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He said, she said: Issues with the enforcement of no-oral variation clauses

October 6, 2020   By Erin Cutts

The bar for establishing an informal or oral amendment to a contract with a no-oral variation clause is high. PHOTO: Adobe Stock/Rawpixel.com

In construction contracts, particularly large, complex building contracts, modifications will inevitably need to be made to the terms of the original agreement. Often, the contract requires that any amendments be recorded in writing and signed by the parties to the contract. These clauses have been termed “no-oral variation” clauses.

The reasoning for such formalities may be obvious. The objectives of a no-oral variation clause are clearly to ensure contractual certainty and to prevent the parties from asserting fabricated or inaccurate allegations that oral amendments have been made to the provisions of the contract during the course of construction.

However, the enforceability of these no-oral variation clauses has been the subject of significant judicial consideration not only in Canadian jurisdictions, but also internationally. Some Canadian Courts have strictly enforced these clauses with very minor exceptions, noting that there is nothing unconscionable about these clauses and that the certainty granted by such clauses is to be desired.1 Canadian courts have also noted that there is no “overriding public policy” that would lead to the conclusion that a no-oral variation clause is unenforceable.2

Other Canadian Courts, however, have taken a slightly different approach, highlighting the overriding public policy of freedom of contract and holding that no-oral variation clauses will generally be unenforceable because two contractors cannot by mutual agreement restrict their ability to control their legal relationship by future mutual agreement.3

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The English Courts, while initially adopting the freedom of contract line of authority, appear to have settled on the stricter enforcement approach. In Globe Motors Inc. v TRW Lucas Varity Electric Steering Ltd.,4 the English Court of Appeal held that parties may informally amend a contract even if the contract required all modifications to be in writing and signed by the parties.

However, the English Supreme Court in Rock Advertising v. MWB Business Exchange Centres5 came to the opposite conclusion, finding that contractual certainty was to be preferred. In MWB, the Supreme Court held that the freedom to contract exists only up until the contract is entered into. After that point, the parties are restricted by the contract in a myriad of ways, including the manner by which the contract must be modified. The English Supreme Court concluded that no-oral variation clauses are, therefore, enforceable and, in fact, ought to be enforced unless some evidence, other than the informal agreement itself, clearly establishes that the parties unequivocally intended to amend the contract.

MWB has not been cited with any authority in Canada; however, Globe Motors was recently cited by Canada’s Federal Court in Oceanex Inc. v. Canada (Transport).6 In Oceanex, the Court held that where there is evidence that contracting parties have consented to an amendment (for example, by conduct), then no particular form of an amendment is required.7 Notably, Oceanex predates the decision in MWB and is generally lacking in substantive analysis on the enforceability of no oral variation clauses. Ultimately, the lack of recent treatment by the Canadian Courts in respect of these clauses has left the state of the law in this area in flux.

What is clear, however, is that the evidentiary bar for establishing an informal or oral amendment to a contract with a no-oral variation clause is high. The party alleging the existence of the amendment may need to prove that the parties had terminated or never even operated under the original agreement8 or, at the very least, had agreed to invalidate or amend the no-oral agreement clause itself.9 Mere allegations of an informal or oral amendment in the presence of a no-oral variation clause are unlikely to suffice.

Regardless of whether or not a contract contains a no-oral variation clause, contracting parties must pay close attention to their conduct and the representations they make to one another during the course of construction to ensure that they are not inadvertently agreeing to modify the terms of the original contract. Any discussions regarding potential modifications to the terms of the contract should be carefully recorded in writing and should include the caveat that all potential modifications are invalid until formally recorded in a signed amendment. Finally, all staff should be reminded of the risk inherent in allowing or causing deviations to the contractual terms during the course of construction.

 


Erin Cutts practices Construction Law at Borden Ladner Gervais LLP.

This article is provided for general information only and may not be relied upon as legal advice.

This column first appeared in the October 2020 edition of On-Site. Click here to read through the whole issue.


Notes:
1 — Becker v. Jane Doe No. 1, 2015 ABQB 144 at para 34 and 37
2 — Ibid. at para 40
3 — Shelanu Inc. v. Print Three Franchising Corp., 2003 CarswellOnt 2038 at para 50
4 — [2016] EWCA CIV 396
5 — [2018] UKSC 24
6 — 2018 FC 250
7 — Ibid. at para 79
8 — Triple R Contracting Ltd. v 384848 Alberta Ltd., 2001 ABQB 52
9 — See Shelanu, Globe Motors


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