One of the recurring themes of commercial law is the potential conflict between ensuring that the law is logical and consistent, and satisfying the practical requirements of business people.
The conventional wisdom is that common law jurisdictions prize practicality more than civil law jurisdictions. Whilst a common lawyer will say: ‘That’s all very well in theory, but how does it work in practice?’, a civil lawyer is more likely to say: ‘That’s all very well in practice, but how does it work in theory?’
But even common law systems need principles and rules which are logical and consistent; and this is particularly important for the law of contract because it underpins all commercial law.
For years, there has been doubt about whether it is possible for the parties to a contract to agree that it can only be amended in a particular way. Can a contract provide that it can only be varied by a written agreement which has been signed by the parties? A clause of this kind can provide welcome certainty. It can avoid the necessity to trawl through vast amounts of material in order to establish whether the parties really did intend to amend their contract. Order can be created out of chaos.
The problem with this approach is that an element of chaos is inherent in the way English law deals with contracts. The guiding principle of the common law of contract is that whether a contract exists—and whether it has been amended—depends on the common intention of the parties. There are very few formalities. What is important is what the parties have actually agreed. That may be messy, but life is messy.
People change their minds.
They may initially have agreed to formalise the way in which the contract can be amended but, if they subsequently intend to vary the terms of the contract, they must necessarily have intended to override the formal requirement.
Until recently, few cases had considered this issue. Then, a couple of years ago, two cases came along at once, and two differently constituted Courts of Appeal decided that these variation clauses were ineffective because the parties are always free to change their minds. That seemed to have resolved the question. But, then, one of the cases went on appeal to the Supreme Court and it took the contrary view. The Supreme Court decided that these variation clauses are effective. The parties are free to write what they want in their contracts. If they agree that variations can only be made in a particular way, then that is the only way in which they can be made.
There is something quite reassuring about this approach. The courts are giving effect to what the parties have agreed. The problem is that it looks to what they agreed at the time the contract was entered into, and not what they have subsequently come to agree. If a court is to establish the common intention of the parties, logically it must do so at the time the question arises.
The Supreme Court dismissed this concern as ‘entirely conceptual’. But, if we ignore the conceptual basis of legal reasoning, we end up with palm tree justice. It is always dangerous to override fundamental legal principles in the interests of convenience.
First published in RE: issue 14 (2018)
Richard Calnan is a partner with Norton Rose Fulbright in the UK, Visiting Professor at UCL and an author with Oxford University Press. He writes on jurisprudence from an English law perspective.