Contractors and the law

He said, she said:

Issues with the enforcement of no-oral variation clauses

In construction contracts, particularly large, complex building ing the manner by which the contract must be modified. The contracts, modifications will inevitably need to be made to the English Supreme Court concluded that no-oral variation clauses terms of the original agreement. Often, the contract requires are, therefore, enforceable and, in fact, ought to be enforced that any amendments be recorded in writing and signed by unless some evidence, other than the informal agreement itself, the parties to the contract. These clauses have been termed “noclearly establishes that the parties unequivocally intended to oral variation” clauses. amend the contract. The reasoning for such formalities may be obvious. The objecMWB has not been cited with any authority in Canada; tives of a no-oral variation clause are clearly to ensure contractual however, Globe Motors was recently cited by Canada’s Federal certainty and to prevent the parties from asserting fabricated or Court in Oceanex Inc. v. Canada (Transport). In Oceanex, the inaccurate allegations that oral amendments have been made to Court held that where there is evidence that contracting parties the provisions of the contract during the course of construction. have consented to an amendment (for example, by conduct), However, the enforceability of these no-oral variation clauses then no particular form of an amendment is required. Notably, has been the subject of significant judicial consideration not only Oceanex predates the decision in MWB and is generally lacking in Canadian jurisdictions, but also internationally. Some Canain substantive analysis on the enforceability of no oral variation dian Courts have strictly enforced these clauses with very minor clauses. Ultimately, the lack of recent treatment by the Canadian exceptions, noting that there is nothing unconscionable about Courts in respect of these clauses has left the state of the law in these clauses and that the certainty granted by such clauses is this area in flux. to be desired. Canadian courts have also noted that there is no What is clear, however, is that the evidentiary bar for estab

“overriding public policy” that would lead to the conclusion that a lishing an informal or oral amendment to a contract with a no-oral no-oral variation clause is unenforceable. variation clause is high. The party alleging the existence of the modifications to be in writing and signed by the parties.

However, the English Supreme Court in Rock Advertising v. amendment may need to prove that the

“Contracting parties must pay close attention to their parties had terminated or never even operated under the original agreement or, at conduct... during the course of construction to ensure the very least, had agreed to invalidate or that they are not inadvertently agreeing to modify amend the no-oral agreement clause itself. the terms of the original contract.” Mere allegations of an informal or oral amendment in the presence of a no-oral variation clause are unlikely to suffice. Other Canadian Courts, however, have taken a contains a no-oral variation clause, contracting parties must pay slightly different approach, highlighting the overridclose attention to their conduct and the representations they ing public policy of freedom of contract and holding that no-oral make to one another during the course of construction to ensure variation clauses will generally be unenforceable because two that they are not inadvertently agreeing to modify the terms of the contractors cannot by mutual agreement restrict their ability to original contract. Any discussions regarding potential modificacontrol their legal relationship by future mutual agreement. tions to the terms of the contract should be carefully recorded in

The English Courts, while initially adopting the freedom of writing and should include the caveat that all potential modificontract line of authority, appear to have settled on the stricter cations are invalid until formally recorded in a signed amendenforcement approach. In Globe Motors Inc. v TRW Lucas Varity ment. Finally, all staff should be reminded of the risk inherent in

Electric Steering Ltd., the English Court of Appeal held that parties allowing or causing deviations to the contractual terms during the may informally amend a contract even if the contract required all course of construction. Regardless of whether or not a contract

MWB Business Exchange Centres came to the opposite concluFull citations to all works referenced are available in the online sion, finding that contractual certainty was to be preferred. In version of this column.

MWB, the Supreme Court held that the freedom to contract exists Erin Cutts practices Construction Law at Borden Ladner Gervais only up until the contract is entered into. After that point, the LLP . This article is provided for general information only and may parties are restricted by the contract in a myriad of ways, includnot be relied upon as legal advice.