The law of variation, waiver and estoppel, it has been said, is a difficult subject. Perhaps the following passage explains it best:
"The law is still in a state of development and neither the boundaries nor the requirements of the two doctrines (waiver and estoppel) are as yet clearly marked out. The area is further confused by the inconsistent use of terminology. Different judges and writers use different words to mean the same thing and the same words to mean different things. 'Waiver', 'total waiver', 'waiver of remedy', 'waiver of rights', 'election', 'abandonment', 'equitable estoppel', ' quasi estoppel' and 'waiver estoppel' are among the expressions which have been used. It is clear that several of these expressions mean the same thing."1
This article examines the doctrine of waiver and its application in this jurisdiction.
Waiver at common law
The word "waiver" should apply strictly to forgiving non-performance, either before or after the time for performance has arisen. However, the word has also been used with reference not only to a waiver of performance, but also to a waiver of a breach of contract; that is to say, a waiver of the rights of an innocent party arising out of the breach by the other party.
It appears from the literature that there are at least four types of waiver to consider:
(a) A waiver of breach which may be in the form of:
(i) a waiver by election; or
(ii) a total waiver.
(b) A waiver of performance which can take the form of:
(i) a forbearance waiver;
(ii) a unilateral waiver.
The distinction between the two categories is premised on whether there is an accrual of a right.
In situations involving a breach of contract, the application of either category of waiver would depend on the seriousness of the breach. Where there has been a serious breach which goes to the root of the contract, a right accrues to the innocent party to terminate the contract and it is in that situation that a waiver of breach could operate.
If, however, the breach does not entitle the innocent party to terminate the contract, his remedy lies only in damages and it is in such a situation that a waiver of performance could arise.
Further, there can be a waiver of performance without a breach of contract.
Common elements
There are several common elements in all four types of waivers. Firstly, a waiver in principle does not require consideration.2 This is what differentiates a waiver from a variation, where the presence of consideration is vital:
"A waiver is distinguishable from a variation of a contract in that there is no consideration for the forbearance moving from the party to whom it is given... Although consideration need not be proved, certain other requirements must be satisfied for such an estoppel to be effective."3
(Emphasis added)
Even where performance is varied, it only amounts to a waiver if there is no consideration:
"Where an agreement to vary a contract is not itself contractually enforceable for want of consideration it will only take effect, if at all, as a waiver or on the basis of the doctrine of promissory estoppel."4
Secondly, in order for a waiver to be effective, the waivor needs to make a clear and unequivocal representation to that effect, either by words or by conduct:5
"A party can represent that he will not enforce a specific legal right by words or conduct. He can say so expressly — this of course he can only do if he is aware of the right. Alternatively he can adopt a course of conduct which is inconsistent with the exercise of that right. Such a course of conduct will only constitute a representation that he will not exercise the right if the circumstances are such to suggest either that he was aware of the right when he embarked on the course of conduct inconsistent with it or that he was content to abandon any rights that he might enjoy which were inconsistent with that course of conduct."6
For conduct to amount to an unequivocal representation, it must be unequivocal in the true sense of the word — it must be capable of one construction only, namely, that the waivor has chosen to forgo his rights.7 Although silence alone cannot constitute a waiver, it may give rise to an unequivocal representation of a waiver when viewed in its context.8
Finally, it is necessary for the waivor to be aware of the facts that gave rise to the rights being forgone, the right to forgo those rights and the connection between the two.9
Waiver by election
This form of a waiver of breach arises:
"... when a state of affairs comes into existence in which one party becomes entitled, either under the terms of the contract or by the general law, to exercise a right and the party has to decide whether or not to do so".11
In other words, waiver by election arises as a reaction to a non-contractual or defective performance by the other party,12 and therefore occurs only when a right to terminate has arisen.13
The circumstances that would lead to the accrual of a right to terminate include those where the waivor suffers a repudiatory breach of a contract by the other party, or where the waivor is prejudiced by a misrepresentation of the other party.14
In the case of a repudiatory breach, the waivor as the innocent party can accept the repudiation and treat himself as discharged from the contract and claim damages or, alternatively, to affirm the contract and reserve the right to claim damages.15 In the case of a misrepresentation, the waivor as the representee is faced with a similar choice, either to rescind or to affirm the contract.16
Faced with a choice of two alternative and inconsistent courses of action,17 once the waivor chooses one over the other, he will be taken to have waived the rights to the course so abandoned.18
Because of the need for certainty and finality in contract dealings, once a waivor has elected one course of action over the alternative, the election is irrevocable, irrespective of whether there has been any reliance on such election by the waivee.19
The nature of a waiver by election has been described in the following terms:
"Where a party in his own mind has thought that he would choose one of two remedies, even though he has written it down in a memorandum or has indicated it in some other way, that alone will not bind him; but so soon as he has not only determined to follow one of his remedies but has communicated it to the other side in such a way as to lead the opposite party to believe that he has made that choice, he has completed his election and can go no further; and whether he intended it or not, if he has done an unequivocal act — I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected another way — the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election."20
Total waiver
As with waiver by election, total waiver is also a response to a repudiatory breach of contract.21 A total waiver, similarly, does not require reliance on the part of the waivee, and is irrevocable once exercised.
