Waiver By Election? Not Unless You Know You Have The Right To Elect

The Court of Appeal has upheld the High Court decision in URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407, confirming that a party cannot be held to have waived its right to terminate a contract unless it actually knows that the right exists. This principle applies both to express contractual termination rights and to those arising at common law.

Although a contract may expressly confer a right to terminate upon a particular event, that right will not be lost unless the party was aware of it; there is no deemed knowledge of contractual terms. A party that has received legal advice will ordinarily be presumed to know its rights, but this presumption is rebuttable, as demonstrated here, where evidence of the legal advice obtained showed genuine lack of awareness of the right to terminate. Our commercial litigation specialists analyse the decision and explain what it means for parties considering waiver by election arguments in the context of termination.

Background

In 2017 URE Energy Limited (URE, the Supplier) entered into a four-year electricity supply contract (the Contract) with Genesis Housing Organisation (Genesis, the Customer). The Contract was intended to be a precursor to a long term, 25-year contract that the parties had already started negotiating – although both parties were able to withdraw from those negotiations at any time.

The Contract provided for payment of 'Charges' based on meter readings if available and, if not, based on estimates made by URE, with payments being made monthly in arrears. However, because URE was a startup company and funding had not yet been secured, the parties agreed that URE would be paid monthly in advance from March 2018 – although there was subsequently a dispute as to how long the amendment to the payment term was to last.

The Contract required Genesis to allow URE reasonable access to read, install, remove and replace meters and to allow URE to replace existing meters with meters that could be read remotely.

It also contained terms that allowed URE to terminate the contract on the occurrence of certain events, including (at clause 10.2) if:

In April 2018 Genesis amalgamated with another housing association, Notting Hill Housing Trust, to become Notting Hill Genesis (NHG – now the Customer). Notice of the amalgamation was given to URE (and other suppliers to Genesis) by letter. No agreement to the amalgamation was requested by NHG and none was given by URE. However, at first instance the court found that URE – through its owner, Mr Ensor – did not have and did not express any objection to the merger (and this fact was not challenged on appeal).

Both before and after the amalgamation URE encountered significant problems in securing access to the Genesis/NHG sites to install new meters. Serious issues also arose between the parties about estimated billing, as well as the ongoing payment terms. By the end of October 2018 NHG decided that it wanted to end its relationship with URE and gave written notice at the end of October 2018 that it no longer intended to proceed with the long-term contract. The court acknowledged this was devastating news for URE, as the long-term contract was critical to its long-term survival. At that stage NHG did not take steps to terminate the Contract (i.e. the four-year short-term contract).

Mr Ensor, acting for URE, subsequently wrote to NHG attempting to terminate the Contract on the ground of NHG's failure to provide access for the replacement of electricity meters (in breach of clause 10.2(b)). However, the notice was withdrawn two days later as URE was in fact required to give NHG an opportunity to remedy the breach in question.

Mr Ensor then received legal advice from URE's solicitors, confirming that clause 10.2(d) of the Contract actually gave URE an immediate right to terminate, as a result of Genesis' failure to obtain URE's approval in advance of the amalgamation with Notting Hill. Notice of termination was therefore given afresh on that basis, despite the fact that the amalgamation had taken place over six months earlier. Notice of termination due to NHGs failure to provide access to replace electricity meters was also repeated – with NHG having now been given sufficient time to rectify the breach as per the Contract. URE claimed the termination payment set out in clause 10.5 of the Contract – which amounted to just under £4 million.

NHG replied, addressing only the amalgamation issue. NHG argued that the amalgamation did not give rise to any right to terminate under clause 10.2(d). In serving notice of termination on that basis NHG alleged that URE was itself in repudiatory breach of the Contract, which gave NHG the right to terminate the contract with immediate effect (which it then purported to do).

It was common ground that the Contract had come to an end, but the basis of the termination was important given the impact on URE's ability to claim a termination payment if it was correct in its assertion that it had the right to terminate as a result of the amalgamation.

Once the Contract had terminated URE ceased to operate, and its energy supply licence was suspended, its sole asset was the claim for the termination payment it had against NHG. URE issued proceedings claiming that contractual termination payment and sought summary judgment based on the right to terminate arising from the amalgamation which it had not approved.

Summary Judgment

Mrs Justice Moulder found there was no real prospect of NHG proving that that the amalgamation was approved in advance and that URE's right to terminate had arisen under clause 10.2(d) as a result. On the evidence before her, she also found that any estoppel defence claimed by NHG (i.e. that URE be estopped from exercising its right to terminate based on the amalgamation) failed for lack of detrimental reliance on the part of NHG.

However, the question of whether URE had waived its right to terminate by election (another limb of the defence raised by NHG) was allowed to continue on the basis that assessment of that defence required a review of factual issues that needed to be addressed at trial.

First Instance Decision

The trial was conducted on the basis that URE had not given consent to the amalgamation in advance so that a right to terminate had arisen under clause 10.2(d) – as found in the summary judgment decision.

At the trial Mrs Justice Dias also held that URE had not waived the right to terminate. There was no material dispute as to the principles for waiver by election – which included 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 to terminate itself. Although URE was aware of the amalgamation, i.e. the "facts giving rise to the right to terminate", it was not aware that it had the right to terminate as result of the amalgamation until Mr Ensor received specific advice on that issue from URE's solicitors on 5 November 2018. URE waived privilege in the advice given by its solicitors, which supported that position.

If URE had known of its right to terminate, its conduct in continuing to supply energy and negotiate the long-term contract after the amalgamation would have been, the court found, sufficiently clear and unequivocal to amount to a waiver. However, it was determined that URE simply did not know it had the right to terminate. As a result, URE could not be deemed to have elected to continue with the contract as a result of the lapse in time before its termination right was exercised.

