Northern Foods Ltd v Focal Foods Ltd [2001] EWCA Civ 1262

Monday July 23rd, 2001
Neutral Citation Number: [2001] EWCA Civ 1262
A3/OO/2623

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS DISTRICT REGISTRY
(HIS HONOUR JUDGE MCGONIGAL)

Royal Courts of Justice
Strand
London WC2A 2LL
Monday 23 July 2001

B e f o r e :

THE MASTER OF THE ROLLS
(LORD PHILLIPS)
LORD JUSTICE LATHAM
LORD JUSTICE JONATHAN PARKER

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NORTHERN FOODS LIMITED
Claimant/Appellant
- v -
FOCAL FOODS LIMITED
Defendant/Respondent

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(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 190 Fleet Street,
London EC4A 2AG
Tel: 020 7421 4040 Fax: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

MR H TOMLINSON and MR T GRANT (Instructed by Messrs Walker Morris, Leeds, LS1 2HL)
appeared on behalf of the Appellant
MR P LAWRENCE (Instructed by Messrs Ormsby Mills, Staffs, DE14 1JB)
appeared on behalf of the Respondent

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HTML VERSION OF JUDGMENT
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  1. LORD PHILLIPS, MR: I will ask Lord Justice Jonathan Parker to give the first judgment.
  2. LORD JUSTICE JONATHAN PARKER: This is an appeal by Northern Foods Plc (“Northern”), the claimant in the action, against an order made by His Honour Judge McGonigal sitting as a judge of the Queen’s Bench Division in the Leeds Mercantile Court on 6 July 2000. By his order the judge dismissed Northern’s claim. He also dismissed a counterclaim by the defendant in the action, Focal Foods Limited (“Focal”). Focal is the respondent to this appeal.
  3. By its Re-amended Statement of Claim, Northern claims damages amounting to some £220,000 against Focal for repudiatory breach of an alleged contract for the supply of onions by Focal to Northern over a three-year period from June 1997. It also seeks rectification of the contract if, contrary to its primary contention, the contract on its true construction provided for a one-year period only.
  4. By its Re-amended Defence and Counterclaim, Focal denies the existence and enforceability of the alleged contract, but alleges that if there was a contract it was repudiated by Northern, and counterclaims for damages against Northern on that basis. By its Amended Reply and Defence to Counterclaim, Northern joins issue on Focal’s defence and pleads that Focal is estopped from denying the existence of an enforceable contract in the terms alleged.
  5. In support of the plea of estoppel, Northern alleges that both parties acted on the joint assumption that there was a subsisting contract in the terms alleged by Northern, and that they regulated their behaviour accordingly during the period from June 1997 to March 1998.
  6. The order appealed from was made following the trial of preliminary issues as to (i) whether there was a contract between Northern and Focal; (2) if so, what were the terms of the contract; and (3) whether either party had acted in breach of the contract. The background to the dispute
  7. Northern is a well-known food manufacturer which operates from a number of factories. Focal is a large-scale grower, processor and supplier of vegetables to the food industry. The dispute concerns the supply of raw processed onions, comprising both diced or sliced onions (“sliced onions”) and ringed onions. Sliced onions can be processed entirely mechanically; ringed onions, on the other hand, fall within the category of “speciality work” in that they have to be oriented by hand so that the slicing machine produces rings of the required sizes.
  8. A number of Northern’s factories require fresh vegetables in the manufacture of their products. Prior to 1996 each buyer at each factory bought vegetables as and when required on the spot market at the prevailing prices. The supply of vegetables was thus liable to unforeseeable and damaging fluctuations in price and to problems of availability of product.
  9. In 1995 Northern decided to coordinate the buying of fresh vegetables by its various factories with a view to the introduction of a policy of moving to long term supply contracts with a smaller number of suppliers, thereby obtaining price stability and better quality of product. To that end, Northern set up a body called the Vegetable Steering Group (“VSG”). The VSG consisted of a group of representatives from the various factories who met regularly to discuss requirements, contracts and prices with the market. Miss Brenda Todd was the member of the VSG who was appointed as the contact member for Focal, since she had had regular contact with Focal in the past in connection with the purchase of vegetables. From about mid-1996 the Chairperson of the VSG was Mr Steven Hathaway. He was at that time responsible for the procurement of raw materials, including fresh vegetables, for Northern.
  10. Focal has supplied fresh vegetables to Northern for many years. It is a family operation owned by the Williams family. Mr Rufus Williams, who features in the present story, is one of its directors. The Williams’ family farm produces about 4,500 tonnes of onions per year, a large proportion of which is acquired by Focal. Focal also buys in supplies of onions and other vegetables from third parties.
  11. For the year 1995 to 1996 (and a year for this purpose runs from about June or July) Northern were seeking one-year contracts from its suppliers. No contract was entered into with Focal for that year, although Northern did place orders with Focal on the spot market. However, the quantity bought by Northern from Focal during the year was less than in previous years and, as the judge recorded at paragraph 1.3 of his judgment, Focal was keen to obtain a long term contract for the ensuing year.
  12. On 1 July 1996 Mr Hathaway wrote to Mr Williams as follows (so far as material):

