Careful with the Boilerplate

Anyone dealing with drafting, negotiating or performing contracts on a regular basis will probably be familiar with a range of seemingly standard ‘boilerplate’ terms that tend to appear towards the end of many commercial contracts. These terms are often devices that are of little pressing interest to those actually performing the contracts but are often essential for the smooth and logical operation of the contracts. Whilst little attention is given to such terms by parties in most cases, boilerplate terms are often of crucial importance.

One such boilerplate term with which many will be familiar is one along the lines that oral variations to a contract are not permitted and that variations must only be made in writing (and signed). In the recent Court of Appeal case of Globe Motors Inc v TRW LucasVarity Electric Steering Ltd, the Court considered one such clause which read:

“Entire Agreement; Amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It 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.”

To most reasonable people dealing with a contract containing those words, the effect of them seems to be clear – no oral variation of the contract is possible, as the contract states specifically that it can only be amended by a written document which has been signed by both parties.

Such clauses appear to make sense in practice, as they promote certainty for all of the parties (on the face of it, the contract can only be amended in writing) and are aimed (at least partly) at preventing potentially frivolous claims based on alleged oral variations.

If an argument arose along the lines of Party A (a supplier of goods or services) saying “although the contract says the price is £X, we later agreed on the phone with an employee that the price is £X + Y and therefore the price is now £X + Y”, and Party B (the LUPC Member) saying that “the contract says the price is £X, and even if an employee of ours spoke to you or agreed anything else on the phone nothing was signed and the contract says variations have to be confirmed in writing and signed, so the price remains £X”, it would appear that a clause along these lines would, depending on the precise circumstances, support the LUPC Member’s position (as the effect of the clause is that, on the face of it, no variation to the relevant contract can have been agreed on the phone by an employee).

However, in Globe, the Court concluded that the general principle of the English law of contract is that the parties have freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth, or by conduct. The consequence of that in the context of Globe is that in principle the fact that a contract contains a clause such as that above does not automatically prevent the parties from later effectively making a new contract by varying the contract by an oral agreement or by conduct. The Court in Globe found that, as a matter of principle, the parties can not effectively ‘tie their hands’ so as to remove from themselves the power to vary the contract informally.

As the Court said in Globe that this does not necessarily need to be a matter of concern, given that nothing can be done without the agreement of both parties (and if the parties are in agreement, there is no reason why that agreement should not be effective) but, it is often the case that the parties disagree as to whether a variation of the contract has actually been arrived at (or what that variation is) which leads to disputes.

The practical effect of this is that such clauses are still important in promoting certainty and they set a standard for the parties where, if there is a dispute about whether a variation has occurred, the party seeking to rely on the variation will have work to do. However, it is clear that such clauses are not binding if the parties acknowledge they have actually agreed a variation (even if they did not write it down and sign it in accordance with a clause in the original contract requiring this).

In large education institutions, there is a risk that there are numerous members of staff who could, perhaps even unwittingly, enter into a variation to a contract which a Court would hold to be valid even if the contract contained a clause along the lines set out above.

It is therefore important that great care be taken in discussing any potential changes to contracts, even if the relevant contract contains a clause along the lines set out above. Education institutions should consider using language such as ‘subject to contract’ to seek to ensure that agreement is not entered into unwittingly (although even doing that, depending on the facts of the case, may not be enough), and perhaps even seek to make such clauses even more specific by reference to a named person who must agree and sign any variation on behalf of a party.

Whilst boilerplate terms can seem relatively uninteresting and harmless, it is essential that care be taken to understand them and their effect on the practical day to day operation of contracts in the context of the law.

Gary Duffy