Faced with most breaches of contract, the approach is often to see if a commercial solution can be achieved to keep the contract on track. The innocent party with a non-waiver clause in their agreement relies on this clause to give it latitude to pursue the commercial solution. It is confident that it can always revert to relying on its legal rights without the risk of being met with a non-reliance or waiver plea. Such confidence can be misplaced. Although judicially acknowledged to be controversial, a failure to stand by a non-waiver clause expressly can create a risk of it being said that the non-waiver clause itself has been waived by agreement.

The recent case of ZVI Construction Co LLC v The University of Notre Dame (USA) in England (QBD, Technology and Construction Court) confirms that it would be insufficient merely to rely on a non-waiver/non-alteration clause to confine the agreed terms between the parties to the original written contract. Such clauses are capable of being waived themselves by conduct, words or actions. As explained further below, making clear the status of the original written terms is a necessity.

The facts

A Massachusetts-based company, agreed to sell a property in London to University of Notre Dame (“Notre Dame”) for use as student accommodation. Completion of the sale was conditional upon certain works being undertaken on the property by ZVI, a company affiliated with the seller. All three parties were thus party to a Development Agreement (the “Agreement”), which contained a dispute resolution clause. This clause directed the parties to resolve their dispute as to the parties’ respective rights, duties and obligations arising out of or in connection with the Agreement by expert determination. The Agreement also contained a non-waiver provision that stated that i) the Agreement is the only agreement between the parties on the subject matter; and ii) that it can only be amended by a written document, which specifies which provision of the Agreement it is amending and which is signed by both parties.

The parties subsequently had a dispute over the quality of the works undertaken by ZVI and over the obligations ZVI owed to Notre Dame under the Agreement. The matter was referred to expert determination in December 2014 to which both the seller and ZVI were party. Over the following year and through numerous rounds of correspondence and submissions, neither ZVI nor the seller ever suggested or argued that the expert did not have jurisdiction to determine the dispute or that ZVI was not liable to Notre Dame under the Agreement. In July 2015, the expert held the seller/ZVI liable for many of the defects in the building works.

Notre Dame subsequently obtained a judgment in the US, which ZVI had sought to resist inter alia by arguing that the non-waiver clause applied. Following this in April 2016, ZVI issued the London proceedings seeking declaratory relief. The non-waiver clause was considered in relation to whether there had been a variation of the contract between the seller and Notre Dame.

The Court’s decision

With regard to the waiver argument, the Court acknowledged that the question of whether a non-waiver provision can itself be waived is controversial. Ultimately, the Court followed the guidance in the Court of Appeal decision in (1) Globe Motors Inc and (2) Globe Motors Portugal-Materail Electrico Para A Industria Utomovel LDA and (3) Safran USA Inc v TRW Lucas Varity Electric Sterring Ltd and others [2016] EWCA Civ 296. Globe Motors in turn followed the decision in World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ 413. This approach was confirmed in MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553.

It determined that each case is fact-sensitive, that the question has to be decided on a balance of probabilities and that one relevant factor for consideration is the fact that the parties agreed a specific method by which their contract can be varied or modified. There is, however, no suggestion that the parties must have specified or directed their mind to a particular clause in the contract between them when making any such variation or modification. What must instead be determined is whether by their actions, words or conduct, the parties must be taken to have intended to modify, alter or waive a term of an agreement between them, bearing in mind the clause prescribing a particular method for any such modification, alteration or waiver.

Accordingly, the Court decided that in the present case the parties successfully varied the Agreement by conduct, despite the non-waiver clause contained in the Agreement. In addition, even if the Agreement did not give the expert the necessary jurisdiction, it is clear on the facts that the parties did so, especially in light of ZVI’s conduct that could only be understood to mean that it impliedly agreed and submitted to the expert’s jurisdiction. Accordingly, the Court decided that ZVI “must be taken to have agreed not to insist upon the formalities of Clause 24 [non-waiver clause] being adhered to in order to bring the dispute before the expert.”

Guidance and Comment

If you are the party seeking to rely on a non-waiver/non-alteration clause, it is important to ensure that no steps have been/are taken by you to suggest that you have agreed to a variation of the contract. Conversely, if you are the party seeking to argue that the contract has been varied, you must show on the balance of probabilities that the other side has intended to modify, alter or waive the terms of the contract by its conduct, words or actions. If the purported amendment/waiver would alter the rights of a third party, it is less likely to be effective without that third party’s agreement.

Practical tips to avoid uncertainty

If you are the innocent party seeking to rely on a non-waiver/non-alteration clause:

  • Avoid taking steps that may be construed by the other side as you altering, modifying or waiving any terms of the contract between the parties.
  • Record contemporaneous oral exchanges.
  • If the above is not feasible, ensure that you reserve your rights if you cannot avoid taking steps, which may be construed by the other side as you altering, modifying or waiving terms of the contract.
  • Refer to the non-waiver/non-alteration clause in your correspondence with the other side and make it clear that nothing you do is to be construed to be contrary to that clause.

If you are the party seeking to argue terms of the contract have been modified, altered or waived:

  • Seek clarity as to the intention of the parties by expressly referring to the non-waiver/non-alteration provision and seeking confirmation from the other side regarding its intentions.
  • Gather evidence that demonstrates that the other side by its conduct, words or actions modified, altered or waived terms of an agreement.
  • Seek a formal waiver before being pushed into a commercial solution tailored to the other parties’ commercial need that leaves you in a difficult or unworkable position; certainly is preferable to uncertainty in a dispute.