In the recent case of KSY Juice Blends UK Ltd v Citrosuco GmbH, the Court of Appeal confirmed that where a commercial contract includes open pricing terms, that contract will be enforceable if the parties had intended to be bound by that arrangement.
Background
In 2018, KSY agreed to supply Citrosuco with 1,200 metric tonnes (MT) of orange juice pulp wash each year, for three years. Whilst the contract provided that the first 400MT was to be supplied at a fixed price, the remaining 800MT was to be supplied at an “open price to be fixed”.
Whilst Citrosuco accepted and paid for the first 400MT in 2019, its demand for pulp wash had reduced and so it refused to accept any more. KSY subsequently terminated the contract and sued Citrousco for breach of contract.
Issue
Whilst there was no argument about there existing a binding contract for the first 400MT of pulp wash, since the price for this was fixed, it was argued that there was simply an “agreement to agree” in respect of the remaining 800MT since this price had not been agreed.
At first instance, the High Court ruled that whilst the contract for 400MT was enforceable, the “agreement to agree” the 800MT was not, as there was no certainty on price. The Judge also declined to imply a “reasonable price” into the contract using the Sale of Goods Act 1979 because there were too many variables and it was intended for this price to be agreed at a future date. KSY appealed this decision.
Appeal decision
The difficulty for KSY was that the payment mechanism for the 800MT of pulp wash was open-ended, without defined contract terms for how the price was to be fixed. KSY argued that this did not however prevent a price from being implied and that a reasonable or market price could be implied if an agreement on price could not be reached.
The Court of Appeal considered the fact that: (1) the parties had intended to reach an agreement regarding the price, (2) they were familiar with this type of trade and (3) they had a mechanism for agreeing most of the terms of their agreement. Given these factors, the Court of Appeal agreed with KSY’s arguments and upheld the contract in full, interpreting that an implied term provided that the price of the 800MT of pulp wash was to be set at a reasonable or market price, in absence of the parties agreeing a price.
Conclusion
This decision is a useful reminder that courts will strive to uphold commercial agreements between parties if the parties had intended to be bound by their terms.
Whilst this assists parties who seek to enter into long-term agreements with flexible pricing mechanisms, those mechanisms should be clear at the outset, to avoid matters being decided at a later date.
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