Agreements to agree: High Court finds pricing mechanism subject to agreement rendered sale of goods contract partially unenforceable

In a recent decision, the High Court held that part of a contract for the sale of goods was unenforceable due to the uncertainty of a term stipulating that the price for a portion of the contract volume was an "open price to be fixed": KSY Juice Blends UK Ltd v Citrosuco GMBH [2024] EWHC 2098 (Comm).

The court found that the terms of the contract only permitted the price for that portion to be fixed following agreement between the parties. No other express terms were capable of resolving the uncertainty, if the parties failed to agree, and there was no scope to imply a term for the purchaser to pay a reasonable or market price for the goods, or for the parties to use reasonable endeavours to agree a reasonable price. In the absence of agreement, the provision was merely an unenforceable agreement to agree.

The decision emphasises the need to ensure, through appropriate drafting, that there is a means of fixing a price for the entirety of the goods or services contracted for without relying on the later agreement of the parties. While parties may be attracted to the idea of retaining flexibility to agree a price in the future, the risk is that a failure to do so may mean the agreement is unenforceable in whole or in part unless the court can find some objective mechanism to apply in the absence of agreement.  

In general, where the court is satisfied that the parties intended to reach a binding agreement, it will strive to give effect to that agreement rather than allowing the parties' intentions to be undermined – including, where possible, by implying any terms necessary to give business efficacy. But in some circumstances the position may simply be too uncertain to allow the court to find there is a binding agreement. Interestingly, the present decision suggests the court may strive less hard where the result of failure is to undermine the intended bargain only in part, rather than in its entirety.

The decision is, however, subject to an appeal.

Background

In May 2018, the claimant ("KSY") contracted to supply to the defendant ("Citrosuco") water extracted soluble orange solids known as "wesos", which are a by-product in the manufacturing of orange juice and concentrate.

KSY was to deliver certain quantities of wesos to Citrosuco over the course of 2019, 2020 and 2021. In return, KSY was to receive payment from Citrosuco based on the mass (per metric tonne, or "mt") and quality (per "Brix" value) of the delivered wesos.

The contract relevantly provided:

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 …

In 2019 KSY delivered 400 metric tonnes of wesos, for which Citrosuco paid in accordance with the terms of the contract. However, Citrosuco declined to take delivery of a further 800 metric tonnes of wesos. In September 2020, KSY terminated the contract alleging that Citrosuco was in repudiatory breach of contract.

KSY commenced a claim against Citrosuco seeking payment of €4.8 million, based on the alleged contractual price of the undelivered 800 metric tonnes of wesos, or alternatively damages for breach of contract.

Decision

The High Court (HHJ Pearce sitting as a Judge of the High Court) dismissed the claim against Citrosuco.

The decision turned on whether, as a matter of construction, the failure of the contract to specify the price for wesos beyond 400 metric tonnes per year meant that the contract for the sale of wesos beyond that figure was unenforceable as a mere agreement to agree.

The judge accepted KSY's contention that, where a contract has come into existence, the court should seek to give effect to the bargain that the parties believe they have entered into. Here, the evidence was clear that both parties intended to deal in the full quantity of 1,200 metric tonnes of wesos per year for three years.

However, the court still had to determine whether a price had been agreed, either as a matter of contractual construction or through an implied term. The judge accepted the defendant's argument that, since there was clearly a binding contract as to part of the contract volume, the court did not need to strive so hard to find evidence of an agreement as to price for the remaining volume, given that a failure to do so would not destroy the parties' bargain overall. He commented:

"In my judgment, it must be correct that 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." 

KSY's primary argument was that the contract fixed a price of €1,350 for the first year, with a price for subsequent years to be agreed by December in the preceding year failing which the fallback price would be €1,600. The court rejected this argument, finding that the contract expressly distinguished between the price payable for the first 400 metric tonnes and the final 800 metric tonnes of wesos in each year. The first 400 metric tonnes were subject to a "fixed" price of €1,350. The pricing mechanism contained in clause 5 achieved this by applying a discount to the "invoicing price" of €1,600 through the delivery of "free trucks" of wesos until the price per metric tonne was, in effect, €1,350.

In contrast, the final 800 metric tonnes were expressly described as "at open price to be fixed latest by December of the previous year". The reference to the price being "open" was clearly distinguishable from the "fixed" portion of the contract. There was no basis to conclude that it meant anything other than a price to be agreed between the parties by the December of the year preceding delivery at the latest.

Further, KSY's submission that the "invoicing price" of €1,600 represented a fallback provision to be applied where the parties were unable to agree on a price did not reflect the parties' intentions or the natural meaning of the language used in the contract. The invoicing price of €1,600 could only have been intended to have been the price on the invoice. The fact that the parties set an agreed price for the first 400 metric tonnes (€1,350 per metric tonne), but a different price for the invoice, indicated that the invoicing price was not intended to be the true price of the wesos. Further, such a construction, in the circumstances, would have provided KSY with no incentive to negotiate on price. KSY would be entitled to €1,600 per metric tonne if no other figure was agreed. On the evidence, that was a very favourable price for KSY, which suggested that such a construction would deny business efficacy to the agreement.

The court also rejected KSY's alternative argument that there was an implied term that, in the absence of agreement between the parties, the price payable for the remaining 800 metric tonnes would be a reasonable price or the market price of the wesos. KSY relied in part on section 8(2) of the Sale of Goods Act 1979 which provides that, where the contract is silent, the buyer must pay a reasonable price. However, the court found that, as the contract contained a mechanism for fixing the price, namely the agreement of the parties, this provision was not engaged. Such terms also could not be implied at common law including because they lacked precision. What was reasonable inevitably depended on the circumstances in which the parties found themselves, and there were various difficulties in identifying a market price for the wesos.

KSY's further alternative argument, that the parties had an obligation to use reasonable endeavours to agree, suffered from a similar difficulty in that there was nothing to indicate that the price the parties should endeavour to agree was to be a reasonable price, and in any event (as the court had concluded) such a term was too uncertain to be implied.

There being no agreement between the parties as to the price for the final 800 metric tonnes of wesos, and in the absence of an implied term to assign a price, that part of the contract was held to be a mere agreement to agree, and was therefore unenforceable.

Note: The appeal in this case is due to be heard in mid-May 2025.