No Oral Variation clauses and their enforceability: the current legal landscape in New Zealand and England

Download article Introduction Is it possible to agree in writing that you will not alter that agreement other than by writing? It is common for commercial contracts to have a clause proscribing oral variations (or variations by conduct), or at least attempting to do so. It is also increasingly common for parties to enter into dispute about the efficacy of oral variations notwithstanding the presence of such clauses. The question for practitioners is whether such clauses are enforceable. It is this narrow issue which this paper confronts, first by reference to the development of the law in England, followed by the New Zealand legal position.

Position in England In England there is recent Court of Appeal authority dealing with the efficacy of a 'no oral variation' clause in a written agreement. The two most relevant cases are Mwb Business Exchange Centres Ltd v Rock Advertising Ltd (Mwb)1 and Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd (Globe Motors).2 In Mwb the Court of Appeal framed its issue for consideration as follows:

19 There has for some time been a considerable degree of uncertainty in this country as to whether an agreement in writing which contains an anti-oral variation clause such as clause 7.6 can be varied other than in accordance with the terms of that clause. That uncertainty may be attributed at least in part to two inconsistent decisions of the Court of Appeal. In the first (United Bank Ltd v Asif and anor. 11 February 2000, unreported), it was held that in light of such a clause no oral variation of the written terms of the agreement could have any legal effect. In the second, World Online Telecom v I-Way Ltd [2002] EWCA Civ 413, it was held, apparently in ignorance of the decision in United Bank, that the law on this issue was sufficiently unsettled to render it unsuitable for summary determination. These decisions, the principles underlying them, and other relevant authorities have now been considered in detail by the court in Globe Motors and it is convenient to address them in that context. The decision in Globe Motors was used as the effective platform from which consideration of this issue moved in Mwb. For present purposes it is therefore sufficient to focus solely on the decision in Mwb (noting, nonetheless, that the decision in Mwb was heavily derived from the reasoning in Globe Motors). Having framed the issue, the Court of Appeal in Mwb went on to summarise the decision in Globe Motors as follows:

Beatson LJ (the Judge in Globe Motors) approached the matter in a structured way considering principle and policy first, the existing authorities second, questions of proof third, and the issue of precedent fourth.3 Beatson LJ reasoned that "as a matter of general principle parties have freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth or by conduct". His Lordship considered that in this context, an anti-oral variation clause does not prevent the parties later making a new contract varying the original agreement. That subsequent agreement could arise by writing, orally or by conduct. As to the question of authority, Beatson LJ noted that since the Judicature Acts, it had been possible to vary a deed orally. His Lordship referred to Chitty on Contracts and to authority supporting the proposition that compliance with a no oral variation clause can be waived.4 His Lordship considered the competing authorities of United Bank Ltd v Asif and anor and World Online Telecom v I-Way Ltd.5 Beatson LJ was alive to the issue of proof.[6] His Lordship agreed with other statements that an oral variation would be effective only "when the evidence on the balance of probabilities established such variation was indeed concluded".7 Beatson LJ then noted that he did not consider the Court of Appeal was bound by any earlier decisions. 8 After considering the decision in Globe Motors the Court of Appeal summarised its decision as follows:

34 ... The relevant principles, the material policy considerations, the earlier authorities and the issue of precedent were considered in depth and with the benefit of very full argument in Globe Motors and for my part I consider it would require a powerful reason for this court now to come to a conclusion or adopt an approach which is different from that of all members of the court in that case. In my judgment and despite the attractive way Mr Darton developed his arguments, none has been shown...