The Court of Appeal has handed down a judgment in which it considered whether a contract that left part of the price “to be fixed” in the future was enforceable or was merely an agreement to agree. Overturning the High Court, and touching on the circumstances in which courts will strive to uphold contracts, the Court of Appeal held that it was possible to imply a term that the price should be a reasonable or market price.

The case concerned a contract for the sale of ‘Wesos’. For the uninitiated, Wesos stands for ‘water extracted soluble orange solids’, a by-product of the production of orange juice which involves orange pulp being subjected to a water extraction process. In some countries, Wesos is reconstituted into a drink, but more often it is used as a base for orange-flavoured drinks. 

In May 2018, the parties – who had already entered similar agreements previously – entered into a contract under which the appellant, KSY Juice Blends UK Ltd (KSY), would supply a quantity of Wesos to the respondent, Citrosuco GMBH (Citrosuco) for three years.   

The terms for price were described by the Court of Appeal to be “somewhat opaque” but, in essence, the price for one third of the Wesos to be delivered each year was fixed, whilst the price for the remaining two thirds was “to be fixed latest by December of the previous year”. However, it transpired that no agreement was reached for the price of the remining two thirds of Wesos for any of the years of the contract.  

When Citrusuco’s need for Wesos waned, it took delivery of and paid for the first third at the fixed price, but declined to take delivery of any more. KSY subsequently terminated the contract alleging that Citrosuco was in repudiatory breach.

For its part, Citrosuco argued that the contract between the parties only covered the one third of Wesos which had a fixed price. As for the other two thirds, the absence of a price meant that there was no contract but merely an unenforceable agreement to agree.

At the High Court, KSY argued that there was an implied term that the price for the remaining two thirds of Wesos would be a reasonable or market price, and pointed to how a reasonable market price could be ascertained by reference to a different product.  

HHJ Pearce rejected this argument, finding that an implied term as to reasonable price “supposes that the court can determine what is reasonable” which, in this case, was not possible. KSY offered an alternative argument that if the market price could not be readily ascertained, there was an implied obligation on the parties to use reasonable endeavours to agree the price. However, that too was rejected by HHJ Pearce because such a term was too uncertain.

KSY appealed, arguing that either on true construction of the contract, or by way of an implied term, the parties had agreed that a reasonable price was to be paid for the remaining two-thirds of the Wesos, or that they agreed to exercise reasonable endeavours to agree the price. 

The Court of Appeal began by considering what the contract said on its true construction about the two thirds of Wesos for which there was not a fixed price. It accepted Citrosuco’s argument that the contract implicitly envisaged the parties seeking to fix the price by agreement. However, as the Court explained, “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. No doubt the parties would have hoped that the price would be fixed by agreement, but the question is whether…the parties entered into a binding agreement not dependent on any future agreement for its validity or…the parties left a term to be agreed between them in the future on the basis that either will remain free to agree or disagree about that matter (and, I would add, by reference to their separate commercial interests)”. 

In determining whether to imply such a term, the Court took into account the fact that the parties intended to reach a binding agreement as to the full quantity of the Wesos, rather than just the one third that had a fixed price. Furthermore, it pointed out that the parties “had agreed, or at least provided a mechanism for deciding, most elements of their long-term agreement” and that “the contract does not contemplate any renegotiation of any other part of the agreement”. 

In such circumstances, the Court found that the case was “firmly in the territory of those contracts which a court will strive to uphold”. In doing so, it rejected the position in the lower court judgment that, since there was a binding contract as to one third of the contract volume, the court “need be less troubled by a finding that there was no agreement as to contractual price in circumstances where that finding would undermine part but not all of a bargain that the parties believed they had reached – to destroy rather than preserve only part of a bargain is better than destroying the bargain altogether.”   

However, a final hurdle remained to implying a term, namely determining a reasonable or market price of the Wesos: only if a reasonable price could be ascertained could one readily imply that the parties reasonably intended that the price would be set by reference to it. On this point, the Court was persuaded by evidence – accepted by the trial judge – that the price of Wesos reliably tracked the price of another product, and therefore this impediment to the finding of an implied term fell away. 

As such, the Court allowed the appeal and concluded that there was an implied term that, in the absence of the parties reaching agreement on price, it would be a reasonable or market price. It therefore did not need to consider the second ground of appeal that there was an implied term that the parties would use their reasonable endeavours to agree the price. 

To read the judgment in full, click here.