The judge held that the result was not unjust, because NHG would have been able to rely on a defence of estoppel if it had been able to prove detrimental reliance (which it was unable to do).

NHG appealed to the Court of Appeal.

Court of Appeal Decision

NHG obtained permission to appeal against the judge's decision, in particular on the basis that:

1. The judge was wrong to find that URE did not have knowledge of its right to terminate the contract for the purpose of waiver by election, in that URE should automatically have been taken to know the contents of its own contract; and
2. The judge should have held that URE was deemed to have made an election to affirm the contract because of the way it had acted in keeping the contract going after the amalgamation.

NHG did not have permission to appeal the judge's finding that, as a matter of fact, URE – through Mr Ensor - was not aware that it had the right to terminate under clause 10.2(d) until shortly before notice of termination was given, over 6 months after notice of the amalgamation had taken place.

Election and Estoppel

The Court of Appeal reviewed the historic case law and provided a helpful summary of the difference between election and estoppel.

Election arises when a party has a choice between two alternative courses of action 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. The electing party may not realise it is making an election but if it knows it has a choice and acts unequivocally one way or other it will be held to have done so.

Estoppel 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.

Each requires an unequivocal representation – because each may involve a loss, permanent or temporary, of the relevant party's rights. However, election does not require reliance on the representation by the other party (it can be unilateral), whereas estoppel requires both representation and reliance on that representation by the other party.

Knowledge

NHG argued that a contracting party must be deemed, as a matter of law, to have knowledge of the express terms of a contract to which it had agreed. However, the court determined that what matters is whether a party actually knows that it has a right to choose between inconsistent courses of action. The first instance judge had found, as a matter of fact, that URE (through Mr Ensor) did not have that knowledge. Even though URE's conduct following the amalgamation went beyond a mere 'lapse in time' and would have been sufficiently clear and unequivocal on an objective basis to demonstrate that URE intended to affirm the contract, the lack of knowledge of the right to terminate was fatal to the waiver by election argument.

The judge also rejected NHG's case that Mr Ensor had "blind eye" knowledge of URE's contractual right to terminate the contract in the event of an amalgamation (i.e. an allegation that he and URE had deliberately turned a blind eye to checking whether the right existed). Mr Ensor had no reason to investigate whether the amalgamation gave URE any right to terminate the contract until the parties' relationship deteriorated. As a result, it was determined that URE did not have the necessary knowledge of its right to be found to have made an election.

The Court of Appeal stated that any potential unfairness in the absence of a 'deemed knowledge' rule can be mitigated by the 'healthy scepticism of first instance judges' when a commercial party claims not to have known of the right to terminate. Although such scepticism will have less force where the contractual framework is complex, or the right is buried in the small print – as was the case here. Likewise there is a rebuttable presumption that a party who has received legal advice will be aware of its rights, but this presumption can be rebutted by evidence – as it was in the case where URE waived privilege in the legal advice it had obtained, which clearly showed that URE was genuinely unaware of its termination right until November 2018.

While there was a risk that URE's continued performance of the contract could give rise to an estoppel (because estoppel did not require knowledge of the right to terminate), that defence was excluded in this case where Mrs Justice Moulder had found that there had been no detrimental reliance by NHG on URE's performance by NHG.

As a result of those findings, NHG's appeal was dismissed.

Fairness over objectivity: Court of Appeal provides clarity on the limits of waiver by election

This case is a rare example in recent times of a court dealing with rights under a contract preferring the principle of fairness to the individual over objectivity and clarity for all. The Court of Appeal reaffirms that there is no rule of law deeming parties to have knowledge of their express contractual rights in the context of waiver by election. There will be a presumption that a party who has taken legal advice will be aware of its legal rights – but that presumption can be rebutted if privilege is waived and evidence is provided of the advice received (a step which should always be approached with extreme caution but could prove decisive).

The decision provides clarity on the limits of waiver by election. The presence of actual knowledge is required – the fact that the party knows there is a choice / election to be made is critical. That knowledge, combined with unequivocal conduct showing that a choice has actually been made, will be enough to prove that there has been a waiver by election justifying the permanent loss of the right in question.

This principle applies to both terminations under express terms under the contract and to repudiatory breaches. Whilst lack of knowledge of express terms may be difficult to prove (although more people may try in the wake of this case), surely it will be easier for a party to say that it was unaware of its common law right to terminate for repudiation? In that context, the passage of time has always been a key element in analysing the continued availability of a right to terminate for repudiatory breach, and a more detailed assessment of the relevant party's knowledge is likely to be required.

In the context of waiver by election, it is now clear that a party will not lose a right to terminate a contract simply because it carries on performing. However, if a party is aware of its right to terminate – or becomes aware of that right – its behaviour WILL then matter. A delay in taking action, or acting as though a contract is continuing, could well mean the right to terminate is lost.

It remains the case that knowledge of the right will not impact on an estoppel defence though – if the party represents that the contract is continuing a party will be estopped from arguing subsequently that it has terminated, as long as the other party has acted to its detriment because of the representation.

It is trite advice that it is important for parties to review and understand the terms of any contract entered into. However, this case demonstrates that it can be dangerous to assume that your counterparty has done so, and that needs to be carefully considered in any breach scenario (together with the ability to prove detrimental reliance flowing from the other party's apparent decision to continue with a contract despite a breach). Importantly, the old rule of thumb that a right to terminate must have a "shelf life" may need to be reappraised in the light of this decision.

Read the original article on GowlingWLG.com

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