England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE MOORE-BICK

		Royal Courts of Justice Strand, London, WC2A 2LL Wednesday 20th June 2001

LORD JUSTICE CHADWICK:

1. This is an appeal from an order made on 5 November 1999 by Mr Justice Moore-Bick in proceedings brought against the appellant, Lidl UK GmbH, a food retailer, by Hertford Foods Limited, a wholesale supplier, and TSB Commercial Finance Limited, a finance company to which Hertford had assigned its trade debts. The finance company has taken no part in the appeal, and it is unnecessary to refer to it further in this judgment.

The underlying facts

2. The dispute which underlies the proceedings arose from a contract made in December 1996 for the supply by Hertford to Lidl of corned beef in 340g tins or units. The contract provided for the supply of 1,036,800 units (that is to say, 43,200 cases of 24 units per case) at a price of 58.75p per unit (equivalent to £14.10 per case) for delivery between the beginning of March and the end of June 1997. The contract contained an option enabling Lidl, as buyer, to purchase a further 518,400 units (21,600 cases) at the same price for delivery in July to September 1997. That option was exercised by letter dated 10 March 1997.
3. Hertford delivered 11,700 cases on various dates between 24 March and 25 April 1997. It raised invoices in respect of the goods delivered in a total amount of £156,087. But it failed to make any further deliveries after 25 April 1997. By a fax message sent to Lidl on 23 April 1997, Hertford explained that it was unable, itself, to obtain supplies from Brazil "due to a severe shortage of raw materials". The interruption in supplies was confirmed by a fax message sent by Hertford to Lidl on 30 April 1997, in which the problem is said to be "entirely due" to industrial action at the loading ports.
4. On the basis that invoices were payable within 50 days, the first of the invoices raised by Hertford became due for payment on 9 May 1997. On 2 May 1997 Lidl gave notice that it had met its immediate needs by purchases from another supplier, and had debited the additional cost of those purchases to Hertford. It stated, also, that it would withhold payment "to cover any potential further costs which may be incurred". Hertford's response was that it would not resume deliveries until all monies owing for goods already delivered had been paid in full; and then only on the basis that the contract was governed by its own Standard Conditions of Sale. That was unacceptable to Lidl. By the end of May the position had been reached in which (as the judge put it in his judgment): "the parties had simply ceased to trust each other; Hertford was unwilling to make further deliveries until it had been paid for those already made; and Lidl was unwilling to part with any money in the absence of some assurance that deliveries would be maintained in the future." On 28 May 1997, Hertford purported to cancel the contract on the grounds of non-payment.

These proceedings

5. These proceedings were commenced by the issue of a writ on 13 June 1997. By that date the whole amount (£156,087) invoiced by Hertford in respect of the deliveries actually made in March and April 1997 had become due for payment. The claim was for payment of that amount with interest. Hertford relied on its own Standard Conditions of Sale.
6. The claim was met with a defence and counterclaim served on 17 July 1997. In substance, the defence raised set-off against the amount invoiced of the amount claimed by way of counterclaim. Lidl purported, by service of the defence, to accept the notice of cancellation, given by Hertford on 28 May 1997, as a repudiation of the agreement. The counterclaim was in respect of (i) additional costs (£135,693) incurred in the purchase of goods from other suppliers in substitution for the goods which had not been delivered in accordance with the contract, (ii) further additional costs to be incurred in the purchase of substitute goods in the future, (iii) damages for pecuniary loss "flowing from the Defendant's loss of reputation – and in particular by the fact that the Defendant's customers were unable to purchase corned beef in the Defendant's supermarkets", and (iv) loss of management time and expenses in dealing with the dispute. Lidl relied on its General Terms and Conditions of Purchase.

The parties' standard terms and conditions

7. So far as material, Hertford's Standard Conditions of Sale contained the following terms:

"2 Overriding provisions

2.1 Unless otherwise agreed in writing by the Seller the Conditions shall override any terms or conditions stipulated incorporated or referred to by the Buyer whether in the order or in any negotiations leading thereto

. . .

5. Terms of Payment

5.1 The Buyer shall pay the price of the goods . . . within thirty days of the date of the Seller's invoice notwithstanding that delivery may not have taken place and the property in the goods has not passed to the Buyer. The time of payment of the price shall be of the essence in the Contract. . . .

5.2 . .

5.3 If the Buyer fails to make any payment on the due date then without prejudice to any other right or remedy available to the Seller, the Seller shall be entitled to

5.3.1. cancel the Contract and suspend any further deliveries to the Buyer

5.3.2 . . . , and

5.3.3. charge the Buyer interest (both before and after judgment) on the amount unpaid at the rate of 3% per annum above the Base Lending Rate of Lloyds Bank PLC for the time being until payment in full is made

6. Delivery

. . .

6.2 Any dates quoted for delivery of the Goods are approximate only and the Seller shall not liable for any delay in delivery of the Goods howsoever caused. . . .

6.3 Where the Goods are to be delivered by instalments each delivery shall constitute a separate Contract and failure by the Seller to deliver any one or more of the instalments shall not entitle the Buyer to treat the Contract as a whole as repudiated.

. . .

8. Warranties and Liability

. . .

8.6 The Seller shall not be liable to the Buyer or be deemed to be in breach of the Contract by reason of any delay in performing, or any failure to perform, any of the Seller's obligations in relation to the Goods, if the delay or failure was due to any cause beyond the Seller's reasonable control. Without prejudice to the generality of the foregoing, the following shall be regarded as causes beyond the Seller's reasonable control:

8.6.5. strikes, lockouts or other industrial action or trade disputes . . .

8.6.6. difficulties in obtaining raw materials . . .

8.6.7. . . .

8.6.8. . . . any other reason affecting or hindering wholly or in part the . . . transport or shipment of the Goods whether in the processed or raw form

. . .

9. Termination on Buyer's default

If the Buyer shall:-

9.1 fail to pay the Seller on the due date any sum payable under the Contract

. . .

the Seller may without prejudice to its other rights against the Buyer suspend further deliveries under the Contract, require payment in advance for all or any of such deliveries or terminate this Contract forthwith by notice in writing to the Buyer . . ."

