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Dairy Contracts Dispute – Judge Refuses to Subvert the Free Market in Milk

Commercial contracts create legal obligations and judges are often willing to issue injunctions to enforce their terms. However, as a High Court case concerning the dairy industry showed, they will not do so if such orders are likely to subvert the operation of the free market.

A number of members of a dairy farming cooperative purported to give three months’ notice terminating long-standing agreements by which they supplied milk to a processing company. They did so after negotiations concerning the price the company paid for their milk reached an impasse.

The company argued that the agreements had not been validly terminated and obtained an emergency injunction which restrained the farmers from selling their milk elsewhere. At a further hearing, the company sought a continuation of the injunction in order to maintain what it viewed as the status quo pending a full trial of the action.

Ruling on the matter, the Court noted that it was difficult to discern the precise terms of the agreements, which had been varied over time. With a fair degree of hesitation, however, it was prepared to accept that the company had shown that it had a good arguable case and that there was a serious issue to be tried.

In discharging the injunction, however, the Court found that, if the company’s breach of contract claim succeeded in due course, it could be adequately compensated by an award of damages. Although it currently depended on the farmers’ milk, there was no suggestion that it could not go out into the market and obtain supplies elsewhere, albeit at what was likely to be a higher price.

Pricing tensions lay at the heart of the very commercial dispute and the Court noted that some members of the cooperative had withdrawn from the proceedings after coming to beneficial terms with the company. Extending the injunction would have a pernicious effect on the free market in that the farmers would be tied into contractual arrangements that were disputed and that they no longer wished to continue. Although they might not be cash rich, they had the capital resources required to satisfy any award of damages that might be made against them.

24 February 2021
Last Updated
8 March 2021