"I find the desire to exalt a principle over the clear intention of the parties very strange, and hardly consistent with the usual desire of courts to uphold agreements wherever possible."

But which set of intentions, the earlier or the later? And which agreement, the first or the second?

R

------ Original message------

From: HOGG Martin

Date: Wed, 20 Apr 2016 6:30 PM

To: Gerard Sadlier;

Cc: Robert Stevens;obligations@uwo.ca;

Subject:Re: Enforceability of Contractual Clause Specifying way in Which Variations of Contract may be made

Thanks for drawing my attention to this case, Ger. 

1. I find the logic of Beatson LJ a little hard to follow: "The parties have freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth, or by conduct. The consequence in this context is that in principle the fact that the parties' contract contains a clause such as Article 6.3 does not prevent them from later making a new contract varying the contract by an oral agreement or by conduct.” So, in order to protect the general principle of freedom of contract, courts must refuse to give effect to an exercise of such freedom if it represents a perfectly rational and reasonable decision to limit it in a particular way, seems to be the logic. I have to say that I find the desire to exalt a principle over the clear intention of the parties very strange, and hardly consistent with the usual desire of courts to uphold agreements wherever possible.

2. If this approach is to become the settled law, then I suspect many companies’ standard T&Cs will need amendment. 

3. The approach in this decision is not, I think, mirrored in Scots law, and I would be very surprised if the Scottish courts were to take a similar approach.

Martin

On 20 Apr 2016, at 17:58, Gerard Sadlier <gerard.sadlier@gmail.com> wrote:

 

Robert,

1. I certainly accept your point 1 and I think that most people would.

2. However I am not sure that it must necessarily follow that because
as a matter of law parties cannot foreclose by contract the
possibility that they will reach a later agreement varying their
current contract the law must also preclude parties from agreeing that
if they are to vary their contract, they will do so in a particular
way. Following Globe Motors that is the law in England and Wales, I am
not sure that the law need take that absolutist position.

3. Regarding point 3, I think with respect that More-bick LJ may
under-estimate at paragraph 120 the commercial uncertainty and cost to
which allegations that an agreement has been varied which ultimately
prove ill founded give rise. (I note that I spelled More-Bick LJ's
name incorrectly in my previous email, for which apologies.) At
paragraph 120, More-Bick LJ says, in relevant part:

"Nor do I think this [the ability to vary orally despite a clause
purporting to prevent oral vvariation] 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."

With respect, I think this under-estimates the delay, expense and
uncertainty to which allegations that an agreement has been varied
orally which can only be determined following a full trial (if I am
right regarding summary judgment) give rise. Furthermore, More-Bick
LJ's suggestion that if the parties are in agreement, there is no
reason why that agreement should not be effective is circular. There
is no reason why the agreement to vary should not be effective only
because as the Court concludes the no oral variation clause is
ineffective. That is the result, not a reason justifying that result.

Kind regards

Ger

On 4/20/16, Robert Stevens <robert.stevens@law.ox.ac.uk> wrote:

1. Can the parties agree that they cannot vary their agreement? No.



2. Given 1, can the parties agree to barriers to variation, such as
requirements of form? No.



3. That said, we should construe the meaning of what the parties
subsequently do, and whether they do manifest am agreement to vary, in the
light of this clause. If however they expressly do so, that is that.
Moore-Bick LJ's points are obviously right.

------ Original message------

From: Gerard Sadlier

Date: Wed, 20 Apr 2016 5:02 PM

To: obligations@uwo.ca;

Subject:Enforceability of Contractual Clause Specifying way in Which
Variations of Contract may be made



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