8. Lidl's General Terms and Conditions of Purchase, on the other hand, were weighted towards the interests of the buyer. They included the following:

"5 Production and Delivery

. . .

5.6 Should the Supplier fail to deliver the goods within the period stipulated by the Buyer (without prejudice to any other terms to which it may be entitled) the Buyer reserves the right to cancel that part of the order which is undelivered or uncompleted at the end of the stipulated period and charge to the Supplier any additional costs, losses or expenses in which the Buyer may be involved due to the Supplier's failure to deliver the goods at the stipulated time . . . The Supplier agrees to the fact that the difference in cost price will be deducted fromoutstandingpayments resulting from the Terms of Payment.

12 Price and Payment

. . .

12.3 The Buyer shall be entitled to set off against the prices payable any sums owed to the Buyer by the Supplier

. . .

17. Conditions of Sale

17.1 These terms and conditions shall override and take the place of any other terms or conditions in any document or other communication used by the Supplier in concluding the Contract with the Buyer.

. . ."

9. It can be seen, therefore, that, if the contract were made on Hertford's Standard Conditions of Sale, Hertford was able to rely on condition 8.6 to excuse non-delivery between 21 March and 8 May 1997 – provided, of course, that it could show that non-delivery was caused by matters beyond its control – and was able to rely on condition 9.1 to justify non-delivery thereafter. Further, it was entitled to terminate the contract on the grounds of non-payment – as it did on 28 May 1997 – either under condition 5.3.1 or under condition 9.1. On the other hand, if the contract were made on Lidl's General Terms and Conditions of Purchase, Lidl was entitled to charge Hertford for costs and expenses arising out of the failure to make deliveries; and, in particular, was entitled to set off the additional cost of purchasing goods in substitution for goods which had not been delivered on time against moneys owing on existing invoices.

The judge's findings of fact

10. The action was heard by Mr Justice Moore-Bick in October 1999. At trial Hertford and Lidl each sought to rely on its own standard terms and conditions. The judge handed down a written judgment on 5 November 1999. He held that the contract in December 1996 had been made upon Hertford's Standard Conditions of Sale. He held, also, that Hertford had in place adequate arrangements with its own suppliers in Brazil and with shippers to enable it to meet its commitments under the contract with Lidl; and that the reason why it was not able to make deliveries on time was that there was disruption to shipping arrangements caused by labour disputes over which Hertford had no control. The judge's conclusion that the failure to perform its obligations in relation to delivery was caused by matters beyond the reasonable control of Hertford has not been challenged; and I need say no more about it.
11. The findings of fact upon which the judge reached his conclusion that the December 1996 contract had been made upon Hertford's Standard Conditions of Sale may be summarised as follows:

i) The parties dealt with each other for the first time in September 1996. On 5 September 1996 they reached agreement for the sale and purchase of eight containers of corned beef. That contract was made in the course of a telephone conversation between Mr John Misell, an independent selling agent acting on behalf of Hertford, and Mr Fergus Dodds, then one of Lidl's buying managers. There was nothing said in the course of that telephone conversation to suggest that either Mr Misell or Mr Dodds had considered the question "whose terms of business were to apply" even in a general sense; and, in particular, there was nothing to suggest that either had raised the question whether they were contracting on Hertford's standard terms of sale or on Lidl's standard terms of purchase. The agreement was confirmed by a fax message sent by Mr Dennis Mitchell, the managing director of Hertford, to Mr Dodds on 6 September 1997:

"Re: Hertford 24x340g Corned Beef

Further to your telephone conversation with John Misell last night, I would confirm having sold you 8 FCLS of the above (each approximately 2 weeks through to the end of October.2,160 cases – 20 pallets x 108 cases) for delivery starting in

As agreed payment terms are 50 days from invoice date."

ii) On the same day, 6 September 1996, Mr Misell, in accordance with his normal practice, gave instructions for the preparation of a formal confirmation of the sale. The confirmation was prepared on a standard form "Sales Contract" (to which the number OP/0000029 was assigned). The particulars of the sale were completed on the face of that document. On the face of the document there were endorsed the words "See reverse for conditions of sale". The Standard Conditions of Sale were set out, in small but legible print, on the reverse side of the document. A copy of Hertford's sales contract OP/0000029 was produced from its own files. Neither the original nor any copy could be found on Lidl's files.

iii) Mr Dodds left the employ of Lidl in early November 1996; and his responsibility for corned beef purchases was taken over by Mr Ian Young. The judge found that it was "more likely than not" that sales contract OP/0000029 was sent by Hertford to Lidl in the early part of September; and "that it did sooner or later find its way onto Mr Dodds' desk and into his file and that it was shredded by Mr Young when he cleared out Mr Dodds' files in November". There is no challenge to that finding of fact.

iv) On 7 November 1996 Mr Young - appreciating that his predecessor, Mr Dodds, had not documented the September 1996 contract in accordance with Lidl's standing procedures – sent to Hertford (for the attention of Mr Mitchell) a two page document described on its face as a "Quantity Contract". That document was received by Hertford on 11 November 1996. By that date all, or almost all, the deliveries under the September 1996 contract had been made. The stated purpose of the Quantity Contract was to confirm the September 1996 contract; but it included a paragraph in these terms:

"General Buying Conditions

All contracts for the purchase of goods made by the Buyer shall be deemed to incorporate the General Terms and Conditions of Purchase of the Buyer which shall override and take the place of any other terms and conditions in any document or other communication used by the Supplier including the Contract with the Buyer. Execution by the Supplier of this agreement shall constitute a contract which incorporates the General Terms and Conditions of Purchase of the Buyer at the date hereof.

Conditions of sale are available from Head Office on request."

