Be wary and don’t vary: oral variations of written contracts

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Be wary and don’t vary: oral variations of written contracts

06 Jun 2017

Certainty of contract

Certainty of contract is one of the main pillars of contractual law. The basic principle is that what is written in black and white represents the bargain reached by the parties and their intentions when they entered into the agreement.

Well-drafted commercial agreements will include a clause saying that the parties agree that the signed written contract cannot be changed unless all the parties agree to a variation in writing (an anti-oral variation clause).

There are good policy reasons to keep these anti-oral variation provisions; most obviously, these clauses give the parties faith that the terms of the agreement can be interpreted by the Courts as drafted.

Oral variations and waiver

However, during the last few years there have been a few cases that have chipped away at this sacred rule.

In Globe Motors Inc v TRW Lucasvarity Electric Steering Ltd [2016] EWCA Civ 396, the High Court commented that, notwithstanding any anti-oral variation clauses, the parties were free to vary the terms of their agreement orally or in writing.

More recently, in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553, the Court of Appeal held that the anti-oral variation clause in the written agreement was capable of being varied or waived if both parties unequivocally intend to do so.

In this particular case, the defendant was occupying a property under a written licence. The defendant agreed to discharge all licence fee arrears on its account by way of instalments, on the promise that the licensor did not enforce its strict contractual rights.

The licensor then tried to rely on the original written payment terms.

It was held by the Court that the parties had waived the anti-oral variation provisions and that payment of the debt by way of instalments (even if the debt was already contractually due) was good consideration.

The Court in Rock Advertising referred the parties to a case heard in New York in 1919 where the Judge stated: “Those who make a contract, may unmake it. The clauses which forbid a change may be changed like any other […] When two individuals contract, no self-imposed limitation can destroy their power to contract again.”

However, the Court did stress that the anti-variation provisions remain of some value in contracts as they raise the bar in terms of showing that the oral discussion was intended to constitute a variation.

Points to note:-

• Parties to an agreement need to be alive to the danger of unintentionally varying the terms of their agreement, or waiving their right to rely on the contractual provisions when dealing with the other party.
• If the parties intend to vary their written agreement or agree to make any concessions, the terms of the agreement should be written in one document and agreed and signed by all parties. If there is any doubt about the best course of action, the parties should consult their legal advisors.
• These cases do not apply to agreements that require certain formalities to be effective. For example, the Law of Property (Miscellaneous Provisions) Act 1989 requires any agreed terms of a contract relating to land to be recorded in writing.

To conclude, these cases provide a useful reminder that parties to a contract need to be careful when making concessions over the phone or in face to face meetings. The Court may decide to hold you to your promises, notwithstanding your rights in the written agreement.

If you would like to discuss anything that was raised in this article, please contact our Head of Litigation, Andrew Weinberg, on 0161 838 7811.

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