- within Corporate/Commercial Law, Coronavirus (COVID-19) and Environment topic(s)
- in United States
The decision also confirms that the evidential presumption of inducement in misrepresentation claims is capable of being rebutted on the facts.
The Court of Appeal has held that a party was entitled to terminate a contract despite its earlier repudiation in circumstances where the innocent party did not accept that repudiation and subsequently failed to comply with its own continuing obligations: Advanced Multi-Technology for Medical Industry & Ors v Uniserve Limited [2025] EWCA Civ 1212.
The decision acts as a reminder that, unless acceptance of a repudiation is communicated, the contract remains in existence for all purposes. That means that if the innocent party fails to meet its continuing obligations, it may find that it is itself in repudiatory breach and the original breaching party is entitled to terminate.
The decision is also of interest in considering the evidential presumption in misrepresentation claims, ie that when a misrepresentation is intended to cause the representee to enter the contract, they are presumed to have been induced by it. This presumption is "very difficult to rebut" and is particularly strong in a fraud claim. As this case shows, however, it can be rebutted where the facts clearly show that the representee was not in fact induced by the misrepresentation.
An unusual feature of this case is that the High Court's decision was reached on a basis that was contrary to the parties' pleaded case. The decision highlights that, while judges may raise points that appear to have been overlooked in a case, they must give the parties a fair chance to respond. The court emphasised that when a judge makes a fundamental error by deciding a case without proper warning on a basis which has not been argued, or which is contrary to common ground on the pleadings, it is both legitimate and helpful for legal practitioners to flag this before judgment is handed down. This will give the judge an opportunity to reconsider the point and potentially avoid unnecessary appeals.
Background
During the height of the Covid-19 pandemic, the defendant, an English logistics company, agreed a supply contract to buy 80 million face masks from the claimant, a Jordanian manufacturer of medical supplies.
Before the contract was signed, the claimant's agent sent an email asserting that the claimant could produce five million masks a week. However, the defendant carried out further investigation of the claimant's production capability, which revealed much lower output and ongoing delays, raising concerns about the claimant's ability to meet the defendant's needs.
Despite these concerns, a supply contract was executed. The contract was for delivery "ex works", meaning the masks were to be collected from the claimant's factory in Jordan. Dates for delivery (on a weekly basis) were contractually "of the essence", meaning if not adhered to, the defendant was entitled to terminate (and, if appropriate, claim damages). However, time was not of the essence for the defendant's obligation to collect the masks on the agreed dates.
The claimant struggled to meet the initial delivery schedule due to production delays and technical issues, and the parties therefore agreed to a revised delivery schedule. While the first two weeks' deliveries were made available for delivery on time, and later collected, no further deliveries took place.
Following the due date for the next week's delivery, which the claimant did not say was ready for collection and the defendant did not collect, the defendant communicated that the contract was over (the "June email"). However, the claimant did not accept this termination and instead purported to continue with its obligations under the contract. It emailed the defendant complaining at its failure to collect a further three weeks' deliveries, following which the defendant once again made clear that the contract was finished (the "July email").
The claimant brought proceedings claiming damages for non-acceptance of the 77 million masks remaining for delivery under the contract. The defendant argued that it was entitled to rescind the supply contract for misrepresentation, or alternatively that it had validly terminated the contract, and in any event the claimant was not in a position to perform the contract and therefore not entitled to damages.
At first instance, the High Court found that the June email was a repudiatory breach, which was accepted by the claimant (contrary to the claimant's case that it kept the contract alive for performance), and awarded damages of over US $16 million. The deputy judge also rejected the defendant's entitlement to rescind the supply contract for misrepresentation on the basis that: (i) the individual who sent the email concerning production capability was not authorised to make these statements on behalf of the claimant (again, contrary to an admission in the claimant's pleadings); and (ii) the defendant did not in any event rely on the representations, but relied instead on its own investigations.
The defendant appealed, including on the grounds that it was procedurally unfair for the judge to decide the case on a basis that was contrary to the claimant's pleaded case, and also that the judge had failed properly to address the defendant's case that it was entitled to terminate the contract via the July email.
Decision
The Court of Appeal (Males LJ, Phillips LJ, and Snowden LJ) allowed the appeal, finding that the claimant had not been in a position to perform the contract and the defendant was accordingly entitled to terminate via the July email.
Termination
The judge had found that at the time of the June email, the claimant had complied with its contractual obligations as it had available the required number of masks due for delivery. The defendant's purported termination therefore represented a repudiatory breach of the contract.