However, unlike a waiver by election, in the case of a total waiver, the waivor forgoes all his rights. In other words, the waivor waives not only his rights to treat himself as discharged from further performance, but also his right to damages.22
The drastic nature of a total waiver makes it a rarity:
"Court will generally be slow to construe such a situation as involving a total waiver and clear evidence will be needed to show that the waivor intended to abandon all rights in respect of the breach and not merely to forgot the right to terminate the contract."23
Forbearance waiver
This form of a waiver may be described as:
"The abandonment of a right in such a way that the other party is entitled to plead the abandonment by way of confession and avoidance if the right is thereafter asserted."24
Forbearance waiver may arise before or after a contractual term falls due for performance.25 The effect of a forbearance waiver in the context of a breach of contract is that the waivor is prevented from complaining of any breach of the term, the performance of which has been waived.26
Unlike a waiver by election, in the case of a forbearance waiver, the waivor is not put to any election of alternative remedies and can expressly or by its conduct suggest that the waivee need no longer perform its future obligations under the contract.27
A forbearance waiver is only binding if it is relied on by the waivee.28 However, a forbearance waiver is suspensory in nature in that it is revocable, and only becomes irrevocable after the waivee alters his position in reliance on it:29
"It has been suggested that reliance is necessary in such a case because the waiver operates in effect as an alternative to a variation of the contract; reliance is therefore necessary to take the place of consideration. Election waiver, on the other hand, is justified by reference to the need for certainty and finality in contact dealings."30
A further distinction between a waiver by election and a forbearance waiver is that the former is retrospective while the latter is prospective which waives the future performance of a particular obligation.31 Forbearance waiver has therefore been said to:
"... amount to a 'dissolution pro tanto of the [particular] contractual tie between the parties' with both parties retaining their accrued obligations but being discharged from the future performance of particular obligations under the contract."32
Unilateral waiver
This form of a waiver of performance arise where the waivor, having the sole benefit of a provision in the contract, decides unilaterally to forgo the benefit of such provision.33 The exercise of a unilateral waiver is wholly for the benefit of the waivor and does not affect the waivee's performance of the contract.34 Naturally, there need be no breach of contract by the waivee for the waivor to exercise a unilateral waiver.35
Waiver under Malaysian law
The courts in Malaysia do not appear to have considered the subject of waiver with the same degree of distinction similar to what has been presented in the above.
It has been suggested in the leading case on the subject, Associated Pan Malaysia Cement Sdn Bhd v Syarikat Teknikal & Kejuruteraan Sdn Bhd36 ("APMC"), that our law, which is founded on s 64 of the Contracts Act 1950 ("the Act"), represents a departure from English law.
Section 64 of the Act reads as follows:
"Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit."
