Energy: Waiving termination rights and the meaning of ‘value’

In URE Energy Ltd v Notting Hill Genesis [2025] EWCA Civ 1407, the Court of Appeal revisited the issues of (i) whether a party may affirm a contract (and lose its termination right) without realising it had a right to terminate and (ii) the meaning of the word ‘value’ in an energy-related contract. The outcome will be of interest to many lawyers advising on the right to terminate, and energy lawyers grappling with the meaning of the word ‘value’. 

Facts

A summary of the facts and the decision of the Commercial Court can be found in our previous Law-Now here. 

In short:

1. URE Energy Ltd (“URE”) is an energy company. Notting Hill Genesis (“NHG”) is a publicly funded charitable organisation.
2. On 29 September 2017, URE and NHG signed a four-year electricity supply contract (the “Contract”).
3. The Contract provided:
   1. URE may terminate if NHG “passes a resolution for its winding up which shall include amalgamation, … (other than a solvent amalgamation…)” approved by URE. 
   2. Where the Contract is terminated, NHG was required to pay to URE 50 percent of the remaining value of this Contract. 
4. Following an amalgamation of NHG, which was not approved by URE, URE sought to terminate. 
5. NHG argued that URE could not terminate as it had affirmed the contract post-amalgamation.  

The Commercial Court found that URE had not waived its right to terminate as URE did not have actual knowledge of the termination right until advised by its legal advisors on 5 November 2018, some seven months after the amalgamation. 

Court of Appeal Decision

Does Peyman v Lanjani apply to express contractual termination rights?

The core issue before the Court of Appeal was whether the decision in Peyman v Lanjani [1985] Ch 457, which established that a party entitled to rescind a contract will not be held to have elected to affirm it unless it knows of that right, applies equally to express contractual termination rights. NHG argued that a contracting party must be deemed, as a matter of law, to have knowledge of the express terms of its contract, relying on L'Estrange v F. Graucob Ltd [1934] 2 KB 394, and principles of commercial certainty emphasised in cases such as The Golden Victory [2007] UKHL 12 and MUR Shipping BV v RTI Ltd [2024] UKSC 18. 

The Court of Appeal rejected this argument. It decided that Peyman v Lanjani was expressly decided as an application of the general law of waiver by election, and there is no principled basis for distinguishing between an express contractual right and other rights arising under general contract law. It observed that while some contracts may be straightforward, others “contain detailed (and sometimes indigestible) provisions which it would be unrealistic to expect the parties to carry in their heads”. 

Practical mitigations of the rule

The Court of Appeal identified several practical mitigations of the Peyman v Lanjani rule: 

1. First, an express contractual right may be construed as having to be exercised within a reasonable time, so that if not exercised the right lapses. However, this was not suggested in the present case. 
2. Second, judicial scepticism provides a practical check. Courts are unlikely to believe claims of ignorance regarding well-known termination rights in common commercial contexts. Here, clause 10.2(d) was one of nine sub-clauses conferring termination rights, and even within that sub-clause, solvent amalgamation was only one of many triggering events. 
3. Third, a party receiving legal advice is presumed to be aware of its rights, although this presumption is rebuttable upon waiver of privilege as URE successfully demonstrated.
4. Fourth, even where there is no election to affirm because the electing party lacks knowledge, sufficiently unequivocal conduct may found an estoppel where there is detrimental reliance by the other party. 

Did URE waive its right by lapse of time and continued performance?

NHG submitted that URE should be deemed to have elected to affirm the contract through its continued performance after knowing of the amalgamation, supplying electricity, including, invoicing NHG, pressing for access to fit meters, and negotiating the long-term contract. The Court of Appeal accepted that this was positive conduct going beyond mere lapse of time, and agreed that such conduct would have been “sufficiently clear and unequivocal, on an objective basis, to demonstrate that URE intended to affirm the contract”. However, without the relevant knowledge, including knowledge of the right to elect, there could be no waiver by election. 

