Parties often rely on informal communications and/or a course of conduct to modify their contractual obligations. But what is the position if their written contract incorporates an anti-oral variation clause? The law on whether such clauses are legally effective has long been uncertain.
It was not strictly necessary for the Court of Appeal to decide the point in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396. However, the court took the opportunity to express the view that the principle of freedom of contract means that parties cannot effectively tie their hands by destroying their power to contract again and/or dispense with the restriction itself. Therefore, in principle, anti-oral variation clauses should not prevent parties to agreements from varying them subsequently, whether by conduct or by word of mouth. Indeed, if the parties are in agreement, there should be no reason why such variations should not be effective.
Strictly speaking, the observations in Globe were not binding. However, it did not take long for a differently constituted Court of Appeal to adopt the same rationale in a case involving a licence to occupy managed office space. In MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 one of the licensees of a relatively small suite of offices decided to expand into larger premises. The licence fee increased commensurately, but the licensee’s business did not develop as it had hoped.
In subsequent proceedings for the recovery of arrears of the licence fee, the licensee claimed that the licensor had agreed to re-schedule the payments due under the parties’ agreement during oral discussions between them. The licensor flatly denied the existence of any such agreement and relied, in particular, on a provision in the parties’ agreement stating that “All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”.
The court acknowledged that there might be good policy reasons for upholding anti-oral variation clauses; they promote commercial certainty and may help to prevent false or frivolous claims that a contract has been varied. However, the court took the view that there would have to be a powerful reason for it to depart from the carefully considered views expressed in Globe – and ruled that the anti-oral variation clause in the parties’ agreement did not prevent them from agreeing oral variations at a later date.
Does this mean that anti-oral variation clauses have no value at all? Not necessarily. In Globe, Lord Justice Underhill and Lord Justice Moore-Bick both suggested that the presence of such clauses is likely to raise, in acute form, the question of whether parties, who are said to have varied a contract otherwise than in the prescribed manner, really intended to do so. However, parties to contracts would be well-advised to bear in mind that anti-oral varation clauses will not provide complete protection in all circumstances.
Allyson Colby is a property law consultant
