When life gives you oranges, try to find an implied term

The court implied a term into a contract for the supply of orange pulp that, in the absence of agreement between the parties, the price was to be fixed at a reasonable or market price. 

Background - orange pulp

KSY and Citrosuco entered a contract in 2018 under which KSY agreed to supply 1,200 metric tonnes of orange pulp to Citrosuco for three years. The agreement fixed a price for the first 400MT annually—with the remaining 800MT an “open price to be fixed.”  

Citrosuco accepted and paid for the first 400MT in 2019 but refused the 800MT. KSY terminated the contract alleging repudiatory breach. 

High Court won't imply a term

It was common ground that there was a valid and enforceable agreement for 400MT annually. However, Citrosuco argued the agreement was unenforceable as regards the 800MT based on the principle that, as price is an essential ingredient of a contract, if it is left to be later agreed, there is no contract. 

The High Court agreed and held the 800MT element was an unenforceable “agreement to agree”. The judge rejected KSY’s arguments: (i) for an implied reasonable or market price (on the basis that the number of factors made it too difficult to determine); and (ii) for an implied obligation of the parties to use reasonable endeavours to agree a price (as such a term was too uncertain). 

Court of Appeal does imply a term

The court allowed KSY’s appeal, finding the parties had stated the price for the 800MT was “to be fixed” and had not expressly stated that this must be by mutual agreement. Whilst the court accepted that the contract implicitly envisaged that the parties would initially seek to fix the price by agreement, this did not preclude the implication of a term, in the absence of such agreement, that the price would be a reasonable or market price. 

The court thought it appropriate to imply such a term as the parties had intended to reach a binding contract for the full 1200MT.  The parties had agreed, or at least provided a mechanism for deciding, most elements of their long-term agreement. The contract was accordingly of the type that the court should strive to uphold. The court held that the additional variables cited at first instance could also be determined based on a standard of reasonableness and were not an obstacle to implying such a term. As such, the court did not need to consider KSY’s alternative argument of an implied term for the parties to use reasonable endeavours to agree the price. 

Judgment: KSY Juice Blends v Citrosuco