In delivering the judgment of the court, Gunn Chit Tuan SCJ (as he then was) held:37
"The word 'waiver' is used in the English common law in a variety of different senses. As pointed out by the respondent, it was unfortunate that the appellant, as the defendant, had not submitted to the trial judge in what sense the word was pleaded and used. But we agreed with Mr Sri Ram [counsel for the appellant] that s 64 of our Contracts Act 1950, which was also not brought to the attention of the learned judge, represents a departure from the common law in England. Our law on waiver in s 64 of the Contracts Act 1950 is similar to the Indian law on the general principles of waiver under which it is open to a promisee to dispense with or remit wholly or in part the performance of the promise made to him or he can accept any promise which he thinks fit. Under our law neither consideration nor an agreement will be necessary. But in this case we also agreed with the respondent that it had not been shown to the trial judge or to us that the respondent had intentionally forgone its claims. On the other hand the learned judge who saw and heard Mr Ong in the witness box accepted his evidence that the respondent did not intend to abandon its claims under the various contracts. We therefore agreed with the learned judge that as a matter of fact waiver did not apply in this case.
"... . In any case there was no evidence of any clear and unequivocal representation by the respondent in the correspondence or orally that it was abandoning its claims for damages. Nor was there evidence that the appellant had believed and relied on such representation and had acted to his damage upon such belief thus created. The learned judge had also expressly found on the evidence that there was no such reliance. The appellant could not have relied on estoppel or any such issues not raised in the lower court and could not now therefore raise them at the appellate stage."
(Emphasis added)
The Supreme Court's decision on the issue of waiver may be summarised as follows:
(a) The law in Malaysia on waiver represents a departure from English law in that our law does not require consideration or an agreement by virtue of s 64 of the Act, both of which are needed in English law;
(b) There was no evidence to show that the respondent intended to abandon its claims under the various contracts;38
(c) There must exist an unambiguous and unequivocal representation on the part of the waivor;39 and
(d) There is a need for reliance on part of the waivee.
Section 40 of the Act
It is submitted that the decision of the Supreme Court is per incuriam for the reasons below.
As a start, the court failed to take into account s 40, which reads:
"When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance."
(Emphasis added)
If we apply the distinctions in English law as described above, it can be seen that s 40 of the Act deals with waiver of breach, while s 64 provides for waiver of performance.
Since the Supreme Court in APMC held that there was a breach of a condition that went to the root of the contract, the type of waiver relevant to the case must be a waiver of breach in the face of the accrual of a right to terminate.
Therefore, the innocent party when faced with such a repudiatory breach has three options:
(a) to terminate the contract and claim damages, which is a waiver by election;
(b) to affirm the contract while also reserving its rights to damages, also a waiver by election; or
(c) to affirm the contract but waive the rights to damages, a total waiver.40
Section 64, which makes no reference to a breach of contract, was therefore inapplicable to the facts of the case. Had the Supreme Court been referred to s 40, it would not have been compelled to force fit s 64 to the facts of the case or to hold that it was a departure from English law.
Although the Supreme Court was correct in stating that an unambiguous and unequivocal representation on part of the waivor was required, the court was, with respect, incorrect in requiring reliance on the part of the waivee.
In so far as the court was considering s 64, it was correct in holding as a matter of law that reliance is required, since the context of that section is a forbearance waiver. Had the court taken the opportunity to apply s 40, the question of reliance would not have arisen but rather the question of an election which, in the words of s 40, allows the promisee to "put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance".
This again illustrates the failure on the part of the Supreme Court in appreciating the existence of the different types of waiver.
It is respectfully submitted that s 64 does not in any way represent a departure from English law, but instead represents a statutory reaffirmation41 of what is considered under English law as a forbearance waiver.
Waiver by election under English law, it is submitted, is encapsulated in s 40, which unfortunately the Supreme Court had no opportunity to examine.
As with the Supreme Court in APMC, subsequent cases42 made no attempt to identify the different types of waiver and to distinguish a waiver of breach from that of waiver of performance.
Conclusion
It is therefore suggested that the law of contract on waiver in Malaysia has not departed from English law and can be reconciled in the following equivalents:
(a) Section 64 ― Waiver of performance
(b) Section 40 ― Waiver of breach.
