Agreements to agree: Price for goods “to be fixed” by agreement results in partially enforceable contract

KSY Juice Blends UK Ltd v Citrosuco GmbH [2024] EWHC 2098 (Comm)

The question

Where a contract for the sale of goods did not expressly specify the price for a portion of the goods, was the contract for the sale of those goods, or an element of it, enforceable or unenforceable as a mere agreement to agree?

The key takeaway

In a contract for the sale of goods, providing for the price for a portion of the goods to be fixed by agreement between the parties may be construed as an agreement to agree resulting in that part of the contract being held to be unenforceable.

The background

KSY Juice Blends UK Limited (KSY) is a Greek company which supplies juice products internationally. Citrosuco GMBH (Citrosuco) is a Brazilian company which produces 100% natural orange juice.

KSY entered into a contract with Citrosuco in 2018 to sell orange pulp wash or ‘wesos’, that is produced when manufacturing various types of fruit juice which has then been subject to a water extraction process. KSY delivered 400 Metric Tonnes (MT) of wesos to Citrosuco in 2019 which Citrosuco paid for. Citrosuco then declined to take delivery of a further 800 MT by not giving instructions for the delivery of the product. In 2020, KSY delivered 126 MT of wesos – Citrosuco paid for 84 MT but not 42 MT. In September 2020, by letter, KSY terminated the contract alleging that Citrosuco was in repudiatory breach of contract. Citrosuco’s case was that the letter from KSY constituted a repudiatory breach which it accepted on 26 October 2020.

The 2018 contract 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"

The contract terms contain two concepts key to calculating price. ‘Brix’ refers to the amount of dissolved solids in a liquid via its specific gravity. It is commonly used in this industry and fixes the price based on an assumption as to the Brix level with an adjustment to reflect the actual level. The concept of ‘free trucks’ is used to adjust the price in response to market price fluctuations by providing free product on top of the contracted volume to align the price of goods with current market conditions.

As the contract did not specify the price for wesos beyond 400 MT per year, the main issue was whether the contract for the sale of wesos beyond 400 MT per year was enforceable or rather unenforceable as a mere agreement to agree.

The decision

The court’s starting point in considering whether a contract for the sale of goods fixes the price of the contract was to consider the express terms of the contract. The facts of this case where the contract left the prices to be determined at a later time provided a more difficult scenario given that agreements to agree are not enforceable. The court would, however, determine the case on its facts, having regard to the construction of the contract, and if necessary, implying relevant terms to seek to give effect to the bargain that the parties believed they have entered into.

The contract showed the parties’ intention to deal in 1,200 MT of wesos per year for three-years. Use of the word ‘target’ was assessed as to whether it was an aim rather than an agreed figure. However, the court held that email correspondence between the parties indicated “the clearest intention” for a total of 3,600 MT to be bought and sold. In determining whether a price was agreed, the court engaged with the language of the contract alongside the parties’ intentions and noted that a failure to agree would not destroy the entire contract, but only limit it. It reasoned that destroying rather than preserving only part of a bargain is better than destroying the bargain altogether.

On the question of price for the wesos beyond the 400 MT per year, the court agreed with Citrosuco, finding that the contract did not expressly support an agreed price of €1,600/MT for numerous reasons. Firstly, the only way of construing “open price” was for it to mean a price to be fixed by agreement between the parties using the contractual mechanisms, which under the contract would mean the parties agreeing the price by the latest in the December of the year preceding delivery. Secondly, the “invoicing price” did not reflect a fallback provision in the event the parties could not agree a price. 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. Thirdly, the free trucks mechanism was central to the price rather than an optional process to be operated by KSY. The court also reasoned that there was no basis to imply terms to give the contract business efficacy or to oblige the parties to use reasonable endeavours to agree a reasonable or market price.

The contract for the balance of 800 MT of wesos per year was therefore simply an agreement to agree on the issue of price which was not enforceable.

The case is subject to an appeal.

Why is this important?

The case highlights that where a contract expressly states the price for an initial quantity of goods but allows the price for a portion of goods to remain to be fixed by agreement between the parties, that part of the contract may be held to be an unenforceable “agreement to agree”.

Any practical tips?

Ensure that essential terms such as price are set out expressly and precisely for all contract goods and services avoiding words suggesting that price is “to be fixed by agreement of the parties,” unless there’s a pricing mechanism elsewhere within the contract or enough information within the contract for price to be implied.

If there is a history of reliance, or a specific intention to rely on section 8 of the Sale of Goods Act 1979 in relation to contract price, ensure that there are no terms within the contract that would block reliance on the statutory provision.

Winter 2024