Draft barley contracts article for The Scotsman

With a decline in the domestic production of malting barley, contracts have become something of a contentious issue between farmers and merchants, with fluctuations in wider markets further exacerbating the issue. Steep increases in prices have impacted significantly on fixed price contracts but uncertainty over contractual obligation has been leading to some confusion of late. Malting barley contracts negotiated some months ago when the markets were different has lead to many questioning whether they are bound to the same terms and conditions.

Some will be disappointed to learn that once a contract has been entered into, the contracting parties are bound. Many are under the mistaken, though understandable, belief that there are ways in which a person could withdraw from a contract when it transpires that the terms and conditions are unfavourable. However, the nature of a contract remains as an agreement producing an obligation which is intended to be legally enforceable whereby one or both parties have agreed to something and is therefore binding.

An important aspect of negotiations and contracts is establishing the distinction in the law between all contracts and ‘special rules’ applying just to certain types of contract; the two are not necessarily the same. A crucial piece of advice regarding the special rules around contracts is the degree of formality, or rather the lack of formality, that is required to create a legally binding agreement.

Whilst it is desirable to have the terms of a contract outlined in writing, rules requiring written contract exist for just a few types of contracts such as the sale of land and consumer credit matters. Where this isn’t obligatory, the vast majority of contracts can be constituted verbally and / or by the actions of the parties. Therefore it may not be obvious when a contract exists which can result in parties finding themselves contractually bound even though no paperwork has been exchanged or signed and consequently no terms and conditions have been outlined in black and white.

Certainly, a ‘cooling-off’ period is a notion many are familiar with, whereby someone has the opportunity to reflect upon and, if necessary, walk away from a contract within a period of time after the bargain was agreed. However what many are not aware of is that this is a special rule only applicable to certain types of contracts such as those for insurance purposes. What must be stressed is that this is not a general rule.

Furthermore, where some may be familiar with recent European Union legislation concerning both ‘Distance Selling’ and ‘Unfair Contract Terms’ whereby people must receive written information setting out what their legal rights are, neither of these directives are applicable in this instance. Both these regulations apply to contracts entered into by ‘consumers’, for which malted barley contracts do not apply.

‘Fairness’ is another question which must be addressed alongside questions of ‘legality’ as the disparity between the two is important. Courts have it in their power to nullify contracts where one of the parties concerned has been forced or tricked into entering into said contract. However, as a matter of course, the Courts will not intervene solely because the terms of the contract are unfavourable to one side.

The implications for this suggest that great care should be taken with the small print in any contractual documentation. Terms and conditions prepared by the Merchants are understandably likely to be weighted in their favour, with punitive clauses allowing for significant deductions to be made from the headline price. Likewise, clauses outlining grounds for rejecting the crop may be vague so as to provide the Merchant with an escape route should the market prices fall. ‘Fairness’, however, is a subjective issue and in times such as these, where demand outstrips supply, there is scope for Farmers to negotiate better terms for themselves. It’s worth bearing in mind that the Merchants, after all, need to have contracts in place to ensure they have a product to sell to their customers.

The overarching advice to come from this situation is for farmers to exercise extreme caution since commercial contracts such as those in place for the sale of malted barley are not subject to a great deal of regulation and freedom of contract applies. Farmers are advised not to sign or agree to anything unless the terms are entirely acceptable. In a nation not known for their fondness of haggling, negotiation is a crucial element to ensuring a contract’s terms are agreeable and should be encouraged in this instance.

Stephen Gamba is a solicitor in the Rural Department of Gillespie Macandrew