It’s been almost five years since the High Court confirmed that Australian law does not recognise a standalone legal doctrine of waiver, Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570. Waiver is really a shorthand description of the result of the doctrines of election, estoppel, variation by contract and release. As Gummow, Hayne and Kiefel JJ said in Gardiner, waiver is one of a number of “solving words” which are “but substitutes for thought” and as one of a number of “pseudo-conceptions” or “soft spots in what appears a hard legal crust”.
But from time to time I still come across pleadings or submissions that a party has ‘waived’ contractual rights, without saying more. A defence in that form is risky. Although the intended result may be the same, each of the doctrines is made up of its own distinct elements that must be satisfied to make good the conclusion that a right has been ‘waived’. To avoid the risk of failing to make good a ‘waiver’ defence it is critical to consider its proper legal classification.
The four ‘departments’ of the law into which cases termed waiver may be categorised are set out below. In each case I show how differing circumstances can cause the loss of a right to terminate a contract for late payment.
Principle: A party, faced with inconsistent alternative rights and being aware of those rights, or at least the facts forming the basis for them, makes a choice to act in a manner consistent with one right and inconsistent with the other.
Example: A contract provides for three shipments of goods, all of which are to be paid COD. The buyer fails to pay for the first shipment, giving the seller alternative rights to terminate the contract or seek further performance of it. When the seller delivers the second shipment of goods, he has acted inconsistently with the right to terminate. He has elected to affirm the contract and lost his prior right to terminate.
Principle: A party represents that it will not exercise a right, and the other party acts in reliance on the representation to the knowledge of the representor, such that it would suffer detriment if the representation is resiled from.
Example: On a contract for sale of goods, the seller tells the buyer that payment needn’t be made on the due date under the contract. Relying on the representation the buyer doesn’t pay on time. The seller may be estopped from terminating the contract on the basis of late payment.
- Variation by contract
Principle: The parties vary the terms of a contract by a new agreement, so that a term is no longer operative. The variation contract must meet the ordinary requirements to form a contract. It requires fresh consideration and not merely a promise to perform an existing contractual obligation.
Example: A contract for sale of land requires payment on 1 January but the purchaser can’t pay on time. The vendor agrees that if the payer makes the payment by 1 February and throws in a free set of steak knives, she can have an extra month to pay. A valid variation is effected by the new contract.
- Release by deed
Principle: A unilateral release by deed may also give up contractual right. Because the release is by deed it requires no consideration.
Example: A payee sues the payer for non-payment, but settles the litigation by a deed of release which releases the payer from its obligation to pay. The payee no longer has any right to call for payment.
It is worth mentioning that waiver of privilege attaching to documents is an exception where the term remains useful, but in other circumstances the right approach is to look at the underlying doctrine that effects a ‘waiver’. Far from being an exercise in legal pedantry, thinking about waiver in these taxonomic terms, will help you to identify the right factual foundation of the defence.