WAFARMERS is considering its legal options to support growers affected by recent force majeure declarations by Western Australian fertiliser companies CSBP and Summit Fertilizers.

CSBP invoked the clause in late March in relation to some liquid urea ammonium nitrate (UAN) contracts, with Summit – one of its customers – issuing a declaration shortly afterwards.

CSBP said export restrictions imposed by the Chinese Government in response to the Middle East conflict, combined with an unplanned outage at the Yara ammonia plant in WA, were events beyond its control that disrupted UAN supply.

At this stage, the decisions could affect May, June and July contracts, with growers set to lose 40-60 percent of their CSBP UAN volumes and about 30pc of their Summit tonnages.

This means growers may need to source replacement fertiliser elsewhere at roughly double pre-war prices, switch to alternative products, or reduce application rates.

WAFarmers chief executive Trevor Whittington said the organisation believed CSBP’s move may have been premature.

He said WAFarmers had sought initial legal advice from Phil Brunner at Bailiwick Legal and was considering how best to support growers in seeking a considered opinion from senior counsel, such as a King’s Counsel.

“The farmers are pretty angry about this,” Mr Whittington said.

“We’re putting together a list of names at the moment.”

Mr Whittington said if the legal opinion was in favour of it, “there would be no lack of farmers putting their name to a class action”.

WAFarmers position

Force majeure is defined as an unforeseen circumstance that prevents a business or individual from fulfilling a contract.

Any potential legal action would centre on whether CSBP was in fact prevented from supplying UAN to growers by the unforeseen circumstances it cited, namely the Chinese export restrictions and an unplanned outage at the Yara ammonia plant.

Mr Whittington alleges that there could have been a commercial incentive for CSBP not to supply growers.

In a column written earlier this month and published on the WAFarmers website, he wrote that some fertiliser companies “operate on a just-in-time model, where product is effectively sold forward before physical supply is secured”.

“In stable markets, that approach maximises margin.

“In volatile markets, it exposes the supplier to significant risk.

“Where contracts have been written at pre-war pricing and replacement product is now trading some US$400 per tonne higher, the potential exposure is substantial.

“On volumes in the order of six cargos totalling 180,000 tonnes, the differential runs to approximately $64 million – a figure unlikely to sit comfortably with its parent company.”

Mr Whittington argued that much of the risk associated with China as a reliable supplier was foreseeable.

“Its willingness to restrict fertiliser exports is not a rare event – it is a well-established feature of the global nitrogen market.

“When domestic pressures rise, or when it suits broader policy objectives, the gate closes.

“It has happened before and will happen again.

“Any procurement strategy that leans heavily on Chinese supply carries that risk by design.”

Legal opinion

Senior associate with South Australian law firm Mellor Olsson Rebecca Duff discussed force majeure clauses during a Grain Producers SA webinar yesterday.

She also responded to questions about the CSBP situation, though reiterated she had not seen the specific contract.

“A lot of force majeure clauses are…the last thing we think about,” Ms Duff said.

“We work out all the commercial terms and…we work out all the really interesting bits and then we whack a force majeure clause in them.

“So often they are lacklustre and…I wouldn’t want to be the party trying to rely on it.”

Ms Duff advised growers affected by the force majeure declarations to seek legal advice and then inform the fertiliser company of their dissatisfaction with the outcome.

“If I had been provided with a notice that someone was relying on a force majeure clause, I would read the clause.

“If I suspected that they had acted prematurely and they were just trying to avoid a bad bargain, I would get legal advice and then write to them.

“[C]ontact them saying: ‘you can’t rely on this clause, this is not open to you and you’re actually in breach of the agreement at the moment by not fulfilling your end of the bargain’ and use that as a starting point.

“They might not be expecting anyone to do that.”

She said this was her advice as a good starting point for growers who have found themselves in this situation.

“With any clause…it’s open to interpretation and I wouldn’t accept something just because the other side says this is what has happened.”

Mr Whittington said growers could also contact WAFarmers for support or guidance on the next steps if they were affected by the situation.