Anonymized Summary of the Opinion of Judge Males (Court of Appeal)
Factual and Procedural Background
This opinion concerns two linked contracts, both dated 21 April 2020: (1) a supply contract for the sale of 80 million surgical face masks between Company A (the seller / first claimant in the court below) and Company B (the buyer / defendant in the court below); and (2) a commission contract under which Company C (acting through Appellant) expected commission from Company B on shipments made under the supply contract. The contracts were concluded during the peak of the Covid-19 pandemic.
Company A encountered production and delivery difficulties under the supply contract. Company B purported to terminate the supply contract. Company A sued, contending that Company B's termination was unlawful so that the supply contract remained in force; Company A claimed damages for Company B's failure to accept and pay for deliveries. Company B defended by asserting (inter alia) that it was entitled to terminate, alternatively that it could rescind for misrepresentation, and that Company A was not in a position to perform and so was not entitled to damages.
The trial judge (Judge Thompsell) found in favour of Company A and awarded damages of over US$16 million, but he reached that outcome on a basis not advanced by Company A. Company B appealed against the award. Company A accepted that the judge's reasoning could not support the award but sought to defend the result by a respondent's notice asserting an alternative basis for upholding the award. Company C and Appellant appealed the judge's dismissal of commission under the commission contract.
The Court of Appeal (Judge Males, with Judges Phillips and Snowden agreeing) concluded that the appeal under the supply contract must be allowed and that Company A's claim must be dismissed because Company A was not in a position to perform and Company B was entitled to terminate. The commission appeal was dismissed as academic in light of that conclusion.
Legal Issues Presented
- Was Company B entitled to rescind the supply contract for misrepresentation?
- If not, was Company B entitled to terminate the supply contract?
- If not, was Company A entitled to damages for non-acceptance of the goods under section 50 of the Sale of Goods Act 1979?
- If damages were payable, was the judge's assessment of damages erroneous?
Arguments of the Parties
Company A (Plaintiff / Respondent to the supply-contract appeal)
- Company A argued that Company B's purported termination was unlawful and the supply contract remained on foot, entitling Company A to damages for non-acceptance under section 50 of the Sale of Goods Act 1979.
- Company A and its counsel advanced, in the court below and by respondent's notice, the position that Company A had available the successive instalments as they became due (including by re-tendering the same masks for successive instalments), and that damages should therefore be payable.
- Company A contended that the judge's primary finding that Company A accepted Company B's repudiation was not the pleaded case, but Company A accepted that the judgment could not be supported on that basis and relied on the respondent's notice on appeal.
Company B (Defendant / Appellant to the supply-contract appeal)
- Company B maintained it was entitled to terminate the contract (alternatively to rescind for misrepresentation) and, in any event, that Company A was not in a position to perform and so was not entitled to damages.
- On appeal, Company B advanced multiple grounds, including (i) procedural unfairness in the judge deciding on a basis contrary to the pleaded case; (ii) the judge's approach to damages was procedurally unfair; (iii) challenge to the judge's finding that the parties had bound a revised delivery schedule; and (iv) that, on the Production Reports and taking into account that 15% of Company A's stock was reserved for the State, Company A did not have sufficient stock to meet cumulative delivery obligations and so Company B validly terminated on 11 July 2020.
Company C and Appellant (Claimants / Appellants in the commission appeal)
- Company C and Appellant asserted that commission was payable on each shipment and claimed commission or damages for non-payment on the 77 million masks that Company B allegedly failed to accept. They appealed the judge's dismissal of commission.
- Their argument depended on the premise that the supply contract remained on foot and that Company B had wrongfully failed to accept and pay for the outstanding shipments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041 |
Principle that a judge should decide only the issues which the parties have identified; the adversarial system requires identifying issues in pleadings so parties can respond. |
Applied to criticise the judge for deciding the case on a basis that had not been argued, emphasising unfairness of deciding on an unpleaded theory. |
| Satyam Enterprises Ltd v Burton [2021] EWCA Civ 287 |
Reinforcement of the point that a judge should not decide on a basis outside pleaded issues; judges must give parties opportunity to address any new basis. |
Used to support the proposition that the trial judge erred in deciding on a basis not argued and that such an approach risks unfairness. |
| Egan v Motor Services (Bath) Ltd [2008] EWCA Civ 1002 |
Authority on the court being informed of possible errors in draft judgments before hand down to allow reconsideration. |
Referenced to explain the utility of parties pointing out basic errors in a draft judgment before hand down. |
| The Simona [1989] 1 AC 788 |
When an innocent party faces wrongful repudiation, it has the option to accept repudiation or keep the contract alive; if kept alive it is kept alive for all purposes and the innocent party remains subject to obligations. |
Central to the court's analysis: the court applied The Simona to conclude that Company A, having not communicated acceptance of Company B's repudiation, was obliged to continue to perform cumulative delivery obligations while the contract remained alive. |
| Braithwaite v Foreign Hardwood Co [1905] 2 KB 543 |
Referenced as an historical decision discussed in The Simona; addressed propositions about obligations after repudiation. |
Discussed in context; The Simona rejects a third option said to derive from this older authority, and this reasoning was followed. |
| The C Challenger [2022] EWCA Civ 231 |
Sets out the court's approach to assessing reliance for rescission for misrepresentation, including identifying the relevant counterfactual. |
Relied upon to frame the legal test for inducement and to consider whether Company B would have entered the contract absent the representations. |
| BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596 |
Describes the evidential presumption that a fraudulent misrepresentation intended to induce will have induced the representee, and that the presumption is strong. |
Noted by the court but held that the presumption was rebutted on the facts because Company B had conducted its own due diligence which contradicted the prior representations. |
| Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm) |
Explains that a representation need not be the only reason for entering the contract but must have played a real and substantial part in inducing the contract. |
Applied in assessing whether Company B was induced to enter the supply contract by the earlier representations. |
| Hayward v Zurich Insurance Co Plc [2016] UKSC 48 |
Authority on inducement and the possibility that a representee may have doubts yet still be induced; used in discussion of factual inducement. |
Quoted by the trial judge in relation to inducement; the Court of Appeal treated inducement as a question of fact and applied the relevant principles. |
| Frost v Knight (1872) LR 7 Ex 111 |
Cited in The Simona regarding options available to an innocent party faced with anticipatory breach/repudiation. |
Referenced in the exposition of the legal position on acceptance or rejection of repudiation. |
Court's Reasoning and Analysis
The court proceeded by identifying the logical sequence of issues to resolve: (1) whether Company B could rescind for misrepresentation; (2) if not, whether Company B was entitled to terminate; (3) if not, whether Company A could recover damages for non-acceptance; and (4) whether the judge's damages assessment was incorrect.
