TRW Lucasvarity Electric Steering Ltd (“TRW”) produced electric power assisted steering systems for several car manufacturers. In 2001, TRW entered into an exclusive supply agreement (the “Agreement”) with Globe Motors Inc (“Globe”) wherein Globe supplied TRW with components used in the production of a certain type of motor (referred to as the “Gen 1 motor”). Globe Motors Portugal, the second claimant in the matter, was not a named party to the Agreement but in practice was the entity that supplied the Gen 1 motors to TRW.
Subsequent to the Agreement being concluded, TRW started purchasing another type of motor (referred to as the “Gen 2 motor”) from a third party, which Globe stated they were capable of making.
Various issues were raised to the Court, of which two are relevant:
- whether the Agreement extended to include Gen 2 motors, to the extent that TRW was in breach of same by purchasing them from a party other than Globe; and
- whether the parties varied the Agreement by their conduct to make Globe Motors Portugal a party to same in circumstances where the Agreement expressly required any variation thereof to be in writing and signed by the parties.
The Court of Appeal decided that the Gen 2 motors did not fall within the scope of the Agreement, on the grounds that TRW’s agreement to purchase the Gen 2 motors from a third party was not a breach of the Agreement.
Having decided that there was no breach, the question of whether Globe Motors Portugal was a party to the Agreement became irrelevant however, it was recognised by the Court that the issue of oral variation was of importance and therefore, was addressed in the obiter.
The Court stated that the basis of contract is consent and that whilst parties to a contract can agree to an anti-oral variation clause, they can also subsequently agree not to be bound by it. The Court held that case authority favoured that oral variations can be effective notwithstanding such clauses. The Court did, however caution that an anti-oral variation clause may still serve as evidence that a subsequent informal variation lacks contractual intent.
The Court further stated that recognizing the ability of parties to a contract to make a subsequent oral agreement, modifying a contract, was consistent with general principles of contract law and that there is no reason why an anti-oral amendment clause itself should not be subject to modification.
Caution must be exercised by parties to avoid unintentionally agreeing to an amendment to their contract and parties should not assume that a ‘non-variation’ clause will protect them. In particular, in the context of any discussions or conduct that may be interpreted as amending a contract, the parties should:
- make clear that any conduct inconsistent with the written contract is not intended to waive or amend the parties’ contractual rights and obligations; and
- make any variation discussions expressly “subject to contract” until final agreement is reached;
Notwithstanding the above, there is still value in including a non-variation clause in an agreement because it heightens the burden of proving any variation by other means.