Revisiting Rock Advertising – Relying on Informal Variations to a Contract
11 December 2018
Earlier this year, the Supreme Court decided in Rock Advertising Ltd v MWB Business Exchange 2018 that, where a written contract states that it can only be varied by observing specified formalities (for example by doing so in writing and signed by both parties), those formalities will – in most circumstances – need to be observed if the variation is to be effective. This decision has far-reaching consequences, because many contracts are varied informally by the parties during their life without checking the requirements, which can be fatal to enforcement if a dispute arises. There are however still some situations where the variation may be enforceable and all may not – necessarily – be lost.
Clarkslegal successfully used this decision recently to strike out an opposing party’s Defence because the oral variation to the contract raised in the Defence did not meet the formalities required by the contract. While any party seeking to vary a commercial contract must now comply with the formalities to avoid the risk of unenforceability, if you find yourself in a position where the formalities have not been complied with and the counterparty is now refusing to perform a variation, all may not – necessarily – be lost. There are still two key legal arguments that can be made to uphold an “informal” variation:
- The variation did away with the formalities expressly or by necessary implication: it has long been a principle of English contract law that the parties are free to agree contracts in any way they wish. Therefore, it is possible for them to disapply a previously agreed formalities clause, but it was made clear by the Court in Rock Advertising that departing from formalities “will not lightly be inferred”. If during the making of an oral variation it was explicitly stated that there was no need to rely on the formalities, this may be sufficient. Alternatively the Court may infer such a statement but only if it is strictly necessary to do so: for example if the variation called for an immediate change in the contract which could not be written down and signed before the work needed to be done.
- The counterparty may be “estopped” from insisting on the formalities: which can be the case where the parties have gone too far along with the purported variation. This argument is available if the counterparty made a clear and unambiguous promise, you then acted in reliance on that promise, your reliance was reasonable and foreseeable by the counterparty, and you suffered “detriment” (such as costs) due to that reliance. So, for example, if a customer clearly and unambiguously states that they are increasing the volume of an order they already placed in writing, you then incur costs increasing production for the order, but the customer then changes their mind and refuses to pay on the basis that the formalities for an increase are not met, you will likely be able to argue that they are estopped from doing so on the strength of your detrimental reliance.
The Court will consider all evidence in deciding such arguments, including how the parties behaved after the agreed variation. Consequently, if you have suffered loss in complying with an “informal” variation and your counterparty then goes back on this, there may still be a way to enforce it, and this will depend on the full context of the variation which should be considered when seeking to do so.
Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
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