Anaya Nolan
Contracts are varied for a number of reasons, such as changes in costs, goods or services required, or the ability of a party to pay or deliver. A contract can be varied in several ways, including in writing, orally, and through conduct. However, as a general rule, both parties must agree to the specific changes for the variation to be legally binding. In certain cases, a contract may explicitly permit unilateral variations, meaning one party can make changes without consensus. It is important to check the requirements for a variation to be effective, as these may differ depending on the nature of the contract and the jurisdiction. For example, certain contracts can only be varied by deed, while others may require the consent of a third party.
| Characteristics | Values |
|---|---|
| Number of parties required to vary a contract | In most cases, both parties need to agree to the changes. However, in unique circumstances, one party can make the changes without consensus if it has been agreed upon in advance. |
| Nature of contract variation | Contract variations can be made in writing, orally, or through conduct. |
| Legitimacy | For a variation to be legally valid, all parties must agree to it. |
| Contract scope | Variations can include changes in specifications, quantities, or the quality of deliverables. |
| Consideration | Unless the variation is by deed, a variation usually needs consideration, meaning the party benefiting from the change needs to give something in return. |
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What You'll Learn
Variation in writing
Written contracts often specify that they can only be varied by written agreement between the parties or may set out a procedure to follow where a party wants to make changes. Contracts that by law have to be in writing can usually only be varied in writing. A contract in the form of a deed does not necessarily need to be varied by another deed. However, if the law requires an agreement to be in the form of a deed, any variation should usually also be in this form.
Unless the variation is by deed, where no consideration is needed, a variation will usually need consideration, meaning the party benefiting from the change needs to give something in return. Sometimes nominal consideration, a promise to pay a pound, can help, especially where the parties do not want to use a deed. 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.
In the case of a dispute, written variations provide a clear record of the agreed-upon changes. This helps to ensure that the variation is legally enforceable and reduces the risk of misunderstandings or conflicting interpretations. It is important to note that the rules for contract variations can vary depending on the jurisdiction and the nature of the contract. Therefore, it is always advisable to consult a legal professional to ensure that any variation is carried out in accordance with the applicable laws and regulations.
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Oral variations
In the Rock Advertising Limited v MBW Business Exchange Centres Limited case, the Supreme Court confirmed that an oral variation is invalid if it breaches a 'no oral variation' provision in the contract. This decision provides greater certainty for contracting parties, upholding the original terms of the contract.
However, the doctrine of estoppel may be invoked in certain circumstances. For example, if one party relies on the representation that an oral variation will be valid, even with a 'no oral variation' clause present, estoppel may prevent the enforcement of the 'variation in writing' clause.
In addition, it is important to note that some contracts may include specific clauses outlining the types of variations permitted, when they can be made, and who needs to consent. These clauses, known as variation clauses, provide flexibility while ensuring a definitive record of the agreed-upon terms.
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Variation by conduct
A contract can be varied by conduct even when the contract itself contains a "no oral variation" clause. For example, if a contract had a payment date for the first of every month, but one party consistently paid their invoice in the middle of the month, and the other party consistently accepted this, then it might be implied that the new payment date is the middle of the month instead of the first day of the month.
In the case of a dispute, a recording of the oral variation or having witnesses can help prove that the contract has been varied by conduct. However, it can be difficult to enforce a contractual term that has been agreed upon by a conversation and a handshake alone, as there is usually no record of what was said during the exchange.
In some cases, a waiver can also be inferred by conduct. This means that a party can waive (or be taken to have waived) its right to rely on a written variation when the way it has acted after the contract has been varied by oral agreement.
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Unilateral variation
While unilateral variation clauses can be useful in certain situations, they can also be considered unfair and are subject to legal scrutiny. For example, in the case of ACCC v JJ Richards & Sons Pty Ltd [2017], a waste management company used unilateral variation clauses to increase prices without providing any corresponding benefits to customers, and this was deemed unfair.
To avoid unfairness, unilateral variation clauses should be as specific and limited as possible, clearly outlining the legitimate interests they are meant to protect. They should also be balanced with considerations such as minimum notice periods, countervailing termination rights, and rights to pro-rata reimbursement.
In the context of employment contracts, the law recognises the potential for abuse of power in unilateral variation clauses. To address this, the law subjects the exercise of unilateral variation to judicial control, requiring that the clause be exercised in good faith and consistently with the contractual purpose. Additionally, the implied term of mutual trust and confidence acts as a check on the employer's power to unilaterally modify the contract.
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Variation by deed
A deed of variation is a legal document that allows two or more parties to change one or more terms of an existing contract. It is used when the parties' needs or circumstances change over time, and they want to update their agreement accordingly. A deed of variation is different from a new contract because it does not require consideration, or the exchange of something valuable between the parties, as long as the value of the changes is equivalent. However, if the value of the changes exceeds the original value, the parties are entitled to the costs of the variation in excess.
A deed of variation should only be used for minor or specific changes, such as changing the delivery date, payment terms, or contact details. For more substantial changes, other documents such as a deed of assignment, a deed of novation, or a new contract may be required. A deed of variation includes details of the parties, a description of the original agreement, the specific changes to the contract, and the signatures of both parties and witnesses.
It is important to note that a deed of variation is not appropriate when the original contract does not allow changes in writing or when the parties want to change the identity or obligations of one or more parties. In such cases, other methods of variation, such as oral or conduct-based variations, may be considered. However, it is always recommended to consult a lawyer or attorney to ensure that any variation is legal and valid.
In summary, a deed of variation is a useful tool for making minor or specific changes to an existing contract without the need for a new contract or consideration. It allows parties to update their agreement to reflect changing needs or circumstances, as long as the changes do not involve substantial alterations or the identity and obligations of the parties.
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Frequently asked questions
A contract variation refers to changing the already agreed-upon terms of a contractual agreement. It enables the involved parties to alter the original terms, conditions, or obligations without redrafting or ending the contract.
In general, contracts cannot be changed unless both parties agree to the specific changes. This is usually done in writing, although oral and conduct variations are also possible. Written agreements are the most widely used and trustworthy method of contract modification because a thorough physical record is available.
Changing circumstances may require contract variation. Variations could be required if there are changes in costs, the goods or services required, the period for which the goods or services are required, or the ability of a party to pay or deliver. A variation may also be required to clarify existing clauses or update clauses that are no longer needed or no longer reflect the reality of the relationship between the parties.
Firstly, it is important to check if the contract specifies any requirements for a variation to be effective. Written contracts often specify that they can only be varied by written agreement between the parties or may set out a procedure to follow when a party wants to make changes. Secondly, it is crucial to understand the law in your jurisdiction regarding contract variations. For example, certain contracts can only be varied by deed, and contracting parties may need the third party's consent to vary a contract.
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