The Court of Appeal’s judgment in URE Energy v Notting Hill Genesis [2025] EWCA 1407 considered whether a party can be held to have waived a contractual right to terminate where it had no actual knowledge of that right at the time. The case and its surprising outcome in both the High Court and the Court of Appeal has generated considerable commentary, but on closer examination, the result is less significant for future cases than it might seem at first.
Background
URE Energy Ltd (“URE”) was a renewable energy start-up owned by Mr Ensor. Its aim was to supply electricity to Genesis Housing Association (“Genesis”), which was responsible for a large social housing footprint in Kensington & Chelsea. Mr Ensor had intended that this would be on a long-term basis, and he intended to recover the substantial investment required over a 25-year contract term. Electricity supply contracts of that duration are unusual, and Genesis was cautious about entering into a long-term arrangement with URE. While it agreed to proceed in principle, it was not in a position to commit to a 25-year relationship when the first contract was signed. Instead, the parties entered into a four-year agreement as a short-term measure, on the understanding that a longer-term contract would follow. However, careful to protect its position, Genesis made it clear that it was not committed to any long-term contract and was free to withdraw from negotiations at any stage.
A year into the contract, Genesis amalgamated with another social housing provider, the Notting Hill Housing Trust to create Notting Hill Genesis (“NHG”). NHG took on all of Genesis’ rights and obligations under the contract. They notified Mr Ensor, who raised no objections and simply notified URE’s lawyers that the contract parties’ names needed to be updated to reflect the change.
Following management changes at NHG, the decision was taken not to enter into a longer-term arrangement with URE. Mr Ensor believed that there was a contractual commitment for Genesis to enter into the longer-term contract. However, having consulted his lawyers who confirmed that Genesis was not bound to enter into a 25-year agreement, he purported to terminate the four-year agreement, serving termination notices on various grounds. Under that contract, early termination would trigger a contractual payment for URE of approximately £4 million.
Subsequently, URE’s solicitors – who had not been asked to advise on the amalgamation forming NHG when it occurred – noted that there was a clause in the contract between URE and NHG which permitted termination on an amalgamation affecting either party. That termination right did not require any wrongdoing or breach on the part of NHG. URE withdrew its previous termination notices and purported to terminate again on the amalgamation ground, some six months after the amalgamation had taken effect. NHG contended that URE had lost the right to do so.
The key legal issues
The question for the courts was whether URE, by continuing to perform the contract for several months after the amalgamation without exercising its right to terminate, had waived that right. The critical issue was whether URE’s ignorance of the right, rather than a deliberate decision not to exercise it, meant that the right had not been waived.
In the High Court
Following a trial in the High Court, Mrs Justice Dias found that there was no waiver by election because Mr Ensor, who was essentially the personification of URE, did not know that URE had a right to terminate in these circumstances, i.e. where Genesis had become NHG through amalgamation. The court held that, whilst ignorance of the law isn’t usually a defence, there is an exception to that rule in relation to waiver by election, on the basis that a person cannot make a choice – i.e. an election between two options – unless you know that there is a choice to make and what the choices are.
In assessing Mr Ensor’s factual evidence at the trial, and concluding that the Court accepted that evidence that he was not aware of the termination right, the Judge noted that this right triggered by amalgamation was only one small part of a long, detailed clause concerning insolvency (even though amalgamation is not an insolvency process). Mr Ensor was not a lawyer and the Judge accepted his evidence that there had been no deliberate attempt on his part to avoid knowing URE’s rights e.g. by not reading the relevant terms or ensuring that URE’s lawyers did not advise him on them such as to create a defence to the claim on a ‘blind eye’ basis. A key factor in persuading the Court that this was true was URE putting into evidence the communications between URE and its solicitors, Burges Salmon, to evidence the scope of their instructions and that URE had not sought advice on termination rights nor were there any other indicators that he was aware of what they were.
URE was accordingly held to have validly terminated the contract and to be entitled to the £4 million termination payment.
In the Court of Appeal
The Court of Appeal affirmed the High Court decision after reviewing extensive English, Australian and Canadian cases all analysing waiver by election specifically. The Judge’s factual findings were not subject to any appeal, leaving only the single legal issue on waiver by election. At present, there is no indication that the decision will be appealed to the UK Supreme Court.
Lord Justice Males gave the primary judgment of the Court (with which the two other Lords Justice agreed). Whilst it appeared to be a counterintuitive result that URE should receive £4 million and that its position could have been said to be unmeritorious on the facts, the Court found that the trial Judge had been right to decide as she did, because there can be no waiver by election without the relevant knowledge, which includes knowledge of the right to elect itself. If a party is seeking to argue that the other has waived its rights, it needs to be able to establish that the other party had knowledge of the choices that it could make.
There is a presumption that a party who has received legal advice will be aware of its legal rights; however, this is a presumption of fact which is capable of being rebutted, as it had been in this case by the waiver of privilege in and disclosure of Burges Salmon’s advice to URE.
Finally, the Court emphasised that the motive behind a party exercising its termination rights was irrelevant to these conclusions: the Court’s reasoning was not undermined by the fact that URE received a windfall by revoking earlier termination notices and exercising a different ground to terminate solely to obtain the £4 million.
Key takeaways
Ultimately, for waiver by election, a party must be aware of the choices available to it before it can act consistently or inconsistently with any of them. However, URE was a small owner-run business. It may be more difficult for a larger, more sophisticated entity, particularly when legally represented, to convince a court that it is ignorant of its rights. URE succeeded on the unusual facts of this case, but ignorance is not usually going to be a viable strategy and will not be enough in many commercial contexts.
- Ignorance was essentially bliss but this only goes so far and the facts are key: If a party can prove to a court’s satisfaction that it did not know what its contractual choices were, it will not be held to have made a waiver by election. However, deliberately closing one’s mind to the existence of a right or avoiding taking legal advice on termination – a ‘blind eye’ defence – will not achieve the same result.
- Judicial scepticism will be a real practical constraint: Mr Ensor’s evidence was accepted and the trial Judge found him to be a credible witness. If a party or witness is claiming ignorance of its rights, that is inevitably going to be a difficult proposition to prove and one that the courts can be expected to analyse closely, particularly where a party is legally represented. For example, we could see a very different outcome where the termination rights are more obvious such as in a situation of breach of contract by the opponent.
- Waiver by election may not be the only option: The Court made it clear that waiver by election is a specific and limited doctrine. NHG could have run a different argument based on equitable estoppel; that it had been induced by URE’s conduct to act in a particular way – that the contract proceeded post-amalgamation as before – which may have made it inequitable for URE to then rely on the termination right later. Unlike waiver by election, estoppel does not require knowledge of the right on the part of the representor. Had NHG been able to establish that they relied on the inducement to their detriment, URE would not have been entitled to the £4 million payment regardless of the knowledge question. However, equitable estoppel was not available to NHG on the facts, as the Judge’s findings were that there was no reliance by NHG.
- Contractual time limits: The principle will not automatically apply to all rights to terminate and can be overridden by express terms. For example, parties could protect themselves by providing that a termination right must be exercised within a specified time period or be lost, which would likely have prevented URE from succeeding in this case.
With thanks to Roisin Flinn for her help in drafting this update. For more information on these judgments and their implications for your commercial contracts, please contact Matthew Pack or another member of our disputes team.
For further information, please contact:
Matthew Pack, Bird & Bird
matthew.pack@twobirds.com