The judge found that "coming, as it did, so long after the event, neither Mr Mitchell nor Mr Misell paid [the Quantity Contract] much attention." Nor was there any reason for them to do so subsequently. No difficulty or dispute arose under or in relation to the September 1996 contract.

v) In December 1996 Mr Misell and Mr Young negotiated a second contract for the sale of corned beef. Agreement was reached in a telephone conversation between them on Friday 13 December. It was common ground that there was no mention, in the course of that conversation, of standard terms of business; in particular, no discussion as to whose standard terms were to apply. But, at the end of the conversation, Mr Misell said that he would send Lidl a fax message confirming the agreement; Mr Young said that he would send out Lidl's contract"; and Mr Misell responded "OK".

vi) On Monday, 16 December 1996, Mr Misell sent a fax message to Mr Young:

"Further to our conversations of Friday last. I confirm having sold to you, twenty full loads of Hertford 24x340g Corned Beef, each load being 2160 c/s. The agreed price being £14.10 per c/s.

Delivery to commence late Feb/early March, to end June. In addition, you have the option on a further ten full loads, at the same price. This option to be confirmed by you at the end of March latest."

vii) On the same day, 16 December 1996, Hertford recorded the agreed sale on a standard form Sales Contract to which the number OP/0000039 was allocated. Hertford's Standard Conditions of Sale were printed on the reverse side of the standard form. Mr Young denied having received that Sales Contract; and the judge expressed himself "unable to find that Lidl received a contract document from Hertford".

viii) Also on 16 December 1996, Mr Young prepared a "Fixed Quantity Contract" recording the purchase on behalf of Lidl. That document was in the same standard form as the earlier "Quantity Contract" which he had prepared on 7 November 1996 in respect of the September contract; in particular, it contained the same clause "General Buying Conditions". But the "Agreed Quality" of the goods to be purchased was stated to be: "100% 'Continental' Quality Corned Beef establishment No. 458 Brazil". It was not clear when that document was despatched to Hertford; but it bears a "received" date stamp of 16 January 1997. Mr Mitchell (to whom the document was passed by Mr Misell) responded immediately. He took two points. First, that the quality of the corned beef sold by Hertford was "E" grade, not "Continental" quality. Second, that Hertford had given no warranty that the goods would be from any named source; in particular, that they would be from establishment 458 Brazil. But, subject to those points, he raised no issue on Lidl's Fixed Quantity Contract.

12. On the basis of those facts, the judge reached the conclusion that the December 1996 contract had been made upon Hertford's Standard Conditions of Sale. His reasoning appears from the following passages in the judgment:

i) By sending the Sales Contract document in respect of the first contract to Lidl on 6 September 1996, Hertford Foods had done "sufficient to bring it to Lidl's attention not only that Hertford intended to contract on those terms on that occasion (although by that time it was too late to add to the contract already made on the telephone), but also that Hertford intended to contract on those terms [in the future] in the absence of any agreement to the contrary." – page 10, lines 25-29, of the judgment.

ii) ". . . Mr Misell was entitled to assume, . . . at least until the final exchanges with Mr Young on 13^th December, that Mr Young was offering to contract on the same terms as before, that is, on Hertford's terms." – page 10, line 31, to page 11, line 2 of the judgment.

iii) ". . . given that Mr Misell was entitled to believe as a result of what had gone before that Mr Young knew that he was offering to contract on Hertford's terms and was willing to contract on that basis, the critical question [was] whether Mr Young did enough to make it clear to Mr Misell that he was in fact only offering to contract on Lidl's terms." – page 13, lines 8-13.

iv) "In view of what had happened on the previous occasion it was necessary for Mr Young to ensure that one way or another he drew Mr Misell's attention to the fact that he intended Lidl's contract terms to be binding" – page 13, lines 13-16.

v) ". . . Mr Young's brief reference [at the end of the telephone conversation on 13 December 1996] to sending a contract" was not sufficient for that purpose – page 13, lines 17-18.

13. The judge had held – indeed, it was common ground – that agreement was reached in the course of the telephone conversation on Friday 13 December 1996. For the reasons which I have set out, he held that the contract concluded on that day incorporated Hertford's standard terms and not those of Lidl. He rejected a contention that the contract was later varied – by the sending of Lidl's Fixed Quantity Contract document and Hertford's response to that document on 16 January 1997 - so as to substitute Lidl's standard terms for those of Hertford. He was satisfied that Hertford's terms applied to the contract throughout.
14. Accordingly, the judge held (i) that Hertford was not liable for failure to deliver for reasons beyond its control and (ii) that Hertford had been entitled to bring the contract to an end, by notice given on 28 May 1997, in the circumstances that Lidl were withholding payment. He ordered that Lidl pay Hertford the invoiced amount of £156,087, with interest of £36,482 – a total amount of £192,569. He refused permission to appeal. Permission to appeal was granted by this Court (Lord Justice Roch) on 12 January 2000.

