Onerous practices in Public Procurement – new CCS Guidance
Wednesday 21st December 2016
The Crown Commercial Service has released its latest procurement policy note (PPN 10/16). The newly published guidance marks an attempt to reduce the number of public procurements (a.k.a. OJEU tenders or OJEU procurements) which involve onerous or inappropriate risk allocation between contracting authorities and suppliers.
PPN 10/16 comes into force with immediate effect and applies to all central government departments, their executive agencies, and non-departmental public bodies.
The PPN reiterates the importance of contracting authorities conducting public procurement and contracting activity in accordance with published guidance and best practice. In particular, it highlights the following:
1. Pre-procurement market engagement between contracting authorities and potential suppliers, as permitted by provisions included in the Public Contracts Regulations 2015, is described as ‘essential good practice’. It is envisaged that such engagement will encourage innovation and maximise value for money.
2. Contracting authorities should ensure that accurate and reliable data is made available throughout the procurement process, especially when such data relates to forecasting volumes, and managing demand and performance under the contract.
3. Contracts should be awarded based on the supplier’s ability to provide value for money over the life of the contract.
4. Proportionate mechanisms should be employed to identify and address risks inherent in the contract and contracting authorities are encouraged to discuss these risks and possible solutions with suppliers at the pre-procurement stage.
5. When establishing limits of liability in contracts, contracting authorities should use the guidance developed by the Crown Commercial Service to support their Model Services Contract and in particular, they should ensure that:
- The commercial risks of each contract are considered in detail;
- Risk management proposals are discussed with potential suppliers in the pre-procurement stage;
- Bespoke liability provisions are drafted to reflect the requirements, value and complexity of the contract, avoiding unlimited liability except where required by law; and
Deeds of Guarantee and Performance Bonds are only used where the contract is at high risk of performance or supplier failure.
6. Contracting authorities should adopt a collaborative relationship with suppliers, using established contract management tools and techniques so that any changes in contract delivery are identified early enough to be able to be resolved without creating unmanageable risk for either party.
The release of PPN 10/16 highlights the concern of suppliers that their adoption of risk in performing public contracts is disproportionate to the risk adopted by the contracting authority. Following this guidance, contracting authorities, acting in accordance with best practice, will need to consider the level of risk each party to the contract is best placed to bear and to consider the cost consequences associated with such risks, even before issuing an OJEU notice.
For further information regarding risk allocation in public contracts, or public procurement law in general, please visit our public procurement page or contact Victoria Trigwell at 0151 600 3429 or email email@example.com
Author: Victoria Trigwell
“Please Please Me, Sony” – McCartney and Sony tussle over copyright ownership
Wednesday 1st February 2017
Paul McCartney has filed for declaratory judgment against Sony/ATV Music Publishing LLC (Sony) in an ongoing dispute regarding his historic works. The Beatles star, who was outbid by Michael Jackson for the rights to a back catalogue of some 260 Beatles songs in the 1980s, is seeking confirmation in US courts that he is entitled to Get Back his historic copyright next year.
McCartney’s application to the Manhattan court states: ‘Section 304(c) of the 1976 Copyright Act gives authors like Paul McCartney who, before January 1, 1978, assigned or otherwise transferred their copyright interests to third parties, the non-waivable right to terminate those transfers and reclaim their copyright interests.’ Under s.304(c), original copyright owners may reclaim their right by serving a termination notice between 56 and 61 years following registration of copyright.
McCartney has served numerous termination notices between 2008 and 2015. These notices refer to some of McCartney and John Lennon’s biggest hits, including A Hard Day’s Night, Let it Be and Hey Jude. McCartney is not yet attempting to reclaim his right to these songs, but is due to take control of the songs in 2018. He is seeking a court declaration that his attempted reclamation of the copyright in the songs currently owned by Sony will not breach a publishing agreement.
