Contractual terms under the spotlight: Court of Appeal considers implied terms about price

This update covers a recent case which consider the nature of express and implied contractual terms. In KSY Juice Blends v Citrosuco, the court found that a contract which appeared to be ambiguous on pricing terms, was nevertheless fixed by reference to the reasonable or market price. 

What were the facts?
The case concerned a contract for the sale for orange pulp. The parties had a multi-year deal for the sale of pulp which was split into various instalments each year. The price for the first instalment was expressly fixed in the contract; the remainder was stated to be open to be fixed at a later date.

The market price for pulp dropped and Citrosuco, the buyer, refused to take delivery of the later instalments arguing that the relevant pricing term was unenforceable because it was an ‘agreement to agree’.  The judge at first instance agreed with the buyer. However, the decision was subsequently unanimously overturned by the Court of Appeal. The Court of Appeal found that the relevant term was enforceable by reference to an implied term, which was that the parties had agreed to fix the price for the later instalments by reference to a reasonable or market price.
The decision is interesting because there has been a long-established principle that parties to a contract for the supply of goods, do not agree to be bound until they've agreed to be bound on price. Is this an example (as some of the legal commentary on this case has suggested) of the court implying a price into a contract which was otherwise incomplete? We don’t think that is what the court did. Ultimately, it found that the parties intended to enter into an agreement that was binding across all the instalments and therefore this contract was firmly in the territory of those which the court will strive to uphold. 

The starting point for the court was whether the parties had evidenced an intention to reach a binding contract for the full quantity and this was supported by various aspects of the contract:​

• the Term which was fixed to 31 December 2021;​
• the agreement to invoice for the full amount, subject to some adjustment;
• the amount to be supplied was ‘fixed’ at 3600 MT, split into 1200MT per year; and​
• other mechanisms in the contract for deciding delivery, quality, timing of delivery and form of payment.​

​It was common ground that the market was generally volatile, so there was an incentive for the parties to leave some flexibility in the pricing, particularly as they were entering into a multi-year contract. The judge found that the difficulties were not such as to preclude him from finding that the parties had intended to conclude a binding contract on the basis that the price would be fixed by reference to an objectively reasonable price, if necessary by a court, in the absence of agreement.

The buyer has been given permission to appeal the decision to the Supreme Court, and we will provide an update once that is decided. In the meantime, if you are agreeing complicated commercial terms that leave pricing mechanisms flexible, then it is prudent to include within your contract some sort of objective way to discern what the price should be in those circumstances.  

English contract law is at the heart of much of the work that lawyers in our London office do. To ensure we keep up to date with developments, we continuously monitor new contract cases and identify any that we think will be relevant to our commercial and disputes lawyers. For more information on this, or any other recent decision, please contact Esther Johnson or your usual Bird & Bird contact.