May 24, 2016

Allowing an appeal from a decision of HHJ Mackie that a buyer of vehicle parts breached the exclusivity provisions in a supply agreement, the Court of Appeal has considered obiter whether a clause requiring any amendment to be in writing and signed by both parties prevented the parties varying the agreement orally or by conduct.

The issue was one of general importance in respect of which there was conflicting authority, in particular the Court of Appeal’s decisions in United Bank Ltd v Asif (11 February 2000) where it was held that a contract containing an anti-oral variation clause could only be amended by a written document complying with that clause, and World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413 where it was found that a contract had been varied by oral agreement notwithstanding such a clause.

In light of such inconsistency, and following the rules in Young v Bristol Aeroplane Co [1944] KB 718, Beatson LJ considered himself bound by neither decision and entitled to decide which to follow.  His preference was for the decision in World Online.  Absent statutory or common law restrictions, the general principle of the English law of contract was that 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.  As such, in principle, the fact that the contract in this case contained such a clause did not prevent the parties from later making a new contract varying the contract by an oral agreement or by conduct.  Beatson LJ nonetheless noted that in practical terms, such clauses might help to guard against “manufactured allegations of oral agreements”.

Lord Justice Moore-Bick agreed with that analysis.  Lord Justice Underhill, however, took a different view considering it “entirely legitimate” that the parties to a formal written agreement should wish to insist that any subsequent variation should be agreed in writing “as protection against the raising of subsequent ill-founded allegations that its terms have been varied by oral agreement or by conduct” (Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 (20 April 2016) – to read the judgment in full, click here).