It is very important to remember that an "entire agreement clause" is backward looking. It says what can count as a source of the terms of the parties' arrangement up to the point when the contract is made.  Such a clause has absolutely nothing to say to what happens after that point.

 

See Soboczynski v. Beauchamp, 2015 ONCA 148, 385 D.L.R. (4th) 148,

 

Angela Swan

 

-----Original Message-----
From: Gerard Sadlier [mailto:gerard.sadlier@gmail.com]
Sent: April-21-16 4:35 AM
To: obligations@uwo.ca
Subject: Enforceability of Contractual Clause Specifying way in Which Variations of Contract may be made

 

Dear David,

 

Thank you for your email.

 

Entire Agreement Clauses

 

Thank you for the reference to your article concerning entire

agreement clauses. It is a valuable article, sites a wealth of

authorities and is well worth reading. Nevertheless, while the

arguments made are suttle, I still think that:

 

1. The balance of English authority is currently to the effect that an

entire agreement clause can (if drafted with appropriate clarity)

preclude reliance on collateral contracts and even pre-contractual

misrepresentations which are not fraudulent. I read your article as

accepting that the balance of English authority favoured that

approach, though clearly you are critical of that position; and

 

2. If your preferred approach were accepted, so that an entire

agreement clause was not conclusive but was but one factor to be

considered, the value of such clauses would be very significantly

undermined. With respect, I do think that entire agreement clauses,

understood to be conclusive  are valuable. Entire agreement clauses

play an important role in maintaining commercial certainty, in letting

people know where they stand and in minimizing disputes between the

parties. It is all very well to say, as you do, that as a matter of

principle: "... the enforceability of a promise should not depend on

the ease of proof that it was made." (at pages 525-526 of your

article.) While there is force in that argument, it will ring hollow

to a party who is being subjected to the delay, expense, stress and

inconvenience of a full plenary trial (with discovery etc.) as the

other party 'thrashes through the undergrowth' to find evidence of an

alleged colatteral agreement or representation which in most cases was

quite simply never made. In my experience, this is a common

occurrence.  I do accept that, as you say, treating entire agreement

clauses as conclusive gives rise to hard cases. One may speculate that

a party faced with an entire agreement clause is more likely to fight

the case to judgment, if the merits are otherwise on their side, so

that it may be that cases in which treating an entire agreement clause

as conclusive will give rise to hardship are disproportionately

represented among Court judgments. (To be clear, I fully acknowledge

that is pure speculation unsupported with impirical evidence.)

However, from my perspective, what parties want is clear advice about

what their rights and obligations are and the inclusion of an entire

agreement clause which the Courts will treat as conclusive greatly

facilitates clear, timely and relatively inexpensive advice, without

the need to conduct something approaching a mini-trial to find out

what the 'agreement' was. The number of hard cases to which this rule

gives rise is relatively rare and needs to be balanced against the

number of disputes which are avoided because of the inclusion of an

entire agreement clause in a written instrument which properly and

fully sets out the agreement reached between the parties as well as

the saving in terms of speedier and cheaper resolution of disputes

that nevertheless arise.

 

Parliament has decided that various classes of contract need to be in

writing. In doing so, Parliament fully recognized that a requirement

for writing will lead to some hard cases but concluded that such cases

are a price worth paying in the interests of the greater legal

certainty achieved for parties. Similarly I think the Courts are right

to hold that where parties agree in sufficiently clear terms that

their written agreement is to be their entire agreement the

conclusiveness of that clause should be upheld, in the interests of

providing certainty for the parties and third parties to whom

contractual rights may be assigned, novated or otherwise transferred

(by way for example of the sale of a company), even though there may

be some hard cases. It is fundamental to this analysis that the

parties themselves chose to insert an entire agreement clause.

Contract law ought to be and to my mind is about giving parties of

full age and capacity the freedom to order their rights and

obligations as they think best. So, if parties agree to an entire

agreement clause, that should be upheld and the Courts should not

second guess the parties reasons for that agreement. (Matters are

quite different where it is alleged that an entire agreement clause

was never actually agreed to by the parties.)

 

No Oral Variation

 

I think the arguments at point 2 above applicable to no oral variation

clauses as well.

