Contractual Waiver and Waiver by Estoppel - key takeaways from Little and another v Olympian Homes Limited

Briefing

Introduction

Senior paralegal, Andrea Marotti discusses the judgment handed down recently in the case of Little and another v Olympian Homes Limited [2024] EWHC 1766 (Ch). Applications were made to set aside statutory demands for sums due under personal guarantees in relation to a facility agreement, largely comprised of unpaid interest. The obligation to pay these sums was disputed with arguments advanced based on contractual waiver or if that failed, waiver by estoppel. The statutory demands which the applicants sought to set aside in this case were ultimately set aside based on the existence of an operative promissory estoppel, with the arguments based on contractual waiver dismissed, but there were some key takeaways in relation to contractual waiver which are discussed below.

Relevant facts

Tribeca Property Ltd (TPL) (a company set up by Ciaran Little (CL)) borrowed £170,000 from the respondent, Olympian Homes Limited (OHL) pursuant to a facility agreement dated December 2020 (the Facility Agreement). The borrower failed to repay the Facility Agreement in full on the maturity date, and a dispute arose over sums composed largely of contractual default interest, accrued pursuant to the Facility Agreement, asserted to be due from CL and James O'Shea (JOS) under personal guarantees. Statutory demands were served on each of CL and JOS by OHL on 6 November 2023, and both applicants applied for orders setting such demands aside.

Commercial and boilerplate terms of the loan relevant to the dispute were:

Interest was payable at a rate of 2% per month (Clauses 6.1 and 6.2 and confirmed by email by JOS).
Default interest was payable at an increased total rate of 3% per month (Clause 6.3).
The repayment date was set at 27 January 2022.
A waiver clause was included incorporating an "in writing" requirement for any party wishing to waive any rights or remedies it has under any "Finance Document".
An amendment clause was included providing that no amendment of a "Finance Document" will be effective unless in writing and signed by or on behalf of each party.

A further loan was put in place in November 2022 (the Balia Loan) which is relevant to the dispute only in so far as to the applicants asserted the zero-interest element of the Balia Loan constituted consideration for the contractual waiver of interest for the loan under the Facility Agreement.

Basis of challenge

The two arguments advanced by the applicants were:

that the interest was waived by agreed contractual waiver, with various forms of waiver advanced as the source of the asserted waiver
that a waiver by estoppel operated to prevent OHL from seeking to recover the interest

Court's reasoning

Contractual Waiver

Arguments were raised by the applicants asserting various forms of waiver including orally, by conduct (sending over a deed of release in draft, not pursuing interest for a year, using CL's services without payment and without communicating the continued accrual of interest) and by written contractual waiver (via various combinations of email and text message communications in October 2022). The first two (oral/by conduct) were withdrawn leaving the assertions of written contractual waiver by email to be properly considered by the court.
CL and OHL exchanged a series of emails of an informal nature between 4 October 2022 and 10 October 2022 (the Emails) which became critical evidence requiring detailed consideration by Marcia Shekerdemian KC (the Judge). In the Emails, CL confirmed payment of the second tranche of the Loan; sent a draft unsigned Facility Agreement to OHL's Head of Legal (Tom Piper) with covering language: "please see enclosed documents related to this loan which has now been redeemed"; and requested confirmation that the security in relation to the Loan would be released. Tom Piper provided a short release document confirming release of [TPL], CL and JOS from the terms of the facility and release of charges over property also entered into in support of the Loan. The draft deed of release was unsigned with a blank reference to the date of the Facility Agreement. A series of text messages between the parties again of an informal nature were also considered to see if they contained the required elements to establish a valid waiver.
Chitty on Contracts (35th edn, Sweet & Maxwell, London 2023) was referred to in order to clarify what the law requires for a valid waiver with the following statement relied upon: "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".
Applying Chitty to the facts at hand, and put simply, there was no clear request and no clear acceptance, generally nor which complied with the waiver clause in the Facility Agreement.
The issue of required consideration was also discussed with the Judge acknowledging that it was not made out, but in any event that the case for establishing a waiver failed on the request/acceptance grounds. Consideration in this context is discussed further below in Key Takeaways.

Waiver based on promissory estoppel

The Judge found there was a genuine triable issue on the question of the existence of an operative promissory estoppel noting the following points (each of which is an essential component of a defence based on promissory estoppel):

A clear and unequivocal representation was given by OHL to the applicants in the 10 October email that TPL was released from the Facility Agreement, and the applicants were released from their personal guarantees – the draft deed of release attached to an email from OHL was found by the Judge to constitute either part of the representation contained in that covering email or a piece of evidence supporting that representation, noting that it was "complete in every material respect" and only missing the date of the Facility Agreement.
Applying an objective test, OHL intended the representation in that email to be relied on by the applicants, this being evident from the unequivocal language used, the attachment of the draft deed of release and the request for a signed copy of the Facility Agreement. It was considered eminently arguable that the Emails read together, or the 10 October email alone, comprised “an unequivocal statement which objectively assessed indicates an intention or promise to give up, or not to enforce a right” or, alternatively and taking into account surrounding events, that has been “clear conduct which objectively assessed indicates an intention or promise to give up, or not to enforce a right”.
There was also found to be reliance by the applicants and such reliance was found to be reasonable. Reliance could be demonstrated by the fact that the applicants had not paid any interest, despite having the funds to do so, and it was considered to be reasonable in nature, noting that the 10 October email was received from the Head of Legal of OHL to whom CL had been directed by OHL.

The Judge also noted in this regard that the issue of interest was not raised by OHL until almost a year later, on 20 September 2023, therefore it would be inequitable for OHL to go back on its promise.

Key takeaways

The requirement for consideration in the context of a contractual waiver was discussed (albeit in this context noting the waiver claim had failed in any event). It was held not to be the case that it is inevitably required unless the contractual waiver is more appropriately characterised as a contractual variation. If a waiver is more appropriately classified as a variation or amendment, then consideration is required and it would also need to comply with the terms of the amendment clause.
A number of the statements asserted to constitute a contractual waiver were contained within emails. The Judge noted that the waiver clause in the Facility Agreement simply required "writing" and confirmed that emails clearly qualify as "writing" for the purpose of a contractual stipulation. The question of whether an email was validly signed electronically was also considered, and the judgment of HHJ Pearce in Neocleous v Rees [2019] EWHC 2462 (Ch) referred to, noting that what is required includes "a clear intention to associate oneself with the email - to authenticate it or to sign it". In the case at hand, the emails were considered to have been validly signed electronically in that individuals' names were added or formed part of the footers on both sides; the insertion of "Kind regards", "Thanks", "Many thanks" and "BR" showed an intention to connect the names with the content of the emails and on the OHL side, the footers contained names and contact details in the conventional style of a signature. These are all useful reminders of the ways in which valid electronic signature can be demonstrated via email.