Variation of contract by email valid without expressly referring to exercise of contractual right

Grain Communications Limited v Shepherd Groundworks Limited [2024] EWHC 3067 (TCC)

The question

How will a court determine the formality requirements for a valid contract variation?

The key takeaway

An email variation of a contract was valid, irrespective of whether the parties understood the email to be a variation and in the absence of any specific reference to a “variation” or other contractual wording. So long as the variation complied with all requirements in the applicable variation clause (not to be read strictly or pedantically), it would be valid.

The background

Telecommunications company Grain Communications Limited (Grain) and construction company Shepherd Groundworks Limited (Shepherd) entered into an arrangement for the provision of underground duct construction services by Shepherd. Under a framework agreement, Grain could issue Shepherd with construction work orders, to be carried out in accordance with the terms of the framework agreement. The framework agreement’s variation clause, contained in the work order terms and conditions scheduled thereto, stated:

“11 Variation

11.1 The Employer may, without invalidating this Work Order, issue instructions requiring a Variation. The Contractor shall forthwith comply with all instructions issued to the Contractor under this clause 11.

11.2 Any oral instructions given by the Employer requiring a Variation shall be confirmed in writing by the Employer.

11.3 The Contractor shall not be entitled to payment for any Variation for which the instruction is not given or confirmed in writing.”

“Variation” was defined as: “any addition to, omission from or other change in the Works or the period or order in which they are to be carried out.”

On 7 September 2023, Grain issued Shepherd with a work order, relating to underground duct works in Blyth (the Blyth Work Order). Early on 23 October 2023, the parties discussed the works under the Blyth Work Order commencing on 24 October 2023. However, later on 23 October 2023, a representative of Grain called a representative of Shepherd and informed him that the works would not be starting the next day as agreed. This was followed by an email confirming an intention to continue with the Blyth Work Order but not before the end of 2023 (the Variation Email):

“… As discussed, it remains our current intention to continue with all Work Orders signed between Grain Communications Ltd and Shepherd Groundworks Ltd. However, … it currently does not look like we will be able to commence Works on Site in relation to the [the Blyth Work Order] before the end of 2023 … We will continue to keep in touch with you regarding our programme.”

On 9 February 2024, Grain sent Shepherd a notice of termination regarding the Blyth Work Order. Shepherd issued an application for payment in connection with the Blyth Work Order, and then referred the issue to adjudication. The adjudicator found, in Shepherd’s favour, that the email of 24 October 2023 was not a variation, as defined in the contract but a cancellation of the work order.

Grain brought a claim for declaratory relief that it was not in breach of contract and that Shepherd’s sought-for losses (costs of mobilisation / demobilisation and loss of profit) were excluded in any event.

The decision

The court found that the Variation Email was an effective variation of the Blyth Work Order and not a cancellation in breach of contract. It also found that Shepherd’s losses were expressly excluded by the contract.

The court summarised the law in the area:

• a term can be implied into a contract provided it is not illegal or contrary to an express term of the contract
• a term can be implied if it is reasonable and equitable, is necessary to give business efficacy to the contract, is so obvious it goes without saying, is capable of clear expression and does not contradict any express term of the contract
• the effect of a variation instruction depends on the substance of what is said in the instruction. Variation instructions are not to be read strictly or pedantically
• the variation must be evident from the document said to constitute a variation instruction
• an instruction need not contain the word “postpone” in postponing certain works
• what is required is that any variation instruction complies with the requirements of the contractual clause for variations.

In considering the above, the court found that the Variation Email amounted to a postponement of the Blyth Work Order, as the words “We will continue to keep in touch with you regarding our programme” makes clear it was not a cancellation but instead a postponement.

Clause 11.1 read in conjunction with the definition of “Variation” entitled Grain to postpone the Blyth Work Order. Clause 11 only required that such instructions be given in writing.

The court rejected the adjudicator’s decision that the Variation Email was ineffective because a “reasonable recipient of the email … would not understand that it was being issued as a [variation under the agreement].” The salient point was that the discussions on 23 October 2023 together with the Variation Email satisfied the conditions for a variation, irrespective of how the Variation Email would be interpreted by a reasonable recipient.

• Shepherd unsuccessfully argued there was an implied term prohibiting Grain from postponing work orders. This was rejected because:
• the agreement provided contractual machinery to permit postponement
• the suggested implied term was not so obvious that it “goes without saying”
•  the implied term would contradict the express terms of the contract, and
• the term was not necessary to give business efficacy to the agreement.

In any event, the court found that Shepherd’s losses were excluded, as the framework agreement expressly provided that Grain would not be liable for “costs, loss of profits or any indirect or consequential losses”. Shepherd’s losses (costs of mobilisation/demobilisation and loss of profits) were therefore excluded.

Shepherd’s argument that such a term would be unfair under the Unfair Contract Terms Act 1977 was also rejected. The court found the exclusion of liability was reasonable, particularly because Shepherd did not have to contract with Grain, could decline any work order under the framework agreement, and the agreement made provision for termination payments.

Why is this important?

This case shows the courts relying on the express wording and not taking a very “strict or pedantic” approach to interpreting a broadly worded variation clause (in a construction contract) in circumstances where a postponement of the commencement of the works for an indeterminant period of time, was by an email that did not expressly state it was a variation instruction.

It stresses the importance of understanding what forms of communication are capable of varying a contract, as there is no inherent requirement that a variation should include any specific reference to “variation” or other contractual terminology, or even a requirement that the parties would understand a communication to be an effective variation.

Any practical tips?

Consider expressly prescribing the necessary process and formalities to allow minor variations such as instructions to be in writing and in a particular format such as a letter. The parties may wish the contract to go further and provide that the parties must discuss and negotiate a proposed variation only within the confines of a prescribed process and in a pre-agreed format (eg a change control procedure; and consider including specific timelines so that discussion/ negotiation periods have a clear end point).

If the intention is that variation cannot be effected by email, provide for this expressly in specific terms.

Clarify whether the parties intend certain variations should be permitted, such as to allow postponement of works.

Spring 2025