Business challenge: Strict contract compliance is difficult
Freshly signed, shiny and new commercial contracts ideally represent the intentions of the signing parties. Given that they are a key tool in communicating and confirming the commercial arrangements made, they should set out the terms and conditions by which the parties will perform their respective obligations.
In that sense, a commercial contract is a ‘rule book’ as to how the parties will interact. Although these rules can be finely detailed, strict compliance is sometimes only aspirational.
The practical realities of day-to-day business intrude. Stuff needs to get done! Parties often have mutual goals to achieve, which can cause a party to grant a one-off concession on a contract term; or, sometimes, not so one-off… This can result in misunderstandings or even presumptions by the excused party.
When does one party’s apparent flexibility on a contract term reasonably entitle the other party to expect and rely on that tolerance? What is the criteria for a party to be deemed to have waived a contractual right?
What is a waiver?
Let’s start by clarifying that the term is waive, not wave. Although they sound the same and the latter intuitively ‘fits’, in this case we are only concerned with waive.
The word is probably derived from the Anglo-French weyver, to abandon or forgo (www.etymonline.com).
In contract law, a waiver occurs when one party to a contract takes steps that amount to forgoing reliance on some known right or defect in the performance of the other party (Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, para. 63; “Technicore”).
When does a waiver pop up?
Of course, between contracting parties, the words waiver or waive are seldom used explicitly.
Rather, when a conflict is brewing and one party gets ‘called out’ by the other for not complying with a term, arguments based on notions of waiver emerge. This is often in the context of the timing of payments, notices of claims, or meeting specifications.
Sometimes the protests of a ‘non-compliant’ party are righteous: they’ve seldom or never been required to abide by the term; they thought there was an implied understanding. Suddenly, the other party is holding strict compliance out as a (possibly cynical) basis to deny compensation or some such entitlement under the contract.
Other times, a non-compliant party has gone ahead and ignored a term without justification or because they’ve taken the other party’s silence as approval. Then, faced with the contractual consequence of their lapse(s), they scramble for an out, and conveniently arrive at “waiver”.
The most frequent scenarios are, of course, somewhere in between these two extremes with a sprinkling of the waiver’s cousin, estoppel (not another legal term!). Estoppel is a legal principle that prevents a party from asserting or denying a particular fact or claim in a legal proceeding or dispute.
It comes into play when one party has relied on the words, actions, or representations of another party to their detriment. So, it is very close in nature to a waiver.
A waiver is tough to establish
It takes much more than, “but, I thought that!” to convince a judge and so a waiver is generally tough to establish at law.
A court will find waiver only where the evidence shows that the ‘waiving party’ had (1) a full knowledge of the other’s deficiency that might be relied on, and (2) an unequivocal and conscious intention to abandon the right to rely on it (Technicore).
The intention to give up the right must be communicated, whether formally or informally. Although that communication can be inferred from conduct, the key is whether there was a clear intention to waive a right (Technicore).
The clear intention by the supposed waiving party is the rub: it doesn’t matter what the non-compliant party subjectively believed, it is the subjective or objective intention of the party waiving that is the focus (Symtech Innovations Ltd. V. Siemens Canada Limited, 2023 ONSC 5795; para. 89).
In determining whether a party has waived a right, the court will typically look first to the contract made, then to the conduct of the parties as well as correspondence exchanged, including emails.
But, for example, if the substance of an email of a purported waiving party merely amounts to a limited indulgence granted on incomplete knowledge of the scope of the other’s non-compliance, this doesn’t amount to waiver (e.g., SS&C Technologies v. Bank of New York Mellon et al., 2021 ONSC 2657, para. 75).
Similarly, if the allegedly waiving party had been mistaken in its belief or understanding on a key fact, its conduct is not a waiver because it cannot be said that it had full knowledge of its rights (e.g., BelairDirect Insurance Company v. Continental Casualty Company, 2023 ONCA 834, para. 22).
Another unsuccessful approach is ‘whataboutery’ or throwing shade on the waiving party’s arguable failure to comply with another unrelated term of the contract to suggest that strict compliance was not required (e.g., Elite Construction Inc. v. Canada, 2021 ONSC 562, paras. 86-94).
However, evidence might show there was a pattern of conduct by the parties over the course of the contract showing the parties did not intend to be bound by a certain term.
If so, the court could find that the parties had, indeed, varied the terms of the contract and, therefore, the waiving party cannot revert to the original rigid letters of a contract term (see Colautti Construction Ltd. v. Ottawa (City of), 1984, 46 O.R. (2d) 236).
Takeaway
Merely because a contracting party does not hold the other to strict compliance on one occasion or has been silent on an isolated deficiency does not mean the ‘offending party’ gets an indefinite free pass on that term or any other part of a contract.
To establish waiver, the waiving party must fully know of the right and the non-compliance. Plus, they must clearly convey their intent to waive their right to rely on the deficiency.
About the author:
Kris Dixon is a litigator at Soloway Wright LLP with a focus on Construction Litigation, Commercial Litigation and Insurance Law.
He regularly represents contractors and subcontractors in navigating all manner of complex construction disputes.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
