Summary
- What happened? An energy supplier continued performing a contract for more than seven months after an amalgamation involving the counterparty gave it the express right to terminate. When the commercial relationship later broke down, the supplier discovered the right, terminated the contract, and claimed a payment of almost £4 million.
- The dispute: The counterparty argued that, by continuing to supply electricity, invoice the amalgamated entity, and negotiate a longer-term agreement, the energy supplier had affirmed the contract and waived its right to terminate.
- The decision: Waiver by election requires knowledge of both the facts giving rise to the right and the right to terminate itself. There was no waiver by election as the energy supplier was not aware that a right to terminate had arisen, even though its conduct objectively appeared to affirm the contract.
- Key takeaways: English law does not deem a commercial party to know every express right in its contract in the context of waiver by election. Continued performance alone may therefore be insufficient to establish waiver. The apparent harshness of the rule is mitigated by other familiar legal concepts, although none applied on the facts of the case.
Introduction
In URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407 the Court of Appeal considered whether a party can waive an express contractual right to terminate when it knows the event triggering the right has occurred but does not know that the contract gives it the right to terminate.
The Court of Appeal held that knowledge of the triggering facts is not enough, and waiver by election also requires knowledge of the right to terminate itself. Continued performance of the contract may look like affirmation but still leave the right to terminate intact.
This blog discusses the Court of Appeal’s decision, the concept of waiver by election, and the circumstances in which it continues to exist.
Background of the case
URE was a start-up energy supplier. Its aim was to supply electricity to Genesis Housing Association (Genesis), a social housing provider, on a long-term basis. For URE, the long-term nature of the agreement was vital to recoup its substantial initial investment. The parties initially entered into a four-year agreement (the Contract) commencing in October 2017, on the understanding that a longer-term agreement would then be negotiated.
The Contract contained termination provisions in URE’s favour. Crucially, clause 10.2(d) gave URE the right to terminate if, amongst other things, Genesis passed a resolution for an amalgamation, unless a solvent amalgamation had been approved in advance by URE. In the event of termination, clause 10.5 entitled URE to claim a substantial termination payment from Genesis.
In February 2018, Genesis passed a resolution for a merger with another housing association, Notting Hill Housing Trust. URE was notified of the proposed amalgamation in March 2018, with the combined entity known as Notting Hill Genesis (NHG)
URE did not object to the amalgamation, and its managing director, Mr Ensor, viewed it as a potentially positive development because of the increased customer base to which URE might gain access. That view was never communicated to NHG. Following the amalgamation, URE continued to:
- supply electricity;
- invoice NHG;
- request access to fit meters; and
- negotiate for the long-term contract.
Business continued in this way for more than seven months.
However, the relationship between the parties deteriorated. By the end of October 2018, NHG had informed URE that it would not proceed with the long-term contract.
URE sought legal advice about its options. On 5 November 2018, it was advised for the first time that the amalgamation gave URE the right to terminate under clause 10.2(d). URE then gave notice terminating the contract to NHG and claimed the termination payment due under clause 10.5.
Background to waiver by election
Waiver can refer to several different legal principles, but broadly it is a voluntary and intentional choice to give up a legal right. This case was concerned with waiver by election and whether URE had given up its right to terminate.
Waiver by election applies where a party is faced with two alternative and inconsistent courses of action. For example, in the context of this case, URE could either:
(i) terminate the Contract because of the amalgamation; or
(ii) affirm the Contract and continue with performance.
Once the party with the right makes their election, the decision is final. A party that chooses to affirm a contract cannot later rely on the same event to terminate the contract. The election does not need to be stated expressly and can be communicated by words as well as conduct. However, any conduct must be clear and unequivocal, with the party’s actions only consistent with one course of action.
The issue before the courts
The key issue was whether URE retained its right to terminate following the amalgamation or had waived that right by electing to affirm the Contract and continue its performance. This depended on whether URE’s knowledge of the amalgamation and its subsequent conduct were sufficient, or whether waiver by election also required URE to know that the Contract gave it the right to terminate.
