It is unlikely any form of compensation will cover potential lawsuits cattle producers may face arising from the ban on live exports to Indonesia
June 21, 2011
It is unlikely any form of compensation will cover potential lawsuits cattle producers may face arising from the ban on live exports to Indonesia, which may continue long after trade resumes.
That’s according to contract law expert McCullough Robertson Partner David Downie.
Downie
says Australian cattle producers already hit hard by the ban on live exports to Indonesia could face further pain if claims for damages flowing from breach of contract are made against them.
“The ramifications of the ban may include action against suppliers who are no longer able to meet the terms of some contracts, although they may have some options,” Downie says.
“Cattle suppliers may find themselves the subject of damages claims from a number of interests along the supply chain including customers, transport companies, shipping and even the abattoirs.”
Downie adds the scary thing for cattle producers is that damages claims are compensatory in nature. They don’t necessarily relate to profit that would have been made.
“Suppliers risk being liable for the difference in cost between their cattle and any replacement cattle,” he explains.
“Whether or not they are in breach (of a contract), depends on the terms of the contract including the existence of a ‘force majeure’ clause.”
Depending on the way that contracts have been prepared, some businesses affected by the live export ban decision may be able to evoke force majeure clauses.
“Force majeure clauses don’t just apply to natural disasters, they can apply in circumstances where something has made it impossible for the supplier to fulfil their contractual obligations.
“However, it very much depends on the how the clause has been written if indeed it does exist in a contract.
Even where it has been included, there will be explicit provisions for relief, the scope of relief and any entitlement,” Downie says.
Like other industry critics of the ban, Downie points to contractors right along the supply chain and those servicing the industry as those likely to be affected.
“There is no doubt that some industry participants, from producer through to feed supplier, will have these clauses in their contracts,” he says.
“They may also be able to argue that their contract has been frustrated due to illegality, in which case they could terminate the contract.”
In addition there will be many business operators who won’t know for some time how badly they have been exposed by this decision as it could take them some time to go through contracts and determine a course of action.
“The lesson is to consider contracts carefully at the time of negotiation,” Downie says.
“Suppliers should review their standard form contracts to ensure they appropriately deal with natural disasters, risk and other events outside of their control as well as their overall liability profile.”
Along the supply chain businesses which may be impacted by the decision include:
- pastoralists;
- Indonesian purchasers and abattoirs;
- shipping and transport companies;
- suppliers of feed and other products for the holding yards;
- trucking/transport companies;
- live export yards; and
- veterinarians.