Futile devices – the Court’s approach to anti-oral variation clauses
ZVI Construction Co LLC –v- The University of Notre Dame (USA) in England  EWHC 1924 (TCC)
C&S Associates UK Limited –v- Enterprise Insurance Company PLC  EWHC 3757 (Comm)
All manner of contracts contain clauses to the effect that the contract in question represents the entirety of the terms agreed by the parties. Such clauses are often supplemented by clauses which attempt to prevent future changes to the contractual relationship between the parties, unless such changes are evidenced in a prescribed form, for example in writing and signed by all parties. Rob Calnan considers some recent cases in the TCC and Commercial Court which provide ample evidence of the Court's approach to such 'anti-oral variation' clauses.
In ZVI Construction, the Claimant construction company sought declarations from the Court as to the meaning of a development agreement to which it was a party. The claim related to the Defendant university's attempt to develop a block of student flats. The Defendant had contracted to buy the flats from a company with close connections to the Claimant, and it had agreed that the sale would complete provided that the Claimant carried out various works to the property. When the property was handed over to the Defendant, the Defendant alleged that the works were incomplete and sought damages from both the seller and the Claimant pursuant to the dispute resolution mechanisms in the contract of sale, to which the Claimant was also a party.
An expert determination ensued, and after many months the expert found in favour of the Defendant. At this point the Claimant asserted for the first time that the expert had no jurisdiction to consider the dispute, as the contractual dispute mechanism procedure clearly only applied to disputes between the buyer and seller. It also argued that a clause in the contractual dispute mechanism precluded any expert instructed from ruling on matters of contractual interpretation. Finally, the Claimant argued that a clause in the contract requiring any amendment to the contract to be in writing and to be signed by the party subject to that amendment meant that the parties could not have amended the contract by conduct to allow the expert jurisdiction to determine the dispute.
The Defendant argued, inter alia, that it was clear that the parties' conduct in participating in the expert determination process for many months did mean that the parties had agreed to amend the contract to allow the expert to opine on matters of contractual interpretation. The Court considered whether it was possible for an anti-oral variation clause to be waived by conduct.
Mr Stephen Furst QC referred to the judgment of the Court of Appeal in Globe Motors Inc & Ors –v- TRW Lucas & Ors  EWCA Civ 396 in which Beatson LJ had considered divergent authorities on the same point. Beatson LJ came to the conclusion that "in principle a contract containing a clause that any variation of it be in writing can be varied by an oral agreement or by conduct". By way of an analogy with the concept of Parliamentary supremacy, Beatson LJ noted that Parliament cannot bind its successors, and thus it would be wrong to preclude parties from varying their contractual obligations by agreement after the contract had been signed.
The Globe Motors decision was followed by Kitchin LJ in MW Business Exchange Centres –v- Rock Advertising  EWCA Civ 553, who noted that the most powerful consideration was that of "party autonomy".
Mr Furst QC, noting the principles, went on to consider the burden of proof. He noted that, whilst the existence of an anti-oral variation clause was a relevant factor, in determining whether parties to an agreement intended to vary a particular clause notwithstanding the existence of the anti-oral variation clause, there was no higher standard of proof which needed to be met; the issue would be decided on the balance of probabilities. In this instance, Mr Furst QC found that the parties had intended to amend the clause limiting the expert's jurisdiction, and thus must be considered to have agreed not to comply with the formalities of the anti-oral variation clause.
In the C&S Associates case, an anti-oral variation clause was also considered. The Claimant was a claims handling company, which had handed outsourced claims for the Defendant insurer for around 18 months, pursuant to a delegated authority agreement. In October 2013, the parties had agreed by email a variation to the terms of the agreement whereby the fees charged for each type of case were increased and the agreement, which was previously terminable by each party on three months' notice, was extended for a fixed term of two years. The email correspondence referred to a revised agreement which would be put in place "in due course". In the event no revised agreement was drafted but the Defendant began paying the agreed higher fees.
The proceedings in large part dealt with whether either party was in repudiatory breach of contract and thus entitled to claim damages. However, the Court also considered whether the amendments to the agreement in October 2013 fell foul of a clause in the agreement requiring any amendments to be in writing and signed by both parties.
In the event, Mr Justice Males found that since both parties had expressed their agreement to the proposal by email, and thus in writing, and both emails were 'signed' by way of electronic signature, they had in fact complied with the terms of the clause, and that on an objective reading there was no need for the two parties' signatures to appear on the same document. That no single formal contract document had been signed was therefore of no import, as the variation had already taken effect.
Whilst the Court did not consider what would have happened had the formalities of the anti-oral variation clause not been complied with, on the basis of the ZVI Construction case one may well conclude that it would not have mattered in any event; one can certainly see an argument that the parties, in agreeing terms of a variation to a contract which their subsequent conduct (particularly in relation to payment of the higher fees) appears to confirm, would be found to have acted autonomously and thus would not have been subjected to the anti-oral variation clause. The alternative proposition, that the Defendant was entitled to 'put the clock back' and request the additional fees charged since the variation, would seem unconscionable in all the circumstances.
What can we learn from these cases? Well, it is clear that in certain instances anti-oral variation clauses can provide ground rules to parties which govern their post-contractual negotiations. A party will not want to be put into a situation where any purported amendment, to a settled contract, however tenuous and unsupported, is held up as evidence that the parties have agreed a variation.
However, in practice anti-oral variation clauses may be worth little more than the paper they are written on. The Courts have affirmed the principle of party autonomy so that in circumstances where two parties have clearly, by their words or conduct, agreed a variation to a contract, that variation cannot be undone by a minor failure to comply with formalities. Given the potential for unfair consequences if such clauses were required to be complied with to the letter, this would appear to be the only sensible approach. Whilst they will remain part of the factual matrix in any dispute, drafters should therefore be wary of putting too much faith in anti-oral variation clauses.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.