Non-waiver agreements: Striking Gold

A few times every year we get a court case that is simply worth keeping - it may not have a set of highly memorable facts but it does contain some legal “gold” and thus ought to be printed, retained and used as a reference point. One such case is the recent ZVI Construction Co LLC vs The University of Notre Dame (USA) In England in the Technology and Construction Court. This case gives the reader excellent guidance and a stark reminder about the effectiveness of so-called “waiver can only be in writing” clauses and on the practical vulnerabilities of taking part in an expert determination without a reservation of position.

On the first issue - one often sees clauses like: “No modification, alteration or waiver of any of the provisions of this agreement, except as otherwise provided in this agreement, shall be effective unless it is in writing and signed by or on behalf of the party against which the enforcement of such modification, alteration or waiver is sought.”

Such clauses are often referred to as “non-waiver provisions” or “anti-oral variation clauses”. The key issue is whether such clauses can be actually waived in the absence of writing? The ZVI Construction case shows that such clauses are not automatically effective and that it is, on the facts, open to the parties to amend terms in contracts orally. It does this after a long and detailed legal analysis of several Court of Appeal cases.

This case gives the reader excellent guidance and a stark reminder about the effectiveness of so-called ‘waiver can only be in writing’ clauses

The case is useful because it makes it clear the existence of a non-waiver clause is just one factor and what must be determined by the court is whether, by their actions, words or conduct the parties must be taken to have intended to modify or alter or waive a specific term of the agreement, bearing in mind they agreed to a non-waiver clause in the first place. The mere existence of a so-called non-waiver clause is not a complete defence in circumstances where it appears the parties have acted differently relative to what the express words of a specific clause. This will surprise some readers and that is in part why one ought to read and retain the ZVI Construction judgment.

The second piece of “gold” gleaned from the case relates to the dangers of a party taking an active role in an expert determination process and then realising that strictly speaking the expert determination process was not applicable to it. Here the court said:

A party to a contract containing a clause providing for disputes to be decided by an expert can expressly or impliedly, by words or conduct, confer jurisdiction on such an expert where otherwise there would be none

• There is no pure legal principle which exempts expert determination clauses from such a doctrine. It is, however, a question of fact as to whether there has been a clear submission to the jurisdiction
• One principal way of determining there was no such implied agreement is if, at any material stage shortly before or, mainly, during the expert determination, a clear reservation was made by the party objecting to the expert’s jurisdiction
• A clear reservation can, and usually will, be made by words expressed by or on behalf of the objecting party. Words such as “I fully reserve my position about your jurisdiction” or “I am only participating under protest” will usually suffice to make an effective reservation
• A waiver can arise where a party, who knows or should have known of grounds for a jurisdictional objection, participates without any reservation of any sort; its conduct will be such as to demonstrate that its non-objection on jurisdictional grounds and its active participation was intended to be and was relied upon by the other party in proceeding with the expert determination
• However, it would be difficult to say that there was a waiver if the grounds for objection on a jurisdictional basis were not known of or capable of being discovered by that party.

This may surprise some readers because considered wisdom is that clear wording in a contract is needed to confer power or jurisdiction to an expert and because the court reached this decision after applying the law and principles already developed in the context of statutory adjudication (which is a very different process).

Readers ought to retain the ZVI Construction judgment because it explains the logic of how so-called non-waiver clauses can, actually, be circumvented and it explains that certain procedural issues in expert determination borrow from the established law on adjudication. It is a case that is likely to be used where one party seeks to use the “waiver in writing” defence and the other party says that the facts trump such a clause. That all said, it is refreshing to have the opportunity to cover a case without having to go through all the facts.

Hamish Lal is a partner in the international arbitration practice at Akin Gump