The High Court recently considered the law of waiver – specifically contractual waiver and waiver based on promissory estoppel – in Little and another v Olympian Homes Ltd [2024] EWHC 1766 (Ch).
Ciaran Little and James O'Shea (together, the "Applicants") made applications to set aside statutory demands for sums due to Olympian Homes Limited (the "Lender") under personal guarantees given in respect of the obligations of Tribeca Property Ltd ("Tribeca") under a facility agreement. The Applicants argued that they were not liable for the interest as the Lender had waived its rights through either contractual waiver or waiver by estoppel.
Although the contractual waiver argument failed, the estoppel argument succeeded and resulted in certain clarificatory points being made by Judge Marcia Shekerdemian KC in her judgment.
Background
Tribeca borrowed £170,000 from the Lender by way of a facility agreement dated December 2020 and under which the Applicants provided personal guarantees to the Lender.
Tribeca did not repay the full amount due under the facility agreement by the maturity date. The loan was repaid, albeit late, following which Tribeca fell into liquidation. The Lender claimed that the Applicants owed interest under the personal guarantees, the sum of which was said to be £102,165.81.
On 6 November 2023, the Lender issued statutory demands to the Applicants. The Applicants in turn filed applications to have the statutory demands dismissed on the grounds that the Lender had waived payment of the interest, either by contract or by estoppel.
Waiver by contract unsuccessful
The High Court held that the argument for contractual waiver did not succeed.
Contractual waiver occurs when one party to a contract voluntarily agrees to not enforce a specific term of that contract against another party to it. This can be done orally, impliedly, or in writing, depending on any requirements in the contract.
Numerous emails had been exchanged between the parties concerning the repayment of the loan and the release of the security. A draft deed of release was also sent to the Applicants from the Lender as regards the release of charges, following the request from the Applicants for confirmation that the loan had been redeemed and the security released.
The Applicants tried to rely on those emails as the basis for a contractual waiver, but the emails contained no specific request regarding the waiving of the payment of interest. In her judgment, Shekerdemian KC referred to Chitty on Contracts which stipulates a "request" to be a necessary condition for waiver by contract. Chitty reads:
"Where one party voluntarily accedes to a request by the other that he should forbear to insist on the mode of performance fixed by the contract, the court may hold that he has waived his right to require that the contract be performed in this respect according to its original tenor". (Chitty on Contracts, (35th edition., Sweet & Maxwell, London 2023), §26-043.)
The High Court held, given the facts and applying Chitty, that there was no clear request and acceptance in writing for the interest to be waived. Shekerdemian KC also stated that the Applicants could not rely on request and acceptance being given orally as the facility agreement contained a clause requiring that any waiver was to be in writing.
What the judgment did not do is explain how that analysis referencing request and acceptance maps over to that well known mechanic of offer and acceptance that is a necessary condition for forming contracts under English law. Perhaps the point will be explored on appeal.
Waiver by estoppel
The Applicants were, however, successful in their argument for waiver by estoppel.
In order to have the Lender's statutory demands set aside, rule 10.5(5)(b) of the Insolvency Rules 2016 required the Applicants to establish substantial grounds to demonstrate that the debt was disputed.
Shekerdemian KC held that the availability to the Applicants of promisorry estoppel as a defence was a "genuine triable issue" and proceeded to examine whether the relevant grounds were met and
- whether a clear and unequivocal representation or promise was made (given by the Lender to the Applicants);
- whether there was an intention (by the Lender) that the representation or promise would be relied upon (by the Applicants); and
- whether such representation or promise was in fact relied upon (by the Applicants) and whether such reliance was reasonable.
The judge found that a "clear and unequivocal" statement in an email between the parties stating that the Applicants were released from the terms of the facility agreement and attaching a draft deed of release. It was irrelevant that the deed of release was incomplete and that it was not executed. Instead, it was held that the Applicants had clearly understood from the email exchange that they had been released from the terms of the facility agreement and that no additional formalities were necessary.
Reasonable reliance by the Applicants was also found as the Applicants did not pay any further interest to the Lender following the (late) repayment of the loan, despite having the funds to do so, and the Lender even went on to provide a further interest-free loan to a related entity.
A side note on the requirement for "in writing" communications
Shekerdemian KC went on to confirm that where a contract requires a waiver to be made "in writing", emails will suffice and qualify for these purposes. The High Court accordingly held that emails can be signed electronically if the email:
- includes the relevant individual's name in the footer;
- has an appropriate sign-off (e.g. 'kind regards' or 'thanks') is included to connect the individual's name and the email's content; and
- contains the names and contact details in the conventional style of a signature.
On transactions generally, as a general comment, emails signatures are not always applied to emails and as transactions speed up and parties and advisors operate on email across multiple devices, contact details and other formalities tend to fall by the wayside.
A side note on consideration in contractual waivers
Alongside the requirement for there to be a clear 'request' and 'acceptance' of the matter being waived, consideration must also be present under contract law in order for a contractual waiver to be valid. Both parties had therefore assumed that that contractual waiver in this case needed to be supported by consideration.
Curiously, Shekerdemian KC instead held, citing Chitty, that consideration was not an "essential component" of – i.e. a necessary condition for – a contractual waiver unless the waiver is characterised as a variation. Other than contracts that are executed as deeds, under contract law, consideration is another necessary condition for a contract to be formed and for a contractual waiver to be valid. Not all of the commentary on this point agrees with Shekerdemian KC (and counsel for both sides appear to have assumed that consideration would be necessary.
Concluding thoughts
As ever, whenever parties are seeking to enter into, vary, amend or terminate contractual relations the conditions required to achieve the desired result need to be thought through carefully. Parties will not typically want to find themselves in the High Court arguing over what was said in voluminous and historical email correspondence.
Thought should be given to email correspondence which may inadvertently give rise to a waiver by estoppel, regardless of the fact that no consideration is being given and no further contracts or variations of them are entered into.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.