The general position in contract law is that a party cannot unilaterally vary the terms of a contract. The position reflects the principle that a unilateral material change of terms may equate to a repudiatory breach of contract. A repudiatory breach is one that is so fundamental to the contract that the aggrieved party may terminate it and sue for damages.
However, the position is not so straight forward where a party is allowed to amend a contract unilaterally by virtue of a term in that contract.
Terms Enabling Unilateral Variation
Terms enabling unilateral variation are allowed in contracts and are not hard to find – often they are commonplace and make commercial sense. Two widely used examples are those granting sellers the power to change the price of their goods and those granting lenders the right to vary the rate of interest charged. As the law stands, it is difficult to find a legal avenue to challenge these types of provisions.
Protection for Business Contracts
Businesses, unlike consumers, are not given specific statutory protection against the abuse of terms which enable unilateral variations. Some protection may be afforded by virtue of Section 3 of the Unfair Contract Terms Act 1977; however, this only applies to contracts made on the standard terms of one of the parties. In that case a party cannot be expected to perform the contract in a substantially different manner than is reasonably expected. The test applicable to such terms is whether or not the term is reasonable.
In circumstances where a business-to-business contract has involved some level of negotiation, the courts have stated the right to vary a contractual term is not absolute. In the Case of Nash and Staunton v Paragon Finance Plc the Court of Appeal implied a term into the contract that the party with the power to unilaterally vary it must act honestly. If dishonesty could be proved this would be the best way to challenge the term.
Contracts Must Have Certainty
Business wishing to escape the consequences of unilateral variation clauses could challenge the validity of the contract per se. It may be possible to argue that the term giving the power is so broad that the contract lacks certainty and is, therefore, no longer valid. However, arguing that a contract is void for uncertainty is only likely to be successful if it contains a particularly poorly drafted clause.
Conclusion
It is very difficult for businesses to escape being bound by terms allowing the other party to unilaterally vary a contract. The only concrete solution is to avoid such terms altogether or, if this is not possible, to draft such terms tightly so that they do not allow abuse by the varying party.
Rollingsons has experienced lawyers who can assist you with the drafting and negotiation of contracts. For more information please contact James Crichton via e-mail jcrichton@rollingsons.co.uk or by telephone on 0207 611 4848.
