Variation of Contracts

November 1st, 2022

The extent to which an existing contract can be varied and the same contract continue as varied and when the purported variation or modification will amount to there being a new contract is a question that arises in at least two contexts.  One situation is in relation to the procurement of contracts and the EU driven public procurement regime. That is governed by that statutory regime. The other situation is when the question is governed by the common law of contract. It was the latter with which the Court of Appeal were concerned in Cobalt Data Centre v HMRC (2022) EWCA Civ 1422.

The question at common law is whether alterations to a contract amount in law to a rescission and replacement of the contract, the substitution of a new contract, rather than there being a variation which merely qualifies the existing rights and obligations. When a contract is rescinded, expressly or impliedly, it is at an end. If, on the other hand, a contract is varied, it continues in existence, but in an altered form.

What the Court of Appeal says includes the following : –

  1. The extent of a contractual power of variation must be a question on the interpretation of the contract in question: para 53;
  2. Even a widely drawn variation clause has its limits: para 62;
  3. Although it is competent for the parties to agree what changes to make to a contract, it is not competent for them to agree what the legal effect of those changes is: para 72;
  4. The parties objective intention must be deduced from what they said and did: paras 118 & 136(iii).

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