Problem: ‘No oral variation’ clause in a construction contract problem
I have a contractual issue with a developer that my building company is currently employed by. My company entered into a contract about 12 months ago to construct a small housing estate, comprising 22 detached and semi-detached houses. Although I usually ensure that the contracts we enter into are standard forms of construction contract, on this job, we signed up to a contract that was drafted in-house.
Under the contract, we were entitled to monthly applications, with our application for payment having to be issued to the developer’s in-house QS by the 20th of every month. After the first application, the QS verbally told us that he wanted our applications changed to the last day of every month, which would enable the whole months’ work to be valued and he could then use the valuation for his own internal cost reporting. We duly obliged, and all of our applications were subsequently certified, processed and paid by the developer, bar the last one, that being January 2018.
At the start of January 2018, the developer installed a new in-house QS, and when we issued our application at the end of January, the QS stated that because we were late, our January payment would not be processed and we would have to wait until February for the next payment cycle. When I stated that his predecessor had changed the application dates, and also all of our applications that were made after 20th of the month had been paid, he just referred to a clause in the contract which stated that any amendment to the terms of the contract is not binding unless authorised in writing.
Where do we stand in terms of ‘no oral variation’ clause law?
Response: ‘No oral variations’ clause advice
‘No oral variations’ clauses are very common in construction agreements. However, it will be the facts of the matter that will determine whether or not such a clause will have any bite, and from your outline, I doubt that the developer’s argument would hold up.
Ignoring the ‘no oral variations’ clause, I first turn to the agreement to vary the application dates from the 20th of the month to the end of the month. The first QS, who was an employee of the developer and responsible for your payments, would have ostensible authority to vary the application dates, and you would have acted on this, proof of which is contained by reference to the dates that you submitted your applications on.
Additionally, it is the parties’ course of conduct that led you to believe that your applications would be accepted even if the applications were made late which you would assert gave rise to an estoppel that prevents the developer from refusing to pay.
The above is all very well if the construction contract does not have a ‘no oral variations’ clause, but your contract does. A Court of Appeal case in 2016 addressed this very matter, where the Court held that agreements containing ‘no oral variations’ clauses can be amended by oral agreement or by conduct: Thus you have the initial verbal agreement between the first QS (providing he had ostensible authority to vary the application dates), and the subsequent conduct insofar that your applications that were after the 20th of the month were all certified and paid by the developer.
I hope the above is of some assistance, although no doubt your future applications will now revert to the 20th of the month!
© Michael Gerard 2018
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.