Executive summary
We read with interest an article by our colleague Nicholas Matkovich on the decision of Allianz Australia Insurance v Delor Vue Apartments (Allianz v Delor Vue)1 as it relates to the insurer’s duty of utmost good faith. We are interested in the decision for a different reason: it contains guidance from Australia’s highest court on waiver, estoppel and variation, which are ubiquitous in construction disputes, but are commonly misunderstood.
In construction disputes, waiver, estoppel and variation are commonly used in multiple different ways. For example:
- where a principal seeks to rely on a contractual time bar due to the contractor’s failure to comply with a notification requirement, the contractor may argue that the principal, by its words or conduct, dispensed with the notification requirement, and therefore, due to waiver, estoppel or variation, the principal is prevented from relying on the time bar and the contractor may pursue its entitlement;
- where a party has elected not to raise a statutory limitation defence, that party may, due to waiver or estoppel, be prevented from raising the defence at a later stage, as the High Court of Australia has recently confirmed; and
- more generally, where a party expresses a factual, legal or commercial position and later seeks to resile from it, waiver, estoppel and variation are commonly deployed in an attempt to bind that party to its original position.
However, it is often not appreciated that waiver, estoppel and variation are somewhat fragile and may only apply in specific circumstances. The decision of Allianz v Delor Vue, which concerned an insurance claim following cyclone damage to a residential apartment complex, is a case in point: an insurer that waived a defence to an insurance claim was permitted to revoke the waiver (i.e. ‘unwaive’ the defence). Arguments based on these doctrines turned out to be a storm in a teacup and were unsuccessful.
In this article, Alex Ottaway (Special Counsel) and Raihan Hossain (Associate) discuss this decision and its implications for construction and commercial disputes.
What happened?
Delor Vue Apartments is a complex of eleven apartment buildings in Cannonvale, north Queensland. The body corporate for the apartment complex was found to have known that the buildings contained serious non-structural defects at the time of taking out cyclone insurance, but did not disclose these defects to the insurer.
In 2017, Tropical Cyclone Debbie struck north Queensland, resulting in torrential rains that were described by the Bureau of Meteorology as ‘phenomenal’,2 exceeding 1,000mm over 48 hours.3 The cyclone caused serious damage to Delor Vue Apartments, including internal water damage and damage to fascias, guttering and roof sheeting.
The body corporate made a claim on the cyclone insurance. A representative of the insurer responded with an email confirming that ‘despite the non-disclosure issue… [the insurer] will honour the claim and provide indemnity to [the body corporate]’ (Email Representation).
The parties fell into dispute over the extent of the insurer’s liability. The insurer wrote to the body corporate, offering to pay approximately $920,000. It said that, if the body corporate does not accept this offer by a stated deadline, the offer would lapse, and the insurer would rely on the non‑disclosure defence and pay nothing (Offer Letter).
As the body corporate considered itself to be entitled to more than the offered amount, it refused the insurer’s offer. True to its word, the insurer then raised the non-disclosure defence and refused to pay anything.
The key question for the Court was whether the insurer was entitled to do this, or whether, by its Email Representation, it had irrevocably waived the non-disclosure defence.
If a party waives a defence, can that waiver be revoked?
At the final appeal stage of the proceedings, a majority of the High Court of Australia:
- was prepared to assume that, by the Email Representation, the insurer waived the non‑disclosure defence; but
- found that, by the Offer Letter, the insurer revoked that waiver, in the sense of making the continued operation of the waiver conditional upon the body corporate’s acceptance of the settlement offer.
The insurer was therefore permitted to raise the non-disclosure defence, which, on the facts, was made out. The Court therefore dismissed the body corporate’s claim, with the likely effect that the body corporate’s claim did not result in it receiving any insurance proceeds.
In its judgment, the majority stated that:4
“In the law of contract there are limited circumstances in which a gratuitous waiver of rights becomes irrevocable.“
It explained that, in general, a ‘mere waiver signifies nothing more than an expression of intention not to insist upon the right‘ and can be revoked by the waiving party at any time, with reasonable notice.5
There are some exceptions, though, including where:
- the other party relies on the waiver to its detriment;
- the other party gives consideration for the waiver;
- privilege (such as legal advice privilege or litigation privilege) is waived; and
- the waiving party elects to affirm (i.e. not terminate) a contract following a repudiation by the other party.
In circumstances such as this, the waiving party may not be able to retract its waiver, i.e. may have irrevocably lost the legal right that it had waived.
What about estoppel?
The body corporate sought to rely on various other doctrines, including estoppel.
This particular form of estoppel applies where a party makes a representation which the other party relies on to its detriment, in circumstances where it would be unconscionable for the first party to resile from the representation.
The body corporate failed to demonstrate that, on the facts, it had suffered a detriment by relying on the insurer’s Email Representation (that the non‑disclosure defence would not be raised). There was no evidence that, due to relying on the Email Representation, the body corporate had changed its behaviour, or had missed out on an opportunity to settle its claim for more than the approximately $920,000 that the insurer had offered.
An argument by the body corporate based on another doctrine – election by affirmation – also failed.
Variation (in the sense of a change in the terms of a contract) may also be of limited use when attempting to hold a party to a statement of intention that it will not exercise a right. This is because a variation is generally only legally effective where it is supported by consideration or effected by a deed. As the majority noted:6
“the general rule is that, despite a mere naked promise… not founded upon any consideration not to enforce a legal right, the legal right may continue to be enforced until it is fully satisfied.“
Conclusion
Estoppel, waiver and variation are commonly invoked in construction disputes, in an attempt to prevent a party from relying on its legal rights. However, the decision of Allianz v Delor Vue suggests that these doctrines may only apply in limited circumstances. The general rule is that a party that expresses an intention not to rely on its legal rights is permitted to change its mind at any time, with reasonable notice, although there are some notable exceptions.
These issues are complex, and they can be highly significant. Allianz v Delor Vue – in which the body corporate had been offered insurance money of approximately $920,000 but ended up with nothing – is a case in point. Particularly where the relationship between parties to a construction contract has broken down, it may be prudent to seek specialist advice on how to protect one’s legal rights, and on the extent to which representations by the other party can be capitalised upon.
This article was written by Alex Ottaway, Special Counsel and Raihan Hossain, Associate.
1 [2022] HCA 38
2 Joshua Robertson, ‘Cyclone Debbie rescue efforts hit by flooding amid ‘phenomenal’ rain’, The Guardian, 29 March 2017.
3 Matt Young, Charis Chang, Emma Reynolds and Victoria Craw, ‘Cyclone Debbie’s full wrath is revealed’, news.com.au, 30 March 2017.
4 Allianz v Delor Vue at [4] per Kiefel CJ, Edelman, Steward and Gleeson JJ.
5 Id at [29].
6 Id at [31].
