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Court of Appeal Allow Oral Variation to Contract Despite Contract Wording

on Tuesday, 21 June 2016.

Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd,

In the case of Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd, the Court of Appeal has indicated that a contract could be amended orally or by the parties' conduct, despite the contract containing a clause that prohibited changes unless they were made in a formalistic written amendment.

The Facts

The exclusive purchasing requirement in the contract agreement was intended to last for the lifetimes of the products described in the contract. The High Court had found that the party had breached that purchasing requirement.

The Court of Appeal Decision

The Court of Appeal has now reversed the High Court's decision. It actually came to its conclusion on the interpretation of the relevant products. Therefore, there was no breach based on the products bought.

However, the Court also said that if it would have come to a different conclusion on the interpretation of the meaning of the products, it would still have decided that there was no breach as the contract had effectively been amended by the parties' conduct. This was despite the clause stating that the contract could only be amended by a written document that specifically referred to that provision in the contract and the amendment had to be signed by both parties.

The Court said the 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. A clause of the sort used here does not prevent them from later making a new agreement that varies the contract whether orally or by conduct. The parties had amended the conduct based on open, obvious and consistent dealings over a long period.

Comment

There have been various cases that have gone each way on this point. The words from the Court of Appeal are useful in clarifying matters. However, a word of caution: the comments are persuasive rather than binding as the Court had decided the case on another point.

Despite the ruling in this case, we see no harm in continuing to use clauses in contracts that require amendments to be in writing. It is recommended that parties  read those clauses with caution, but they should at least encourage good behaviour in clearly documenting changes so there is no doubt.


For more information, please contact Paul Gershlick on 01923 919 320.

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