: Rock Advertising or Charles Lim Teng Siang – to NOM or not to NOM - Singapore Court of Appeals takes a different view of non-oral modification clauses from the UK Supreme Court

News & Insights 14 June 2021

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In Rock Advertising Limited (Rock) v MWB Business Exchange Centres Limited (MWB)[1] (Rock Advertising), the UK Supreme Court, in a judgment given by Lord Sumption, came to what many in the English legal system consider to be a...

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In Rock Advertising Limited (Rock) v MWB Business Exchange Centres Limited (MWB)[1] (Rock Advertising), the UK Supreme Court, in a judgment given by Lord Sumption, came to what many in the English legal system consider to be a controversial decision.  They decided that a No Oral Modification (NOM) clause meant exactly what it said, no oral modifications allowed!  In Charles Lim Teng Siang v Hong Choon Hou[2] (Teng Siang) the Singapore Court of Appeal came to the opposite conclusion, oral modifications, if proved, are allowed! 

A NOM is what is known as a ‘boiler plate clause’ and is intended to prevent oral variations to a contract unless those variations are then recorded in writing and fulfil any other criteria the clause requires. 

The UK Supreme Court decision and its reasons

MWB operated office spaces. Rock entered into a fixed term 12-month contract to lease space. The contract contained a NOM. Rock fell behind with their payments and, on the telephone, Rock’s sole director agreed with MWB’s credit controller a revised payment schedule. Rock argued that a variation of the contract had been agreed. MWB disagreed. The Supreme Court, in a decision that surprised many in the English legal system and differed from other common law jurisdictions, agreed with Rock. 

Prior to this case, NOMs had been considered to be one factor in the factual matrix of whether an oral variation had been agreed.  No longer. Loud cries of ‘party autonomy’ were heard as a result of this decision. This is the principle that the parties are free to determine who they wish to contract with and on what terms. This includes the ability to subsequently agree to vary the contract, orally if they wish. This is no longer possible under English law as it stands now, following the decision in Rock Advertising, if the contract contains a NOM. Arguably, Lord Sumption, with whom three of the other Supreme Court justices agreed, decided that contractual certainty was more important that conceptual arguments about what party autonomy means. After all, the parties can still amend the contract, they just have to do it via the method agreed in the contract – in writing. 

The Court then considered the question of estoppel. Briefly, estoppel is a legal principle that stops a party from relying on a legal right which, by their words or conduct, they have previously indicated they would not rely on to the party they are now trying to enforce that right against. It decided that for estoppel to apply there would need to be some words or conduct which unequivocally represented that the variation was valid despite its informality and a mere informal promise would not be enough. Further, estoppel would not be allowed to be a way of circumnavigating NOMs via the back door.

In Teng Sian, the Court of Appeal of Singapore decided something very different. This is significant because as fellow common law jurisdictions, England and Singapore often tend to converge on matters of law rather than diverge. Where NOMs are concerned, English law is the divergent jurisdiction, other common law jurisdictions being more inclined to share the view expressed in Teng Siang. 

The Singapore Court of Appeal decision and its reasons

Teng Siang, the appellants, entered into a Sale and Purchase Agreement (“SPA”) to sell shares to the respondents. The Completion Date came and went, and the transaction was never completed and then, some 3.5 years later, the appellants claimed damages from the respondents claiming breach of the SPA.

In the High Court, the respondents won on their argument that the SPA had been orally rescinded by mutual agreement during a telephone call between the parties, but the NOM barely received a mention in the arguments, in fact it appears it was rather overlooked. However, on appeal, the appellants relied on their NOM! The SPA contained a clause which said: 

Variation of Terms

No variation, supplement, deletion or replacement of or from this Agreement or any of its terms shall be effective unless made in writing and signed by or on behalf of each Party.

Therefore, the appellants argued that even if oral recission had occurred, it was invalid. 

The Court of Appeal disagreed and dismissed the appeal.  The clause did not apply to ‘recission’ – this was self-evident on the wording of the clause – which envisaged the SPA remaining in force albeit varied from the original.

Strictly speaking, having decided that the clause was not engaged, the Court did not need to discuss the legal effect of NOM clauses. However, a special, enlarged court had been convened for the purpose and they had heard submissions on the legality of NOM clauses so they decided that they should convey their provisional observations. 

