MODIFYING CONTRACTS ORALLY: RISKS AND PRACTICAL ADVICE
English law can allow for the creation or modification of contracts by conduct and without any documentation or formality. While that flexibility can enable parties to react quickly to changing markets or circumstances, it can also entail uncertainty and risk.
In a fast-paced commercial world – particularly against a backdrop of political and economic uncertainty – parties are often eager to get on with doing business together before legal documentation is put in place. That can include parties adapting their business practices and commercial arrangements amid changing market forces, even where prior, underlying contracts may exist. However, there are some risks associated with proceeding in this way.
Risks and risk management
Key risks are that, without a concluded contract (whether that be an entirely new contract or a variation to an existing arrangement), parties can lack certainty or common understanding as to the terms which govern their business relationship. Significant problems can also arise when a party seeks to enforce what it believes to be binding contractual terms.
An awareness of the likely practical scenarios in which informal commercial discussions may arise for a particular business, along with a working understanding of the basics of commercial contract law, is crucial for managing those risks. The aim should be to get the balance right between being able to quickly obtain sufficient comfort to enable parties to proceed with their plans and becoming legally bound when that is actually required.
Jan-Mar 2020 issue
Walker Morris LLP