Commercial contracts often contain extensive termination provisions, many of which are rarely revisited once an agreement is underway. When a commercial relationship deteriorates, tough questions can arise as termination rights and triggers come into focus. The decision in URE Energy Limited v Notting Hill Genesis [2025] EWCA Civ 1407 offers useful insight in navigating the termination maze. The Court of Appeal confirmed that a contractual termination right is not waived by continued performance unless the party electing to affirm had actual knowledge that the right existed.
Parties frequently assume that if a counterparty continues to perform after termination, any termination right has been lost. The decision in URE demonstrates that such assumptions may be misplaced, with knowledge of the contractual right being central to the analysis.
Background
The case concerned a four-year electricity supply contract between URE Energy Limited ("URE"), a small start-up supplier owned by Mr Gary Ensor, and Genesis Housing Association, later amalgamated into Notting Hill Genesis ("NHG").
The contract entitled URE to terminate if Genesis passed a resolution for amalgamation without URE's prior approval. Genesis later amalgamated with another housing association to form NHG and notified suppliers of the merger. URE raised no objection at the time and continued performance for months.
The commercial relationship subsequently broke down. After taking legal advice, URE was advised that the amalgamation had triggered a contractual termination right and sought to recover the substantial termination payment on the basis that its consent had not been sought prior to the amalgamation. NHG argued that URE had waived the right by continuing to perform after the amalgamation.
The Court of Appeal's decision
Applying the established principles in Peyman v Lanjani [1985] Ch. 457, the Court held that waiver by election requires actual knowledge of the right being waived, not merely knowledge of the facts giving rise to it.
The Court found that the relevant knowledge was that of Mr Gary Ensor. Although Mr Ensor knew the amalgamation had taken place, he did not know that the contract conferred a termination right in those circumstances. He had skim-read the termination provisions and understood them to primarily be insolvency related. The termination clause was one of nine grounds in a detailed contract and Mr Ensor simply knowing that the boilerplate existed did not suffice. Critically, URE waived legal privilege and successfully rebutted the evidential presumption that a party receiving legal advice must be aware of its contract rights.
Key commercial takeaways
1. Open-ended termination rights can create prolonged commercial risk
The contract's termination clause did not impose a deadline for exercising the termination right following an amalgamation. This allowed URE to terminate more than seven months after the amalgamation. From a commercial standpoint, this exposes parties to termination being deployed opportunistically once relations deteriorate.
Takeaway: Parties should consider stating clear time limits for exercising termination rights. This can be tied to objective milestones and can also explicitly state that a failure to exercise the right within a specified period amounts to affirmation. This significantly reduces the risk of prolonged
uncertainty created by open-ended termination rights.
2.Knowledge disputes can turn on evidence - and privilege can be decisive
The Court accepted that there is a rebuttable presumption that a party in receipt of legal advice will be aware of its contractual rights. URE was able to rebut this only by waiving legal advice privilege which demonstrated that it had not sought advice or been advised on the amalgamation clause. This was a tactical manoeuvre but a necessary step to establish the lack of knowledge.
Takeaway: Parties should anticipate scrutiny of what advice was (or was not) given and proving lack of knowledge may require uncomfortable evidential decisions. Relying on ignorance as a litigation strategy is not fool proof, as parties may not always be in a position to waive legal advice privilege particularly where confidentiality is paramount. Better practice remains to ensure that key provisions are flagged on a clause-by-clause basis at contract inception and actively monitored against significant milestones.
3.No-waiver clauses do not displace waiver by election
The contract contained a standard no-waiver clause stating that delay or omission in exercising rights would not amount to waiver. The Court confirmed that such clauses do not prevent waiver by election where a party, with knowledge of its rights, acts in a manner that is objectively inconsistent with termination.
Takeaway: No-waiver provisions cannot insulate parties from objectively inconsistent conduct once knowledge is established. Where a party wishes to preserve termination rights while continuing performance, an express reservation of rights is likely to carry greater weight than boilerplate alone.
4.Estoppel remains a practical backstop once proven
The Court also provided useful insight into the significance of estoppel. Despite NHG failing to establish estoppel on the facts, the Court emphasised that estoppel could counterbalance the effect of continued performance where the counterparty has relied on that conduct to its detriment.
Takeaway: For parties on the receiving end of "business as usual" from a counterparty after a termination trigger, document reliance where possible. For example, documenting investment decisions, operational changes or foregone alternatives can be useful to demonstrate reliance which can be critical evidence to prove estoppel.
Conclusion
With knowledge at the crux of the matter, the case demonstrates the importance of seeking expert legal advice on contractual rights including advice on the impact of key trigger events. While URE's ignorance of the termination right resulted in a favourable outcome, it was subsequent legal advice that led URE to discover its right to terminate the contract under those circumstances. Termination can be a potentially litigious, contentious and costly situation and commercially focused advice is crucial to achieving the best outcome for business.
Author: Joy Blankson-Hemans
The Commercial team at DWF is here to help. Contact us for practical advice on contract termination, contract management, and risk mitigation strategies.
