“The(un)enforceability of anti-oral variation clauses: what the MWB Business Exchange case means for construction”

This article has now been updated following a decision made by the Supreme Court on 16 May 2018 and you can read the latest article by clicking HERE

Those readers who have read my previous blogs will know that I do like a visual aid to help send the message home.  Rather than a teaser and a punchline, I’m going to deliver/direct you to the visual at the beginning, and hope that it will stay with you while you read the legal update that follows.  If you don’t remember it in full detail, please take a moment to look on YouTube at the closing credits to The Flintstones (for copyright reasons I am not sharing the link). This iconic depiction of Fred's struggle with Baby Puss (yes - that's the name of the sabre-toothed tiger!) perfectly illustrates the point a New York Judge made in 1919, which has been cited by the UK Court of Appeal in 2016, to justify allowing the parties to a contract which included a term requiring variations to be made in writing, to actually vary it orally after all.  In 1919, New York Judge Cardozo (in Alfred C Beatty v Guggenheim Exploration Company) said:

“Those who make a contract, may unmake it.  The clause which forbids a change, may be changed like any other.  The prohibition on oral waiver, may itself be waived… You may put it out by the door, it is back through the window…”

You can see, I trust, why The Flintstones sprung to mind. 

The 2016 Court of Appeal case was MWB Business Exchange Centres Ltd –v- Rock Advertising Ltd [2016] EWCA Civ 553 and whilst its facts are not material to this article, suffice to say that the appeal turned on whether or not the parties could, as a matter of law, have varied the contract between them, notwithstanding the fact that clause 7.6 of that contract stated:

“All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.”

To the lay person and, indeed, to many lawyers without the experience of the esteemed Court of Appeal Judges, that clause may appear to be watertight.  Not so said the Court of Appeal.  Given that BPE blogs seek to concentrate on practical matters rather than the musings of the judiciary, I shall not rehearse the full judgment, but the bottom line is that the Court of Appeal gave careful consideration to a number of previous cases and the submissions of Counsel in the case before them.  They referred specifically to Beatty (quoted above), acknowledged that “difficulties of proof might arise whenever it is claimed that a contract has been made orally” and yet concluded that party autonomy is key – oral variations can stand, despite a ban on them in the written contract document.

This does appear to take a sledgehammer to the variation procedures in construction contracts and permit oral variations, notwithstanding the thought that has gone into Section 5 of the JCT, Section 6 of the NEC3, Section 13 of FIDIC and the countless carefully negotiated amendments to those standard forms and, indeed, bespoke contracts. 

Before employers, contractors and Contract Administrators alike descend into blind panic about established variation procedures under construction contracts, please take some solace from the fact that the Court of Appeal in MWB was persuaded by the earlier decision in Globe Motors, in which Lord Justice Moore-Bick noted the evidential value of anti-oral variation clauses, which will still have:

"…considerable practical utility, if only because it is likely to raise in an acute form the question whether parties who are said to have varied the contract otherwise than in the prescribed manner really intended to do so"

As we regularly advise clients who have turned to the BPE Construction & Engineering Team for dispute advice, no matter what the law or the facts, evidence is key to winning a case.  Given that most construction contracts contain a clear mechanism/procedure for variations (and further, many make agreement on price prior to the variation works being carried out a condition precedent to payment for the said variation works), we would strongly advise all parties to continue to adhere as closely as possible to the procedures laid out in the contracts before you.  Oral instructions on building projects should always be confirmed in writing as soon as possible by the EA/CA/Engineer.  More importantly though, the onus really is on the Employer and Contractor to help themselves by recording variations in writing to evidence the agreement and avoid costly disputes at final account stage. 

One further practical point to note is the matter of authority to vary contracts.  The first instance Judge in MWB considered submissions regarding the ostensible authority of the individual at MWB who had conducted the discussions that, in the end, amounted to the oral variation.  An additional way to protect your business from unexpected variations to contracts is to put in place proper internal procedures to ensure that only those suitably trained/authorised to do so, ever place themselves in situations where your commercial contracts could be varied by their conduct: after all, you do not want to find yourself, like poor old Fred Flintstone, locked out of the house at the end of the job, banging on the door and yelling “WILMA!!!!!!!!!!!!!!!!!!”.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.