Anti-oral Variation Clauses: Are They Enforceable?

Anti-oral variation clauses are often found in contracts. The idea behind them is to prevent the parties to that contract from making any subsequent changes to the agreement unless those changes are mutually agreed in writing and signed by the parties. In other words, those parties are trying to prevent themselves from becoming bound by informal ad hoc verbal (or even email) exchanges.

As Reyhan Yilmaz explains, these clauses have been the subject of a number of Court decisions in 2016, where the Court of Appeal had to weigh the apparent certainty given by these clauses against more traditional freedom of contract principles.

Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd1

Here, the appellants, TRW Lucas Varity Electric Steering Ltd ("Lucas"), produced electric power-assisted steering systems ("EPAS") for cars. The first respondent, Globe Motors ("Globe"), designed and manufactured component parts of the EPAS system.

In June 2001, Lucas entered into a long term contract with Globe to purchase electrical motors ("Agreement"). The Agreement applied not only to the products identified in it, but also to products that "could and would have been produced by Globe making 'Engineering Changes' to the Products identified in the Agreement and detailed specification". Globe Motors Portugal, the second respondent, was not a named party to the Agreement but supplied Gen 1 motors to Lucas.

On 23 February 2003, Lucas appointed a third party, Emerson, as the sole supplier for the development and production of second generation motors, known as Gen 2 motors. From around 2005, Lucas purchased around three million Gen 2 motors from Emerson. Globe commenced proceedings for breach of contract against Lucas on 1 June 2011.

Decision at first instance

In 2014, HHJ Mackie QC in the High Court considered that Lucas's purchase of Gen 2 motors from another manufacturer was a breach of the exclusivity agreement between Lucas and Globe. Six issues were raised by Lucas on appeal, of which two are important:

Whether the Agreement covered not only the products identified in it, but also the Gen 2 motors bought from Emerson to the extent that they "could and would have been produced by Globe..." Whether the Agreement was varied by conduct so that Globe Motors Portugal became a party to the Agreement (and therefore had a right of action against Lucas) in circumstances where Article 6.3 of the Agreement expressly required that any agreement had to be recorded in...