Worth the paper they're written on - Supreme Court backs variations-in-writing clauses

31.05.18

We reported back in 2016 on a case that appeared to signal the end for so called variation-in-writing (or anti-oral variation) clauses - Writing on the wall for variations-in-writing clauses?

In a recent case, the Supreme Court reached a different decision and upheld the enforceability of these types of clauses.


In a decision that had significant ramifications for the construction industry (and which attracted plenty of comment) the Court of Appeal in Globe Motors ruled that the principle of freedom of contract meant that although parties to a contract might agree variations should be in writing, there was no bar to them subsequently deciding otherwise and agreeing variations to their contract orally, or for that matter by course of conduct. Other court decisions, particularly in the English courts, had backed this approach, though there remained considerable uncertainty.


The Supreme Court in Rock Advertising Limited v MWB Business Exchange Centres Limited, overturning the earlier Court of Appeal decision and that in Globe Motors, has disagreed and reinstated the validity of Variation-in-Writing clauses. In doing so it has brought clarity to an area that has provided fertile grounds for disputes.


The clause in question in Rock’s Contract stated “All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.” The Supreme Court upheld the enforceability of this clause. In particular it rejected the argument that freedom of contract allowed the parties to subsequently agree to vary the contract orally, pointing out that almost every contract restricts the rights of the parties to it, and binds parties to a particular course of conduct to which they must adhere.


In particular the Court held that there were sound commercial reasons for upholding the validity of such clauses as they:

  • prevent attempts to undermine written agreements by informal means;
  • help avoid misunderstandings and unintended effects of oral discussions; and
  • provide businesses with the means to internally police variations to ensure only those with the necessary authority can bind the company.

 

Back in 2016 we advised that such clauses should continue to be drafted into the majority of contracts; and existing contractual mechanisms requiring written variations should continue to be applied. For many contractors and employers this decision will therefore have little day to day impact on the way variations are agreed. 


However, the reality of administering a complex project will often mean that variations will be discussed and ‘agreed’ orally at the coal face as required. Most construction contracts provide for this by specifying a procedure and, usually, timescales for having these ‘oral’ agreements confirmed in writing. For contractors in particular the decision in Rock reinforces the importance of understanding and adhering to contractual mechanisms to ensure oral ‘agreements’ are confirmed into valid and enforceable written variations.