There are three main categories of waiver:
- A waiver by contract
- A waiver by election
- A waiver by estoppel
Waiver by contract
A waiver by contract occurs where a party expressly agrees to abandon their legal rights. Such an agreement will be binding provided the normal requirements of a contract have been met.
Waiver by election
A waiver by election applies where a breach of contract has occurred and the “innocent party” has a choice between two alternative rights or remedies. In such cases, the “innocent” party may choose either to apply the contract terms immediately or to waive the breach and continue with the contract. However, if the innocent party chooses to waive the breach it cannot change its mind later.
Waiver by estoppel
A waiver by estoppel is the broadest form of waiver, and often the most difficult to identify. A waiver by estoppel can occur when one party acts in such a way as to suggest that they have agreed to waive their contractual rights.
For a waiver by estoppel to occur, two elements must be present. First, one party must notify the other party that they will do something, or agree not to do something, that they would otherwise be entitled to do under the contract. Secondly, the other party must rely on this.
Proving whether or not a waiver by estoppel has arisen is often difficult and will depend on the facts in each case.
It can arise when parties to a contract act on an assumed state of the law or the facts. There need not be a binding contract on those assumed matters, but rather the actions/conduct of the parties could amount to a “convention”.
There are some key requirements for a waiver by estoppel to occur, and these can be summarised as follows:
- It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them.
- The expression of the common assumption by the party alleged to be estopped must be such that it may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that it expects the other party to rely on it.
- The party which is claiming the benefit of the convention in question must have relied upon the assumption to a sufficient extent. Reliance includes being influenced by the assumption. That reliance must have occurred in connection with some subsequent mutual dealing between the parties.
- Some detriment must thereby have been suffered by the person alleging the estoppel or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.
The above issues were all considered in the RGB v Tawe court case referred to above, and based upon the facts of that particular case, the Court found that Tawe could not raise an estoppel defence against RGB’s assertion that Tawe had submitted an invalid Application for Payment.
Peter Barnes, Director, Blue Sky ADR Ltd
Date 25 November 2020
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