In KSY Juice Blends UK Ltd v Citrosuco GmbH the Court of Appeal in England allowed an appeal against a decision of the High Court that part of a contract was unenforceable as the parties had failed to agree on a price for the goods to be sold.
The Court of Appeal found that the contract was enforceable in its entirety, noting that, in the absence of an agreement, a reasonable or market price could be implied.
Background
In 2018 KSY Juice Blends UK Ltd (KSY) and Citrosuco GmbH (Citrosuco) entered into a contract under which KSY agreed to supply 1,200 metric tonnes of water-extracted soluble orange solids (orange juice pulp wash known as WESOS) to Citrosuco each year from 2019 to 2021. A price was fixed for the first 400 metric tonnes of WESOS to be supplied each year, with the price for the remaining 800 metric tonnes left to be agreed in the December prior to the relevant delivery year.
In 2019 Citrosuco accepted delivery of, and paid for, the first 400 metric tonnes of WESOS. However, Citrosuco refused to accept delivery of any further quantities of WESOS as its need for the product reduced. Following Citrosuco's refusal to accept further quantities of WESOS, KSY terminated the contract for breach and raised a claim for damages against Citrosuco. Citrosuco defended this claim arguing that the contract was unenforceable in respect of any quantities in excess of 400 metric tonnes each year as the parties had failed to agree a price in the contract for such quantities.
In 2024 the High Court dismissed the claim against Citrosuco. In its decision, the High Court held that in the absence of an agreed price for quantities in excess of 400 metric tonnes, the remaining element of the contract was unenforceable as it constituted nothing more than an "agreement to agree". KSY appealed the decision to the Court of Appeal.
Outcome of the appeal
The Court of Appeal upheld the appeal from KSY and overturned the decision of the High Court.
It held that, in the absence of an agreed price, the court could imply a reasonable or market price into the contract in accordance with Section 8(2) of the Sale of Goods Act 1979.
The Court of Appeal relied on several key factors:
Express wording of the contract. The contract entered into between KSY and Citrosuco did not explicitly state that the price for the 800 metric tonnes of WESOS was left to be agreed between the parties. Instead, the contract stared that the price was "to be fixed" by December in each year. While it was implied that the parties would first seek to agree a price, this wording did not expressly preclude a reasonable or market price being implied in the absence of an agreement.
Intention to be bound. It was clear both from the wording of the contract and the conduct of the parties that they intended to reach a binding agreement in respect of the full quantity of WESOS.
Familiarity with the subject matter. Both parties were familiar with the subject matter of the contract. It was common ground that the relevant market was volatile, and this volatility provided a clear incentive for the parties to leave some flexibility in the contract in respect of long-term pricing. The parties had a track record of operating contracts with similar levels of flexibility previously and of reaching agreements on prices that were otherwise left open.
Agreement on other provisions. The contract contained detailed provisions covering most elements necessary for the operation of a long-term agreement. The contract was clear on the duration of the agreement, the minimum volumes of WESOS to be supplied, along with the practical requirements for delivery and payment.
Ability to ascertain a reasonable or market price. It was acknowledged that there was no sufficiently transparent market for WESOS from which a reasonable price could be inferred. However, the price of WESOS generally tracked the price of frozen concentrated orange juice. As there was a functioning and sufficiently transparent market for frozen concentrated orange juice, and WESOS traded at around 70% of the price of frozen concentrated orange juice, it was possible to determine an objectively reasonable price for WESOS.
On the basis of the points noted above, the Court held that this contract fell firmly within the realm of contracts that they should strive to uphold. In the absence of an agreement, the Court held that a term should be implied into the contract stating that the price for the remaining yearly 800 metric tonnes of WESOS would be a reasonable or market price.
Key takeaways for suppliers
Suppliers may welcome this decision, as it acknowledges that it is possible to maintain a degree of flexibility in pricing mechanisms. However, suppliers should be cautious not to rely too heavily on this decision.
The Court's decision was heavily fact specific and leaves open a number of questions about the degree of certainty that will be required to imply a term into a contract and how market prices should be determined. Where possible, it will always be preferable to include clear mechanisms for determining the price under a contract, rather than relying on the future agreement of parties.
If this article raises any questions for you, please get in touch with our Trade and Commerce team or your usual Shepherd and Wedderburn contact.