No waivers and no oral modification clauses – are they worth the paper they are written on?

In March, we organized a webinar on failed ICT projects. During the webinar, we noted how in nearly every ICT project dispute we see, one of the issues in dispute is the extent to which a party has waived its rights under the contract or has actually modified the contract after execution (orally or by conduct or otherwise simply without adhering to the modification process specified in the contract).

After the webinar, one of our astute clients asked us how an oral non-modification or non-waiver clause could help solve this problem – after all, they are almost ubiquitous in ICT contracts (and in done in many commercial contracts). This is a very good question and we thought it deserved an answer that others might find helpful. Hence this article.

No disclaimer

Neither party may rely on the words or conduct of another party as a waiver of any right, power or remedy arising out of or in connection with this Agreement, unless the other party or parties expressly grant a waiver of right, power or remedy. Any waiver must be in writing, signed by the party granting the waiver, and is effective only to the extent set forth in such waiver..”

Clauses like the ones above are commonly referred to as “non-waiver” clauses. Although they take many forms, a non-waiver clause generally aims to protect the rights of a party who does not exercise them, by indicating that such a breach is not a waiver unless the party chooses to do so. expressly say. A non-waiver clause can also be used to establish that a party has not waived a right simply by past conduct. For example, in the Australian case of Farm and Rural Finance Pty Ltd v Gardiner and anotherthe Court found that the prior acceptance of late payment interest payments did not constitute a waiver of the “punctual payment” requirement.

Unfortunately (or fortunately depending on your point of view), they are not always effective. Despite the inclusion of a non-waiver clause, a party can still involuntarily waive its rights under the agreement and the effectiveness of a non-waiver clause will depend very much on its terms and the particular circumstances. A good example is the British case of Tele2 International Card Company SA v Post Office Ltd. In this case, one party has chosen not to exercise its right to terminate an agreement following a breach by the other party. Almost a year after the breach, the party wished to terminate the agreement and the Court found that the non-waiver clause could not be invoked due to the early election. That the existence of a disclaimer did not remove the obligation to make a choice in express terms (and that she might not be able to do so anyway) and that a disclaimer -waiver was “of no particular assistance” when dealing with an election other than to emphasize that an election must be clear and unequivocal. This decision was followed by the High Court of New Zealand in Precast NZ Ltd v Anystep Ltd.

It should also be noted that while a non-waiver clause is effective in particular circumstances, the doctrine of promissory estoppel is often presented as an alternative to waiver and may apply although the doctrine addresses different concerns. . Like the Court in Bell v BDO Spicers Manawatu Ltd noted, while “waiver focuses on the scope of the intention of the party (or parties) granting the forbearance … estoppel focuses on the conduct of that party and its effect on the other party”.

No oral modification clause

All amendments to this Agreement must be in writing and signed by a duly authorized representative of each party..”

Such clauses are known as “no oral modification” or “no oral variation” clauses. Although they are relatively simple to draft, whether and to what extent they are enforceable is not.

After a number of cases that reached different conclusions on the issue, the UK Supreme Court’s leading judgment in MWB Business Exchange Centers Ltd v Rock Advertising Ltd concluded that no oral modification clause was legally enforceable. There were legitimate business purposes for using an oral non-modification clause, such as:

  • Prevent attempts to undermine the contract by informal means
  • Provide certainty by avoiding disputes as to whether a variation was intentional, which can easily arise from oral discussions
  • Provide a measure of formality that makes it easier for companies to maintain internal procedures for authorizing contractual variations.

Lord Sumption held that contract law generally does not interfere with legitimate business purposes except for clear public policy reasons. There were no such reasons of public order: if the parties intended to modify a contract with an oral non-modification clause, it was very easy for them to agree to do so in writing. Beyond that, Lord Sumption noted that the principles of estoppel provided a sufficient safeguard in circumstances where a party relied on an alleged oral variation to its detriment.

However, rock advertisement has been criticized by a number of commentators and New Zealand has yet to adopt the decision. The position in New Zealand before rock advertisement was that an oral non-amendment clause was strong evidence against a non-conforming variation but did not preclude one at law. The New Zealand Court of Appeal (while noting that in England no oral variation clause can have a greater prohibitive effect (citing rock advertisement), recently adopted the same approach in Forest Holdings (NZ) Ltd v Sheung – on the basis that those who enter into a contract can undo it. Logic dictates that parties to a contract may deliberately agree not to comply with an oral non-modification clause or may simply ignore it, but nevertheless intend to be legally bound by the non-conforming modification. The burden of establishing that the parties intended to be bound by an informal amendment, despite the existence of an oral non-amendment clause, is of course on the party seeking to rely on the amendment. In addition, the Federal Court of Australia has also suggested that it may be unfair to impose on the parties an oral non-modification clause in relational contracts, which are “living” in nature (e.g. agile contracts for software development and system integration) .

However, the legitimate business purposes referred to in rock advertisement are relevant, as is the conduct of the parties in carrying out the alleged modification. Although in Forest properties the Court recognized that no oral amendment clause prevented a non-conforming amendment from taking effect, on the facts, the Court ruled that the e-mail allegedly constituting an amendment was ambiguous, the documentary record was incomplete and the consequential effect on the contract was unclear. In such circumstances, the Court determined that there was no justification for going beyond the oral non-amendment clause in plain language.

Take away key

The key thing to remember is that no waiver clause and no oral modification clause can work or at least there can be a strong evidentiary bias in favor of the party seeking to rely on it. However, in our opinion, it would be dangerous to rely on it. The enforceability of both clauses depends on the intention of the parties in the particular circumstances and there are a number of instances where the parties have been found to have waived or modified their rights notwithstanding the existence of such clauses in the relevant contract.

Prudent contracting parties should therefore focus their efforts on agreeing on the processes of change that they will actually follow (and then ensuring that they do follow them) and on ensuring that subsequent decisions regarding the exercise of their rights are clearly expressed in writing. If all parties took this approach, ICT project disputes (and other commercial contract disputes) could be much easier to resolve.

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