We often see contracts containing wording along the lines of: “This Agreement may not be amended, except by the mutual written agreement of the Parties.”
The recent decision of the Court of Appeal in Globe Motors Inc., et al. v TRW Lucas Varity Electric Steering Ltd., et al.  EWCA Civ 396, considered the impact of similar clauses, in that case one which provided “Entire agreement; amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both parties.”
This is of particular interest because there were previously two inconsistent Court of Appeal decisions on this point, which the Court had to consider.
Purpose of such clauses
The starting point for the party seeking to rely on the clause was that it meant that any amendment had to be in writing and be signed by both parties, and that it was not open to the parties to amend the Agreement orally. It was said that the purpose of the clause was to promote certainty and avoid false or frivolous claims of an oral agreement. Such clauses can also prevent a person in a large organisation from producing a document which unwittingly and unintentionally is inconsistent with a contract to which the organisation is a party, and they therefore set an evidential threshold.
The general principle of English law is that 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.
The conflicting earlier Court of Appeal decisions
In United Bank Ltd. v ASIF (unreported 11 February 2000), it was held that a contract containing an anti-oral variation clause (“…No variation… shall be valid or effective unless made by one or more instruments in writing signed by the parties…”) could only be amended by a written document complying with that clause. The decision of the Court at First Instance, which the Court of Appeal endorsed when refusing permission to appeal (in the context of a Deed of Guarantee, albeit that was said not to be a relevant consideration), was that no oral variation of the written terms could have any legal effect. In that case, it was also held that the person who was said to have reached the oral variation of the contract had no authority to do so.
However, the same Judge, while sitting in the Court of Appeal in the World Online Telecom Ltd v I-Way Ltd  EWCA Civ 413 case (and seemingly unaware of his early decision in United Bank), stated that the question whether parties could override a clause in an agreement in writing excluding any unwritten variations of the contract (in this case “… no addition, amendment or modification of this Agreement shall be effective unless it is in writing and signed by and on behalf of both parties”) was sufficiently unsettled to be suitable for summary determination. He stated that “In a case like the present, the parties have made their own law by contracting, and can in principle un-make or re-make it”. In each case it will be a question of fact. Oral agreement or the conduct of the parties to a contract containing such a clause “may give rise to a separate and independent contract which, in substance, has the effect of varying the written contract”.
The Court’s decision in Globe Motors
The Court preferred the decision in World Online and held that in principle, a contract containing a clause that any variation of it be in writing can be varied by oral agreement or by conduct.
The decision being of such note, all three of the Court of Appeal Judges expressed their views on it. The general sense is that the judges were reluctant to give no effect to the clause, but could find no principled basis upon which any restriction on the manner or form in which an agreement could be varied could be achieved. Perhaps somewhat reluctantly, therefore, they all agreed that agreements containing such clauses can, nevertheless, be amended by oral agreement or by conduct, although Lord Justice Underhill in particular emphasised that it does not follow that such clauses have no value at all. He said that “In many cases parties intending to rely on informal communications and/or a course of conduct to modify their obligations under a formally agreed contract will encounter difficulties in showing that both parties intended that what was said or done should alter their legal relations; and there may also be problems about authority. Those difficulties may be significantly greater if they have agreed to a provision requiring formal variation”.
What then is the effect of the clauses?
Such clauses will reduce what have been described as “casual and unfounded allegations” of variation. The cases suggest that a Court will require “strong evidence” or that “the evidence on the balance of probabilities established that such variation was indeed concluded” before finding that there had been an oral variation of such a clause.
In every case, it will be a question of looking at the factual circumstances to see whether a variation has been effected.