Variations to multi-party agreements: Unanimity is not always necessary

What you need to know

• Not all parties to a multi-party agreement must be party to every variation to that agreement. Subject to limitations, a sub-set of the parties may vary their rights and obligations under a multi-party agreement as between themselves.
• A key limitation is that a purported variation cannot affect the contractual rights or obligations of a party to the multi-party agreement if that person is not a party to the variation agreement.

What you need to do

• When negotiating variations to multi-party agreements, it is important to carefully consider the appropriate parties to the variation and seek to obtain the agreement of all parties whose rights or obligations would be affected.
• To avoid risk, it remains preferable where feasible to include all original parties to a multi-party agreement as parties to a variation agreement.

Factual Background

In late 2015, receivers and managers were appointed to Mirabela Nickel Ltd and Mirabela Investments Pty Ltd (together, the Sellers). The principal assets of the Sellers were "quotas" (equivalent to shares) in a Brazilian company, Mirabela Mineração do Brasil Ltda (Brazil Co), and loans owed by Brazil Co to the first Seller.

The case concerned an asset sale agreement (Sale Agreement) executed in November 2017 between, the Sellers, the receivers, Mining Standards International Pty Ltd (the Buyer), and Brazil Co. Under the Sale Agreement, the Buyer was to purchase the quotas in, and loans owed by, Brazil Co for US$50 million.

The Sale Agreement included a finance condition precedent requiring the Buyer to, among other things, execute binding finance agreements for the purchase price amount. Of central importance, cl 2.5(a) of the Sale Agreement provided that:

A party is entitled to terminate this agreement by notice to the other parties if … the Condition Precedent … is not satisfied by the date which is 14 days after the date of the exchange of signed copies of this agreement.

A putative variation of this clause arose after the Sellers and the Buyer initially disagreed as to when the period for satisfaction of the finance condition precedent concluded:

• The Sellers contended the date was 15 November 2017, being 14 days after the Sellers and the Buyer executed and exchanged the Sale Agreement;
• The Buyer contended the date was 24 November 2017, being 14 days after Brazil Co had also executed and exchanged the Sale Agreement.

On 15 November 2017, the Sellers issued a notice to the Buyer asserting that the condition had not been satisfied within the 14-day period. In a subsequent exchange of emails and text messages on 17 and 18 November 2017, the receivers (for the Sellers) and the Buyer's representative discussed varying the time for satisfaction of the finance condition precedent. These exchanges concluded with the Buyer's representative confirming by email that it accepted "close of business Wednesday [22 November 2017] as the deadline for the condition precedent to confirm binding finance documentation".

The Buyer did not satisfy the finance condition precedent by that time. Later on the evening of 22 November 2017, the Sellers issued a notice purporting to terminate the Sale Agreement. The Buyer subsequently disputed the validity of the alleged termination and the Sellers then sought a declaration that the Sale Agreement had been terminated validly.

Primary judgment

At first instance, Hill J dismissed the Sellers' claim for declaratory relief and other non-contractual claims, including a claim based on estoppel by convention.

Her Honour upheld the Buyer's argument that under the Sale Agreement, as originally agreed, 24 November 2017 was the date for satisfaction of the finance condition precedent. While accepting that the Sellers and Buyer had agreed to vary the Sale Agreement by their correspondence, her Honour noted that Brazil Co's consent had not been obtained to vary the Sale Agreement:

There is no pleading nor evidence before the court that [Brazil Co] agreed to vary the Agreement. There is nothing in the terms of the Agreement that would support a contention that [Brazil Co's] consent was not required to such a variation. Where the consent of only the Sellers and the Buyer is required, this is specifically set out in the Agreement. Any agreement to vary the time to satisfy the Finance Condition is not one of these matters.

As summarised by the Court of Appeal, the primary judge considered that "the relevant rule of law" was that "in a case where there are numerous parties to a contract, all must agree to a proposed variation if the variation is to be legally effective". On that basis, there was no legally effective variation agreement as Brazil Co was not a party to the "putative further agreement".

