The English Court of Appeal has recently ruled that the Post Office could not walk away from a contract because it had elected to continue to perform its duties for almost a year after the other company breached the contract.

In 2001, the Post Office signed a contract with Swedish telecoms firm Tele2 for prepaid international phone cards for sale by the Post Office under its own name. One of the terms of the contract was that Tele2's parent company had to write to the Post Office 7 days before the commencement of each calendar year, guaranteeing that the parent company would provide enough capital to its subsidiaries, which were signatories to the contract, to enable them to fulfil their contractual obligations to the Post Office.

In terms of the contract, therefore, Tele2's parent company required to provide the guarantee for the calendar year 2004 by 24 December 2003 but it failed to do this. As a result, the Post Office was entitled to terminate the Agreement but, instead of terminating there and then, the Post Office waited until December 2004, almost a year later.

The contract contained a "no waiver" clause as one of the terms that are commonly referred to as "boilerplate clauses". Many contracts contain clauses of this nature which typically say that delays do not adversely affect the rights of a party to enforce the terms of the agreement.

Tele2 and the Post Office had agreed that a failure to provide the guarantee letter would be a material breach of the contract and that such a material breach would allow the Post Office to terminate the contract. In circumstances such as these the "innocent" party can decide to go ahead and terminate the contract or, alternatively, it can affirm that the contract remains valid and one of the ways of affirming the contract is by continuing to act as if it is still valid.

The Post Office contended that the "no waiver" clause allowed it to wait before exercising its termination rights and that the delay in exercising its rights would not be a waiver of the Post Office's right to terminate. By contrast, Tele2 contended that, because the Post Office had continued to perform its obligations under the contract and to abide by the contract for almost a year, the Post Office had elected to affirm the contract as a result of those actions.

Initially the High Court ruled in favour of the Post Office but on 21 January 2009 the Court of Appeal allowed Tele2's appeal and held that the "no waiver" clause was overtaken by the Post Office's actions, which affirmed the Agreement, thus allowing Tele2 to rely on the doctrine of affirmation of the contract by election.

The Court of Appeal held that the Post Office had unlawfully terminated the contract. Although Tele2 claimed damages, the Court held that it had not actually suffered any damage and it could therefore only claim nominal damages.

This case sounds a warning bell to remind parties to a contract that, when a breach by one party occurs, the other party should always consider carefully whether to terminate but should not assume that a non-waiver provision (although a useful safeguard) will protect it indefinitely or allow it to delay deliberately until a more convenient time. Behaviour is important and continuing to act in accordance with the contract may well prejudice any ability to terminate.