“Sarwar v Phlo Technologies”: The Objective-Conduct Test for Implied Waiver & Personal Bar in Scots Company Law

1. Introduction

In Nadeem Sarwar v Phlo Technologies Ltd & Ors ([2025] CSOH 55) Lord Richardson was asked to determine—at debate—whether the pursuer could proceed to proof on his claim that his dismissal and ensuing “Bad Leaver” designation were unlawful. The defenders countered that Dr Sarwar had already waived, or was personally barred from asserting, any contractual protections under three “disputed agreements” (a 2020 Service Agreement, 2020 NED Agreement and 2018 Consultancy Agreement).

The argument centred on a trilogy of subscription agreements (2022, 2023, 2024) executed with new investors, each containing warranties by both the pursuer and the company that there are no agreements between the Founder and the Company other than … a 2018 service agreement. Lord Richardson upheld the defenders’ plea that these warranties objectively demonstrated an implied waiver of rights under the disputed agreements, and that the company had acted in reliance on that waiver. The decision consequently sets a new, clarified test for implied waiver—and by overlap, personal bar—in Scottish contract and company law.

2. Summary of the Judgment

• Waiver Upheld. The court ruled that Dr Sarwar’s execution of warranties inconsistent with the existence of the 2020/2018 agreements amounted to an objective abandonment (waiver) of his rights under those agreements.
• Objective, Not Subjective, Test. Lord Richardson rejected the argument that the relying party (here, Phlo) must prove it actually believed the right had been waived; it is enough that it conducted its affairs on the basis of the other party’s conduct.
• Personal Bar (Obiter). Even if waiver had failed, the same facts would give rise to personal bar because:
  1. a representation (the warranties) was made,
  2. Phlo acted upon it by entering the investment deals, and
  3. allowing Sarwar now to resile would prejudice the company.
• Pleading Consequences. Sarwar’s averments based on the disputed agreements were excluded from probation; a by-order hearing was fixed to consider knock-on effects on the remainder of the action.

3. Analysis

3.1 Precedents Cited and Their Influence

1. Armia Ltd v Daejan Developments (1979 SC (HL) 56)
   The classic modern statement on waiver: abandonment of a right assessed objectively; reliance required. Lord Richardson adopts Armia’s twin requirements (abandonment + reliance) as his basic framework.
2. Mactaggart & Mickel Homes Ltd v Hunter [2010] CSOH 130
   Lord Hodge’s compressed restatement of Armia is extracted verbatim (para 82) to show waiver as “inconsistent conduct” preventing later enforcement. Provides direct authority for an objective approach.
3. Lousada & Co Ltd v JE Lesser (1990 SC 178)
   Pursuer relied on dicta suggesting reliance requires a “belief”; Lord Richardson reads the passage narrowly, as concerning inference from facts, not a rigid subjective belief requirement.
4. James Howden & Co Ltd v Taylor Woodrow (1998 SC 853)
   Pursuer argued that Howden mandates proof of belief. The court distinguishes Howden as fact-specific and not altering the law.
5. Gatty v Maclaine (1921 SC (HL) 1)
   The leading personal-bar formulation. Cited to show overlap between implied waiver and personal bar.
6. Singularis Holdings v Daiwa [2019] UKSC 50 & Bilta v Nazir [2015] UKSC 23
   Quoted only in anticipation of an attribution argument; ultimately unnecessary but reaffirms context-based attribution principles.

3.2 Court’s Legal Reasoning

The decision progresses through two logical stages:

1. Establishing Abandonment. Dr Sarwar’s warranties explicitly stated that no service agreements existed beyond the 2018 contract. Combined with his own pleadings that the 2024 disclosure letter omits the disputed agreements, this constituted unequivocal conduct inconsistent with preserving his rights.
2. Reliance by the Company. The company entered into three major funding transactions hinging on those warranties. Lord Richardson holds that such corporate actings are, of themselves, “conducting affairs” in reliance; no further inquiry into subjective belief is needed.

On the defender’s alternative personal bar plea, the same facts satisfied the Gatty triptych: representation, reliance, prejudice. The court emphasises the fluid boundary between waiver and personal bar—accepting modern academic criticism of rigid categorisation (Reid & Blackie, Personal Bar).

3.3 Anticipated Impact of the Judgment

• Corporate Transactions. Founders and executives who sign broad warranties in investment rounds must exercise extreme care; warranties can ipso facto extinguish protective contracts even if undisclosed to investors.
• Directors’ Fiduciary Duties. The ruling tightens consequences for failing to flag side agreements. Directors cannot later claim protection under undisclosed contracts where their warranties negate them.
• Waiver & Personal Bar Doctrine. The judgment clarifies that:
  • the test is objective—focusing on external conduct and the other party’s actings,
  • proof of a specific subjective belief is unnecessary,
  • the same facts may ground both waiver and personal bar; courts will not be distracted by taxonomical hair-splitting.
• Litigation Strategy. Parties pleading waiver can succeed at debate (without evidence) where documents incontestably contradict the alleged right. Conversely, defenders must plead positive defences to warranties promptly.
• Investor Due Diligence. Affirms that warranties are decisive; later attempts to resurrect omitted agreements face steep hurdles. Investors gain confidence that Scots law will give warranties real teeth.

4. Complex Concepts Simplified

Implied Waiver

When a party’s conduct (rather than express words) objectively shows it has given up a legal right. Key ingredients: (1) knowledge of the right, (2) conduct inconsistent with continuing to exercise it, (3) the other party acts on that basis.

Personal Bar (Estoppel in English law)

Prevents a person from asserting a right where:

1. they made a representation (by words or conduct),
2. the other party relied on it, and
3. it would be unfair (prejudicial) to allow the first party to go back on it.

Warranties in Subscription Agreements

Promises given to investors about the state of the company (e.g., that certain contracts do or do not exist). Breach allows investors to sue; here, they also created waiver.

Disclosure Letter

A schedule of exceptions to warranties. Anything not disclosed is warranted to be untrue.

Bad Leaver

Company-law mechanism (often in Articles of Association) where a departing executive loses unvested shares or other benefits if dismissed for cause.

5. Conclusion

Lord Richardson’s opinion in Sarwar v Phlo crystallises the modern Scottish approach to waiver and personal bar: objective conduct + reliance is enough; subjective belief is a red herring. By anchoring his analysis in authoritative precedent yet clarifying ambiguities left by Howden and Lousada, the judgment provides much-needed certainty, especially in the high-stakes environment of venture capital funding.

The ruling serves as a stark warning to founders, directors and their advisers: signatures on warranties matter. If you sign away the existence of protective side agreements, the law is unlikely to rescue you later. Looking ahead, courts will almost certainly invoke the “objective-conduct test” articulated here, ensuring that contractual certainty prevails over after-the-fact protestations.