LIDL UK GmbH v Hertford Foods Ltd & Anr

Where commercial parties know that each seeks to contract on its own inconsistent standard terms, a contract may be concluded on the basis that neither set applies if no agreement is reached on the competing terms. The court determines incorporation objectively, by reference to communications and relevant background knowledge.

A buyer may set off damages actually incurred through non-delivery against sums due, but cannot withhold further payment as security for possible future losses. A party’s insistence on a mistaken contractual interpretation is not repudiatory where its conduct, objectively assessed, shows an intention to perform rather than abandon the contract.

Hertford Foods supplied corned beef to Lidl under a December 1996 agreement. Deliveries ceased in April 1997 because of disruption to shipping from Brazil. Lidl purchased replacement stock, sought to set off the additional cost, and withheld payment. Hertford relied on its standard conditions, purported to cancel the contract for non-payment, and sued for the invoiced price.

Mr Justice Moore-Bick held that Hertford’s standard conditions governed, excused the non-delivery, and entitled Hertford to terminate. Lidl appealed. The central issues were which terms governed, whether Hertford was in breach, the extent of Lidl’s set-off rights, and whether either party had repudiated the contract.

1. Appeal allowed. The order below was set aside. Hertford’s standard conditions were not incorporated into the December 1996 contract, and Lidl’s standard conditions were not incorporated either.
2. In a battle of forms, incorporation depends on what was communicated objectively, assessed against the parties’ common background knowledge. Both negotiators knew, or were to be taken to know, that each business sought to contract on standard terms containing an overriding provision. Since the terms were mutually inconsistent and no agreement was reached on which set applied, the contract consisted of the expressly agreed terms and terms implied by law.
3. The contract required deliveries to be spread broadly evenly over March to June 1997. Hertford was already in breach by 25 April and remained in breach thereafter. Without its contractual force majeure clause, Hertford was liable for damages for non-delivery.
4. Under section 53(1)(a) of the Sale of Goods Act 1979, Lidl could set off the additional costs actually incurred in buying replacement stock against sums due to Hertford. It could not withhold the balance of the invoice, or later invoices, against possible future costs.
5. Failure to pay on the due date was not repudiatory in the absence of an applicable contractual term, under section 10(1) of the Sale of Goods Act 1979. Although insisting on a new mode of performance may be repudiatory, an honest and mistaken insistence that an existing term applies is not enough where the conduct objectively manifests an intention to continue performing. Lidl’s correspondence showed an intention to continue the contract, not to abandon it. Hertford was therefore not entitled to terminate on 28 May 1997.
6. The sum due on Lidl’s counterclaim, £135,319.46, was to be set against Hertford’s claim of £156,087, with judgment for the balance and interest.

• Court of Appeal (Civil Division): Appeal from the order of Mr Justice Moore-Bick. The order was set aside and the parties’ respective claims were adjusted by set-off.