As the contract entered into between Townsville and CML is a simple contract, various modes might be undertaken for the purpose of undertaking variation. In general, a simple contract is a contract in writing but which is not through a registered deed. It is, however, preferable that variations in the contract should be in writing even if not through a deed. Just like the contract was entered into in the format of a simple contract, variations in the contract should also be incorporated by reducing the terms in writing and getting it signed by both the parties.

Even though not preferable, in the case of a simple contract such as between CML and Townsville variations can be agreed upon by word of mouth agreements between the parties. Even though oral agreements are valid form of contract under the common law system of contract, still validity of written agreements is always greater than oral agreements. Another important factor to be taken into consideration is that variation to a contract can be done in a valid way only by following any stipulations made to the effect in the original agreement. A word of mouth variation would not be effective in case of a stipulation in the original contract that the variation should be in the form of writing or under deed.

The effects of the variation proposed by Townsville have to be considered vis-a-vis the original agreement to decide whether or not the variation of consideration component compliant with the rules of Contract Law or not. The initial consideration agreed upon in between the parties was @ $400 per tonne and the amount of bauxite that was to be supplied to Townsville was 5,000 tonnes per month. Further, Townsville also sought a concession of making payment after three months of delivery. So in effect, payment was to be done for each shipment after three months.

However, it has to be borne in mind that the contract was entered into during volatile market conditions and the contract was entered into for a period of 24 months at a fixed price. However, after eight months of the contract, owing to a decline in the free/spot market price of bauxite, which came down by 25 % and Townsville sought a change in the price of the bauxite and terms of concession as well.

The consideration for the original contract was $ 400 per tonne and supply of 5,000 tonnes of bauxite per month. The effect of the variation sought by Townsville has changed the consideration component completely as the new consideration element refers to for the amount payable for 5000 tonnes of bauxite, supply of 7500 tonnes of bauxite is being sought per month.

For a valid variation to a simple contract, alteration should be such as to ensure that the original contract does not lose its meaning and it is still in subsistence even after the variation takes place. However, if the variation is such as to render the terms of the original contract to be redundant, then such a variation would no longer qualify as a valid variation as per the provisions of the contract rules.

In the instant case, Townsville sought to offer a reduced price, sought supply of more amount of bauxite per month and sought an enhanced concessional period of six months for payment of each shipment.

The most important factor is that apart from altering the existing terms of the original contract Townsville sought to introduce an altogether new condition in the contract thereby changing the entire original contract in its basic essence which is not permitted in the disguise of variation of the terms of contract under the rules of Contract Law.

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