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Preventing Variation by Oral Agreement - Rob Mundy

Can you agree that a contract can only be varied in writing? This is a question upon which there are conflicting authorities.

The latest case to consider the point is Globe Motors Inc v TWR Lucas Varity Electric Streeting Ltd [2016] EWCA Civ 396. Beatson LJ suggested the answer was “no”.

Litigators should note two things:

1. The law remains uncertain

In Globe, Beatson LJ suggested that anti-oral agreement clauses were not effective. His comments were obiter, but they are likely to be highly persuasive because they followed full arguments and because Underhill and Moore-Blick LJJ expressly agreed with them.

However, the point is not settled. Indeed, it is arguable that a first-instance judge is bound to give effect to an anti-avoidance clause. This is because the Court of Appeal gave effect to an anti-oral agreement clause in United Bank Ltd v Asif (11 February 2000). Ordinarily this decision would bind first-instances judges and the Court of Appeal itself.

In Globe, Beatson LJ suggested that the Court of Appeal was not bound by Asif because Asif was inconsistent with the Court of Appeal's decision in World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413. Beatson LJ considered that, as the Court of Appeal had given two previous inconsistent decisions on the point, it was free to decide between them.

But are Asif and I-Way inconsistent? The ratio of I-Way was simply that it was inappropriate to decide on a summary judgment application whether an anti-oral agreement clause is effective. This is not – of itself – inconsistent with Asif, not least because a court has a discretion whether or not to grant summary judgment.

It remains open to parties to argue that courts of first instance and the Court of Appeal should follow Asif rather than Globe.

2. The evidential effect of anti-oral variation clauses is case sensitive

In Globe, the Court of Appeal suggested that courts would require “strong evidence” before finding that there had been an oral variation in the fact of a anti-oral variation clause.

However, this observation should not be elevated to a rule of law (or, even, a rule of thumb). Everything depends on context.

It is clear that the Court of Appeal did not intend to alter the burden of proof in these cases. The question still remains whether, on the balance of probabilities, the oral variation is proven. The Court of Appeal's point is that a first instance judge may consider that it is unlikely that the parties have made oral variation where they had previously agreed not to do this. But whether this is appropriate, will depend on the context. There may be very good reasons why it is likely that parties have agreed an oral variation although the written contract did not anticipate it. In long-term contracts variations may be required because of changing circumstances. They may, quite understandably, be dealt with less formality than the original negotiations: perhaps because of urgency, or because of increased trust, or because lawyers are not on hand.

18/05/2016
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