What is the correct meaning of 'value' under the Contract?

On the issue of quantum, the Court of Appeal upheld the Commercial Court’s interpretation that “the remaining value of this Contract to” URE refers to future income rather than net profit. Several factors supported this construction:

1. URE was entitled to terminate for only some Supply Premises, requiring value to be calculated premises-by-premises; 
2. anticipated income could readily be calculated based on consumption, whereas costs might be incurred globally; 
3. if costs were taken into account, the problem arises that they would not be incurred evenly, presenting a “distorted picture” of the value of the contract. 

The Court of Appeal considered that the words used represented a compromise which was intended to provide a straightforward and easily calculated measure of compensation. That compensation was to consist of 50 percent of the future income (without needing what could be complex calculations of profit).  

Comment

Election to terminate 

The decision of the Court of Appeal was unanimous and has some significant points in relation to election on termination:

1. A party cannot have made an election until it is aware of its right to terminate.
2. Where a contract is complex, that may not be until it has received legal advice. However, in a more straightforward contractual context, where rights and obligations are generally well known to the parties, it may be readily inferred by the courts without the need for legal advice. 
3. The above applies in relation to contractual termination rights as well as termination at law.
4. That notwithstanding, the foregoing will not prevent arguments being made that a right to terminate must be exercised within a reasonable time (as a matter of construction). As such, a right to terminate may be lost by passage of time absent an election. 
5. In addition, the absence of an election to terminate (due to lack of knowledge as to a right) will not prevent an estoppel arising where the relevant test for an estoppel is established. 
6. As such, whilst significant, the Court of Appeal’s decision does not dispense with the need to act promptly in relation to termination rights. 

Academic and judicial criticism of Peyman v Lanjani

The Court of Appeal acknowledged significant academic and judicial criticism of Peyman v Lanjani. Andrews, Tettenborn & Virgo, Contractual Duties: Performance, Breach, Termination and Remedies, 4th Ed (2023) describes the decision as “difficult to defend” on the basis that it is inconsistent with the principle that ignorance of the law is no defence, and makes it difficult for a defendant to prove affirmation.^[1] The Hon Kenneth Handley in his article Exploring Election goes further, asserting that the decision was “wrongly decided” because it encourages perjury and rewards those who do not seek advice.^[2] Lord Justice Leggatt (as he then was) had also criticised the rule in Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2225 (Comm) as “difficult to justify in principle”. 

However, the Court of Appeal concluded that despite these criticisms, Peyman v Lanjani has stood for 40 years and the Court of Appeal is bound by it. It observed that the decision is not unprincipled; rather, “it rests on the principle of fairness that a person who has a right to choose between alternative courses of action should not lose that right if they do not even know that they have it”. 

'Value'

As we explained in our previous Law-Now, for energy practitioners, the approach to the meaning of the word ‘value’ in an energy-related contract will be of interest. The word is regularly used in energy contracts, such as price review/re-opener provisions in Gas Sales Agreements and change of law provisions in long-term Power Purchase Agreements.

That said, the meaning attributable to the word ‘value’ in any energy contract is likely to be heavily dependent upon the contractual context in which it is found. As such, the finding that ‘value’ means ‘revenue’ in the contract considered in this case is not necessarily directly translated to different legal circumstances. Indeed, the decision of the Court of Appeal reinforces that the meaning attributed to the word ‘value’ may be heavily dependent upon its contractual context. Those seeking contractual certainty may wish to consider carefully whether the use of words like ‘value’ conveys the certainty of outcome that they may be seeking to achieve. 

Commercial Court Judge: Dias J

Court of Appeal Judges: Males LJ, Zacaroli LJ and Miles LJ

[1] Neil Andrews & Andrew Tettenborn and Graham Virgo, Contractual Duties: Performance, Breach, Termination and Remedies (4 edn, Sweet & Maxwell 2023) para 3-028

[2] K R Handley, ‘Exploring Election’ (2006) 122 Law Quarterly Review 82