For as long as you are under a contract then Vodafone can do whatever they like.
It doesn't matter if you're 11 months into a 12 month contract, 17 months into an 18 month contract - at the end of the day you are under a contract and you have to pay it.
Being "allowed" to upgrade before the end of your contract is again up to Vodafone and if they say no then what exactly are you going to do?
If you're 9 months into a 12 month contract then you've still got to stay with them for another 3.
In July this year she will be out of contract and at this point she has numerous options.
Firstly, by default she'll move onto a "month by month" payment automatically, so she'll be still paying a monthly fee but can cancel at any time.
She can upgrade with Vodafone - give them a call, see what phone she's interested in and they will do her a deal.
However that will put her under a new 12-18 month contract to Vodafone.
Alternatively she can request her code and take her number to another network and get a phone from them.
However once again she'll be under a 12-18 month contract, so she can get a new phone in July but that will be it until the end of her next contract.
If she chooses to move to another carrier she will be offered a deal with Vodafone to stay - telco's prefer not to lose customers.
However in this day and age the deals are only offered up to a certain point and depending on just how much she is worth to the carrier.
The talk you see of people saying how they only spend £15 per month yet get brand new phones for free and reductions so they are paying nothing per month are either O2 customers from the past few months (when O2 were attempting to increase their customer count ready for their take over), BS (people love to "embelish" online, or because they are spending a lot more than £15 per month.
Bottom line - your sister is under contract until July.
There is nothing she can do until that time, so the carrier are simply getting their full contract money out of her before making the initial loss by supplying her with a brand new, subsidised handset.