Reed Smith Client Alerts

Authors: Alexander Sandiforth Sally-Ann Underhill

This Alert looks at the effectiveness of what are commonly termed “no variation” or “anti-oral variation” clauses (i.e. clauses which purport to prevent the contract in question from being amended absent compliance with specified requirements). They are commonly found in commercial contracts in numerous guises. Normally they specify that to be effective, any amendment to the contract must be in writing and signed by the contracting parties. We look at the recent MWB Business Exchange Centres Ltd. v. Rock Advertising Ltd. [2016] EWCA Civ 553 decision under English law.

Whether such clauses are effective (i.e. they achieve their intention that the contract in question can only be amended if the specified requirements are complied with) was, until recently, an unresolved question under English law.

In April 2016, the Court of Appeal in Globe Motors Inc. v. TRW Lucas Varity Electric Steering Ltd. [2016] EWCA Civ 396 [See our blog post on this case] had to consider a clause which provided (underlining added):

"6.3 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."

Although the Court of Appeal did not need to decide the point in the Globe Motors case the judgment was unanimous that, in principle, the contract in question could still be amended without compliance with the parameters underlined above. In reaching this conclusion, the Court of Appeal emphasised the importance of party autonomy.

The MWB Business case The more recent decision of the Court of Appeal in the MWB Business case in June 2016 has confirmed the approach in the Globe Motors case to be correct. In that case the clause in question read (underlining added):

“This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form party of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”.

Thus provided it can be demonstrated that the parties have waived compliance with the clause (which will be fact sensitive) and that the amendment is supported by “consideration” i.e. something of value (an argument that there was no consideration on the facts of the MWB Business case was rejected by the Court of Appeal, which referred to authorities in which it has been held that practical benefit can be good consideration in law), such a clause will not prevent the parties’ amendment to the contract from taking effect even where there has been a failure to comply with the clause.

Practical guidance

  1. The decision in the MWB Business case serves as a warning that a contract can be amended orally even if it contains a clause similar to those set out above, purporting to prevent the contract from being amended absent compliance with specified parameters (i.e. in writing and signed by the parties).
  2. Parties should not assume that such a clause in an on-going contract allows for negotiations to take place with no risk of inadvertently agreeing an amendment to the contract (either by words and/or conduct).
  3. Negotiations, whether oral or in writing, should make clear whether an amendment has been reached (as should negotiations when the parties are looking to enter into a contract). Contemporaneous notes of oral negotiations should be made and retained (as should e-mails and other written communications). Moreover, care should be taken to ensure that any conduct is not inconsistent with negotiations (i.e. a party should avoid stating one thing and then acting in a way that is inconsistent with this).
  4. As a matter of good practice, any amendment to a contract should be recorded in writing and, where possible, signed by all parties.
  5. Consider limiting the ability of particular individuals to amend contracts. However, this is not a complete answer to preventing contracts being “informally” amended (nor will it be feasible as a matter of practicality in every case), as one may be faced with arguments about apparent authority (i.e. an argument that A by words or conduct represented that B had authority to act on A’s behalf).
  6. Notwithstanding the decision in the MWB Business case, it is still recommended that contracts contain well drafted “no variation” or “anti-oral variation” clauses. In the event of a dispute they will be relevant when it comes to considering whether, on the facts of the specific case, a contract has been amended. The fact that such clauses still serve a useful purpose was recognised in the Globe Motors case notwithstanding the Court of Appeal’s indication in the same case that they do not prevent a contract from being amended even in the absence of compliance with the clause.

 

Client Alert 2016-172