Court of Appeal finds party did not waive its express contractual right to terminate

URE Energy Ltd -v- Notting Hill Genesis [2025] EWCA Civ 1407

Pursuant to the House of Lords decision in Peyman -v- Lanjani [1985] Ch 457, a party who is entitled to rescind or avoid a contract will not be held to have elected to affirm that contract if it did not know it had the right to rescind or avoid it.

Here, there was an express contractual right to terminate the contract in certain events. The party that could have exercised this right to terminate continued to perform the contract for a period of seven months after a termination event had occurred. It argued that it could not be taken to have affirmed the contract because it did not know the contract entitled it to terminate.

Both the Commercial Court and the Court of Appeal have held that the right to terminate the contract was not lost in these circumstances.

The background facts

The claimant, URE Energy Ltd (URE), was an electricity supply company owned by Mr Gary Ensor, which succeeded in a bid for a 25-year contract to supply electricity to Genesis Housing Association (Genesis). However, at that stage URE did not have the funds required to fulfil its obligations under the long-term contract. Therefore, the parties agreed to enter into a four-year contract as a “placeholder” and to continue negotiations for the 25-year contract.

Genesis had made it clear in its tender documents that it was not committed to any long-term contract and was at liberty to withdraw from negotiations at any stage. Mr Ensor did not appear, however, to have appreciated this.

The relevant contractual terms

The contract was concluded on 29 September 2017 and provided for URE to provide electricity to Genesis for four years commencing 1 October 2017. URE was advised by solicitors, and Genesis was advised by specialist brokers.

Clause 10.2 of the contract entitled URE to terminate the contract in certain events and listed nine grounds of termination. Some of those grounds involved a breach by Genesis of its contractual obligations, others did not.

One ground for termination was the passing of a resolution by Genesis for its amalgamation. Another of the grounds for termination, in clause 10.2(b), was the commission of a ‘material breach’ of the contract by Genesis which, where capable of remedy, was not remedied within 10 days from the giving of a notice by URE requiring such remedy.

In the event of a termination pursuant to clause 10.2, URE was entitled to a payment of 50% of the remaining value of the contract.

The contract also identified circumstances in which Genesis would be entitled to terminate the contract but contained no provision for a termination payment in that event.

Clause 13.1 of the contract provided as follows:

“No delay or omission by either party in exercising any right, power or remedy under this Contract shall be construed as a waiver of such right, power or remedy and any single or partial exercise shall not prevent any other or further exercise of the same or the exercise of any other right, power or remedy.”

Termination

In April 2018, Genesis merged with another housing association. In March 2018, it had given all its suppliers, including URE, notice of the proposed amalgamation but did not specially ask for their approval. URE/Mr Ensor had not objected to nor commented on this development.

The amalgamated housing association, NHG, succeeded to all Genesis’ rights and obligations under the contract with URE. Negotiations with regard to the long-term contract continued but the parties could not agree over payment terms.

NHG decided it wanted to end the relationship with URE and, on 29 October 2018, exercised its right to give written notice that it no longer intended to proceed with the long-term contract. However, the long-term contract was critical for URE as it had no other customers. Mr Ensor had personal debts he needed to clear and there was a risk that URE would have to be placed into administration if no long-term contract was concluded.

After receiving some legal advice, Mr Ensor gave NHG written notice of termination of the four-year contract for breach of clause 10.2(b) in failing to provide access for the replacement of electricity meters. URE sought payment of almost £4 million, being 50% of the estimated charges which would be payable to it over the remainder of the contract.

On 2 November 2018, again having spoken to his lawyers, Mr Ensor revoked URE’s termination because he had not given NHG 10 days to remedy the alleged breach as he was contractually obliged to do. At the same time, he alleged NHG were in material breach of the contract for failing to provide access for the replacement of electricity meters.

On 5 November 2018, Mr Ensor’s solicitors advised him of URE’s right to terminate without notice on the basis that Genesis had not sought URE’s approval for the amalgamation. Mr Ensor had not previously appreciated that URE might have such a right.

On 7 November 2018, the solicitors sent a second termination letter to NHG, relying on the amalgamation breach to terminate without notice. The letter also relied on the material breach of not providing reasonable access to metering and gave NHG 10 days to remedy that breach. The termination letter demanded payment of outstanding invoices and the 50% contractual termination payment.