    “I write to confirm the outcome of our recent discussions on the supply of vegetables to Northern Foods Manufacturing Units.

    After careful consideration of various factors, such as technical audits, service and quality histories and proposed pricing arrangements, we are pleased to offer you the opportunity to supply the following:

    Pricing: Contract term 1/7/96 – 30/6/97

    Onions: Standard machine slice or dice 36p/kg, minimum 10kg bags. Speciality work eg rings [ringed onions] to be by local agreement.”

  13. Three factories are then named:

    “Sites/Volumes: Pizza: Sole supply

    Palethorpes: 50% Riverside: 50%.”

  14. Following that letter, Focal supplied the three Northern factories named in the letter with sliced onions at 36p per kilo and supplied the Riverside factory with ringed onions at 42p per kilo. The additional charge at 7p per kilo for ringed onions reflected the additional processing costs. That charge was agreed on the telephone between Mr Williams of Focal and Mr Grainger of Northern.
  15. In early 1997 the VSG turned its attention to the negotiation of contracts with suppliers for the year 1997/98. On 24 March 1997 Focal quoted for onions and potatoes for that year. The quotation was considered with others at the meeting of the VSG the following day, but it was decided that three-year contracts were preferable and Miss Todd was, accordingly, asked to obtain a three-year quotation from Focal so that Northern could compare Focal’s quotation with a three-year quotation which had been submitted by another supplier.
  16. On 16 April 1997 Focal duly provided such a quotation. It took the form of a fax from Mr Williams to Miss Todd, which reads as follows:

    “Forward prices for onions and potatoes on contract to supply Northern Foods based on minimum 20 tonnes of each per week.”

  17. There is then a table with the year on the left and two columns for onions and potatoes. For the year 1997/98 the prices are 35p per kilo for onions and 28p for potatoes; for the year 1998/99 the corresponding prices are 36p and 29p; and for 1999/2000 the corresponding prices are 37.5p and 30p.
  18. Focal’s quotation was considered at a meeting of the VSG held for the following day, but no final decision was reached at that stage. However the VSG met again on 20 May 1997, when it was decided to place three-year contracts with two suppliers (one of which was Focal) and one-year contracts with others.
  19. Some time between then and 10 June 1997 a telephone conversation took place between Mr Williams and Mr Hathaway. Mr Hathaway’s evidence was to the effect that in the course of that conversation he accepted Focal’s quotation and that they went through and confirmed the terms of the three-year contract for onions and potatoes. However, Mr Williams’ recollection of the conversation was somewhat different. His recollection was that he was chasing Northern to see whether Focal would be supplying, and that Mr Hathaway’s response was that it was likely that it would be, but that details would be posted to Focal within the next few days. The judge concluded that Mr Williams’ recollection of the telephone conversation was to be preferred, and he accordingly found that no contract was concluded in the course of that conversation. There is no appeal against that finding.
  20. On 10 June 1997 Mr Hathaway wrote to Mr Williams (“the June letter”). Since the true meaning and the effect of the June letter lie at the heart of this dispute, I read it in full:

    “Dear Rufus,

    Further to my recent telephone conversation, I write to confirm the correct information on the outcome of our recent discussions on the supply of vegetables to Northern Foods Manufacturing Units.

