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When a contract is silent industry standards may apply

31 May 2018

If a contract is made orally and is not recorded in writing, for obvious reasons, it is much more likely the parties will dispute what has been agreed.  What is not so obvious is that the law may imply into a contract (whether it is written or oral) obligations which are reasonable and necessary to give proper effect to the contract and are usual in the particular industry concerned. A recent case relating to the harvesting of a pea and barley crop for silage is an example of the court doing just that.

In AP & AW Hughes Ltd v Lyall, Lyall verbally agreed to harvest Hughes’ crop for winter feed for Hughes’ cows. At the time of harvesting the crop was over mature and the stalks were tough. This caused Lyall’s whole crop front cutting unit to jam and break. Lyall therefore adopted the “mow, rake and lift” method to harvest the crop. Unfortunately, mainly as result of the raking, the crop was contaminated with soil and was unsuitable for feeding to Hughes’ cows.

Hughes sued Lyall for $300,000 in damages for the cost of alternative feed and loss in value of cows. Hughes and Lyall both accepted it was an implied term of their agreement that Lyall would use the care and skill expected of a reasonably competent silage contractor when harvesting and processing the crop. However, as the Court of Appeal noted, “that was where the agreement ended”. Hughes claimed Lyall had not carried out the services in a competent manner and had not ensured the silage had sufficient nutritional value. Lyall claimed it was the over maturity of the crop which meant it could not be harvested using the “whole crop front cutting method” and that it was not his responsibility to decide on the correct time of harvest or ensure the silage had a particular nutritional value.

Hughes was unsuccessful both in the High Court and the Court of Appeal. The Court found the “mow, rake, lift” was a harvesting method quite commonly used in the industry and, even though it was not the preferred method, it was the method which a reasonable and competent person in Mr Lyall's position could have adopted to complete the harvesting in a timely way.

This case is a reminder to record the other party’s obligations in a written contract if you want to ensure a job is done in a particular manner and to a particular standard and you don’t want the law to imply industry standards into your agreement.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott