Key takeaways
Unclear pricing terms may affect enforceability
Courts may reject contracts lacking clear price.
Implied terms won’t fix vague agreements
Judges won’t rewrite deals left open-ended.
Precision protects against lost claims
Define key terms to avoid missed damages.
KSY Juice Blends UK Ltd -v- Citrosuco GmbH [2024] EWHC 2098 (Comm)
It is trite law that the absence of agreement on essential terms may prevent a contract from coming into existence on the ground of uncertainty.
However, where a contract has come into existence, the use of words such as “to be agreed” in respect of future executory obligations is not necessarily fatal to the contract’s continued existence. All will depend on the facts and on the construction of the words that the parties have used in their purported agreement.
In this case, the Court found that the parties’ failure to agree the price of additional product to be supplied under a sale contract meant that there was only an unenforceable agreement to agree in respect of the sale of the additional quantities.
The background facts
This was a contract concluded in 2018 for the sale of a product known as orange pulp wash or wesos.
The price of the wesos supplied under the contract was calculated according to “Brix” and adjustable according to “Brix value”. Brix is a measure of the amount of dissolved solids in a liquid via its specific gravity. The “Brix unit” is commonly used in the orange juice business as a means of pricing.
The contract provided for the sale of a fixed quantity of 1,200 MT per year for the years 2019 to 2021. Among other things, it stated:
“3. Price
Invoicing price is 1.600euro/mt for 60 brix
Price adjustable according to Brix value +- 5 Brix
Free trucks will be offered from the seller according to the agreed volume & price of each year.
Calculation basis for the 1.200mt fixed is 1.350 euro/mt which corresponds to the 400mt/year 2019-2020-2021
…
5. Delivery period:
1.200MT per each year
Deliveries to start January to December with the following split:
400mt fixed at 1.350euro/mt - invoicing price is 1600euro/mt
Difference of price in free trucks
800mt at open price to be fixed latest by December of the previous year
Difference of price in free trucks”
The free truck method was a pricing mechanism used to adjust the contract price in line with market fluctuations. It involved providing free product on top of the contractual quantity, thus aligning the price of the goods with existing market conditions.
The parties fell out, with each accusing the other of repudiatory breach of contract leading to termination.
Among the issues considered by the Court was the following: insofar as the contract did not specify the price for wesos beyond 400 MT per year, was the contract for sale of wesos beyond 400 MT per year enforceable or unenforceable as a mere agreement to agree?
The law
Section 8(1) of the Sale of Goods Act (SGA) 1979 provides that:
“The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties.”
If the contract is silent on the price, the buyer is obliged to pay a reasonable price - see section 8(2) of the SGA 1979.
A more difficult situation arises where the contract leaves the price to be determined at a later stage. On the authorities, price is an essential term of a sale contract and where it is yet to be agreed by the parties, there is no contract until such time as there is an agreement on the price.
As to determining whether there is only an unenforceable agreement to agree, each case has to be decided on its own facts and on the construction of the agreement in question. However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that there is a binding contract, the courts are willing (albeit, not readily so) to imply terms, where that is possible, to allow the contract to be carried out.
Furthermore, particularly in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so where necessary, in order to preserve rather than destroy bargains.
However, the Court cannot imply a term which is inconsistent with what the parties have actually agreed. So, if on the true construction of the words that they have used, the Court concludes that they intended that the matter should be left to their future agreement, then there is no place for an implied term.
The Commercial Court decision
The Court agreed with the seller that the parties had agreed to deal in 1,200 MT of wesos per year, dismissing the buyer’s argument that this quantity was only a “target”. The contract evinced an intention to deal in the full quantity of 3,600 MT of product over three years.
However, the express terms of the contract provided no support for there being an agreed price of €1,600/MT Euros for the full quantity. The reference to “open” price clearly contrasted with the “fixed” price for the first 400 MT. There was no basis for concluding that “open” meant anything other than a price to be fixed by agreement between the parties by the mechanism set out in the contract, namely the parties agreeing the price by the latest in the December of the year preceding delivery.
The Court dismissed the argument that the invoicing price represented a fallback provision where the parties could not agree on a price. This reflected neither what the parties intended, nor the natural meaning of the language used. The terms of the contract set up a mechanism by which there was an adjustment between the invoice price and the actual price. That was clear from the terms for the price of the first 400MT. If the parties had intended the “invoicing price” to be anything other than the price on the invoice, there would have been no reason to set the price at €1,600/MT when the agreed price for the first 400 MT per year was €1,350/MT. The very fact of setting an agreed price for that quantity but a different invoicing price meant that the invoicing price was not intended to be the true price for the goods.
Additionally, the free trucks mechanism was central to the price. The contract could not, therefore, be treated as a contract for the sale of the wesos at the fixed price of €1,600/MT. The Court noted too that to construe the fixed price as a fallback provision if no other price could be agreed meant that the seller would have no incentive to negotiate on price. This would deny business efficacy to the agreement.
The Court declined to imply a term as to the price being a reasonable price or the market price. Where the contractual terms expressly included a mechanism for determining the price; namely, the agreement of the parties, such a term would not be implied under the SGA 1979. In any event, both terms (reasonable or market price) lacked precision. Additionally, a term that the parties would use reasonable endeavours to agree a price was too uncertain to be implied.
Therefore, the claim for the price of 800 MT of wesos per year could not succeed.
Comment
This dispute is a salutary reminder that parties should ensure that all essential terms of a contract are agreed, and that any significant issues that remain outstanding are dealt with in a timely manner.
In this case, the Court stated that had there been a contract in existence, the buyer would have been in repudiatory breach. As things stood, however, the seller could not claim the damages to which it might otherwise have been entitled.