The issues on this appeal

15. The first issue raised by the appeal is whether the judge was right to hold that the contract made on 13 December 1996 was made on Hertford's Standard Conditions of Sale. In that context, I should mention that, although Lidl contended at trial that its own General Terms and Conditions of Purchase were incorporated in the contract, either at the outset or by variation and relied on those contentions in its appellant's notice as filed, it also relied, in its appellant's notice, on the alternative argument that neither party's terms applied. Subsequently, Lidl amended its appellant's notice so as to abandon the contention that its own terms applied. At the opening of the appeal, however, Mr Hochhauser Q.C. applied for permission to reinstate the contention that Lidl's terms did apply. We permitted the argument to be developed without, at that stage, ruling on whether to permit the appellant's notice to be re-amended so as to restore it to its original form. Thus Hertford argues that the judge was right to hold that its terms were incorporated, whereas Lidl, challenging that conclusion, seeks to rely in the alternative on the incorporation of its own terms, and on the argument that neither party's terms had been incorporated. Having heard full argument, I would refuse permission to Lidl to re-amend its appellant's notice as sought. It seems to me plain, for the reasons which I shall give, that the decision to abandon the contention that its own terms were incorporated was correct.
16. Further issues arise if Hertford's standard conditions are not applicable. In those circumstances, Lidl contends (i) that Hertford was in breach of contract in failing to make deliveries after 21 April 1997, (ii) that it, Lidl, is entitled to damages in respect of that breach, (iii) that Hertford was not entitled to terminate the contract in May on the grounds of non-payment, and (iv) that Lidl is entitled to damages for non-delivery thereafter, at least until it accepted, by the service of its defence on 17 July 1997, Hertford's attempt to terminate the contract as, itself, a repudiation of the contract.
17. Hertford sought to uphold the judge's order on grounds set out in its respondent's notice. It applied for permission to amend its respondent's notice. Again we allowed the arguments to be put without ruling on the application for permission to amend. Having heard the arguments, I would grant the permission sought. It is said (i) that Hertford was not, by reason of non-delivery, in breach of contract at any time before 10 May 1997, (ii) alternatively, that if there were a breach as at that date it was limited to a failure to deliver two container loads (4,320 cases), (iii) that Lidl's failure to pay monies which became due on 9 May 1997 (£30,456) and on 17 May 1997 (£25,380) in respect of goods which had been delivered was a repudiatory breach which Hertford was entitled to treat as terminating the contract, (iv) that Lidl's insistence that it would only perform and accept performance of the contract in accordance with its own General Terms and Conditions of Purchase (which were not terms of the contract) was a repudiation of the contract, and (v) that, by letter dated 28 May 1997, Hertford was entitled to and did treat the contract as at an end and, accordingly, was discharged from further performance thereafter.
18. In these circumstances the further issues may be summarised as follows: (i) whether Hertford was in breach of contract in failing to make deliveries after 24 April 1997, (ii) whether Lidl was entitled to withhold payment on or after 9 May 1997, and (iii) whether, on 28 May 1997, Hertford was entitled to treat the contract as terminated. Neither party has sought to contend (as I understood the argument) that, if Hertford were not entitled to treat the contract as terminated on 28 May 1997, the contract was not brought to an end on the service by Lidl on 17 July 1997 of its defence in the proceedings. By that date the delivery period under the December 1996 contract had expired. We have heard no argument as to the position under the contract made in March 1997 by the exercise of the option to take further supplies.

Was the contract made on Hertford's standard conditions?

19. I turn, therefore, to consider the first issue: whether the judge was right to hold that the contract made on 13 December 1996 was made on Hertford's Standard Conditions of Sale.
20. The judge explained his approach in a passage at page 12, lines 9-32, in his written judgment, which neither party has sought to challenge on this appeal. He said this:

"Whether parties have reached agreement, however, and if so, on what terms, does not depend on their private perceptions, understanding or intention, but upon what has passed between them and their communications must be construed as they would be understood by a reasonable man in their position with the common background knowledge which they brought to the negotiations: see, for example, Circle Freight International Ltd v Medeast Gulf Imports Ltd [1988] 2 Lloyd's Rep. 427 per Taylor L.J. at pages 431-432 and the cases there cited. . . . What matters in a case of this kind is the extent to which previous transactions, whether one or many, provide a significant part of the background to the contract with which the court is concerned. Each case has to be considered on its own facts, but the question is always whether the party seeking to rely on a particular set of terms has made it sufficiently clear to the other that when he offers to do business he does so on those terms. If he has, any subsequent negotiations between them will have to take that into account."

21. The common background knowledge which Mr Misell and Mr Young brought to the negotiations which culminated in the agreement reached on 13 December 1996 may be summarised as follows. First, each knew that it was the policy of his own company to contract upon standard conditions. In particular, each may be taken to have known that the standard conditions on which his own company sought to contract contained a term that those conditions should override the conditions of the other contracting party – see condition 2.1 in Hertford's Standard Conditions of Sale, the paragraph "General Buying Conditions" in the Lidl Quantity Contract and condition 17.1 in Lidl's General Terms and Conditions of Purchase. Second, each knew – or may be taken to have known – (i) that the company on whose behalf the other was negotiating also sought to contract on standard conditions and (ii) that those standard conditions also contained a term to the effect that they should prevail. Mr Misell knew that because, as the judge held, he saw Lidl's Quantity Contract of 11 November 1996; although, as the judge also held, Mr Misell did not pay much attention to that document. Mr Young knew that – or may be taken to have known that – because Hertford's Sales Contract in respect of the earlier contract had been sent to Lidl on or about 6 September 1996 and had been received and filed by Mr Dodds. Third, each knew – or may be taken to have known – that it was impossible to contract on the basis that both sets of standard conditions were applicable (because they were mutually inconsistent); so that if they were to contract at all, it had to be on the basis either (i) that they had reached agreement as to which set of standard conditions was applicable or (ii) that they had reached agreement that neither set of standard conditions was applicable.
22. The judge held that the effect of the exchange of forms following the September contract was that Hertford had done enough to bring it to the attention of Lidl that it (Hertford) intended to contract on its own terms in the future "in the absence of any agreement to the contrary" – see page 10, lines 25-29, in the judgment; but that neither Mr Misell nor Mr Mitchell (for Hertford) could have been expected to infer from the document sent to them in November 1996 "that it was Lidl's intention [in the future] only to contract on its own terms." – see page 10, lines 11-12. I find it impossible to uphold that conclusion. It may be said to be artificial to attribute to either party knowledge of standard terms contained in a document which has been received in its office; in that, as I suspect, common experience would suggest that busy executives often do not read the fine print in which standard conditions appear. But, whether or not it is artificial to attribute such knowledge to either party in the present case, it is, to my mind, impossible to distinguish between the knowledge to be attributed to Mr Young on the one hand and to Mr Misell on the other hand. It is impossible to treat Mr Young as having knowledge of the contents of a document which, on the evidence accepted by the judge, he did not see; but to treat Mr Misell as having no knowledge of a document which he did see. A fortiori, in the circumstances that the "General Buying Conditions" paragraph in the Quality Contract sent by Lidl in November is rather more prominent than the standard sales conditions on the reverse side of Hertford's Sales Contract (which, itself, invites confusion with a sales invoice). In the present case, as it seems to me, it is necessary either to treat both Mr Young and Mr Misell as bringing to their negotiations in December 1996 the background knowledge which I have set out in the preceding paragraph; or to treat neither of them as having that knowledge.
23. It follows, therefore, that if background knowledge derived from the exchange of forms which had taken place following the September contract is to be attributed to either Mr Young or Mr Misell, each knew – or may be taken to have known – when they spoke on the telephone on 13 December 1996 that, if they were to contract at all, their contract had to be made on the basis that they agreed that neither set of standard conditions was applicable. In my view it is impossible to hold that they were agreed that either set of standard conditions was applicable. As the judge found, they said nothing to each other which indicated agreement on that point; and, for the reasons which I have sought to set out, there is no basis upon which agreement on that point can be inferred.
24. It would, I think, have been open to the judge to hold that, knowing that it was the policy both of the seller and of the buyer to contract upon its own standard terms if it could, Mr Young and Mr Misell were concerned, on 13 December 1996, only to reach a non-contractual agreement as to price, quantity and delivery – leaving the more general terms of the contract to be resolved following an exchange of documentation. But that is not a position for which either party has sought to contend; and the judge found as a fact that Mr Young and Mr Misell intended to and did reach contractual agreement by the end of their telephone conversation. On that basis, knowing that they had not – and, in the circumstances, probably could not – reach agreement as to the applicability of either set of standard terms, the only inference that can be drawn is that their agreement was made on the basis that neither set of standard terms would be applicable. That conclusion seems to me at least as likely to accord with reality as a conclusion either that they reached no binding agreement at all or that either agreed to contract on the standard terms of the other.
25. For those reasons I would reverse the judge on the first issue. I think he was wrong to hold that the contract made on 13 December 1996 was made on Hertford's Standard Conditions of Sale. The correct conclusion is that the terms of the contract were such as were expressly agreed or are to be implied by law.

