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Contract Law: varying the law of variations

The recent case of Rock Advertising v MWB Business Exchange Centres Limited [2018] confirmed that a contract containing a no oral modification (NOM) clause cannot be amended orally. It also raised the question of how contracts are varied and what is the variation, says Martin Collingwood

At its most basic a contract is varied when the parties agree to do something differently from the way they originally set out in their contract.  The decision to change something relating to the contract may relate to just one aspect or something more fundamental.

A valid variation occurs only where: –

  1. The parties mutually agree to alter or modify the contract;
  2. the intention is that the alteration or modification permanently affects the parties’ rights;
  3. any variation will have to comply with any requirements as to the form of the variation. These could be specified either by legislation or, as in the Rock decision, set out in the contract itself; and
  4. the agreement to vary must be supported by consideration or in the absence of consideration, affected by deed.

As with any other contract, determining whether the parties have reached an agreement can give rise to disputes and the Courts may have to interpret the exchanges between the parties using the usual rules for contractual interpretation.

Potentially contracts can be varied in the same way as the parties can form contracts i.e:

  • in writing – by formal variation agreement, side letter or email exchange;
  • orally – over the telephone or at a meeting; and
  • by conduct – where the parties operate the contract in such a way as to change the way the contract works.

Some types of contract must be in writing (and any variations must also be in writing), for example, contracts for the sale of land and assignments of the benefit of a contract. As we saw in the Rock decision, the contract may prescribe that any variation must be in writing and signed.

Where parties vary a contract by conduct, establishing that the contract has been varied may be fraught with difficulty when compared with written or oral variation evidence.  For the conduct to have the effect of varying the contract it will need to show there has been a clear and consistent pattern of behaviour that is inconsistent with the terms of the original contract and consistent only with the parties having agreed to vary its terms.

The extent to which parties can vary a contract is, in theory, unlimited. However, there may come a point when the variation is so fundamental that the Court may consider that a new agreement has come into place and the original contract has been rescinded.  If that occurs then parties may be disadvantaged if they had anticipated that some provisions of the existing agreement were to remain and are not reflected in the new agreement.

The take away from this is simple: in varying the terms of an agreement it is wise to do so in writing to create a certain position  – and, depending upon the terms of the underlying contract to be varied, a written variation may be essential.  The parties should also consider carefully the effects of any proposed revisions on existing provisions.  The reliance upon conduct of the value of a contract may be problematic because of difficulties of proof.

If we can help you with any aspect of contract law, please get in touch with Martin Collingwood, head of our construction unit, on t: +44 (0)1482 325242 or email martin.collingwood@andrewjackson.co.uk

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