Parties to construction contracts often rely on ‘no amendment’ clauses – but two recent cases have shown such clauses do not rule out informal amendments being made contrary to their terms.
‘No amendment’ clauses, which require amendments to a contract to be made in writing and signed by the parties, are widely used in construction contracts and are found in some standard forms such as the NEC.
Parties often rely on them as a defence when an unfavourable amendment has been made to their contract.
Yet the courts have recently ruled that such clauses do not rule out informal amendments being agreed contrary to their terms, suggesting the protection afforded by such clauses is less than previously thought.
These issues were debated in one recent case: C&S Associates UK v Enterprise Insurance Company  EWHC 3757.
Enterprise entered into a contract with C&S, an insurance claims handler, for C&S to handle third-party motor claims on behalf of Enterprise.
The contract included a clause stating that “any variation of this agreement shall not be effective unless made in writing and signed by or on behalf of each of the parties to this agreement”.
Despite the presence of this clause, it was held that by exchange of a series of emails between Enterprise’s head of claims and a director of C&S, agreement was reached to an increase in fees and the introduction of a two-year minimum contractual term.
“In the absence of statutory or common law restrictions, parties to a contract are free to amend or alter an agreement as they see fit”
The Commercial Court decided that this agreement constituted a valid amendment to the contract. In making this decision, Mr Justice Males noted that the drafting of the clause was broad enough to cover email exchange.
He relied on the Court of Appeal’s decision in Golden Ocean Group v Salgaocar Mining Industries  EWCA Civ 265 that email signatures could create binding contracts, and concluded that there was nothing in the emails to suggest the intention of the parties was for the agreement to be ‘subject to contract’.
The parties were therefore bound by the terms of the email exchange.
The Court of Appeal considered the issue further earlier this year in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd  EWCA Civ 396.
TRW, a producer of electric power-assisted steering systems, entered into an exclusive supply agreement with Globe, a component manufacturer, which included a clause stating that “this agreement … can only be amended by a written document which (i) specifically refers to the provision of this agreement to be amended and (ii) is signed by both parties”.
The court was asked to consider whether, despite this clause, the parties had made a binding oral agreement to novate or vary the contract to include a third-party subsidiary of Globe.
The court unanimously followed World Online Telecom v I-Way Ltd, in which an oral agreement was found to be a valid amendment despite the presence of such a clause, on the basis that commercial parties have “made their own law by contracting, and can in principle unmake or remake it”.
In the absence of statutory or common law restrictions, parties to a contract are free to amend or alter an agreement as they see fit.
They cannot “effectively tie their hands so as to remove from themselves the power to vary the contract informally”.
Conclusions and implications
The courts’ decisions mean that parties should not place undue reliance on “no amendment” clauses as protection from informal variations.
Particularly on construction projects, where informal communication between party representatives occurs on a daily basis across a broad range of issues, the potential for binding agreements to be made orally or by conduct will remain despite clauses requiring amendments, waivers or changes to be agreed in writing or with certain other formalities.
As a result, greater scrutiny is likely to be placed in future on whether there was the necessary intention between the parties to form a binding contract.
To protect their position, parties might:
- Include within their ‘no amendment’ clauses a statement that any informal agreements are to be ‘subject to contract’ until included within a duly executed written agreement;
- Specify in their ‘no amendment’ clause that only specific individuals or specific classes of individual (eg directors) will have authority to agree binding contractual amendments; or
- Strengthen the drafting of ‘no amendment’ clauses to require manuscript signatures, paper documents or both parties’ signatures on the same document.
Such enhancements are likely to increase the chances of a ‘no amendment’ clause achieving its intended effect, but no clause will provide absolute protection in all circumstances.
Karen Clarke is a partner and Rachel Armstrong is a lawyer at CMS Cameron McKenna