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England and Wales Court of Appeal (Civil Division) Decisions
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KSY Juice Blends UK Ltd v Citrosuco GmbH [2025] EWCA Civ 760 (19 June 2025)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2025/760.html
Cite as:
[2025] EWCA Civ 760
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Neutral Citation Number: [2025] EWCA Civ 760 |
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Case No: CA-2024-001951 |
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)
His Honour Judge Pearce sitting as a judge of the High Court
[2024] EWHC 2098 (Comm)
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Royal Courts of Justice Strand, London, WC2A 2LL |
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19/06/2025 |
B e f o r e :
LORD JUSTICE BAKER
LORD JUSTICE POPPLEWELL
and
LORD JUSTICE ZACAROLI
____________________
Between:
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KSY JUICE BLENDS UK LIMITED
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Appellant
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- and -
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CITROSUCO GMBH
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Respondent
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____________________
Ms Liisa Lahti (instructed by Blake Morgan LLP) for the Appellant
Mr Thomas Corby (instructed by Enyo Law LLP) for the Respondent
Hearing date: 15 May 2025
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HTML VERSION OF APPROVED JUDGMENT
____________________
Crown Copyright ©
This judgment was handed down remotely at 10.30am on 19 June 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives
(see eg https://www.bailii.org/ew/cases/EWCA/Civ/2022/1169.html).
.............................
Lord Justice Zacaroli:
- By a contract dated 18 May 2018 (the "2018 Contract"), the appellant, KSY Juice Blends UK Limited ("KSY") agreed to supply a quantity of orange juice pulp wash, also referred to as water extracted soluble orange solids ("Wesos"), to the respondent, Citrosuco GMBH ("Citrosuco"), for a period of three years commencing on 1 January 2019.
- It is common ground that as to part of the quantity of Wesos referred to in the 2018 Contract, the parties had agreed upon the price, and therefore reached an enforceable agreement. Citrosuco contends, however, that as to the remainder of the quantity of Wesos referred to in the 2018 Contract, the price was left open to be agreed subsequently and the contract is to that extent consequently unenforceable, being a mere agreement to agree.
- In a judgment handed down on 9 August 2024, following a four-day trial in March 2024, HHJ Pearce, sitting as a judge of the High Court, agreed with Citrosuco, and accordingly dismissed the bulk of KSY's claim for damages for the price of Wesos, or alternatively for breach of contract.
- KSY appeals with the permission of the judge.
Background
- Wesos and its market are explained succinctly in the following paragraphs of the judge's judgment:
"5. Those accustomed to purchasing pure orange juice from their local supermarket will be aware that it comes in two forms, of which one is typically labelled "not from concentrate" (NFC). Both NFC orange juice and the other type of pure orange juice, which is made by reconstituting frozen concentrated orange juice (FCOJ), are made by the extraction of juice from oranges. Both processes leave a residue of orange pulp. That orange pulp can be subject to a water extraction process producing the product known as wesos.
6. Wesos is not itself an orange juice and cannot be marketed as such in many countries (including the European Union and the United Kingdom). However it is a natural product in the sense that it is made only from oranges and water. It has a number of uses including (in some countries) being reconstituted into a drink similar to orange juice but more widely being used as a base for orange flavoured drinks.
7. The FCOJ market is dominated by Brazilian producers, the three largest being Cutrale, [Citrosuco] and Louis Dreyfus. However, Northern Hemisphere orange-producing countries such as Greece have a significant place in the market because their peak production time, December to March, is six months before/after the peak production time in the Southern Hemisphere. This is particularly significant given that wesos has a shelf life of 12 months so that Northern Hemisphere production may assist in making up for a prospective gap in the supply of Southern Hemisphere production.
8. Two other concepts should be noted. "Brix" is a measure of the amount of dissolved solids in a liquid via its specific gravity. The "Brix unit" is commonly used in the orange juice business as a means of pricing, the price being fixed on the basis of an assumption as to the Brix level with an adjustment to reflect the actual level.
9. The concept of "free trucks" is of relevance to the calculation of price in this case. It is described by Professor Koutoupis, [KSY's] expert, in the Joint Statement of the experts as "a promotional pricing strategy used in contractual agreements. The mechanism is used to adjust the contracted price in response to market price fluctuations. It involves providing free product on top of the contracted volume, thus aligning the price of the goods with the current market conditions." It is not a concept with which [Citrosuco's] expert, Mr Apa, has been familiar in Brazil. Indeed, there is some suggestion that it is a practice of the wholesale drinks industry, rather than the food and drinks manufacturing industry. In addition it may be that the concept is used in some countries rather than others. In any event, it appears to be more familiar to some of the players in this case than to others. However, there seems no reason to doubt that Mr Lansbergen and Mr Kaden [i.e. those who negotiated on behalf of KSY and Citrosuco respectively] each understood it to mean as defined by Professor Koutoupis."
