Advanced Multi-Technology for Medical Industry & others -v- Uniserve Ltd [2024] EWHC 1725 (Ch)
This was a dispute arising out of agreements relating to the procurement of Personal Protection Equipment (PPE) including medical masks during the COVID-19 pandemic. It raised a number of contractual issues, including misrepresentation and authority to act on behalf of another individual/entity and to bind them legally.
The case highlights the type of difficulties that can arise where there are numerous parties involved in contractual arrangements, mostly unknown to each other, and the inter-partes communications are conducted indirectly through intermediaries.
Those participating in the transactions here saw a potentially profitable business opportunity arising out of the pandemic but did not ensure that channels of communication were clear. The result of information being handled through multiple parties was a misunderstanding or miscommunication as to the quantity of masks that could be supplied, leading to a dispute over whether the supplier was in breach and whether the buyer was entitled to terminate the contract.
The background facts
In April 2020, Hitex, a manufacturer of medical supplies in Jordan entered into a supply contract with Uniserve, an English company, for the sale and purchase of masks (Supply Contract).
The Supply Contract had been arranged by a company, Caramel, through its sole shareholder and director, Mr Popeck, who entered into a commission contract with Uniserve (Commission Contract).
Under the Supply Contract, Hitex agreed to supply 80 million masks to Uniserve on various dates in April to July 2020. Hitex subsequently alleged that Uniserve, in breach of contract, failed to receive and pay for the great majority of the masks and claimed damages of over US$23 million. Caramel and Mr Popeck claimed almost £20 million in unpaid commission.
Uniserve contended that it had terminated the Supply Contract because Hitex had failed to meet its contractual obligations as regards delivery of the masks and was, therefore, in breach. Uniserve also argued that it had been induced to enter into the Supply and Commission Contracts by fraudulent or negligent misrepresentation.
A company, Maxitrac, acted on behalf of Uniserve in arranging the Supply Contract and subsequently managing it. Dr Stead was Maxitrac’s sole shareholder and director. The relationship between Maxitrac/Dr Stead and Uniserve arose by means of an initial agreement, evidenced in email exchanges with Mr Liddell of Uniserve, and was later governed by a written contract (Maxitrac Contract). Dr Stead guaranteed Maxitrac’s obligations under the Maxitrac Contract.
Uniserve brought Part 20 (contribution and indemnity) proceedings against Maxitrac and Dr Stead for declarations that they were liable in damages or to indemnify Uniserve to the same extent that Uniserve was liable to Hitex, Caramel and Dr Popeck (the claimants).
Misrepresentation claims
Under English law, the elements of a successful misrepresentation claim are as follows:
- that the representations complained of were made by the party sued;
- that the representations were false;
- that the representations, were made either knowing them to be untrue or recklessly not caring whether they were true or not;
- that the representor must intend for the representee to rely on the statement in the sense that it was false; and
- the representee must in fact have been induced to take action – for example entering into a contract – in reliance on the representations. However, the misrepresentations need not be the only reason for the representee’s decision to enter into the contract.
The Commercial Court decision
Misrepresentation
Uniserve alleged that it was induced to enter the Supply Contract and the Commission Contract by representations about the ability of Hitex to meet the delivery schedule required by the Supply Contract.
The misrepresentations relied on were in an email from yet another intermediary, Mr Waller (a business contact of Mr Popeck who made the introduction to Hitex), to Dr Stead on 9 April 2020, which stated:
“there are 5 million available on 15th and 5 million on 22nd April. We can then produce 5 million a week from there on in.”
Uniserve alleged that these representations were repeated or reaffirmed, expressly or impliedly, with revised quantities and dates by subsequent negotiations in which Hitex and Caramel affirmed that Hitex would be able to supply at least 5 million units a week from the outset. Uniserve contended that neither Hitex nor Caramel had reasonable grounds for stating that Hitex could manufacture or make available 5 million units a week.
The Court found that even if the representations in question were false, Uniserve had not established that they were made on behalf of Hitex. Mr Waller was not a director or employee of Hitex, nor was he appointed as an agent. He had no position that would give him usual authority to make representations on behalf of Hitex. There was also no evidence that Hitex had said anything to Uniserve to provide him with apparent authority. It was additionally not clear that Hitex caused the representations to be made directly or indirectly by making statements to Mr Waller or to Mr Popeck expecting them to be passed on to Uniserve in order to induce Uniserve to rely on them to enter into the Supply Contract.
It was more likely that the information came from Mr Popeck. While the Court did not think that Mr Popeck “was plucking figures out of the air” as alleged, his recollection as to the events in question was unclear. The information probably originated from general discussions with Hitex employees regarding capacity, but it was likely also that any understanding came as a result of “messages being garbled in translation”.
