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24th May 2018

Informal variations: between a ‘Rock’ and a hard place

 

Insolvency partner Mark Cullingford looks at what the recent Rock Advertising Limited v MWB Business Exchange Centres Limited judgment means for variations to a contract.

 

Recent discussions in the construction sector following Carillion’s collapse have touched on the fragility of relying on informal variations to contracts. These can lead to delays in payment for work done and to paperwork being sorted out at a much later date – perhaps by different personnel who may insist on the correct contractual procedures being followed.

The Supreme Court, in its 16 May 2018 judgment in the Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24 case, emphasised the benefits and commercial justification of “No Oral Modification” or “NOM” clauses that are common in the terms and conditions of standard form and other commercial contracts. These clauses prescribe that an agreement may not be amended, save in writing and signed on behalf of the parties.

The Supreme Court affirmed that NOMs are designed to provide contractual certainty and that the courts will enforce the procedural requirements for variations to a contract. The possibility of a situation where parties agree orally to vary a contract – and then a party acts on the variation – was also recognised by the court. In that situation, the doctrine of estoppel will act to prevent unfairness by preventing the other party from relying on the NOM clause to invalidate the oral variation. However, estoppel did not arise on the facts of this case.

The core lesson here is to document variations to contracts in the agreed way to avoid the risk of contractual uncertainty, delays in payment and the disputes that may follow.

For further commentary on this case, or for help and advice on restructuring or insolvency, please contact Mark Cullingford in Thrings’ Corporate team.

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