A recent Court of Appeal case has cast doubt on the value of such 'non-waiver' clauses.

When a party to a contract waives a breach of that contract by the other party, it voluntarily abandons its legal rights to enforce the contract, or to claim any remedy, in relation to that breach.

A waiver must be clear, but may be oral or written.

Importantly, a waiver need not be express, but can be inferred from a course of conduct. This can lead to situations where one party to a contract inadvertently waives its legal rights against the other by virtue of its conduct, which could have far-reaching implications for the innocent party.

To address this risk, many contracts include 'non-waiver' clauses, but are they worth it?

What is a non-waiver clause?
A non-waiver clause aims to preserve a party's rights and remedies if that party fails, whether intentionally or by oversight, to take action in respect of a breach of contract.

Generally such clauses will provide that:

• a failure or delay in enforcing an obligation, or exercising a right or remedy, does not amount to a waiver of that obligation, right or remedy
• a waiver of a breach of a term does not amount to a waiver of a breach of any other term in the agreement
• a waiver of a particular obligation in one circumstance will not prevent a party from subsequently requiring compliance with the obligation on other occasions

Affirmation of repudiatory breaches
Once a repudiatory breach entitling the innocent party to terminate the contract has arisen, that innocent party must elect to treat the contract as terminated and sue for damages, or to affirm the contract and continue performance of it.

To take effect, such an election must be communicated to the party in breach in clear and unequivocal terms, whether by writing or by conduct.

Affirmation will often be implied if the innocent party is fully aware of the facts surrounding the alleged breach and acts in a manner consistent with treating the contract as continuing. For example, an innocent party that does nothing for too long after becoming aware of the breach may be deemed to have affirmed the contract.

what does this mean?

The relationship between non-waiver clauses and affirmation of repudiatory breaches has always been unclear, and there has been limited authority on the effectiveness of non-waiver clauses, in particular those clauses preserving rights to terminate for breach.

The Court of Appeal's recent ruling in Tele2 International Card Company SA and others v Post Office Limited has raised concerns regarding the effectiveness of non-waiver clauses. Here it was found that the non-waiver clause in the agreement did not prevent the breaching party from relying on the doctrine of affirmation by election.

In that case, Tele2 committed a material breach and the Post Office sought to terminate the contract. However, the Post Office only served its termination notice one year after the breach occurred, despite being fully aware of the breach from the start.

The Post Office argued that its delay had not resulted in an affirmation of the contract (and a loss of the right to terminate) because the non-waiver clause stated that no delays by a party in enforcing the agreement would be deemed to be a waiver, or prejudice that party's rights.

The Court of Appeal held that, not withstanding the non-waiver clause in the contract, the Post Office had elected to affirm the agreement by conduct, and had abandoned its right to terminate for the material breach.

The Court considered that the election was a question of fact and this could not be overridden by the non-waiver clause. As the Post Office had lost its right to terminate, the Court decided that their purported termination was a repudiatory breach of contract and in principle, entitled Tele2 to claim damages.

The Court observed that the doctrine of affirmation by election was not specifically excluded from applying to the contract, but did not comment on whether the clause could have been relied on if it had been drafted to specifically exclude the doctrine.

what should you do?

• In practice, a prudent innocent party should always consider sending a letter after the breach, expressly reserving its rights to later terminate, and should ensure that its subsequent conduct is consistent with that reservation. However, there is no guarantee that these actions will be effective in overriding the doctrine, and there is always a real risk that the innocent party's conduct will be construed as affirmation of the contract.
• In addition parties generally may want to amend their standard non-waiver clauses to specifically exclude the doctrine of affirmation of contract by election; however we have yet to see if this will successfully exclude the doctrine, and reliance on non-waiver clauses should be viewed as a last resort.
• Ideally, a decision on termination should be made soon after becoming aware of a repudiatory breach, so that later arguments about affirmation or waiver can be avoided.