The complaint follows an English decision in the High Court to deny Duran Duran the right to reclaim their copyright under the same 1976 Copyright Act in December 2016. The group attempted to claw-back US copyright in a number of tracks, having granted a UK publisher (which was ultimately controlled by Sony) the US copyright in a number of hit albums recorded by the band.
Ultimately, Duran Duran became a Band on the Run after the application of English contract law prevailed in the High Court, and their claw-back failed. Representatives for Sony allegedly informed McCartney that the Duran Duran case would influence Sony’s position, and it is anticipated that the Duran Duran case will be used to challenge McCartney’s claw-back attempt.
It is, however, likely that McCartney will obtain a favourable declaratory judgment. UK law permits the ownership of copyright for a period of 70 years following the artist’s death, without the same claw-back rights enjoyed by US artists under the 1976 Copyright Act. So although Duran Duran may have to Live and Let Die before their copyright is freed from contract, McCartney can rely on a quirk of US copyright law to reclaim his rights.
The Beatles, as with most emerging artists in early 1960s Britain, lacked adequate legal representation. A hunger for fame can cause talent to sign contracts which they later regret. George Michael and Rita Ora provide more recent examples of artists who entered into regrettable contracts. In the Beatles’ case, it can be assumed that the group didn’t understand or appreciate the long-term ramifications of the deal they were offered.
Recent conflicts between Duran Duran and Paul McCartney with their respective copyright holders have thrown up important considerations for artists and publishers in the US and UK. Artists should ensure that they enlist legal representatives before signing any far-reaching, or potentially controversial, commercial deals. Alternately, publishers will be keen to restrict the jurisdictional scope of their agreements to prevent unforeseen attempts by artists to escape contracts.
Artists should be aware that the contracts they are offered must be reviewed by independent, legally trained professionals who will Say Say Say if a commercially burdensome provision appears, and negotiate a legally sensible alternative. It is only then that artists and their publishers should Come Together and enter into contract.
Author: Colin Bell
CJEU denies ‘definitively excluded’ bidder the right to challenge unfavourable award decision
Wednesday 1st February 2017
Under public procurement law, member states must ensure that economic operators, who have an interest in obtaining a public contract and who are at risk of harm by an alleged infringement, are afforded sufficient time for an effective review of the award decision.
A 10 day standstill period, during which the contract cannot be concluded, follows the decision to award a public contract. Concerned tenderers - those which have not been ‘definitively excluded’ - must be notified of the decision to award, and may challenge the decision during this period.
A tenderer is deemed to have been definitively excluded if it has been notified of the decision to exclude it, and this decision has been found to be lawful by an independent review body, or the review procedure is no longer available.
In a recent case, Bietergemeinschaft Technische Gebäudebetreuung GesmbH und Caverion Österreich GmbH v Universität für Bodenkultur Wien and others (Case C355/15), the tenderer had been excluded from the procurement procedure by a final decision of the contracting authority, which had been confirmed twice on appeal. It was therefore important to decide whether the tenderer had the right to challenge the award decision, as it was not technically a ‘concerned tenderer’, but did still have an interest in obtaining the contract.
The dispute arose after an Austrian university issued a call for tenders using the negotiated procedure. A consortium and another party submitted tenders before the deadline. The consortium later failed to submit an original of a bank guarantee in good time and was definitively excluded from the tendering procedure. The contract was awarded to the other party, which began to perform the services.
The consortium appealed the decision to exclude it from the process. The appeal was dismissed. It also appealed the award decision, claiming that calculations made by the other party were materially incorrect. It was held at appeal that the definitive exclusion of the consortium from the process removed its right to challenge the award decision, as 'the rights of a tenderer whose bid has been properly excluded cannot be infringed by illegalities relating to the procedure'.
The Austrian Administrative Court referred the issue to the Court of Justice of the European Union (CJEU), seeking guidance on whether a tenderer which has been definitively excluded from the procurement process, and in turn which has lost its status as a concerned tenderer, may be refused access to the review procedures of the award decision.
