Supplier awarded nearly £4m in dispute over contract termination

A company has been awarded almost £4m after the Court of Appeal ruled that it did not lose its right to terminate a contract, even though it continued supplying services for several months after the event that triggered the termination right.

Joseph Halvorsen, Solicitor Apprentice, reports on this recent case.

The case concerned an electricity supply agreement and the principle of waiver by election – whether a party entitled to end a contract can be treated as having chosen not to do so because it carried on performing the contract.

The dispute arose from a four-year electricity supply contract entered into in September 2017. The supplier was a start-up company established to deliver electricity as part of a wider proposal involving renewable energy and efficiency measures. The customer was a housing association.

The contract contained an express provision allowing the supplier to terminate if the customer passed a resolution for amalgamation, merger or consolidation, unless that step was approved in advance by the supplier. It also provided that, if the supplier terminated on that basis, the customer would be required to pay 50% of the remaining value of the contract.

In early 2018, the customer resolved to merge with another housing association, creating a new legal entity. The supplier was notified of the merger, raised no objection at the time, and continued to supply electricity, submit invoices and negotiate a proposed long-term contract.

Relations later deteriorated, and in November 2018 the supplier terminated the contract, relying in part on the earlier amalgamation. It claimed a termination payment under the contract.

The customer argued that the supplier had lost its right to terminate by continuing to perform the contract after the merger. It said that a party should be treated as knowing an express contractual right simply because it appears in the contract, and that continued performance amounted to an election to affirm the agreement.

The High Court rejected that argument, finding that although the supplier knew about the merger, it did not know at the relevant time that the contract gave it a right to terminate on that ground. Without knowledge of the right itself, there could be no election to affirm the contract.

The Court of Appeal upheld that decision. It ruled that a party will not be taken to have elected to continue a contract unless it knows both the facts giving rise to the termination right and that it has the right itself. There is no rule that a contracting party is deemed, as a matter of law, to know all of its contractual termination rights for the purposes of waiver by election.

The appeal was dismissed. The Court of Appeal also upheld the High Court’s decision that the customer was required to pay a termination sum of £3,946,861, calculated as 50% of the anticipated future income under the contract.

For more information about the issues raised in this article or any aspect of contract law please contact Joseph on 01228 516666 or click here to send him an email.