A recent case in the Northern Ireland High Court has served as a reminder to lenders that, if they become aware of a breach by a borrower under a loan agreement, prompt action is necessary to protect their position. If the breach is ignored, a lender may have waved goodbye to its rights (such as calling for early repayment) in respect of the breach. The English courts have also taken this approach.
Are ‘no waiver’ clauses enough?
Loan agreements usually contain a ‘no waiver’ clause which provides that the lender’s failure to exercise or delay in exercising its rights under the agreement is not to operate as a waiver of any of those rights. However, this may not be enough to protect the position.
In a case in 2009 , a supplier of prepaid phone cards had an ongoing distribution agreement with the Post Office. One requirement was that, by the end of every year, the supplier had to provide a parent company guarantee for the coming year. The guarantee for 2004 was not provided by 24 December 2003, as the agreement required, but the Post Office merely let the agreement run. It was not until nearly a year later that the Post Office claimed to be able to terminate the agreement because of the failure to provide the guarantee (which the agreement entitled it to do). The agreement contained a no waiver clause.
The Court of Appeal held that the clause did not help – the Post Office knew of the breach but continued to let the agreement operate, without any protest about the breach or any reservation of its rights. It was therefore treated as if it had abandoned its right to terminate because of this particular breach.
Don’t abandon your rights!
Practically, what should lenders do to prevent this happening?
Although potentially helpful in certain circumstances, the ‘no waiver’ clause should not be seen as the only protection. If a lender is or becomes aware of a breach by a borrower and (for what may be good commercial reasons or to take time to assess the effects of the breach) takes no action at the time, it should inform the borrower in writing that it reserves all its rights in respect of the breach. If the lender continues to deal with the borrower and perform its obligations under the agreement, it should be made clear (on a regular basis, if necessary) that the fact that no action has been taken does not mean that the breach has been waived. It is important that the matter should not just drift and the final resolution to the breach, whether it is early termination, a formal waiver or another negotiated position, should be formally recorded.
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 Tele2 International Card Company SA and others v. Post Office Limited  EWCA 9