financial protection that TRW had by being in contract with a substantial organisation like Globe. By contrast, Globe Porto had a weak balance sheet such that, in the event of delivery or quality issues, TRW would have had no or limited redress.
The Judge acknowledged the value of 'no-variation' clauses such as Article 6.3, which he said should be upheld unless the evidence of variation or waiver is clear. Whether variation or waiver has occurred will be a question of fact, but it must be possible for variation or waiver to occur - to decide otherwise would be inconsistent with the principles of freedom of contract.
TRW appealed to the Court of Appeal.
Court of Appeal Decision
The Court of Appeal held that TRW had not been in breach of contract by ordering Gen 2 motors from a third party. They did not accept that Gen 2 motors fell within the Products umbrella. It was not enough that Gen 2 motors could - hypothetically - have become Products through the Engineering Change process. The Agreement did not oblige TRW to propose Engineering Changes to Globe.
Clarification of the law relating to contractual variations
Having decided that TRW was not in breach of the Agreement, it was not necessary for the Court of Appeal to address the 'no-variation' clause. However, in view of the fact that there were competing authorities on the issue, and having heard full argument on the point, the Court decided to address the issue in an obiter judgment. TRW argued that there were sound reasons for recognising the efficacy of such clauses: no-variation clauses promote commercial certainty and avoid false or frivolous claims of an oral agreement. In any event TRW argued the conduct relied upon in support of Globe's assertion that the contract had been varied was not unequivocal.
The Court of Appeal confirmed the general principle in English contract law that parties have freedom to agree whatever terms they choose to undertake, and they can do so in a document, by word of mouth or by conduct. The fact that an agreement may include a clause requiring any variations to be in writing will not prevent parties from later making a new contract varying the contract by an oral agreement or by conduct. The Judge at first instance was right to have found that the Agreement had been varied orally and by conduct.
There are some common law restrictions on the freedom of contracting parties to agree the terms of a contract - for example, penalty clauses and restraint of trade clauses. There is, however, no such common law principle precluding an oral agreement where its subject is another agreement which contains a 'no variation unless signed in writing' clause. In the absence of statutory or common law restrictions 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. In principle therefore, a clause requiring any variations to be in writing will not prevent a subsequent variation that has been agreed orally or by conduct.
The Court of Appeal acknowledged TRW's concern about manufactured allegations of oral agreements that vary written terms. He