High Court finds party did not waive contractual right to terminate despite continuing to perform contract for six months

In a recent decision, the Commercial Court held 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. The key question was when it actually became aware of its right to terminate – and this, the court said, was very shortly before it exercised that right: Ure Energy Limited v Notting Hill Genesis [2024] EWHC 2537 (Comm).

The decision is a helpful reminder that, where a party has the right to terminate a contract, it will not be taken to have waived that right unless it has the requisite knowledge – of not only the facts giving rise to the right, but also the right itself. Where the party has taken legal advice, it will be presumed to be aware of its legal rights, but may be able to rebut that presumption by giving evidence of the advice actually received (with an appropriate waiver of privilege).

It should not be assumed, however, that the courts will often be willing to accept that a commercial party was unaware of rights that are expressly set out in the contract. Here, the relevant provision was relatively complex and the court considered it plausible that a non-legal commercial person would have assumed it dealt only with insolvency-related matters, rather than solvent amalgamation.  

The court's obiter comments on the effect of a "no waiver" clause in the contract are also of interest. The clause provided, as is typical, that no delay or omission in exercising a right under the contract would be construed as a waiver. The decision suggests that a clause in these terms will ordinarily apply only to the "negative sin of omission", and will not preclude reliance on positive acts. The context will, however, be important. In some cases, a party may have no choice but to continue to perform the contract during the period of delay – such as here where the energy supplier could not simply cut off the customer's supplies. However, by going further and insisting on performance by the customer, the supplier would (if it had the relevant knowledge) have waived the termination right: that was clearly positive conduct, to which the "no waiver" clause did not apply. 

It is also worth noting that there is an outstanding application for permission to appeal against this decision.

Background

In 2017, Ure Energy, the claimant, entered into a four-year electricity supply contract with the Genesis Housing Organisation. This was intended to be the precursor to a 25-year contract, but there was no obligation on either party to enter into that longer term contract.

The contract's termination clause (clause 10.2) allowed Ure Energy to terminate if, among other things:

"(b) the Customer commits a material breach of this Contract … and where such breach is capable of remedy, fails to remedy such breach within 10 days of the Supplier giving the Customer notice of such breach and requiring the Customer to remedy such breach; …

(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; …".

In April 2018, Genesis amalgamated with another entity to form Notting Hill Genesis (NHG), the defendant.

Relations between Ure Energy and NHG deteriorated for various reasons. On 29 October 2018, NHG informed Ure Energy that it no longer intended to proceed with the long-term contract.

On 7 November, Ure Energy's lawyers wrote to NHG giving notice that Ure Energy was terminating the contract under clause 10.2(d) as a result of the amalgamation. 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 that NHG's defence that Ure Energy had waived the right to terminate raised factual issues that should go to trial.

The key question to be decided at trial was therefore whether Ure Energy had waived its right to terminate by continuing to perform the contract long after the amalgamation had taken effect and the right to terminate had first arisen.

Decision

The High Court (Dias J) found that Ure Energy had not waived its right to terminate the contract under clause 10.2(d) and was entitled to a termination payment.

The judge set out the relevant principles, which are in brief summary:

• Where a party (A) becomes entitled to terminate a contract, it must elect whether to exercise that right or not.
• In order to make that election, A must be aware both of the facts giving rise to the right and of the right itself.
• If A does not make a decision, the time may come when the law nonetheless deems an election to have been made.
• An election can be made by any words or conduct but, particularly where A has elected to abandon a right which it would otherwise possess, such election must be communicated in clear and unequivocal terms.

Awareness of right to terminate

In this case, it was clear that Ure Energy knew the amalgamation had taken place. The question of waiver turned on when the relevant individual knew that the right to terminate had arisen. "Knowledge" in this context meant either:

• actual knowledge, ie having knowledge in fact (simply having the means to know would not be sufficient); or
• blind-eye knowledge, ie deliberately avoiding acquiring knowledge for tactical reasons.

The judge conducted a careful and detailed review of the evidence to ascertain who knew what, when.

Both parties accepted that NHG was entitled to rely on an evidential presumption that, because Ure Energy had been legally advised, it was fully aware of its legal rights. However, Ure Energy had opted to waive privilege over advice provided by its lawyers during the period in question to seek to rebut the presumption.

The judge held that the relevant individual at Ure Energy knew there was a termination provision, and knew that it allowed termination in a number of scenarios, one of which was insolvency. However, he did not know that the termination right was triggered by an amalgamation, as well as a more typical insolvency event. The judge said it was plausible that the individual considered the termination clause simply to be a standard "boilerplate" provision for termination on insolvency, particularly in circumstances where: (a) the contract was negotiated and agreed in very short order; and (b) the clause was not drawn to the individual's attention during negotiations or afterwards.

The judge decided that the individual did not therefore understand the detail of the termination clause, and did not know it was engaged by an amalgamation, until he was advised to that effect by Ure Energy's lawyers on 5 November 2018. The judge commented that knowledge of a clause's existence is different from understanding its meaning and application in different circumstances.

The judge also rejected an argument that the individual had deliberately turned a blind eye to the clause, which was not made out on the evidence. As such, there could be no waiver. The right to terminate was validly exercised shortly after Ure Energy had actual knowledge that it had that right.

Waiver by continued performance

The judge went on to consider, on an obiter basis, whether, if Ure Energy had in fact had knowledge, it would have waived its right to terminate by continuing to perform the contract for six months.

The contract contained a 'no waiver' clause, which said that:

"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…”.

The judge referred to MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24 (considered here) in which the Supreme Court held that a “no oral modification” clause would generally be given effect. By parity of reasoning, she said, the same must be true of a "no waiver" clause. While such a clause could itself be waived, waiver in the face of such a clause would require conduct which makes clear that the waiver is intended to be effective notwithstanding the clause.

However, previous cases had held that, as a matter of construction, material identical clauses only applied to preclude waiver by pure delay or omission, not positive acts such as a demand for performance by a counterparty.

Here, the judge accepted that there was some force in the submission that Ure Energy could not simply cut off supplies under the contract and therefore any delay in exercising its termination right necessarily meant a continuation to perform. However, Ure Energy had not only performed the contract by continuing to supply electricity throughout the six month period since the amalgamation, but had also insisted on performance by NHG. That was not a question of pure delay, but was instead sufficient positive conduct to amount to an affirmation of the contract and therefore a waiver despite the non-waiver clause.

As such, if the judge was wrong about the date of knowledge point addressed above, Ure Energy would have waived its right to terminate by its conduct.