Waiver of Contractual Rights by Conduct - Instructive High Court Ruling

Strict contractual rights, no matter how clearly defined, may be impliedly waived by conduct. That principle came under High Court analysis in a dispute concerning stalled plans for the construction of a space age engine testing centre.

Trustees of a unit trust agreed to lease a plot of land to an aerospace manufacturer who intended to use it for research into space propulsion systems. The obligation to construct a building and testing facility on the site rested on the trustees, although the cost of doing so was to be shared with the manufacturer.

The agreement set a long-stop date by which works on the site were required to reach practical completion. On that landmark being achieved, the manufacturer agreed that it would take a 10-year lease of the site at an annual rent of over £300,000. However, after the long-stop date came and went without practical completion, the manufacturer served a notice rescinding the agreement.

The manufacturer launched proceedings, seeking summary judgment on its claim that the notice had been served in valid exercise of its contractual rights. It asserted that the matter was entirely straightforward in that it was clearly entitled to cancel the agreement at any time after the long-stop date was missed.

The trustees took no issue with the manufacturer's interpretation of the agreement. They pointed out, however, that they and the manufacturer had engaged in extensive dialogue between the expiry of the long-stop date and the service of the notice. They contended that, during the course of that dialogue, the manufacturer had exhibited a continuing commitment to taking a lease, thereby waiving its contractual right to rescind the agreement.

Rejecting those claims, however, the Court found that the trustees had no realistic prospect of establishing that the manufacturer had made a clear and unambiguous promise or representation that it would forbear from standing on its strict contractual rights. The trustees' argument that there was a common assumption that the manufacturer would take that course was also unviable.

Despite the delay in achieving practical completion, the manufacturer had harboured hopes that the project would reach fruition and had continued to engage with the trustees on that basis. In granting the order sought, however, the Court found that it had throughout retained its right to serve notice rescinding the agreement at any time after the long-stop date passed.