In the recent decision of Globe Motors Inc v TRW Lucas Variety Electric Steering Limited [2016] EWCA Civ 396, the Court of Appeal considered whether a contract could be varied orally or by conduct, if it included an express clause specifying that variations had to be in writing.
In obiter comments the Court of Appeal found that such a clause did not prevent the contract from being varied by the conduct of the parties and clarified previously inconsistent Court of Appeal authorities in this area.
In United Bank Ltd v Masood Asif [2000] EWCA Civ 465, the Court of Appeal had found that if a contract included a requirement that a variation be in writing and signed, any oral variation of the terms would not have legal effect.
The Court of Appeal considered the point again in World Online Telecom Ltd v I-Way [2002] EWCA Civ 413, where it found that by entering into the contract the parties had made their own law and could unmake or remake it. An agreed oral variation was an exercise of this freedom to contract.
In light of these contradictory decisions, the Court of Appeal has now looked at the issue again in the Globe Motors case.
The contract in question contained a clause providing that any amendment must be in writing and signed by both parties. The Court was asked to consider whether the conduct of the parties had varied the contract.
The Court of Appeal emphasised parties' autonomy and freedom to create, discharge or vary terms at will and it found that parties could do so in a document, orally or by conduct. The existence of a clause requiring variations to be in writing would not prevent the parties from later varying it, by making a new contract by oral agreement or through a course of dealings. The Court of Appeal held that it therefore had been open to the High Court judge to determine that there had been a variation based on evidence of open, obvious and consistent dealings over a long period.
In practice
The Court of Appeal confirmed that its decision did not mean that these types of clauses were valueless, as they both encouraged parties to set out any variations clearly and in writing and raised the question of whether evidence shows that the parties really intended to vary a contract where the prescribed process was not used. It also considered that difficulties would arise in proving that a contract had been established or varied orally or through a course of dealing and that the appropriate test in determining whether such a contract or variation existed was whether on the balance of probabilities the evidence established that a variation had been concluded.
