Waiver

The Court of Appeal looks at how and when a party to an IT services contract can waive its right to terminate it.

The case of Peregrine Systems Ltd v Steria has just been before the Court of Appeal (Steria having appealed from the comprehensive loss that it suffered in the High Court).

Very briefly, the key facts were as follows:

- Steria supplied managed support services to customers, for which purpose it ran call centres and service centres in various parts of the UK.

- Peregrine supplied software designed to be used in call centres by suppliers of IT support services like Steria.

- Peregrine entered a contract with Steria to supply its software for use in Steria's call centres.

Peregrine and Steria fell out, which resulted in each bringing a claim against the other.  Two key issues in the dispute were:

- Whether Peregrine had been required under the contract to implement its software at a fixed price of £200,000, or whether instead the contract required Peregrine to provide up to £200,000 worth of implementation services, with no particular end result or time scale being guaranteed for that amount of work.

- Whether Steria had terminated the contract wrongfully.  Part of the argument here was whether or not (on the assumption that Peregrine had breached the contract), Steria had behaved in a way that amounted to a waiver of its rights to terminate.

The Court of Appeal looked at these two issues and came to the following conclusions:

- On the wording of the contract (which was not as clear as it might have been), all Peregrine had contracted to do by way of implementation was to provide services on a time and materials basis up to a maximum of £200,000.  No particular time scale had been agreed for provision of these services, although there was an implied term to the effect that the services must be provided within a reasonable time.  There was no guarantee that this amount of services would be sufficient to complete implementation.  Accordingly, it had not been agreed that Peregrine would complete the implementation of its software for a fixed fee of £200,000.

- The key deciding factor in relation to whether or not a party to a contract could be taken to have waived its rights was whether, with knowledge of the relevant facts, that party had acted in a way that was consistent only with his having chosen one of two or more inconsistent courses of action open to him (for example, to terminate a contract or to keep going with it).  If that party has done so, he is taken to have elected to take whichever course of action he has chosen, and cannot then go back and try and take the other course of action instead.

- Following the alleged problems with the supply and implementation of the software, Steria had continued to try and keep the project on track and had continued to use the software for the purposes of providing services to its customers.  When the alleged problems arose, Steria had not expressly reserved its right to terminate the contract.  Under the circumstances, even if Steria had been entitled to terminate the contract, its conduct had been such as to indicate that it had waived that right.

- A section of the judgement of the court is worth repeating in full:

"Contracts of this nature and complexity often give rise to dissatisfactions and disputes about the quality of performance.  One appreciates that it is not always easy for the customer to take the ultimate step of terminating the contract when…breaches have occurred … On the other hand, it is not possible to rely on an implied reservation of rights when the evidence of what was said and done points unequivocally to an election to affirm the contract".