Negotiating contracts – an update

Negotiating contracts looks set to be tougher in future, with the news that clauses that require any changes to be made in writing and agreed by all the parties may not hold water. Anti-oral variation clauses often feature in both commercial agreements and employment contracts, but until now there have been conflicting decisions over enforcement.

In the recent case to reach the Court of Appeal hinging on this question, the Court has aid that even when such a clause is included, it is possible to amend a contract verbally or by conduct.

In the case of Globe Motors Inc. and others v TRW Lucas Verity Electric Steering Limited and another, the ruling went in favour of TRW Lucas for the change of supplier for Gen 2 type motors, so there was no need to consider the variation clause, but the Court decided to clear up confusion from two earlier, conflicting rulings over the need for a signed variation in agreement. And it decided that it was not necessary for variations to be made in writing, saying that TRW Lucas had agreed to the change, through its own conduct of accepting the supply of Gen 1 motors from Globe Porto, evidenced through the orders it placed with them and the invoices it accepted.

It opens the way to an increase in disagreements over agreed contractual terms, although variation by verbal agreement or conduct will have to proven, so there will need to be strong evidence to show both parties understood and agreed to any change.

Whether for employment or commercial relationships, the clear message from this judgement is that parties to contractual agreements cannot rely solely on the written agreement, they must be careful about what they say and do as well.

This case doesn’t mean you should give up on variation clauses that require changes to be made in writing, as they encourage good practice and place the burden on a party to prove that a variation has taken place by others means. It remains important to put any changes in writing, signed by all parties, if you want to be able to rely on the variation at a later date.

The general principle of English law is that unless there are statutory or common law restrictions, parties are free to agree whatever terms they choose.

While the court could see the practical benefits of restricting how agreements can be varied, it said that the overriding principle of freedom of contract means that, parties are therefore free to include terms regulating the manner in which the contract can be varied, but just as they can create obligations at will, so also can they discharge or vary them.

If you would like any more information in relation to this article then please feel free to contact me via email: krishen.patel@bowlinglaw.co.uk or visit my profile.

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