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To say or not to say - oral variation clauses

"No variation of this agreement shall be valid or effective unless it is in writing, refers to this agreement and is duly signed by, or on behalf of, each party.”

These types of non-variation (or anti-oral variation) clauses are standard in many types of contract.  Parties to them, would quite naturally assume, that where such a clause is included, a variation has to be in writing in order to be effective.

However, questions have been raised as to whether or not such clauses do indeed give parties the certainty that they may expect. 

The recent decision in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] (MWB) underlines the fact that such clauses are not necessarily as clear cut as parties may think.  The case found that despite the inclusion of this type of clause, oral variations alone may in fact, be effective to vary contact terms.

The law before MWB

In United Bank Ltd v ASIF, it was held that a contract with an anti-oral variation clause could only be amended by a written document complying with that clause; in other words, an oral variation would not have effect.  

However, in another case, World Online Telecom v I-Way Limited (World Online), the Court of Appeal determined that parties were in fact free to change their contractual requirements on the basis that they had ‘made their own law by contracting, and can in principle, unmake or remake it’.

There are indeed, compelling arguments for either approach. The former ensures commercial certainty, whereas the latter protects the parties’ freedom to contract and ensures that they can later amend what they had initially agreed to do; including by verbally changing a contract that had been agreed as needing a written variation.

In a third case, Globe Motors Inc. v TRW Lucas Varity Electric Steering Ltd (Globe Motors) the court made some useful comments on the topic, saying that parties should be able to verbally change an anti-oral variation clause as they ‘have freedom to agree whatever they choose…and can do so in a document, by word of mouth or by conduct.’

The MWB Decision  

The MWB case earlier this year has underlined the position in World Online and Globe, thereby adding yet more weight to the argument that these types of clause do not necessarily do what they “say on the tin”.

The facts of MWB v Rock were as follows:

  • Rock Advertising Limited was a marketing company which occupied premises managed by MWB Business Exchange Centres Ltd (MWB Business);
  • The contract between the two parties included an anti-oral variation clause;
  • MWB Business wanted to terminate the licence when Rock went into arrears. Rock argued that the contract had been varied under an oral agreement creating new licence payments following discussions involving the credit control team.

The Court of Appeal acknowledged the uncertainty which had surrounded the issue and held that the oral agreement was binding and operated as a contract variation, acknowledging the freedom to contract approach taken in the Globe Motors case.

For further information contact the Schofield Sweeney Commercial team or call Luisa D'Alessandro on 0113 220 6284. 

About the Author

Luisa D'Alessandro

Partner

As head of the commercial team Luisa has a wealth of commercial law experience and advises clients…

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