All businesses face risks from court action associated with compliance issues, such as the Privacy Act, Occupational Safety and Health Act, Equal Employment Opportunities Act, Resource Management Act, Companies Acts, Employment Contracts Act, Inland Revenue Legislation and many more.

There are also all the usual legal and financial risks from cash flow issues, loan agreements, contracts to supply or purchase goods, exchange rates, price increases and so on. Physical risks to the business such as fire, theft, accidents and storm damage to buildings are similar throughout most businesses.

Horticulture can be an exciting and rewarding industry; unfortunately there are many risks, and indeed considerably more than just about any other business. Where horticulture differs from most other businesses though is in the area of crop damage. There are so many possible causes for crop damage that it is virtually impossible to anticipate them all. What follows in this article is not legal advice, but practical advice that may help you reduce these risks.

This article will focus on those crop damage situations that are not caused by weather events or problems related to the business itself, but those that are caused by persons or organizations outside of the business. In this situation, the business owners are likely to want to claim for losses against the other party and are likely to not have insurance themselves to cover such an event.

To give you some idea of the range, some of the crop damage situations I have dealt with over the past decade that were caused by another party include:

• Poor design of an irrigation system, delivering water to the crop inaccurately.
• Accidental overdose of nutrients due to malfunction in the fertigation system.
• Incorrect trace element mix supplied for hydroponics system.
• Excessive or insufficient nutrients in potting mixes.
• Weed seeds in potting mix or uneven soil sterilization.
• Incorrect advice from trade representatives or consultants.
• Incorrect or off label application of pesticides.
• Supply of defective or mislabeled plant material.
• Coolstorage or heating system failure.
• Defects in greenhouse design or construction.

Crop damage is one of the most likely causes for a horticultural business to fail; yet it is also the most difficult and expensive part of the risk profile to insure against, and also often the most technically difficult to rectify or mitigate once it occurs.

The other party may or may not be insured, which changes the way a claim is dealt with. Uninsured parties tend to try and delay or avoid facing up to the claim and may not have the funds to cover losses, while insured parties have the funds, but also have a much bigger pool of resources with which to investigate and possibly defend against the claim.

Unfortunately, growers are often plants people first, and tend to be overwhelmed by the processes involved once a third party has allegedly caused crop damage. Many actions taken in the first few weeks after the crop damage has occurred will come back to haunt them several years later, often through no fault of their own.

Is Litigation The Best Solution?

It sounds fairly simple, someone has caused you loss, and therefore they can be expected to pay for it. Litigation is sometimes unavoidable and in fact it is sometimes the best approach for resolving a dispute over crop damage. However, in reality, this approach may end up costing you more in time, stress and money than the original damage did.

Costs of litigation can range from several thousand dollars for very simple, undefended cases, to hundreds of thousands for complex and aggressively defended cases, excluding any appeals that might ensue. You can’t control these costs, as actions taken by the other side of the case, or the court itself, can significantly increase them.

These costs must all be borne by the business owner until the case is settled one way or another. Can your business stump up the funds to do this?  For anything up to the six years that I have seen some cases go on for? Can it also provide the court or your lawyers with funds to be placed in trust to cover future costs before the case goes before the court? This is something that many litigants don’t expect; yet it happens quite frequently.

The court or mediation process may not decide to award you costs if you win, so you’ll need to still pay these expenses out of your settlement. Will the settlement cover this amount? I have seen a few cases where it didn’t. Also, the court may place an upper limit on the costs awarded.

If you win, and the court awards costs, then that should be the end of the matter right? Unfortunately no. There may be disputes over costs, the defendant may decide to appeal the decision to a higher court, and you might have to go to a debt collection agency to force the other party to pay, you might even have to force bankruptcy or liquidation proceedings. Or the defendant may be a shell company with no assets and the directors have their personal assets nicely tucked away into trusts.

Can your business cope with these demands and still survive? Can you and your family cope with the extra stresses? If not, then all you’ve achieved is a pyrrhic victory at best.

Got cold feet and want to pull out of proceedings in court? Just keep in mind that legal and expert witness fees will still be payable and the court may award legal costs against you for the other party.

What if you lose? You’ll have to still carry these costs and the court may decide to award the costs of your opponents’ legal team.  Maybe their legal team was much larger than yours and didn’t have to work to a tight budget. Then you’ll be really out of pocket.

