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No waiver clauses called into question by Court of Appeal

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Posted by Christine Jackson on 13 January 2010

Christine Jackson - Commercial Contracts Solicitor
Christine Jackson Partner

No waiver clauses are a very common feature of the ‘boilerplate’ provisions in commercial contracts and as such they appear in a huge number and variety of agreements.

No waiver clauses are intended to provide the parties to contracts with the comfort that if they fail to enforce their rights under the agreement (for example to terminate on breach), whether deliberately or by accident, this does not result in them waiving or losing their rights or remedies for breach of those contractual rights which they have not exercised. Until very recently there has been little court authority on the enforceability of no waiver clauses.

Tele2 International and others v Post Office Limited 

However, in a commercial case with potentially far reaching ramifications, the Court of Appeal has thrown into doubt the effectiveness of no waiver clauses.  The case, Tele2 International and others v Post Office Limited [2009], involved a contract between Tele2 group companies (“Tele2”) and the Post Office Limited (the “Post Office”) under which Tele2 provided pre-paid phone cards to the Post Office and associated services. The agreement contained a no waiver clause in standard terms.

Tele2 committed a breach of one of its obligations under the contract which entitled the Post Office to terminate the agreement. However, the Post Office waited nearly a year before it did so, presumably relying on its rights under the no waiver provision. At trial, Tele2 argued that the Post Office’s delay in serving notice of termination, and its continued performance of the contract without protest, meant that the Post Office had ‘affirmed’ the agreement. In effect, the Post Office had waived its right to terminate for the breach, despite the no waiver clause which apparently allowed the parties to delay exercising their contractual rights in this way without such delay prejudicing them. The Court of Appeal agreed with this line of argument, applying a rule of the English common law of contract known as the ‘doctrine of election’.  

The doctrine of election provides that a party which has a contractual right to terminate must elect whether or not to do so. Considering the effect of the no waiver clause in the contract, the Court of Appeal judge Lord Justice Aikens ruled that “[the no waiver clause] cannot prevent the fact of an election to abandon the rights to terminate from existing: either it does or it does not… [the clause] does not prevent the Tele2 parties relying on the doctrine of affirmation of the contract by election and it does not prevent [the Post Office] from affirming the agreement by election. As a matter of fact it did so.”  

This view seems at odds with a common sense interpretation of the basic purpose of no waiver clauses. Up to now, parties could have been forgiven for assuming that the intention of a no waiver clause was precisely this: to exclude the possibility of them inadvertently making an implied election to abandon contractual rights and impliedly affirming the contract by doing so. However, it appears that the court did not consider the question of what the parties intended the function of the no waiver clause to be, if not this.

The court found that the Post Office had terminated the contract wrongfully and considered Tele2’s claim for damages.

Commentary

The ruling does appear to be difficult to reconcile with a logical interpretation of the intended function of no waiver clauses. The doubt created by the Court of Appeal’s decision is unfortunate for parties to a wide range of commercial contracts. No waiver clauses are a commonplace feature of contracts which parties have for many years regarded as providing protection and clarity. The judgement in the Tele2 case now introduces into those business relationships an unwelcome legal uncertainty over a basic contractual provision. This uncertainty does not look to be going away any time soon, as since then the decision has been applied in CDV Software Entertainment AG v Gamecock Media Europe Ltd [2009] and considered in Force India Formula One Team Ltd v Etihad Airways PJSC [2010], and in both cases has received positive treatment. 

About the author

Christine helps clients manage risk and financial exposure in their day to day business dealings.

Christine Jackson

Christine helps clients manage risk and financial exposure in their day to day business dealings.

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