Waiver by estoppel

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The other kind of waiver. The difficult one. Though not half as perilous as your earnest counsel may have you believe.

Waiver by estoppel may arise when a party who is entitled to exercise contractual rights, by its conduct leads the other party to believe it will not, so that the other party relies on that representation to its detriment. It is an outflowering of the great case of Hughes v Metropolitan Railway (1877) 2 App. Cas. 439.

So: some kind of representation; and a reliance on the representation to the receiving party’s detriment.

Ingredients

For us to even be in the ballpark for waiver by estoppel, therefore, you need:

• Relationship: A legal relationship — maybe a contract, maybe something statutory — between the “rightsholder” and the “beneficiary” creating the rights and obligations;
• Representation: A clear representation by the rightsholder that it will not strictly enforce its rights — the representation need not be written or explicit, but it must be unequivocal In any case, the point here is to differentiate between someone unambiguously giving the impression that they will not enforce a contractual term — entitling a counterparty to rely on that representation — and a rightsholder simply refraining from enforcing a term of the contract it was entitled to. The latter will not give rise to a waiver.
• Reliance: The beneficiary must actually rely on the representation to its detriment ...
• Inequity: ... so as to make it inequitable for the rightsholder to go back on the representation.

Effect

• Unlike waiver by election, generally a waiver by estoppel only suspends the rightsholder’s legal rights and does not permanently extinguish them — unless it would be inequitable to allow the waiver to be withdrawn. So (as per Hughes v Metropolitan Railway (1877) 2 App. Cas. 439, if your tenant is obliged to repair the property within six months of your notice and, having given notice, you then represent you won’t insist on it doing so while you negotiate the potential sale of the property to the tenant, when those negotiations inevitably fall through and you decide you do want your property repaired after all, you can’t insist on the tenant getting everything done in the remaining two weeks of the original notice period. Instead, the six month period is reset from when you give further notice of the repairs.

Codified common sense, really.

Observations

• A representation must be some kind of positive act: Simply not enforcing a term does not give rise to an estoppel or a waiver: “It is difficult to imagine how silence and inaction can be anything but equivocal”.
• The estoppel is specific to the particular circumstance. If you have a recurring right (you know, like to make a margin call), then just because you waived it once — even if you somehow permanently waived it — that doesn't mean you have waived it for all time. Just because you didn’t enforce this time, that doesn’t mean you are prevented from ever enforcing in the future.

See also

• Waiver | Waiver by election | Waiver by estoppel
• Course of dealing under the Uniform Commercial Code
• Estoppel
• No waiver boilerplate clause
• Don’t take a piece of paper to a knife fight