Enforceability of Anti-Oral Variation Clauses in Contracts

Parties may agree to perform their obligations under a contract differently, which is known as a variation. It can occur expressly, such as in writing or verbally, or it can be implied based on the parties’ conduct or circumstances.

However, buried deep within the contract, among the complex legal jargon, one may find an anti-oral variation clause. This clause prohibits any variation of the contractual terms unless it is put in writing.

If an anti-oral variation clause exists in the contract, but the parties proceed to modify their obligations orally, it can pose significant legal issues. However, courts across jurisdictions have not been consistent in dealing with this point of law.

To begin with, it can be contended that there has never been any variation. In the alternative, the validity of the variation can also be challenged.

As a consequence, the parties may find themselves deprived of their entitlements under the contract.

Overview of Different Approaches

The illuminating judgment in the UK Supreme Court case, MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] 4 All ER 21, presented two different approaches.

The majority judgment delivered by Lord Sumption embraced a “clean break” approach. According to this approach, the court will invariably uphold the anti-oral variation clause, rendering variations invalid unless they are in writing (“Clean Break Approach”).

However, Lord Briggs disagreed and preferred a more cautious approach. While accepting that an anti-oral variation clause will generally remain in force if intended by the parties, they should also be allowed to depart from it. Intention to depart can be expressed or implied, with the latter requiring a strictly necessary test. For instance, when parties need to urgently perform their modified obligations, and there was no time to formalise the oral variation (“Cautious Approach”).

On top of that, there is a third approach propounded by the Singapore Court of Appeal in Comfort Management Pte Ltd v OGSP Engineering Pte Ltd [2018] 1 SLR 979. This approach presumes that no variation has occurred if the formalities specified in an anti-variation clause have not been complied with. The Singapore apex court considered the omission as strong evidence against the existence of a variation, rather than solely focusing on the parties’ intention (“Presumptive Approach”). This approach was affirmed in obiter by a later apex court decision in Charles Lim Teng Siang and another v Hong Choon Hau and another [2021] 2 SLR 153.

In Malaysia, the minority approach by Lord Briggs was adopted by the High Court in Ng Sau Foong v Rhombus Food & Lifestyle Sdn Bhd & Anor [2020] 8 MLJ 155. Interestingly, Justice Ong Chee Kwan in arriving at his lordship’s decision did not consider Singapore’s approach in Comfort Management.

Analysis of the Different Approaches

Lord Sumption’s Clean Break Approach was essentially based on the following reasons:-

the law should give effect to the formalities set out in a contractual provision;
overriding the anti-oral variation clause would disregard the parties’ intention; and
there are limits to the freedom to contract. Once a contract is formed, parties are bound to what they have agreed, including the manner in which variations can be implemented.

It would be apparent that Lord Sumption advocated for contractual certainty.

However, Lord Briggs’ Cautious Approach emphasised the crucial need to uphold parties’ autonomy. Parties should be allowed to remove or suspend the operation of anti-oral variation clauses. Ultimately, they should have the freedom to decide whether they want to be bound or to be released by the clause. Thus, the cautious approach introduces a mechanism where the court can assess, on a case-by-case basis, whether the parties’ autonomy should prevail over the strict enforcement of an anti-oral variation clause. This approach allows for flexibility in considering the overall intent of the parties.

Moreover, Lord Briggs expressed concerns about situations where parties are unaware of the existence of an anti-oral variation clause, which might have been inserted by meticulous lawyers to minimise the risk of litigation. In such cases, his Lordship argued that it would imply that the parties have agreed to deviate from the anti-oral variation clause.

The Malaysian High Court in Ng Sau Foong, in affirming Lord Briggs’ reasonings, also alluded to the following considerations:-

a distinction must be drawn between an anti-oral variation clause that was intentionally included based on parties’ instructions and negotiations, and one that was inserted by the solicitors as a matter of diligence. The latter would imply that the parties were unaware of the clause and thus effectively disregarded it;
if the parties were aware of the anti-oral variation clause at the time when the variation became necessary, it is probable that they would have willingly waived the formality; and
certainty and expediency should not prevail over the principle of party autonomy.

Be that as it may, none of the above approaches was accepted by the Singapore apex court in Charles Lim Teng Siang.

Firstly, it held that Lord Sumption wrongly conflated a contracting party’s individual autonomy with the parties’ collective autonomy. There was no legitimate reason to prohibit contracting parties from mutually agreeing to depart from an anti-oral variation clause.

Secondly, the Court found flaws in Lord Briggs’s approach, stating that there may be very rare and limited circumstances where an anti-oral variation clause can be deemed abandoned. Such circumstances would only arise when the performance of the varied obligations is urgent.

Nonetheless, the Singapore Court observed some similarities between Lord Briggs’ Cautious approach and Singapore’s Presumptive Approach. Certainly, both require compelling evidence before the court will find and uphold an oral variation.

Conclusion

In Malaysia, the current legal position regarding the enforcement of anti-oral variation clauses follows Lord Briggs’ Cautious Approach. This means that an anti-oral variation clause is not conclusive. In the abundance of caution, it is advised that the following matters should be noted:-

Maintain comprehensive records – It is pertinent to maintain crucial communications between parties. This includes all prior negotiations that pertain to the insertion of the anti-oral variation clause, or any decision to depart from the clause.
Put variations in writing – As far as possible, record all variations in writing as required by the clause. This practice reduces the risk of misunderstandings or disputes by clearly capturing the agreed-upon changes.
Communicate – Effective communication is vital. If the parties decide to disregard the anti-oral variation clause, it is crucial to clearly communicate this decision to all involved parties. Likewise, if the intention is to enforce the clause, communicate and emphasise its importance to ensure compliance.

However, it is worth noting that the Judge in the Ng Sau Foong case did not consider Singapore’s Presumptive Approach in reaching the decision. Consequently, the issue remains a point of legal debate, and the law is far from being settled.