And how likely is it that you will lose? Unfortunately, all too likely! In criminal cases, the evidence must prove the person guilty beyond all reasonable doubt. However in civil cases, the evidence is assessed and the decision made on a balance of probabilities. Therefore the more evidence that the defendant can produce which shows the plaintiff in a poor light, for example your production is much lower than the industry average or your production systems or quality control procedures lent themselves to damage occurring, then the more likely it is that the court will find that you have contributed to the damage or were wholly responsible. The defendant can also call into question your recollections of the event, the way in which evidence was collected and assessed and propose any number of alternative reasons for why your crop is looking so ill.

You may think that the case is clear-cut, but in my experience, there are any numbers of counter arguments and points of law that can disrupt your plan of attack. I have seen several apparently open and shut cases be thrown out or settled before court for a much smaller amount, even though it was patently obvious to all that the defendant had been the primary cause of the crop loss.

Sounds horrific, yet this is all reality and before a dispute goes into litigation, all of the potential financial implications need to be recognized and budgeted for.

Litigation distracts business owners, managers and employees from doing their jobs, which reduces the ability of the business to make money, further impacting on the cash flow. This distraction derives mostly from the time commitment that is needed to collect and prepare evidence, assist lawyers and experts with information. This commitment can run into the many hundreds of hours. Also, destructive emotional factors such as stress, apprehension and anger can affect individuals at all levels in the business. Often the case can be so consuming, that little else is discussed on some days.

Although not of primary importance, a business should also consider the impact that litigation may have on business relationships. Obviously the two parties involved will have major and probably irreparable damage to their mutual ongoing business, but often overlooked is the effect on other associated business that are on the sidelines.  Will they want to continue doing business with you? Litigation can sometimes have an adverse effect on a company’s reputation within its own industry, among potential investors, suppliers, customers, and current or potential employees.

So, how does a grower firstly avoid these situations occurring and secondly, deal with the resulting claim as quickly, effectively and efficiently as possible?

Avoiding And Preventing Disputes

Dispute avoidance is the most cost effective tool at the growers’ disposal. Not only does it help to avoid many potentially damaging situations from occurring, but it also improves the overall business viability.

Dispute avoidance consists primarily of implementing quality control processes and best practice procedures.  A comprehensive program can avoid many problems occurring and, if a dispute arises, the information developed during this process can be used to demonstrate that all due care was taken by the grower and there is a good trail of information and evidence that can be followed to support this.

An important part of this process is designing best practice procedures for all aspects of the operation. Once these have been established, then current and future performance and situations can be assessed against these.

For example, when buying plant stock, the quality parameters that are important, such as size, weight, coolstorage time and temperature, virus levels and so on, need to be established before orders are placed. These need to be clearly set out and when the plants are being ordered, communicated with your supplier. Once the plants arrive, they can be checked against these standards. If unacceptable, then the plants can be rejected and potentially years of crop loss, litigation and cost have been nicely and cheaply avoided.

Another good example of how this process can assist with the information requirements for the business itself and for potential crop damage claims is the development of cropping plans. These typically include a map of the planting area, showing planting date, plant numbers, sizes and grades planted and a schedule of crop management inputs such as labour, chemicals and material requirements.  This information will provide you with the basis of the seasons financial forecasts, indicate labour and material requirement peaks and provide the basis for crop management decisions.  If crop damage occurs, you have the information at your fingertips to develop accounts of crop losses and to compare to previous seasons to easily verify your claims. This information will also be invaluable for bringing your legal team up to speed on your operation quickly, which will reduce your legal fees considerably.

As mentioned earlier, a defense team will often try and shift some or all of the blame for a poor crop result on the grower or other factors such as the weather. Regular monitoring and recording of macro and micro environmental conditions such as air and soil temperatures, irrigation water quality, soil pH and nutrient levels are an absolute minimum for any horticulture business. Without these, not only will your business be at more risk of crop failure, but also even a mediocre defense team will have a field day with you.

A detailed crop-monitoring program is also essential for the same reasons as above. This might include a list of potential crop risks such as pests and diseases known to infest this type of crop, details on when they are likely to occur and under what conditions. Scouting can then be targeted more effectively. Scouting for pests and diseases during the growing season is commonly accepted in some horticultural sectors, but should be commonplace across all sectors.

When major crop inputs are being sourced from suppliers, the business owner must take the time to learn what is accepted as good practice in that industry. Are the suppliers properly qualified and/or certified? What are the parameters they should be working to and what are the expected outcomes? Do they have a good track record with other growers in the industry? If the supplier does not perform to expected standards, then the grower can quickly pick up on this, hopefully in time to correct the fault before crop damage occurs.

