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“No Oral Variation” Clauses: Do They Work?

Many commercial contracts contain a clause to the effect that any variations or amendments to the contract must be in writing.  Parties to commercial agreements favour such clauses because they promote certainty: the parties know what they have to do to amend the contract and disputes about oral discussions are in theory avoided.

Since such clauses are so widely used that it is surprising that the law on whether they work has been unclear.  Indeed parties arguing such clauses have been able to point to two conflicting decisions in the Court of Appeal: United Bank –v- Asif (2000) and World Online Telecom –v- I-Way (2002).

A case in the Court of Appeal on 20 April 2016 – Globe Motors and Others –v- Lucas and Others at last provides a very clear statement of how the Court of Appeal is likely to treat such cases in future.  Important as this decision is, it is still, unfortunately, not definitive, since the comments of the Court were “obiter”, which means that they did not form part of the reasons for the Judgment.  However in the Globe Motors case the Court of Appeal said that it was not bound by the two previous conflicting decisions and that its view was that, even where a contract provided that there was to be no variation except in writing, an oral variation would nevertheless be effective.

Since such clauses are so widely used that it is surprising that the law on whether they work has been unclear.

Whilst, for the reason explained above, this case is not the last word on the subject, and as ever the exact words will need to be considered in each case, the future attitude of the Court to such clauses is now almost certain to be that they do not work.

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