Water Cooler

How do you vary your agreements?

Variations are a pretty common task for in-house legal teams, and one we at Juno Legal see a lot when we come in to help in-house teams with their resourcing requirements. But there doesn’t seem to be an entirely common practice among in-house teams. Several Juno Lawyers got around the virtual water cooler (Teams) to discuss this very issue.

Straightforward variations may appear to lack consideration. What’s the consideration in updating an incorrect cross reference? Or fixing a mis-defined term? So one lawyer might reach for a deed template, another may use an agreement with a notional $1 consideration, while others still take a risk-based assessment and use a simple agreement. Some may even dip in to case law and academic analysis to apply a “practical benefit”[1] test, establish an estoppel, or opine as to whether New Zealand law even requires consideration for variations any more.[2]

But all those approaches might have issues too:

Deeds can be a real pain: section 9 of the Property Law Act requires deeds to be signed by someone (often two someones!) sitting at the very top of the financial delegation tree – typically directors or, for the public sector, a chief executive. The formalities required for a deed often seem wholly disproportionate to the subject matter at hand. A team manager may be able to sign a 5-figure professional services contract within their financial delegation, but having to escalate to the board to vary the term of that contract or correct an incorrect cross reference seems ridiculous.

$1 notional consideration is a fiction that is a triumph of form over substance. And with Bathurst[3] widening the scope of admissible evidence in contract disputes, does that mean you actually have to ask for the dollar to be handed over?

As for the actual common law position, let’s be honest: what in-house lawyer has time for that before knocking out a simple variation and moving on to the next urgent thing in their inbox?

At Juno Legal, we work with lots of in-house teams, and we see many teams grappling with similar sorts of issues of legal practice or administration. And often these are the type of issue that don’t give a team or organisation any kind of competitive advantage. And so we are really keen to broker a discussion as to what “best practice” for in-house legal teams looks like. How do we – as in-house lawyers – form a consensus (or perhaps even just find safety in numbers) for this type of issue?

Several Juno Lawyers got around the virtual water cooler (Teams) to discuss this very issue. Our preliminary consensus was the risk-based approach was best. For a simple variation, the chances of a counterparty seeking to void a variation and return to the primary agreement’s position are slim, and the chances of winning that type of wholly unsympathetic position are even slimmer. So a simple agreement will be fine in the vast majority of cases, and the additional certainty of a deed or notional $1 consideration simply isn’t justified in the circumstances. A higher risk variation might warrant a deed, but that is the exception rather than the norm.

But we would love to hear how your legal team handles variations: deed, notional consideration, simple agreement, or something else? Please let us know by in this survey. We will share the anonymised results in a future Juno Counsel so we can all benefit from a common understanding.

And if there are any other similar sorts of issues that could similarly benefit from an in-house consensus, please let us know.
 


[1] Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (CA).

[2] Antons Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA), Teat v Willcocks [2013] NZCA 162, [2014] 3 NZLR 129. See further Marcus Roberts “The Formation of Variation Contracts in New Zealand: Consideration and Estoppel” [2016] VUWLawRw 18, available on NZLII.

[3] Bathurst Resource Ltd v L&M Coal Holdings Ltd  [2021] NZSC 85, see Juno Legal’s article here.