Termination turmoil: when knowing your rights makes all the difference

The High Court in URE Energy v Notting Hill Genesis found that whether a party is aware of its termination right under a contract depends solely on the evidence and requires actual, not constructive, knowledge. However, “blind-eye knowledge” where information is obviously available would suffice.

Background

URE entered a contract with Genesis for the supply of electricity across the Genesis housing estate. On advice from its solicitors that it had the right to do so, URE sought to terminate the contract following the amalgamation of Genesis and Notting Hill Housing Trust to form NHG. An earlier, failed, summary judgment application by NHG established that the right to terminate had arisen.  The key question here was whether that right had been waived by URE continuing to perform the contract for 8 months following it becoming aware of the amalgamation.

What is knowledge?

The court applied the established principles that to waive a contractual right: (i) a party must be aware of the facts giving rise to the right and of the right itself, (ii) elect to waive the right, and (iii) communicate clearly and unequivocally the abandonment of the right. It held that URE had not waived its termination right under the contract prior to the date it sought to exercise it, because it did not have knowledge of its right at this point.

The court heard evidence from directors of URE plus a partner and associate from its advising law firm. URE had to waive privilege of its advice to do this. The court found that URE was not aware of its right to terminate the contract until the directors were specifically advised of its existence by their solicitors. There is a “world of difference” between knowing that a clause exists and understanding its application in different circumstances. Whilst the directors knew the termination clause was a boilerplate clause in the contract, they did not understand its application to different scenarios, including the amalgamation. The directors did not turn a blind-eye by failing to ask their lawyers’ advice on the clause. The court considers this type of knowledge of contractual terms to be true of many “many lay businessmen”.

Waiving non-waiver

Although acknowledging the issue did not strictly arise, the court said that there was no reason in principle why a non-waiver clause could not be waived, and that if URE had been aware of its right to terminate following the amalgamation its subsequent conduct would have been sufficiently clear and unequivocal to amount to a waiver of its right.

However, the court noted that “a mere lapse of time – however long it lasts – is not a positive act absent some further positive act of performance”. So mere delay, without more, would not be enough and was exactly what typical “no waiver” clauses were aimed at.

Judgment: URE Energy v Notting Hill Genesis