Can you always rely on a non-waiver clause?

Problem supplier

When you enter into a contract with a third party supplier it’s not unreasonable to expect things to run smoothly. Yet, when a third party doesn’t keep to their side of the contract, e.g. they’re late with deliveries, you might not always want to walk away immediately.

Why not?

For example, it could be that you need time to find an alternative supplier. Perhaps you want to wait and see if the situation sorts itself out with a bit of extra time. But what if you keep quiet about the problem? Can you still use it as a reason to get out of the contract further down the line?

Non-waiver

Most commercial contracts will contain a “non-waiver” clause. This effectively allows the innocent party to delay taking any action without losing their right to terminate the contract for the breach, i.e. they end the contract at their convenience.

Tip. If no such clause exists, you should make an immediate decision on whether to end the contract or continue with it. If the latter option is taken, the breach will be “waived”, i.e. accepted. This means that you won’t be able to use it as a reason to end the contract at a later date.

Not so sound

But in the recent case of Tele2 International Card Co SA v Post Office Ltd 2009, the Court of Appeal said that where a contract does contain a non-waiver clause, the right to use it doesn’t last forever.

Court of Appeal case

Tele2 (T) entered into a contract with the Post Office Ltd (POL) to supply it with phone cards. There was a non-waiver clause in the contract. At the end of December 2003, T started to run into difficulties keeping up with orders. But rather than look for a new supplier, POL decided to sit on the problem in the belief that it could get out of the contract if things got out of hand.

No change. The problems didn’t improve, so POL served a notice to terminate the contract on December 1 2004 - a delay of eleven months. T said this was unreasonable.

Decision

The Court of Appeal took the view that POL had sat around for too long doing nothing. It said that because POL had allowed the contract to continue for almost a year without protest, it had accepted the problem. This meant that it couldn’t use T’s problems with supply as a reason to end the contract. So despite having the non-waiver clause this didn’t give POL indefinite protection.

Tip 1. Once you’ve made up your mind to end a contract following a breach, act quickly. Even if you’ve got a standard non-waiver clause in your contracts, it’s what you do in practice that matters. Any unreasonable delay could mean that your right to end the contract will be lost.

Tip 2. Buy yourself a bit of time before making a decision to end the contract. Write to the other side about their breach. When doing so, say that you’re reserving the company’s right to terminate the contract. This way they can’t claim that you accepted the problem.