Hitex & Ors V Uniserve: Court of Appeal Overturns US$16.94m Damages Award for PPE Supply Contract

Background

At the height of the COVID-19 pandemic in 2020, the first Claimant (Hitex) entered into a contract with the Defendant (Uniserve) for the supply of 80 million Type IIR face masks to be delivered in shipments between April and July 2020 (the “Supply Contract“). A parallel commission agreement was entered into with the Second Claimant (Caramel) and the Third Claimant (Mr Popeck), who had introduced Hitex to Uniserve (the “Commission Contract“).

The Supply Contract made delivery “time of the essence“. Hitex claimed that Uniserve was in breach of this contract by failing to collect and pay for 77 million masks (i.e. 80 million minus 3 million that had been delivered), seeking damages of US$23.1 million. Meanwhile, Caramel and Mr Popeck pursued £19.25 million in unpaid commission.

Uniserve’s defence included the argument that it had lawfully terminated the Supply Contract due to Hitex’s failure to fulfil its delivery obligations, which itself constituted a breach.

First Instance Decision ([2024] EWHC 1725 (Ch))

The Court held that:

• Uniserve was not entitled to terminate the contract in June 2020, as Hitex had met its delivery obligations.
• Uniserve wrongfully terminated the Supply Contract in June 2020, amounting to anticipatory breach.
• Hitex had accepted Uniserve’s repudiation by ceasing production in July 2020, thereby terminating the contract.
• There was an available market for the masks.
• Claims under the commission contract failed, as commission was only payable on masks delivered to the UK.

Hitex was awarded US$16.94 million in damages.

Interestingly, the Judge’s reasoning was based on grounds not pleaded by either party, including a finding that Hitex had terminated the Supply Contract by accepting Uniserve’s repudiation by conduct. This was contrary to Hitex’s own case, which was that it had continued to perform the Supply Contract.

Uniserve was granted permission to appeal on six grounds, while the Claimants were granted permission to appeal on four grounds.

Court of Appeal Decision ([2025] EWCA Civ 1212)

The Court of Appeal overturned the first instance decision and allowed Uniserve’s appeal, on the following grounds:

• The Judge was wrong to decide the case on a basis not pleaded or argued by either party.

In particular, the Court of Appeal noted the following:

“The judge said when refusing permission to appeal that he had taken the view that neither side’s pleading or argument met the facts as he found them to be and that it was necessary for him to interpret those facts for himself. However, that was a mistake.”

• Hitex’s own evidence showed it did not have sufficient stock to meet cumulative delivery obligations on key dates (i.e. 21 June and 5 July 2020), taking into account the 15% reserve for the Jordanian government.
• As time for performance of its delivery obligations was of the essence, Hitex was in breach of the Supply Contract, hence Uniserve was entitled to terminate the Supply Contract on 11 July 2020.
• Even if Uniserve was not entitled to terminate the Supply Contract, Hitex could not recover damages for 77 million masks in circumstances where it never had 77 million masks available for delivery in the first place. Hitex advanced a “retendering” argument (i.e. it could retender the same masks for each succeeding shipment), which the Court rejected on the basis that the Supply Contract was not severable and that Hitex had to maintain cumulative total quantities.

A last-minute attempt by Hitex to claim entitlement to damages for specific shipments (where it did have sufficient masks) was too late, as the Claimants had never pleaded nor raised this point in the Court of First Instance or in their Respondent’s Notice, hence this point could not be considered on appeal.

Given that Uniserve was entitled to terminate the Supply Contract, the Court of Appeal dismissed the Claimants’ cross-appeal on the alleged unpaid commission appeal.

Comment

1. The Court of Appeal reaffirmed the principle that Judges must decide cases within the bounds of the parties’ pleadings, even if the Judge believes an alternative theory better fits the facts. The first instance Judge’s decision to find that Hitex had accepted Uniserve’s repudiation by conduct, despite this being contrary to Hitex’s own case that it had kept the Supply Contract alive was described by the Court of Appeal as a “mistake”. As the Court noted (citing Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041, para 21, in a passage applied in Satyam Enterprises Ltd v Burton [2021] EWCA Civ 287, [2021] BCC 640):

“In my view the judge was not entitled to find for the claimant on the basis of the third man theory. It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone. The parties may have their own reasons for limiting the issues or presenting them in a certain way. The judge can invite, and even encourage, the parties to recast or modify the issues. But if they refuse to do so, the judge must respect that decision. One consequence of this may be that the judge is compelled to reject a claim on the basis on which it is advanced, although he or she is of the opinion that it would have succeeded if it had been advanced on a different basis. Such an outcome may be unattractive, but any other approach leads to uncertainty and potentially real unfairness“

2. Pleadings matter. Parties must plead all aspects of their case clearly and fully or risk losing the opportunity to do so. Hitex’s failure to plead a fallback case seeking damages for specific shipments where it had sufficient stock meant that the Court of Appeal could not entertain the argument on appeal. The same applied to Hitex’s attempt to argue that Uniserve’s conduct estopped it from insisting on cumulative delivery, when no such case was pleaded or advanced at the trial. As the Court of Appeal noted in both its postscript and main judgment, “it is too late for such a claim [or case] to be advanced for the first time on appeal“.
3. The Court of Appeal’s rejection of Hitex’s argument that it could “retender” the same masks for successive deliveries is commercially sensible. As the Court put it: “…as a matter of common sense, Hitex cannot recover damages for Uniserve’s failure to accept 77 million masks when it never had 77 million masks available for delivery in the first place”.

Given that the Supply Contract was not severable (i.e. each shipment was part of a cumulative delivery obligation), Hitex was required to maintain sufficient stock to meet the total quantity due on each delivery date, not just the next instalment. This meant that undelivered masks from earlier shipments could not be reused to satisfy later ones. This aligns with the principle that loss of bargain damages requires the claimant to be in a position to perform.

The Court of Appeal concluded:

“That is fatal to any notion that Hitex was entitled to ‘retender’ the same masks for each succeeding shipment“. This outcome is reassuring; it prevents sellers from recycling undelivered stock to cover up non-performance.

The HFW team, led by Andrew Williams (Head of Commercial Disputes), included Gordon Rieck (Senior Associate) and Nicole Yeung (Associate), with Luke Parsons KC, David Walsh KC and Edward Mordaunt acting as counsel for Uniserve.