Do Contracts Mean What They Say?

Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396

The UK Court of Appeal has addressed the legal position on anti-oral variation clauses (contractual clauses which aim to prevent any variation to a contract, other than in writing).  In the case of Globe Motors Inc v TRW Lucas, the Court said that an anti-oral variation clause in one contract would not (in principle) prevent a new contract being made, either by oral agreement or by conduct.  In other words, the parties to the contract can choose to vary an anti-oral variation clause in the same way that they can choose to vary any other clause in the contract.

The Globe Motors dispute concerned a long term exclusive supply agreement under which TRW Lucas (“TRW”) agreed to purchase from Globe Motors Inc (“Globe”) components for steering systems.  In the High Court, the judge held that TRW was in breach of the agreement by purchasing motors from another manufacturer, which they had been bound to purchase exclusively from Globe. The contract contained an anti-oral variation clause requiring any subsequent variation to be made in writing:

“6.3 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.”

In the High Court, the judge held that TRW was in breach of the supply agreement by purchasing motors from another manufacturer.  It was also held by the High Court that it was possible to subsequently vary the agreement orally, despite such a clause.  TRW brought an appeal.  One of the issues raised on appeal was whether the parties had varied the supply agreement by conduct to make an unnamed party, Globe Motors Portugal (a subsidiary company of Globe which in practice supplied the motors to TRW), also a party to it despite the anti-technicality clause.   There was no written document adding Globe Motors Portugal as a party to the supply agreement; however, the conduct of the parties over a prolonged period demonstrated that that was the parties’ intention.

Court of Appeal Decision

The Court of Appeal disagreed with the High Court that TRW was in breach of the supply agreement.  Whilst this meant that the Court of Appeal did not need to consider the anti-oral variation clause, it did address the conflicting case law on the topic and commented that, in principle, a contract containing a clause that any variation of it be made in writing can in fact be varied by oral agreement or by conduct.  This approach has subsequently been confirmed in another Court of Appeal case, MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553.

The case is a warning that discussions regarding the variation of a contract need to be handled with care.  If Members do not intend to be bound by a contractual variation under discussion until that variation is agreed in writing and signed by both parties, Members need to make their position clear in their negotiations.