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AMENDING A CONTRACT CONTRARY TO ITS OWN PROVISIONS

Lloyd's Maritime and Commercial Law Quarterly

AMENDING A CONTRACT CONTRARY TO ITS OWN PROVISIONS Liron Shmilovits * Globe Motors v TRW Lucas Varity Electric Steering Ltd In Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd , 1 the Court of Appeal held that a written contract was varied by conduct despite a clause precluding variation by conduct. The result of this ruling is that the standard clause requiring any variation to be in writing signed by both parties is unenforceable. More generally, it seems that English law will not enforce a term which imposes formalities on the variation of a contract. In reaching this conclusion, the court settled a conflict of authority. There were two inconsistent unreported Court of Appeal decisions on whether a clause prescribing a manner of variation was enforceable: United Bank Ltd v Asif  2 held that it was; World Online Telecom Ltd v I-Way Ltd  3 held that it was not. Strangely, these cases were two years apart and the court in both included Sedley LJ, who changed his mind in the latter without mentioning the former. Faced with this inconsistency of precedent, the Court of Appeal in Globe (consisting of Moore-Bick, Beatson and Underhill LJJ) applied the first exception to the rule in Young v Bristol Aeroplane Co Ltd : 4 it considered itself bound by neither of the inconsistent decisions and elected to follow World Online . The enforceability of the variation clause was actually a side issue in the present case. TRW manufactured electric steering systems. Under a long-term supply agreement, TRW was to purchase, exclusively from Globe Motors, certain components for its steering system. The components which the exclusivity clause covered were defined in the agreement. This definition was quite complicated, as it allowed for changes to the specifications and technological developments. In the event, TRW purchased components from a third party. Globe Motors considered these components to be covered by the exclusivity clause and sued TRW for breach of contract. The main issue in the case was a matter of construction: did the components bought from the third party fall within the exclusivity clause? In the Commercial Court, Judge Mackie QC found that they did. Applying conventional principles of contractual interpretation, the Court of Appeal found that the components were not under the exclusivity clause and dismissed the claim. But as Moore-Bick LJ said, the interpretation of the agreement was not “of general importance”. 5 What was of general importance was a secondary issue: whether another party was added to the supply agreement and hence could sue under it. This party was Porto, a Portuguese subsidiary of Globe Motors. The trial judge found that the original parties, Globe Motors and TRW, had agreed by conduct to join Porto. This was because the original parties had over a long period treated Porto as a party. The Court of Appeal agreed. But it was unclear whether such agreement by conduct prevailed over Art.6.3 of the contract, which provided that the supply agreement could “only be amended by a written document 1. [2016] EWCA Civ 396. 2. (11 February 2000) Unreported (CA), [17–18] (Thorpe LJ approvingly quoting Sedley LJ in the application for permission to appeal). 3. [2002] EWCA Civ 413, [6–12] (Sedley LJ), [17] (Schiemann LJ). 4. [1944] KB 718 (CA), 729 (Lord Greene MR). 5. [2016] EWCA Civ 396, [118]. 364

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