Michelle Rule considers the ways in which parties can vary the terms of a contract and the impact of the Supreme Court decision in Rock Advertising Limited v MWB (2018).
Can I vary my contract or do I need a new agreement?
Variations to contracts are commonplace and allow parties to keep their agreements up to date without going to the time and expense of drafting a new contract. By varying the original contract, certain provisions can be changed whilst leaving the remainder of the contract as originally drafted.
The extent to which the parties wish to alter the contract is a key factor in whether it should be varied or redrafted. Parties should avoid:
- Variations that are so significant that they work to rescind the original contract, as this may leave them facing unexpected consequences
- Variations out of context of the original contract, such that the small variation becomes the whole agreement replacing the rest of a carefully drafted agreement, and leaving the parties to the spectre of the statutory position
How can you validly vary a contract?
Valid variation of a contract requires agreement between the parties which must be supported by consideration. Consideration is where there is a bargain such as “I shall do this, if you do that.” For example, “I shall deliver 1 month earlier than previously agreed, if you pay a larger deposit.” If there is not a quid pro quo for the variation, there is a danger that the variation will be unenforceable for lack of consideration and for this reasons, solicitors will tend to draft a variation as a deed (which is enforceable without consideration).
Once the variation agreement has been reached, the parties must choose an appropriate method by which to vary the contract. Variation in writing can take a range of forms, from a formal variation agreement (deed!) to a simple email. Alternatively, variation can take place by way of a verbal agreement between the parties. Finally, parties can vary a contract through their conduct. Be wary of relying on conduct, as it can be difficult to prove agreement to the variation and will be easily challenged (one man’s variation agreement is another man’s breach of contract) requiring a clear pattern of behaviour inconsistent with the original contract terms AND which has been accepted by the counterparty.
The parties should also always bear in mind the type of contract, as certain contracts may only be varied in writing, such as transfers of intellectual property rights and contracts for the sale of land.
Most importantly: Don’t forget to look at the original contract too, as this may specify exactly how the contract can be varied. Solicitors will often include a variation clause in the boiler-plate section of the contract in order to avoid some of the pitfalls mentioned above.
My contract states that variation can only be made in writing, but I heard these clauses are irrelevant now. Is this true?
Commercial contracts often contain a ‘non-oral modification clause’ providing that all variations of the contract are to be in writing. These clauses have an uncertain history in the courts, with conflicting decisions as to whether they are enforceable.
The position has recently been clarified in Rock Advertising Limited v MWB (2018), which examined whether a contract can be varied informally by the parties even where the contract contains a non-oral modification clause. The case ruled that non-oral modification clauses are valid and enforceable, meaning that an oral agreement to vary the contract was unenforceable. This overturned the previous approach of the courts that emphasised freedom of contract and entitled parties to agree whichever terms they choose, whether verbally or in writing.
The case emphasises the need to know the terms of your contract and to ensure that any variation made conforms with the requirements of the contract. Check whether your contract contains a non-oral modification clause and if so ensure the variation is agreed in writing. Also check what your notice requirements are and particularly whether email can be relied upon as a form of notification.
Ultimately, written variations remain the safest way vary your contract. If you would like advice on varying your agreement, please contact Michelle Rule, an Associate in our Corporate & Commercial team.