Decision of the Court of Appeal

The Sellers appealed the decision, with the Buyer also challenging certain findings made against it. While rejecting most of the parties' respective appeal grounds, the Court of Appeal allowed the Sellers' appeal on the ground that the primary judge erred in holding that Brazil Co's consent was required for a legally effective variation of cl 2.5 of the Sale Agreement.

Relevant principles

On the variation of multipartite agreements, the Court reviewed the limited authorities addressing the question and then set out several relevant principles:

1. With some limitations, a sub-set of the parties to a multi-party agreement are able, by further agreement, to alter their contractual rights and obligations as between themselves.
2. It is always open to a sub-set of the parties to agree a variation of their rights and obligations as between themselves if they can do so without affecting the other parties' rights or obligations. This position was consistent with "the general principles applying to the variation of contracts as well as the basic notion of freedom of contract".
3. On the other hand, a purported variation cannot affect the contractual rights or obligations of a party to the multi-party agreement if that person is not a party to the further agreement.
4. The Court did not attempt to exhaustively define other limitations on variations by a sub-set of the parties, but noted that it may also be that the "structure and operation of a transaction" results in a requirement that each party to the original agreement must agree to a modification to the agreement.

Application of the principles

Applying these principles, the Court held that the further agreement between the Sellers and Buyer was legally effective notwithstanding that it was not agreed or consented to by Brazil Co:

1. Although the ordinary and natural meaning of the term "a party" in cl 2.5 encompassed Brazil Co, properly construed, that clause conferred a right to terminate only upon the Sellers and the Buyer. This emerged from a detailed review of the text, context and purpose of the Sale Agreement, including Brazil Co's lesser role as essentially the "object of the transaction" under the Sale Agreement.
2. In those circumstances, it was open to the Sellers and Buyer to agree to vary their rights as between themselves and without Brazil Co's agreement or consent. This included their agreement to vary their termination rights by modifying the date for satisfaction of the finance condition precedent.
3. The variation agreed between the Sellers and Buyer did not affect Brazil Co's rights or obligations in relation to the Sale Agreement (which were primarily to use reasonable endeavours and provide reasonable assistance to satisfy the conditions precedent). In particular, the termination rights under cl 2.5(a) were rights as between the Sellers and Buyer only and did not accrue to Brazil Co.
4. Even if Brazil Co had a right to terminate under cl 2.5(a) of the Sale Agreement, the variation actually agreed by the Sellers and Buyer in this case would still have been effective. The variation agreement was only potentially advantageous to Brazil Co by limiting the period for which it was required to take or refrain from taking certain steps (such as under a "no talk - no shop" type obligation).

As a consequence, the right to terminate under cl 2.5(a) of the Sale Agreement, as varied, crystallised at COB on 22 November 2017 and the Sellers' termination notice was valid.

Future developments

As the Court declined to exhaustively address the point, it remains to be seen what, if any, other limitations may exist upon a sub-set of parties varying a multi-party agreement as between themselves.

Notably, the Buyer placed no reliance on a clause in the Sale Agreement which provided that "this agreement may only be varied by a document signed by or on behalf of each party". The Court of Appeal also noted the primary judge's unchallenged conclusion, reflecting a body of existing case law, that "no oral modification" clauses do not necessarily preclude later oral or implied agreements being enforceable. Therefore, such clauses are unlikely to provide fruitful grounds for parties seeking to challenge variations to multi-party agreements.

It also remains to be seen whether parties in the position of Brazil Co will have more success in disputing the legal efficacy of variations. Brazil Co itself was not a party to the proceedings and, seemingly, did not complain about the variation. Somewhat unusually, it was the Buyer that was seeking to rely upon the absence of Brazil Co's consent (and running arguments about potential impacts on Brazil Co's rights and obligations) to argue that its concluded bargain with the Sellers was not legally effective.

The case is Mirabela Nickel Ltd (in liq) (recs & mgrs apptd) v Mining Standards International Pty Ltd [2025] WASCA 82.