The CJEU held that current legislation provides for effective review of the procurement process. It allows excluded tenderers the chance to challenge the exclusion decision and, so long as that challenge has not been resolved, to challenge the award decision should the exclusion be annulled.
In this instance, the consortium’s appeal against the award decision was heard after the decision was made to definitively exclude it from the procurement process. For this reason, the review procedure was no longer available. The decision to exclude the consortium extinguished its status as a concerned tenderer.
This decision has been criticised for creating uncertainty in the appeal process. Whilst a tenderer has the right to challenge its exclusion from a tender process and a separate right to challenge the award decision, if as in this case, the decision regarding the tenderer’s exclusion is determined first, this extinguishes its right to challenge the award decision.
Author: Victoria Trigwell
Showing Your Hand in Public Procurement: Disclosing Evaluation Methods
Monday 23rd January 2017
At the end of last year, the European Court of Justice (ECJ) provided guidance on the responsibility of contracting authorities to disclose elements of their procurement process when evaluating tenders.
The question the ECJ reviewed was: Is a contracting authority always required to inform potential tenderers of the method of evaluation used when evaluating a public procurement contract? Such a question is of interest to tenderers as it is the method of evaluation of tenders which could be the difference between success and failure in an OJEU procurement.
The ECJ confirmed the position that contracting authorities must disclose the award criteria, sub-criteria and weightings in their contract notice and tender documents. This allows tenderers to ensure that they prepare a competitive tender.
The ECJ concluded contracting authorities were not required to disclose the method of evaluation used to evaluate tenders. That said, the ECJ also noted that the method of evaluation must not have the effect of:
a) changing the award criteria; or
b) altering the weighting of the criteria.
The ECJ reiterated the guiding principles regarding award and evaluation:
1. Award criteria weightings must be specified;
2. The relative weightings cannot be changed throughout the procurement procedure, but must be clearly defined from the beginning of the procedure, thus enabling tenderers to establish objectively the actual importance given to an award criterion relative to another by the contracting authority;
3. Weightings may be expressed by providing a range;
4. Any weighting range must have an appropriate maximum spread;
5. A demonstrable reason must be given if weighting is not possible;
6. If weighting is not possible, criteria are to be arranged in descending order of importance;
7. All tenderers are to be reasonably informed of the criteria and arrangements employed to identify the most economically advantageous tender;
8. Economic operators are to be treated in an equal and non-discriminatory way;
9. The contracting authority must act transparently and equally towards tenderers;
10. From the outset there must be a clear definition of the subject matter of the contract and the criteria governing the award;
11. A contracting authority cannot apply previously undisclosed sub-criteria;
12. A contracting authority must interpret the award criteria in the same way throughout the procedure; and
13. A contracting authority may not apply weighting rules which it has not previously brought to the attention of tenderers.
The ECJ goes some way to avoid imposing an unreasonable burden on, and ensures that a degree of privacy remains in the decision making process of, contracting authorities. Tenderers can also rest assured that a restriction on the use of evaluation methods means contracting authorities cannot unscrupulously use them to subvert their award criteria.
Critics may suggest that the case is a backwards step in the adoption of a completely transparent and fair procurement process; however the sensible use by contracting authorities of award criteria, in line with the guiding principles, will ensure the continued fair and impartial award of public contracts.
Author: Michael Winder
Public Procurement Law – A new exemption to the Regulations?
Thursday 19th January 2017
Does the recent ruling in the case of Remondis GmbH & amp Co KG Region Nord v Region Hannover and others (Case C-51/15) open a third way for contracting authorities to organise the delivery of public services without being subject to the EU public procurement rules?
The case concerned the transfer by the Region of Hannover of waste treatment tasks which were its responsibility, to another public body, which was a special purpose association (SPA) that had been created by local authorities for the purposes of waste management. The referring court asked whether such a transfer constituted a public contract, and if it was, whether it could fall outside the scope of EU public procurement law either by the ‘in-house’ (Teckal) exception or the ‘cooperation’ (Hamburg Waste) exception.
