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Is this the promised end? Implied variation of a contract which has been expressly varied

Jason Rix

The Court of Appeal has held that an express variation of some terms in a contract did not create an implied variation of another term in the same the contract (Ilkerler v Perkins).

Perkins had entered into a distributorship agreement with Ilkerler, a Turkish company. Perkins gave notice to terminate the agreement and Ilkerler sued for wrongful termination.

There was an express right to terminate on six months’ notice once the agreement had run for three years. The agreement had been in force for over 10 years. A year before giving notice, Perkins had asked another company to join Ilkerler as distributor. A detailed business plan was drawn up which was to run for five years to 2015. However, Perkins gave notice to terminate before 2015. Relying on Globe Motors v TRW, Ilkerler argued that the express agreement to add the distributor together with the drawing up of the business plan further varied the contract so that termination could not take place until after 2015.

There was no exact authority on when an express variation to a contract might lead to further implied variations to the contract. It was dealt with in the same way as any claim for an implied term. The court referred to two shipping cases: The Aramis [1989] 1 Lloyds Rep and The Gudermes [1993] 1 Lloyds Rep. In a short paragraph, which is not easy to follow, the court seems to suggest a two-fold approach. First, the court said that you need to ask yourself whether the express variation is inconsistent with the contract in the absence the proposed implied variation. In other words, whether the addition of the new party together with the business plan would be inconsistent with the contract allowing Perkins to give notice to terminate before 2015.  Then, if there is an inconsistency, you need to ask yourself the question the other way round, namely, whether the express variation is consistent only with the proposed implied variation. In other words, is the only way to resolve the inconsistency to say that Parkins cannot give notice to terminate before 2015.

On the facts the agreement had always contemplated termination on six months’ notice and there had been no discussion about the termination provisions. Adding the new party, together with the business plan, was not inconsistent with the ability to give notice to terminate; nor did it require that notice to terminate only be exercised after 2015. Proposing 2015 as a specific end date was too great a variation to be implied and was not a necessary reading of the contract.

Once again this shows how very difficult arguments on implied terms can be to win. You might have thought that where there has been an express variation, it is plausible that further implied variations may follow, especially here, where the court had sympathy for the time and energy that had been invested. However, the implied variation must be both consistent with and required by the express variation.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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