Contracts May Be Varied Orally Despite Written Variation Requirement

May 09, 2016

The English Court of Appeal has held that parties are free to agree to whatever terms they choose to undertake, whether in writing, by spoken words, or by conduct; this freedom trumps non-oral variation clauses.

In Globe Motors, Inc and Others v TRW Lucas Varity Electric Steering Limited and Another (2016) EWCA 396 (decided on 20 April), the English Court of Appeal held that despite parties having agreed in writing that any future variations of their contract must be in writing, the parties are still free to vary the terms of the agreement orally or by conduct.

Although the court’s opinion on this issue was obiter, all three judges gave their views on this issue following extensive submissions on the point by both parties. Parties will likely rely on the reasoning in future cases.

Lord Justice Jack Beatson provided a comprehensive judgment in which the Court of Appeal’s opinion on this issue was laid out. The opinion was based on four different considerations:

i.   Parties should be and are free to agree to whatever terms they choose in writing, orally, or by conduct.
ii.   There are no statutory or common-law restrictions that prevent oral variation in these circumstances.
iii.   The Court of Appeal rejected an argument that if variation based on spoken words or conduct were to be allowed, despite the existence of a non-oral variation clause, this would result in parties making casual and unfounded allegations of variation. This was because a court would likely require strong evidence before finding that there had been an oral variation.
iv.   The Court of Appeal was not bound by earlier decisions on this issue because the jurisprudence relating to the matter was inconsistent, and thus it was free to rule on the issue afresh.

Although parties may agree that no future variations of a contract are allowed, they are free to change their minds at a later date. Further, parties may agree to restrictions regarding how such future variations are to take place, but again, parties are free to change their minds about those restrictions as well. The existence of a non-oral variation clause will require a party to strongly adduce that the parties have agreed an oral variation. Consequently, the value of including such a clause in commercial contracts is not undermined by this important judgment.