Waiver, however, is by no means a simple subject; in fact, the opposite is true.
"The confusion is not merely terminological. The relationships between the doctrines or waiver and promissory estoppel, and the situations of waiver, estoppel and contractual variation are often not clear. ... 'Waiver' and 'promissory estoppel' are sometimes treated as the same thing, sometimes as different aspects of the same broad principle".43
It is hoped that there will be an opportunity for the doctrine of waiver to be reconsidered in future cases.
Footnotes
1 M Furmston, The Law of Contract (4th Ed, 2010), at 359-360 [Furmston]
2 Furmston, supra n 1 at 366-367; Chitty on Contracts (29th Ed, Sweet & Maxwell, 2004), Vol 1, at 1303, para 22-044 [Chitty]
3 Chitty, supra n 2
4 Furmston, supra n 1, para 2.103
5 Ibid, at 369, para 2.107
6 Youell & Ors v Bland Welch & Co Ltd (The Superhulls Cover case) (No 2) [1990] 2 Lloyd's Rep 431 at 450
7 Sean Wilken and Karim Ghaly, The Law of Waiver, Variation and Estoppel (3rd Ed, 2012) at 43, para 4.08 [Wilken and Ghaly]
8 Furmston, supra n 1 at 369, para 2.107; Plasticmoda Societa Per Azioni v Davidsons (Manchester) Ltd [1952] 1 Lloyd's Rep 527
9 Wilken and Ghaly, supra n 7 at 59, para 4.45
10 Chitty, supra n 2 at 1304, para 2-406
11 Furmston, supra n 1 at 364, para 2.101
12 Wilken and Ghaly, supra n 7 at 40, para 4.01
13 Furmston, supra n 1 at 365, para 2.101
14 Ibid, at 364, para 2.101
15 Ibid
16 Ibid
17 Ibid
18 Ibid
19 Furmston, supra n 1 at 364, para 2.101; at 370, para 2.108
20 Wilken and Ghaly, supra n 7 at 39, para 4.01; Kammins Ballroom Co v Zenith Investments [1971] AC 850
21 Wilken and Ghaly, supra n 7 at 53, para 4.31
22 Chitty, supra n 2 at 1304, para 2-046
23 Furmston, supra n 1 at 371, para 2.109; Wilken and Ghaly, supra n 7 at 55, para 4.37
24 Banning v Wright [1972] 1 WLR 972
25 Furmston, supra n 1 at 365, para 2.101
26 Furmston, supra n 1 at 364, para 2.101
27 Wilken and Ghaly, supra n 7 at 52, para 4.28
28 Supra n 26 at 364
29 Ibid
30 Supra n 26 at 371
31 Wilken and Ghaly, supra n 7 at 52, para 4.28; at 40, para 4.02 — appendix 9
32 Ibid, at 52 para 4.28
33 Ibid, at 55 para 4.36
34 Ibid
35 Ibid
36 [1990] 3 MLJ 287 (SC)
37 Ibid, at 295-296
38 Agreed with counsel for the respondent (Syarikat Teknikal Kejuruteraan) that a waiver requires an intention to forego a claim and the judge had accepted the evidence of Mr Ong (CEO of the respondent) that there was no intention on the part of the company to abandon its claims
39 The court found no clear and unequivocal representation by the respondent that it was abandoning its claims for damages
40 All three options fall under the category of waiver of breach
41 In relation to a waiver of performance
42 Norsechem Resin Sdn Bhd v Seal Incorporated Bhd [1999] MLJU 390; Sime Securities Sdn Bhd (formerly known as UMBC Securities Sdn Bhd) v Anthony Lee Sin Choy [2003] 1 MLJ 204; Majlis Perbandaran Seberang Perai v Four Winds Freight Logistics Sdn Bhd [2012] 9 MLJ 627; Muniandy a/l Thamba Kaundan Anor v D & C Bank & Anor [1996] 1 MLJ 374; and Sarawak Electricity Supply Corp v Celcom (M) Sdn Bhd [2002] 5 MJ 490
43 Furmston, supra n 1 at 359-360, para 2.99
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.
