Drafting contracts: more than a conversation?

Draft Contracts - Sydney Lawyers

The decision of Petropoulos v CPD Holdings Pty Ltd provides an important lesson for businesses entering into a contract to fully record their intentions in writing and abide by them. The case emphasises the NSW Supreme Court’s strict approach towards enforcing written terms over any verbal variations. Very often, circumstantial facts cannot displace the ordinary grammatical meaning of the written agreement, even if the facts are compelling.

Facts

  • Ms Petropoulos engaged a builder to renovate her bathrooms. She requested that her shower screens be as large as possible.
  • The builder provided Ms Petropoulos with estimated dimensions of the shower screen but said that its exact size would ultimately have to be determined once work began.
  • The estimated dimensions were recorded in the written contract along with the requirement that any variation must be in writing.
  • Once the work began, the builder found that the exact size of the shower screen needed to be reduced so that Ms Petropoulos could move around easily. This was verbally agreed by the parties.
  • Ms Petropoulos claimed that the builder failed to comply with the work specifications in the written contract. The builder argued that the verbal agreement was effective.

Issue

Are verbal agreements effective to vary contracts if the agreement required changes in writing?

Judgment

The Court found that the builder failed to comply with the clear procedure for variation of the work specifications (as defined in the contract). The contract stated the builder “must provide [the] owner with a written document with varied works… must sign it and date it to constitute acceptance”. This was considered by the court as an exclusive regime that provided no other method of doing so. Consequently, the usage of the word “must” created a mandatory procedure for variation that the builder failed to follow. Thus, the court ultimately ruled that the verbal agreement was ineffective.

Consequently, failing to comply with the agreed work specifications led to a breach of contract as the shower screen’s actual dimensions did not comply with the recorded work specifications. The court emphasised the importance of paying close attention to how contracts are drafted, as they are deemed to reflect the intention of both parties which, in some cases, may lead to potentially unintended outcomes.

Lessons

Written contracts can be varied verbally subject to what the contract itself says. The two lessons then from this case are:

  1. When varying an agreement, follow the process contained in the agreement; and
  2. When drafting an agreement, make sure that the process that is recorded is suitable for the type of contract being served.