Commercial: Varying a contract

Under the law of contract it is clear that a contract can only be varied by a further contract. In essence a contract cannot be varied unilaterally.

In GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 Finn J sets out principles that he says are relevant to variations of contracts which warrant repetition in this case [226]:

(1) Parties to an existing agreement may vary or extinguish some of its terms by a subsequent agreement: Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; [(1957) 98 CLR 93]. In so doing the parties will have made “two contracts”: Commissioner of Taxation v Sara Lee Household & Body Care [2000] HCA 35; (2000) 201 CLR 520 at 533; with the latter, no less than the former being subject to the ordinary rules governing contract formation: for example, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 286; Tekmat Pty Ltd v Dosto Pty Ltd (1990) 102 FLR 240 at 248.

(2) Conduct engaged in for the purposes of ongoing commercial arrangements is not always readily susceptible to the traditional forms of analysis employed by common lawyers for the purposes of determining whether a contract has been formed: Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117. This can be particularly the case when dealings are analysed on an offer and acceptance basis. So in Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 81, Ormiston J was prepared to accept:

“… that agreement and thus a contract can be extracted from circumstances where no acceptance of an offer can be established or inferred and where the most that can be said is that a manifestation of mutual assent must be implied from the circumstances.”

Likewise in Integrated Computer Services Pty Ltd at 11,118 McHugh JA observed that:

“… in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.”

(3) In determining whether the communications between the parties constitute a contract the court is not confined to a consideration of the terms or manner in which the communications were made: they must be interpreted by reference to the subject matter and the surrounding circumstances including, inter alia, the nature of, and the relationship between, the parties, and previous communications between them, as well as to standards of reasonable conduct in the known circumstances: Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 at 9255. See also Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550.

(4) Post-contractual conduct is admissible on the question whether a contract was formed though it is not admissible on the question of what that contract, if formed, means: Brambles Holdings Ltd v Bathurst City Council [(2001) 53 NSWLR 153] at 163 – 164; Lord Steyn, “The Intractable Problem of The Interpretation of Legal Texts”, p 9 ff, The John Lehane Memorial Lecture (2002).

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