Court of Appeal upholds long-term supply contract despite open pricing clause

Summary

The Court of Appeal has upheld a long-term supply contract despite the fact the price was not fully agreed. It found that there was an implied term that, in the absence of agreement, the price would be a “reasonable” or “market” price (KSY Juice Blends UK Limited v Citrosuco GmbH [2025] EWCA Civ 760). 

The decision is a reminder that the courts will strive to uphold commercial bargains, especially where there is a clear intention that the agreement should be binding. It will be of particular interest to parties negotiating long-term supply agreements in volatile markets, and to those relying on market-customary mechanisms to adjust pricing in response to market conditions.

Background

In May 2018, KSY Juice Blends (KSY) agreed to supply Citrosuco with orange juice pulp wash, which is a by-product in the production of orange juice typically used as a natural orange-flavour base in other products, over three years. These orange solids are known as “Wesos”.

Wesos are a by-product of orange juice production, created by extracting soluble solids from orange pulp. While not itself orange juice, Wesos are used as a base for orange-flavoured drinks and have a shelf life of 12 months. The market for Wesos is closely linked to the market for frozen concentrated orange juice (FCOJ), which is dominated by Brazilian producers including Citrosuco.

The contract provided for the supply of 1,200 metric tonnes (MT) of Wesos per year, split into 400MT at a fixed price and 800MT at an “open price to be fixed latest by December of the previous year”. 

The contract also included a mechanism called “free trucks” which, broadly speaking, adjusted the contract price in accordance with market fluctuations by providing free product on top of the agreed amount (reducing the price per MT). As a result of the “free trucks” method, the adjusted amount to be sup

plied each year was agreed to be 1,274 MT at a minimum. There was uncertainty regarding additional free trucks amounts above this quantity.

By late 2018, Citrosuco began to need less Wesos and “it became apparent that the contract had become a bad bargain”. As such, there was no agreement on price for the “open price” portion of the Wesos supply for any of the three years. Citrosuco took delivery of and paid for 400 MT of Wesos in 2019. In 2020, KSY delivered 126 MT of Wesos, but Citrosuco only paid for 84 MT. KSY terminated the contract in September 2020 alleging that Citrosuco was in repudiatory breach.

High Court decision

His Honour Judge Pearce, sitting as a judge of the High Court, dismissed the bulk of KSY’s claim, holding that the contract was unenforceable in respect of the 800MT tranche. Applying the principle from May & Butcher Ltd v The King [1934] 2 KB 17, the judge found that the absence of an agreed price in respect of the tranches of 800MT rendered that part of the contract a mere “agreement to agree”, and therefore unenforceable.

The judge rejected KSY’s argument that a term should be implied requiring payment of a reasonable or market price, finding that that “supposes that the court can determine what is reasonable”, which depended on the circumstances and the variability of factors affecting its price, including packing, transport, and exchange rates. He also declined to imply a term requiring the parties to use reasonable endeavours to agree the price, finding such a term too uncertain.

KSY appealed on the grounds that the judge failed to find that there was an implied term (by section 8(2) of the Sale of Goods Act 1979 or otherwise) that the parties agreed that a reasonable, or a market, price was to be paid in relation to the 800 MT per year. KSY also argued that the trial judge erred in finding that such terms would be too uncertain to be enforceable or inconsistent with the contract.

Court of Appeal decision

Lord Justice Zacaroli, giving the leading judgment, allowed the appeal, holding that the contract was enforceable in full and that a term should be implied at common law requiring the price of the 800MT tranche to be a reasonable or market price.

The Court noted that the contract did not explicitly state that the price was to be agreed, but merely that it was “open” and “to be fixed”. While this implied that the parties would seek agreement, it did not preclude the implication of a fallback mechanism in the absence of agreement.

The Court emphasised that the parties had intended to enter into a binding agreement for the full quantity of Wesos. The contract specified a fixed term, a total quantity of 3,600MT, and an invoicing price of €1,600/MT, subject only to adjustments. These features, along with the parties’ prior dealings and the detailed provisions on delivery and quality, supported the implication of a term to preserve the bargain. The court also observed that the parties were familiar with the subject matter of the contract, and had previously contracted for the supply of the same product. In these circumstances, the court held that the contract was “firmly in the territory of those contracts which a court will strive to uphold”.

The Court found that, although there was no transparent market for Wesos, its price tracked that of FCOJ, for which there was a functioning market. Expert evidence established that Wesos typically traded at around 70% of the FCOJ price. This provided a sufficiently objective benchmark for determining a reasonable price.

“In my judgment, the difficulties are not such as to preclude the parties having intended to conclude a binding contract on the basis that the price would be fixed by reference to an objectively reasonable price, if necessary by a court, in the absence of agreement.”

The Court rejected Citrosuco’s argument that section 8(2) of the Sale of Goods Act 1979 precluded the implication of a term at common law. It held that that section was designed to save contracts from unenforceability and did not prevent the court from implying a term where appropriate.