CL-2022-000676 - [2025] EWHC 2486 (Comm)

If there was no valid rejection DHSC is entitled to damages or an indemnity. The question is: how much? DHSC says it is the entire value of the Contract, as the gowns could not be used and therefore had no value. Medpro contends that this is a considerable oversimplification.

It is common ground that:

There was therefore a freestanding duty which sat alongside the Common Law rules. However it was not suggested by either party that this made a difference in real terms to the analysis.

The real issue is whether the gowns had a nil value because the gowns were unusable in the NHS or any other setting. The first stage of this issue concerns their potential use as sterile gowns.

This can be dealt with relatively swiftly. DHSC contracted for sterile gowns, but received gowns that were not (contractually speaking) sterile, or properly validated as being sterile, and not properly CE marked. That means that they could not be used as sterile gowns in the NHS or elsewhere. Mr Horkan, DHSC’s only (official) factual witness on this topic was working as Clinical Procurement Lead – Product Assurance & Quality Control for DHSC at the material time. His evidence was categorical; his team would not have considered using the gowns as sterile surgical gowns. There is no evidence to suggest that they could be used as sterile gowns elsewhere – this is not, for example, a case where the gowns did not comply with UK regulations, but did comply with (say) the regulations in place for sterile gowns in Australia.

The question which follows and which Medpro asks is this: Even if the gowns could not be used as sterile gowns, why could they not have been repurposed for use in the NHS as non-sterile/isolation gowns, or sold elsewhere for use as non-sterile/isolation gowns? This is the kernel of Medpro’s case on failure to mitigate. Its pleaded case was that: “Any alleged lack of sterility and/or valid CE markings …did not prevent the said gowns from being used within the NHS or from being sold to third parties outside of the EU.”

The real question was about what use or sales could have been made. It was not in issue that there was no evidence that (if there was a use to be made or a sale to be had) DHSC had taken reasonable steps to avail itself of it. As Medpro pointed out, Mr Horkan’s evidence was that he had not been involved in any discussions about minimising or mitigating any losses following DHSC’s decision not to use the gowns, he had no evidence to give more broadly in relation to any steps taken to do so, and he was not aware of any discussions about the potential useability of the gowns outside of the NHS.

Before entering into the evidence it is essential to identify what legal principles this argument engages. The “duty to mitigate” is a concept often lightly alluded to. The following points must be borne in mind:

There are then two elements to the mitigation case advanced by Medpro. The first is that the gowns could have been used in the NHS or elsewhere in the UK as isolation gowns. The second is that the gowns could have been sold internationally (again as isolation gowns).

Turning to the evidence, there are problems. This is not a case where there was a market in the sense often found in sale of goods cases. That being the case, the court is reliant on the specific factual and expert evidence called by the parties. Medpro called no factual evidence and DHSC’s factual evidence, as outlined above, did not really progress matters.

As for experts, it is fair to say that neither side called evidence which truly fitted with the expert issues. These were as follows:

“in the field of the supply and procurement, use and valuation of medical equipment on the following issues:

(i)

whether the gowns supplied to the Claimant, even if they or a proportion of them, did not have a SAL of 10 -6, might nonetheless have been repurposed or used in the NHS; and

(ii)

any market(s) in which they could have been sold and their value in such market(s).”

DHSC called Mr New. Mr New was the CEO of SCCL, a provider of some of DHSC’s factual witnesses, and a body at the heart of the NHS supply chain which, at the relevant time was owned and operated by DHSC. As such Mr New was really closer to a factual witness than an expert. And to the extent he had expertise it was in relation to NHS usage – he frankly admitted to having no knowledge or expertise in markets for sale of unwanted NHS items (specifically gowns).

Mr Popovic for Medpro had previously worked in a procurement function for the NHS. While I have no doubt that he was doing his best to assist the court – and his report evidenced substantial and detailed work and appended many exhibits - it was apparent from his report and CV that his previous experience in the NHS is in relation to pricing services internally and that his expertise is in valuation. He had no experience inthe supply and procurement of medical equipment or (more specifically) medical devices; nor did he have any expertise in relation to selling NHS goods abroad or in the regulatory hurdles which might apply in other jurisdictions.

The evidence base for this issue therefore is not particularly robust and must be carefully considered.

Medpro’s first suggestion was that there was a failure to mitigate because “at the very least” DHSC should have made enquiries about the re-labelling and/or re-packaging of the gowns so that they could be deployed in the NHS. This however was only really (even hypothetically) an option if the goods were sterile, such that they could properly be re-labelled or re-packaged. However, given the conclusions already reached this does not arise.

The second suggestion was (as noted) deployment in the NHS as isolation gowns. However as the factual background has already disclosed, one thing the NHS did not need at this point was more isolation gowns. That timeline evidence was echoed by Mr New’s evidence that by December 2020 as a result of “panic buying” it had already obtained 500 weeks’/nearly 10 years’ worth of gowns. While there was some attempt to say that things might not have been quite so bad if DHSC had acted promptly, there was no real challenge to the NHS oversupply argument. One suggestion which is likely to occur to anyone who lived through Covid in this jurisdiction is whether sales could have been made to domestic private buyers. However this was not Medpro’s case; Mr Popovic did not identify any potential domestic private buyers. In the absence of a formal market, of course, to do so other than by a process of random enquiries might well have been difficult. But the result was that the instinctive thought that they might have gone into (say) the broader care sector was not an argument in play.