NHG paid the outstanding invoices under protest to avoid any possibility of URE terminating for non-payment. NHG then served a letter on URE denying that the amalgamation was a valid ground of termination and treating URE’s conduct as repudiatory breach of the contract, which NHG accepted. NHG indicated it would be seeking damages in this regard. NHG then sent a second letter, denying any alleged breach regarding access to metering, albeit noting that this was purely for the record as the contract had already been terminated.

As a result of the termination, URE ceased to operate. It was unable to secure funding, and its energy supply license was revoked. Its sole asset was its claim against NHG.

Summary judgment application

URE applied for summary judgment of its claim based on the amalgamation. The Court found that NHG had no real prospect of succeeding in its defence that the amalgamation was approved in advance.

However, there was also the following issue to be addressed: whether URE had elected to affirm the contract by continuing to perform it or was estopped from terminating the contract because NHG had relied to its detriment on an implied representation by conduct that URE was not treating the amalgamation as a termination event. It was common ground that there would only be an election if URE was aware of its right to terminate the contract, but that this was not necessary for an estoppel to arise.

This issue could not be decided on a summary basis and had to be dealt with at trial.

Election and estoppel

Election arises when a party has a choice between two alternative courses of action (typically, but not necessarily, whether to terminate a contract or continue performance) and, with knowledge of the facts giving rise to that choice, acts in a way which is only consistent with having made a choice between them. The election, once made, is final, and does not depend on any reliance by the other party. Indeed, the electing party may not realise that it is making an election, but if it acts unequivocally one way or the other, it will be held to have done so.

Estoppel, on the other hand, arises where a party makes an unequivocal representation by words or conduct, whether or not it realises that it is doing so, on which the other party relies to its detriment.

Even where there is no election to affirm because the electing party does not know of its right to elect, sufficiently unequivocal conduct (viewed objectively) will found an estoppel where there is detrimental reliance by the other party. Therefore, estoppel may operate even when there is no relevant knowledge to found a waiver by election.

The Commercial Court decision

The Court highlighted that in order to make an election, the party concerned must be aware both of the facts giving rise to terminate and of the right itself.

On the facts of this case, the Court found that Mr Ensor had not had the requisite knowledge of URE’s right to terminate due to the amalgamation. While there was an evidential presumption that a party being advised by lawyers was aware of its contractual rights, URE had successfully rebutted that presumption in this case. Among other things, it had waived privilege in the advice received from its solicitors.

Therefore, NHG’s defence of waiver by election failed. However, the Court stated that if URE had known of its right to terminate, its conduct in continuing to supply energy and submit monthly invoices to NHG, combined with its efforts to achieve the meter rollout and continuing negotiations for the long-term contract, would have been sufficiently clear and unequivocal, on an objective basis, to amount to a waiver.

The Court also held that URE should not be deemed to have elected to continue with the contract as a result of the lapse of time before exercising the right to terminate. Accordingly, URE had not lost the right to terminate the contract as a result of any election, despite the fact that if it had been asked in advance to give its approval, it would probably have done so. It had validly terminated the contract.

The Court of Appeal decision

The Court of Appeal has unanimously dismissed NHG’s appeal. It decided that it was bound by the decision in Peyman -v- Lanjani, which could not be distinguished on the basis that it did not apply where the right in question was an express contractual right to terminate the contract.

The Court of Appeal noted that the amalgamation had been opportunistically seized on as justification for terminating the contract and claiming a termination payment. However, the fact that Peyman -v- Lanjani led to an unsatisfactory result in a case such as this one was not sufficient reason to impose a rule that a party is deemed as a matter of law (where the facts show otherwise) to be aware of all its rights under the terms of a contract.

The Court of Appeal made it clear that there is no rule of law that, for the purpose of the principle of waiver by election, a party is deemed to know the terms of its contract. Whether it has the relevant knowledge (which includes blind-eye knowledge) is a question of fact.

The Court concluded that URE was entitled to a termination payment of almost £4 million, as awarded by the judge.

Comment

In order to avoid disputes such as this one, parties should ensure they are fully aware of their rights under their contracts, including but not limited to their rights of termination.

Where the contract provides for express rights of termination that may be relied upon in addition to any common law termination rights, it is important to understand when and how such rights may be exercised and how they interact with any common law right of termination.

Wherever possible, legal advice should be taken initially when negotiating the express terms of a contract and subsequently when seeking to exercise a right of termination to ensure that such a right is exercised at the right time and in accordance with any contractual requirements.