Court of Appeal confirms no waiver of contractual right to terminate without actual knowledge

In URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407, the Court of Appeal agreed with the High Court that an energy supplier had not waived its contractual right to terminate a supply contract even though it continued to perform the contract for seven months after the event giving rise to the termination right occurred. This was despite the fact that “the result seems counter-intuitive, and indeed unmeritorious on the particular facts of this case”.

The Court of Appeal rejected the appellant’s argument that for the purposes of waiver by election, a party is deemed, as a matter of law, to know the termination rights in its own contract, regardless of their actual knowledge. The Court confirmed that the principle that a party will not be held to have waived its right to terminate a contract unless it knows that it has the right is of general application; it applies to express contractual termination rights, not just rights at common law. Whether a party has the relevant knowledge is a question of fact.

Despite this decision, commercial parties should not assume that a court will easily be persuaded that they were unaware of the termination rights set out in their contracts as a matter of fact.

Background

In October 2017, URE Energy Ltd (URE), a start-up energy supplier, entered into a four-year, short-term supply contract with Genesis Housing Association (Genesis), with a view to securing a longer 25-year contract in due course.

In April 2018, Genesis amalgamated with Notting Hill Housing Trust, forming Notting Hill Genesis (NHG). URE raised no objections and continued to perform the contract.

By October 2018, the relationship between URE and NHG began to sour, and NHG also confirmed it was no longer interested in pursuing a long-term contract with URE. URE sought legal advice including on whether it could argue that NHG was bound to continue with the long-term contract or NHG had constructively terminated the shorter contract. As a result, URE gave notice of termination of the contract for failure on the part of NHG to allow access to the relevant premises, also relying on a contractual term entitling it to a substantial termination payment. In due course, URE revoked that purported termination when it came to realise it needed to give ten days for NHG to remedy the alleged access breach.

In November 2018, URE obtained further legal advice highlighting that the contractual termination grounds included the ability to terminate for a solvent amalgamation by Genesis which had not been approved in advance by URE; this had been triggered by the amalgamation in April 2018. URE subsequently relied on this ground to terminate the contract in November 2018 and claimed the termination payment. In response, NHG argued that URE had waived its right to terminate by continuing to perform the contract and provide services as normal for seven months, despite being aware of the amalgamation.

High Court decision

The High Court held that URE had not waived its right to terminate the contract. The Court applied the principles for waiver by election established in Peyman v Lanjani [1985] Ch 457, i.e. that a party will not be held to have elected to affirm a contract and waived its right to terminate unless it knows of both the facts giving rise to the right to terminate and of the right to terminate. The High Court found that, as a matter of fact, URE did not know of its right to terminate the contract because of the amalgamation until advised as such by its solicitors in November 2018. (See further discussion of the High Court decision here.)

NHG did not have permission to appeal the judge’s finding of fact as to URE’s knowledge. It appealed the High Court decision on points of law relating to waiver by election, arguing that:

1. the High Court erred in finding URE lacked knowledge of its termination right, because (i) a contracting party must be deemed, as a matter of law, to have knowledge of the express terms of a contract to which it has agreed, and (ii) knowledge of the right was ‘obviously available’ to it; and
2. URE’s continued performance under the supply contract for seven months constituted an election to affirm the contract, which was clear and positive conduct and not a mere lapse of time.

Court of Appeal decision

The Court of Appeal reaffirmed the principle that a party will not be held to have elected to affirm a contract unless it has knowledge of both the facts giving rise to the right and the existence of the right to terminate. It rejected NHG’s attempt to distinguish this principle in cases of contractual termination rights. It held that there is no rule of law by which, for the purposes of waiver by election, a party is deemed to know the express terms of its contract; whether the requisite knowledge exists is a question of fact. The rationale for the principle is fairness – a party should not lose the right to choose a course of action if it did not know it had the choice.

In response to NHG’s argument that knowledge of the termination right was “obviously available” to URE, the Court confirmed that only actual or ‘blind eye’ knowledge will suffice. ‘Blind eye’ knowledge is where a party deliberately chooses not to discover something which is obviously available to it. The High Court had already held that URE did not have ‘blind eye’ knowledge of the termination right; URE had no reason to investigate whether the amalgamation triggered termination rights until the relationship deteriorated.

As to NHG’s argument that URE’s continued performance of the contract after the amalgamation amounted to an election to affirm, the Court accepted that such conduct would have been sufficiently positive and unequivocal if the requisite knowledge existed. However, the Court reaffirmed that, without the requisite knowledge, there can be no waiver by election.

Key takeaways

The Court of Appeal’s decision clarifies that a party continuing to perform a contract after an event triggering a contractual termination right will not waive the termination right unless the party is aware of (a) the facts giving rise to the right to terminate, and (b) that the termination right exists.

However, commercial parties should not assume that a court will easily be persuaded that they were unaware of the termination rights set out in their contracts as a matter of fact. The Court of Appeal referred to the “healthy scepticism of first instance judges” if a dispute relates to a common situation where a right of termination arises. (The Court of Appeal noted that in this case, the judge had found that the amalgamation-without-approval trigger was one of nine termination grounds and effectively “buried” within a detailed clause which it was reasonable to assume was dealing with insolvency related matters.) Further, where a party has taken legal advice, there is a presumption of fact that it will be aware of its legal rights (although this can be rebutted by waiving privilege over the advice, as was done in this case).

Finally, where continued performance does not amount to waiver by election because of the lack of requisite knowledge, it may still amount to an unequivocal representation that the innocent party does not intend to enforce its right to terminate and is therefore estopped from going back on that representation. (This does not require any particular knowledge on the part of the representor.) However, the other party must have acted in reliance on the representation to its detriment – here, NHG was unable to show the necessary detrimental reliance, so the estoppel claim had failed at first instance.

With thanks to Amanpreet Bajwa for her assistance in preparing this post.