 

I agree that enforcing a no oral variation clause in the example you

give could work hardship, assuming (as I think we should that such a

clause excluded collateral contracts). However:

 

1. It would have been perfectly possible for the parties to enter a

written agreement, by email or even text message. The claimant must

bare some responsibility for not seeking a written agreement;

 

2. Emergency variations where an variation in an agreement must be

acted upon immediately will be relatively rare and should be addressed

by the contract's drafter in any event; and

 

3. If it were shown that when the Claimant and Defendant agreed to

vary their contract: (I) the Defendant well knew that they were not

bound by the oral variation and that (ii) the Claimant did not realize

that the oral variation was ineffective, it might be that because the

Defendant did not enlighten the Claimant, the Defendant would be

estopped from relying on the no oral variation clause. (I think that

to allow broader grounds for estoppel would undermine the

effectiveness of such clauses and take the law back to the position

actually reached in Globe Motors but the estoppel argument outlined

here would at least address the worst cases, if the stricter approach

I argue for were adopted by the law.)

 

In conclusion, I would say that my experience of alleged oral

variations is that they are usually alleged to have been made by

persons at different levels in often large organizations, quite often

by the most junior people operating various contractual arrangements

"on the ground". Usually, the employees in question don't have full

details of the contract as a whole, don't understand the way different

provisions of sometimes complex agreements fit together and genuinely

do not realize the nature and significance of arrangements which are

made informally and are not intended by the employees in question to

amend the contract in question (whatever the objective intention which

such arrangements manifest). Quite often, those employees lack actual

authority to vary the contract in question orally but they may well

have ostensible authority, so that the organization is nevertheless

bound.

 

Kind regards

 

Ger

 

On 4/21/16, David McLauchlan <David.McLauchlan@vuw.ac.nz> wrote:

> Dear Gerard

> 

> In brief, I don't agree that the cases are rare where parties, including

> commercial parties, make agreements that are intended to be binding despite

> the fact that they are not recorded in the written agreement containing an

> entire agreement clause or, in the case of a no oral variations clause, are

> not entered into in accordance with that clause. With regard to the former

> scenario, there have been numerous cases over the years in which even

> experienced commercial parties, for one reason or another, did not take what

> some might consider the obvious precaution of ensuring that the

> representation or promise was included in the written agreement. Some of the

> understandable reasons why this might happen, as well as a selection of

> cases where the affected party has succeeded, are recorded in my article at

> (2012) 128 LQR 521.

> 

> However, the focus of the present discussion is the no oral variations

> clause, a clause that will usually be part of the boilerplate that is not

> noticed at the time of the contract or long forgotten when an alleged

> variation occurs. I cannot see any reason in principle why it should be

> treated as conclusive. This is not to say that its presence is irrelevant

> because one can imagine some situations where it will affect the credibility

> of the allegation or the question whether the variation was intended to be

> binding. But let us consider the following scenario. Defendant has agreed to

> supply security services to Claimant, a factory owner, pursuant to a written

> contract containing a no oral variations clause. An emergency situation

> arises, perhaps as a result of industrial unrest, whereby Claimant requires

> the number of security personnel provided for in the contract to be doubled

> for a defined period. An agreement to supply the personnel is reached over

> the telephone with Defendant’s manager. There is clear proof of the

> agreement in the form of a recorded message from the manager. However, the

> agreement is breached and as a result the factory suffers severe damage.

> Surely Defendant should not be able escape liability for breach of contract

> by relying on the no oral variations clause.

> 

> Regards

> 

> David

> 

> -----Original Message-----

> From: Gerard Sadlier [mailto:gerard.sadlier@gmail.com]

> Sent: Thursday, 21 April 2016 9:24 a.m.

> To: David McLauchlan

> Cc: Robert Stevens; Martin.Hogg@ed.ac.uk; obligations@uwo.ca

> Subject: Re: Enforceability of Contractual Clause Specifying way in Which

> Variations of Contract may be made

> 

> David

> 

> You say:

> 

> "Ill-founded allegations are a fact of life. No clause can provide complete

> protection against them."

> 

> True but clauses can and do minimize the expense and inconvenience to which

> such illfounded allegations give rise. Entire agreement clauses are a good

> example of that and the law should facilitate commercial parties who agree

> means of minimizing the potential for disputes regarding their agreement,

> rather than causing expense and delay for the many in pursuit of justice in

> a few hard cases which might properly be addressed pursuant to other

> developed legal doctrines anyway.

