Pursuer: Kinroy, Q.C.; Mackay Norwell, W.S.

Defender: Cowie, Advocate; Lindsays, W.S.

29 April 2009

Introduction
[1] The pursuers are a company whose core business is that of grain merchants. The defenders are a farming company. In this action the pursuers claim damages in respect of the defenders' breach of contract. The defenders deny that they were in breach of contract.

[2] Parties are agreed that in the event of the defender being found liable in damages to the pursuers, the amount of the pursuers' loss is £28,443.36 and interest should run thereon at 8% per year from the date of citation until the date of decree and thereafter at the judicial rate applying from time to time.

[3] The case came before me by way of Proof before Answer.

Witnesses
[4] I heard evidence from the following witnesses led for the pursuers:

1. James Aitken, Chairman and Managing Director of the pursuers.

2. Mark Paton, a Director of the pursuers.

3. Neil Aitken, James Aitken's son and an employee of the pursuers.

[5] I heard evidence from the following witnesses led for the defenders:

1. John Blackwood, Farmer.

2. Michael Blackwood, John Blackwood's son, and Farmer.

3. Elizabeth Blackwood, John Blackwood's wife, and Care Home Manager.

4. David Cowe, Development Manager and Agronomist.

5. Kenneth Robertson, Land Agent.

BACKGROUND FACTS
[6]

The following facts were either agreed or I found them to have been established in evidence.

(a) The Grain Supply Contracts

[7] The pursuers buy and sell grain. Most of the grain in which they deal is bought and sold for the drinks industry. They deal in malting barley. They also deal in wheat, which is used by the drinks industry for white spirits and in whisky blends. Their business is a substantial one. The grain dealing side of the business produced a turnover of £47 million in 2008.

[8] The pursuers regularly contract with the drinks company Diageo Global Supply ('Diageo') for the supply of grain. In turn, they contract with various farmers to purchase grain from them for onward supply to Diageo. As regards the price paid to farmers, between 2002 and 2004, world grain prices were low. Farmers' organisations made representations with a view to achieving certainty regarding grain prices. The outcome was that farmers signed up to fixed price wheat supply contracts to cover the years 2005, 2006 and 2007. The pursuers contracted with Diageo to supply 30,000 tonnes of wheat in each of those three years, at a price of £82 per tonne plus £1 per month 'carrying charge'. They, in turn, entered into fixed price wheat supply contracts with a large number of farmers so as to cover their obligations to Diageo.

[9] So it was that on 27 July 2005 a contract was entered into between the pursuers and the defenders whereby the defenders agreed to supply 400 tonnes of soft wheat at a price of £73 per tonne ex farm in each of the years 2005, 2006 and 2007 (see: 6/1 of process). The contract allowed for a 5% tolerance in the tonnage delivered i.e. it would be fulfilled so long as the defenders' delivered within 5% of 400 tonnes.

[10] The contract provided for what is referred to as "Basis September Movement" meaning that the pursuer could not call for delivery of the wheat before September in any particular year and that: "a carry of + £1.00 per month will be paid October onwards." That meant that £1 per tonne would be added for each month beyond September that the grain was not called for by the pursuer.

[11] The pursuers' main premises are at Ormiston. The defenders' farming base, at Oxenfoord Home Farm, is about two miles away. The pursuers have dealt with the defenders for many years. In particular, James Aitken has known John Blackwood for over 30 years. When Mark Paton began working for the pursuers, in 1999, he became responsible for what was referred to as "on farm trading" and got to know the Blackwoods. He would visit them at their farm and they would call into the pursuers' office and see Mark Paton there.

[12] Despite early concern about grain prices, the world prices for wheat began to rise in 2006. They rose above £73 per tonne as can be seen from an examination of the table of wheat prices in 6/10 of process. For instance, by the time of the 2006 harvest, the "spot" price had risen to £79.60 per tonne and continued to rise thereafter. The pursuers heard that farmers were becoming unhappy with their fixed price contracts. They sought to persuade Diageo to increase the price that they were prepared to pay but they were not agreeable to doing so, as confirmed in a letter from Diageo to the pursuers dated 4 March 2009 (6/36 of process) which was in the following terms:

"Dear Jim

Re: 3 year wheat supply agreement with Alexander Inglis

As requested I can confirm that we had a 3 year fixed price wheat supply agreement in place for crops 2005-2007 with a tonnage of 30,000 tonnes per annum. This contract was non-negotiable, despite your best efforts, and the tonnage was delivered to Diageo in full.