Whether Hertford was in breach of contract in failing to make deliveries after 24 April 1997?

26. The obligation which Hertford assumed on 13 December 1996, as confirmed by Mr Misell in his fax message of 16 December 1996, was to deliver twenty loads (of 2,160 cases per load) over a period of four months - March, April, May and June 1997. The judge held, at page 17, lines 2-5, that:

"It is clear from both Mr Misell's and Mr Young's evidence that negotiations proceeded on the understanding common to both parties that the goods would be delivered at a broadly even rate over the contract delivery period and in my judgment that is what the contract required."

On the basis that deliveries would be spread evenly over that period, the anticipated rate of delivery would be 5 loads (10,800 cases) per month. At that rate, Hertford should have delivered about ten loads (21,600 cases) by the end of April. But, in the events which happened, Lidl made no call for deliveries until the end of March 1997. Lidl having, as it were, postponed the starting date for deliveries, the judge had to consider whether it was entitled, nevertheless, to call for deliveries in April so as to make up for what it had not taken in March. He thought that there had to be some adjustment. He said this, at page 17, lines 5-21:

"However, having failed to call for any goods to be delivered before 24^th March, Lidl, in my judgment, was still obliged to take the whole of the contract quantity during the original delivery period and, subject to any agreement to the contrary, could only require delivery of the arrears at a reasonable rate within that period.

Hertford made its last delivery to Lidl on 25^th April, about two months into the delivery period. By that time Lidl had called for a total of 17,092 cases of which 11,070 had been delivered. At an average of about five loads a month Hertford should by then have delivered about ten loads or 21,600 cases if deliveries had started on time. It is difficult on the limited evidence available to determine what part of the arrears it would be reasonable for Lidl to call for during the second month, but given that Hertford could be expected to have some stock available I would if necessary hold that it was entitled to call for two additional loads to be delivered in April making a total of seven loads or 15,120 cases. On that basis even by the time that deliveries came to an end on 25^th April Hertford was failing to meet its obligations and thereafter it failed to make any further deliveries at all."

27. The respondent's notice raises two contentions in relation to the breach of delivery obligations. First, it is said that, by 25 April 1997, Hertford had delivered 11,070 cases against a contract requirement of 10,800 cases (equivalent to five loads); and so was not in breach of its obligations to make deliveries. Second, it is said that, by 10 May 1997, the extent of the breach (if any) was limited to the failure to deliver two loads (4,320 cases). Both contentions are based on the assertion that the starting date for the four month contract delivery period had been postponed by one month by agreement. The agreement was said to arise from the conduct of the parties in not calling for (or insisting upon making) deliveries until late March 1997.
28. The judge rejected the submission that the starting date for the four month delivery period had been postponed by one month. As he said: "There was no discussion of any kind about how deliveries should be organised which itself makes it difficult to establish a variation of the kind for which [Hertford] contended." – judgment, page 16, lines 26-28. The submission was not pursued with any enthusiasm in this Court; and, in my view, there is no foundation for it. It is directly contradicted by the contents of a fax message sent on 1 May 1997 by Mr Mitchell to Mr Young; in which Mr Mitchell refers to the contract calling "for deliveries on a spread basis from March 97 to the end of June 97." On the basis that there was no agreement to put back the four month delivery period, the judge's conclusion that Hertford was already in breach of its delivery obligations by 25 April 1997 is unassailable. Further, as it seems to me, it must follow (i) that by 10 May 1997, a further three loads were overdue, and (ii) that by 28 May 1997, at least fourteen loads (30,240 cases) ought to have been delivered. The shortfall was 19,170 cases.
29. The judge held that, despite the failure to deliver in accordance with the contract, Hertford was not liable for damages. On the basis that Hertford's Standard Conditions of Sale applied, it was entitled to the protection of condition 8.6 (the force majeure clause). But, if (as I would hold) the contract was not made on Hertford's standard terms, that protection is not available. There is, as it seems to me, no answer to a claim for damages for non-delivery; at least in respect of the period down to 28 May 1997.

Whether Lidl was entitled to withhold payment on or after 9 May 1997?

30. On 30 April 1997 Mr Misell had sent a fax message to Mr Young in these terms:

"Re 340g Corned Beef

Further to our telephone conversation of this morning, please note as previously explained that the reason we are currently out of stock is entirely due to the strikes at the major ports in Brazil which are delaying vessels by more than two weeks.

This is entirely outside the control of our supplier and there is therefore absolutely no way we can make any sort of claim against him. For the same reason we cannot accept any claim made against us if you choose to buy stock on the open market."

