Northern Foods Limited v Focal Foods Limited

A contractual document must be construed objectively in its commercial context. A purported framework arrangement is not an enforceable contract if it imposes no obligations on either party. Where a supply offer specifies percentages of a buyer’s requirements, approximate tonnages may guide the quantities without qualifying the percentage obligation. The court may imply a term requiring the buyer, so far as practicable, to maintain the specified percentage of orders throughout the relevant period. An offer may be accepted by conduct, including performance on its stated terms. A supplier that refuses to continue supplying at the stipulated price is in breach.

Northern Foods claimed damages for Focal Foods’ alleged repudiatory breach of an agreement concerning the supply of onions and other vegetables. Following a trial of preliminary issues, the judge held that the parties had entered only a framework contract, imposing no obligations as to quantities, and dismissed both the claim and counterclaim.

Northern appealed, contending that the June 1997 letter offered a three-year contract requiring specified percentages of onion requirements to be supplied at fixed prices. Focal supported the judge’s conclusion and argued that the arrangement was too uncertain to be enforceable. The central issues were whether the letter constituted an offer capable of acceptance, the meaning of its volume provisions, and whether Focal accepted and breached the resulting contract.

1. Appeal allowed. Lord Justice Jonathan Parker delivered the leading judgment. Lord Justice Latham and the Master of the Rolls, Lord Phillips, agreed.
2. The judge’s so-called framework contract imposed no obligations on either party and was therefore, in substance, no contract at all. The June letter had to be construed objectively and in its commercial context. The parties’ aim was to establish a long-term fixed-price arrangement.
3. The reference to a contract term of one year did not govern onions and potatoes. The express reference to a three-year contract, with prices for years one, two and three, established a three-year duration for those commodities.
4. The word “values” referred to quantities represented by the stated percentages, namely the approximate annual tonnages. It did not qualify the percentage figures. The letter imposed an express obligation on Northern to order the specified percentages of its requirements annually. A term was implied requiring Northern, so far as practicable, to maintain that percentage of orders continuously throughout the year, since otherwise it could choose when to order according to the spot price.
5. The letter therefore constituted an offer of a three-year contract for the specified percentages of onion and potato requirements at fixed prices, together with a one-year agreement for swedes. It was sufficiently certain to be enforceable. Focal accepted the offer by trading in onions on its terms, including supplying sliced onions at the fixed price.
6. Focal was consequently in breach by refusing to continue supplying sliced onions at that price. The question whether ringed onions were included was remitted to the trial judge for reconsideration. Further issues concerning damages were also remitted for directions.
7. Lord Phillips additionally confirmed that the parties’ subjective understandings were irrelevant to construction; their conduct showed acceptance but not agreement as to quantities. The order was appeal allowed with costs, with the matter remitted for further directions.

• Court of Appeal (Civil Division): Appeal from an order of His Honour Judge McGonigal in the Leeds Mercantile Court dated 6 July 2000. The appeal was allowed, with the matter remitted for further directions.
• Leeds Mercantile Court: The judge dismissed Northern’s claim and Focal’s counterclaim after determining preliminary issues concerning contract formation, terms and breach.