Yours sincerely

ALAN WILLIAMSON".

[13] Since they were being held to their contract with Diageo, the pursuers decided that they would require to take a firm line on all the farmers' contracts. That was an attitude adopted generally by grain merchants. There was a fear that if one farmer was "let off" his contract then all farmers would expect to be let off. Neil Aitken, whose job includes organising transport to uplift and deliver grain had it reinforced to him on a weekly basis by his father that he had to make sure that the pursuer got delivery of the grain tonnages for which they had contracted. Neil Aitken was also in charge of maintaining the computer records relating to the fixed price contracts. None of the computer records were amended so as to show variation of any of the contracts. In October 2007, Neil Aitken arranged to collect wheat from the defender. There was a substantial shortfall in the delivery. The defenders delivered 56.78 tonnes of wheat only. Once the 5% tolerance allowed for in the contract was taken account of, that meant that there was a shortfall of 323.22 tonnes.

[14] In the light of the shortfall, James Aitken wrote to John Blackwood in the following terms:

" 25 October 2007

Dear John,

Diageo 3 year fixed price wheat contract

Contract No. 202924

We note from our records that you have only supplied 56.78 tonnes of the above 400 tonne contract and from what we can understand there will be no more wheat supplied against this contract.

In this situation it is with regret that we must call you into default and buy the wheat off the open market in order to fulfil our contract with Diageo.

As can be calculated from the attached weight tickets, the total tonnage required will be 343.22 tonnes.

I suggest you arrange a meeting at this office to discuss this matter further.

Yours sincerely

JAMES AITKEN

Managing Director"

Mr Aitken's statement in that letter of the tonnage due did not allow for the 5% tolerance which, in evidence, he accepted ought to be allowed for.

[15] There was then a meeting between James Aitken and John Blackwood. Mr Blackwood indicated that Mr Aitken could not hold him to the contract because Mark Paton had released him from itthe contract. That was the first that James Aitken had heard of that suggestion. An argument ensued which became heated in the course of which John Blackwood indicated that delivery of the full tonnage would be very difficult for their business . He asked James Aitken not to insist on it being supplied. He asked him not to hold the defenders to the contract .

[16] The pursuer thereafter purchased wheat in the market so as to meet their obligations to Diageo. The increased cost to them of doing so is reflected in the sum agreed as damaged damages due in the event that the defender is found to have been in breach of contract.

(b) Prior Dealings between James Aitken and John Blackwood
[17] James Aitken gave evidence to the effect that, by 2006, he did not trust John Blackwood .. He considered that John Blackwood had acted improperly in the past and, furthermore, that he had breached a gentleman's gentlemen's agreement that had been reached between them. He did not go as far as indicating that he no longer wished the pursuers to do business with the defenders but, from early 2006, he did make it clear that he did not wish to deal with the defenders directly.

[18] James Aitken was clear in his evidence that by September 2006, there was, so far as he was concerned, established ill-feeling between him and John Blackwood. James Aitken is, plainly, a man who is not afraid to speak his mind and not slow to anger. He himself recognised that. It was not seriously disputed that he became ill-disposed towards John Blackwood. At its highest, the defender's case was that he was exaggerating. However, James Aitken gave a cogent explanation for the negative attitude that he developed so far as John Blackwood was concerned and I accepted, as credible and reliable, his evidence that he did indeed develop markedly negative feelings towards the man.

[19] James Aitken said that by September 2006, he certainly would not have been prepared to do John Blackwood any favours and I believed him .. Whilst John Blackwood sought to resist the suggestion that relationships between the two of them were strained by that time, he did accept that there had been an incident at his farm in January 2006 which involved James Aitken being very irate towards him. That incident was the third of the matters to which I refer below.

[20] James Aitken explained that there were three matters which had caused him to lose trust in John Blackwood. They all related to Brunstane Farm, a farm which was managed by the pursuers for Lord Palmer. It is situated between Newhailes and Portobello and has development potential. It was sold to EDI, a property company, a few years ago but Lord Palmer, in the meantime, retains the right to farm the land. It has been let to the defenders for a number of years under a series of leases and the Blackwoods have, accordingly, been farming the land there.

