Court of Appeal clarifies pricing in long-term sale contracts: lessons from KSY Juice Blends v Citrosuco
In a significant decision for commercial contracting, the Court of Appeal has clarified when a term as to price can be implied into a sale of goods contract. The ruling in KSY Juice Blends UK Ltd v Citrosuco GmbH provides reassurance that courts will strive to uphold commercial bargains, even where some terms are left open.
Background
The dispute arose from a 2018 contract between KSY and Citrosuco for the sale of orange pulp wash (also known as ‘wesos’). The contract provided for the supply of 1,200MT per year from 2019 to 2021. Of this, 400MT per year was priced according to a fixed formula based on “Brix” value, while the remaining 800MT was to be priced “at open price to be fixed” by a specified date.
This pricing flexibility reflected market volatility and mirrored the structure of two earlier contracts between the parties, which had been successfully performed after agreeing prices for the additional quantities.
However, by late 2018, the buyer’s demand had declined, and it failed to take delivery of the full contractual quantities. The seller terminated the contract for repudiatory breach. The buyer argued that the contract was unenforceable regarding the 800MT per year, as no price had been agreed, rendering it a mere “agreement to agree”.
Commercial Court decision
At first instance, the Commercial Court sided with the buyer. It held that the absence of an agreed price for the additional 800MT meant there was no binding contract for that portion. The court declined to imply a term that the price should be reasonable or reflect the market rate, citing uncertainty in determining such a price.
Court of Appeal ruling
The Court of Appeal overturned that decision. It held that a term could be implied that the price for the additional product would be a reasonable or market price. Key to the Court’s reasoning:
- The contract demonstrated a clear intention to be bound for the full 1,200MT per year.
- The parties were experienced in the trade and had a history of similar contracts.
- The pricing mechanism was deliberately flexible to accommodate market volatility.
- There was an established method for determining market price (70% of the price of frozen concentrated orange juice).
- Section 8(2) of the Sale of Goods Act 1979 supported the implication of a reasonable price where none is fixed.
The Court concluded that the contract was sufficiently certain and commercially workable, and that implying a term was necessary to give business efficacy to the agreement.
Key takeaways
This decision offers several practical lessons:
- Implied terms can rescue incomplete agreements
Courts may imply a term as to reasonable price under s.8(2) SGA 1979, even where the parties intended to agree a price later but failed to do so. - Commercial context matters
Prior dealings, industry norms, and the parties’ conduct can all support the implication of terms to uphold a contract. - Flexibility must be carefully drafted
If pricing is to be left open, consider including fallback mechanisms (e.g. market benchmarks or expert determination) to reduce uncertainty. - Pre-contractual advice is crucial
Legal input at the drafting stage can help ensure that flexible pricing clauses are enforceable and commercially robust. - Courts aim to uphold commercial deals
Especially in long-term, high-value contracts between sophisticated parties, courts are reluctant to let agreements fail for lack of certainty.
