The Supreme Court (the UK's highest court) has made an important ruling on how contracts can be varied. This is highly relevant to the Manufacturing sector, where supply chain relationships often span many years and evolve over time without formal written variations being entered into.
In the case of MWB v Rock Advertising, the Supreme Court found that a purported variation to the contract was not effective because the parties had not documented the amendment, and the contract contained a "no oral variation" clause. A clause which requires changes to be made in writing is therefore valid and binding.
A failure to comply with the requirements of a variation clause in a contract will not necessarily invalidate a change, but it will now be much harder to prove that the amendment is effective if the required contractual procedure has not been followed.
The ruling is good news for business and provides welcome certainty. It reduces the risk management problem that contractual wording might easily be overridden by informal correspondence. Amendments which are only made orally may be unclear, and are obviously unrecorded, which can give rise to problems further down the line in working out what the supposed variation was. Requiring changes to be made in writing also helps businesses to control who has authority to agree contractual variations.
Manufacturers often have long term relationships which are critical to their business, but the contracts do not always keep up with practice. Disciplined contract management adds value to the business and reduces risk.
Examples of contract variations
Here are some circumstances in which you may need to vary contracts:
- to comply with the new data protection legislation (GDPR)
- to include clauses which make provision for the effect of Brexit
- to change pricing e.g. by incorporating new price lists
- to update minimum purchase obligations on an annual basis
- to reduce or expand the product range covered by the contract
- to change the product specifications
- to extend the duration of a contract.
- If you wish to rely on a contract amendment, check the variation clause in the contract (if there is one) and follow the procedure set out. This will usually require variations to be made in writing, and may also require that the variation is signed by both parties.
- For a contract variation to be legally binding, you need to comply with the following contract law requirements:
- show that both parties agreed the change
- ensure there is sufficient certainty as to what the change is
- be able to demonstrate that there is a transfer of value of some sort from each party to the other (the legal term for which is 'consideration'), or execute the variation as a deed.