Opinions and insights from our Agriculture team
Opinions and insights from our Agriculture team
In this article we give some pointers to producers whose scheduled deliveries have been cancelled or curtailed by their customers due to the coronavirus crisis.
For the most part, producers’ relationships with their suppliers and customers are long term and difficulties caused by weather events and disease are often dealt with informally, with a view to ‘seeing each other right’ in due course.
The current coronavirus crisis will test relationships. We know that liquid milk, potatoes for chipping, ornamentals, hops, broilers and other meat products destined for food service outlets have been particularly affected, with knock-on effects further up the chain. Producers will need to take a pragmatic view about courses of action open to them. However, it is worth checking your contractual “backstop”, to help with negotiations and decide how to respond to short-notice changes to delivery schedules or quantities from your customer.
Scenario: We don’t want your scheduled delivery
In normal circumstances you would supply your buyer with an agreed quantity of product every day, week or other period. Your buyer contacts you at short notice to say they will not be collecting/accepting your next scheduled delivery.
The first step is always to check your written contract and any agreements that have been made alongside or after it (e.g. by email or text).
It is important not just to look for any force majeure clause, but to look for any right of your buyer to amend delivery schedules or suspend collections, and to check whether a delivery schedule is merely indicative (with confirmation to follow) or a firm schedule which you, the supplier, are expected to respect.
Force majeure clause examples
Let’s say there is a clause in the agreement along the following lines:
“Our purchase of your Produce under this Agreement may be suspended during any period in which there occurs any event beyond our reasonable control which prevents or restricts the normal working of arrangements for transport, storage, processing or onward sale of the Produce.”
That is a broad clause which would, in our view, cover situations where e.g. food service outlets have been closed so that produce cannot find an end home. It may also cover a processing plant having to close or re-organise its production lines because of worker safety concerns or coronavirus-related illness.
Here is another clause, found in some potato supply agreements:
“Neither party shall be deemed to be in breach…or otherwise liable to the other party…for any failure or delay in performing its obligations due to circumstances beyond the reasonable control of that party including, without limitation, Acts of God…war or national emergency…fire, explosion, flood, epidemic..”
This force majeure clause is, again, quite widely drawn. The list of events is not exclusive; it gives examples of the kind of things that constitute ‘circumstances beyond the reasonable control’ of a party and mentions ‘epidemic’ explicitly. Again, that would seem to cover the coronavirus pandemic.
A third example is from the AIC standard contract of the supply of home-grown grains and pulses:
“Neither the Buyer nor the Seller shall be responsible for delay in delivery of goods or any part thereof occasioned by any Act of God, action by any government, strike (including dock and/or shipping strikes within the United Kingdom), lock-out, combination of workmen, break-down of machinery, power failure or fire…”
Here, in contrast to the other two examples, there is no catch-all reference to ‘circumstances beyond the reasonable control’ of the parties. Instead, we have a list of specific examples. Two of the examples are ‘any Act of God’ and ‘action by any government’. These two may be helpful to the party who is seeking to be free from liability to collect or take delivery of produce due to the impact of coronavirus.
‘Act of God’ has been defined in case-law as:
“such a direct and violent and sudden and irresistible act of Nature as the [parties] could not by any amount of ability, foresee would happen, or, if he could foresee that it would happen, he could not be any amount of care and skill resist, so as to prevent its effect”. (Nugent v Smith, 1876)
It could be argued that a pandemic such as the one we are experiencing falls into this category, but there is no express case-law covering the point. A party may feel more comfortable relying on the Government’s action in imposing ‘lockdown’, but – again – there may be an argument about whether the closure of, say, pubs further down the chain, actually prevents your buyer taking delivery of your output.
Other points to consider
Force majeure is not the only principle that applies in supply contracts. There is also frustration, a common law principle which comes into play when “without the default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract” (Davis Contractors v Fareham UDC, 1956).
This is a complex area of law, and the outcome of a claim can be difficult to predict. Points to note are:
Dispute resolution clause
Most written contracts will say something about how disputes are to be resolved if parties cannot agree how matters should be dealt with.
Points to note are:
Legal arguments v practical solutions
Ultimately, however frustrating and damaging a unilateral cancellation of a contract or delivery is, you will need to take a view. Legal disputes can be uncertain, lengthy and expensive. Negotiated outcomes help to maintain relationships and may pave the way for future business to be done.
The above is intended as general guidance only; producers are advised to take legal advice based on their particular circumstances and contractual arrangements.
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