Our legal experts at Baines Wilson shed light on a tricky area of contract law.

A “no variation” clause is a relatively standard clause in a commercial contract.

The clause will commonly seek to restrict variation of the agreement, except to those agreed in writing by the parties.

The aim of this is to exclude the possibility of informal and unintended oral variations being made to an agreement.

However, as a result of a stream of inconsistent Court of Appeal judgements, the effectiveness of the standard variation clause has been called into dispute in recent years, with uncertainty at the forefront of discussion.

That was until the recent case of Globe Motors Inc (Globe) v TRW Lucas Variety Electric Steering Ltd (TRW).

In Globe v TRW, the Court of Appeal indicated in obiter comments, that the inclusion of an anti oral variation would not prevent variation of a contract either orally or by conduct.

TRW is a manufacturer of electrical power-assisted steering systems. Globe was TRW’s exclusive supplier of motors as per a long-term exclusive supply agreement.

It was alleged that TRW had breached this agreement by purchasing "next generation" motors from a firm that TRW had itself bought. Globe brought a claim.

Whilst TRW won the case for other reasons, the court felt it needed to address an argument that had been put forward by TRW that, as Globe had used a subsidiary to supply the motors, and that the subsidiary was not a party to the contract, it was not entitled to sue TRW for breaching the exclusivity agreement.

Contrary to this, Globe argued that, by virtue of TRW having dealt directly with the subsidiary, TRW had varied the agreement despite there being a clause which required any variation to be in writing and signed by both parties.

Lord Justice Beaston commented that there was “ample evidence” to justify the conclusion that TRW had varied the agreement through “obvious and consistent” dealings with TRW and its subsidiary.

Ultimately, “there was no other explanation but that the parties had intended to add the subsidiary as a party under the agreement.”

The comments made in this case on anti-oral variation reaffirm the principle of freedom of contract and undoubtedly provide welcome clarification in this area of the law.

However, the importance of limiting the ways in which parties are able to vary a contract should always be borne in mind when entering into any form of commercial agreement.

A variation clause should be set out correctly and where possible, signed off by all parties involved if the agreement is to be varied. This will no doubt help eliminate future dispute with regards to variation.

For any information about commercial contracts or variation clauses in general, please contact John Wilson, Kate Parker or Eleanor James at Baines Wilson on 01228 552 600 or 01524 548494