- The concept of "free trucks" was addressed in the joint report of the experts, which stated the following as an agreed matter:
"The free trucks mechanism works to offset the difference of price between the contract price and the market price."
- There were two prior contracts between the parties, before the 2018 Contract. The first, dated 13 March 2017, was for a fixed quantity of 200 metric tonnes ("MT") of Wesos at a price of 1,600/MT for 60 Brix, with the "price adjustable according to Brix value +- 5 brix". (Brix is explained in the passage cited above from the judge's judgment.) The second, dated 7 July 2017, was for an immediate quantity of 100MT at a price of 1,600/MT for 60 Brix (with a similar price adjustment), plus two further quantities of 400MT (for delivery in the period October/November 2017 to March/April 2018) and 500MT (for delivery in the period May 2018 to October 2018). In each case the price was "to be agreed" by a specified date.
- The parties performed both of these contracts, agreeing a price in due course for the second and third tranches of Wesos to be delivered under the second contract. In those circumstances, they agreed, in the 2018 Contract, a longer period of supply.
The 2018 Contract
- The following are the salient terms of the 2018 Contract.
- By clause 1, the subject of the contract is described as the sale and deliveries of Wesos "bulk or in aseptic drums" (clause 7 contained further detail on packing requirements for drums).
- The term, by clause 2, commenced on the date of the signing of the contract (on 5 November 2018) and terminated on 31 December 2021.
- Clause 3, headed "Price", provided as follows:
"Invoicing price is 1.600euro/mt for 60brix
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 1.350euro/mt which corresponds to the 400mt/year 2019-2020-2021"
- Clause 4 provides four options for the place (and mode) of delivery:
"I. Ex works Bulk 5928 RH Venlo
II. Ex works in used new drums 5928 RH Venlo
III. DDP Alphonse Sifferdok 990 ,Geraard Van den Daelelaan 990 (GPS) B-9000 Gent with dry truck (Tel.+ 32/9.255.9.255- contact person Mr. Peter Van Laere)
IV. DDP Alphonse Sifferdok 990 ,Geraard Van den Daelelaan 990 (GPS) B-9000 Gent with tank truck (Tel.+32/9.255.9.255- contact person Mr. Peter Van Laere)"
- Clause 9, headed "Instructions for Dispatch, Advice of Dispatch", stated that the "Buyer should inform the Seller 15 days prior to every delivery". It follows that the place and mode of delivery was at the option of the buyer.
- Clause 5, headed "Delivery Period", provided as follows:
"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"
- Various aspects of the quality of Wesos were identified in clause 6, including that Brix would be a minimum of 50. (It was common ground that the maximum price adjustment was +/-5 Brix, even if the deviation from 60 Brix was greater than that.)
- Clause 10, headed "quantity", stated "3600mt".
- By clause 11, payment was due in full 7 days after invoice, which by clause 12 was to be provided on delivery.
- Clause 16 contained an entire agreement clause, and by clause 17, "the parties hereto intend this Agreement to be valid and enforceable to the fullest extent possible." Accordingly, they agreed that if any term was found to be invalid or unenforceable it was to be severed from the remainder of the agreement.
- The contract was governed by "the law of the UK" (clause 18). There was no jurisdiction clause.
- The terms for price, delivery period and quantity are somewhat opaque, but it is common ground that they were intended to operate as follows:
(1) Assuming the contract to be fully enforceable, KSY would invoice (and Citrosuco would be required to pay) over the life of the contract 1,600 per MT of Wesos based on a quantity of 3600MT, subject to an adjustment to price to cater for a variation in Brix of +/- 5 Brix. Assuming a constant Brix of 60, that would mean KSY would be paid a fixed amount (5,760,000) over the life of the contract.
(2) Although the quantity of Wesos was also stated to be fixed at 3600MT (with 1200MT being delivered in each of the three years), in reality the amount to be delivered was different, pursuant to the provisions in clause 3 and 5 as to "free trucks". It would vary depending upon the 'real' price (as opposed to the invoiced price) which the parties agreed for each MT of Wesos.
(3) As to one-third of the amount to be delivered each year (400MT of the notional amount of 1200MT), the parties agreed on a 'real' price per MT of 1,350. That meant that the quantity of Wesos to be delivered would, in this respect, be 474MT, arrived at by the following calculation:
400 (MT) x 1600 = 640,000
640,000 χ 1350 = 474 (MT)
(4) As to the other two-thirds, the quantity to be delivered within each year would be arrived at by a similar calculation (based on 800MT of the notional amount of 1200MT), but using a price that was "to be fixed latest by December of the previous year".
(5) Although the price to be fixed could in theory be greater than 1,600 per MT, the free trucks mechanism operated only one way: to increase the quantity to be supplied to reflect a 'real' price that was lower than 1,600 per MT.
