The art of varying the agreed terms of a contract.
It requires both parties to agree to the amendment. That’s more or less it. This will not stop those — in particular ISDAlawyers — being postively neurotic when composing amendment agreements.
What of the Mobius loop thrown by the kind of clause that provides this agreement may not be amended except in writing[1], or this agreement may not be amended at all?
A recent supreme Court case had a thing or two to say about that, all to the benefit of jobbing contract lawyers, but to the detriment their clients and the basic precepts of common sense.
Rock Advertising Ltd rented serviced office space from MWB. It struggled to make ends meet. It fell behind in its licence payments to MWB.
Rock proposed rescheduled licence payments which would mean it would pay less overall to MWB than it had agreed to agreed in the original contract. A credit officer at MWB agreed the reschedule over the phone, but subsequently her line manager rejected it. MWB terminated the lease, locked the Rock out and put its feet up.[2]
Rock sued, citing the binding amendment to the licence agreement. MWB defended citing a no oral modification clause in the licence agreement which, it contended, meant the the oral conversation between the credit officer and Rock was not an effective amendment because it was not in writing.
Anxious to avoid addressing the “difficult” question of whether a unilateral reduction in the net value of Rock’s payment obligations could be said to be accompanied by consideration, the court focused squarely on the no oral modification clause.
Could it really work? Surely, contracting merchants are sovereign: they must be free to vary their affairs in a way the common law. If the evidence is clear that they agree, and there is consideration, it doesn't matter how they agree. Could contracting parties really double-entrench themselves?
The Court of Appeal thought not. A fellow can agree whatever he chooses, however he chooses – in writing, orally or by conduct[3]. Following that general principle, a “no oral modification” clause (a “NOM” clause) would not prevent him later making a new oral contract to vary the original contract.
Good, that’s that all sorted and we can now all move on to more important issues of the d —
BUT WAIT. The Supreme Court thought differently. Lord Sumption dismissed this as “fallacious” reasoning: a chap’s autonomy operates until he has made his contract; thereafter he only has it so far as the original contract allows.
“The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed.”
But what if contracting parties have relied on an oralvariationin good faith and, by their conduct, abided by it for a good period? The sort of thing codified in America as a “course of dealing”? As have so many of his brother judges in the past, here Lord Sumption looked lovingly towards the courts of chancery in a clean-handed defendant’s aid. A wronged party might seek to argue an equitableestoppel. However, the scope of this estoppel will be limited:
“... at the very least, there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality and something more would be required for this purpose than the informal promise itself.”
Look on one bright side: this should — but won’t — finally nail down the lid on the coffin of nervous risk people regarding the ISDA — which has a no oral modification clause — and wailing “but what if my failure to exercise my close out rights means I lose them altogether?” This is a fatuous question (under English law at any rate) at the best of times, but as long as Rock Advertising is good authority — and being a judgment of the Supreme Court, we should expect it will be for some time — it has a definitive answer: you cannot amend, or waive your rights under an ISDA Master Agreement except in writing, and signed by all parties.
Common sense has taken a bit of a battering, but this is all good news for we learned wordwrights who can now be prayed upon to paper otherwise unnecessary amendment agreements for merchants to vouchsafe their obvious commercial intent.
↑And, if the great firm of is to gain traction, we will have to update our templates to say this agreement may not be amended except in writing, or pictorially