German law allows for public authorities to create SPAs to carry out duties conferred on the relevant authority. When formed, the public authority transfers the rights and powers to perform the duty to the SPA. Such transfer can include an obligation on the public authorities to pay contributions to the SPA where other sources of revenue are not sufficient to cover its financial needs. However, the SPA at the subject of this case was generating substantial revenue, both from the tasks formerly carried out by the conferring public authorities and also, from tasks performed for other third parties. This prompted Remondis to make the initial application for review.
The referring court referred four aspects, which it considered characterised the arrangement:
- The tasks carried out by the SPA were ‘services’ within the meaning of Directive 2004/18;
- The transfer was effected for consideration;
- The SPA carried out other activities beyond those within the remit of the original public authorities; and
- The transfer did not fall within the ‘in-house’ (Teckal) or ‘cooperation’ (Hamburg Waste) exemptions.
The ECJ noted that case law had previously determined that agreements which transfer powers between public authorities and do not provide for remuneration for contractual performance, are deemed to be an internal reorganisation and therefore are not public contracts.
The ECJ found that the arrangement did give rise to a genuine transfer of powers and to the Region of Hannover relinquishing its own responsibilities in relation to the relevant services. Whilst waste services were a ‘service’ within the scope of Directive 2004/18, the arrangement as a whole, concerned the genuine transfer of power to perform a public service task and was not confined just to the performance of a service. The fact that activities beyond the task and duties of the original authorities were being performed was not relevant. Whilst the authorities could be required to contribute financially to the SPA if it could not generate sufficient revenue to meet its financial needs, this was considered to more akin to a subsidiary or a form of guarantee and could not be construed as remuneration for services. The ECJ concluded that the SPA had financial and full autonomy in the performance of the tasks. It therefore found that the conditions for the existence of a public contract were not met.
This case provides for a very different kind of solution to that which has previously been explored by public authorities using the ‘in-house’ and ‘cooperation’ exemptions. If you would like to explore the options that may be available to you, or to discuss public procurement law in general, please do not hesitate to contact Victoria Trigwell on 0151 600 3429 or email firstname.lastname@example.org.
Author: Victoria Trigwell
The 12 Days of Procurement
Tuesday 13th December 2016
First, the partridge in a pear tree. In a further attempt to simplify the selection process and to assist small and medium enterprises, the UK government introduced the mandatory Supplier Questionnaire (SQ), which standardises prequalification questions and aims to reduce the administrative burden on SMEs when tendering for public contracts. Mmmm. No partridges nor pear trees. I told you it was strained. We’ll just move on to number two, shall we?
Cases such as Woods v Milton Keynes and Energy Solutions EU Limited v The Nuclear Decommissioning Authority demonstrate that the courts are willing to look into how a contracting authority has evaluated tenders to see if there have been breaches of the equality and transparency duties but also to see if there are manifest errors in the scoring of tenders.
Changes introduced by settlement agreements designed to address issues with a contractual relationship can breach the limitations of substantial modifications to contracts under the Public Contracts Regulations 2015 (i.e. the old Pressetext rules) and lead to a challenge in the courts.
Despite point 3, the Supreme Court has endorsed contracting authorities’ rights to include the ability to expand the contractual duties of a supplier so long as the ability is clear from the start, and is not used to circumvent the regulations (Edenred v HM Treasury).
We learned that mitigation strategies may allow more flexibility for contracting authorities to swap procurement routes in certain limited circumstances.
The Nuclear Decommissioning Authority (NDA) led the way in showing exactly what not to do in the evaluation of tenders; examples of such bad practise included not providing evaluators with sufficient time or knowledge to properly evaluate bids, encouraging evaluators to apply scoring criteria unevenly and discouraging and shredding contemporaneous notes, decisions or scores made during the evaluation.
The query ‘does Part 4 of the Regulations actually have any teeth?’ was partially answered when the case of Judetul Neant confirmed that ERDF funding can be clawed back or withheld if the contracting authority fails to comply with domestic public procurement law.