(6) That meant that in each year the amount to be supplied would always be at least 1274MT (i.e. 474MT for the 400 MT plus free trucks at a real price of 1350, plus the additional 800 MT at a price to be fixed). What remained uncertain was the quantity of Wesos to be supplied by KSY by way of free trucks above that amount.
- By late 2018, Citrosuco's need for Wesos had reduced, and it became apparent that the 2018 Contract had become a bad bargain for it (see judgment at §33-§37). No agreement was in fact reached between the parties for the price of 800MT of Wesos for any of the years of the contract. Citrosuco took delivery of, and paid for, 400MT of Wesos in 2019, but declined to take delivery of any more. In 2020, KSY delivered 126MT of Wesos, but Citrosuco paid for only 84MT. In September 2020 KSY terminated the contract alleging that Citrosuco was in repudiatory breach.
The legal principles
- It is common ground that there was a valid and enforceable agreement as to the supply of the (notional) amount of 400MT each year. Citrosuco's contention that the contract is unenforceable in relation to the further amount of 800MT each year is based on the well-known principle that, price being an essential ingredient of a contract, if it is left to be agreed later by the parties, then there is no contract: May & Butcher Ltd v The King [1934] 2 KB 17 per Viscount Dunedin at p.21. In that case, the seller agreed to purchase all the seller's tentage which might become available during a certain period, at a price that "shall be agreed upon from time to time".
- Mr Corby, who appeared for Citrosuco, cited numerous sources to similar effect, in particular Chitty on Contracts, 35th ed., at §4-174 ("the most natural inference to be drawn from the fact that the parties left such an important matters as to the price to be settled by further agreement was that they did not intend to be bound until they had agreed on price") and Benjamin's Sale of Goods, 12th ed., at §2-046 ("If the price is left to be agreed upon subsequently between the parties, there will ordinarily be no binding contract, on the grounds of uncertainty, unless and until they later reach agreement on a price").
- It had been argued in May & Butcher that, since the fixing of the price had broken down "a reasonable price must be assumed". This was based on s.8 of the Sale of Goods Act 1893, which provided as follows:
"(1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case."
- Section 8(2) of the Sale of Goods Act 1979 contains materially the same language as the first sentence of s.8(2) in the 1893 Act.
- The argument was rejected, on the basis that s8(2) had no application where the contract itself contained provision for how the price was to be fixed, namely pursuant to a further agreement between the parties. Viscount Dunedin put it as follows, at p.21:
"The simple answer in this case is that the Sale of Goods Act provides for silence on the point and here there is no silence, because there is a provision that the two parties are to agree."
- He expanded on this at p.22:
"It is said that this case is to be treated on the same footing as if there had been no fixing of the price; as if the contract had been silent as to the price, and the law may then imply a reasonable price; but in the present case the facts preclude the application of any such principle. To do that would not be to imply something about which the parties have been silent; it would be to insert in the contract a stipulation contrary to that for which they have bargained to give them, not the result of their own agreement, but possibly the verdict of a jury, or some other means of ascertaining the stipulated price. To do that would be to contradict the express terms of the document which they have signed."
- May & Butcher must be read in the light of a number of subsequent authorities in which the courts have found a contract to be enforceable, notwithstanding the absence of an agreement on price, even where the parties have expressly left the price to further agreement between them.
- In Hillas & Co v Arcos Limited [1932] 147 LT 503, a contract for the supply of standard softwood goods "of fair specification" for the 1930 season contained an option of entering into a contract for the purchase of 100,000 items for the 1931 season. One issue was whether this was a mere agreement to agree. Lord Wright (at pp.504-505) described the contract as inartistic and "repellent to the trained sense of an equity draftsman", but said that it was clear that the parties "both intended to make a contract and thought they had done so". In such a case "[i]t is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects
" That did not mean, however, that the court:
"
is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail. Thus in contracts for future performance over a period, the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain; with that implication in reserve they are neither incomplete nor uncertain. As obvious illustrations I may refer to such matters as prices or times of delivery in contracts for the sale of goods, or times for loading or discharging in a contract of sea carriage. Furthermore, even if the construction of the words used may be difficult, that is not a reason for holding them too ambiguous or uncertain to be enforced if the fair meaning of the parties can be extracted."
- Lord Wright addressed May & Butcher v The King (at p.517), and the principle that a mere agreement to agree is no contract, as follows:
"No one would dispute such a rule, and its application to the instrument before the House in May and Butcher Limited v. The King has been finally determined in that case; but in my judgment the Court of Appeal were not justified in thinking that this House intended to lay down universal principles of construction or to negative the rule that it must be in each case a question of the true construction of the particular instrument. In my judgment, the parties here did intend to enter into, and did enter into, a complete and binding agreement, not dependent on any future agreement for its validity. But in any event the cases cited by the Court of Appeal do not, in my judgment, apply here, because this contract contains no such terms as were considered in those cases; it is not stipulated in the contract now in question that such matters as prices or times or quantities were to be agreed. I should certainly share the regret of the Lords Justices if I were compelled to think such important forward contracts as the present could have no legal effect, and were mere "gentlemen's agreements" or honourable obligations."
