Alert

Who does this affect?

Any contracting party, banks and financial institutions.

What do you need to do?

After a breach of contract occurs, act promptly to reserve your rights. Avoid conduct which may be taken as affirming the contract or waiving your rights.

Authors
Yuen-Yee Cho  
Partner

Yvette Guo  
Solicitor

---

Yuen-Yee Cho  
Partner
T +61 2 9296 2343

---

Melbourne
Jeff Clark  

Perth
John Naughton  

Brisbane
Berkeley Cox  

---

The recent English decision Tele2 International Card Co SA v Post Office Ltd [2009] EWCA Civ 9 (Tele2 case) found that boilerplate “no waiver” clauses may not be effective in preserving a party’s right to terminate for breach. One needs to act reasonably promptly to reserve one’s rights and to avoid conduct which may be taken as affirming the contract or waiving one’s rights.

This alert examines the equivalent Australian law position with a particular focus on some banking and finance cases.

Facts in Tele2 case

Tele2 International Card Company SA and various subsidiaries (Tele2) entered into a contract to supply the UK Post Office Ltd (POL) with prepaid phone cards (Agreement). The Agreement required Tele2 to provide POL with an annual parent company letter (Letter). Tele2 failed to provide the Letter in 2004 within the prescribed deadline. This constituted a “material breach” and gave POL a right to terminate the Agreement “at any time by giving notice in writing” to Tele2.

POL continued to perform, and to accept Tele2’s performance of, the Agreement for nearly a year thereafter. POL then sought to terminate the Agreement with effect from 1 April 2005 on the basis of this breach. At no time did POL reserve its right to terminate.

Tele2 argued that POL’s conduct amounted to an election to affirm the Agreement. POL sought to rely on a “no waiver” clause in the Agreement which provided that:

In no event shall any delay, neglect or forbearance on the part of any party in enforcing… any provision of this Agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice any right of that party under this Agreement.

Was the “no waiver” clause effective?

No. The English Court of Appeal held that whether a party has elected to terminate or to affirm the contract was a question of fact: either the party has affirmed the contract or it has not. The "no waiver" clause was of no particular help other than to emphasise that an election to abandon a right will only be shown if there was a clear and unequivocal communication of the election.

What constituted sufficient conduct for affirmation?

The Court found that:

• POL’s continued performance of the Agreement for nearly a year without any protest or reservation of any kind in relation to Tele2’s breach was consistent with an election to abandon the right to terminate for that breach, and

• this constituted a clear and unequivocal communication, by conduct, of POL’s election to affirm the Agreement.

Australian law position

Australian case law is largely consistent with Tele2 in confirming the limited utility of a “no waiver” clause. Australian cases confirmed that a party’s conduct could waive “no waiver” or “waiver only in writing” clauses. The kind of conduct that would be sufficient “affirmation” or “waiver” will depend on the facts of each case.

In a banking and finance context, it was held in Canberra Advance Bank Ltd v Benny (1992) 38 FCR 427 that the bank’s failure to act on the borrower’s breach of its undertaking to provide quarterly accounts on two previous occasions did not prevent it from enforcing its rights on the third occasion. Although not directly on point, the court held that even though the facility agreements contained “no waiver” and “waiver only in writing” clauses, it was possible that these clauses be waived by actual conduct (although this did not apply in the case itself).

Similarly in Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 173, the financier was also held not to have waived its rights to enforce for various events of default under a loan agreement even though it had been aware of them for over a year and continued to accept interest payments. The borrower was unable to adduce evidence to show that the financier had waived its rights.

It is difficult to find consistent reasoning and principles underlying the cases on this subject - they vary between:

• election - which focuses on conduct of the innocent party

• estoppel - which focuses on detrimental reliance by the party in breach, and

• more general concepts of “waiver”.

More often than not, all 3 principles are argued in a case.

Unsatisfactory as the state of the law might be, the main takeaway for innocent parties when faced with this situation is the same:

• act reasonably promptly after a breach to preserve your rights

• actively and clearly communicate to the party in breach that while you might be continuing to engage, you are still “reserving your rights” and may still exercise them.

“No waiver” or “waivers in writing only” clauses while useful, will not provide protection if one’s conduct indicates that one has affirmed the contract or waived one’s rights.