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Have you ever agreed to a revision to a major contract informally?

By Claire Barnes, partner, Taylors Solicitors.

Maybe you have revised annual prices or a schedule of payments at a review meeting, then you should now make sure there is no bar on you doing this and read on!

A recent Supreme Court decision has brought clarity to a previously unsettled area of contract law. This means that informal variations of a contract may not in fact be binding.

When does this apply?

Where your contract contains a provision that all variations to it have to be set out in writing and signed by both parties before they take effect (known as "NOM" - No Oral Modification).

What's so good about this decision?

It will be of comfort to businesses that their employees who do not have the required internal authority to do so have not unwittingly bound the company to an unapproved variation. On the other hand, it will curtail parties' flexibility to make commercial variations quickly; will result in yet further layers of administration; and potentially lead to uncertainty.

Action points:

Consider including NOM in your own contracts to provide certainty on how a contract may or may not be varied. Check existing contracts (those with larger organisations such as banks, local authorities and plc customers usually include a NOM. You will find it near the end of most agreements). Put policies in place to ensure employees know that if there is a need to change or vary any contact, they do so in compliance with the express provisions of contract and check if there is a NOM.