For example, soil sterilization is an effective method of soil borne disease control if used correctly.  However, to be effective in controlling root diseases a minimum temperature of 60°C and preferably 70-75°C must be maintained for at least 30 minutes throughout the soil profile that the roots will penetrate. The soil should be moist but not overly wet for at least 4 hours before steaming to allow spores to take up water, which makes them less resistant to steaming.  The soil will also hold its’ temperature longer if it is moist than if it is dry.  The soil should be well worked over to a fine tilth prior to sterilizing to ensure maximum penetration. A set of thermometers at various depths and locations should be used to check that the sterilization has been evenly distributed and at the right temperatures for a sufficient period. Most of these parameters are reasonably easy to check and record.

Once monitoring systems are in place, ensure that the results are recorded in an easily accessible and very obvious place. This is not the sort of information that only the Managing Director has buried in some spreadsheet somewhere. Create an environment that encourages employees to report potential risks and deviations from the norm and ensure that there are the necessary resources and delegation of authority to deal with the problem quickly and efficiently.

Good communication with your chosen suppliers is vital. This needs to occur right from the start of the business relationship. Carefully drafted letters of intent, contracts and purchase orders are important, but nothing is more important than frequent and concise communication from both sides. A failure to communicate well produces misunderstandings, which in turn can lead to mistakes, crop damage and eventual litigation.

Avoiding The Court

If crop damage has occurred and is thought to be due to the actions or goods supplied by another party, then some sort of claim is almost inevitable, and usually, but not always, there will be some sort of dispute over liability for the damage or the amount of the claim.

Even at this stage it is still possible to resolve the situation without resorting to a lengthy and costly court battle. A formal or informal process of mediation or arbitration can often be an effective means of resolving an issue more or less to the satisfaction of both parties. More or less is the key here, as there has been crop damage, which does cost money to repair. So someone has lost potential income, and someone will have to pay for this. Obviously neither party is ever going to be completely happy in this situation, but it is a case of making the best of a bad deal.

What needs to be understood, is that this process has almost nothing to do with logic, and almost everything to do with human psychology. It is mostly the human reactions and thought processes of the people involved that determine whether a case will be solved quickly and less painfully through mediation, or through a bitter court battle.

When growers experience crop damage, or an angry grower and their lawyers’ bail a supplier up, it is difficult for them to make an objective analysis of their own case. The result is usually a decision to litigate, but this decision may not have taken into account all the considerations such as costs, impact on the business, potential for losing the case and so on. Often one or more of the participants are naturally enough ruled by passion, not reason and passion usually overrides objectivity. As the case progresses, some people start to expect more than they can reasonably expect out of the process, which can result in reasonable settlement offers being rejected out of hand. On the other hand, an unreasonable offer can be seen as an insult and precipitate a dispute into the courts where otherwise it may have been settled.

So, what are the important issues to consider when preventing a dispute from going to court? Well, as always, communication is the key. Again, this should start from the initial contact with the supplier, as provisions in the contract can provide for mandatory mediation and/or arbitration before either party can go to court.

Direct communication after a crop loss might not be possible in some cases, for legal, insurance or procedural reasons. But if one party opens the lines of communication, the other should respond with equal intent, with a view to achieving resolution.  This communication should take place as soon as possible, before issues of suspicion and mistrust come into play.

Speedy resolution is important for horticultural cases, unlike many other cases that come before the courts. Horticulture is somewhat unique, in that as the case progresses, the amount of crop damage and financial losses can in fact be increasing at quite a rate. What starts out as a simple claim for one season’s loss can develop into a huge claim for several season’s losses while the lawyers continue to argue, yet another good reason for trying to avoid the court!

When All Else Fails!

Unfortunately, despite the best efforts or otherwise of the people involved, a crop damage claim may have to go to court. If that is the case, there are a number of issues that need to be considered to improve your chances of success. Most of these have very little to do with the law, but I have seen them sink many an otherwise good case.

Firstly, with the help of your lawyer, draw up a comprehensive plan of attack.  This is no different to a grower setting up cropping plans and crop budgets, or a general determining his forces and supplies before a battle. If litigation is unavoidable, then it is important that your legal team is supported by thoroughly researched expert witnessing and the most accurate and reliable information and evidence available. Some of the steps below should in fact be taken even before mediation is considered, as this will ensure that all the necessary evidence is preserved, and that the other party knows that there is a credible claim to be resolved.

