‘Growing’ contracts can be painful

Catchwords: Contract law, representations, misleading or deceptive conduct, S18 Australian Consumer Law, Competition and Consumer Act 2010 Schedule 2, (formerly S 52 Trade Practices Act)

Farmers who grow or contract for resellers, finishers, canners, supermarkets, juicers, processors and feedlots can have a painful time with well-constructed ‘growing’ contracts.

A ‘Bigco’ will generally have ready access to city lawyers; past experience in dealing with other growers with the time to tailor their standard contract to make it more legally advantageous to the Bigco, and a ‘take it or leave it’ attitude to negotiations that goes hand in hand with financial weight.

In comparison, the grower farmer will generally have only limited financial weight.

The economic reality is that the Bigco can hive off or delay a substantial capital outlay, and thereby minimise risk, in return for payment of monies to the farmer on delivery of the grown product.

The growing contract provides some degree of certainty of cash flow to justify the necessary capital outlay to background, house or shed the grown product.

The legal mechanisms the Bigco will use to protect its position are: restricting the term or duration of the growing contract (while allowing for a possible new contract); ouster of Court jurisdiction in favour of an internal dispute system followed by arbitration;  and excluding liability for (verbal) representations and warranties.

Generally, once a contract is reduced to writing, the parol evidence rule will operate to exclude prior verbal evidence of conversations from being admissible, or cogent in Court.

However, an exception to this rule is if a contract is tainted by misrepresentation of material fact, and if a verbal statement was made negligently and caused loss, there may also be an action for damages.

Well-drafted legalese will not allow a Bigco to lawfully contract out of verbal statements or representations of existing fact per se, which are misleading or deceptive conduct  under S18 of the Australian Consumer Law (Competition and Consumer Act 2010 Schedule 2).

Jonathan de Vere Tyndall

Updated: 30 March 2015, originally published The Land on 10 January 2002

Editors note: The articles published contain comment only and not legal advice, for which you should retain a solicitor. No responsibility is accepted for the accuracy of the contents.