This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
The Court of Appeal recently considered the issue of whether an anti-oral variation clause prevented the oral variation of a written agreement. The Court’s decision may surprise some.
It is fairly common for written contracts to include a term that any variation of the contract must be in writing. There are good reasons to include such provisions, namely to promote certainty and control. Parties do no want to be met with claims that a discussion resulted in some variation of their agreement. Businesses may also be concerned about their employees entering into oral agreements which are binding upon the organisation, but which it knew nothing about.
The case of MWB Business Exchange Centres Ltd v Rock Advertising (2016) concerned a written agreement under which Rock occupied as licencee premises managed by MWB. Rock fell behind in its licence payments and MWB purported to terminate the agreement and claimed back the arrears and other charges. Rock however claimed it was not in breach of the agreement because it had met with MWB’s credit controller who had agreed at that meeting to re-schedule the payments. MWB pointed out that the written agreement between the parties included a term that all variations, “must be agreed, set out in writing and signed on behalf of both parties before they take effect.” Unsurprisingly, MWB contended that this clause precluded any oral re-negotiation of the payment procedure.
Whilst the judge at first instance agreed with MWB that the clause precluded any oral re-negotiation of the payment procedure, the Court of Appeal preferred the view that it was possible for contracting parties to agree to vary or waive a requirement that any variation be in writing. Since MWB’s credit controller had agreed to vary the payment terms, and she had ostensible authority to do so, there had been an oral variation of the agreement which was not precluded by the express terms of the contract. The Court’s reasoning was based upon a long held view that parties should have freedom of contract. As one US judge (to which the Court of Appeal referred) put it, “[t]hose who make a contract, may unmake it. The clause which forbids a change, may be changed like any other.”
If anti-oral variations clause do not preclude an oral agreement, is there any point in using them? In my view, there is. A judge is likely to require compelling evidence that the parties’ discussions were intended to orally vary a written contract incorporating an anti-oral variation clause. Such a clause also encourages the parties to ensure that oral variations are properly documented, thereby reducing the scope for any disagreement between the parties as to the terms of their agreement.
Nevertheless, it is clear that businesses cannot easily “contract out” of the risk of staff entering into oral variations of written agreements. This should highlight the need for proper training to ensure that employees are aware that their discussions and actions could be contractually binding on their businesses. It will usually be sensible for certain types of discussions to be carried out on a “subject to contract” basis to show that the parties do not intend any legal consequences to flow from their communications.