Identify and interview potential witnesses, such as staff, neighbors and contractors before anything else is done. Peoples memories are notoriously fickle and the sooner a statement is taken, backed up with dates and pertinent photographs, the better the quality of evidence.

Identify and collate all potentially relevant documents, emails, websites that are available. Websites are often overlooked, but these should be included in this step, as I have seen instances where websites have been purposely or inadvertently changed after an event, effectively destroying a piece of evidence.

As soon after the event as possible, collect crop samples and other physical evidence. It is best if a person who is well qualified in the field, to avoid defence questioning the sample collection process, carries this out. Depending on the type of crop damage, samples can be taken from soil, water, roots, tubers, leaves, flowers, fruit, nearby weeds and grass, spray tank residue and so on. At the same time, counts can be made if appropriate of the amount of plants affected and the amount of crop they were carrying. The degree of damage should be assessed, and good quality photos taken. Bear in mind that it may be several years before the photos are seen by a judge, who may have no knowledge of horticulture, so make sure the photos show as much as possible of the case and in great detail.

The urgent issues have now been addressed, except one very important one. Mitigation. This is a thorny issue, but it is essential that growers understand that it is in their best interest in the short term, to try and reduce the amount of losses that will occur, and also in the long term, as any court will expect the grower to have done their level best to reduce their losses.

Essentially, because of the large number of unknowns in many horticultural cases, it is usually enough to be seen to have attempted to mitigate the losses using the best available knowledge, without incurring costs that exceed the value of potential loss. A horticultural expert is useful in this area, as they can bring experience from a range of other cases to bear on your problem.  It is important to realize though, that some cases are so unique that there is very little reliable information to work from.

An expert is also recommended to review any appropriate technical information or research data that might have a bearing on the case. This can be the same person who does the sample collections; photographs and advice on mitigation, or in complex cases, several experts with differing areas of expertise may be used. Experts can range in qualifications from Bachelor through to Doctorate and can come from industry or from academia; the important point is that the appropriate expert for the type of case and level of expertise required should be chosen.

At this point, I would stress that experts should be called in sooner rather than later. It is incredibly frustrating for an expert witness to be called in several months, or even years after an event has occurred, to find that crucial information, photos or crop samples have not been taken, or have been taken incorrectly and are now next to useless. Please remember, that although your lawyer is an expert at law, they may not know the first thing about plants and cropping.

After these steps have been taken, the legal team can start to determine whether the case has sufficient merit to proceed to trial, who the defendants should be, where the case should be filed, what cross-complaints might be filed and what further evidence will need to be obtained. They will try to anticipate areas of dispute and key legal questions and form an early view of liability and damages.

Importantly for the grower, it should now be possible to prepare preliminary budgets of legal costs. Litigation is unpredictable, but it should never begin without a litigation budget. An exact budget is always impossible because no one, including the judge, has control of a case.

One of the areas where costs are difficult to determine is the discovery stage. This is where each side has the right to force the other to respond to written questions, produce documents, and appear for testimony under oath, and each side may force third parties such as witnesses or professional advisers to provide information as well. Disputes often arise about discovery and therefore it can last up to a year or more in some cases. Obviously, the more your business has their information well organized, as outlined earlier, the cheaper this process will be for you. However you still may have difficulty getting this same level of information from the other party.

Sometimes though, discovery can force one side or another to recognize the weaknesses in their case, which may lead to an early offer of settlement. It also reduces the number of issues in dispute, which can reduce the amount of time spent in the courtroom later.

Estimating the costs of the case may also help to bring the parties to mediation. Often the direct and indirect costs of a complex trial approach or even exceed the likely damages and costs that can be recovered. Also, the other party may have a much bigger purse to draw from, or be represented by their insurance company.  This imbalance often applies in horticultural cases, where the grower is often dwarfed by the size of the supplier.

There are many other steps to follow before your case is finished, all of them important, but mostly the domain of experienced lawyers. I will gladly leave it to them to deal with those issues!

Conclusion

Through the application of the techniques outlined in the previous sections, cautious and sensible growers will reduce the risks of crop damage from third parties occurring. If damage does occur, careful management of the process may resolve the issues without resorting to expensive litigation. If litigation is unavoidable, then once you have fully understood all of these issues and how they may affect your case, you can make a quality judgment call on whether to fight or settle, and how much for.

This article is intended to be a layman’s guide to dealing with litigation for crop damage, and is written from the experiences of a horticultural consultant who is frequently employed as an expert witness. It is not intended to replace the advice of people trained in law. For more information, please contact Andrew on 021 968 405, or email andrew@croplink.co.nz