In Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd  EWCA Civ 396, the Court of Appeal decided that inclusion of a clause intended to prevent variation of the contract other than in writing would not prevent future variation of a contract orally or by conduct. The case concerned a long term contract for supply of certain products to the automotive industry. TRW had agreed to purchase products from Globe, under a supply agreement which allowed for changes to be made to the products supplied. It also included a clause that provided "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." At first instance, the judge decided that TRW was in breach of the agreement for purchasing improved motors from another manufacturer which Globe could have supplied if engineering changes had been made.
On appeal, the court held that the definition of 'Product' did not include the improved motors, and TRW was not in breach by sourcing them from another manufacturer. The court decided that the agreement was structured so that TRW either had to agree a new Product, or it could propose engineering changes to existing Products, but was not obliged to do so. Although the court was not obliged to deal with the anti-oral variation provision, Beatson LJ made obiter comments designed to clarify the position, following existing conflicting decisions on the point, stating "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 Article 6.3 does not prevent them from later making a new contract varying the contract by an oral agreement or by conduct." Beatson LJ acknowledged that difficulties of proof might arise whenever it was claimed that a contract had been made orally or by the conduct of the parties and the facts had to be determined by the trial judge from the evidence given by the parties and their witnesses. In such a case a variation should only be found where the evidence on the balance of probabilities established such variation was indeed concluded. The comments reaffirm the principle of freedom to contract, but also highlight that attempts to limit the manner in which the parties may alter the contract may be insufficient to override the principle of party autonomy. Accordingly, if the parties intend to vary the contract, this should be properly documented to avoid the potential for disputes. To read more please click here.