Bridging the Gap: English Courts Uphold Enforceability of Long-term Commodity Supply Contracts

by Reed Smith

Term contracts for the supply of commodities – especially over a term of several years – are often expressed to be legally binding, but can leave important terms to be agreed between the parties, for example, on an annual basis. When the parties are unable to reach agreement on the relevant commercial terms, disputes can often arise as to whether the agreements are legally binding and enforceable contracts, or rather non-binding "agreements to agree" from which either party may walk away.

Such cases raise a tension between two important principles of English contract law: on the one hand, the principle that commercial parties should be held to the bargains they have made – especially if the indications are that they intended to be legally bound – and, on the other hand, the principle that an agreement must be sufficiently certain in its terms in order to be legally binding.

This issue commonly arises in the context of contracts for the sale of concentrates, which, while containing agreed mechanisms for establishing base prices, often contain terms requiring the parties to discuss and agree treatment charges and refining charges (TCRCs) (which are relevant to the determination of final prices), usually on an annual basis. One party may work on the basis that, if agreement on the TCRCs is not reached for the relevant year, either the entire contract is to fall away, or performance is to be suspended for a year (sometimes called a contract "holiday"), whereas the other party may regard the provisions as being subsidiary to the uninterrupted continuation of the contract to full term.

A recent Court of Appeal decision1 (the main thrust of which was to consider the principles of appealing arbitration awards), has helped to clarify the position as regards the enforceability of such arrangements – and shows the efforts that English courts will go to in order to uphold a contract as binding where the parties have clearly considered it to be so, notwithstanding that important commercial terms may remain to be agreed.

The Case

The parties had entered into a contract for the supply of copper concentrates. Following disputes arising out of the contract and referral to arbitration under the London Metal Exchange (LME) Arbitration Rules, the arbitration was resolved by way of a settlement agreement.

It was agreed that certain tonnages of concentrate would be delivered under three subsequent, separate contracts. The seller delivered under the first two contracts, but refused to perform the third contract (the "2010 contract") on the basis that the parties had failed to agree the TCRCs for 2010.

The TCRC provisions in the 2010 contract provided as follows:

"9.1 Treatment Charge shall be agreed between [Buyer] and [Seller] during the negotiation of terms for 2010.

9.2 Refining charge shall be agreed between [Buyer] and [Seller] during the negotiation of terms for 2010."

The buyer claimed breach of contract by the seller and the dispute was referred to arbitration under LME Arbitration Rules in accordance with the arbitration clause. An experienced LME arbitral tribunal concluded that the delivery obligation was "non-existent", and the buyer’s claim failed because "the contract had left material terms as ‘agreements to agree’".

The Appeals

The buyer appealed and Eder J overturned the tribunal’s decision finding that, "no reasonable tribunal correctly applying the relevant legal principles could have reached the conclusion that contract was unenforceable". Then it was the turn of the seller to appeal.

The Court of Appeal upheld the first instance decision of Eder J. Both courts considered the decision of the tribunal, so "bizarre" that there was no need to remit the matter to the arbitrators, as would have been the usual course of action. Instead the court varied the award in favour of the buyer in accordance with what it considered to be the correct legal principles. Some may find Eder J’s critical approach to the decision of the arbitrators surprising, as it could be regarded as reflecting a standard industry view of the effect of such TCRC provisions – i.e., that both parties would have understood the provisions to mean that, where the TCRCs could not be agreed, no further performance by the parties would be expected.

The Clarification

To the extent that any such industry approach existed prior to the Court of Appeal decision, it must now be consigned to history. This is probably good for concentrates traders as it has introduced a greater degree of certainty as to how an arbitral tribunal and/or the English courts will seek to interpret TCRC provisions. In essence, they will be treated in the same way as any other clause in the contract and be construed on their wording in each case – with no preconceived ideas of industry practice. In this case the presence of the words "shall be agreed" proved decisive.

Once the court had found that the parties intended their bargain to be enforceable, it referred to another general principle to the effect that the court would then "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".

The Practical Impact

It is certainly not the case that it is no longer possible for the parties to agree TCRC provisions that expressly, and in clear terms, allow the parties to walk away from a contract if in future years the TCRCs cannot be agreed, and there will no doubt be contracts currently being performed that contain such provisions. This is because the starting point is always that each case will depend on its own facts and on the wording of the contract in question. However, in light of the case, it would be prudent to review such TCRC clauses in order to have realistic and up-to-date expectations before entering in to any TCRC negotiations in future years.

In broader terms, the case also provides a reminder that, where the parties are found to have a contractual intention to perform a contract, the English courts have a willingness to fill in any gaps left in the written document that reflects that intention. They will seek to find a "fair, market or reasonable" price, or it will quantify "whatever matter it is that has to be agreed by some equivalent epithet". This will be the case even where the parties to a contract might leave "material" provisions to be agreed in the future. The courts will also impose their own "machinery" for determining what needs to be determined if the machinery in the contract "breaks down". They will, however, stop short of seeking to impose terms where what has been agreed is so vague as to be unworkable.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.