We have previously blogged about the case of URE Energy Ltd –v- Notting Hill Genesis when it was first decided in the High Court:
The case has now been considered by the Court of Appeal which has decided that if a party has the benefit of a right to terminate a contract, it cannot abandon or waive its right by continued performance, if it is not aware, or cannot be deemed to be aware, of its entitlement to terminate.
Notting Hill Genesis (“NHG”) entered into a 4-year energy supply contract with URE Energy Ltd (“URE”) in 2017. In 2018, NHG amalgamated with Genesis Housing Association and this triggered a right for URE to give notice to terminate the contract which entitled URE to a £4 million termination payment.
The Court of Appeal recognised that many judges would be sceptical if a large company claims not to be aware of its contractual rights, especially if it has had the benefit of legal advice but an argument based upon a lack of awareness is more likely to be accepted if a termination provision is buried in a complex contract.
After its right to terminate had arisen, URE continued to supply electricity for around 7 months and on the basis of the continued supply, NHG argued that the right to terminate had been abandoned or waived by URE’s conduct. In response, URE disclosed legal advice which showed that it had not been made aware of a right to terminate following NHG’s amalgamation.
NHG tried to argue that URE could have reviewed the contract itself and found the relevant provision but instead it continued to supply electricity and receive payment. The Court of Appeal confirmed that, in the absence of actual knowledge of a termination right, a party could only be deemed to have knowledge if there is evidence that it wilfully avoided carrying out any investigation to establish its rights perhaps because it wanted to continue to earn revenue from the contract.
Following this decision, a party to a commercial contract should be in no doubt that it will be difficult to persuade a court that it had no knowledge of a termination right and that the right has not been waived. If a terminating party is alleged to have waived its rights, it might need to disclose any legal advice that it had received and be able to provide a detailed chronology of the investigation that it undertook especially at the time when the right was triggered.
Alexander Haddad works in the Litigation Department and deals with contract disputes.