- In Foley v Classique Coaches Limited [1934] KB 1, the parties had left the price of future petrol supplies "to be agreed
from time to time". That was, however, not fatal to the conclusion that there was a binding contract. Maugham LJ said, at p.13:
"[I]t is plain from the surrounding circumstances that the agreement as to the sale and purchase of the petrol was intended to be a binding contract and it formed part of the inducement for the sale of the land. Secondly, the agreement was duly stamped and bears all the signs of a legal contract, and was not, as in May & Butcher v The King, a mere informal letter."
- The factors relied on in that case included that the contract had already operated in the past, was part of an overall transaction under which land had been conveyed, and contained an arbitration clause.
- In G Scammell & Nephew Ltd v Ouston [1941] AC 251 (in which Foley v Classique Coaches was approved), Lord Maugham, having noted the general proposition that parties to a contract must express themselves so that their meaning could be determined with a reasonable degree of certainty, said at p.255:
"This general rule, however, applies somewhat differently in different cases. In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other kinds of contract."
- The authorities were reviewed and summarised by Rix LJ (with whom Schiemann LJ and Sir Roger Waterhouse agreed) in Mamidoil-Jetoil Greek Petroleum Company SA v OKTA Crude Oil Refinery AD [2001] EWCA Civ 406; [2001] 2 Lloyds' Rep 76 ("Mamidoil").
- Rix LJ (at §69) distilled 10 principles from the authorities (with sub-paragraph numbers added):
"i) Each case must be decided on its own facts and on the construction of its own agreement. Subject to that:
ii) Where no contract exists, the use of an expression such as "to be agreed" in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty. This may be summed up by the principle that "you cannot agree to agree''.
iii) Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence, again on the ground of uncertainty.
iv) However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that they had a binding contract, the Courts are willing to imply terms, where that is possible, to enable the contract to be carried out.
v) Where a contract has once come into existence, even the expression "to be agreed" in relation to future executory obligations is not necessarily fatal to its continued existence.
vi) Particularly in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the Courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain...
vii) This is particularly the case where one party has either already had the advantage of some performance which reflects the parties' agreement on a long term relationship, or has had to make an investment premised on that agreement.
viii) For these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the Courts are prepared to imply an obligation in terms of what is reasonable.
ix) Such implications are reflected but not exhausted by the statutory provision for the implication of a reasonable price now to be found in s. 8(2) of the Sale of Goods Act, 1979 (and, in the case of services, in s. 15(1) of the Supply of Goods and Services Act, 1982).
x) The presence of an arbitration clause may assist the Courts to hold a contract to be sufficiently certain or to be capable of being rendered so, presumably as indicating a commercial and contractual mechanism, which can be operated with the assistance of experts in the field, by which the parties, in the absence of agreement, may resolve their dispute."
- The Court of Appeal returned to this topic the following year in BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163 ("BJ Aviation"). In that case, an agreement for the operation of an airport contained a term entitling the operator to serve a notice requesting renewal for a further seven years "subject to the re-negotiation of the rent
". The Court of Appeal concluded that this was an unenforceable agreement, as re-negotiation of the rent was a condition precedent to the obligation to grant a fresh agreement. Chadwick LJ (with whom Schiemann LJ and Sir Murray Stuart-Smith agreed) distilled the following five propositions from the authorities:
"20. First, each case must be decided on its own facts and on the construction of the words used in the particular agreement. Decisions on other words, in other agreements, construed against the background of other facts, are not determinative and may not be of any real assistance.
21. Secondly, if on the true construction of the words which they have used in the circumstances in which they have used them, the parties must be taken to have intended to leave some essential matter, such as price or rent, to be agreed between them in the future on the basis that either will remain free to agree or disagree about that matter there is no bargain which the courts can enforce.
22. Thirdly, in such a case, there is no obligation on the parties to negotiate in good faith about the matter which remains to be agreed between them see Walford v. Miles [1992] A.C. 128, at page 138G.
23. Fourthly, where the court is satisfied that the parties intended that their bargain should be enforceable, it will strive to give effect to that intention by construing the words which they have used in a way which does not leave the matter to be agreed in the future incapable of being determined in the absence of future agreement. In order to achieve that result the court may feel able to imply a term in the original bargain that the price or rent, or other matter to be agreed, shall be a "fair" price, or a "market" price, or a "reasonable" price; or by quantifying whatever matter it is that has to be agreed by some equivalent epithet. In a contract for sale of goods such a term may be implied by section 8 of the Sale of Goods Act 1979. But the court cannot imply a term which is inconsistent with what the parties have actually agreed. So if, on the true construction of the words which they have used, the court is driven to the conclusion that they must be taken to have intended that the matter should be left to their future agreement on the basis that either is to remain free to agree or disagree about that matter as his own perceived interest dictates there is no place for an implied term that, in the absence of agreement, the matter shall be determined by some objective criteria of fairness or reasonableness.
