High Court affirms and bolsters the rules of unilateral waivers in contract law

The High Court of Australia has confirmed that a gratuitous waiver of a right or power under a contract is only irrevocable in exceptional circumstances.

In its recent decision (Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCA 38) the High Court found that an insurer could revoke its waiver of a statutory defence as preventing the insurer from doing so would “undermine the integrity of established contractual rules”.

What is a contractual waiver?

The term “waiver” most commonly describes an unequivocal decision by a party, communicated to the other party, not to insist upon a right or not to exercise a power.

Although a waiver is binding on the waiving party, it can generally be revoked at any time with reasonable notice other than in exceptional circumstances. In the context of contract law, these circumstances are extremely limited. This is because there are already well-established rules in contract law governing the exercise of contractual rights and power. For example, if a party wishes to forgo a contractual right on a permanent basis it is open to the parties to vary the contract by a deed or agreement supported by consideration to remove that right altogether. If the party only wishes to forgo that right in a specific instance, it can waive the right in that instance but this does not mean that the right is extinguished altogether.

Impact of the High Court’s decision on waiver in contract law

The High Court's decision affirms and bolsters the rule that unilateral waivers are rarely perpetually binding. The majority High Court’s view was that to dilute this rule would undermine the integrity of other deep-rooted contractual rules, including by expanding the principles of election by affirmation and extinguishment of rights.