Contractual Variation

It is common for commercial agreements to contain clauses which require amendments to the terms agreed to be effected in writing. These “anti-oral variation” clauses are said to aid commercial certainty. A recent Court of Appeal decision has however curtailed the effectiveness of such clauses.

The subject dispute arose out of an exclusive supply agreement for component parts in the car industry. The relevant contract contained an “anti-oral variation” clause in the following terms:

“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 Court of Appeal confirmed that if both parties agree to vary the contract orally then that will be effective notwithstanding contractual provisions such as this which expressly prevent variation undertaken in this way.

It is a fundamental principle of English law that parties to a commercial contract subject to English law have a largely unfettered freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth, or by conduct.

Parties can, as in this case, agree to a clause restricting variation of the terms originally agreed to writing.

However, if they can agree to a clause restricting variation to writing then they can also subsequently change their minds and agree to dispense with a clause restricting variation to writing only.  

The consequence is that in principle the fact that the parties’ contract contains a “no oral variation clause” will not bind the parties if they both subsequently expressly agree to vary their contract in the manner the original restriction was designed to prevent.

From an evidential point of view varying an “anti-oral variation” clause orally or by conduct will be difficult to demonstrate in most cases without clear evidence that this was intended by both parties.

Notwithstanding this decision, putting any agreed variations in writing remains the best way of preventing disputes later arising.