Actinon PTE Limited v Char Biocarbon Inc: Affirmation and contractual obligations

The High Court's decision in Actinon PTE Limited v Char Biocarbon Inc [2026] EWHC 94 (Comm) provides important guidance on the doctrine of affirmation in misrepresentation claims and the interpretation of payment obligations in licensing agreements.

The dispute arose from an Exclusive Licence Agreement dated 18 August 2021, under which Actinon (the claimant) granted Char Biocarbon (the defendant) exclusive rights to use certain high temperature pyrolysis technology in North America. The agreement required minimum royalty payments totalling $3,000,000 over the first three years, with provision for automatic renewal subject to prepayment of subsequent years' royalties.

The defendant fell behind with payments from January 2022. After negotiations, Actinon terminated the agreement in June 2023 for non-payment. The defendant then raised, for the first time in its Defence and Counterclaim, allegations that pre-contractual representations about hydrogen production levels were false, seeking rescission of the agreement.

The affirmation issue

Paul Mitchell KC focused extensively on whether the defendant had affirmed the agreement, thereby losing any right to seek rescission. The court examined the defendant's conduct following its alleged discovery in November 2021 that hydrogen output figures had been based on a "calculation error".

Critically, the defendant's solicitors, DLA Piper, sent a letter on 30 June 2023 accepting Actinon's termination notice with immediate effect whilst acknowledging a debt of $635,810 under the agreement. The court held this acceptance constituted affirmation. The defendant faced a choice between accepting or rejecting the termination notice and unequivocally chose acceptance to reduce its potential liability period from 36 months to one month.

The judgement emphasised that waiver by election arises when a party, knowing it has alternative courses of action, acts in a manner consistent only with having chosen one option. Once communicated, such an election is final and irrevocable, regardless of whether the party realised the legal consequences.

Mitchell KC concluded that by accepting termination on the basis of its own earlier breaches, the defendant necessarily accepted the agreement had been in force immediately beforehand, thereby affirming it. A general reservation of rights in the same letter could not render this unequivocal acceptance somehow equivocal.

Construction of payment obligations

The defendant argued that non-payment of Year 4 minimum royalties meant the agreement would not renew, therefore no payment was due for that year. The court rejected this construction, holding that payment obligations for Year 4 accrued during Year 2 (whilst the agreement was in force) and remained payable even if the agreement terminated at the end of Year 3.

The interpretation aligned with the agreement's 36-month notice period and prevented the defendant from benefiting from its own breach. The court noted that contracts should be interpreted to prevent parties taking advantage of their own wrongs.

Outcome

Summary judgement was granted for $635,810, representing the sum the defendant had acknowledged as due. The counterclaim for rescission was dismissed as the defendant had affirmed the agreement. The application demonstrates that parties seeking rescission must act promptly and consistently; conduct suggesting continued reliance on contractual terms may constitute irrevocable affirmation.

Copyright & permissions