24. Fifthly, if the court concludes that the true intention of the parties was that the matter to be agreed in the future is capable of being determined, in the absence of future agreement, by some objective criteria of fairness or reasonableness, then the bargain does not fail because the parties have provided no machinery for such determination, or because the machinery which they have provided breaks down. In those circumstances the court will provide its own machinery for determining what needs to be determined where appropriate by ordering an inquiry (see Sudbrook Trading Estate Ltd v. Eggleton [1983] A.C. 444)."
The judge's conclusions
- The judge addressed the key issue, as did the parties' list of issues, in two parts: (1) was there an agreement to agree? (2) what was the price agreed between the parties for 800MT of Wesos? He recognised, however, the "considerable overlap" between the two issues.
- On the first point, he found that the parties both intended to deal in 1,200MT of Wesos per year for three years. He was satisfied applying the principles in Mamidoil that he should treat the contract as evincing an intention to deal in the full quantity (see §80-82 of his judgment).
- He then went on to consider whether through principles of contractual construction or implication of terms it was possible to conclude that a price was agreed. Where there had been an agreement as to the price of 400MT to be delivered in each year of the contract, the judge said "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."
- The first way in which this was argued before the judge was that the parties had agreed a price which was the same as the price at which the parties had agreed to invoice throughout the term, namely 1,600euro/MT. He rejected that for numerous reasons which I need not trouble with, as the point is not pursued on appeal.
- KSY's alternative argument was that there was an implied term that the price would be a reasonable or market price. It accepted that there was no separate published price for Wesos, but contended that the price was based on a product for which there is a well-established market price, namely that for FCOJ. The judge accepted (at §125) that "the evidence is that the price of wesos is around 70% of the price of FCOJ". He rejected KSY's argument, however, noting as follows:
"However the difficulty with this approach is that the price of wesos is clearly not affected only by the price of FCOJ. That may give a suitable basis for estimating the likely price, but the reality will clearly depend on a series of other factors, including the general state of supply and demand in the wesos market, the remaining shelf life of the product and the likelihood that the parties will only contract if they have a history of working together."
- The judge rejected an implied term as to reasonable price, because that "supposes that the court can determine what is reasonable", and that depended on the circumstances, for example a reasonable price for a quantity of wesos may not be the same in Brazil as in Greece. He said (at §123) that "[t]he very fact of the express term that price be agreed would allow either party to pursue its own commercial ends in negotiating the price, but those ends may be very different."
- The contention that the implied term was for a "market" price suffered, he concluded (at §124), from the difficulty of defining the price. While the variability of Brix level was not a bar to finding a market price, because there was a well-recognised formula for adjusting the price to cater for that, other factors in determining the ultimate price included packing costs, transportation costs, duty and exchange rate variations.
- Finally, the judge rejected the further alternative argument that there was an implied obligation to use reasonable endeavours to agree the price, because such a term was too uncertain (see §126).
The grounds of appeal
- KSY appeals with the permission of the judge on two grounds:
(1) The judge failed to find:
a. That on a true construction of the 2018 Contract or by way of an implied term (implied by section 8(2) of the Sale of Goods Act 1979 or otherwise) the parties agreed that a reasonable, or a market, price was to be paid in relation to the 800 MT per year; or
b. That on a true construction of the 2018 Contract or by way of an implied term, the parties agreed to exercise reasonable endeavours to agree the number of free trucks (and therefore the price) and/or the price in relation to the 800 MT per year.
(2) In doing so the Learned Judge erred in (inter alia) finding that such terms would be too uncertain to be enforceable and/or inconsistent with the 2018 Contract, in particular the phrase "open price to be fixed" at Clause 5 of the 2018 Contract."
- It was not suggested, in the circumstances of this case, that there is any real distinction to be drawn between a reasonable or market price. KSY's case is that there was a reasonably ascertainable market price for Wesos (albeit by reference to the market price of FCOJ) and that this was a reasonable price.
Analysis and conclusions
- Mr Corby submitted that, on its true construction, clause 5 of the 2018 Contract ("800mt at open price to be fixed
") meant that the price for the notional 800MT of Wesos in each year was to be left to the subsequent agreement of the parties. Accordingly, the contract precluded the application of s.8(2) of the Sale of Goods Act 1979, as it had done in May & Butcher v The King. The parties' agreement that the price would be that which was subsequently agreed by them was inconsistent with a price being imposed on them by a court which, a fortiori, had not been agreed by them, but on the basis that it was in the court's opinion reasonable.