Had the Court found that Hitex was responsible for the representations complained of, then at least some of them were false because, on the evidence, it could have had little confidence that the quantities specified could be produced. As to whether Mr Waller or Mr Popeck could have had an honest belief in the figures, it was not clear whether they were cavalier about the figures quoted or acted on the basis of a misunderstanding of information indirectly relayed to them. However, their actions could not be attributed to Hitex.
With regard to other statements relied on by Uniserve, the Court found that these were indicative representations as to future capacity, rather than representations on which Uniserve was expected to rely.
In any event, Uniserve did not rely on the information provided by Mr Waller and Dr Popeck. It commissioned its own due diligence on the production capabilities of the factory. Inducement was a question of fact and, on the facts, the Court thought it fanciful to suggest that Uniserve relied on statements by the intermediaries rather than its own due diligence report.
Finally in this context, the Court stated that while the Supply Contract incorporated a provision that expressly excluded liability for any misrepresentation, this did not extend to fraudulent misrepresentations and deceit. In any event, the claim for deceit must fail because fraud had not been specifically pleaded.
Breach of the supply contract
In summary, the Court found that Hitex was in breach of the Supply Contract by failing to meet the original delivery schedule.
The Court held that the representative/agency relationship between Uniserve and Maxitrac/Dr Stead was not such as to give Maxitrac general authority to act on Uniserve’s behalf and bind it legally. However, on the evidence, Mr Liddell gave Dr Stead actual authority to vary the Supply Contract on Uniserve’s behalf by agreeing to a revised delivery schedule. Even if Maxitrac (acting through Dr Stead) did not have actual authority, it had the apparent authority as Uniserve’s agent to vary the schedule in the eyes of Hitex.
In any event, Uniserve was estopped from denying that the Supply Contract was varied by the revised schedule. It had, through its conduct, led Hitex to believe that Maxitrac was its agent and subsequently that the revised schedule had been agreed; Hitex, in continuing to expend money and effort in meeting the supply contract, was relying on the revised schedule as having been agreed; and Uniserve knew this.
Uniserve had not sufficiently demonstrated that Hitex had failed to meet the revised delivery schedule and, therefore, had no grounds for terminating the Supply Contract. Instead, it was in anticipatory repudiatory breach of the Supply Contract by renunciating and refusing to honour its contractual obligations. Hitex subsequently terminated the Supply Contract on 13 July 2020 by evincing through conduct its intention to accept Uniserve’s repudiation and by ceasing to perform under the Supply Contract.
Measure of damages
Hitex claimed damages for non-acceptance of goods under s.50 Sale of Goods Act 1979 and at common law.
S.50 provides as follows:
“Damages for non-acceptance
- Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
- The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
- Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.”
The Court considered that s.50(2) was the overarching test of how damages should be calculated. In applying that test, one should look at the actual loss to Hitex, which was the loss of a bargain to sell the remaining 77 million masks at the price set out in the Supply Contract for delivery by the dates set out in that contract. The loss occasioned by Uniserve’s unjustified renunciation of the contract should be measured by reference to the market price, if there was one, at the date of breach.
S.50(3) provided a useful clarification that where there was a market, one should take the market or current price (rather than, for example, a price at which the seller actually chose to sell). In order to apply the prima facie test set out in s.50(3), it was necessary to ascertain whether there was ‘an available market for goods’ at the time or times when the goods ought to have been accepted or, if no time was fixed for acceptance, at the time of the refusal to accept. However, it was only a prima facie test and was not intended to overrule s.50(2) if its literal application would result in the seller receiving something different to the loss directly and naturally resulting from the buyer’s breach.
However, Hitex was under an obligation to mitigate its loss. If there was no market for a single contract of 77 million masks delivered over the term of the revised schedule, but there was a market at or after each point at which a delivery was due under the revised schedule for the number of masks to be delivered on that date, (including the backlog that was due to have been taken by 13 July), the price that could have been achieved on those dates would nevertheless be relevant in fixing Uniserve’s liability.
Having found there was a market, the Court was not provided with sufficiently reliable or relevant information as to what the market or current price for the 77 million masks was during the period following termination of the Supply Contract. It, therefore, based the compensation payable on the contract price less a modest amount to reflect the modest profit over the cost of production. It awarded Hitex just under US$17 million.
Commission Contract
Caramel’s claim for unpaid commission failed. The Commission Contract was to be interpreted according to its own terms and clearly provided for commission to be payable only on masks actually delivered to Uniserve and which were of the proper quality.
Indemnity claims
The claims that Maxitrac/Dr Stead were in breach of their duties to Uniserve in agreeing the revised schedule were dismissed. As the Court had found, Uniserve gave Maxitrac express authority to agree the revised delivery schedule.
Comment
The decision is useful for those entering into supply contracts for commodities and other goods for the way in which it deals with termination issues, including right to terminate, the risks of jumping the gun and terminating prematurely and assessing recoverable damages.
For further information, please contact:
Iain Sharp, Partner, Hill Dickinson
iain.sharp@hilldickinson.com