    After a careful review of the various factors such as Vendor Rating Performance, Audit Issues and your proposed pricing arrangements we are pleased to offer you the following:

    Pricing: Contract term: 29th June 1997 to 4th July 1998.

    For standard machine slice/dice type operations, speciality work to be negotiated at a site level.

    Onion (3 yr contract)

    Year 1 – Dice/slice 35p per kilo

    Year 2 – Dice/slice 36p per kilo

    Year 3 – Dice/slice 37½p per kilo

    Potato (3yr contract)

    Year 1 – Whole/dice/slice 28p per kilo

    Year 2 – Whole/dice/slice 29p per kilo

    Year 3 – Whole dice/slice 30p per kilo

    Swede: Dice 32p per kilo

    Site & Volumes

    The matrix below indicates percentage splits and approximate annual tonnages by commodity group to be supplied. The values indicated are intended to provide a guide to the volumes that will be required, but will fluctuate as a result of seasonality and product catalogue changes.”

  21. There then follows a matrix or table consisting of four columns. In the left-hand column are listed the names of five Northern factories, Palethorpes, Pizza, Riverside, Trafford Park and Fenland. The remaining columns going across the page are headed “Onion”, “Potato” and “Swede”. The table provides for two entries to be made in each of the columns in relation to each vegetable against each of the five factories. The nature of these entries is described in the left-hand column. One is described by a simple percentage sign, the other is described by the words, “Approx tonnage p.a.”. In the case of onions (the second column going across the page) the percentage is shown as 50 per cent in the case of each factory, save the Pizza factory where the percentage is 100 per cent. The “Approx tonnage p.a.” is quoted as 375 for Fenland, 225 for Riverside, 200 for Pizza and 175 for Palethorpes and Trafford Park.
  22. So far as potatoes are concerned, the table shows that potatoes were to be supplied to the Palethorpes and Trafford Park factories and swedes only to the Palethorpes factory. The figures in relation to potatoes and swedes are not material for present purposes. The letter continues:

    “I would draw your attention to the use of the Vendor Rating System in forming an objective view of your performance as a supplier and would welcome any inputs you might wish to offer in order to improve our trading relationship.

    Please liaise directly with the site buyers to cover off details such as order cycles, delivery times and specification details. If you have any other general queries, please contact Wayne Barratt who will be pleased to respond as appropriate.”

