Inadvertent Waiver of Events of Default

Author:Mr Neil O''Keeffe
Profession:LK Shields

The past couple of years in Ireland have seen lenders adopt a wait and see approach to a large number of borrower defaults, but such tactics can be fraught with danger, particularly in light of a recent UK court decision. Neil O'Keeffe explains. A recent English Court of Appeal decision has highlighted how important it is that lenders act promptly once they become aware that a borrower has defaulted. In such cases, they should either enforce their rights or inform the borrower that they are reserving their right to do so; otherwise, they run the risk of being deemed to have waived the default.

The decision further clarifies the position that 'no waiver' clauses, which are market standard in loan agreements, cannot be absolutely relied upon to avoid the inadvertent waiver of a default.

Tele2 International Card Company SA and others v Post Office Ltd ([2009] All ER 144) concerned a supply contract that included a 'no waiver' clause which said that no delay or forbearance in exercising any rights would operate as a waiver or prejudice any rights of that party under the agreement. Tele2 breached the contract and did not remedy it. The Post Office was aware of the breach but continued to perform the contract for nearly a full year and did not contact Tele2 about the breach or reserve its rights to terminate the contract at a later date.

The Post Office argued that the 'no waiver' clause meant that only a formal waiver of its right could prevent it from terminating the contract. The English Court of Appeal decided that the Post Office, by continuing with the contract without "any protest or reserve of any kind" in relation to the default, even though it was aware of the breach, meant that it had chosen to abandon its right to terminate for that breach.

This constituted a "clear and unequivocal communication, by conduct" of the Post Office's election to affirm the contract and waive its rights. On that basis, the 'no waiver clause' was of no particular help.

Importance of the Decision

The Tele2 decision is consistent with Irish case law, but it is...

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