The UK courts showed that the declaration of ineffectiveness remedy also has teeth in the UK when it was deployed for the first time in the mainland UK in the case of Lightway (Contractors) Limited v Inverclyde Council.
The case of Faraday v West Berkshire Council clarified once and for all that if carefully drafted, development agreements can sit outside of the ambit of public procurement law.
The Crown Commercial Service reminded everyone that the Regulations allow and encourage contracting authorities to consider environmental, social and ethical considerations, a far cry from the dark days of 2006 when it was unclear whether such matters could be considered.
Because it’s so bad it merits a second mention, further examples of bad practise by the Nuclear Decommissioning Authority include (1) not permitting notes to be made during dialogue meetings, so months later solutions that were encouraged during dialogue were then marked down during evaluation, and (2) most importantly of all, breaching its own tendering rules and allowing a bidder to carry on (and win) the process even though that bidder had failed to meet one of the NDA’s mandatory pass/fail criteria.
- And for all of the political upset the referendum on the 23rd June caused, it has been widely considered that due to both domestic and international reasons, Brexit (in whatever form it happens) will be very unlikely to have any material effect on the application or the content of UK public procurement law for the foreseeable future, albeit we note that one prominent QC is arguing passionately to use the opportunity to improve access to remedies for bidders. Therefore, while public procurement appears to be low on the government’s priority list and is under no immediate pressure to change in a post-Brexit world, watch this space…
Author: Michael Winder
Last orders for illegal broadcasting by pubs?
Wednesday 9th November 2016
If you were to take a walk through town, you would be guaranteed to find a pub which broadcasts subscription sports services. But at a time when a commercial subscription to Sky averages £1,500 per month, it comes as little surprise that some pubs are cutting corners when it comes to their sports coverage.
Simon Hopkins and Leon Passlow - already serving prison terms for conspiracy to defraud in accordance with s.12 Criminal Justice Act 1987 - have been ordered to pay back the £992,947.60 they earned whilst undertaking a 2015 subscription scam. The pair were found guilty of fraudulently obtaining Sky and other subscription cards and selling them to commercial establishments at a cut price, making them hundreds of thousands of pounds in the process. Failure to make payment within three months will trigger an additional seven year prison term. Read the Surrey Police article here.
The FA and Sky have historically pursued pubs which fraudulently broadcast Premier League football with unrelenting vigour. The outcome of this case comes as no surprise at a time when copyright infringement is easier than ever for those who wish to dishonestly access subscription content. Detective Sergeant Chris Rambour of the Surrey Police Economic Crime Unit claimed: ‘Seeking a confiscation order following a conviction is a lengthy, complex process’, but recent moves towards stronger protection of Sky and BT copyright suggests that this may not be the last confiscation order to be handed down to criminals who profit from their dishonesty.
One such move to protect Sky and BT came earlier this year, with a minor but significant change to copyright law. Previously, s.72 of the Copyright Design and Patents Act 1988 (CDPA) permitted businesses such as pubs, which don’t charge an entry fee, to show ‘broadcasts and any film contained in the broadcast’ without the permission of the copyright owner. Certain permission was still necessary for original artistic works within the broadcast or film, but holders of unauthorised subscription cards could darken the on-screen branding during a sports event and silence the sound of the broadcast, in an attempt to rely on the s.72 CDPA copyright ‘loophole’.
Inclusion of, and confusion over the word ‘film’ in s.72 CDPA made successful civil and criminal proceedings against unauthorised copyright users much more challenging. The recent change to the CDPA, in removing the word ‘film’, has made it easier for those public establishments which infringe copyright to be held to account, and signals a concerted effort by government to crack down on illegal broadcasters.