- In those circumstances, he submitted that not only can s.8(2) of the Sale of Goods Act 1979 have no application, but also there can be no implied term at common law. That was because, he said, if a term as to reasonable price is not implied by s.8(2), it is not possible to imply an identical term at common law, and thus "outflank" the Act. Although s.8(2) did not refer to a term as to reasonable price being implied into the contract, he cited Lord Leggatt in Barton v Morris [2023] UKSC 3, at §132, for the proposition that the drafter of the Act could equally have done so, and that nothing turned on the formulation of s.8(2) as a rule or law. It followed, from the fact that s.8(2) cannot provide a term that the price for the goods was to be a reasonable price, that the exact same term could not be implied as a matter of fact at common law.
- Assuming that the 2018 Contract, on its true construction, provided that the price for 800MT was to be agreed subsequently between the parties, I reject the contention that s.8(2) of the Sale of Goods Act 1979 precludes the implication of a term as to reasonable or market price. Section 8(2) applies where the price is not determined by the contract. The question of whether the contract provides for how the price is to be determined must be answered by reference both to its express terms and to any terms properly to be implied at common law. If, applying the principles summarised in Mamidoil and BJ Aviation, a term is to be implied at common law as to a reasonable or a market price, then s.8(2) is unnecessary because the contract already provides for such a term. It would, as Ms Lahti submitted, be perverse if the existence of s.8(2) a provision that is designed to save contracts from unenforceability where nothing has been agreed as to price rendered it impossible for the court to imply a term as to reasonable or market price notwithstanding that the circumstances are such that, per Rix LJ in Mamidoil, the court should strive to do so in order to preserve rather than destroy the bargain.
Implication of term as to reasonable or market price
- The first task is to identify what the 2018 Contract says, on its true construction, as to the price for 800MT of Wesos each year. Nowhere is there any explicit statement that the price for 800MT was left to be agreed between the parties. Clause 5 stated merely that it was "open" and was "to be fixed" latest by December each year. On its face, that says nothing about how the price was to be fixed.
- Nevertheless, I accept Mr Corby's submission that the contract implicitly envisages that at least in the first instance the parties would seek to fix the price by agreement. That is what they were currently doing, pursuant to the second contract made in 2017, and it is more consistent with the reference in clause 3 to free trucks being offered "according to the agreed volume & price of each year".
- That does not preclude, however, the implication of a term that in the absence of reaching agreement the price would be a reasonable or market price. No doubt the parties would have hoped that the price would be fixed by agreement, but the question is whether (as Lord Wright put it in Hillas v Arcos) the parties entered into a binding agreement not dependent on any future agreement for its validity or (as Chadwick LJ put it in BJ Aviation) the parties left a term to be agreed between them in the future on the basis that either will remain free to agree or disagree about that matter (and, I would add, by reference to their separate commercial interests).
- The starting point in considering whether such a term should be implied is the fact, as the judge concluded, that the parties intended to reach a binding agreement as to the full quantity of Wesos contemplated by the 2018 Contract. That conclusion is reinforced by various aspects of the contract: the term being fixed until 31 December 2021; the agreement to invoice (and pay) 1,600euro/MT for the full amount, subject to an agreed adjustment only for the Brix value; and the amount to be supplied being "fixed" at 3600MT, split into 1200MT for each year.
- The judge said, at §80 of his judgment, that the parties intended "to deal in 1,200 MT of wesos per year for three years". Given the way the contract worked so far as quantity is concerned, as explained above, I prefer the following formulation: the parties intended that KSY would supply (and Citrosuco would pay for) Wesos for each of the three years of the contract with a value of 1.92 million (i.e. 1200 x 1,600). As to one-third of that sum, the amount to be supplied was fixed at 474MT. As to the other two-thirds, the amount to be supplied each year would be at least 800MT, plus such further amount as was required to ensure that Citrosuco received 1.28 million worth of Wesos (i.e. 800 x 1,600) priced at the amount per MT fixed each December for the following year.
- The subject matter of the contract is a trade with which the parties were "perfectly familiar" (in the words of Viscount Maugham in G Scammell & Nephew v Ouston (above)). It is common ground that the market was generally volatile, which provides an obvious incentive for the parties to leave some flexibility as to pricing in a long-term contract. The parties had at least some track record, pursuant to the second contract agreed in 2017, of dealing successfully with such flexibility by reaching agreement on price where that was left open in their agreement.
- As Ms Lahti submitted, the parties had agreed, or at least provided a mechanism for deciding, most elements of their long-term agreement. I have already addressed the overall price to be paid, the minimum quantity of Wesos to be supplied each year, and the duration of the agreement. Matters concerning delivery methods, quality of the product and timing of delivery and payment were agreed for all product to be supplied under the contract. The contract does not contemplate any renegotiation of any other part of the agreement. It does not, for example, contemplate either party renegotiating the overall volume to be supplied/purchased on the basis of that party's changing requirements.
