Potato supply contracts, drought and force majeure

The prolonged period of exceptionally hot, dry weather following a wet spring means that some potato growers will struggle to fulfil forward supply contracts. Force majeure clauses may offer some relief but will need to be checked carefully and appropriate action taken. 

Most growers sign their supply contracts without paying too much attention to the small print. In years like this – where weather conditions have combined to make anything like average yields impossible on many farms – the terms of the contract become all important.

Force majeure

Including a force majeure provision in a contract is a way for parties to manage risk. The parties are agreeing that if certain kinds of events happen which are outside a party’s control, that party is freed from its obligation to deliver on all, or part, of its side of the deal. The other party cannot then claim damages for non-performance. 

Any force majeure clause needs to be read carefully, to see what is covered, what is not and – importantly – whether an affected party needs to take any steps in order to benefit from its provisions.

An example, taken from a potato contract in circulation, might be useful.

“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 helpful. The list of events is not exclusive; they are examples of the kind of things that constitute “circumstances beyond the reasonable control” of a party. Serious weather conditions such as drought are not mentioned explicitly, but we would argue that they fall within the spirit and the letter of the provision.

The clause is, however, followed by a condition.

“A party who intends to rely on an event within the above clause should give notice in writing to the other party within one month of that event first occurring.”

It is crucial that this notice is served if a grower is to have a chance of relying on the clause.

There is also a proviso in the force majeure clause itself.

“This shall not affect the Buyer’s right to reject the crop, or part of it, on the grounds set out in clause X”

The grounds referred to are the crop being damaged (e.g. by bruising or scab) or outside agreed tolerances (e.g. in relation to dry matter or tuber count). In other words, if a crop is delivered but – despite irrigation – is affected by common scab, the existence of a force majeure event does not get growers off the hook in relation to the scab; they will remain bound by what the contract stipulates about the consequences of rejection.

Checklist

• Check the small print of any force majeure clause.
• Act in accordance with any of its requirements – don’t leave it too late to serve a notice.
• Always serve the notice in the way, and to the address, specified in the contract.
• Make sure you have independent evidence to support your claim that circumstances beyond your reasonable control have occurred.
• Describe those circumstances carefully, in a way that is supported by the evidence.
• If in doubt, take advice.

Other contractual principles

Force majeure is not the only principle that applies in supply contracts. There is also frustration, a common law doctrine in play when a serious and unexpected event happens which is outside a party’s control and which makes performance of a contract very different from what the parties originally bargained for. Frustration is unlikely to apply where ‘ordinary’ adverse weather affects a grower’s ability to supply full contractual quantities.

We also need to consider what the implied conditions of any supply contract are.  There is a helpful Court of Appeal decision, in the old case of Howell v Coupland. In that case, Mr Coupland agreed to sell 200 tons of Regent potatoes grown on his land to Mr Howell during the months of September or October that year. Mr Coupland’s crop was destroyed by a disease which no amount of skill or care on his part could have prevented. Instead of delivering 200 tons, he delivered less than 80. Mr Howell sued for damages in relation to the shortfall.

The Court of Appeal decided the claim in favour of the grower, on the basis that the parties would have understood and agreed that there should be a condition implied into their contract that “before the time for the performance of the contract the potatoes should be, or should have been in existence and should still be existing when the time came for performance”. In other words, the contract was not an absolute contract to deliver 200 tons at a given time; it was a contract to deliver so many tons grown in a specific place, if deliverable from that place.

The case dates from 1876 and plenty of rainwater has passed under the bridge since then. Nonetheless, we would argue that the condition set out by the court is a well-established implied condition. Growers will, however, need to check that the precise wording of their supply contracts does not prevent them relying on any such implied term.

If you would like advice in relation to potato or other agricultural supply contracts please contact Sarah Whitehurst (01775 842508) or Julie Robinson (01480 587460) in the first instance or click the bar below.