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The court rejected an argument that, for these purposes, a party is deemed to have knowledge of the express terms of the contract.
The Court of Appeal has upheld a decision that an energy supplier had not waived its contractual right to terminate an electricity supply contract following the customer's amalgamation, despite having continued to perform the contract for six months: Ure Energy Limited v Notting Hill Genesis [2025] EWCA Civ 1407.
The decision is a reminder that a party will not be held to have waived its right to terminate a contract unless it knows that it has that right. Importantly, the Court of Appeal has confirmed that this principle applies where the right to terminate arises under an express contractual provision, as well as at common law.
The court rejected the argument that, for these purposes, a party must be deemed to have knowledge of its express contractual rights. There is a presumption that a party who has taken legal advice will be aware of its legal rights, but that presumption may be rebutted (as it was here) by waiving privilege and providing evidence of the advice received. It is also well established that a party may be bound by a contractual term of which it is unaware, but that is a separate point.
Of course, in many cases the court may be sceptical that a commercial party was not aware of its express contractual rights. However, the decision shows that such an assertion might have more credence in the case of a complex provision "buried in the small print of a detailed contract" – particularly where (as here) there had been some dispute as to whether the provision in fact applied to the circumstances that had arisen.
The decision also recognises that a party who delays in exercising a contractual right to terminate may be prevented from terminating for other reasons, apart from waiver. In particular:
- In some cases, the contractual right to terminate might be interpreted as being subject to a requirement to exercise it within a reasonable time, so that it will lapse if not exercised.
- If a party's conduct in the period of delay amounts to an unequivocal representation that they won't enforce the right to terminate, which the counterparty has relied on to their detriment, the delaying party may be estopped from going back on the representation.
Background
The background is more fully set out in our blog post on the High Court's decision. The claimant, Ure Energy, entered into a four-year electricity supply contract with an entity which later amalgamated with another entity to form the defendant, NHG.
Seven months after the amalgamation, Ure Energy gave notice to terminate relying on clause 10.2(d) of the contract, which allowed it to terminate if:
"(d) the Customer passes a resolution for its winding up which shall include amalgamation, reconstruction, reorganisation, administration, dissolution, liquidation, merger or consolidation (other than a solvent amalgamation, reorganisation, merger or consolidation approved in advance by the Supplier) or a petition is presented for, or a court of competent jurisdiction makes an order for, its winding up or dissolution, or an administration order is made in relation to it or a receiver is appointed over, or an encumbrancer takes possession of or sells, one or more of its assets or the Customer makes an arrangement or composition with its creditors generally or ceases to carry on business; …".
It then brought a claim against NHG for a contractual termination payment of nearly £4 million.
On Ure Energy's application for summary judgment, Moulder J held that a right to terminate had arisen under clause 10.2(d), but the question of whether Ure Energy had waived that right raised factual issues that should go to trial.
At trial, Dias J held that Ure Energy had not waived the right to terminate. She noted that there was no material dispute as to the principles for waiver by election including that, in order to make an election, a party must be aware both of the facts giving rise to the right to terminate and of the right itself. She held that, although Ure Energy was aware of the amalgamation, ie the "facts giving rise to the right to terminate", it was not aware that it had the right to terminate as a result.
She also held that NHG could not rely on a defence of estoppel, as it could not prove that it had relied to its detriment on any conduct by NHG.
NHG appealed on the question of waiver. However, it did not have permission to appeal the judge's finding that, as a matter of fact, Ure Energy was not aware that it had the right to terminate under clause 10.2(d) until shortly before it gave notice.
Decision
The Court of Appeal dismissed the appeal. Males LJ gave the leading judgment, with which Zacaroli and Miles LJJ agreed.
On appeal, NHG accepted that a party will not be taken to have elected to affirm a contract unless it knows of the right to terminate, as established by the Court of Appeal's decision in Peyman v Lanjani [1985] Ch 457. It argued, however, that a contracting party must be deemed, as a matter of law, to have knowledge of the express terms of the contract. It relied on L'Estrange v Graucob Ltd [1934] 2 KB 394 as establishing a basic principle that a party cannot contend that it did not know or understand the terms of a contract to which it had agreed. On that basis, it argued that Peyman v Lanjani should be distinguished in the case of an express contractual right to terminate.
While this point had not been argued in the High Court, Males LJ permitted NHG to raise it on appeal. It was a point of law which did not require any further evidence or factual findings, and he was satisfied that allowing NHG to argue the point would not cause prejudice to Ure Energy.
Males LJ noted that, in Peyman v Lanjani, the right to rescind the agreement had arisen under the general law of landlord and tenant, not an express contractual right, but he considered it clear that the court's conclusion was intended as a statement of general principle. It was, however, important to distinguish between election and estoppel, as the court had also made clear in Peyman v Lanjani. As Males LJ explained:
"Ignorance of the legal right to rescind will mean that there is no election, even if the innocent party acts in a way which appears to amount to an unequivocal affirmation. However, those same acts, even if done in ignorance of the right to rescind, may nevertheless give rise to an estoppel if there is detrimental reliance by the other party."
While Peyman v Lanjani had been the subject of academic and judicial criticism, Males LJ said it was "not unprincipled", as it rested on the principle of fairness that a person should not lose a right to choose between alternative courses of action if they do not even know that they have it. It was also binding at Court of Appeal level.
Males LJ suggested that the potential unfairness of the rule might be mitigated in some cases by construing a contractual right to terminate as being subject to a requirement to exercise it within a reasonable time, so that it would lapse if not exercised. That had not been suggested in this case, however.
Another practical mitigation could be found in the "healthy scepticism of first instance judges" who (for example) might not believe a landlord who said he was not aware of his right of re-entry. As Males LJ put it, however, "judicial scepticism will have rather less force in the case of a contractual right which can fairly be described as buried in the small print of a detailed contract", as was the case here for clause 10.2(d).
Males LJ referred to the rebuttable presumption of fact that a party who has taken legal advice is aware of its rights. Ure Energy had successfully rebutted the presumption in this case, having waived privilege over its legal advice. Males LJ commented that the existence of this rebuttable presumption was inconsistent with any rule that a party was deemed to know its contractual rights as a matter of law since, if there was such a rule, the presumption would not be needed.
The court therefore rejected the argument that Peyman v Lanjani could be distinguished on the basis that it did not apply to an express contractual right to terminate. Contrary to NHG's submission, L'Estrange v Graucob was not authority for a rule that a party must be taken to be aware of its express contractual rights. That case held that a party was bound by an exclusion clause in a contract she had signed regardless of whether she knew about the clause. It had nothing to do with whether knowledge was required for a waiver by election.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
