Many contracts, including PFI Project Agreements, include a provision which prohibits oral variations and only permits variations when they are in writing.

It is often the case the PFI Project Agreements will contain a clause along the following lines:

"This Agreement may not be varied except by an agreement in writing signed by duly authorised representatives of the parties."

One rationale for a clause of this nature is to provide certainty, as PFI Project Agreements are already complex enough documents. By allowing for oral variations, PFI Project Agreements would become far more complex and the risk of a claim for breach of contract becomes greater.

However, the Court of Appeal in Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd [2016] EWCA Civ 396 indicated that, even in circumstances where there is an anti-oral variation clause in a contract it will not prevent subsequent variation of the contract orally or by conduct.

The facts of the above case involved a contract which contained a clause requiring any subsequent variation to be writing.

Although the issue was not central to the decision of the Court of Appeal, the effectiveness of the anti-oral variation clause was considered.

The Court of Appeal stated:

"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 consequence in this context is that in principle the fact that the parties' contract contains a clause such as [the clause in question] does not prevent them from later making a new contract varying the contract by an oral agreement or by conduct."

The above comment is not binding as it did not form part of the Court of Appeal's judgment. At the heart of this statement is the principle of freedom and flexibility; the parties are not fettered in their ability to agree to vary an agreement by whatever means they wish.

If the issue is raised again in the future and the same conclusion is reached (but this time it is binding) there would be a clear impact on PFI Project Agreements.

First, a judgment along the lines stated by the Court of Appeal would cut across the anti-oral variation clause highlighted above. The requirement for writing would be no longer of use.

Second, the parties to a PFI Project Agreement would enjoy far greater flexibility to respond to various challenges encountered during the lifetime of the project.

Third, with greater flexibility comes greater risk. A party could unknowingly vary the PFI Project Agreement and be faced with a claim for a breach of contract.

Finally, the entire structure envisaged by the project could be jeopardised. Whenever an amendment to the PFI Project Agreement is made, it will either be flowed up or down the project chain. However, the parties may unwittingly vary the Project Agreement and such amendment may not be passed along the project chain.

It will be interesting to see if PFI providers use this decision to bring claims for variations which they believe have been orally agreed. The question is how would an NHS Trust effectively protect its position from the above risks?

One way would be for the Trust's Representative to state at every monthly progress meeting that he or she reconfirms that no one has authority to agree to an amendment of the PFI Project Agreement on behalf of the Trust unless it is the Trust Representative or the correct procedures are followed within the PFI Project Agreement. This may seem simplistic; however, if such a statement is recorded in the meeting's minutes, the Trust may have protected its position by removing the apparent authority of any other member of staff to enter into oral variations.