  23. It is signed by Mr Hathaway.
  24. Focal had not previously supplied onions to Northern’s Fenland factory. When it did so it transpired that it was unable to comply with the factory’s temperature requirements. In the event, therefore, Focal did not supply onions to the Fenland factory. Similarly, supplies of swede ceased after a short time due to defective quality. However, from June or July 1997 until March 1998 Northern purchased quantities of onions, both sliced and ringed onions from Focal at fixed prices of 35p per kilo for sliced onions and 42p per kilo for ringed onions.
  25. Initially, the price of 35p per kilo for sliced onions was above the spot market price, so that the fixed price was to the advantage of Focal. This reflected the normal pattern of pricing for onions. As the judge explains in his judgment, prices tend to be low in the second half of the calendar year when onions are normally in abundant supply and need only simple storage. However, from January to June prices tend to rise due to increasing storage charges and the need for refrigerated storage for onions to be supplied in the period from April to June. The price of onions is also vulnerable to climatic conditions. Due to heavy rainfall during the winter of 1997/98 the spot market price rose to the point where, by March 1998, it substantially exceeded the fixed price of 35p per kilo.
  26. Focal had contracts with its own suppliers for fixed quantities of onions to be supplied at pre-determined prices. As the judge put it, those contracts “backed up” the contracts which Focal had with its own customers, including Northern, which accounted for about 20 per cent of Focal’s turnover.
  27. In February 1998 Mr Williams informed Northern that he was having difficulties due to the failure of his suppliers. He indicated to Northern that he could not afford to go on supplying onions to Northern at 35p per kilo when he was having to buy them in on the spot market at nearly twice that figure. Mr Williams pointed out that he had already delivered all, or almost all, the approximate tonnages which had been set out in the June letter, and that he did not regard himself as bound to supply a greater tonnage than that.
  28. In the event, in early March 1998, after he had supplied Northern with some 790 tonnes of onions, including ringed onions, he began to invoice Northern for onions at the prevailing spot price rather than the fixed price of 35p per kilo. Northern paid these invoices under protest until around June 1998, at which point it claimed that Focal had repudiated the contract. Shortly thereafter the present proceedings were commenced.
  29. It is Northern’s alternative case (its primary pleaded case being that the contract was concluded in the course of the telephone conversation between Mr Williams and Mr Hathaway to which I have already referred; a case which the judge rejected) that the June letter contained an offer of a three-year contract for the supply of sliced onions, which was accepted by Focal by conduct in thereafter supplying sliced onions ordered by Northern at the stipulated fixed price. It claims that under the contract Northern was obliged to order, and Focal was obliged to supply, the specified percentages of the requirements of the five named factories. On the other hand, it contends that the annual tonnage figures were estimates only and do not give rise to contractual obligations on the parties to order and to supply such tonnages. As noted earlier, should it be found that the contract was for a one-year period only, Northern seeks rectification of the contract so as to accord with what it alleges to have been the intention of both parties that the contract should continue for three years.
  30. Focal’s case, on the other hand, is that the June letter did no more than propose a loss business framework, within which the parties could choose to contract. Alternatively, if the letter did form the basis of a contract, Focal’s pleaded case is that it covered both sliced and ringed onions and that its obligation under the contract was to supply a maximum of 775 tonnes onions per year (including ringed onions) and that by March 1998 it had complied with that obligation. This echoes Mr Williams’ assertions to Mr Hathaway.
  31. The figure of 775 tonnes is reached by deducting the annual tonnage of onions for the Fenland factory as shown in the June letter from the total annual tonnages as shown in that letter.
  32. It was argued below on behalf of Focal that Northern was itself in repudiatory breach of the contract, if there was one, in failing to place orders after March 1998 and it counterclaims for damages on that basis. Northern denied that Focal’s obligation was subject to any maximum figure so far as volumes are concerned but contended, in any event, that the annual tonnages in the June letter related only to sliced onions and not to ringed onions which, it asserts, were the subject of a separate contract. The Judgment of His Honour Judge McGonigal
  33. The judge recorded in paragraph 1.11 of his judgment that both parties believed that they had a contract. However, he want on to observe, correctly, that the question whether a contract had been concluded, and if so on what terms, had to be decided objectively. As he put it:

    “…if the parties have not in fact entered into a contractual arrangement when viewed objectively, the Court cannot turn these arrangements into a contract by supplying the missing terms, even if the parties believe they have a contract.”

  34. The judge then turned to the question whether a contract was concluded in the course of the telephone conversation between Mr Williams and Mr Hathaway which preceded the June letter. As noted earlier, he answered that question in the negative.
  35. The judge then turned to the June letter. He began by comparing the tonnage figures in the letter with the figures in Focal’s quotation dated 16 April 1997 and by noting Focal’s requirement, also contained in that quotation, for a minimum order of 20 tonnes per week. He continued:

    “In a memorandum dated 21 April 1997 commenting on Focal’s quotation, Miss Todd referred to their requirement of a minimum 20 tonnes per week but said she thought she should be able to persuade them differently. In the event she did not attempt to do so. The provisions of the letter of 10 June 1997 were, therefore, largely new to Focal.”

  36. It is, however, material to note that the prices specified in the June letter in respect of both onions and potatoes were those which Focal had earlier quoted as forward prices for the three-year period.
  37. As to the June letter itself, the judge concluded that on its true construction it proposed a one-year period for swedes and a three-year period for onions and potatoes. The judge said:

    “Looking at the whole wording, the right construction (if it s a contract) is that it is a one-year contract for swedes and a three-year contract for onions and potatoes.”

