Are there circumstances where a variation, even if in writing, will be invalid? Whilst not a construction case, such clauses are regularly found within construction contracts and the Court’s decision could have wide ranging effects on the industry.

###Facts of the case###

The case concerned two dentistry contracts between NHS Commissioning Board and Vasant.

• The first contract (“Contract A”) was to provide general dental services. It contained a No Oral Modification (NOM) clause preventing any variation unless it was in writing and signed by both parties. It also contained an entire agreement clause stating that Contract A was the whole agreement between the parties and that it superseded any prior agreement. Contract A could only be terminated by NHS Commission Board if Vasant was in default

• The second contract (“Contract B”) was a separate fixed term contract to provide immediate minor oral surgery services. Contract B could be terminated at any point on one month’s notice

Contract B continued past its fixed term. The parties subsequently signed a written variation form, which was a single page document which stated that the immediate minor oral surgery services were to be carried out as “further services” under Contract A. That variation effectively brought the services that were under Contract B within the ambit of Contract A.

In 2016, NHS Commissioning Board wrote to Vasant giving one month’s notice to terminate Contract B. However, was that enough to terminate the arrangement between the parties? The parties agreed that there was a contract in place, but not whether that was Contract A or Contract B. This impacted upon the right to terminate.

NHS Commissioning Board’s argument was that the variation failed as it was too ambiguous and did not spell out the contractual arrangements that applied from the date of the variation. As a result, they said, Contract B continued and could be terminated (along with the services) on one month’s notice.

Vasant disagreed. They argued that the variation had amended Contract A to include the immediate minor oral surgery services and Contract B had therefore fallen by the wayside. They stated that there was no right to terminate Contract A because they had not defaulted.

###Court of Appeal decision###

The Court of Appeal’s decision was that the variation was valid. It determined that the immediate minor oral surgery services were to be carried out as further services under Contract A. Consequently, NHS Commissioning Board could not bring the arrangement to an end by simply terminating Contract B.

Furthermore, and as to NHS Commissioning Board’s argument regarding ambiguity, despite the entire agreement clause within Contact A it was held that the terms of Contract B were admissible to give meaning to the phrases that were now within Contract A, as these did not alter the terms of Contract A (as varied). Instead, they simply explained what the words in the variation meant. The existence of the entire agreement clause did not preclude the implication of terms that were intrinsic to the agreement or necessary to give business efficacy to the contract. The entire agreement clause was “subject to” any variations validly made in accordance with the relevant provisions of Contract A. The variation satisfied the contractual requirement as it was in writing and signed by the parties. Once the variation had been made, Contract A (as varied) was governed by the entire agreement clause.

###Implications?###

In Rock Advertising Ltd v MWB Business Exchange Centres Ltd the Supreme Court held that attempts to make oral variations to a contract containing a NOM clause are invalid. However, this case established the following principles:

1. To be a valid variation, it must satisfy the contractual requirements contained within the NOM clause to be valid; and

2. An entire agreement clause does not preclude terms being implied into a contract if these terms are necessary to give business sense to the contract. The obvious message for those drafting contracts, however, is that it will almost certainly be preferable to ensure that the meaning of all terms is clear on the face of a contract rather than having to look to extrinsic evidence for that purpose.

Oral instructions to vary the scope of the contract works are common within the construction industry. The reality is that most standard form building contracts already provide that oral instructions will be of no immediate effect until confirmed in writing (for example, see clause 3.12 of the JCT Standard Building Contract with Quantities). The courts will give effect to these types of clauses and so if the requirements of a NOM clause are not followed, there is a very good chance that the instruction and/or variation will not be effective.

###Advice from the above case###

This case shows that if your contract includes a NOM, oral variations must be followed up and confirmed in writing – don’t assume that just because something has been agreed orally and both parties have performed the contract in accordance with that agreement that they’ve waived the right to rely on the formalities of the agreement. Parties should ensure that any oral variation is confirmed in writing in accordance with the requirements of the contract.

Don’t take “standard” clauses – often referred to as boilerplate clauses – for granted. They all have legal meaning and you need to make sure the contract reflects how you intend to operate under the contract. It might not be practical for every variation to be followed up in writing so you might prefer the flexibility of being able to orally vary a contract – but the contract must reflect that.

However, even if you can give oral instructions to vary the scope of works, it is good practice to record this and confirm it in writing in case it needs to be evidenced down the line.

If the contract does contain an entire agreement clause you should be careful to check that the contract is comprehensive and contains all the required information – and, as the name suggests, the entire agreement.

In complex situations, parties should consider whether it would be better to draft a new contract as opposed to incorporating further terms into an existing contract which contains a NOM clause.

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