I’m sure that you have all seen or read contracts containing wording along the lines of: “…This Agreement may not be amended, except by the written agreement of the Parties….” or perhaps more bluntly some other form of words that basically says “…No written instruction means you receive No Money…you do not pass Go.. etc ”
Globe Motors Inc., et al. v TRW Lucas Varity Electric Steering Ltd., et al. [2016] EWCA Civ 396 examined how a clause of this nature operates. In this instance the contract terms stated that “…Entire agreement; amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both parties…”
This is of interest because there have previously been inconsistent decisions on this very point which this case had to take account of.
The Law
The general principle in English law is that the parties have the freedom to agree whatever terms they choose and can do so by using a document, or by word of mouth, or by conduct.
Let’s look at why there are clauses such as this….
Quite reasonably; a party seeking to rely on the clause means that any amendment had to be in writing and / or perhaps be signed by both parties to prevent parties amending a contract orally, or by conduct, or even by accident.
This seems entirely fair and reasonable doesn’t it? Taking the point forward, it also serves to give some certainty and clarity so that parties are clear about their obligations to each other and more importantly that any disputes can be readily seen and / or known.
Conflicting Decisions
The first is United Bank Ltd. v ASIF (unreported 11 February 2000) when it was held that a contract (a Deed) containing an anti-oral variation clause (i.e. “…No variation… shall be valid or effective unless made by one or more instruments in writing signed by the parties…”) could only be amended by a written document complying with that clause. The judge refused to entertain any possibility that that a valid variation to the original Deed had been made orally.
Then, the same Judge, sitting in the Court of Appeal in the World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413 case (forgetting his decision in United Bank… oops!!) stated that despite a clause stating “… no addition, amendment or modification of this Agreement shall be effective unless it is in writing and signed by and on behalf of both parties…” the judge stated “…In a case like the present, the parties have made their own law by contracting and can in principle un-make or re-make it…” which then allows for any exchanges of emails, letters or oral agreements or even the conduct of the parties to a contract containing such a clause “…may give rise to a separate and independent contract which, in substance, has the effect of varying the written contract…”.
Since then, there was Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2013] EWHC 2118 (Comm) which dealt with an implied oral agreement arising after entry into the relevant written contract that decided the oral agreement was a valid variation to that contract, notwithstanding the existence of an entire agreement clause which stated that “…no additions, amendment to or modifications of this Agreement shall be effective unless it is in writing duly signed on behalf of the parties…”
The decision of Energy Venture Partners confirmed that the effect that oral agreements and subsequent conduct can have the effect of varying a contract, despite any clause requiring such variations to be in writing.
Globe Motors
Returning to the case of Globe Motors, the Court of Appeal preferred the decision in World Online. It was held that in principle, any contract containing a clause that “any variation must be in writing” can actually be varied by oral agreement or by conduct.
Because the decision is so important, all three Judges in Globe expressed their views on it. The general sense is that the judges were reluctant to give no effect to the clause, but could find no basis upon which any restriction on the manner or form in which an agreement could be varied could be achieved which also underpins the decision in Energy Venture Partners.
The Judges all agreed that any agreements containing such clauses can, nevertheless, be amended by oral agreement or by conduct, although as Lord Justice Underhill emphasised “…In many cases parties intending to rely on informal communications and/or a course of conduct to modify their obligations under a formally agreed contract will encounter difficulties in showing that both parties intended that what was said or done should alter their legal relations; and there may also be problems about authority. Those difficulties may be significantly greater if they have agreed to a provision requiring formal variation…”.
What now?
I would always advocate following the terms of your contract to the letter. That said, at least there is now the ability to recover entitlements flowing from variations that have occurred which have perhaps not been documented as a contract would advocate. However like all things it will be the quality of the evidence on which the parties rely that will also influence the outcome.
This article was written by Mark Crane and published on the internet on 25/05/16.