It was therefore really the third possibility which came most sharply into focus. Mr Popovic’s report suggested that international demand was demonstrated by reference to: (i) the “rapid ramp up” in Chinese exports, as seen in the GACC data; (ii) the comparable jump in UK and European import data showing highly elevated import levels, that, shortly thereafter, track closely the Chinese export data when visualised in graphic form; (iii) the fact that, well into 2021, various countries were still experiencing shortages of PPE; and (iv) reflecting this, the fact that export levels, even many months after the initial spike in export data, remained extremely high, at 250% of pre-pandemic levels.

In a sense however this highlights the problem with Mr Popovic’s evidence. Although manifestly doing his best, it falls some way short of setting out one or more examples of “certain steps” which DHSC could have taken which would have mitigated loss. It is true as Medpro submitted that Mr Popvic’s research indicated a “large degree of loosening” of regulatory requirements across jurisdictions in response to the pandemic emergency, and it was a legitimate view by reference to his analysis of the data that there was a seller’s market for gowns “for most of the period up until November 2021”. A sellers’ market however does not correlate to evidence that there was an available market – and Mr Popovic accepted that there was no single global market on which gowns could have been placed. Nor does a sellers’ market mean that jurisdiction A or jurisdiction B was actually in the market for gowns at this time – or that the DHSC sellers could access the market.

Mr Popovic’s evidence focussed on three jurisdictions: Australia, Canada and Brazil. None of these were the types of “low and middle income” jurisdictions in relation to which he had identified, on the basis of the evidence, shortages at this point in time. As regards these jurisdictions:

Accordingly it is fair to say that his evidence (i) went no further than the availability of those jurisdictions depending on local authorities deciding that the gowns could have been admitted to those markets, and compliance with standards which Mr Popovic did not identify and on which he would have been unable to comment (ii) did not engage with whether there was a shortage of non-sterile gowns in those jurisdictions at the relevant time. Further his evidence that developed nations had excess inventories of PPE by late 2020, leading to a fall in prices, suggests that there was no need in these jurisdictions.

As for other possibly relevant jurisdictions Mr Popovic again gave helpful evidence on the existence of similar derogations and relaxations of rules geared towards sterility, but did not identify any jurisdictions where (i) derogations would permit these gowns (with their particular peculiarities) to be classed as sterile (ii) non sterile gowns were in short supply at this time. Overall in fact his evidence did serve to highlight the complexities involved. Absent a global market, what DHSC would need to do is to identify either (i) (based on a consideration of the relevant regulatory regimes and exceptional derogations/relaxations) jurisdictions where the gowns would be accepted as sterile or (ii) jurisdictions where non-sterile gowns were sought.

As to the former point the absence of this work within Mr Popovic’s own report, and the complexities of the regulations considered in argument, speak together – that was not a realistic option. As to the latter Mr Popovic suggested during cross-examination, based on his experience as Director of Pricing Delivery and Development at NHS Improvement, that it would be reasonable to expect that the relevant individual(s) within the NHS or DHSC, “would have […] contacts across the globe to [their] opposite numbers” to explore what selling opportunities might be available. That was however based on an expectation derived from his own work in a different field, and therefore essentially speculative. Mr New, while himself not the right person to give evidence as to foreign sales relationships, was closer to the relevant position, and his evidence was that SCCL did not have access to buyers outside of the NHS (or some external organisations in respect of NHS work). That was credible evidence, when placed against the known facts as to the nature of the NHS and what it does. The NHS is not in general terms a seller of goods, but a consumer of them.

Further the evidence as to the requirements of a procurement process both illustrated why there probably was no such contact, and the difficulties which could be expected if (somehow) a relevant contact had been made.

The first of these concerns relabelling. It appeared to be Mr Popovic’s evidence (reflected in his valuations) that even if the gowns were destined for use as non-sterile gowns they would need to be relabelled. While one might think that isolation gowns would not need relabelling, that was not the case he advanced. And since the label was inside the package relabelling would also require repackaging.

As for the second aspect, not only would relabelling have a significant cost, Mr New explained how relabelling would require a procurement process taking 9-12 months and considerable management time. Although the evidence was not entirely specific on this, one then has to consider the logistics of a sale. It was not the case that those involved could simply ping an email to their (hypothetical) opposite numbers offering to sell the gowns. Such an approach would fall foul of exactly the same rules which would require a procurement process externally. At this end, the DHSC would require a reverse procurement exercise to establish that goods were not being sold off in a quasi private deal which would carry obvious corruption risks. It also seems likely that in most potential buyer jurisdictions a correlate inwards procurement process would have been required.

Essentially, having failed to reject the goods effectively, and without an open market into which the goods could be sold with greater ease (and then relabelled and on sold by a more commercially agile entity), DHSC found itself between a rock and a hard place. Thus, while the absence of any efforts to sell the gowns is on its face highly unattractive, Medpro have had an opportunity to critique what was done. Careful thought has been put into advancing a case as to how DHSC fell short and that case has been tested at trial. That exercise has demonstrated that there was no realistic identifiable route to selling or deploying these gowns. DHSC’s failure to act was not one which led to the loss of an opportunity to reduce the financial damage. The case on failure to mitigate fails. Consequently DHSC is entitled to recover the cost of the gowns.