Blog - 14/02/2017
How effective are ‘anti-oral variation’ clauses?
As the UK moves closer and closer to the triggering of Article 50, the impacts of Brexit on the construction industry (including concerns over labour availability and the drop in the value of the pound) have caused some to wonder if and how they might vary the terms of their construction contracts.
Besides the typical elements for contract variation (i.e. offer, acceptance, consideration and intent to create legal relations), often specific provision is incorporated in a contract specifying that it can only be varied by written agreement signed by both parties in order to make clear that verbal communications are not construed as a contract variation. Such ‘anti-oral variation’ clauses are intended to provide certainty and eliminate or restrict future litigation over what terms are agreed between parties.
However, by its decision in MWB Business Exchange Centres Ltd v Rock Adverting Ltd  EWCA Civ 553, the Court of Appeal shocked many by its approval of the Court’s earlier obiter observation in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396 that freedom of contract enables parties to “agree whatever terms they choose to undertake, and can do so in a document, by word of mouth, or by conduct.” As the parties to a contract are free to agree the provisions that control the method by which the contract can be varied, the Court concluded that the parties can, whether by written or oral agreement or by conduct, just as easily agree that such a clause does not apply. Basically, even with an anti-oral variation clause within their contract, parties are free to vary their original contract orally or by email or conduct.
The concern of course is that there is a possibility that an oral discussion, email exchange or some act might result in an inadvertent variation of a contract which may have grave consequences.
Fortunately, there remain some options to mitigate unintentionally contract variations.
Under the law of agency, an agent can only bind its principal where the agent acts within the scope of its actual and applied authority. In other words, where the contracting parties are corporate entities, one option is for the anti-oral variation clause to specifically state that any variation must be approved by certain individuals (e.g. by a director and head of commercial). Of course, it is unlikely that such a provision will have been included in existing contracts. Nor does this help where the contracting parties are individuals.
Where an anti-oral variation clause has been agreed, a party seeking to rely on an oral discussion, an email or variation by conduct will need to demonstrate on a balance of probabilities that it would be unacceptable for the anti-oral variation clause to be enforced. For example, evidence of one party insisting that oral variations should be legally binding (or, in the alternative, that they should not) will likely be a key factor in determining the effectiveness of an oral variation. Thus, whereas previously anti-oral variation clauses were simply boiler-plate clauses dropped into the contract by a lawyer, going forward, parties need to give careful consideration as to how they may wish to vary their contract and to include such provisions as part of their contract negotiations.
For further information regarding this topic or any other property and construction matter, please contact Brenna Baye – Associate, or any member of Edwin Coe Construction team.
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