Update: Contract Variations

In our previous article, we reported on two Court of Appeal decisions which found that contractual clauses that require any changes to a contract to be in writing will not always be effective in preventing subsequent variations orally or by conduct. These decisions increased uncertainty for contracting parties.

However, one of these cases was recently appealed to the Supreme Court who reversed the Court of Appeal’s decision, thereby upholding the validity of such clauses (Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24).

Advantages of non-oral variation clauses

Non-oral variation clauses serve several purposes:

  • They provide parties with certainty as to how the contract can be varied as there is often a formal procedure that needs to be followed to make any changes to the contract:
    • this helps to prevent any unintentional variations to the contract; and
    • this helps to ensure that any variations are made only by appropriately authorised representatives of each party.
  • They provide parties with certainty as to what the contractual terms actually are.

The Courts’ reasoning

Part of the reasoning in the earlier Court of Appeal decision was that the court wished to uphold the parties’ freedom of contract, a fundamental principle of English law.  In that court’s view, if it had upheld non-oral variation clauses (and so prevented the parties from later being able to change the contract by oral communications or by their conduct), this would restrict the parties’ freedom of contract.

However, the Supreme Court considered that by upholding the parties’ intentions when they originally agreed the terms of the contract, its judgment was consistent with this principle.  If the parties wish to vary the contract later without following the contractual procedure, they can still do so provided that they both agree not to follow that procedure.

Comment

This judgment will be welcomed by contracting parties as it will reduce the risk of disputes about whether or not a variation has been made to a contract.

The decision highlights the importance of checking what a contract states about variations and following any prescribed procedure.  It is also important for organisations to implement internal processes so that staff know how to deal with contract changes properly and who within the organisation is authorised to sign-off any changes.

Cannings ConnollyCannings Connolly
18 June 2018

Disclaimer:
This Legal Update is published as a general guide only and it is not intended to contain definitive legal or professional advice, which should be obtained as appropriate in relation to any particular matter. This publication relates to matters prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

For further information or advice on the matters addressed in this Legal Update or any other related matters please contact:

Matthew Sillett on 020 7003 8116 or email msillett@cclaw.co.uk 

Mili Khoda on 020 7003 8128 or email mkhoda@cclaw.co.uk

Nicholas Neophytou on 020 7003 8114 or email nneo@cclaw.co.uk