Waiver of rights clause – Enforceable by one or all?
In this case, the New South Wales Court of Appeal considered whether a 'waiver of rights' clause was enforceable by all parties to the deed, and whether the appellant, Wollongong Coal Ltd, was entitled to equitable set off.
The court considered the natural and ordinary meaning of the clause, and concluded that it 'amounted to an immediately effective unilateral renunciation of the respondent's right of indemnity'. It was therefore enforceable by Wollongong Coal. In addition, the court held that equitable set-off was not available, as the appellant was unable to establish impeachment.
This case is significant as it establishes that a clause in a deed inter partes may be limited by implication so that it is only enforceable by a particular party. However, a unilateral waiver of rights effective immediately cannot be selectively enforced for a particular party's benefit.
Gujarat NRE India Pty Ltd was a 13% shareholder in Wollongong Coal. Wollongong Coal and UIL (Singapore) Pty Ltd entered into a coal purchase agreement. UIL made an advance payment of US$20,000,000 for the purchase of coal from Wollongong Coal, which provided a charge over 150,000,000 fully paid ordinary shares in Wollongong Coal that Gujarat held. The contract specified that if Wollongong Coal failed to make the delivery, it must pay back the entire advance with interest. In the event of default, UIL was entitled to sell the shares. Gujarat and UIL also entered into a security deed, where Gujarat granted UIL security over the shares.
A few months later, Wollongong Coal failed to deliver the coal, and agreed to refund UIL's payment.
Gujarat, Wollongong Coal, UIL and Argonaut Securities Pty Ltd entered into an override deed. The override deed released the parties' obligations under the coal purchase agreement and withdrew the notice to sell the Wollongong Coal shares. Under clause 5.1, Gujarat guaranteed Wollongong Coal's obligations to make instalment repayments. Clause 5.3 stated that '[Gujarat] irrevocably waives and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [Wollongong Coal]'.
After executing the override deed, Wollongong Coal and UIL entered into a settlement deed, and agreed that Wollongong Coal's debt would be discharged upon payment of $2.64 million and the sale of the shares.
Gujarat sued Wollongong Coal for indemnity for the value of shares UIL had sold. At trial, the primary judge held that Wollongong Coal was not entitled to enforce clause 5.3, and Gujarat was to be indemnified for the sale of shares.
The court held that a promise in a deed inter partes can be limited by implication so that only a particular party may enforce it. In determining whether this is the case, the court must consider the language the parties have chosen, as well as the deed's context and purpose. Thus, the court went on to consider the interpretation of clause 5.3.
The court was hesitant to interpret the deed in the context of the other clauses. The deed contained problematic language and, in some instances, was 'close to gibberish'. There is little utility in using other clauses as a basis for comparison in situations where a contract contains problematic language and lacks a uniform approach (possibly as a result of negotiations under time pressure or reaching the limits of a party's willingness to compromise). Instead, the court went on to consider the natural and ordinary meaning of the clause, and concluded that it contained two parts – Gujarat 'immediately irrevocably waived presently existing rights' and 'promised not to exercise any specified rights at any stage in the future'. The court observed that a unilateral waiver of rights cannot be 'selectively enforceable' by a particular party. For example, as with legal privilege, Party A cannot waive privilege for the benefit of Party B, yet still maintain privilege against Party C. Therefore, the court held that Wollongong Coal could enforce Gujarat's waiver of its right of indemnity.