  38. He also noted that the June letter does not specify the quality of the product, but observed, again correctly in my judgment, that a term would be implied in that respect under section 14 of the Sale of Goods Act 1979. The judge continued at paragraphs 2.2.5 and 2.2.6:

    “The letter seeks to define volumes in two ways, first as a percentage of each factory’s requirements and secondly in terms of tonnage. The word ‘values’ in the introductory paragraph appears to me to be deliberately chosen as a word which covers both ‘percentage splits’ and ‘tonnages’. The letter states, therefore, that both the percentages and the tonnages are only a guide to the volumes that will be required and that both would fluctuate. In other words a factory such as Palethorpes might place more or less than 50% of its requirements of onions with Focal and might order more or less than 175 tonnes per year. It is Northern’s case that the tonnage figures are not contractual. My view is that neither the percentages nor the tonnages were contractual. There was, therefore, no agreement as to the quantities of onions that were to be supplied or purchased. As the letter of 10 June 1997 said, ‘the values indicated are intended to provide a guide to the volumes that are to be supplied’. There was guidance as to the volumes but no agreement as to what Northern had to order or what Focal had to supply.

    In the absence of agreement on volumes is the letter of 10 June 1997 a contract? In my view it was a contract but only a framework contract. It was an agreement on the terms that would apply if the parties chose to order and supply onions under its terms.”

  39. The judge then referred to the behaviour of the parties as being consistent with the subsistence of a “framework contract” in the sense in which he had used that expression. In this connection he said at paragraph 2.2.7:

    “The behaviour of the parties was consistent with this. When Focal could not meet Northern’s quality requirements on swedes and its temperature requirements at Fenland for onions, Northern ceased to order and Focal to supply swedes and there were no supplies of onions to Fenland. The letter from Northern dated 29 September 1997 to Focal regarding these matters says simply that ‘onion supplies to Fenland did not commence since you were unable to meet the specified delivery temperature’ and advises Focal that ‘this volume was placed elsewhere at short notice for a period of 6 months, it will therefore not be available until January 1998′. As to swedes it simply says that ‘swede supply to Palethorpes was discontinued as a result of quality problems’. This is not the language of a company that considers a supplier has an obligation to supply a given quantity or of one that considers it has an obligation to obtain a proportion of its requirements from that supplier.”

  40. The judge then turned to the third of the preliminary issues: was there a breach? This issue only arises if a contract has been found to exist. On this issue the judge said (paragraph 3.1):

    “Since Northern were not committed to order and Focal not committed to supply particular volumes of onions, this refusal by Focal to supply onions at the prices in the 10 June 1997 letter was not a breach of contract by Focal. In so far as Northern did not order the specified percentage of a factory’s requirements for onions from [Focal], that was not a breach of contract by Northern.”

  41. Under the heading “Other issues” the judge concluded that in the light of his finding that there was a contract, no question of estoppel or rectification arose. He did however address the issue whether the “framework contract” which he found to exist covered ringed onions as well as sliced onions. He said that, had it been relevant, he would have found that ringed onions were within the contract.
  42. Finally, as to Focal’s counterclaim, the judge said in paragraph 5.2 of the judgment:

    “Since I have found that there was an agreement but not one as to volumes of onions to be supplied Focal’s counterclaim does not arise but in any event it follows from my findings that Northern were not in repudiatory breach by refusing to take supplies of onions and potatoes from Focal.”

