Tele2 International and others v Post Office Limited [2009] EWHA Civ 9 concerned an agreement between companies of the Tele2 group ("Tele2") and Post Office Limited (the "Post Office") entered into in 2001. Under the agreement Tele2 were to provide pre-paid phonecards to the Post Office and also the associated telecommunications services to enable the Post Office's customers to use the phone cards. Pursuant to the agreement, Tele2 were also obliged to provide to the Post Office annually certified copies of a guarantee from Tele2's parent company that it would provide Tele2 with sufficient capital to perform the agreement (the "Parent Guarantee Letters").

Tele2 failed to provide Parent Guarantee Letters for the calendar year 2004 on or before 24 December 2003, which was the latest date for providing those letters under the agreement. The Judge at first instance was satisfied that that failure was a material breach of the agreement and, therefore, had entitled the Post Office to terminate the agreement.

However, the Post Office had not terminated the agreement immediately. In fact, it had not given Tele2 notice that it was terminating the agreement, because of Tele2's failure to provide the Parent Guarantee Letters, until 1 December 2004 which was nearly a year later than it could have done so.

At the trial, Tele2 argued that the Post Office's delay in giving notice and its continued performance of the agreement in the meantime without any protest meant that the Post Office had affirmed the agreement and had, therefore, lost its right to terminate.

In response the Post Office relied on clause 16 of the agreement which provided as follows:

"Waiver

In no event shall any delay, neglect or forbearance on the part of any party in enforcing (in whole or in part) any provision of this Agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice the right of that party under this Agreement."

Such a clause, commonly termed "a no-waiver clause", aims to give assurance that failure to enforce contractual rights, whether intentionally or by oversight, does not result in the waiver of rights and remedies for their breach. Until the hearing of this case there has been limited authority on the effectiveness of such no-waiver clauses.

The Judge at first instance accepted Tele2's argument on affirmation but went on to hold that the effect of the no-waiver clause was that the Post Office's delay could not be held against it. Accordingly, there was no effective affirmation and so the Post Office's termination of the agreement was valid.

The Court of Appeal disagreed on the effect of the no-waiver clause. Lord Justice Aikens held:

  • "it seems to me, [the no-waiver clause] of the Agreement is of no particular help to the Post Office, except in terms of emphasising the requirement that an election to abandon a right will only be shown if there was a clear and unequivocal communication of an election to abandon the right to terminate and continue the Agreement. As a matter of fact either the Post Office elected to abandon its right to terminate the Agreement for Tele2's breach...or it did not";
  • "In short, [the no-waiver clause] cannot prevent the fact of an election to abandon the right to terminate from existing: either it does or it does not. This conclusion is reinforced I think by the terms of [the no-waiver clause] itself....The general law demands that a party which has a contractual right to terminate must elect whether or not to do so. The clause does not attempt to say that the doctrine of election shall not apply – even assuming that any contractual provision could exclude the operation of the doctrine."; and
  • "[the no-waiver clause] does not prevent the Tele2 parties relying on the doctrine of affirmation of the contract by election and it does not prevent [the Post Office] from affirming the agreement by election. As a matter of fact it did so."

The Post Office's continued performance of the agreement without protest as to the failure to provide the Parent Company Letters acted as an election to abandon the right to terminate for that particular breach.

Accordingly, the Post Office's termination was wrongful and the Court of Appeal went on to consider Tele2's claim for damages.

Wragge & Co's experts provide hints to keep in mind in light of the ruling.