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

In these circumstances the question arises whether Peyman v Lanjani can be distinguished on the basis that it does not apply where the right in question is an express contractual right (or, more specifically, an express contractual right to terminate the contract). I would accept that this is a factual difference. The right to rescind in Peyman v Lanjani arose because the defendant’s title was defective, while the right to terminate in the present case is an express right contained in clause 10.2(d). But I do not think that this is a principled ground of distinction. Peyman v Lanjani was expressly decided as an application of the general law of waiver by election and it is hard to see any principled basis for distinguishing between an express contractual right and other principles of the law of contract, such as the right to rescind a contract for misrepresentation, or to terminate further performance in the event of an anticipatory repudiation, which can fairly be expected to be within the experience and expectation of those engaging in business.

Mr Riley suggested that one basis for drawing such a distinction is that a party can be assumed to be aware of the terms to which it has expressly agreed. But that is unrealistic as a matter of fact. While some contracts may be reasonably straightforward, and parties may in fact be familiar with their terms, others contain detailed (and sometimes indigestible) provisions which it would be unrealistic to expect the parties to carry in their heads. The fact that there was, at an earlier stage of these proceedings, a dispute as to whether clause 10.2(d) did entitle URE to terminate the contract in the event of a solvent amalgamation illustrates the artificiality of such a rule. The fact that the decision in Peyman v Lanjani leads to an unsatisfactory result on facts such as those of the present case is not a sufficient reason for inventing a rule that a party is deemed as a matter of law (and contrary to the fact) to be aware of all the rights given to it by the terms of its contract.

Contrary to Mr Riley’s submission, no such rule can be derived from the well-known case of L’Estrange v Graucob. That case decided that Miss L’Estrange was bound by an exclusion clause in a contract which she had signed regardless of whether she had read it or knew its contents. Whether she knew about the clause or had read the contract was (in Lord Justice Scrutton’s words) ‘wholly immaterial’. In the present case there is no doubt that the parties are bound by the terms of their contract. The issue is whether URE elected to affirm the contract when it had a contractual right to terminate it. L’Estrange v Graucob has nothing to do with that issue.

Mr Riley pointed to the Australian cases as supporting the rule of deemed knowledge of contract terms for which he contended. One of these, the Victoria case of Coastal Estates v Melevende, I have already addressed (see paras 66 to 68 above). A later Australian case was Sargent v ASL Developments Ltd [1974] HCA 40, (1974) 131 CLR 634, a decision of the High Court of Australia, which was not cited in Peyman v Lanjani. In Sargent Justice Stephen held that cases of an express contractual right were in a special category so far as election is confirmed:

‘26. Not only is this distinction, with respect, well-founded but it provides a measure of reconciliation of conflicting authority as well as resolving the matter so far as concerns the present appeals. Where election is in question between contracting parties and, as in these appeals, the contract itself confers the inconsistent rights there can be no question whether a party had knowledge of his choice of rights. He is deemed to know the terms of his own contract and the rights it confers, at all events he cannot take advantage of his own ignorance (L’Estrange v F. Graucob Ltd [1946] 2 KB 394, at pp 403, 406); moreover he must take his contract as bearing whatever meaning the court will assign to it when it is called upon to interpret it, he is bound by “the interpretation which a court of law may put upon the language of the instrument” (Stewart v Kennedy, per Lord Watson (1890) 15 App Cas 108, at p 123).’

As I have explained, I do not agree that L’Estrange v Graucob supports this rule of deemed knowledge. Justice McTiernan agreed ‘substantially’ with Justice Stephen, but it appears that Justice Mason did not. He said that:

‘35. Whether any distinction should be drawn between this class of case and fraudulent misrepresentation as Herring CJ suggested [i.e. in Coastal Estates v Melevende], need not be determined. However, it should be kept firmly in mind that the doctrine of election is of general application and that no good purpose is to be served by drawing distinctions in its various applications unless considerations of justice make it necessary or expedient so to do.’

The Australian cases therefore provide some, but hardly resounding, support for a special rule of deemed knowledge of express contractual terms. We were not taken to cases from other Commonwealth or common law jurisdictions in oral argument, but it does not appear that there is any consensus in favour of the view expressed by Justice Stephen in Sargent. In any event, so far as the position in this jurisdiction is concerned, it remains notable that there was no qualification in Peyman v Lanjani, by which this court is bound, of the general language in which the court held that knowledge of the right to elect is necessary before a party will be held to have affirmed.

I would add that a rule that a party is deemed as a matter of law to know the terms of its contract for the purpose of the doctrine of waiver by election is really another way of saying that knowledge of the right to elect in such a case is unnecessary. But Peyman v Lanjani holds otherwise.

For these reasons I would reject ground 1(a) of this appeal. There is no rule of law that, for the purpose of the principle of waiver by election, a party is deemed to know the terms of its contract. Whether it has the relevant knowledge is a question of fact.