- This case is, therefore, firmly in the territory of those contracts which a court will strive to uphold. I do not accept, as the judge did, that the court should be less concerned with seeking to uphold a bargain simply because on any view there is a binding agreement as to part of the subject matter. If anything, where the parties have agreed the overall price to be paid for all of the Wesos to be supplied over three years, and have agreed that the amount to be supplied will be at least 1274MT in each year, the case for seeking to avoid the contract failing as to two-thirds of the amount to be supplied each year is compelling.
- The strongest potential obstacle in the way of doing so is if the difficulty of ascertaining a reasonable or market price is such that the parties cannot reasonably have intended that the price would be set by reference to it. Put another way, 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.
- An example of this is provided by Morris v Swanton Care & Community Limited [2018] EWCA Civ 2763. The question in that case was whether a provision relating to "Earn-Out Consideration" which gave a party an option to provide services for a period of four years "and following such period such further period as shall reasonably be agreed between [them]" was unenforceable as a mere agreement to agree. Gloster LJ, at §28, concluded that the requirement of reasonableness applied to the process of agreeing and not to the period. Even if it had done, however, the difficulty was that:
"it presupposes that there is such a thing as a reasonable period which everyone could equally recognise as being reasonable, rather than the different commercial interests and different perspectives involved in any extension of the Earn-Out Consideration. Moreover the court would have to identify some objective benchmark for determining the reasonable period without reaching an alternative subjective view or descending into the commercial fray: but that is not possible."
- Mr Corby submitted that this is just such a case, because there is too much uncertainty as to the market price of Wesos. The judge heard four days of evidence and decided that there was no clearly identifiable market price that the parties can have considered they would resort to. Mr Corby submitted that the judge's finding that there was no available market in Wesos (§139 of the judgment), and thus no market price, is one which cannot be challenged on appeal. He also relied on the evidence of KSY's expert witness, Professor Koutoupis, who agreed that "the market price of pulp wash was not readily identifiable".
- It was in fact common ground before us that there is no sufficiently transparent market from which the price at which entities bought and sold Wesos could be observed. There is, however, such an established transparent market in relation to FCOJ and it is KSY's case that the price for Wesos tracks the price of FCOJ, it being generally accepted that for Wesos of the Brix quality specified in the 2018 Contract, the price is around 70% of the price of FCOJ.
- Indeed, that is a finding the judge made, at (at §125):
"the evidence is that the price of wesos is around 70% of the price of FCOJ, as Mr Apa himself asserted".
- Mr Corby pointed to passages in the evidence of Professor Koutoupis in which he referred to the difficulties in identifying a market price for Wesos, and in which he identified a range of percentage discounts from the market price of FCOJ for arriving at a price for Wesos, between 65% to 80%, or even up to 100%.
- At trial, it was Citrosuco's case that Professor Koutoupis did not have adequate expertise in this area. The judge noted (at §43) that Professor Koutoupis' expertise was in corporate governance and related matters, whereas (see §51) Citrosuco's expert, Mr Apa, had a rather more specialist background. Ultimately, Professor Koutoupis abandoned his own figures and agreed with Mr Apa. It was Mr Apa's evidence (recorded by the judge at §50) that "in my experience, a good quality 65Ί Brix Pulp wash might generally expect to achieve around 70% of the FCOJ market price, subject to prevailing levels of supply and demand." In cross-examination Mr Apa accepted that "paying 70% of the FCOJ market price is pretty standard in [the] industry". It was on the basis of this evidence that the judge made his finding at §125.
- In light of this, Mr Corby's submissions as to the inherent difficulties in identifying a reasonable or market price for Wesos significantly overstate the position. The fact that there was no separate market, from which market prices could be observed, is of little consequence given the finding that the price of Wesos tracked the price of FCOJ, for which there was a functioning market in which the prices at which FCOJ was bought and sold were readily available, and that Wesos traded at around 70% of the price of FCOJ. 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.
- Ms Lahti sought to bolster this conclusion by reference to the judge's finding (at §10) that the "free trucks" method "at least as deployed here" resulted in delivery volumes varying according to market conditions while the invoicing price remains constant. Mr Corby submitted that the judge was here referring to the concept as understood by Professor Koutoupis (as set out at §9 of the judgment), and not to the way free trucks worked in relation to the 2018 Contract. That is, I think, a difficult reading of that passage of the judgment but, even if that is what the judge meant, he found (at §9) that the parties understood free trucks to operate in the way explained by Professor Koutoupis.