  43. Accordingly the judge dismissed both the claim and counterclaim. The Grounds of Appeal
  44. By grounds 1 and 2 Northern contend that the judge was wrong to conclude that the contract between the parties was a “framework contract” and that he ought to have held that during the three-year period Northern was bound to order, and Focal to supply, the specified percentages of the requirements of the five factories named in the letter for sliced onions.
  45. By ground 3 it is contended that the judge was wrong to construe the word “values” in the June letter as covering both percentage splits and tonnage and that he should have held that the word “values” related only to the annual tonnage figures. By ground 4 Northern contend that the concept of a “framework contract” makes no commercial sense. By ground 5 it is contended that the judge failed to take proper account of the background against which the June letter was written, in particular (a) the fact that, as the judge recorded in his judgment, the purpose of long term contracts was to secure price stability; (b) the fact that Focal had previously provided Northern with a quote for “forward prices” for the three-year period; and (c) the fact that Focal itself had contracts with its own suppliers for fixed quantities to “back up” its contracts with its own customers concluded normally. By ground 6 of the grounds of appeal, Northern contend that the judge was wrong to conclude that in the light of his finding that a “framework contract” existed the issue of estoppel did not arise, and that the judge should have addressed that issue and should have concluded that Focal were estopped from denying the existence of a contract in the terms alleged by Northern. However, Mr Hugh Tomlinson of counsel, who appears with Mr Thomas Grant for Northern, made it clear in his submissions that he does not pursue the issue of estoppel. He accepts that his case is founded in contract alone.
  46. By ground 7 of the grounds of appeal it is contended that the judge ought to have concluded that Focal were in repudiatory breach of contract in refusing to supply sliced onions at the prices specified in the June letter. Ground 8 of the grounds of appeal relates to ringed onions, and, for reasons which will appear, I need not advert further to it.
  47. By a Respondent’s Notice Focal contends that no contract of any kind was concluded in June 1997 since (a) the terms of the “framework contract”, which the judge found to exist, are too vague and too uncertain to create an enforceable agreement, and (b) the subsequent conduct of the parties was inconsistent with the existence of the contract alleged. The Arguments on this Appeal
  48. Mr Tomlinson submits that the judge, having correctly held that the June letter was contractual in effect, ought to have gone on to hold that it placed purchase and supply obligations on the parties to the effect that Northern was obliged to order, and Focal to supply, 50 per cent of Northern’s requirements of sliced onions at its Palethorpes, Riverside and Trafford Park factories, and 100 per cent of its requirements for sliced onions at its Pizza factory. He submits that a contract in these terms is consistent with the wording of the June letter, is workable and makes commercial sense. He has referred us to well-known passages from the speech of Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] Law Times, page 503 at pages 514 and 516, to the effect that, when considering the true meaning and effect of a document such as the June letter, the court will seek, so far as possible, to reach a workable and sensible commercial result.
  49. As to the terms of the letter itself, the argument in this court has focused rather on percentages rather than volumes. In this respect the argument has taken a different course to that which was addressed to the judge below. Mr Tomlinson submits that the judge was wrong to construe the word “values” in the June letter as applying to both the percentage splits and the annual tonnage figures. He points out that the annual tonnage figures are expressed as being approximate, whereas there is no corresponding qualification on the percentages given. He relies also on the commercial context in which the June letter was written and refers in particular to the three factors mentioned in ground 5 of the grounds of appeal to which I have already referred. He submits that a framework contract of the kind which the judge found is a commercial absurdity, which leads to an unreasonable result. As to the percentage requirements, Mr Tomlinson submits that the express obligation contained in the June letter is to supply the specified percentage over an entire year. He does however accept that there must also be a term implied into the contract to the effect that Northern will, so far as possible, maintain the requisite percentage of its orders on a continuous basis throughout the year.
  50. Mr Patrick Lawrence of counsel, who appears for Focal, accepts that Mr Williams believed he had made some sort of three-year deal with Northern, which explains why during the period June 1997 to March 1998 Focal supplied onions to Northern’s specified factories (other than Fenland) at fixed prices of 35p per kilo for sliced onions and 42p per kilo for ringed onions. Mr Lawrence submits, however, that these considerations are far from decisive. He submits that the parties may well have been acting under a misapprehension as to whether or not there existed an enforceable contract – or indeed under separate misapprehensions. He invites us to look at the entirety of the correspondence between the parties both before and after 10 June 1997. Referring to this correspondence, he stresses the importance which, as he submits, the parties must have attached to volumes and that, in that context, “volumes” needed to be addressed with “some degree of precision” in the June letter if that letter was to form the basis of an enforceable contract. He points out however that the volumes are only expressed in approximate terms.
  51. Mr Lawrence supports the judge’s conclusion that the word “values” in the June letter covers not only the annual tonnage figures, but also the percentages. Otherwise, he submits, it would have been only too easy for the writer of the letter to use the word “tonnages” rather than values. He says that on that interpretation of the letter the nature of any contractual obligation is left wholly undefined and at large. He also submits that the June letter is ambiguous as to the duration of any contract for the supply of onions; that is to say, that it is ambiguous as to whether the arrangement is to continue for one year or three years.
  52. Mr Lawrence points out that, initially, Northern pleaded its case on the basis of a contract for one year, and that the pleadings were subsequently amended to plead a three-year contract. That, he submits, is the best possible illustration of the ambiguity to which the June letter gives rise in this respect. Mr Lawrence also relies on the absence of any stipulation in the June letter as to the quality of the product to be supplied.
  53. As to the formation of a contract, Mr Lawrence submits that Northern’s contention that the offer in the June letter was accepted by Focal’s conduct in supplying sliced onions at the specified price of 35p per kilo is flawed, in that Northern itself did not act in accordance with what it contends were its contractual obligations in that it failed to order the specified percentages of the requirements of the four factories as specified in the June letter.
  54. In this connection, Mr Lawrence referred us to a schedule supplied by Northern which indicates that, during the period 30 June 1997 to 6 March 1998 in relation to the Palethorpe, Trafford Park and Riverside factories Northern ordered a lower percentage of the factory’s requirements than was specified in the June letter.
  55. This issue was raised before the judge to the extent that Focal sought permission to amend its pleadings so as to raise it and to base upon it an allegation of repudiatory breach by Northern. The judge granted permission for that amendment, but that is as far as that issue has so far been taken. There is, as I have indicated, no finding on it by the judge. However, Mr Lawrence submits that the issue is relevant to the issue whether or not a contract was formed.
  56. Mr Lawrence has also referred in his written skeleton to the case of Pagnan v Feed Products [1987] 2 Lloyd’s LR 601. That case concerned a contract for the supply of feed pellets. Bingham J, as he then was, found that the parties had reached agreement on what he described as:

