The dangers of delay in exercising a right to terminate
AUTOMATIVE LATCH SYSTEMS v HONEYWELL [2008] and
TELE2 INTERNATIONAL v THE POST OFFICE [2008] (CA)
Most contracts contain the standard ‘boiler plate’ provision that no delay in exercising a right under the contract will constitute a waiver. These two cases demonstrated that, in the context of termination, any delay could be fatal and the Courts are perfectly willing, in appropriate cases, to find that the delay does amount to just such a waiver of the right to terminate.
decision - Automotive Latch Systems:
- The High Court ruled that ALS could not rely on past breaches as grounds for terminating a joint collaboration agreement (JCA) with H. To the extent that H had breached the JCA, these were found to have occurred at least six months before the date of ALS' notice of termination and they were not continuing breaches which continued unremedied but were past breaches which had been followed by subsequent good progress.
- ALS had not acted in relation to those breaches at the time they occurred in the sense of serving notice under the termination clause. The Court therefore rejected ALS' arguments justifying its later termination as 'artificial'. The fact that ALS continued with the JCA, albeit subject to ongoing protests about H’s performance, was critical to its entitlement to terminate (although the Judge did query whether the complaints may have been sufficient to preserve a right to damages). If ALS had acted promptly the position might have been different.
- However, by the passage of time the right to terminate for the historic breaches had been lost even though the JCA contained the fairly typical provision about ‘any delay or failure to enforce rights shall not constitute a waiver’. The Court dealt with this by saying that given the passage of time, there was no longer any ‘right’ which was capable of being waived.
facts - Tele2 International:
This case concerned an agreement to supply phonecards and dealt with precisely the same point as the Honeywell case. The PO gave written notice to terminate the agreement on the ground that T had failed in due time to provide parent company guarantees as required by the agreement. This notice was served almost a year after the breach. The contract provided:
"In no event shall any delay, neglect or forbearance on the part of any party in enforcing... any provision of this Agreement be or be deemed to be a waiver thereof or... in any way prejudice any right of that party under this Agreement".
On the face of it this provision meant that the delay was irrelevant.
decision - Tele2 International:
- The conclusion in Honeywell was re-emphasised. The Court of Appeal held that by continuing performance of the agreement for nearly a year without any protest of any kind in relation to the failure was consistent only with an election to abandon the right to terminate for that breach. It was a clear and unequivocal communication, by conduct, of the PO's election to affirm the agreement and to abandon its right to terminate it for breach.
- One of the Judges said that "the general law demands that a party which has a contractual right to terminate a contract has to elect whether or not to do so". The PO was therefore not entitled to terminate and its action was an anticipatory repudiation of the agreement giving rise to a claim against it for damages.
- On the facts it was found that T had not been able to show that it had suffered any damage but the principle remains valid that delay in terminating could be disastrous.
point to note:
Whilst these are fairly extreme cases, make sure that if you do delay, and perhaps get involved in negotiations aimed at securing improved performance, that you document your complaints promptly, make it very clear that you are reserving your rights and do not allow too much time to elapse. Otherwise you may find your right to terminate has been lost.