- As Ms Lahti fairly accepted, this point is far from determinative. On any view, the free trucks concept did not operate in at least one respect in the 2018 Contract in order to vary the delivery volumes in accordance with the market price of Wesos. As to 400MT of Wesos, free trucks were provided to ensure that the real price paid for each MT was the price agreed upon at the outset, and this did not vary across the life of the contract. In relation to 800MT of Wesos, on the other hand, as I have already indicated, the obvious reason for leaving the price and thus the number of free trucks to be provided open was because of market volatility, and so that the price could reflect changing market conditions over the term of the contract. Moreover, the very fact that the parties understood there to be a free trucks method in this market whereby delivery volumes might vary so that the real contract price would adjust in response to market price fluctuations provides some support for the view that the parties understood there to be a reasonably available market price for Wesos.
- Once it is appreciated that there was a generally accepted method for identifying the price of Wesos by reference to the FCOJ market, there is limited force in Citrosuco's other objections to the implication of a term and in the counter-points made by the judge at §123 to §125 of his judgment.
- There is less significance, for example, in the fact the price had to be fixed by a certain time, namely December of each year. Mr Corby rightly submitted that this was commercially important because it ensured the parties could adequately prepare, before 1 January each year, for the quantity of Wesos they were to supply or receive. He submitted that there would not have been time, even if "by December" meant by the beginning of December, for the price to be fixed by a court in the absence of agreement of the parties, before the beginning of the next year. There is less force in this point in circumstances where there was significant lead time between the terms of the contract being reduced to writing (it is dated 18 May 2018, albeit it was not signed and so did not commence until 5 November 2018), and in each subsequent year, for the parties to seek to reach agreement. There is also reduced commercial significance in the point given that the parties were committed to the supply of at least 1274MT of Wesos each year, with the only variable being the amount of free trucks to be offered above that figure.
- Nor am I persuaded by the absence of an arbitration clause. The presence or absence of such a clause is not determinative: Beer v Bowden [1981] 1 WLR 522, per Goff LJ at p.526A-B and p.527D-E. Its presence may assist the court to find sufficient certainty, but that is not to say that the court will not itself provide the dispute resolution machinery in the absence of such a clause: Mamidoil at §67. Arbitration, per se, is not an inherently speedier mechanism for resolving disputes than litigation. It would have been a stronger pointer towards the parties intending to be bound by a third party's determination of price if the contract provided for determination by a specialist in the area, but provided there are objective criteria for arriving at a reasonable or market value, a court is as well-equipped as an arbitral panel to reach a determination.
- The judge considered, at §123 of his judgment, that the absence of an express clause allowed either party to pursue its own commercial ends, noting that the price in Brazil may not be the same as the price in Greece. That begs, however, the answer to the relevant question (i.e. whether notwithstanding the price was left open the parties intended to be bound for the entire subject matter of the contract). The mere fact that the parties have left open the price does not mean that they are free to pursue their own commercial ends in negotiations. As Lord Wright pointed out in Hillas v Arcos, at p.505, "[s]ave for the legal implication I have mentioned, such contracts might well be incomplete or uncertain: with that implication in reserve they are neither incomplete nor uncertain".
- One of the judge's reasons (at §124) for finding against the implied term was the existence of additional variables factored into the ultimate price, in particular packing costs; transportation costs; duty; and exchange rate variations. The parties, however, do not appear to have regarded these as creating any material difficulty in identifying a reasonable price: clauses 4, 7 and 8 of the 2018 Contract contained specifications for these matters (apart from duty and exchange rate variables, which would in any event be objectively ascertainable) and, although these included options, they were not considered relevant to the fixing of the price for the 400MT of Wesos to be supplied each year. They are, moreover, variables that are readily susceptible to objective determination on the basis of a standard of reasonableness.
- At §125, the judge having found that the price of Wesos was around 70% of the price of FCOJ said that the difficulty with this approach was that the price of Wesos was affected by other matters including: the general state of supply/demand in the Wesos market; remaining shelf-life; and the likelihood that the parties would only contract if they had a history of working together. The first of these is either already factored in, or is irrelevant, on the basis that the price of Wesos tracks that of FCOJ. The other two points are also irrelevant on the facts of this case. As to the shelf-life of the product, the contract is specifically geared towards supply from January, to coincide with the high season in Greece. The final point does not arise because the parties, having already established a trading relationship, did decide to contract on a fixed term 3-year basis.
Conclusion
- For the above reasons, I consider that this is a case where a term is to be implied to the effect that the price of Wesos, for the purposes of establishing the quantity of Wesos to be supplied each year in excess of 1274MT, was to be fixed, in the absence of agreement, as a reasonable or market price. It is unnecessary, therefore, to consider the appellant's alternative case that there was an implied term that the parties would use their reasonable endeavours to agree the price. I would accordingly allow the appeal.
Lord Justice Popplewell
- I agree.
Lord Justice Baker
- I also agree.