[21] The evidence regarding the cause of the development of James Aitken's ill-feeling towards John Blackwood was lengthy and detailed and I do not propose to rehearse it. Essentially, there were three distinct problems.

[22] The first was that, in or about 2001, James Aitken formed the view that John Blackwood had completed a subsidy claim form in respect of Brunstane Farm so as to represent that the land that he had been farming included some land which had in fact reverted to the Newhailes Trust. He felt he could not trust John Blackwood after that.

[23] Secondly, when James Aitken learnt of the forthcoming introduction of the "Single Decoupled Payment" ("SDP") which was to be introduced pursuant to the mid-term review of the European Union Common Agriculture Policy, he was concerned. It was a payment which , as he understood it, would enable farmers who were farming land in a set period to claim a subsidy that would follow them as individuals and not be attached to the land. Some farming tenants accepted, however, that the subsidies should not follow the farmer but should remain with the landlord. James Aitken went to see John Blackwood regarding this matter at his farm. As he put it, he needed "to confront him" so as to tell him he hoped that he was going to do what James Aitken considered was the honourable thing and not claim the subsidy for himself from Brunstane Farm. James Aitken's understanding of that meeting was that he obtained a gentleman's gentlemen's agreement from John Blackwood to the effect that he would not do so .. That led to the third problem.

[24] The third matter concerned the signing of the lease for a short limited duration tenancy of Brunstane Farm for the period 4 September 2005 to 3 September 2006. Mark Paton had left the lease document with John Blackwood for signature in or about November 2005. He had failed to follow up on the matter and as at January 2006, the document remained unsigned although John Blackwood was in fact farming at Brunstane. James Aitken heard on the grapevine that John Blackwood was considering claiming tenants' rights in respect of Brunstane. It may well be that John John Blackwood did not intend to do so but there is no doubt that James Aitken thought that he did. Had he done so that would have been seriously detrimental to the value of Lord Palmer's interests arising from the development potential of the land at Brunstane. James Aitken discovered that the lease had not been signed. Mark Paton was on holiday in St Andrews at the time. As was accepted by John Blackwood, James Aitken telephoned him at about 5pm one evening in January 2006 insisting that he visit immediately and insisting that the lease be signed. James Aitken attended at Oxenfoord Home Farm. Matters became heated because Clause 8.5 of the lease provided that, in the event of the defender being awarded entitlement to SDP referable to production on Brunstane, it would be surrendered at the termination of the lease to the landlord without compensation. John Blackwood was not prepared to agree to Clause 8.5. James Aitken's view was that, in refusing to do so, he was in breach of their previous gentleman's gentlemen's agreement. John Blackwood accepted that James Aitken got very irate and James Aitken described the mood between them as pretty volatile. The lease was, however, ultimately signed but only on the basis that Clause 8.5 was deleted. James Aitken did, however, write a note in the margin indicating that the content of Clause 8.5, although deleted, had been agreed on 10 January 2005. He was, plainly ,, angry about that ..

[25] Mark Paton was aware of the incident regarding the signing of the lease. He received a telephone call from James Aitken who was furious at the fact that Mark Paton had not attended to getting the lease signed bBecause ,, as indicated ,, he had heard that John Blackwood was going to claim tenants' rights. Mark Paton became distraught. He was very angry with himself, realising as he did, the implications if the lease was not signed and the defenders did claimed tenants' rights. He thought his career with the pursuers would be in ruins. He thought it a real possibility that John Blackwood might not sign the lease. He was relieved when he did so. It was put to Mark Paton in cross-examination that he must have been grateful to John Blackwood as a result of him doing so and he accepted that he was although he was not, as he put it, overtly grateful nor, it seemed, did it detract from his overall position being as he had put it in examination in chief, that he felt dislike for John Blackwood after the episode. I accepted as credible and reliable his evidence that it was not such as to make him inclined to do John Blackwood a favour.

