CA-2024-002472 - [2025] EWCA Civ 1407

It is fair to say that the decision in Peyman v Lanjani has not been met with universal acclaim. Andrews, Tettenborn & Virgo, Contractual Duties: Performance, Breach Termination and Remedies, 4^th Ed (2023), para 3-028 describes it as ‘difficult to defend’, saying that:

‘It is inconsistent with general principles of the law, particularly that ignorance of the law is no defence, and also with the objective test of affirmation. It also makes it much more difficult for the defendant to discharge the burden of proving that the contract has been affirmed by the claimant, since the defendant would be required to prove that the claimant knew of the right to rescind. It follows that the preferable view is that it is enough that the claimant knows of the facts which trigger the ground of rescission without it being necessary to prove that the claimant was aware whether or not to affirm the contract.’

Wilken & Ghaly, The Law of Waiver, Variation & Estoppel, 3^rd Ed (2012), para 4.22, says that the decision is ‘not without difficulty’, albeit concluding that ‘the better view’ is that it is correctly decided. The Hon Kenneth Handley goes further, asserting bluntly that in so far as Peyman v Lanjani held that there can be no election without knowledge of the right to elect, it was wrongly decided (Exploring Election (2006) LQR 82)):

‘Are there reasons, in principle, why knowledge of the right to elect should not be required? The common law favours objective standards. In the criminal law a mistake of fact may excuse, but not a mistake of law. Ignorance of the law is generally treated as a misfortune, not an advantage. In Hourigan v Trustees Executors & Agency Co Ltd (1934) 51 CLR 619 at 651 Dixon J quoted Knight Bruce LJ saying in 1857 “generally when the facts are known … the right is presumed to be known”.

Disputes about an election normally arise because the other party relies on an earlier election to defeat a later attempt to elect the other way. Legal professional privilege would make it difficult for that party to prove that the elector was aware of his right at the earlier time. A rule that knowledge of the right had to be proved would encourage perjury and reward those who do not seek advice. The preference of the common law for objective standards is reflected in the tests for contract formation, repudiation and estoppel by representation, and in the imputation of an agent’s knowledge to his principal. It would not be surprising if it did not allow a person who knows the facts to have his cake and eat it.’

Mr Justice Leggatt made similar criticisms in Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2225 (Comm) in the context of affirmation of an insurance contract after the insurer has learned of a non-disclosure of material facts:

‘The need for knowledge of the legal right, although established by authority, is difficult to justify in principle. The requirement is inconsistent both with the principle that ignorance of the law is no defence and with the principle that in the field of commerce the existence and exercise of legal rights should depend on objective manifestations of intent and not on a party’s private understanding. It is also potentially extremely difficult for the other party to prove such knowledge – all the more so since any relevant legal advice which may have been received will be protected from disclosure by legal professional privilege. The unfairness of the rule is mitigated, however, by a presumption that a party which had a legal adviser at the relevant time received appropriate advice. That presumption can only be rebutted by waiving privilege and proving otherwise: see Moore Large & Co Ltd v Hermes Credit & Guarantee plc [2003] Lloyd’s Rep IR 315, 334-6, paras 92-100.’

It is notable, and perhaps not surprising, that in his later summary of the principle of waiver by election in the Delta Petroleum case which I have set out at para 60 above, Lord Leggatt made no mention of the need for the electing party to have knowledge of the right to elect.

It seems to me that the decision in Peyman v Lanjani is not unprincipled. 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. Rather, the problem is that this principle comes into conflict with other legal principles. In particular (to quote from Involnert) it conflicts with the principle ‘that in the field of commerce the existence and exercise of legal rights should depend on objective manifestations of intent and not on a party’s private understanding’. That latter principle promotes the certainty and predictability which are important in enabling commercial parties to know where they stand (although even critics of Peyman v Lanjani acknowledge that waiver by election includes an element of subjective knowledge because it is essential that the electing party actually knows the facts). The decision also gives rise to the practical problems of proof to which its critics have referred.

Nevertheless, despite the powerful criticisms of Peyman v Lanjani which have been made both academically and judicially, the decision has stood for 40 years. In The Kanchenjunga in the House of Lords its correctness was expressly left open, and Lord Goff’s summary of the principles of election must be viewed in that light, but in this court we are bound by it. Lord Goff said (p.398 col 2):

‘I add in parenthesis that, for present purposes, it is not necessary for me to consider certain cases in which it has been held that, as a prerequisite of election, the party must be aware not only of the facts giving rise to his rights but also of the rights themselves, because it is not in dispute here that the owners were aware both of the relevant facts and of their relevant rights.’