Corporate Focus - November 2009
No waiver-ing: terminate or affirm
Many commercial contracts contain “no waiver”
clauses as standard; it is usually part of the boilerplate clauses.
The aim of a “no waiver” clause is to preserve an innocent party’s
rights and remedies where it fails to take action (intentionally or
otherwise) against a party in breach. For example, if a party
breaches the contract and the other party has a right to terminate
that contract because of the breach, the “no waiver” clause purpose
is to ensure that the innocent party’s position will not be
prejudiced if it delays in taking action.
The efficacy of the “no waiver” clauses has
recently been called into question, following the Court of Appeal
decision in Tele2 International Card Company SA and others
v Post Office Limited [2009] EWCA Civ 9.
Facts
The agreement in this case, concerned the
supply of pre-paid telephone cards to the Post Office (“The Post
Office”) by several companies belonging to Tele2
International Card Company (“Tele2”) forming the “Tele2 Group
Companies”, for sale.
During negotiations, the Post Office had
expressed concerns over the financial viability of some of Tele 2
Group companies. A clause was therefore drafted which obliged the
Tele2 Group companies to deliver a letter of guarantee from the
parent company by the 24 December 2003. However, the letter was not
forthcoming.
The Post Office carried on dealing under the
agreement, until December 2004, when they served Tele2 with a
notice they intended to terminate the agreement in April 2005
explaining that the right to terminate had arisen due to their
failure to provide the letter of guarantee in December 2003.
Tele2 issued proceedings against the Post
Office arguing that the delay by the Post Office in giving written
notice of termination of the agreement, and its performance of the
contract in the meantime, meant that the Post Office had affirmed
the agreement by election.
The Post Office sought to rely upon the “no
waiver” clause in the agreement, contending that its’ effect was
such that any delay in giving notice to enforce the right to
terminate could not be used to show an affirmation of the
contract.
The “no waiver clause in the agreement
provided that:
“In no event shall any delay, neglect or
forbearance on the part of any party in enforcing (in whole or in
part) any provision of this Agreement be or be deemed to be a
waiver thereof or a waiver of any provision or shall in any way
prejudice any right of that party under this Agreement.”
The judgment
The Court of Appeal held that the Post
Office’s continued performance of the agreement, without any
protest concerning Tele2’s breach, or any reservations of rights,
was consistent with having elected to abandon the right to
terminate.
How to retain your rights
The Court made specific reference to the fact
the Post Office had not made any protest about the breach at all,
nor had they reserved their rights to terminate. If you become
aware of a breach that would entitle you to a remedy you should not
delay. You should consider expressly reserving your rights Moreover
you should ensure that any subsequent conduct is in line with this
reservation. There is, however, no guarantee that a Court
will allow an innocent party to exercise a remedy if there has been
a delay and this is likely to remain an issue for the Courts to
decide upon on a case by case basis. However it is clear that an
innocent party’s post-breach conduct is of major relevance and
therefore you should seek legal advice as soon as possible.
If you would like any further
assistance on no-waiver clauses, please contact Laura Gittins on
0151 242 6959.