Referring to the House of Lords decision in The Simona [1989] 1 AC 788, the court noted that where one party wrongfully refuses to perform its obligations under a contract, this does not automatically bring the contract to an end. The innocent party may elect to accept the repudiation as determining the contract, or may ignore/reject the repudiation and affirm the contract. If the contract is kept alive, it is kept alive for all purposes. This means that, unless the innocent party gives notice that it accepts the reputation, it remains subject to all of its own obligations and liabilities under it. So, if it then fails to perform its obligations, the party which was in wrongful repudiation may have another opportunity to terminate the contract.
In the present case, the claimant did not communicate any acceptance of the defendant's repudiation following the June email. Accordingly, the contract remained alive, and the claimant remained under an obligation to comply with the revised delivery schedule. Given that time was "of the essence" for the claimant's obligation to have masks ready for delivery on the agreed dates, but not the defendant's obligation to collect the masks, the contract required the claimant to have cumulative quantities of masks available for delivery. Accordingly, unless and until the claimant served a notice making time for collection of the essence, which it never did, it remained under an obligation to have each new shipment available for delivery along with any previously uncollected shipments.
The court found that, by the time of the July email, the claimant had failed to maintain sufficient stock to fulfil the cumulative quantity of masks required, especially after accounting for the fact that 15% of the claimant's stock was reserved for the Jordanian government (evidence on which the first-instance judge had not properly considered). At that point, the claimant was in breach of its delivery obligations, and the defendant was therefore entitled to terminate the contract.
The court also commented (obiter) on whether a seller under an ex works contract is obliged to give notice that the goods are available for collection. The court noted that this will depend on the terms of the contract and all the circumstances. In this case, for the first few deliveries, the claimant had notified the defendant that the shipment was ready. That suggested that the parties worked on the basis that notification was a necessary aspect of tender of performance by the claimant – which would not be surprising in view of the claimant's difficulties in meeting the original delivery schedule. If that was right, this would be another reason why the defendant was entitled to terminate the contract via the July email. However, the court preferred not to decide this issue, as it was not clearly put forward as part of the defendant's case at trial.
Misrepresentation case
This concerned the defendant's alleged reliance, when entering the contract, on the email sent by the claimant's agent concerning its production capability. The claimant accepted that the judge was not entitled to reject the claim on the basis that the agent was not authorised to make statements on the claimant's behalf, as that was incorrect and contrary to an admission in the claimant's pleadings. However, the judge had further found that the defendant had not relied on the statement when entering into the supply contract, as it had commissioned its own investigation of the claimant's production capabilities.
The defendant alleged that the judge had failed to give weight to the evidential presumption that when a misrepresentation is made with the intent to cause the representee to enter a contract, the representee will indeed have been induced by the misrepresentation to do so. That presumption is particularly strong in a fraud case and has been described as "very difficult to rebut" (BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596).
The court held that the judge's conclusion that the defendant had not relied on the information contained in the email, but rather the results of its own investigations, was a finding of fact that the judge was entitled to make on the evidence. This had rebutted the evidential presumption set out above, whether the misrepresentation was made negligently or fraudulently, and was fatal to the defendant's misrepresentation claim.
Grounds not argued by the parties
The court criticised the judge for deciding the case on grounds not argued by the parties, which was procedurally unfair.
It reiterated the basic premise (stemming from precedent including Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041 and Satyam Enterprises Ltd v Burton [2021] EWCA Civ 287) that:
"parties identify in their pleadings the case which they seek to advance so that the issues for decision are clear, that evidence and submissions are directed to those issues and need not be concerned with other matters, and that the judge decides the issues thus identified and gives judgment accordingly."
A judge is of course entitled to raise a point that the parties appear to have missed and decide the case on that basis, but may only do so "provided that the parties are given a fair opportunity to deal with it".
In this case, the judge gave no warning at the hearing that he was minded to dispose of the misrepresentation claim on the basis that the agent lacked authority to make the statements, and to hold that the claimant was entitled to damages on the basis that it had accepted the defendant's repudiation. If those points had been raised, it would have been pointed out to the judge that the claimant had admitted the agent's authority in its pleadings and that it had never communicated acceptance of the defendant's repudiation. Instead, both points made their first appearance in the draft judgment.
While the court did not want to encourage further argument after a draft judgment has been circulated, it noted that:
"when a judge makes a basic error, such as deciding a case without prior warning on a basis which has not been argued, or is contrary to common ground on the pleadings, it is legitimate and would be helpful for this to be pointed out before the judgment is handed down so that the judge can have an opportunity to reconsider, thereby potentially avoiding unnecessary appeals".
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