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GowlingWLG How Can I Vary A Contract
GowlingWLG How Can I Vary A Contract
CONTRACT?
9 minute read
26 June 2018
In this article, we consider the ways in which a contract can be varied, and the factors that
the courts will look at when considering whether a valid variation has taken place.
What is variation?
What are the necessary elements of a valid variation?
How can parties agree to vary a contract?
How might parties vary a contract through conduct?
What if the underlying contract says that it cannot be varied except in writing?
How much can parties vary a contract?
Practical points when managing contracts
What is variation?
In simple terms, a contract variation occurs when the parties agree to do something
differently from the way they originally agreed, whilst the remainder of the contract
otherwise operates unchanged.
For example, in a contract for the supply of goods, the parties might agree that the
delivery time for the goods should be reduced by one week in exchange for an increase in
payment, with the other terms remaining the same. Such an agreement, if valid, would
amount to a variation of the existing contract.
1. The parties must usually mutually agree to alter or modify the contract. In some
circumstances the underlying contract might give one party a unilateral right to make
certain limited changes, but agreement is normally necessary.
2. The parties must intend the alteration/modification permanently to affect their rights. If
there is no such intention, then the change is likely to amount only to a temporary
forbearance or concession, rather than a permanent variation of the contract.
3. The parties must comply with any requirements as to the form of the variation. These
could be specified by legislation, or set out in the original contract which is being varied.
4. The agreement to vary a contract will need to be supported by consideration -
something of value must be given in exchange for the alteration. If there is no such
consideration, then the variation will need to be effected by deed.
In the event of dispute as to whether parties have reached a valid agreement to vary their
contract, the court will determine the issue by considering the relevant facts in light of the
usual rules of contractual interpretation.
As always though, there are exceptions to the rule. For example, the law prescribes that
certain types of contracts must be in writing. Variations to those contracts must also
therefore be in writing. Examples include contracts for the sale of land, assignments of the
benefit of a contract, guarantees and transfers of intellectual property rights. Further, the
parties' original agreement may expressly provide that it can only be varied in writing (as
to which, see below).
In this case, the party arguing that the contract has been varied will need to show that
there has been a clear pattern of behaviour that is inconsistent with the terms of the
original contract, and consistent only with the parties having agreed to vary those terms.
Put another way, a party will be unable to establish a variation by conduct if the parties
would or might have acted exactly as they did in the absence of any such agreed
variation. Establishing that a contract has been varied by conduct is therefore often very
challenging, and so it is prudent for parties to record variations in writing so as to avoid
disputes as to the terms governing their relationship.
Until very recently though, there was some uncertainty as to whether such clauses were
binding. Notwithstanding the clear wording of such variation clauses, they had given rise to
conflicting decisions in the English courts. In one case, the Court of Appeal held that
parties could vary their agreement orally or by conduct, even if the agreement expressly
stated that variations had to be in writing. In essence, the Court's view was that where
parties orally agreed to vary a substantive part of their agreement, they also impliedly
agreed that the 'variation in writing' clause would no longer apply. Following a Supreme
Court decision in May 2018 though, this approach is no longer good law. Now, parties can
have more confidence that, if their contract says it may be varied only in writing, courts
are likely to uphold that provision. There may however be limited exceptions where one
party relies on the other's representation that an oral variation will be valid notwithstanding
the presence of such a clause. In such cases, the doctrine of estoppel may prevent the
party seeking to enforce the "variation in writing" clause.
This distinction may be important - if the varied agreement departs from the original
contract in an essential way, it may be considered by the court to be a new agreement,
such that the original contract is rescinded. That could have unforeseen consequences if a
party seeks to rely on a provision of the original contract which may not have been
reproduced in the new agreement.
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Author(s)
Samantha Holland
Partner - Head of W&I team,
Birmingham
Email
samantha.holland@gowlingwlg.com
Phone
+44 (0)121 393 0320
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Samantha Holland
Mark Stephenson
Partner - Birmingham
Email
mark.stephenson@gowlingwlg.com
Phone
+44 (0)121 393 0659
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Mark Stephenson
Tom Cox
Principal Associate - London
Email
tom.cox@gowlingwlg.com
Phone
+44 (0)20 3636 7945
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Tom Cox
Christopher Richards
PSL Principal Associate - London
Email
christopher.richards@gowlingwlg.com
Phone
+44 (0)20 3636 7842
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Christopher Richards