[26] Separately, Mark Paton confirmed the picture of James Aitken that he had himself presented in evidence namely that he was a man who could be quite short and was quick to anger. He gave Mark Paton, as he put it, "a bollocking" on the telephone when he called him in St Andrews about the Brunstane lease. He explained that James Aitken did not like to forfeit anything. The clear impression was that Mark Paton was well aware that the Chairman and Managing Director of the pursuer, to whom he was answerable, was a forceful man who would not suffer fools gladly. Moreover, by the summer of 2006, Mark Paton had become well aware that James Aitken did not trust John Blackwood, did not like him and would not do him any favours. He had formed that view from what James Aitken had told him of the three problems to which I had referred.

WHETHER PARTIES' CONTRACT VARIED?

[27] The simple issue at the heart of this case was whether or not in or about September 2006, the pursuer, through Mark Paton, agreed to a variation of the wheat supply contract. In answer three to the Condescendence, the defenders aver that there was a meeting between John Blackwood and his son Michael, and Mark Paton at the pursuer's offices and:

"It was agreed at that meeting that the pursuers would not insist on the defenders supplying 400 tonnes of wheat for the year 2007-2008. It was agreed that the defenders would supply to the pursuers what wheat they had available. The contract dated 27 July 2005 was varied to that extent. Esto the contract was not varied as aforesaid the pursuers at that meeting waived their right to insist that the defenders perform their obligations under it."

[28] Mark Paton was adamant that ,, as he put it : "' there was no meeting'" from which I took him to mean not that he did not ,, at any time ,, meet with the Blackwoods Blackwoods - he evidently dealt with them on a regular basis - but that there was no meeting at which such a contractual variation was agreed. James Aitken had no awareness of any such agreement nor did his son, Neil Aitken.

[29] John Blackwood explained that when they entered into the wheat supply contract, they had sufficient acres to grow 400 tonnes of wheat each year, assuming their farming arrangements remained the same. At that time, one of the farms they farmed was Bughtknowe Farm. They farmed it as tenants. He explained that in 2006, he was approached to see if he would change from leasing Bughtknowe to "'shared farming'". He agreed to do so and in due course, an agreement was entered into so as to alter the arrangements to a shared farming agreement from 1 October 2006. The effect of that was that he would no longer have control over or ownership of the crops grown on the farm. The Blackwoods would simply receive a contracting fee. They would not, accordingly, be able to rely on crops from Bughtknowe for the purposes of fulfilling their contract with the pursuer. He also discovered, in about June or July 2006 that so far as Brunstane Farm was concerned, it was liable to be moving to a contracting rather than tenanted basis. Accordingly, again, he would not be able to rely on the Brunstane land for the growing of crops to fulfil the contract with the pursuer. So far as Oxenfoord Home Farm was concerned, as he saw it, there was not going to be sufficient acreage there available to grow enough wheat to fulfil the contract, once account was taken of the other uses to which he planned to put the land there. John Blackwood spoke of there being two major issues in his mind that he needed to discuss with Mark Paton. One was the contract for the supply of wheat. The other was the arrangement for farming Brunstane Farm. Both he and his son, Michael, spoke of having gone to see Mark Paton. They did not give a specific date for the meeting. It was not a prearranged meeting. John Blackwood thought it was before they started cutting the 2006 harvest. His son thought that they had just started the harvest. They both spoke of Mark Paton's dog being there and talking about it having been ill due to a stomach/intestinal complaint but it being, by that time, on the mend. They both said that once it was explained to Mark Paton that they would be in difficulty with meeting their contractual obligations to supply wheat from the 2007 harvest, Mark Paton was quite happy about it and said he would not hold them to the contract. The Blackwoods made no written record of the meeting. There was no written record of any sort relating to the alleged meeting.

[30] In cross-examination, John Blackwood oddly resisted the suggestion that he had been asking Mark Paton for a favour. Rather, as he saw it, they were having a discussion because they would not be able to grow the required tonnage the following year. Significantly, he went on to say that if Mark Paton had a problem with that, then he should have reverted to them. He assumed that Mark Paton had sorted matters out with Diageo after the meeting. However, if he had reverted to him and indicated words to the effect "this is going to cost you John" and named a price to reflect what would be the increased cost to the pursuers of meeting their contract with Diageo, he would have accepted that. That was, it seemed, because he accepted that the pursuers had an obligation to Diageo and that would have to be taken into account. He presumed that if Diageo were told that they would understand the problem and come to an agreement with the pursuers. Similarly, whilst accepting that James Aitken was a hard man, John Blackwood indicated that he assumed that after his meeting with Mark Paton, Mark Paton would have agreed matters with James Aitken and, if he had not done so, then he would have reverted to the Blackwoods. Indeed, John Blackwood said that if Mark Paton had reverted to him and told him that James Aitken was not going to agree to what he proposed, then he would have accepted that he would have to see if he could buy wheat himself to make up the tonnage or buy himself out of the contract. He did not know whether James Aitken would have let him off the contract.

