Dear all,

In Globe Motors, Inc & Ors v TRW Lucas Varity Electric Steering Ltd &
Anor [2016] EWCA Civ 396, the Court of Appeal of England and Wales
gave extended (though as the Court itself acknowledged, non-binding)
consideration to the question whether a clause in a contract which
provided that any amendment or variation of that contract had to be in
writing and in a specific form was effective so as to prevent an oral
variation of the contract. The Court held that the Clause was not
effective to prevent oral variation of a contract and that parties
could not by contract agree that their contract could only be varied
in writing or that variations of their contract could only be made in
a particular form.

The main judgment was given by Beatson LJ, who considered this issue
from paragraph 97 to 115 of his judgment.

Both Underhill and Morbick LJJ give brief concurring judgments,
addressing this question.

http://www.bailii.org/ew/cases/EWCA/Civ/2016/396.html

I have to say that I think it is very reasonable for commercial
parties, when entering into contracts involving very significant sums
of money and/or obligations to provide that the ways in which their
contract may be varied are to be limited, to means specified in the
contract itself. It is perhaps regrettable that the law does not
entitle commercial parties to agree to this because such clauses would
promote commercial certainty.

I do recognize the force of the counter arguments and should perhaps
also acknowledge that the Court was clearly alive to this point.

Relevantly, Underhill LJ said this at paragraph 116:

"... It seems to me entirely legitimate that the parties to a formal
written agreement should wish to insist that any subsequent variation
should be agreed in writing (and perhaps also, as here, in some
specific form), as a protection against the raising of subsequent
ill-founded allegations that its terms have been varied by oral
agreement or by conduct: even though ill-founded, such allegations
may make the obligations under the contract more difficult to enforce,
most obviously by making it more difficult to obtain summary judgment.
But the arguments in favour of a flexible approach are also strong;
and in the end, even if it were desirable to treat provisions of this
kind as entrenched, I cannot see a doctrinally satisfactory way of
achieving that result. I have considered whether there might be some
kind of half-way house, which made it formally more difficult for a
party to establish a "non-conforming" variation; but none was
suggested in argument and I cannot see any that would be of realistic
value."

Similarly, Morbick LJ said this:

"120. I can see the force of the suggestion that there might well be
practical benefits in being able to restrict the manner or form in
which an agreement can be varied, but like Underhill LJ I do not think
that there is a principled basis on which that can be achieved. A
clause such as Article 6.3 in this case may have considerable
practical utility, if only because it is likely to raise in an acute
form the question whether parties who are said to have varied the
contract otherwise than in the prescribed manner really intended to do
so. As a matter of principle, however, I do not think that they can
effectively tie their hands so as to remove from themselves the power
to vary the contract informally, if only because they can agree to
dispense with the restriction itself. Nor do I think this need be a
matter of concern, given that nothing can be done without the
agreement of both parties; and if the parties are in agreement, there
is no reason why that agreement should not be effective."

The question that arises is whether a clause limiting the way in
which a contract may be amended or varied is of any use at all, in
light of this judgment?

At paragraph 117, Underhill LJ suggested that:

"It does not follow that clauses like the second sentence of Article
6.3 have no value at all. 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."

Particularly where a contract is in being over a long period (as many
commercial contracts are) the fact that parties expressed a particular
intention at the outset (perhaps many years ago) may not be a
particularly cogent response to a claim that an oral variation was
agreed - or a clear guide to the intention of the parties at the time
when the communications said to amount to a variation of the contract
passed between the parties. Similar points could be made regarding
authority, since even if the contract provides that X is the only one
with authority to agree a variation on behalf of one party, it will
always be open to the other party to plead and try to prove that
conduct subsequent to the execution of the written contract clothed
others with authority to vary the contract (whether actual or
ostensible).

These issues will, to my mind, almost always need to be explored at
trial where there are communications that could reasonably amount to
an agreement to vary a contract, so a 'no oral variation clause' will
rarely if ever be an answer to claims of oral variation which are
stateable which a Court could accept on an application for summary
judgment.

I raised a query on this issue on the list some time ago now and
would like to again express my appreciation to those who replied on
that occasion.

Kind regards

Ger