The Court set out some of the legitimate commercial reasons put forward by the Supreme Court in Rock Advertising as to why parties include a NOM clause in their contracts:

                 “(a) to prevent attempts to undermine written agreements by informal means, such as by raising

                an alleged defence of oral modification in order to prevent summary judgment;

                  (b) to ensure the certainty of the terms and existence of any modification, since oral discussions

                  are difficult to prove and may also easily give rise to misunderstandings; and

                  (c) such formality makes it easier for corporations to police internal rules which restrict their

                  employees’ authority to agree to any variation[3]

It then examined the different schools of thought on the effect of a NOM clause. The crux of their comments was that a wide test should be applied as to when it can necessarily be implied that the parties had intended to depart from a NOM clause:

“The test should be whether at the point when parties agreed on the oral variation, they would necessarily have agreed to depart from the NOM clause had they addressed their mind to the question, regardless of whether they had actually considered the question or not.”

In Rock Advertising the reason for upholding a NOM clause was that by allowing an oral variation, the parties intention was overridden, i.e., the parties’ intention that the contract could not be varied by an oral modification.  he Singapore Court of Appeal decided that allowing an oral modification did not override the parties’ intention because the Rock Advertising rule meant that the parties intention must be fixed at the time of the contract and disregarded the fact that over time the parties’ intentions might change. The parties should have the autonomy to vary the contractual terms as the masters of their own contract. The Court pointed out that whilst the autonomy of an individual party may be bound by the contract, the parties retain collective power to vary their own agreements so long as they jointly agree to this course of action. In effect, Rock Advertising’s position is that, where the contract contains a NOM, and the parties agree a set of contractual terms, they cannot agree to vary those contractual terms unless they put that variation it in writing. The Singapore Court of Appeal in disagreeing with that position quoted that well recognised maxim of Cardozo J that ‘those who make a contract may unmake it’[4].

The Court concluded that Rock Advertising seemed to prioritise contractual certainty over the agreed intention of the parties at a later date to orally vary the contract they had previously agreed. In Teng Sing the Court pointed out that it is only once an oral variation has been proved that the question of the NOM needs to be considered. At this point, the NOM would cease to have legal effect because that is what the parties had collectively decided, which, as the Court pointed out, is a function of party autonomy.

The judgment stated that a NOM clause raises a rebuttable presumption that in the absence of an agreement in writing there would be no variation. Compelling evidence must come before the court before it will give effect to an oral variation of a contract that contains a NOM. In this case, there was such compelling evidence. These were that the SPA completion date passed and the appellants had no satisfactory explanation of their inaction over the next 3.5 years. There was contemporaneous conduct that the Court found supported the oral recission and behaviour on the part of the respondent in response to announcements regarding the shares themselves that made the respondent doubtful about the share transaction.

In considering the concept of estoppel, the Court recognised that, in most cases, where an oral variation could be proved, estoppel was also likely to be established. This is because in the majority of cases, the parties would have acted on the oral variation in the performance of their contractual obligations.

Finally, it should be remembered that, whilst it would appear that under Singaporean law a NOM can be varied by an oral agreement, the observations put forwards by the court are obiter. Obiter comments are comments made by the judge(s) that are not necessary for the decision in the case and are therefore not binding in future cases. Accordingly, it is possible, although unlikely, that were a case to come before the Court of Appeal that was squarely on this point, this could change. 

What are the takeaways for Members from this? 

Under English law, if your contract contains a NOM, then the terms of the contract can only be varied in accordance with that term, i.e., the variation must be in writing. The benefits of this are obvious in contracts which are the result of complex, lengthy negotiations because the contract cannot, in effect, be ‘accidentally’ varied by a more junior employee or indeed a senior employee or in the ‘heat of the moment’ situation - unless it is in writing – which is likely to involve management oversight. 

Under Singaporean law, the converse is true. Providing that if and when it becomes an issue, one of the parties can prove that the oral variation was agreed, then, as in Rock Advertising, it may transpire that an employee has unilaterally agreed a change of contract terms with the other party to the contract and other employees may remain in ignorance of that change, until it becomes an issue. However, on the plus side, it may be that in situations where a quick decision is needed and both parties are fully engaged, an agreed oral variation will save both time and money.   

Under English law, if the contract contains a NOM then it is essential that any variation is agreed between the parties in writing. If the law of the contract is Singaporean, whilst arguably not essential, it is always good practice to agree any contractual variation in writing by the authorised relevant parties to avoid potentially complex and expensive disputes further down the line.

[1] (Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] 4 All ER 21

[2] Charles Lim Teng Siang v Hong Choon Hau [2021] SGCA 43

[3] (Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] 4 All ER 21 [12]

[4] Beatty v Guggenheim Exploration Co [1919] 225 NY 380 at 387 to 388

Category: Defence

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