> 

> You say:

> 

> "Do we really want to say "go away" to claimants who have irrefutable

> evidence that an oral variation was agreed to?"

> 

> Such claimants would seem likely to be relatively rare, particularly if such

> clauses are permitted only among commercial parties.

> Furthermore, it has to be said that a party who agrees to a no oral

> variation clause and then acquiesces in a variation significant enough to

> give rise to litigation remaining purely oral does bare some responsibility

> for the position in which they find themselves. As above, we have to

> recognize that for every deserving case, there are likely to be many where

> the supposed oral variation alleged is at best illfounded and at worse a

> downright dishonest invention.

> 

> In the circumstances, perhaps it would be best for the deserving few to be

> left to: "... argue for one form of estoppel or another?"

> 

> " The issue is similar, though certainly not identical, to that which arises

> in relation to entire agreement clauses. No doubt there are many who believe

> that such clauses should almost always be conclusive and I wonder how many

> deserving claimants are advised that they have no chance because of the

> presence of such a clause. Yet it is pretty clear law that the clause can be

> circumvented via rectification and collateral contract. One can also find

> authority for invoking estoppel by convention and equitable estoppel."

> 

> I would have thought that whether reliance on any of the various doctrines

> you refer to, save rectification and grounds for estoppel which arise only

> after execution, was possible is a question of the construction of the

> entire agreement clause in question. See Axa Sun Life Services Plc v

> Campbell Martin Ltd & Ors [2011] EWCA Civ 133 at paragraph 89.

> 

> "The “documentary fundamentalists”, as I think Gerard McMeel would call

> them, will never prevail so long as we have courts who think it is important

> to uphold the parties’ true or real agreement."

> 

> I don't see how an entire agreement clause (or no oral variation clause for

> that matter) contained in a written instrument executed by parties of full

> age and capacity who understood that what they were executing was a formal

> written contract is somehow not part of the "real agreement" or "true

> agreement" entered into by the parties. In fact, it is those who would deny

> the parties to a contract the right to agree on means of being as certain

> as possible that the agreement they have reached, embodied in writing (often

> following legal advice), will be enforced in its terms who subvert the

> parties real agreement.

> They do more. They infantalize the parties by supposing that Courts, rather

> than the parties know best what is most efficient and suitable for the

> parties needs.

> 

> The matter is clearly different where business to consumer contracts are

> concerned because of the inequality of bargaining power present in such

> relationships and legislation concerning unfair terms is available to strike

> down any such unfair terms. Perhaps profalactic action would also be

> valuable, so that consumers are not mislead as to their rights.

> 

> Kind regards

> 

> Ger

> 

> On 4/20/16, David McLauchlan <David.McLauchlan@vuw.ac.nz> wrote:

>> Rob and I don't always agree, but he is absolutely right on this one!

>> There shouldn't be an issue here. As to the "increased uncertainty"

>> argument, I think this is a red herring. Ill-founded allegations are a

>> fact of life. No clause can provide complete protection against them.

>> Do we really want to say "go away" to claimants who have irrefutable

>> evidence that an oral variation was agreed to? Or force them to argue

>> for one form of estoppel or another? The issue is similar, though

>> certainly not identical, to that which arises in relation to entire

>> agreement clauses. No doubt there are many who believe that such

>> clauses should almost always be conclusive and I wonder how many

>> deserving claimants are advised that they have no chance because of

>> the presence of such a clause. Yet it is pretty clear law that the

>> clause can be circumvented via rectification and collateral contract. One

>> can also find authority for invoking estoppel by convention and equitable

>> estoppel.

>> The "documentary fundamentalists", as I think Gerard McMeel would call

>> them, will never prevail so long as we have courts who think it is

>> important to uphold the parties' true or real agreement. David

>> 

>> David McLauchlan

>> 

>> 

>> 

>> 

>> From: Robert Stevens [mailto:robert.stevens@law.ox.ac.uk]

>> Sent: Thursday, 21 April 2016 5:48 a.m.

>> To: Martin.Hogg@ed.ac.uk; gerard.sadlier@gmail.com

>> Cc: obligations@uwo.ca

>> Subject: Re: Enforceability of Contractual Clause Specifying way in

>> Which Variations of Contract may be made

>> 

>> 

>> "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<mailto: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<mailto: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<mailto: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

>> 

>> 

>> 

>