Although you can agree pretty much anything you like under freedom to contract, there are some restrictions on that freedom:
- legislation: laws can mandate minimum requirements, outlaw certain terms and allow others only within specific parameters
- contract: a contract can restrict the parties’ rights in the future on a specific matter eg restrictive convenants and also variation clauses.
Party Autonomy
The UK Supreme Court confirmed that the party’s freedom to contract (what they called party autonomy) was not unlimited forever:
Lord Sumption in Rock v MWB at [11]
The court said that a contract will – by its very nature – contain processes which determine the parties’ course of action in the future. Construction contracts have a wide variety of such clauses:
- remedies instead of relying on claims for breach of contract such as defects periods, delay damages, termination clauses
- processes to allocate the impact of unforeseen risk events such as extensions of time, rights to additional money, suspension
- restrictions on bringing claims with time limits, specific formats, process requirements, monetary limits
- change mechanisms to vary the contract once the initial plan needs tinkering with… and so on.
All these processes have formal requirements and the court highlighted these legitimate reasons for their inclusion:
- “it prevents attempts to undermine written agreements by informal means, a possibility which is open to abuse“
- “it avoids disputes not just about whether a variation [or other decision] was intended but also about its exact terms“
- “a measure of formality in recording variations makes it easier… to police internal rules restricting the authority to agree them.”
One argument was that a party might act on an oral promise or instruction, and later find (when it reads its contract) that it cannot enforce it as a variation to the contract, because the person instructing it never recorded it in writing. Under English law, that party’s remedy is in equity – estoppel, restitution or unjust enrichment. So it will get paid, just not under the contract!
Sounds like the muddle created by letters of intent… so best to avoid treating equity as your safety net if possible!
What should you do?
Firstly, adopt simple and effective contract processes with solid reasons behind them – don’t just copy & paste them. Check they really work for the parties on this project.
Secondly, read, understand and use any processes in your contracts. Don’t play fast and loose with the contract rules and expect the courts to excuse your behaviour!
Case: Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24