That was followed by a fax message on 1 May 1997, with the assurance that deliveries should be back to normal within two or three weeks.

31. On the same day, 1 May 1997, Mr Young faxed to Mr Misell:

"As a consequence of your failure to supply product, both depots are now out of stock. Please note that unless we receive confirmation from your company by fax today 01.05.97 by 16.00 hours that you will supply our demand for Corned Beef 340g (Hertford or alternative brand of the same quality) as detailed below, we shall be forced to cover our requirements by buying product from alternative suppliers.

All costs incurred will be debited to your company."

The requirement for the following week (commencing 5 May 1997) was four loads.

32. That message was met with an immediate response from Mr Mitchell. He repeated the explanation that Hertford's difficulties were caused by shipping delays due to strikes in Brazil; and the assurance that it was expected that deliveries would recommence shortly. In the final paragraph he wrote:

"For the reasons above, we will reject any claims made should you decide to buy in stock from other suppliers as stated in your fax. Unless we receive your assurances in this respect we will take legal advice as to our future course of action."

33. Mr Young was not deterred. He sent a fax message to Mr Young on the following day, 2 May 1997:

"Re: Failure to deliver according to Buying Conditions

As advised in our fax 1. May 97 due to your failure to supply, we have had to purchase cover stock as detailed in our fax covering the first 4 truckloads.

Your company is being debited £21,591.43 to cover the additional cost of purchasing this stock.

We require you to resume supply urgently to fulfil the Buying Conditions. Unless we receive confirmation from your company by fax by 17.00 hours Friday 2. May 97 that you will supply our demand of Corned Beef as detailed in our fax dated 1. May 97, and thereafter as per our Buying Conditions we shall be forced to cover our requirements for Week 20-22 by buying product from alternative suppliers, with any additional costs debited to your company.

Payment is currently being withheld to cover any future potential costs which may be incurred, as per Clause 5.6 of our General Terms and Conditions of Purchase, due to your failure to supply according to our Buying Conditions."

34. That provoked a battle between the rival standard conditions. Mr Mitchell faxed back, by return on 2 May 1997, referring to conditions 6.2 and 8.6 of Hertford's Standard Conditions of Sale. Paragraphs 6 and 7 of the fax message were in these terms:

"6. We note that you have debited us with £21,591.43 following your decision to purchase other stock. This debit is not accepted under any circumstances nor is your decision to withhold monies owing to us. If these monies are not paid in full on the due dates we will institute legal proceedings for full recovery.

7. Furthermore we reserve our rights under clause 9.1 of our Conditions of Sale to terminate this contract if the Buyer shall:

'fail to pay the Seller on the due date any sum payable under the Contract'"

35. On 6 May 1997 Lidl sent Hertford a debit note in the amount of £21,5991.43, being in respect of "difference in cost price for four containers of corned beef 340g bought to cover shortfall in supply during April/May 1997". Mr Mitchell responded by fax message on 8 May 1997, demanding:

"1. That you withdraw your debit of £21,591.43 and that you acknowledge that you were not entitled to raise it.

2. That you withdraw your statement that you will buy additional stock and debit us with any difference in price. You are of course perfectly entitled to buy additional stock elsewhere if you wish.

3. That you agree that the contractual position between us is correctly set out in my fax 14563 of 2nd May 1997.

4. That you confirm all monies due to us will be paid in full on the due dates."

36. It has been common ground that the terms of payment agreed in relation to the September 1996 contract – that is to say, payment within 50 days of invoice – applied to the December 1996 contract; notwithstanding that condition 5.1 of Hertford's Standard Conditions of Sale had required payment within thirty days. On the basis that the period was fifty days, the first of the invoices raised by Hertford (in the amount of £30,456) became due for payment on 8 May 1997. Two further invoices became due for payment shortly thereafter – one, in the amount of £25,380, on 12 May 1997, and another, also in the amount of £30,456, on 13 May 1997.
37. The position, therefore, on 9 May 1997, was that Lidl had become liable to pay the amount of the first invoice (£30,456); but had incurred additional costs (£21,591.43) in the purchase of corned beef stocks in the place of those which Hertford had failed to deliver. It is plain that, under the general law, Lidl was entitled to set the additional costs which it had actually incurred against the monies due under the contract – see section 53(1)(a) of the Sale of Goods Act 1979; but it is equally plain, as it seems to me, that Lidl was not entitled to withhold the balance (or any further monies which became due thereafter) against future additional costs which it might incur if Hertford continued in breach of its contractual obligations to deliver. Lidl did not, in fact, incur further additional costs in the purchase of corned beef from other sources until 29 May 1997 – see response 2b in the further and better particulars of defence served on 15 October 1997.
38. It follows that I would hold that Lidl was entitled to set its costs of £21,591.43 against the amount of the first invoice (£30,456) when that invoice became due for payment on 8 May 1997; but that it was not entitled to withhold payment of the balance (£8,864.57) of the first invoice, nor to withhold payment of subsequent invoices which fell due for payment before 29 May 1997.

Whether, on 28 May 1997, Hertford was entitled to treat the contract as terminated?

39. It is necessary to examine, in more detail, the circumstances in which, at the end of May 1997, Hertford purported to treat the December 1996 contract as terminated. The position, as it appears from the correspondence, may be summarised as follows:

i) The response to Mr Mitchell's fax message of 8 May 1997 was, in part, conciliatory. On 14 May 1997, Mr Young faxed to Mr Mitchell

"1. On the understanding that you will resume supply in Week 20 [commencing 13 May 1997] and thereafter will supply product as contracted, payment to your company will resume.

2. Again on the understanding that you fulfil the agreement to supply the remainder of product as per our Fixed Quantity Contract dated 16.12.96 and in order to resolve this issue, we are withdrawing the debit of £21,591.43.

3. The contractual position between us is as per our Contract dated 16.12.96.

4. To avoid any misunderstanding, outstanding quantities due to be delivered against this contract are as follows:

Week 20 – Week 26: 771,120 tins

Week 27 – Week 40: 518,400 tins

We trust you will resume supply commencing 15.05.97 and thereafter will deliver the agreed quantities spread evenly over the contract period."

ii) It is, perhaps, not surprising that those terms – which sought to establish the paramountcy of Lidl's General Terms and Conditions of Purchase – were not acceptable to Hertford. After consulting solicitors Mr Mitchell faxed back, on 15 May 1997:

"1. We will not resume deliveries until all monies owing to us have been paid in full.

