In KSY Juice Blends UK Limited v Citrosuco GMBH the Court of Appeal held that contractual wording around the supply of orange pulp at an “open price to be fixed” was not an unenforceable agreement to agree.
Instead, the court found that the contract envisaged the parties seeking to fix the price by agreement and in the absence of reaching agreement the price would be a reasonable or market price.
Background
In May 2018, KSY Juice Blends UK Ltd entered into a three-year contract with Citrosuco GmbH for the supply of orange juice pulp wash (also referred to as water extracted soluble orange solids/Wesos) starting from 1 January 2019. The contract specified a fixed price for part of the annual agreed quantity of Wesos (400 metric tonnes), but left the price for the remaining quantity of Wesos (800metric tonnes) to be determined later. Citrosuco accepted and paid for 400 metric tonnes of Wesos in 2019 but refused further deliveries. In September 2020, KSY terminated the contract, alleging repudiatory breach.
The High Court previously rejected an implied term as to reasonable price, because that “supposes that the court can determine what is reasonable”, and that depended on the circumstances.
Ruling
The Court of Appeal has now overruled the High Court’s judgment. Some key points to note from the judgment are as follows.
- Whilst section 8(2) of the Sale of Good Act implies a “reasonable price” where the price is not determined by the parties, this had no application here as the contract itself contained provisions for how the price was to be fixed (namely by further agreement of the parties).
- Case law concerning the principle that an “agreement to agree” is unenforceable was explored by the Court of Appeal. The Court of Appeal considered that this did not establish this as a universal principle of construction and the task of the courts is to find the “true construction” of the particular provisions.
The Court of Appeal found that the contract implicitly envisaged that – at least in the first instance – the parties would seek to fix the price by agreement but that this did not preclude the implication of a term that in the absence of reaching agreement the price would be a reasonable or market price. This conclusion was reached on the basis of factors such as:
- the parties were currently fixing price by agreement, pursuant to a previous contract made in 2017;
- such interpretation was consistent with other references in the contract to a promotional pricing mechanism called "free trucks" (used to adjust the contracted price in response to market price fluctuation by offering free product) being offered according to the agreed volume and price of each year;
- the market was generally volatile, which the Court found provided an obvious incentive for the parties to leave some flexibility as to pricing in a long-term contract;
- certainty as to other terms - matters concerning delivery methods, quality of the product and timing of delivery and payment were agreed for all products to be supplied under the contract and the contract did not contemplate any renegotiation of any other part of the agreement (e.g. renegotiating the overall volume to be supplied/purchased on the basis of that party’s changing requirements);
- the additional variables in relation to price that the High Court had found created an obstacle to implying a reasonable market price could, in fact, be objectively determined on the basis of a standard of reasonableness.
Ultimately, the court found the parties intended the agreement to be binding and that it was “firmly in the territory of those contracts which a court will strive to uphold”. The court did not consider that it should not uphold such a bargain “simply because on any view there is a binding agreement as to part of the subject matter”.
This case cautions us that an agreement to fix the price at a later point of time may be binding leaving parties to agree the price or implying a reasonable price into the contract – an outcome that may not be desirable for all. In the interests of certainty, it is always preferable to make the price of products or services to be supplied pursuant to a contract as clear as possible within the contract or where not possible, to specify a clear mechanism for determining the price.
Angelica Lovell