The Shifren Principle – The Importance of Reducing Oral Agreements to Writing When a Contract Contains a Non-Variation Clause

Today, almost all Commercial Contracts entered into include non-variation clauses. A non-variation clause is a contractual provision which restricts the variation and/or cancellation of an Agreement. Any variation or cancellation of the Agreement will therefore not be of any effect unless reduced to writing and signed by the parties concerned.

Not all parties to a Contract understand the purpose of non-variation clauses and often do not read thoroughly through their contracts. Disputes often arise because of this, when parties decide to enter into oral agreements varying provisions contained in their respective Contracts without reducing it to writing. Later, one party decides to rely on the provisions of the Written Contract and object to an Oral Agreement ever been agreed upon to the frustration of the other party.

This is when the Shifren principle, more commonly known as “the enforcement of non-variation clauses on parties”, comes into effect and which will be more fully explained below.

The Shifren principle practicably explained:

Example: John is one of several Subcontractors who provides electrical services for a large Electrical Company. A meeting is held in the beginning of April between a Representative of the Electrical Company (who does not have authority to make decisions) and all their Subcontractors. At the meeting it is orally agreed that the fixed fees to be invoiced to the Electrical Company may be increased by 5%. As such, all the Subcontractors invoiced as per what was orally agreed upon. The meeting was never minuted and the Oral Agreement never reduced to writing. At the end of the month, the Subcontractors submitted their invoices and received the following response from the Electrical Company’s Finance and Legal Department who referred to a non-variation clause contained in their Contract with all the Subcontractors:

“Kindly resubmit your invoice in line with the agreed costing set out in clause 5 of the contract entered into with all subcontractors. Further, kindly take note of clause 7 of the respective contract which states that: ‘no change to this contract, unless provided by the conditions of subcontract, has effect unless it has been agreed, confirmed and signed by all parties’”.

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