Doctrine Of Waiver: Potential Dilemmas With Breach Of Contract Claims

Introduction:

• Section 10 of The Indian Contract act 1872 states the conditions required by an agreement to become a contract. After The formation of a contract the next step is namely the fulfillment of the objects that both the parties have in mind. The obligations under contract can be discharged by performance, impossibility of performance, by an agreement etc.

• One of the ways that discharges the contract is by waiving off the obligation that one party has on the other party. The meaning of waiver is simply to relinquish or to abandon. The Supreme Court of India has laid down in the case of Waman Shrinivas Kini v Ratilal Bhagwandas & Co on 16 February, 1959 that waiver is the abandonment of a right which normally everybody is at liberty to waive. The law regarding to waiver in contract act is given in section 63 and it states that Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

• How can rights be waived?

• Waiver by contract – under this a formal waiver letter, deed or other variation agreement will be drafted and sent to the other party.
• Waiver by election – following a breach, an option is triggered and the innocent party can take one of a number of routes. The most common forms of waiver by election is where the breach gives a party the right to either end the contract or to continue with it If the latter is chosen, the party cannot later exercise its right to terminate.
• Waiver by estoppel – because of a party’s behavior estoppel restricts that person from relying on certain rights or acting in a certain manner if doing so would be unfair or prejudice the other party.

• Waiver Of Contractual Obligations

A waiver of contractual obligations will occur when one party makes it clear to the other that it does not intend to enforce its contractual rights or remedies, this can be done orally, in writing or inferred from the party’s conduct.

• Essential Elements of Waiver
• A voluntary act.
• Relinquishment or abandonment of a right.
• Can be done either orally (via conduct) or in a written format.
• Either express or implied,
• Knowledge of existing rights.
• Intention to forgo such rights.
• Waiver Under Judicial Pronouncements

The concept of Waiver has been elaborated by the Indian judiciary in the multitude of cases.

• InM/S Motilal Padampat Sugar Mills … vs State Of Uttar Pradesh And Ors on 12 December 1978, the Hon’ble Supreme Court has held as follows:

Waiver means the abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be “an intentional act with knowledge“. Per Lord Chelmsford, L.C. in Earl of Darnley v. London, Chatham and Dover Rly. Co. There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it. It is pointed out in Halsbury’s Laws of England (4 d) Volume 16 in paragraph 1472 on page 994 that for a “waiver to be effectual it is essential that the person granting it should be fully informed as to his rights.

• The Hon’ble Supreme Court in Dasa Muni Reddy vs P. Appa Rao on 10 September, 1974has held Waiver to mean as follows:

Waiver is an intentional relinquishment of a known right or advantage, benefit, claim or privilege which except for such waiver the party would have enjoyed. The waiver can also be a voluntary surrender of a right. The doctrine which the courts of law will recognize is a rule of judicial policy that a person will not be allowed to take inconsistent positions to gain advantage through the aid of courts. Waiver sometimes partakes of the nature of an election. The waiver is consensual in nature. It implies a meeting of the minds. The doctrine does not depend on misrepresentation. Waiver actually requires two parties, one party waiving and another receiving the benefit of waiver. The essential element of waiver is that there must be a voluntary and intentional relinquishment of a right. The voluntary choice is the essence of waiver. There should exist an opportunity for choice between the relinquishment and an enforcement of the right in question. It cannot be held that there has been a waiver of valuable rights where the circumstances show that what was done was involuntary. one cannot waive that which is not one’s as a right at the time of the waiver. Some mistake or misapprehension as to some facts which constitute the underlying assumption without which parties would not have made the contract may be sufficient to justify the court in saying that there was no consent.

• No-Waiver Clause

The no-waiver clause makes sure that if parties fail to exercise their legal rights or delay in exerting their legal rights, that does not imply a waiver of those rights or loss of remedies.

• Limitations of a no-waiver clause

• In case ofHovnanian Land Investment Group, LLC v. Annapolis Towne Centre to Parole, LLC the Maryland Court concluded that, in certain circumstances, the terms of the contract may be waived by actions, statements etc. by the parties without a written waiver even when the contract in question contains a no-waiver clause.

• As in the recent case of UK, the court found that a party has waived its right to terminate the agreement by failing to enforce its termination right until approximately a year after the breach occurred. Despite the fact that this agreement contained a non-waiver clause.

• In Tele2 International Card Company SA and others v Post Office Ltd the Post Office sought to rely on a no waiver clause. A supplier of the Post Office, breached a contract but the Post Office continued to perform their obligations for a whole year before complaining about the breach and giving notice of termination of the contract.Despite having a no waiver clause, the delay and the continuation of the contract did amount to an election, and also amounted to choosing to abandon the right to terminate the contract.

• Waiver: An intentional relinquishment of a right; an agreement not to assert a right: 

Kalparaj Dharamshi v. Kotak Investment Advisors Ltd on 10 March, 2021

The 3-judge bench has explained true test to determine whether a party has waived its rights or not. It has held that for establishing waiver, a party expressly or by its conduct acted in a manner, which is inconsistent with the continuance of its rights. There can be no waiver unless the person who is said to have waived, is fully informed as to his rights and he intentionally abandons them.

“As such, for applying the principle of waiver, it will have to be established, that though a party was aware about the relevant facts and the right to take an objection, he has neglected to take such an objection.”

However, the mere acts of indulgence will not amount to waiver. A party claiming waiver would also not be entitled to claim the benefit of waiver, unless it has altered its position in reliance on the same.

The Court explained that a waiver cannot always and in every case be inferred merely from the failure of the party to take the objection.

“The waiver or acquiescence, like election, presupposes, that the person to be bound is fully cognizant of his rights, and that being so, he neglects to enforce them, or chooses one benefit instead of another.”

• Whether Liquidated Damage is Waived if not Imposed in the First Instance

Hon’ble Supreme Court, in the matter of Welspun Specialty Solutions Limited Vs. ONGC reported as 2021 may stimulate rethinking in the manner of operation of liquidated damages clauses found in several contracts. In this case, the apex court finally upheld an award passed by a ld. sole arbitrator holding that ONGC was not entitled to recover liquidated damages having waived imposition of LD while granting first two extensions.

Once liquidated damages were waived in the first two extensions, subsequent extensions could not be coupled with liquidated damages unless a clear intention flowed from the contract.

Conclusion:

Waiver is a voluntary relinquishment of rights and it is clear that a party can only abandon a right that he is aware of. There can be no waiver of a right, advantage, benefit, claim or privilege which a party has no idea about. Waiver is a concept of wide ambits and the judiciary from time to time has tried to provide a comprehensive meaning to the same. It has also provided some clarity around the intricacies that revolves around the no-waiver clause. It can be said that no-waiver clause does not provides absolute independence from exercising one’s rights if a party is not showing willingness to exercise their rights within a reasonable period of time. The doctrine of waiver is a very important feature relating to each and every contract and it requires more attention to it while drafting of a contract as it can cause major effects to it.