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Farming opinion: Contract shortfalls

06:00 14 May 2014

Dermott Thomas

Dermott Thomas

PAGEPIX LTD 07976 935738

The majority of farmed crop in this country is grown to contract with something like ¾ of UK potato crop grown on pre-season contract for a committed buyer, write Dermott Thomas, partner and specialist litigator/advocate at Barker Gotelee.

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These contracts are generally drawn up by the buyers and therefore include terms favourable to buyers in the event of anything going wrong.

It is therefore usual for such contracts to commit the grower to supply a certain quantity or tonnage rather than by reference to yield from particular fields grown and the contract will contain quality criteria allowing the purchaser to reject at delivery again at the risk of the grower.

Other frequently encountered supporting terms include an agreement by the seller to indemnify the purchaser for any losses, clauses stipulating time of delivery to be of the essence whilst allowing the purchaser to vary the times and entire agreement clauses excluding the Court from taking into account extraneous circumstances for instance the fact that the grower may be subject to natural vagaries such as the weather.

Although a force majeure clause included in the contract drafted by a purchaser at first flush seems to favour the grower effectively excusing a short supply if it arises from matters beyond the grower’s control or caused through no fault of his, this simply reflects the default position where in the absence of a contract the grower would be excused under the common law. The idea of these clauses when drafted by the purchaser therefore is to restrict as far as possible the excusing circumstances.

Unless part of a bigger organisation most growers have no possibility of re-negotiating the terms of contract.

The effect of the terrible growing conditions in 2012 has brought into sharp focus these type of contracts where shortfalls were the rule rather than the exception.

For many the general spirit of co-operation pervading the agricultural world has meant that losses have been mitigated or swept up in future trades, however the extent of losses suffered by some has meant that these onerous buyer contracts are being tested to the extreme in the Courts.

Most commodity contracts also contain an arbitration clause committing the parties to arbitrate their differences before seeking any redress at Court. Arbitration usually works out as a cheaper alternative to Court proceedings, however the identity of the arbitrator is also dependent on the purchaser’s trade body and there must always remain a doubt as to impartiality where the arbitrator is dependent on work arising from his panel status with the trade body.

Maintaining a dialogue and being imaginative in suggestions for settlement is therefore invariably the best option and of the alternative dispute resolution processes mediation where the parties are assisted toward a negotiated solution is invariably the best solution.

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