The High Court decision
Dias J held in favour of URE that no waiver by election had taken place. Although Mr Ensor was aware of the amalgamation (i.e. the facts giving rise to the right to terminate), he did not know that the Contract gave URE the right to terminate. Although he had skim-read the Contract, he believed clause 10.2(d) dealt with insolvency events and did not entitle URE to terminate the contract following the amalgamation.
Had it known of its right to terminate, Dias J went on to conclude that URE’s conduct in continuing to supply the electricity, invoicing NHG, and negotiating the long-term contract was sufficiently clear and unequivocal to amount to a waiver of the termination right.
URE had therefore validly terminated the Contract and was entitled to the termination payment in accordance with clause 10.5. Dias J awarded URE nearly £4 million.
The Court of Appeal’s decision
NHG was granted permission to appeal the decision on several grounds. NHG’s key argument on appeal, of particular relevance to this article, was that the judge was wrong to find that URE did not have knowledge of its right to terminate the contract as it was expressly set out in clause 10.2(d).
The Court of Appeal dismissed NHG’s appeal by unanimous decision. Males LJ gave the leading judgment.
The rule in Peyman
The Court of Appeal applied its earlier decision in Peyman v Lanjani [1985] Ch 457. Peyman was a case on waiver by election in the context of the transfer of a lease, and established the principle that knowledge of the facts giving rise to the right to rescind or terminate a contract is not enough. The party must also know that those facts give it the right to choose between termination and affirmation.
NHG submitted that this case should be distinguished from Peyman as a contracting party must be deemed to have knowledge of the express terms of a contract it has agreed with another party, and knowledge of the right was only required relating to rights arising at common law or equity. Further, to decide otherwise and enable a party to say that they have no knowledge of the terms in a contract they have signed goes against the key principle of English law regarding the certainty and predictability of commercial transactions.
The Court of Appeal rejected that argument. They held that the doctrine of election was of general application, and there was no distinction in its application between express contractual rights and rights under common law and equity. As part of this conclusion, they held that there was no separate rule requiring a party to know all of the rights contained in its contract. Whether the party had the required knowledge of the right to terminate is therefore a question of fact.
What the decision means for waiver by election
The decision confirms that waiver by election involves two distinct questions. First, did the party know both the facts giving rise to the right and that it had the right to choose between two inconsistent courses of action? If so, did its words or conduct clearly and unequivocally communicate a choice to the other party about whether it had decided to terminate or affirm the contract?
The first question is subjective and concerns the party’s actual state of knowledge, although blind-eye knowledge may also be sufficient, as discussed below. The second question is assessed objectively by considering what the party’s words and conduct communicated to the other party.
The Court of Appeal’s decision does not remove the concept of waiver by election. However, it clarifies that the circumstances in which a party will be found to have elected to affirm a contract are narrow. The party must know both the relevant facts and that it has the right to terminate before its conduct can amount to a final and binding election. Evidence of what the party knew, and the timing of that knowledge, will therefore be central to determining whether waiver by election has occurred.
Once that knowledge is established, clear and unequivocal conduct affirming the contract will still amount to waiver by election, and the right to terminate will be lost.
An unfair result?
The outcome may appear surprising. URE knew about the amalgamation, raised no objection, and continued performing the Contract for another seven months. In the words of Males LJ, URE “seized on” the amalgamation after the relationship had broken down and it became clear NHG would not agree to a long-term contract. Males LJ even went as far as suggesting the final result was “counter-intuitive” and “unmeritorious”.
However, the Court of Appeal was bound by the decision in Peyman. That case remains binding unless the issue is reconsidered by the Supreme Court. The judgment did identify several ways the harshness of applying Peyman was mitigated.
Judicial scepticism
A court does not have to accept that a party was unaware of its rights. Judges are likely to be sceptical that a party is unaware of its rights if they are obvious, such as those that are commonly exercised in a particular field. One of the examples given by Males LJ was a landlord who claims they were unaware of their right of re-entry.