This recent case, alongside changes to the substantive law, serves as evidence that the infringement of copyright in relation to illegal broadcasting is of great interest to both private broadcasters and public bodies. It demonstrates that a zero-tolerance approach will be employed against any establishment which attempts to breach or avoid intellectual property law when broadcasting sporting events. Pubs or other businesses wishing to broadcast premier league football can no longer take the risks associated with illegal broadcasting, and must now obtain subscriptions through the proper channels to avoid both civil and criminal liability.
Author: Adrian Horne
EU confusion over trade mark injunction
Tuesday 1st November 2016
The Court of Justice of the European Union (CJEU) handed down an awkward interpretation of EU-wide injunction rules recently as the case of combit Software GmbH v Commit Business Solutions Ltd made its way through the German courts.
Combit Software GmbH (combit), owner of the ‘combit’ mark, applied for an injunction against the use of ‘Commit’ within the European Union (EU) by Commit Business Solutions Ltd (Commit), alternatively in Germany exclusively. Although the application for the EU injunction was dismissed, the German injunction was upheld.
It was found that the terms ‘combit’ and ‘commit’ are distinguishable to English speakers because of the technological connotations of the terms ‘com’ and ‘bit’, in contrast to the unrelated, widely used verb ‘commit’. On the other hand, Germans would find the marks confusingly similar because they would not appreciate the English conceptual meanings and would therefore consider only the aural and visual similarity between the two terms. For this reason, the grounds of the injunction would not be apparent in certain EU Member States where the confusion would not exist.
During an appeal against the award of the partial injunction, combit argued that the grant of an injunction relating to a trade mark should cover the entirety of the EU, even if the likelihood of confusion arose in only one Member State. This point was referred to the CJEU, which held that although EU trademarks are infringed if confusion exists in any individual Member State, exemptions to the injunction can arise for those Member States in which confusion could be ruled out.
The judgment, which can be read here, states that in a scenario where an EU trade mark does not, “in a given part of the European Union, create any likelihood of confusion, in particular for linguistic reasons, […] that court must limit the territorial scope of the aforementioned prohibition”. The Court also stated that a partial injunction should include an exact specification of the territory to which it applies, i.e. not ‘French speaking’ or ‘English speaking’ countries only, as parameters for defining one of the aforementioned countries are too subjective to be enforceable.
The case of combit highlights an important consideration when seeking an injunction which is factually just and legally applicable by the standards of some Member States, but not others. It is important to adequately and sufficiently define the parameters of a partial injunction, if sought, and prepare for a situation in which the territorial scope of the injunction comes under question.
Author: Adrian Horne
Robust and fair evaluation processes in public procurement are important
Friday 21st October 2016
Contracting authorities are required to treat all bidders equally and without discrimination, and must also act in a transparent and proportionate manner. This is of particular importance when evaluating each bidder’s tender submission in line with the published award criteria.
The recent case of Energysolutions EU Limited v the Nuclear Decommissioning Authority highlights the importance of these fundamental principles. In this case, the Nuclear Decommissioning Authority (the “NDA”) was found to have manipulated its evaluation of a long-running procurement process, which led to the NDA awarding the contract to a bidder which should have been disqualified for not satisfying a mandatory requirement set out in the NDA’s own tendering rules.
The NDA did not complete the evaluation process in accordance with the spirit of public procurement law. Instead, it was found to have undertaken the process with the active aim of restricting the amount of information that would be available to any potential challenger to the award decision. By restricting the availability of information, the NDA sought to avoid any grounds for a challenge arising in the first place. Unfortunately, this case can be seen as an example of how not to evaluate a public procurement process.
- Amongst other examples of bad practice, the NDA:
- Discouraged evaluators from making contemporaneous notes of decisions or scores;
- Shredded those notes which were made in relation to the evaluation process;
- Did not provide the evaluators with sufficient time or knowledge to properly evaluate bids;
- Did not permit notes of dialogue meetings, which meant solutions encouraged at dialogue stage were marked down at the evaluation stage as evaluators had forgotten their discussions; and
- Allowed scoring criteria to be applied inconsistently across bidders.
