The English Court of Appeal’s judgment in KSY Juice Blends UK Ltd v. Citrosuco GmbH[1] provides helpful guidance on the enforceability of long-term supply contracts where the price for part of the goods is left open to be agreed in the future. The judgment is particularly notable for its analysis of when a court will imply a term for a reasonable or market price, and its willingness to uphold commercial bargains in the face of contractual uncertainty.
Background
The dispute arose from a 2018 contract under which KSY agreed to supply Citrosuco with “Wesos” (water-extracted soluble orange solids, a byproduct of orange juice production) over three years. The contract specified a fixed price for part of the annual quantity to be delivered (approximately 400 metric tons), but left the price for the remaining tonnage (approximately 800 metric tons) open to be fixed by the parties each year.
Citrosuco took delivery of the fixed quantity in 2019, but as market conditions changed, it declined to take further deliveries. KSY terminated the contract for repudiatory breach and claimed damages. Citrosuco argued the contract was unenforceable in respect of the remaining tonnage, contending it was a mere “agreement to agree” on price
At first instance, the High Court held that the contract was unenforceable in respect of the 800 metric tons per year. The parties had not agreed on a mechanism by which to determine the price, and it was not possible to imply a term as to reasonable price because that “supposes the court can determine what is reasonable”, which the judge considered it could not. Accordingly, that part of the contract failed for uncertainty.
The Court of Appeal’s judgment
The Court of Appeal allowed KSY’s appeal, holding that a term for a reasonable or market price should be implied for the 800 metric tons per year.
The court emphasised that the starting point was the fact that the parties clearly intended to enter into a binding long-term agreement for the full quantity of Wesos, as evidenced by the contract’s structure, fixed term and prior course of dealing. The court reiterated the principle that, particularly in commercial contracts between experienced parties, the courts will strive to uphold bargains and imply terms where necessary to give business efficacy, provided there is an objective basis for doing so.
Section 8(2) of the Sale of Goods Act 1979 provides that where a price is not determined by the contract, “the buyer must pay a reasonable price”. Citrosuco had argued that this could not be applied to the contract in this case because the contract specified that the price was “to be fixed” – the presence of this (unenforceable) agreement to agree mechanism precluded the implication of a reasonable price term. The Court of Appeal rejected this, asserting that such a clause does not preclude the implication of a term that in the absence of reaching agreement the price would be a reasonable or market price.
The Court of Appeal acknowledged that the strongest potential obstacle in the way of upholding the agreement was the difficulty of ascertaining a reasonable or market price. If the parties knew (or ought reasonably to have been aware) that there was no readily available objective standard by which the price could be ascertained, then they must have intended that they were free to negotiate by reference to their own commercial interests. If so, a court would be ill-equipped to identify a “reasonable” price. Despite the absence of a transparent Wesos market, the Court of Appeal concluded that the price of Wesos was generally accepted to track the price of frozen concentrated orange juice (at about 70% of its price). This provided a sufficiently objective standard for determining a reasonable or market price.
Takeaways
A degree of flexibility is often required in long-term contracts, and this judgment provides welcome reassurance that English courts will take a pragmatic approach to upholding commercial contracts where some terms are left to be agreed. However, contract drafters shouldn’t get too comfortable – this judgment is specific to the term in question (i.e., price), the contract, the relationship between the parties and the rest of the factual matrix. Instead of relying on the courts’ desire to uphold contracts, it is always better to specify how any future failure by the parties to agree on an open contract term will be determined, whether that is by reference to an industry standard or dispute resolution mechanism.
[1] [2025] EWCA Civ 760.
Contributors
Alex Radcliffe