On rescission for misrepresentation, the court analysed the 'Waller email' (an email of 9 April 2020). The trial judge found the email contained forward-looking statements about availability and production rates. The judge rejected the misrepresentation defence principally because he found that the author of the Waller email lacked authority to make the statements on behalf of Company A; and, in any event, because Company B did not rely on those statements but instead relied on its own due diligence carried out by Company E. The Court of Appeal accepted the trial judge's factual finding that Company B did not rely on the Waller email, because Company B had undertaken investigations (via Company E) which contradicted the email and Company B knew the predictions were unlikely to be met when it signed the supply contract. On that factual basis the evidential presumption of inducement was rebutted and rescission failed.
On the existence and effect of the revised delivery schedule, the court noted that the trial judge found the parties had agreed a binding variation to the delivery schedule by email exchange; Company B abandoned its appeal against that finding.
On termination and repudiation, the court applied the principles in The Simona: when a party wrongfully refuses to perform, the innocent party can either accept the repudiation (bringing the contract to an end) or keep the contract alive (in which case the innocent party remains subject to all obligations, and performance obligations continue to be cumulative where specified). The court concluded that Company A had not communicated any acceptance of Company B's repudiation when Company B declared the contract over on about 17 June 2020; therefore the contract remained alive and Company A was obliged to have available the cumulative quantities required by the revised schedule for each successive delivery date.
The court then turned to the crucial factual question whether Company A actually had the cumulative quantities available on the dates required. Company A relied on contemporaneous Production Reports recording stock in the warehouse. However, Company A's own witness evidence (Attorney Khader) was that 15% of production was reserved for the State and thus not available for export to Company B. The court found that the trial judge had misunderstood Attorney Khader's evidence on this point and that the correct approach was to reduce the Production Reports' figures by 15% when calculating the quantities available for Company B. When that reduction is applied, Company A did not have sufficient cumulative stock on 21 June and 5 July 2020 to meet the cumulative delivery obligations under the revised schedule.
Company A had also advanced, in the court below and before the trial judge, an argument that it could 'recycle' or 'retender' the same masks for successive instalments (i.e. proffer the same masks for later instalments if earlier instalments were not collected). The trial judge rejected this submission and the Court of Appeal agreed, relying on The Simona and ordinary contract principles: if the contract is kept alive, obligations are cumulative and the seller cannot recover for non-acceptance of goods it never had cumulatively available. The court also found that Company A's late attempt to vary its case on appeal (to claim recovery for only those shipments it demonstrably had available even after applying the 15% reserve) was too late and could not be entertained.
Finally, the Court of Appeal considered whether the trial judge's award of damages could be sustained on the respondent's notice or any other basis advanced. The court held that the respondent's notice did not provide a viable basis to uphold the damages because the pleaded and evidenced case did not establish that Company A ever had the cumulative quantities required or that it had validly tendered performance for the later instalments.
Holding and Implications
APPEAL ALLOWED
Holding:
- The Court of Appeal allowed Company B's appeal in respect of the supply contract and dismissed Company A's claim for damages against Company B.
- The Court of Appeal dismissed the commission appeal by Company C and Appellant as moot in light of the decision that Company B was entitled to terminate the supply contract.
Implications:
- The direct consequence is that the trial judgment awarding over US$16 million to Company A is set aside and Company A's claim for damages for non-acceptance is dismissed.
- The commission claim by Company C and Appellant fails because no further commission is payable where Company B validly terminated the supply contract and commission had in any event been paid on the actual shipments that occurred.
- The court reaffirmed important procedural and substantive principles: a judge should not decide a case on a basis not argued by the parties without giving them an opportunity to address it; The Simona principle that an innocent party who keeps a contract alive remains under all contractual obligations; and that a seller cannot recover for non-acceptance of cumulative quantities it never had available.
- The court declined to entertain a new or modified claim advanced for the first time on appeal that Company A could recover for particular instalments demonstrably available after allowance for the State reservation, on the ground that it was too late and had not been ventilated below.
Note on anonymization: All party names, individual names and geographical locations have been replaced with generic placeholders consistent with the source text, and this summary contains only material explicitly contained in the provided opinion.