9 December 2024
As commercial advisers, we always stress the paramount importance to businesses of recording their commercial intentions in written contracts. Recent cases in the UK high court have brought into sharp focus the need to also ensure that contracting parties’ conduct reflects the contract, or risk undermining what has been written.
Both cases hinged on the wording of different ‘boilerplate’ clauses, which are typically found towards the end of a commercial contract. One case involved the no-dealing clause and variation clause and the other, the waiver clause. In a carefully drafted contract, these clauses will play the following roles:
No dealing clause – this clause limits one or both parties’ ability to transfer their rights and obligations to a third party, for example by assigning, novating or subcontracting. Sometimes this will be a blanket ban, but more typically the clause allows such transfers with the prior written consent of the other party. It is a valuable way of keeping parties locked into the contract, so one party cannot pass its rights or obligations to another entity with no track record, or with whom the other party simply does not want to do business.
Variation clause – this clause imposes a specific method for changing or varying the terms that have been agreed. Usually, it requires that the changes are agreed in writing and may also specify that only certain personnel of each party can agree the changes. Its role is to ensure that mere oral discussion cannot alter the contract, which can cause huge uncertainty between parties.
Waiver clause – this specifies that a party may waive any of its rights under the agreement. Usually, the clause will specify that a waiver will be limited – so if a party waives one right, or waives its right on one occasion, it does not also waive all future or similar rights.
In both of the recent High Court cases, the court considered the wording of the boilerplate clauses in the given contracts and, despite the specific circumstances being different in each case, concluded that the parties’ behaviour to each other overrode that wording. In the case involving the no dealing and variation clause, one party had informally allowed a third party to undertake some its obligations. The other party had not objected and had instead continued to perform its side of the agreement. The court concluded that this conduct – continuing the contract with the new party without objection – was sufficient to legally novate the contract to the new party, despite the contract prohibiting such novations and requiring changes to be made in writing. Similarly, the court found in the case involving the waiver clause that the party’s failure to raise its objections for a considerable time (almost 12 months) was enough to deem its rights waived, despite the contract saying that no such waivers would be granted.
The notion that parties’ conduct can novate or vary a contract, or waive rights is nothing new. These cases serve as timely reminders, though, that the courts are prepared to overlook the content of a contract if the conduct of the parties is inconsistent with that content over a suitable period of time. Contracting parties should therefore always be sure to document their intentions in a clearly-worded contract, and then honour those written terms when carrying out the contract.
Blaser Mills commercial team is on hand to assist with drafting, reviewing, updating and advising upon a wide range of commercial contracts. For further information or advice please contact Becky Cooper on 01494 932614 or email becky.cooper@blasermills.co.uk.
[1] Magee and others v Crocker and another [2024] EWHC 1723 (Ch); Little and another v Olympian Homes Ltd [2024] EWHC 1766 (Ch)