The Hidden Risks of Terminating Supply Contracts
The Court of Appeal has considered the circumstances in which a goods supply contract may be lawfully terminated in Advanced Multi-Technology for Medical Industry (t/a Hitex) & Ors v Uniserve Ltd [2025] EWCA Civ 1212.
Background
In April 2020, Advanced Multi-Technology for Medical Industry (trading as Hitex) (Hitex), a jordanian manufacturer of medical supplies, agreed to supply £80 million worth of face masks to Uniserve Ltd (Uniserve). The supply contract included an agreed delivery schedule and was structured on an ex-works basis, meaning the masks were to be made available at Hitex’s factory for Uniserve to collect. Before entering into the agreement, Uniserve had undertaken its own checks into Hitex’s manufacturing capability.
Difficulties soon arose. Uniserve became dissatisfied with Hiex’s performance and sought to bring the contract to an end. One of Uniserve’s arguments was that it had been induced to enter into the contract by misrepresentations as to Hitex’s production capacity.
At first instance, the High Court dismissed the misrepresentation claim and held that Hitex was entitled to damages based on the repudiatory breach of non-payment by Uniserve in July 2020. The trial judge found that Hitex had two million masks available for collection on 14 June 2020, meaning that Uniserve did not have the right to terminate at that point, and further held that Hitex had a right to terminate for non-payment.
The Court of Appeal’s decision
Uniserve successfully appealed and the Court of Appeal dismissed Hitex’s claims.
The first issue addressed by the Court of Appeal was the fact that the High Court Judgment was delivered on the arguments that had not actually been asserted by the parties themselves. The Judge concluded that Hitex had accepted Uniserve’s renunciation of the contract, a point not argued by the parties. The Court of Appeal highlighted that a case must be decided on a basis which had been argued, not on the basis of the “third man theory”, where the judge posits a case theory unidentified (and not argued) by the parties.
The second issue addressed was misrepresentation. Hitex provided delivery assurances by email to Uniserve, however the Court did not consider that the emails played a real and substantial part in inducing Uniserve to contract. That is because Uniserve entered into the contract on the basis of its own diligence, knowing full well that Hitex was unlikely to meet production targets communicated by the misrepresented emails.
The final issue addressed by the Court was that of termination. The supply contract was silent on whether Hitex was required to notify the Uniserve when masks were ready for collection, and it did not impose any specific deadline by which Uniserve was obliged to collect completed shipments. The Court of Appeal found that, at the time of Uniserve’s June 2020 communication, Hitex had in fact made the contractually required number of masks available for collection by the relevant date. As a result of this, Uniserve had no contractual right to terminate at that point, and its June 2020 attempt to do so constituted a repudiatory breach. However, because Hitex did not elect to accept that repudiation, the contract continued in force.
Hitex remained obliged to ensure that each new shipment of masks was available for collection alongside any earlier uncollected quantities, in accordance with the revised agreed delivery schedule. The Court of Appeal concluded that by the time of Uniserve’s July 2020 communication, Hitex was no longer meeting its delivery obligations, entitling Uniserve to terminate the contract at that stage.
Key takeaways
The Court of Appeal’s judgment highlights the value of careful and precise drafting in supply contracts. Parties should clearly define what performance is expected and, in particular, whether timely collection is fundamental to the agreement. If prompt collection from a supplier is intended to be critical, the contract should state this expressly rather than leaving the issue to implication.
The decision also reinforces the importance of clearly communicating acceptance of a repudiatory breach. Where repudiation is not expressly accepted, the contract will continue, and the innocent party remains bound by its own contractual obligations despite the other party’s attempted termination.
The judgment further serves as a reminder of the limits of the court’s role. Courts are not permitted to construct arguments on behalf of the parties or determine disputes on bases that have not been properly pleaded. The Court of Appeal’s willingness to intervene illustrates that procedural discipline remains essential. The court also observed that parties should not be unduly reluctant to raise substantive concerns when a draft judgment is circulated.
Finally, on the issue of misrepresentation, the decision adds to a growing body of authority in which courts have found that contracting parties, as a matter of fact, relied on their own due diligence rather than on alleged representations when deciding to enter into an agreement.
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This article has been authored by Abdullah Suker, Managing Director of Lyon Croft Law.
