Factual and Procedural Background
By a contract dated 18 May 2018 (the "2018 Contract"), the Appellant, Company A, agreed to supply a quantity of orange juice pulp wash, also referred to as water extracted soluble orange solids ("Wesos"), to the Appellee, Company B, for three years commencing on 1 January 2019. It was undisputed that for part of the Wesos quantity, the parties agreed on the price, creating an enforceable agreement. However, Company B contended that for the remaining quantity, the price was left open to future agreement, rendering that part unenforceable as a mere agreement to agree.
Following a four-day trial in March 2024, the High Court judge dismissed the bulk of Company A's claim for damages or breach of contract, agreeing with Company B's position. Company A appealed with the judge’s permission.
The 2018 Contract involved complex terms regarding quantity, pricing, delivery, and quality of Wesos, with a mechanism called "free trucks" used to adjust quantities in response to price fluctuations. Prior contracts between the parties had established some pricing arrangements and performance history.
Company B's demand for Wesos reduced by late 2018, and no price agreement was reached for a significant portion of the quantity. Company A delivered some Wesos but was only partially paid, leading to termination of the contract in 2020 on grounds of repudiatory breach.
Legal Issues Presented
- Whether the 2018 Contract constituted a binding and enforceable agreement for the full quantity of Wesos, or whether part of it was a mere agreement to agree due to absence of agreed price.
- Whether a term as to a reasonable or market price for the disputed quantity could be implied into the contract, either under section 8(2) of the Sale of Goods Act 1979 or at common law.
- Whether the parties intended to be bound to use reasonable endeavours to agree the price or number of free trucks for the disputed quantity.
- Whether the contractual phrase "open price to be fixed" precluded enforceability due to uncertainty.
Arguments of the Parties
Appellant's Arguments
- The contract should be construed, or terms implied, to require payment of a reasonable or market price for the 800MT of Wesos per year for which price was not fixed.
- Section 8(2) of the Sale of Goods Act 1979 or common law implies a term as to reasonable price where price is not expressly fixed.
- The parties intended to exercise reasonable endeavours to agree the price and number of free trucks.
- The judge erred in finding such terms too uncertain or inconsistent with the contract wording, particularly the phrase "open price to be fixed".
- There was a reasonably ascertainable market price for Wesos by reference to the market price of frozen concentrated orange juice (FCOJ), which Wesos typically tracks at around 70%.
Appellee's Arguments
- The contract left price for 800MT to be agreed subsequently, making that part unenforceable as a mere agreement to agree.
- Section 8(2) of the Sale of Goods Act 1979 does not apply where the contract expressly provides for price to be fixed by future agreement.
- No term as to reasonable or market price could be implied because the price of Wesos was too uncertain and dependent on multiple factors beyond FCOJ price.
- No obligation to negotiate in good faith or use reasonable endeavours to agree price existed.
- The absence of a transparent market for Wesos meant no objective standard for price was available.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| May & Butcher Ltd v The King [1934] 2 KB 17 |
Price left to future agreement renders contract unenforceable; no contract if price is essential and left open. |
Confirmed that where price is to be fixed by future agreement, no contract exists unless parties intended otherwise; court rejected implication of reasonable price where contract expressly required agreement. |
| Hillas & Co v Arcos Limited [1932] 147 LT 503 |
Contracts with uncertain terms may still be enforceable if parties intended to be bound; courts may imply terms to uphold agreements. |
Supported the implication of terms and upheld binding contract despite uncertainty; court applied principles to interpret the 2018 Contract as intending binding agreement. |
| Foley v Classique Coaches Limited [1934] KB 1 |
Leaving price "to be agreed" does not preclude binding contract if surrounding circumstances show intention to be bound. |
Demonstrated that a contract may be binding despite price left open, influencing court’s approach to implication of reasonable price term. |
| G Scammell & Nephew Ltd v Ouston [1941] AC 251 |
Commercial contracts may be construed to imply terms to uphold binding agreements where parties are familiar with trade. |
Guided court to construe the 2018 Contract in commercial context and to consider implication of terms consistent with parties’ intentions. |
| Mamidoil-Jetoil Greek Petroleum Co SA v OKTA Crude Oil Refinery AD [2001] EWCA Civ 406 |
Set out principles for implication of terms and enforcement of contracts where price or other essential terms are uncertain. |
Rix LJ’s ten principles were applied to assess whether a term as to reasonable or market price could be implied in the 2018 Contract. |
| BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163 |
Where parties leave an essential term to future agreement with freedom to agree or disagree, no binding contract exists. |
Used to analyze whether the phrase "open price to be fixed" allowed parties freedom to refuse agreement, affecting enforceability. |
| Walford v Miles [1992] A.C. 128 |
No duty to negotiate in good faith where essential terms are left open to future agreement. |
Supported the view that no obligation to agree price existed absent express terms. |
| Barton v Morris [2023] UKSC 3 |
Interpretation of implied terms under Sale of Goods Act 1979 and common law; limits on implying terms inconsistent with statute. |
Considered in relation to whether common law could imply terms circumventing statutory provisions on price. |
| Beer v Bowden [1981] 1 WLR 522 |
Presence or absence of arbitration clause is not determinative of contractual certainty. |
Referenced regarding the absence of arbitration clause in 2018 Contract and its effect on enforceability. |
| Morris v Swanton Care & Community Limited [2018] EWCA Civ 2763 |
Reasonableness requirements may be unenforceable if objective benchmark is lacking. |
Used as example of where uncertainty precluded implication of enforceable term. |
Court's Reasoning and Analysis
The court began by acknowledging the established principle that price is an essential term, and leaving it to future agreement generally prevents a binding contract. However, it recognized exceptions where courts imply terms to uphold commercial bargains, especially where parties are familiar with the trade and have acted on the contract.
The judge below had found that while there was an enforceable agreement for 400MT of Wesos at a fixed price, the remainder (800MT) was left to be agreed and was unenforceable. The court considered whether a term as to reasonable or market price could be implied to preserve the contract’s validity.
The appellate court rejected the argument that section 8(2) of the Sale of Goods Act 1979 precluded implication of such a term, explaining that if a term can be implied at common law, section 8(2) is unnecessary. The court emphasized the need to construe the contract in context, including its commercial background and the parties’ conduct.
On construction, the phrase "open price to be fixed" did not explicitly exclude implication of a reasonable or market price term. The parties were understood to initially seek agreement on price, but the court found it appropriate to imply a fallback term to fix price objectively if agreement failed.
The court noted the parties’ familiarity with the Wesos market and the existence of a generally accepted method to price Wesos by reference to the FCOJ market price at approximately 70%. This provided an objective benchmark sufficient to imply a term as to reasonable or market price.
The court rejected objections based on market volatility, additional cost factors, and absence of an arbitration clause, explaining that these variables were either accounted for in the contract or could be objectively determined by the court.
Accordingly, the court concluded that the parties intended to be bound for the full quantity under the contract and that a term should be implied fixing the price for the 800MT at a reasonable or market price if no agreement was reached.
Holding and Implications
The court ALLOWED THE APPEAL.
The holding establishes that where parties have a long-term commercial contract with a partially open price term, courts will strive to uphold the contract by implying a term for a reasonable or market price, provided there is an objective benchmark available. This prevents contracts from failing due to uncertainty when parties have clearly intended to be bound. The direct effect is that Company A’s claim for the price of the disputed quantity of Wesos can proceed based on an implied term as to price. No new precedent was set beyond applying existing principles to the facts.