Pharmapac v HBS Healthcare

Pharmapac (UK) Ltd v HBS Healthcare Ltd [2022] EWHC 23 (Comm)

The Court held that time was of the essence for the performance of a contract for the supply of 5m facemasks in weekly tranches of 500,000 made in March 2020 at the beginning of the pandemic; that the defendant who delivered the first tranche but not the remainder was in breach of contract; that although the claimant had chased for updates from the defendant for a period of some weeks it had not affirmed the contract since it was entitled to a reasonable time to consider its position. The case is of interest to practitioners for two reasons: firstly, it is an example of a case when the Court will construe time as being of the essence of a contract notwithstanding the fact that it is not expressly referred to in the agreement; secondly, the Court finds that an innocent party who delays in accepting a repudiatory breach of contract will not be held to have affirmed it even whilst it is ‘chasing’ for performance if the context is that the defendant is repeatedly reassuring the claimant that the goods are on the way.

There are two important takeaways from this case. The first concerns the question of whether time was of the essence. Commercial (mercantile) contracts are frequently so construed but whether time is of the essence of a specific agreement has to be construed against the background as a whole – Spar Shipping AS v Grand China Logistics (Group) Co Ltd [2016] EWCA Civ 982. In this case time was held to be of the essence of an agreement made by email for the supply of facemasks at the beginning of the pandemic where the agreement was for 5m masks at £0.30 each the first tranche to be supplied on Monday 16^th March followed by nine further weekly shipments. But if the specific dates for delivery are important it is always better to spell it out in the contract.

The second concerns the question of the circumstances in which an innocent party will be held to have affirmed a contract notwithstanding a repudiatory breach. In this case only the first tranche of 500,000 face masks was delivered and the defendant was in breach from the last week of March. On 23^rd April the defendant offered to return the £720,000 ‘held on account’ to the claimant but the claimant continued to chase for delivery, the defendant giving multiple reassurances that the face masks which had been held up in India would arrive soon. Relying upon these reassurances the claimant did not accept the defendant’s offer to return the money until 3^rd June, by which time the face masks had arrived but the claimant no longer wanted them (the price having dropped substantially). The defendant put up a very powerful argument that the claimant had affirmed the contract; nevertheless the Court held that the claimant was entitled to a reasonable time to consider its position before accepting the defendant’s repudiatory breach – Buckland v Farmar & Moody [1979] 1 WLR 221. The important point here is that a party who decides not to accept a repudiatory breach must do two things: firstly, reserve its position; secondly, not take too long to decide.

The background to the case was that the claimant had a customer for the sale of 1m facemasks at £0.40 per mask and wished to source a supply. The defendant had facemasks arriving from India which it would sell at £0.30 per mask. An agreement was made at a face to face meeting followed by a confirmatory email for the supply of 5m masks with the claimant to pay for the first 2.5m up front which it did. The masks were to be delivered in weekly intervals from 16^th March 2021 in 10 tranches of 500,000. The first tranche arrived, the rest did not because India had imposed an export ban on PPE. The defendant reassured the claimant that the ban would soon be lifted ‘in a matter of days’ but ultimately offered to return the money it held on account until the masks arrived. This offer was made on 23^rd April but the offer was not accepted until 3^rd June. By this time the face masks were on their way and the defendant sought to withdraw its offer to return the outstanding sum of £720,000. The claimant then sought to accept the defendant’s repudiatory breach and sued for its money; the defendant counterclaimed for an order that the claimant accept delivery of the remaining 4.5m masks which by then were worth about a tenth of what the claimant had agreed to pay for them.

The Court held that time was of the essence of the contract taking into account the circumstances in which the contract was agreed and therefore the defendant was in breach when failing to make a delivery in w/c 23^rd March 2021. However in the light of the reassurances given by the defendant that delivery was ‘on the way’ it held that the claimant had a reasonable time to accept the repudiatory breach and was entitled to do so on 3^rd June 2021. Accordingly the claim for repayment of the £720,000 succeeded and the counterclaim for specific performance was dismissed.

Written by John de Waal KC who acted for the successful Claimant – Pharmapac (UK) Ltd v HBS Healthcare Ltd [2022] EWHC 23 (Comm). First published for LexisNexis.

Court; High Court in Liverpool – Circuit Commercial Court

Judge; Judge Cadwallader sitting as judge of the High Court

Date of judgment: 7^th January 2022