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'Variations Must Be In Writing' Clauses

Jul 05, 2016
A variation clause, contained in most construction contracts commonly seeks to restrict variation of the agreement only to those variations agreed in writing by the parties. The aim is to exclude the possibility of informal, and perhaps inadvertent, oral variations being made to an agreement. Whilst variation in writing clauses can be onerous they provide certainty and security of contract to both parties.

Background
Up and until now, the effectiveness of such a clause has been unclear due to two conflicting Court of Appeal decisions on this issue.

Firstly, United Bank v Asif, which supports the effectiveness of anti-oral variation clauses. In this case, the court found that a 'variations must be in writing' clause in a deed of guarantee prevented an oral agreement to vary the terms of the guarantee from taking effect. It was alleged that a bank employee had agreed to vary the guarantee by extending the time limit for payment. The court refused to accept that a bank employee could simply disregard the express contractual requirement for variations to the guarantee to be recorded in writing.

Secondly, World Online Telecom case, which suggests that oral variation and variation by conduct is possible notwithstanding the presence of such clauses. 

Clarification
The recent Court of Appeal case in in Globe Motors, Inc and others v TRW Lucas Varity Electric Steering Ltd and another [2016] EWCA Civ 396 now confirms that a clause requiring contract variations to be in writing and signed did not prevent a valid variation by oral agreement.

Facts
TRW Lucas Varity Electric Steering Limited (TRW) agreed to purchase all its requirements for certain electric motors for cars ('Products') from Globe Motors, Inc (Globe). The agreement was intended to last for the lifetimes of the 'platforms' for certain cars and was thus long term. Products included (but were not limited to) those specified in detail and those added by mutual agreement. The agreement provided a mechanism for agreeing 'Engineering Changes' to the Products; TRW could propose such changes and Globe was obliged to make them.

In the High Court, HHJ Mackie QC held that TRW was in breach of the agreement by purchasing improved second generation motors from another manufacturer. The judge considered that these were motors which Globe 'could and would' have produced by making Engineering Changes; accordingly they were Products and TRW was bound to purchase them exclusively from Globe. TRW appealed the judge's interpretation of the term Products.

The contract contained a clause requiring any subsequent variation to be writing:
'6.3 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.'

The High Court held that it was possible to subsequently vary the agreement orally, despite such a clause. TRW appealed this aspect of the decision, arguing that the court was bound by the earlier Court of Appeal decision in United Bank v Asif, which upheld an anti-oral variation clause.

The Court of Appeal allowed the appeal, on the ground that the High Court judge had erred in interpreting the definition of "Product" to include the improved second generation motors. Accordingly, TRW was not in breach of contract by buying such motors from a third party. 

However, the key aspect of the Court of Appeal’s decision is the clarification of the law on whether a 'variations must be in writing' clause can prevent informal variations from taking effect.

Summary 
This case highlights the importance of trying to future-proof long-term agreements by appropriate drafting. 

It clarifies the position with regard to the inclusion of 'variations must be in writing' clauses and does not prevent contracting parties from informally agreeing variations to the terms of their contract.

Contracting parties should however be aware of the potential difficulties in proving their terms under an oral contract as they may find that terms they had thought had been agreed cannot be evidenced. 

Parties are encouraged to ensure that any variation is set out, documented and signed off by all the parties to help avoid future disputes about what was and was not agreed and varied.

Charlotte Barker

About the author

Charlotte Barker

Charlotte joined Nockolds in 2015 and is a Senior Associate Construction Solicitor in our Commercial Property Team. Charlotte graduated from the University of Hertfordshire and was ...

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