Future-Proofing Your Contracts – ‘Anti-Oral Variation' Clauses Require Some Further Thought

This Client Alert discusses the effectiveness of clauses which purport to prevent contracts from being amended without compliance with specified requirements, and how giving greater thought to their drafting in your contract can help avoid unintended variations of a contract's terms. Most commonly, such clauses specify that, to be effective, any amendment must be made in writing and signed by the contracting parties. These so-called 'no variation' or 'anti-oral variation' clauses are particularly valuable in long-term contracts, which inevitably are likely to be affected during their terms by changing circumstances. They are particularly appropriate (and common) in long-term supply (and off-take) agreements and in construction contracts. While the practical effect of these clauses has been, until recently, a matter of some uncertainty under English law, two recent decisions (Globe Motors Inc. v. TRW Lucas Varity Electric Steering Ltd. [2016] EWCA Civ 396 and MWB Business Exchange Centres Ltd. v. Rock Advertising Ltd. [2016] EWCA Civ 553) have thankfully provided some valuable guidance for those responsible for negotiating and drafting contracts.

Importance of 'no variation' and 'anti-oral variation' clauses It is all too easy to pay less attention to 'boilerplate' wording than to heavily negotiated commercial terms. (For a discussion of a number of recent themes and developments relating to long-term supply and off-take agreements - including a number of provisions which might be regarded as 'boilerplate' - see our recent article.) But 'boilerplate' language - refined over years - generally provides very valuable protection and certainty for the parties to a contract. Whether, and to what degree, boilerplate 'no variation' and 'anti-oral variation' clauses are effective (i.e., whether they ensure that a contract can only be amended after the specified requirements are complied with) is of particular importance in contracts intended to apply over a significant period such as long-term supply (and off-take) agreements and construction contracts.

It is inevitable that a transaction's underlying circumstances, and/or the parties' positions and expectations will change over the life of contracts of this type. Prices may move significantly; pricing mechanisms or reference points may evolve or cease to operate; the characteristics and/or quality of the underlying commodity or the difficulty, cost or duration of a construction project may prove...