[31] Overall, John Blackwood came across as a man who does not pay attention to detail. His evidence was vague and evasive at times. He was also argumentative. I found his attempt to downplay the incident when James Aitken called at the farm to get the lease signed distinctly lacking in credibility. James Aitken was plainly highly agitated about the matter, furious with Mark Paton and intent on seeing to it, that, one way or another, the lease got signed. Likewise, his description of his and his son's alleged meeting with Mark Paton to discuss varying the contract was wholly unpersuasive. Mark Paton knew how demanding James Aitken was .. He knew of his feelings about John Blackwood. He knew of the general concern amongst grain merchants, including the pursuers, about the need to see to it that farmers were held to these fixed supply grain contracts. He knew that the pursuers had a commitment to supply to Diageo at a fixed price which was, by September 2006, lower than the market price. He knew that he had incurred James Aitken's wrath previously when he had failed to attend to concluding contractual details with John Blackwood in proper form. Mark Paton had, in to his mind, put his career at risk by failing to attend to matters correctly so far as a contract with John Blackwood was concerned less than a year earlier. In these circumstances, it seems inconceivable that he would be quite happy to accede to John Blackwood's proposal that he be let off his grain supply contract and, furthermore, that matters would not even be left on the basis of John Blackwood committing to supply any definite tonnage of wheat at all. In those circumstances, the pursuers would not know where they stood so far as getting grain from the defender was concerned until the outcome of the following year's harvest.

[32] I conclude, in all the circumstances, that it was inherently unlikely that Mark Paton would have agreed the variation for which the defenders argue. I turn then to ask whether any of the facts established in evidence are such as to persuade me, on a balance of probabilities, that Mark Paton did agree the variation, notwithstanding it being so unlikely that he would do so. That takes me to the evidence given by Elizabeth Blackwood. She was an entirely credible and reliable witness who gave her evidence in a straightforward fashion. She does not get involved with the farming business, being fully engaged in her own occupation as Care Home Manager. She did, however, recall that she knew her husband was to be losing land at Brunstane Farm. She knew none of the details about it though. Her husband told her, about harvest time 2006, that he had had a meeting with Mark Paton regarding the matter of him losing land at Brunstane Farm and having a contract to fulfil to supply wheat. The outcome was that her husband was very surprised because it was agreed that he would not have to supply the wheat contracted for. To an extent, that accorded with John Blackwood's own evidence which was to the effect that he had told his wife that he had sorted matters out. However, John Blackwood did not express surprise at the outcome of the meeting. On the contrary, both he and his son sought to present it as being a straightforward matter so far as Mark Paton was concerned and he readily agreed to let them off the contract. Further, as Mr Kinroy submitted, it would have been only natural for John Blackwood to want to reassure his wife that all was well. It does not follow that his account to her of what Mark Paton said was correct. I do not, in the circumstances, regard Mrs Blackwood's evidence as being sufficient to tip the balance in favour of the John and Michael Blackwood's' account of the meeting.

[33]

I turn then to the evidence of David Cowe. John Blackwood is a customer of his. He acts in an advisory capacity regarding cropping, chemicals, fertilizer and rotation. On 18 September 2006, a date which he had checked from his log, he attended at Oxenfoord Home Farm. He was to discuss changes in the farming arrangements at Brunstane Farm and Bughtknowe Farm. John Blackwood told him that he had had a meeting with Mark Paton once he knew about the proposed arrangements for Brunstane Farm. There would be no winter cereals going in since he was just going to be contracting in the future. David Cowe was aware that John Blackwood's position was that he would not have the acreage for the wheat supply contract with the pursuers and had spoken to Mark Paton about it. He understood they had come to an agreement that was going to be fulfilled by winter barley seed supplied by the pursuer going into Brunstane Farm instead. Whilst I had no reason to doubt the veracity of David Cowe's evidence ,, it did not directly support the Blackwoods' account of the meeting and it was not such as to persuade me to accept the defenders' account as to what Mark Paton had said to them ..

