Don't waive your rights goodbye

Following on from my previous article on the importance of keeping records of pre-contractual negotiations, it is right to consider the legal doctrines which might allow you to rely on them, namely Waiver, Estoppel and their close ally, Acquiescence.

This month, waiver. This occurs when one party unequivocally grants a concession or forbearance to the other party by not insisting upon the precise mode of performance provided for in the contract. Waiver can occur before or after any breach of the term waived.

The essential requirements of waiver are: -

1. a clear unequivocal promise or representation which indicates that its maker will not insist on their strict legal rights. The waiver may be express or implied from conduct, although inactivity or silence will not normally suffice since the circumstances where that is likely to be judged to be unequivocal will be rare. So the grant of an indulgence in not enforcing contractual rights, or conducting negotiations about those rights, will not be enough;

2. reliance on the promise or representation, so that they influence the conduct of the party to whom it was made - an inducement is the key;

3. there would be an inequitable result if the maker were permitted to go back on the promise or representation, because the other party has acted in reliance on the promise or representation, and can no longer be restored to the position in which he was before he took such action. The reliance need not (as some have suggested) be detrimental – a change of position will be sufficient – but the consequences of the promisor’s reversion to the strict contractual position must be detrimental.

Waiver only has a suspensory effect. This is because the parties have not agreed to vary their contract or backed that up with consideration (i.e. money, or money’s worth), and a temporary waiver may be terminated by reasonable notice. However, in some circumstances, events may mean that the doctrine will extinguish contractual rights permanently because the original performance becomes impossible or inequitable.

Examples where a party has successfully contended that waiver applies include:

• A landlord gave notice to a tenant requiring him to carry out repairs pursuant to certain covenants, but the parties then began negotiating for the surrender of the lease. Those negotiations broke down, and the landlord immediately sought to forfeit the lease on the ground that the repairs had not been done. The landlord was prevented from exercising forfeiture on the grounds that he had led the tenant to believe that he would not insist on the repairs being carried out during the negotiations, and the right to exercise forfeiture must be postponed for a reasonable time in order to allow the tenant to carry out the repairs (see Hughes v Metropolitan Railway (1877) 2 App Cas 439).

• A tenant under a building lease was obliged to build a property before the end of 1885, but the landlord agreed to suspend this requirement. During the period of the suspension, the land was compulsorily acquired by the London and North Western Railway (LNWR), and although the lease was still contractually binding it became impossible to perform the obligation to build and so the waiver became permanent (see Birmingham & District Land Co v LNWR (1888) 40 Ch D 268).

• City Inn v Shepherd Construction Limited may be a Scottish case but it concerned the construction of a hotel in Temple Way, Bristol, and the operation of provisions in . JCT Standard Form of Building Contract (Private Edition with Quantities) (1980 edition) concerning variations and extensions of time. City Inn had withheld £150,000 in liquidated and ascertained damages in respect of a five-week period on the basis of clause 13.8, a bespoke amendment which sought to ensure that, if an instruction or variation were issued, the question of delay and any financial consequences would be dealt with immediately, and operated as a condition precedent to obtaining an extension of time. Shepherd obtained part of the extension of time sought by its contention that City Inn had, by its conduct in considering Shepherd’s application, waived the requirement of strict compliance with its own clause 13.8, and also successfully defended City Inn’s appeal on that issue. City Inn Ltd v Shepherd Construction Ltd [2007] CSOH 190; [2008] B.L.R. 269; (2008) 24 Const. L.J. 590.

There are lessons here for everyone; in your dealings with those down the chain of operations (employers, main contractors), seek to protect your contractual position with ‘non-waiver’ clauses, which say that forbearance on your part will not amount to waiver of your legal rights, and keep any concessions made under review. For those looking up the chain of operations (main contractors, subcontractors) in difficult situations, resist such clauses where possible, and consider whether there has been a promise made or conduct which, coupled with a change of circumstance, means it may be unfair for your immediate employer to insist on strict compliance with your contractual obligations.

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These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.