A recent decision by Nominet UK highlights the evidential hurdles businesses must overcome when...
The Court of Appeal has issued an important judgment confirming that a contract can remain enforceable even if the price for part of the goods has not been agreed in advance. This ruling provides vital guidance on the enforceability of commercial contracts in the UK, especially where long-term agreements involve flexible pricing arrangements.
The Case Background
The dispute involved a supplier and buyer who had entered into a three-year contract for the supply of 1,200 metric tonnes of orange juice pulp wash each year. The contract set a fixed price for 400 tonnes, but the price for the remaining 800 tonnes was to be agreed annually by December of the preceding year.
No agreement on price was ever reached, and the supplier eventually terminated the agreement, alleging that the buyer was in repudiatory breach of contract.
High Court’s Decision
The High Court initially ruled that while the parties had intended to contract for the full 1,200 tonnes, the absence of an agreed pricing mechanism for the 800 tonnes rendered that part of the agreement unenforceable. The Court also rejected the argument that a “reasonable” or market price could be implied.
Court of Appeal’s Ruling
On appeal, the Court of Appeal disagreed. It found that:
- The parties clearly intended to create a binding agreement covering the full supply.
- In volatile markets, such as orange juice pulp wash, leaving price flexibility made commercial sense.
- A contract could still be enforceable if, in the absence of agreement, the price was determined by reference to a reasonable or market rate.
This ruling confirms that contracts may still be valid even when certain terms, such as price, are not finalised, as long as there is evidence of an intention to contract and a workable, objective mechanism to fill the gap.
Q&A Section
Q: Does a contract have to include a fixed price to be enforceable?
Not always. The Court of Appeal has confirmed that if the parties clearly intend to enter into a binding agreement, a court can imply a reasonable or market price where the price has been left open.
Q: What does this mean for businesses entering into supply contracts?
It highlights the importance of drafting clear terms. However, it also reassures businesses that agreements can remain enforceable even if some pricing details are left open, provided there is evidence of intention to be bound.
Q: What is a “reasonable or market price”?
This is the price that would objectively reflect the value of the goods or services at the relevant time, based on market conditions. The courts can look to industry benchmarks or comparable market data to assess it.
Q: How can businesses protect themselves in similar situations?
When drafting long-term contracts, businesses should:
- Specify a pricing mechanism (e.g., linked to market indices).
- Include provisions for negotiation timelines.
- Clearly state how disputes will be resolved if price cannot be agreed.
Contact Us
If your business is negotiating or disputing a commercial contract, it’s vital to have expert legal advice to protect your interests. At Willett & Co Solicitors, our specialist commercial contract solicitors can guide you through drafting, negotiation, and dispute resolution.
📞 Call us today on 01284 701323 or 📧 email us at law@willettsolicitors.com to speak with one of our team.