[34] I turn to the matter of Mark Paton's dog. He confirmed that he has a dog, a Springer Spaniel called "Smudge" and that he takes the dog to work. He confirmed that his dog was ill. However, that was towards the back end of 2006 and the dog did not suffer from an intestinal problem. Accordingly, if the Blackwoods did meet with Mark Paton in September 2006, which was not the "' back end'" of the year ,, they must be mistaken about his dog being ill on that occasion and about the nature of the illness. That in turn calls into question the accuracy of their recollection regarding what else, if anything, passed between them.

[35] I add to my consideration the fact that the pursuers are highly experienced grain merchants. Had they known that a farmer was going to default on his grain supply contract for the following year's harvest, in circumstances where that grain was to be used by them to meet their obligations under the contract for the onward supply of the grain, it is highly unlikely that they would have done nothing about seeking to secure the shortfall for themselves, from elsewhere, in advance of the 2007 harvest. Inaction on their part could only be explained by Mark Paton having put his head in the sand after agreeing a variation to the contract and not facing up to the reality of the problem that would thereby have been created. It seemed to me ,, however ,, that it is highly unlikely that he would conduct himself in that way. He came across as an efficient and effective businessman who had certainly learnt his lesson about not attending to matters timeously when the Brunstane Farm lease problem arose .. That he would leave the matter of a likely shortfall of supply on a grain contract with a farmer unattended to ,, particularly at a time when wheat prices were rising, seemed to me to be inconceivable.

[36] I do not rule out the possibility that in the course of a visit to the pursuer's office in September 2006, John Blackwood expressed concern regarding changes to his position as a farmer in the forthcoming year. It may well be that he mentioned his concerns about the wheat supply contract. It may well be that, in his own mind, having mentioned it, he thought that was enough. As I have indicated, he did not impress as a man who bothers much with attention to detail. However, even in his own mind, no clear variation was concluded. That is clear from his comments in cross-examination to the effect that had Mark Paton reverted to him to tell him that Diageo would not agree a change or that James Aitken would not agree to a change, then he would have accepted that he would have to buy wheat himself to fulfil the contract or buy himself out of the contract. In short, at its highest, John Blackwood's evidence supported a case of him having put a proposal to Mark Paton and then, when he did not hear back from him, assuming that everything was alright. That does not, however, amount to evidence of an agreed variation of the contract.

[37] There were other areas of concern regarding John Blackwood's evidence such as his curious reluctance to accept that he had, on one occasion claimed tenants' rights in respect of a field at Tynemount Farm. It was also odd that even on his evidence, when he went to see James Aitken after having received the letter of 24 October 2007, he did not assert that he could not hold him to the contract. Rather, his approach was to ask James Aitken not to insist on holding him to the contract. As was suggested by senior counsel for the pursuer, that was not the approach of someone who was clear in their own mind that they had achieved a concluded variation of the contract.

[38] Separately, rather than fortifying John Blackwood's evidence, I considered that the evidence of his son, Michael, weakened it. The description suggested by senior counsel for the pursuer of him being a "raconteur well versed in his tale" seemed to be a fair one. The delivery of his evidence was as though it were a prepared speech and his insistence on the clarity with which he remembered the occasion as being one that he would never forget was curious given that, at the time, he would not have been aware that it was so important.

[39] Finally, I was invited to accept Mark Paton as being wholly credible and reliable who gave clear and concise evidence in a fair manner. I was prepared to do so. Mark Paton is a Chartered Surveyor who came across as entirely professional in his approach. There was no challenge to his and James Aitken's evidence that this was the first time in his career with the pursuer, which dates back to 1999, that his credibility has been called into question.

Conclusion and Disposal
[40] I am, accordingly, satisfied that the defenders breached their contract with the pursuers. I will sustain the pursuers' first plea in law and find the defenders liable in damages to them in the sum of £28,443.36 together with interest at 8% per annum from the date of citation until the date of decree to follow hereon and thereafter with interest at the applicable judicial rate.

[41] I will reserve, meantime, all questions of expenses.