Contract variations: Mixed messages

Consider this: you are an employer keen to manage costs and pre-empt surprise claims and, after some negotiation, you have agreed a strict protocol with your contractor. The protocol is clearly documented in the terms and conditions of the contract providing that any changes to the terms and conditions as well as requests and/or authorisation for changes need to, in order to be valid, be in writing and signed by authorised signatories of both parties.

Three recent cases suggest that such provisions might not provide the protection intended. The first two, C&S Associates UK Ltd vs Enterprise Insurance Company Plc and Globe Motors Inc vs TRW Lucas Varity Electric Steering Ltd, while not construction cases, could have important implications for building projects. The third, Jawaby Property Investment Ltd vs The Interiors Group Ltd provides a salutary lesson where the parties had a go at excluding the effectiveness of emails, but then contradicted this by their actions.

C&S Associates were engaged by Enterprise to manage third-party motor insurance claims. The agreement between the parties contained a clause stating that “any variation of this Agreement shall not be effective unless made in writing and signed by or on behalf of each of the Parties to this Agreement” – similar wording to that often included in construction contracts.

The judge could see no reason to insist upon evidence of original documents signatures or hard copy documents, or even that both parties’ signatures should be on the same document

Following termination of the contract between C&S and Enterprise, the court was asked to decide whether, notwithstanding the clause referred to above, an email exchange satisfied the contractual requirement that any variation needed to be in writing and signed on behalf of each party.

The judge could see no reason to insist upon evidence of original documents, signatures or hard copy documents, or even that both parties’ signatures should be on the same document.  Provided that other requirements for formal variations (such as an intention to be bound and requisite authority to bind) were present, emails would be effective notice.

If this does not send a shiver down the spines of contract drafters, then Globe Motors might.

The Court of Appeal commented in Globe Motors that even a carefully drafted provision confirming that oral agreement for variations was not effective notice would not defeat a variation made orally or by the parties’ conduct. The court’s reasoning was that parties are free to enter into contracts verbally, in writing, or by conduct and, as such, agreements despite saying variations/changes to it needed to be in writing, could be varied/changed in the same manner ie. orally or by the parties’ conduct.

Jawaby Property Investment was decided along similar lines. A notice clause in an amended standard form of JCT Design and Build 2011 was changed in the notices clause by striking out provisions allowing service of notices and communication by email.

Clear words were needed to exclude emails as a permissible method of service – not just deleting the provision allowing service by email

Jawaby (through its employer’s agent) and the contractor, Interiors Group, did not strictly follow the contractual procedures for payment, which involved Jawaby accepting emailed applications for a number of interim applications for payment. When the parties finally fell out over interim application number seven, the court had to consider whether an email communication complied with the requirements for service in the amended notice clause.

The judge disposed of the point shortly, noting that the amended clause, as a result of the deletion, was now silent on the question of whether or not emails were effective.  He found that, in principle, they were. They had been accepted as valid by Jawaby in the past and, in any event clear words were needed to exclude emails as a permissible method of service – not just deleting the provision allowing service by email.

So – what to do in light of these recent cases?

Well, first off, if you want to prevent certain methods of communication/service being valid, you need to be explicit about that in the terms and conditions of your contract.

However, if you “allow” yourselves or others acting on your behalf to, in the course of conduct (ie. in how they manage the contract on a day-to-day basis), allow/adopt a different regime, then you will have a problem if you later want to rely on the fact that the methods employed were not valid for the purposes of the contract.

This isn’t anything new. These recent cases have just made it that much clearer.

Stephanie Canham is head of construction at law firm Trowers & Hamlins