    “…the cardinal elements of the deal: product, price, quantity, period of shipment, range of loading ports and governing contract terms.”

  57. Bingham J rejected a submission to the effect that no contract had been concluded since no agreement been reached as to loading rate, demurrage, despatch and carrying charges. He concluded that the contract was “legally workable” notwithstanding that no agreement had been reached on these points, and that the parties were to be treated as having bound themselves to the cardinal elements of the deal, leaving “certain subsidiary and legally inessential terms to be settled later”. Bingham J’s analysis was upheld by the Court of Appeal.
  58. Mr Lawrence distinguishes that case from the instant case, submitting that in the instant case questions of volume and duration and, to a lesser extent, quality are cardinal elements of the alleged deal. Conclusions
  59. In the first place, the substance of the judge’s finding that the parties had entered into a “framework contract” was, in my judgment, that they had entered into no contract at all. As I understand the judgment, the so-called “framework contract” imposed no obligations on either party, with the inevitable consequence that it was not capable of being breached. Each party remained free to choose whether or not to trade at the stipulated prices. In practice, one or other would refuse to do so according to whether the spot price for onions happened to be higher or lower than the stipulated price. They would only choose to contract at the stipulated price when that price happened to be the same as the spot price, but even in that situation they could choose not to do so. I accordingly proceed on the basis that the judge found that no enforceable contract for the supply of onions was concluded between Northern and Focal.
  60. On that basis, the next question to be considered is whether the June letter constituted an offer which was capable of acceptance by Focal so as to give rise to an enforceable contract. It is common ground that the June letter has to be construed objectively, taking into account its commercial context. In this connection I accept Mr Tomlinson’s submission that it is relevant to take into account the fact that, as the judge recorded, both parties were looking for a long-term contract of some sort and that the prices stipulated in the June letter were those which Focal had previously quoted as “forward prices” for a three-year period.
  61. It seems to me plain that, viewed objectively, the aim of both parties was to arrive at a long term fixed price arrangement for the supply of the specified vegetables to the specified factories.
  62. I turn next to the terms of the June letter itself. I agree with the judge that, despite the initial reference to a “contract term” of one year, it is clear that what is intended is a three-year contract for onions and potatoes. The expression “three-year contract” followed by prices for year 1, year 2 and year 3 leave little, if any, room for any other interpretation.
  63. On the other hand, I respectfully differ from the judge in his interpretation of the word “values” in the sentence:

    “The values indicated are intended to provide a guide to volumes that will be required, but will fluctuate as a result of seasonality and product catalogue changes.”

