Court of Appeal upholds buyer termination of contract for the supply of face masks despite earlier repudiation

Advanced Multi-Technology for Medical Industry (t/a Hitex) and others v Uniserve Ltd [2025] EWCA Civ 1212

The question

In what circumstances will a party be entitled to terminate a contract for the supply of goods where it has committed an earlier repudiatory breach? 

The key takeaway

A failure to communicate acceptance of a repudiatory breach means the contract remains alive. Therefore, if the innocent party later commits a material breach of the contract, the initial wrongdoing party that committed the repudiatory breach may terminate the contract and claim damages.

The background

Uniserve Ltd ("Uniserve"), an English logistics company, began supplying PPE to the NHS during the Covid-19 pandemic. On or around 23 – 24 April 2020, Uniserve entered into an agreement with Advanced Multi-Technology for Medical Industry t/a Hitex ("Hitex"), a Jordanian manufacturer of medical supplies, whereby Hitex would supply Uniserve with 80 million face masks.

Under the supply agreement, Hitex was required to make the masks available for collection at its factory in Jordan according to a delivery schedule. Delivery dates were of the essence, meaning Uniserve was entitled to terminate the contract and claim damages if Hitex failed to deliver on time. Time was not of the essence regarding Uniserve's collection obligations. The contract included an entire agreement clause excluding liability for non-fraudulent pre-contractual representations.

Hitex failed to fulfil the first four deliveries due to production issues and had only delivered 1 million masks by May 2020. On 26 May 2020, the parties agreed a revised delivery schedule for the remaining 79 million masks. The following is an excerpt of the revised schedule:

Hitex made the first two deliveries under the revised schedule, which Uniserve collected but no further deliveries occurred. On 17 June 2020, Uniserve purported to terminate the contract by communicating to Hitex that the supply contract was over. Hitex nonetheless continued production and on 11 July 2020, complained that Uniserve had failed to collect further deliveries. In response, Uniserve reiterated that the contract was terminated.

Hitex then commenced a claim in damages for non-acceptance of the goods on the basis that the supply agreement had never been validly terminated.  Uniserve argued before the court of first instance that it was entitled to terminate the supply contract for failure to meet the delivery obligations, or alternatively to rescind the contract for misrepresentation, relying on a pre-contractual statement by Mr Waller, an intermediary, that Hitex could "produce 5 million [masks] a week".  Uniserve's own pre-contractual investigations found actual production capacity to be closer to 1 million masks per week. The court rejected Uniserve's misrepresentation argument, finding (1) that Mr Waller was not authorised to make statements on behalf of Hitex, despite Hitex's admission in its pleading that Mr Waller was authorised; and (2)  that Uniserve had entered into the contract in reliance on its own investigations and so there was no wrongful inducement required for misrepresentation (for a full breakdown of the High Court judgment see our Autumn 2024 Snapshots). Additionally, the judge found that Uniserve had wrongfully terminated the contract on 17 June, as Hitex had in fact fulfilled its delivery obligations under the revised schedule, amounting to a repudiatory breach by Uniserve. Despite Hitex asserting that it had kept the contract alive, the judge found that by 13 July Hitex was no longer producing sufficient masks to meet deliveries or contacting Uniserve to arrange collection, constituting valid acceptance of Uniserve's repudiation by Hitex (and that the contract was therefore validly terminated by Hitex on 13 July 2020). The judge in the court of first instance awarded Hitex damages of US $16.94 million, which Uniserve appealed.

The decision

The main issue for the Court of Appeal was whether Uniserve had been entitled to terminate the contract. The court also considered the matter of whether Uniserve would have been entitled to rescind the contract for misrepresentation.

On the latter issue, the court rejected Uniserve's misrepresentation argument, finding that Uniserve had not relied on Mr Waller's statement, as it had conducted its own investigation and knew his statement to be untrue upon entering into the supply contract. The presumption of inducement was therefore rebutted on the facts and Uniserve was not entitled to rescind the contract for misrepresentation.

As to the main issue of valid termination, the court found that Uniserve was entitled to validly terminate the supply contract on 11 July 2020. It was common ground that Hitex had not communicated acceptance of Uniserve's initial purported termination on 17 June 2020. Accordingly, the contract remained in force and Hitex was obliged to continue delivering masks under the revised schedule. As time was not of the essence regarding Uniserve's collection obligation, the total number of masks that Hitex was required to have for shipment on each specified date under the schedule was cumulative, meaning Hitex had to keep accumulating stock to meet the cumulative outstanding totals. For example, in addition to the 2 million masks due on 14 June, it also had to have the 3 million additional masks due on 21 June available for delivery, and so forth.

The court considered Hitex's Production Reports, showing available quantities against the quantities due on each specified delivery date and the evidence of Hitex's Operation and Export Manager who admitted that 15% of Hitex's stock was reserved for the Jordanian government and unavailable for Uniserve. Applying this reduction, the court found that on 21 June and 5 July, Hitex lacked sufficient stock to deliver the cumulative outstanding quantity and was therefore in breach of its delivery obligations. As time for performance of these obligations was of the essence, Uniserve was entitled to terminate the contract on 11 July 2020 (when it reiterated that the supply contract had finished). This was the case despite its own earlier repudiatory breach arising from its purported (but unlawful) termination on 17 June 2020.

This finding meant Hitex's claim for damages for non-acceptance of 77 million masks also failed. The court concluded that, even if Uniserve had not been entitled to terminate, Hitex had not accumulated sufficient stock to fulfil its obligations and could not recover damages for Uniserve's failure to accept stock that was not available for delivery.

Why is this important?

The judgment demonstrates the importance of performing ongoing contractual obligations where a repudiatory breach is not accepted. This is because where purported termination amounting to a repudiatory breach has not been accepted, the innocent party is still obliged to performance according to the agreement.

Additionally, the court made it clear that when deliveries are missed, a seller cannot just "retender" or "reuse" the same goods for successive deliveries or claim damages for non-accepted goods that were never available. A supplier cannot mitigate future breaches by not performing its own obligations, as Hitex had done by ceasing production and such actions may open the supplier up to liability for breach of contract.

Any practical tips?

When a party to a contract has committed a repudiatory breach, the innocent party faces a critical decision. Until the innocent party communicates acceptance of the breach and thereby terminates the contract, their contractual obligations continue. If the innocent party fails to perform these obligations without formally accepting the breach, they may themselves be in breach of contract and exposed to liability. Therefore, it is essential for the innocent party to quickly and carefully consider whether to accept the breach and to communicate their decision clearly, ensuring they remain compliant with their ongoing contractual duties until acceptance is given.

Winter 2025