Effective Contract Variation – how easy is it to change the terms of your contract?

17 October, 2016

It may require much less formality than you think to change contract terms. In the recent case of MWB Business Exchange Centres Ltd –v- Rock Advertising Ltd the Court of Appeal decided that an oral change to a written contract was valid even though there was a term in the contract that specifically said a variation to the contract must be in writing and signed by both parties (an “anti-oral variation” clause).

 

Anti-oral variation provisions have been common in commercial contracts for some time, but in truth their legal effect has always been open to question. When parties have spent often a good deal of time, money and effort getting agreed contract terms in place, they understandably want to control how changes can be made and want to know that the terms they have agreed (like anti-oral variation clauses) will be enforced.  But there has always been a tension between upholding the terms of the written contract, and the desire to see contracts reflect the actual business relationship between a parties, and to ensure that businesses who agreed and rely on changes in good faith are not then penalised just because the change wasn’t agreed strictly in accordance with the written contract terms.  Most contracts don’t require any formality (such as to be recorded in writing) in order to be validly formed and by extension then amended.  So even if the parties agree that they will only be able to amend the contract terms in writing, there’s nothing to stop them agreeing orally to vary that amendment clause (either expressly or by implication) and then proceed to amend the main contract term.

 

We understand this might leave businesses questioning the purpose in keeping this clause in their contracts, but we would not advise leaving the clause out or ignoring it. The circumstance of each contract will be different and in other cases the clause may be found enforceable.  Parties should always adhere to the terms of the contract as closely as possible. If variations are required these should be made in accordance with contract terms.

 

Rather than focus on the enforceability or otherwise of the clause, the take-aways from this case are:

  • parties should regularly review their contracts to ensure that their contract terms accurately reflect their actual business practice;
  • if the reality of your relationship is different from the contract terms, or if you want to change it going forward, make those changes in accordance with the way set out in the contract;
  • make sure that all sales and other staff involved with carrying out contracts are familiar with the contract terms and understand how amendments can and should be made;
  • pay particular attention to the definition of “writing” in your contract (usually found at the “interpretation” section at the front and whether this includes email. If email is not accepted as a form of “writing” then an email would not normally be an effective way of agreeing a contract change. Note – if you are considering changing this clause so that email is agreed as a form of writing, make sure you cross check your notices clause to ensure firstly that those notices you want sent more formally still have to be by letter, and that you have the right provisions in place regarding to whom emails should be sent and how;
  • there’s no need to panic. The Court in this case focussed on the fact that the person agreeing the change was in a position of authority (which very junior staff would not usually be).

 

Regular contract reviews are key.