A contract can be formed orally or in writing. It is always preferable that terms are set out in the form of a written contract; it’s certainly easier to prove but this does not prevent oral agreements from being both legal and compellable. Likewise, where there is a written agreement it can be varied by agreement reached orally. But does this hold if your written agreement expressly states that any variation must be in writing?
The Court of Appeal of England & wales in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ. 553, held that an oral agreement can vary a contract despite even where there is a clause requiring variations to be in writing and signed.
The issue was before the courts in two recent cases.
Anti-oral variation clauses are not unusual; the intent is to exclude any variations which are argued to have been concluded in discussions. There has been, however, uncertainty as whether those anti-oral variation clauses have the desired, legal effect. In United Bank v Asif [2000] the Court of Appeal upheld an anti-oral variation clause. Since then the courts have tended to the view that parties to a contract can unmake, remake, or otherwise change its terms. This is the freedom of contract principle.
The Court of Appeal in Globe Motors Inc v TRW Lucasvarity Electric Steering Ltd [2016] EWCA Civ 396 considered an contract that included a clause that the agreement could be amended only by a written document signed by both parties. In considering the earlier, conflicting decisions the Court made obiter comments that there was more authority to support the argument that parties were free to change the terms of an agreement even though there are clear problems in proving an oral agreement. Where an oral agreement was alleged, it would be for the court to decide.
The case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd then followed, with the Court of Appeal holding that an oral agreement can vary a contract despite the existence of an anti-oral variation clause. The court stated that (citing the New York Court of Appeals in Alfred C Beatty v Guggenheim Exploration Company and others [1919]) ‘those who may make a contract may unmake it. The clause which forbids a change may be changed like any other. The prohibition of oral waiver may itself be waived. What is excluded by one act is restored by another. You may put it out by the door, it is back through the window. Whenever two men contract, no limitation self-imposed can destroy their power to contract again …’.
This decision has potentially wide ranging effect. If the principle applies to oral versus written variations, can it apply also to oral notices of intention where the contract expressly requires written notices? As always the circumstances will dictate, but if there is shown to be acknowledgement of such a notice then it might yet be effective. in turn this could undermine other contractual provisions, including those perceived as a time bar to claims.