The Court of Appeal has held that a contract can be varied orally despite containing a clause which requires any variation to be in writing and signed.
In MWB Business Exchange Centres Ltd v Rock Advertising Ltd  EWCA Civ 553, Rock occupied MWB’s managed offices as a licensee. During the course of a 12 month licence agreement, it transpired that Rock was unable to pay the agreed licence fees, resulting in arrears of over £12,000. MWB terminated the licence agreement and sued for the arrears and damages. Rock claimed its financial director and MWB’s credit controller had made an oral agreement to re-schedule the licence fee payments and so it was not in arrears. MWB denied there was any agreement. The judge in the Central London County Court concluded that MWB’s credit controller had agreed to an amended payment schedule which had been proposed by Rock’s financial director. The judge also held that the credit controller had ostensible authority to bind MWB. However, the licence agreement included an ‘anti-oral variation clause’ which provided that “All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”, so the orally agreed variation was invalid.
The Court of Appeal overturned the County Court decision and held that a contract can be varied orally even if it has a term that requires variations to be in writing and signed, endorsing the Court of Appeal’s earlier non-binding comments in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396. In the Globe Motors case, the Court of Appeal recognised that the principles of freedom of contract and party autonomy allow parties TO agree whatever terms they choose, in writing, orally or by conduct. Even if the parties choose to agree terms which regulate how a contract can be varied, those terms can themselves also be discharged, waived or varied. Therefore, a clause which regulates variation cannot prevent the parties later making a new contract varying the original in any manner they want. Lord Justice Kitchen referred to Justice Cardozo’s 1919 decision in Alfred C Beatty v Guggenheim Exploration Company and others (1919) 225 NY 380: “Whenever two men contract, no limitation self-imposed can destroy their power to contract again”.
As a result of the Court of Appeal’s decision in MWB Business Exchange Centres, the oral agreement between Rock’s financial director and MWB’s credit controller had varied the licence agreement, meaning Rock was not in arrears. Following this decision, it is clear that an anti-oral variation clause will not always prevent oral amendments to a contract.
Oral agreements and agreements by conduct are inherently less certain than written ones and often lead to disputes about whether an agreement was in fact reached and, if so, on what terms. These types of agreements also raise difficulties of evidence and proof. Anti-oral variation clauses help to avoid these issues arising and discouraged parties from raising false or frivolous claims of oral variation when faced with claims for breach of contract.
The Court of Appeal’s decision will apply to any form of contract and may result in less certainty and more disputes around variation of contracts. Contractual parties should watch what they do and say. They should be very careful in post-contract discussions about their contractual obligations and avoid any conduct which might be thought to evidence an agreement to vary those obligations lest they face a claim the contract has been varied.
There may still be a benefit in including an anti-oral variation clause; where such a clause exists it should make it harder to show that post-contract discussions or conduct were intended to have the effect of varying the contract.
For further information, please contact Steven Mash, Partner, Fladgate LLP (firstname.lastname@example.org)