Back in May 2016, our sister blog, Talking Business, looked at a decision of the Court of Appeal concerning the enforceability of anti-oral variation clauses (basically, a clause that says a variation of the agreement is only effective if it is made in writing and signed by both parties).
The view of the Court of Appeal was that an anti-oral variation clause does not prevent subsequent oral variations, although “strong evidence” would be required for the court to decide that a contract containing an anti-oral variation clause had indeed been varied orally.
The Supreme Court has now come to a different conclusion, finding that the use of an anti-oral variation clause did prevent subsequent oral variations being made to an agreement.
The case before the court involved the parties to a licence to occupy office space. The licensee had fallen into arrears in respect of fees payable under the terms of the licence and proposed a revised schedule of payments to the licensor.
The licensee argued that the parties had orally agreed to vary the licence, but the licensor argued that the revised schedule was merely a proposal.
The clause in question stated that:
“all variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect”.
The court decided that the specific requirements of the clause were legally binding. Given that the parties had intended for any variations to be effected in accordance with the clause, a decision to the contrary would override the parties’ intentions.
As a result, the oral variation had been invalid.
But what if I change my mind?
The decision of the Supreme Court emphasises the need to check and follow any formal procedures set out in the contract about varying its terms. If an agreement does contain an anti-oral variation clause, it is unlikely that an oral variation will be valid just because the parties agree to it. If the parties change their mind about having formal procedures, they could consider varying the contract (following those procedures) to remove them.
The court did point out that when a contract contains an anti-oral variation clause, there is a risk that a party could act on the contract as (apparently) orally varied and then find itself unable to enforce it. In such circumstances, the court explained that there would need to be words or conduct to unequivocally demonstrate that the variation was valid despite its informality – and more than just the informal promise itself.
You say it best when you say nothing at all (and write it instead!)
A failure to comply with the requirements of an anti-oral variation clause when varying a contract will not necessarily invalidate the change, but if the variation procedure specified in the contract has not been followed, it will be more difficult to prove that the amendment is effective.
This blog post was written by trainee solicitor Emily Driver. For further information, please contact:
Alicia Corby, solicitor, Banking & Finance
T: 0115 983 8205