NSW Supreme Court reaffirms Australian position on ‘No Oral Modification’ clauses

In July, we provided an update (which can be found here) on the UK position on the validity of ‘No Oral Modification’ (NOM) clauses in commercial contracts, in light of the UK Supreme Court’s decision of Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24.

In the case of Cenric Group v TWT Property Group [2018] NSWSC 1570, the New South Wales Supreme Court has now had the opportunity of revisiting the Australian position on the enforceability of NOM clauses in light of the UK Supreme Court’s judgment.

Cenric Group entered into an early works contract (the Head Contract) on a site development project with TWT Property Group, which involved demolition, removal of contaminated material, shoring and excavation works. The Head Contract also required the harvesting and sale of sandstone from the site. Cenric subcontracted that part of the works to Bundanoon Sandstone (the Subcontract), which offered to pay a royalty per cubic metre to Cenric and TWT for the sale of sandstone harvested.

A number of disputes broke out which led to representatives of the three parties convening at a meeting to attempt to resolve the disputes. The parties all agreed that they attended a meeting, and reached an agreement in that meeting, which was not formalised in writing. TWT sought to challenge the enforceability of that agreement, partly on the basis that the Head Contract contained a NOM clause.

In dismissing TWT’s reliance on the NOM clause, the Court held that:

•   there was clear and consistent authority in Australia that “a NOM clause cannot prevent the parties to a contract containing it from agreeing orally to vary it”, based on the basic principle of contractual autonomy; [1] and
•   whilst the contrary authority of the UK Supreme Court in Rock Advertising Limited v MWB Business Exchange Centres Limited was to be acknowledged, McDougall J did not believe himself free to reconsider on that basis, or find “the divergent reasons given by their Lordships to be particularly persuasive”.[2]

This reaffirms the Australian position that parties’ subsequent oral agreements may be enforceable despite the inclusion of a NOM clause.

The full decision can be found here.