Variation must be in writing? It ain’t necessarily so

Whether in your standard terms or in a negotiated contract, in a commercial contract a clause providing the parties with a mechanism for varying the contract is essential.

However, a recent High Court case, Virulite LLC v Virulite Distribution Ltd [2014] EWHC 366, made it clear that even where the contract specifies that variation must be agreed in writing, this ain’t necessarily so…

Hidden in the “boilerplate” terms at the end of the contract the variation clause is often overlooked during the initial negotiation of a contract.  The variation clause that our commercial contract lawyers most commonly draft is one which requires any variation to be made in writing (and often signed by both parties).

Virulite underlines the importance of being very clear if you are intending to vary a contractual term.  It should be a health warning for anyone entering into contracts because even if your contract states that any variation to the contract must be agreed in writing, there are still occasions when an oral agreement can vary the terms of the contract.

The facts included several key factors which led to the Judge deciding that an oral variation to the contract was effective.  Those factors were:

In addition to the specific facts of this case, the Judge emphasised three points to consider when you are re-negotiating contractual clauses:

1) if the variation clause was specifically negotiated by parties, in general, this would point to the contractual variation clause being binding.

2) a contractual variation clause expressly requiring variation to be in writing was not absolute.

3) was the outcome of the oral negotiation of the variation intended to be legally binding on the parties.

It will not be easy to show that an agreement was varied by oral agreement, contra an existing term of a written contract.  If you are the party who is arguing for the amendment, the burden of proof will be on you to show that there has been an effective variation.  However, this case shows that it can happen.

If you would like further information about how to protect yourself from unwittingly varying a contract, whether in an existing or new contract, please contact our commercial contract lawyers.  If you would like advice about an existing situation or dispute about contract variation please contact our contract dispute solicitors.

• The contract included a clause which stated that there could be no variation to the agreement unless it was made in writing and signed by both parties.
• The parties started to re-negotiate the contract through telephone calls, meetings and email.
• A contractual variation was agreed on a telephone call.  It was never set out in writing (even in email, let alone a formal signed amendment to the contract).
• The parties’ subsequent actions supported the conclusion that an agreement had been reached and was intended to bind the parties.