In this case, the relevant clause was buried within a number of other termination sub-clauses and appeared alongside insolvency-related events. Therefore, it was more credible that Mr Ensor had overlooked the effect of clause 10.2(d) and did not realise URE had the right to terminate.
Blind-eye knowledge
As well as this, actual knowledge is not the only type of knowledge recognised by the law. A party could also be deemed to have blind-eye knowledge that they had the right to terminate, where they shut their eyes to this possibility. The preservation of the right to terminate will only apply where ignorance to the right is genuine, not where a party has decided not to investigate an obvious possibility.
Legal advice
Where a party had legal advisers at the relevant time, there is a presumption that the party received appropriate advice and knew about its right to terminate. This would prevent them from claiming later that they were not aware of their right.
However, that presumption can be rebutted, although this will generally require the party to waive privilege and disclose the advice it received. URE was successful in rebutting the presumption, waiving privilege to show that Mr Ensor had not previously been made aware of URE’s right to terminate following the amalgamation.
This creates an important practical safeguard, and if a party wishes to rebut the presumption it may need to waive privilege.
Estoppel
Even where there is no waiver by election, the same conduct may give rise to estoppel. Estoppel does not require evidence that the party was aware of their precise legal right. Instead, it requires (i) an unequivocal representation by words or conduct that they do not intend to enforce those legal rights, and (ii) detrimental reliance on that conduct by the other party.
If NHG had relied on URE’s continued performance of the Contract and changed its position as a result, URE might have been prevented from exercising the termination right via the doctrine of estoppel, even though it was unaware that the right existed. This argument was not available to NHG as it was found earlier in proceedings that there had been no detrimental reliance.
Time
Finally, the wording of the contract may also limit how long a termination right remains available. A termination clause may explicitly require a right to be exercised within a specified period. Depending on wording and context, a court may also interpret a clause as requiring the right to be exercised within a reasonable time. However, NHG did not put forward this argument.
Commentary
It is not the case that parties will now never be found to have waived their contractual termination rights by election. Where a party knows both the facts giving rise to the right and that the right to terminate exists, it must consider its words and conduct carefully and seek prompt advice about its options. Clear and unequivocal conduct that is consistent only with continuing the contract may amount to a final election to affirm it, causing the right to terminate to be lost.
Although the outcome in this case feels harsh considering URE continued to perform the contract for seven months, the decision does not make it easy for a party to continue performing a contract and later rely on an earlier event simply because termination has become commercially preferable. A court does not have to accept a party’s assertion that it was unaware of an obvious termination right. A party may be deemed to have blind-eye knowledge of their right to terminate or required to rebut a presumption that they were aware of the right because they received legal advice at the time. Even where waiver by election cannot be established because the party was not aware of their right, estoppel may prevent termination where a party relies on a representation that a right would not be enforced to their detriment.
The practical lesson is that termination provisions in contracts require thorough consideration and should not be treated as boilerplate, even where the parties have a strong commercial relationship and do not expect those provisions to be needed. They should be carefully negotiated before the contract is entered into and reviewed when significant events (e.g. merger, insolvency or breach of contract) occur to understand if the right to terminate has arisen.
Parties should also consider including a defined period within which a termination right must be exercised. Once that period expires, the right to terminate will lapse regardless of whether the party knew it existed.
How EM Law can help
EM Law can assist with drafting and reviewing contractual termination provisions to ensure that the relevant rights are clear, and you understand when those rights may be exercised. We can advise businesses experiencing contractual difficulties on whether a right to terminate has arisen, the steps that should be taken to preserve their position, and the risks of continuing to perform the contract. We can also assist where a termination or affirmation is disputed, whether you wish to terminate the contract or challenge a termination by the other party.
If you require support negotiating a contract, understanding whether a termination right has arisen, or regarding a dispute around termination, please contact us here or visit our Contract Lawyers or Dispute Resolution Solicitors pages for further information.