2. I would refer you to paragraph 3/. Of my fax of 8th May 1997 which states that you should agree that the contractual position between us is correctly set out in my fax 14563 of 2nd May 1997. The contract is governed by our standard terms and conditions.

3. As far as paragraph 4/. of your fax is concerned, please refer to paragraph 2/ of my fax of 2nd May 1997.

4. You have not responded satisfactorily to paragraphs 1/. And 2/. of my fax 14582 of 8th May 1997."

iii) By 12 May 1997 the amount which had become payable to Hertford, in respect of the first two deliveries made in March 1997, was £55,836. Lidl had drawn a cheque for that amount; but, before that cheque had been released, Mr Young received the fax message from Mr Mitchell which I have just set out. Lidl was unwilling to make any payment in the circumstances that Hertford was insisting that its own standard conditions were applicable.

iv) On 22 May 1997 Mr Mitchell sent a fax message to Mr Martin Kottbauer, who had become Lidl's Director of Purchasing, re-iterating that Hertford would be making no further deliveries until all monies owing had been paid in full. By 28 May 1997, Lidl was again out of stock. By a fax message of that day Mr Young informed Mr Mitchell that unless confirmation was received forthwith that supplies would be resumed, Lidl would cover its requirements by purchases on the market and would debit Hertford with the additional costs. That provoked an immediate response from Mr Mitchell:

"Our position in this matter has been consistently clear in that we have been prepared to deliver the above product to you under our terms and conditions of sale. We have not accepted your right to debit us for any difference in cost for any additional goods you might decide to purchase nor have we accepted that you had any right to withhold payment of any monies owing to us.

Please note that we will again reject any debit raised as per your fax of today. Further you are now in clear breach of our terms and conditions of sale and I must advise you that if we do not receive payment of all monies owing to us by first class post on Monday 2nd June 1997, we will institute legal proceedings against you for full recovery plus interest and legal costs.

Further in view of your failure to pay our due and outstanding invoices, we now formally exercise the right under our condition of sale no. 5.3.1.to cancel the contract in respect of all remaining product not yet delivered to you."

40. If, as I would hold, Hertford's Standard Conditions of Sale had not become terms of the December 1996 contract, it must follow that no reliance could be placed on condition 5.3.1 of those standard conditions – which provided that the Seller should have the right to cancel the contract if the Buyer failed to make any payment on the due date; nor on condition 9.1, which was to the same effect. Nor, in the absence of some term to that effect, could Hertford treat failure to pay on the due date as repudiatory conduct – see section 10(1) of the Sale of Goods Act 1979. The submission to the contrary – although raised by the respondent's notice – was not pursued at the hearing of the appeal. The basis upon which Hertford now contends that it was entitled to treat the contract as terminated appears from paragraph 1.9 of the amended respondent's notice:

"further, [Lidl's] insistence, in its letters dated 2 May 1997, 14 May 1997 and 28 May 1997, that it would only perform and accept performance of the contract in accordance with its buying conditions (which were not incorporated into the contract) amounted to a repudiation of the contract."

41. Before addressing that contention, it is convenient to dispose of two preliminary matters which were raised in argument. First, it is not seriously in dispute that a party who has purported to treat a contract as terminated on the grounds of the other's repudiatory conduct – but who has wrongly identified the conduct upon which he relies - is entitled, in subsequent proceedings, to rely on other conduct which he could properly have treated as repudiatory at the relevant time, even if he did not then know about it – see Taylor v Oakes, Roncoroni & Co (1922) 127 LT 267, 269 and the other cases cited in Chitty on Contracts (28^th Edition, 1999) at paragraph 25-013. Secondly, a party who is himself in breach of contract can, nevertheless, rely on the repudiatory conduct of the other party – see State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277, at page 286. There is, therefore, no reason why Hertford should not rely upon the conduct alleged in paragraph 1.9 of its amended respondent's notice as a ground for bringing the contract to an end by its fax message of 28 May 1997 if, on a true analysis, that conduct was, indeed, repudiatory.
42. The passage in the correspondence upon which Hertford places most reliance is that in the last paragraph of the fax message sent by Mr Young to Mr Mitchell on 2 May 1997:

"Payment is currently being withheld to cover any future potential costs which may be incurred, as per Clause 5.6 of our General Terms and Conditions of Purchase, due to your failure to supply according to our Buying Conditions."

That passage contains two assertions: (i) that the contract is subject to Lidl's General Terms and Conditions of Purchase, and (ii) that condition 5.6 of those standard conditions permitted the Buyer to withhold payment "to cover any potential future costs which may be incurred". Both of those assertions were incorrect. The first was pursued at trial; but was abandoned when Lidl amended its notice of appeal on 24 May 2000. The basis for the second has not (so far as I am aware) been explained. For my part, I find it difficult to see how it could be said that condition 5.6 of Lidl's General Terms and Conditions of Purchase has that effect.

43. The fax message sent by Mr Young to Mr Mitchell on 14 May 1997 repeats the first of the assertions in the earlier fax message – see, in particular, paragraph 3: "The contractual position between us is as per our [Fixed Quantity] Contract dated 16.12.96." Lidl's insistence on its own standard conditions is confirmed in Mr Young's fax message of 28 May 1997: ". . . your company is still not supplying product according to our Buying Conditions." But, in the two later fax messages, Lidl may be said to resile from the position that it was entitled to withhold payment against potential future costs. In particular, in paragraph 2 of the fax message of 14 May 1997, Lidl withdrew the debit note in the amount of £21,591.43 which had been issues on 6 May 1997 "on the understanding that you fulfil the agreement to supply the remainder of the product "as per our Fixed Quantity Contract dated 16.12.96".
44. It is not, I think, in doubt that a party who insists that he will only continue with a contract if the other party accepts some new stipulation as to the mode of performance may be held to have repudiated his obligations under the contract; thereby enabling the other party to treat the contract as terminated – see Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318, 322G-323B, 325C, 325E. But it does not follow that a party will be held to have repudiated his obligations if he has an honest (although mistaken) belief that the stipulation on which he insists is not a new stipulation but, rather, one of the terms upon which the contract was made. The position was explained in Woodar Investment Development Ltd v Wimpey Construction U.K. Ltd [1980] 1 WLR 277. At page 283 Lord Wilberforce put the point shortly:

"I shall simply state that the proposition that a party who takes action relying simply on the terms of the contract, and not manifesting by his conduct an ulterior intention to abandon it, is not to be treated as repudiating it is supported by James Shaffer Ltd v Findlay Durham & Brodie [1953] 1 WLR 106 and Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699."

