The first half of 2016 has seen not one but two Court of Appeal cases on the effectiveness of clauses requiring contract variations to be in writing.
In MWB Business Exchange Centres Ltd v Rock Advertising Ltd , the Court of Appeal endorsed comments made in Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd , that it is possible to vary an agreement orally, despite the existence of a clause requiring variations to be in writing.
The case concerned a written agreement between a commercial tenant (Rock) and an office space operator (MWB) relating to premises occupied by Rock. When Rock failed to meet its payment obligations, MWB exercised its contractual right to exclude Rock from the premises. Rock sought to rely on an oral agreement rescheduling the rental fee payments due under the original agreement.
The judge at first instance found that the revised agreement could not take effect due to a variation clause in the original agreement requiring any variations to be in writing.
The Court of Appeal decided that the oral agreement made between the parties was effective despite the express anti-oral variation provision included in the original agreement. In reaching this conclusion, the Court considered the ruling in Globe Motors and stated that the autonomy of commercial parties was the most important consideration. This means that parties should be able to agree to amend their contracts even in situations where they had previously agreed only to do so in a specific manner.
Having established that the parties had reached an oral agreement, the court went on to consider the question of whether there was adequate consideration to make the agreement binding. Although part payment of a sum already due is not normally good consideration, the court decided that MWB obtained an additional practical benefit in this case since continued occupation by Rock meant that the property did not lie vacant. On that basis, the Court of Appeal was satisfied that there was adequate consideration.
Until now, the effectiveness of anti-oral variation clauses has been unclear. This has been due, in part, to previous inconsistent decisions of the Court of Appeal. The conclusions reached in the first case of Globe Motors, as endorsed by the more recent case of MWB v Rock, provide welcome clarification in this area.
Anti-oral variation clauses are very common in commercial contracts and many parties may be surprised that they do not provide the security they perhaps imply. However, such clauses will still have practical value, since they should hopefully encourage the parties to ensure that variations are documented and signed off at the appropriate authority level. Parties should also ensure that their internal procedures on variations are clear and ensure that contemporaneous notes of oral negotiations are made and retained.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.