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Non-Variation Clauses – Enigma ( non) Variations by the Court of Appeal?

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When Elgar, composed what became known as the ‘Enigma Variations’ over 100 years ago, the variations and the theme of the composition posed an enigma for Elgar’s audience which still survives today.

Just a few months ago, the Court of Appeal, delivered its decision in Globe Motors Inc v Lucas Varity Electric Steering Limited [2016] EWCA Civ 396, which poses an enigma on non-variation clauses which will remain with us until the Court of Appeal next addresses the issue. 

The issue in question is, in summary, this: can parties to a contract effectively vary a contract otherwise than in accordance with the process strictly prescribed in a non-variation clause.  The answer appears to be yes….

What are non-variation clauses?

Non-variation clauses are boiler plate clauses which are inserted into many types of contract.  The form of these clauses varies but their intended effect is, in essence, to prescribe how a contract can be varied; invariably binding variations are limited to those which are writing and are signed by all contracting parties.  

Could my contract be varied otherwise than in accordance with the non-variation clause?

The Court of Appeal in Globe Motors says that it could; either orally or by a course of conduct – strong evidence will, however, need to be adduced by the party seeking to show that a contractual variation has been effected. 

Why did the Court in Globe Motors effectively disregard the non-variation clause?

In a nutshell, the Court’s reasoning was that the parties’ freedom to agree should not be fettered; contracting parties should be permitted to make or unmake agreements even at the expense of contractual certainty afforded by a negotiated non-variation clause.   

Will the Courts follow the decision in Globe Motors?

Although the comments of the Court did not form part of the official judgment and are therefore not binding on lower Courts, they are nevertheless very persuasive and serve to further undermine the validity of non-variation clauses, which have gradually been eroded by Court decisions on this issue which have been delivered recently.

Is there any point then in having non-variation clauses in my contracts?

In short, yes.  Although there may be uncertainty as to whether a particular non-variation clause is enforceable, on an examination by the Court as to whether there has been a contractual variation, the starting point will be that the parties intended that any variation only takes effect in prescribed circumstances so setting the evidential bar high from the outset. 

What can I do to minimise the risk of my contract being varied otherwise than in accordance with the non-variation clause?

It is advisable to identify in your contract those individuals on both sides with the requisite authority to make contractually binding variations; that way you can maintain as much control as possible over your contractual relationships. 

Further, it would be sensible to carry out contract reviews on a regular basis to ensure that the business relationships between you and your counterparties are conducted in accordance with the relevant contractual provisions.  If you discover that your employees on the ground are saying or doing things inconsistent with the contractual arrangements made at a high level following investigation, these issues can then be addressed either by varying your contract as required by the non-variation clause or by asserting that the non-variation provision in your contract applies.

What do I do if a dispute arises over an alleged variation of contract?

Whether you are looking to assert or resist a contractual variation, it is vital that you seek legal advice at an early stage to maximise the prospect of you being able to successfully bring or defend a claim based on alleged contractual variation.   

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