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Beware delay in enforcing your rights!!

Published: 29th January 2009

Commercial agreements commonly contain a term to the effect that any "delay, neglect or forbearance" by the innocent party in enforcing its rights when another party is in breach will not be deemed to be a "waiver" of the innocent party's rights under the agreement or prejudice the innocent party's ability to take some action in respect of the breach in the future.

Beware!! The Court of Appeal recently held in

TELE2 INTERNATIONAL CARD CO SA and others v POST OFFICE LTD (2009) [2009] EWCA Civ 9

that just such a clause was defeated where the innocent party had, by its conduct, elected to affirm the agreement after the breach had occurred and had thus abandoned its contractual right to later terminate the agreement by virtue of the breach.

The claimants were part of a group that made and supplied phonecards and services and the Post Office agreed to promote the cards and services through its outlets. The Post Office subsequently gave notice to terminate the agreement because the claimants had failed to provide guarantee letters that the agreement required that they provide.

The claimants argued that the Post Office's notice to terminate was itself a repudiatory breach of the agreement and brought proceedings against the Post Office seeking damages for breach of contract. The claimants argued that the Post Office had affirmed the agreement because it had delayed giving the notice of termination for nearly a year after it could first have done so.

The trial judge held that the Post Office was entitled to give the notice to terminate and had not elected to affirm the agreement because there was a term of the agreement that any delay in giving such a notice could not be held against it.

The claimants appealed.

The Court of Appeal held that the continued performance of the agreement by the Post Office for nearly a year after the claimants' breach without any protest or reserve of any kind was consistent with a clear and unequivocal election by the Post Office to affirm the agreement and to abandon its right to terminate the agreement because of the claimants' breach.

The Court went on to say that whether a party had elected to terminate an agreement or had elected to affirm it would be a question of fact in each case, and that a term that sought to provide that any "delay, neglect or forbearance" would not be deemed to be a "waiver" of the innocent party's rights could not negate the fact that an election to abandon the right to terminate had been made. Either an election had been made or it had not.

In Tele2 the relevant term was "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... in any way prejudice any right of that party under this Agreement". The term did not deal with the issue of election, or whether or not to exercise a contractual right, and it did not attempt to say that the doctrine of election did not apply, (even assuming that any contractual provision could exclude the operation of the doctrine).

Thus, the Post Office was not entitled to terminate the agreement a year after the breach and its action in giving notice to terminate was an anticipatory repudiatory breach of the agreement giving rise to a claim for damages by the claimants.

Beware!!

If this decision raises any questions for your organisation please contact Craig Blakemore or Duncan McAllister at our Liverpool office on 0151 236 8989 or Graeme Jump or Josh Conroy at our Manchester office on 0161 214 0500.