Ultimately, the court found that had the scoring process been completed correctly, even if the successful bidder had not been disqualified at an earlier stage, Energysolutions would have won the tender.
It was decided that in order to uphold its duty of transparency, the NDA should have maintained and encouraged the keeping of contemporaneous records throughout the evaluation process, and certainly should not have shredded them. In contrast to the NDA’s approach, the court noted that an ability to adequately justify its decision making procedure with the aid of properly generated records would have protected the NDA from future litigation initiated by disappointed bidders.
This case reiterates the importance of open and transparent evaluation procedures when engaging in a selection process for awarding a public contract, and ensuring the project and evaluation teams are correctly prepared and have suitable and sufficient time to undertake the evaluation process. Contracting authorities must adhere to their scoring criteria when evaluating bidders, be consistent in the application of such criteria, and must also maintain records of their process.
For any queries regarding the evaluation process, or public procurement in general, please visit our procurement page or contact:
Author: Richard Hough
Oral Variations to Contracts - Be Aware
Friday 5th August 2016
The Court of Appeal has given, not one, but two judgments on the issue of making changes to contracts without having to put them in writing. This is an important clarification to the law that all businesses should be aware of.
The basis of the judgments can be found in the foundations of contract law. To have an effective contract there must be four elements:
1. An offer;
2. Acceptance of the offer;
3. Consideration (the flow from each party of money or something that is worth money); and
4. Intention to create legal intentions.
Another governing principle of contract law is that each party has autonomy to enter into a contract known as the “principle of party autonomy”.
Contracts can be agreed orally, i.e. over the telephone, or by conduct over a period, and they can be in writing. There is no requirement in English law for any contract to be in writing. The main reason to have a contract in writing is to record what the parties have agreed.
In many written contracts, to ensure a level of certainty, the parties to the contract will insert into the contract that the contract may not be varied except by agreement in writing. Often such variations must also be expressly signed by the authorised representatives of each party. This is to ensure that if there is a dispute of a purportedly varied term, the parties can point to the fact the variation needed to be written (and signed) by the parties for it to be effective.
In the recent case of Globe Motors, Inc. and others –v- TR Lucas Varity Electric Student Limited and another, the Court of Appeal said that parties are able to modify the terms of their contract orally or by conduct, even if there is a clause in the contract which requires all variations to be in writing. This is due to the principle of party autonomy. Parties cannot tie their hands to remove from themselves in the future the power to vary the contract informally simply because they can agree to dispense with the original restriction itself.
Whilst the Court of Appeal was simply expressing its view in Globe and not deciding on a point in issue, given it is a higher court its opinion will likely be followed by English courts in the future.
Secondly, in the case of MWB Business Exchange Centres Limited –v- Rock Advertising Limited the argument over oral variations was at the heart of the issue to be decided. The Court of Appeal here agreed with its earlier comments in the Globe case due to the principle of party autonomy. The Court went so far as to note that those who make a contract can unmake it. The Court further said that a clause which forbids change may be changed like any other and therefore a prohibition of an oral waiver may itself be waived.
The upshot of the Globe and the MWB cases means that whilst parties may agree they cannot vary their contract without certain hurdles, the parties are free to change their minds and agree to vary by conduct, by email or just over the telephone.
It is key therefore for businesses to make employees aware of this to ensure that employees do not change a fundamental principle of a contract simply by a loosely worded email or a loosely worded telephone call. There is also still value in including a “variation only in writing and when signed” clause because it heightens the burden of proving that a variation of other means has occurred. It should be noted that when it comes down to it, parties seeking to rely on an oral variation of contract may encounter evidential difficulties in showing that that is what both parties intended and agreed to do, so it is always best to record any agreed variation in writing and have both parties sign it.
We would consider that such clauses will still have places in contracts in the future but businesses should operate in the knowledge that written contracts are not set in stone and can easily be varied. Accordingly employees should be trained to be aware of such risks when talking with suppliers and customers.
Author: Michael Winder