  64. To my mind, “values” in that context is a reference to the quantities represented by the specified percentages of the requirements from time to time of the various factories; that is to say the approximate annual tonnages. I can see no justification for construing the word “values” as relating both to the annual tonnage figures and to the percentages themselves. I take Mr Tomlinson’s point that, whereas the annual tonnage figures are expressed to be approximate, the percentage figures are not correspondingly qualified. Moreover, whilst I can fully accept that seasonality or product catalogue changes may affect Northern’s requirements for vegetables, I find difficulty in seeing how such factors could be said to affect the percentage of those requirements to be supplied by Focal. That would appear to me to be simply a matter for agreement between the parties.
  65. As to the percentages, I agree that, on its true interpretation, the June letter contains an express obligation upon Northern to order the specified percentage of its requirements on an annual basis. Equally, however, it seems to me that that obligation must be subject to an implied term to the effect that Northern will on a continuing basis throughout the year maintain the specified percentage of its orders from time to time so far as is practicable, otherwise the agreement would make little if any commercial sense since Northern would be free to choose the moment at which it placed its orders with Focal. No doubt it would choose times when the spot price was higher than the stipulated price.
  66. Accordingly it seems to me that it is necessary to imply a term to that effect. Moreover, the implication of such a term is entirely consistent with the final paragraph of the June letter.
  67. In my judgment, therefore, the June letter offered a three-year contract for the supply of the specified percentages of the requirements of the named factories for onions and potatoes at the specified fixed prices, coupled with a one-year agreement in relation to the supply of swedes. Moreover, the offer was one which was, in my judgment, capable of acceptance by Focal so as to create an enforceable contract according to its terms.
  68. I turn, then, to the question whether the offer was accepted by Focal. Northern alleges that it was accepted by Focal by conduct in fulfilling Northern’s orders for sliced onions at the specified fixed price of 35p per kilo during period from June 1997 until March 1998. As indicated earlier, Mr Lawrence submits that relevant to the question of acceptance is the issue as to percentages to which I have referred. However, that issue cannot in my judgment affect the acceptance of the offer by Focal by placing orders with Northern at the stipulated fixed price.
  69. In my judgment, therefore, the offer contained in the June letter was effectively accepted by Focal by its conduct in thereafter trading in onions on the terms of the offer contained in the June letter, with the consequence that an enforceable contract was created in those terms. I would accordingly hold that preliminary issue 1 (Was there contract?) should be answered in the affirmative.
  70. As to preliminary issue 2 (If so, what were its terms?), an issue may arise as to whether or not, on its true construction, the contract includes not only sliced onions but also ringed onions. This was an issue ventilated before the judge, albeit in a different context, in that, as I pointed out earlier, the focus of the arguments before the judge was on volumes rather than on percentages. In the circumstances it seems to me that Mr Lawrence’s suggestion ought to be accepted and that this matter should be remitted to the judge so he can review his decision in relation to ringed onions in the light of the conclusions which I have reached as to the existence and the terms of an enforceable contract.
  71. As to preliminary issue 3, it follows from the conclusion which I have reached that Focal was in breach of the contract in refusing to continue to supply the factories with sliced onions at the stipulated price. Obviously there are further matters to be determined in relation to damages which will have to be the subject of a further hearing or hearings before the judge.
  72. I would accordingly allow this appeal and remit the matter to the judge to give directions to as to the further prosecution of the action.
  73. LORD JUSTICE LATHAM: I agree.
  74. LORD PHILLIPS, MR: It is clear on the evidence that both Focal and Northern Food set out to perform Northern Food’s purchase offer made in Mr Hathaway’s letter of 10 June 1997 in so far as this related to onions. Focal thereby accepted the terms of that offer, provided always that those terms were sufficiently certain to be capable of acceptance so as to give rise to a binding contract.
  75. The central issue is simply whether the terms were sufficiently certain to give rise to a contract and, if so, what the effect of those terms was. Evidence of the manner in which each party understood the terms and acted pursuant to them is not relevant to the construction of the letter of 10 June 1997. Had such evidence been admissible, it would have been of little assistance. It shows certainty on the part of both parties that there was a contract, but no mutual agreement as to the contractual quantities.
  76. My Lord, Lord Justice Jonathan Parker, has set out his conclusions as to the meaning and effect of the letter of 10 June; I share those conclusions. For that reason, I agree that the appeal should be allowed and this matter hereafter dealt with as he proposes. Order: Appeal allowed with costs of appeal. Appellants to recover 80 per cent of costs below. Matter to be remitted to the judge for further directions. Costs paid in relation to the proceedings below should be repaid. £5,000 in relation to the costs of the appeal to be paid on account within 14 days, such costs to be assessed if not agreed. 

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