However, the commercial reality often requires flexibility when applying the terms and conditions of the contract in changing circumstances.
1. Is it possible to alter the terms of a commercial contract orally despite the variation clause?
The short answer is “Yes”. In two recent rulings of the English Court of Appeal in Globe Motors, Inc –v- TRW Lucas Varity Electric Steering Limited and Another [2016] EWCA 396 and MWB Business Exchange Centres Ltd-v-Rock Advertising Ltd [2016] EWCA 553 the Court found that, despite the existence of a standard variation clause (requiring agreement in writing), the parties were free to agree to vary the terms of a contract orally or by conduct.
The following conditions need to be met before a party to a contract can successfully claim that the terms of the contract have been amended otherwise than in writing:
- Some form of payment should pass between the parties - this could for example be in the form of a commercial benefit to the party agreeing to vary the terms;
- the conduct of the parties should amount to clear and unambiguous representation that the terms of the contract have been varied;
- the conduct of the party altering the terms of the contact should be such that a reasonable person would have believed that it was meant that the other party (s) should act on it; and
- the other party(s) to the contract should have in fact acted on the changed terms.
2. What types of commercial contracts may only be varied in writing?
There are some instances where a contract may only be varied in writing, these include:
- when required by law, eg, contracts in respect of real property;
- where one of the parties to the contract is a consumer for the purposes of the Consumer Protection Act 2007 or the Consumer Credit Act 1995 (the Consumer Acts) (ie, a natural person not acting in the course of his or her business or profession) and the terms purported to be varied are terms which may not be excluded under the Consumer Acts.
3. Are variation clauses effective?
The English Court’s decisions (which have only persuasive authority in Ireland) depend heavily on the facts of each case. Regardless of whether or not the Irish Courts follow the line of reasoning of the English Courts in respect of variation of commercial contracts otherwise than in writing, it is recommended that detailed variation clauses are included in commercial contracts. Such clauses set the method of varying the terms of the contract and impose expectations of conduct on the parties when varying the terms of the contract.