Lord Keith of Kinkel said this, at pages 296-297:

"The doctrine of repudiatory breach is largely founded upon considerations of convenience and the opportunities which it affords for mitigating loss, as observed by Cockburn C.J. in Frost v Knight (1872) LR 7 Ex 111, 114. It enable one party to a contract, when faced with a clear indication by the other that he does not intend to perform his obligations under it when the time for performance arrives, to treat the contract, if he so chooses, as there and then at an end and to claim damages for actual breach. Where one party, honestly but erroneously intimates to the other reliance upon a term of the contract which, if properly applicable, would entitle him lawfully to rescind the contract, in circumstances which do not and are not reasonably understood to infer that he will refuse to perform his obligations even if it be established that he is not so entitled, legal proceedings to decide that issue being in contemplation, I do not consider it in accordance with ordinary concepts of justice that the other party should be allowed to treat such conduct as repudiation. Nor, in my opinion, are there any considerations of convenience which favour that course."

In such a case "the law requires that there be assessed not only the party's conduct but also, 'objectively considered', its impact on the other party" – see the observation of Lord Scarman at page 299.

45. In its further submissions, put in after the completion of oral argument, Hertford accepted that "if Lidl had done no more than insist in apparent good faith that the contract was subject to their terms and demand that Hertford perform the contract in accordance with those terms, that would not have amounted to a repudiation of the contract." But, it is said, Lidl's conduct went beyond this in two respects. First, Lidl's position was that it would only pay money that was already due under the contract if Hertford resumed supplies in accordance with Lidl's standard terms: second, that Lidl's conduct would have led a reasonable person in the position of Hertford to understand that, even if deliveries were resumed, it was Lidl's intention to continue to withhold payment as security for future additional costs which might be incurred if there were a further interruption in the delivery of product.
46. It is, I think, important to keep in mind that, whether or not Lidl's General Terms and Conditions of Purchase applied, Lidl was entitled under the general law (i) to debit Hertford with an amount (by way of damages for breach of the obligation to deliver) equivalent to the additional costs of obtaining stocks from other sources and (ii) to set off that amount against moneys due to Hertford in respect of deliveries already made. That was the position unless Hertford's Standard Conditions of Sale applied; which – as I would hold – they did not. Further, the reason for Hertford's refusal to make deliveries (once it was in a position to do so) was that it was insisting - wrongly, as I would hold - on the application of its own standard terms. It was only if Hertford's standard terms applied that it was entitled to take the position set out in paragraph 1 of Mr Mitchell's fax message of 15 May 1997: "We will not resume deliveries until all monies owing to us have been paid in full". In that context "paid in full" must be taken to mean "paid without deduction of any amount in respect of additional costs incurred in obtaining product from other sources". Third, although it is now said that Lidl's conduct would have led a reasonable person in the position of Hertford to understand that, even if deliveries were resumed, it was Lidl's intention to continue to withhold payment as security for future additional costs which might be incurred if there were a further interruption in the delivery of product, there is nothing to suggest that that was, in fact, Hertford's understanding in May 1997; or that it was that which led Hertford to reject the proposals in Mr Young's fax message of 14 May 1997. The true position was that Hertford was unwilling to resume supplies unless and until it was paid in full for deliveries already made; and Lidl was unwilling to make any payment unless and until it received an assurance that supplies would be resumed. If (i) Hertford had given the assurance that Lidl required, (ii) Lidl had released the cheque for past deliveries which it had already drawn, and (iii) the parties had agreed to differ as to which (if either) standard conditions applied, the further performance of the contract would have presented no difficulty. The question whether or not Lidl was entitled to damages in respect of the interruption in deliveries could have been resolved (by litigation, if necessary) without affecting the further performance of the contract; and the question whether Lidl was entitled to withhold payment as security for future additional costs would not have arisen.
47. In my view, taking the correspondence which passed between the parties during May 1997 as a whole, it cannot be said that Lidl "manifested by [its] conduct an intention to abandon" the December 1996 contract – to adopt the words of Lord Wilberforce in Woodar v Wimpey which I have already cited. On the contrary, the correspondence demonstrates an intention on the part of Lidl to proceed with the contract; but upon terms which differed from those upon which Hertford was willing to proceed. For the reasons which I have set out I am satisfied that Lidl was entitled to reject Hertford's contention that its terms applied. Lidl was not entitled to insist on performing the contract in accordance with its own General Terms and Conditions of Purchase; but, in relation to the question actually in dispute between the parties at the time – that is to say, whether Lidl was entitled to debit Hertford with the additional costs of obtaining stocks from other sources – it was Hertford's standard terms and not Lidl's standard terms that were relevant.
48. For those reasons I would hold that Hertford was not entitled, on 28 May 1997, to treat the December 1996 contract as terminated.

Conclusion

49. It follows that I would set aside the order made on 12 November 1999. Subject to any further representations which the parties may make as to the form of the order, I would direct that the amount due to Lidl on its counterclaim (£135,319.46) be set against the amount (£156,087) due to Hertford in respect of deliveries actually made; and that there be judgment for the balance (with interest on the net amount from time to time from the due dates of payment).

LONGMORE L J:

50. I agree.

LLOYD J.

51. I also agree.
ORDER: A minute of the order to be lodge with court. (Order does not form part of approved Judgment)