Worldwide Issues With Winegrape Contracts

Legal experts address producer/supplier agreements at European conference

by Jane Firstenfeld
KC Branch
KC Branch is discussing grape contracts at the International Wine Law Association meeting in Rioja, Spain, on Saturday. Slide courtesy of KC Branch
Rioja, Spain—Members of the International Wine Law Association convened in Rioja from Sept. 29 until Oct. 2 to share expertise and advice about “Agreements Between Producers and Suppliers.” The program for the annual conference suggested that conflicts between winegrape buyers and sellers are similar—and unfortunately common—in wine-producing regions around the world.

The association, officially Association Internationale des Juristes du Droit de la Vigne et du Vin, or AIDV, claims more than 350 individual and organization members in 25 countries, providing a forum for the study and discussion of legal issues concerning the viticultural community and the wine trade worldwide.

The AIDV 2011 conference featured more than a dozen attorney-presenters from Europe, Asia, Australia and North America, including Marc Sorini, Rob Carroll, Paul Reidl, Scott Gerien, Peter Brody and KC Branch from the United States.

Before departing for the conference, Branch, who heads KC Branch Law, with offices in San Luis Obispo and Yountville, Calif., shared an exclusive preview of his presentation with Wines & Vines. Branch is scheduled to present during the meeting’s final session Oct. 1, “Pricing and Experts and Other Matters,” chaired by Rajendra Kumar (India). He’ll share the platform with Thomas Schmitz (Germany) and Teiji Takahashi (Japan), and focus on “Pricing Disputes in Grape Contracts.”

Avoiding and resolving price disputes
In the collegial—even familial—California wine industry, written contracts have not always been the rule of thumb between grapegrowers and their winemaking clients; many tons of grapes have changed hands with a handshake for generations. In a litigious society with much higher stakes, written contracts are essential to protect both parties, and there is no shortage of expert advice available.

Branch explains that disputes are limited with fixed-price written contracts by weight, lot, acre or published grape prices. Contracts without fixed prices are more prone to conflict. Also problematic can be vague volume terms such as “carload,” oral contracts, or “conditions of grapes, farm or timing.”

Condition issues may be the most difficult to resolve, he says, requiring posses of expert witnesses including ag consultants, plant pathologists, wine marketing and sales professionals, economists, wine tasters and professional industry members pulled from pools of hired guns, management of the contesting parties and vendors.

Disputes may be driven by failure to adhere to a specified plan in the vineyard; general farming techniques; grape quality related to early or late picking or type of picking (hand or mechanical).

Misrepresentation suits arise from wrong variety delivered; erroneous bills of lading or differences in quantity or quality contracted. Analyses of Brix, acid, pH and other grape metrics upon delivery can spark disagreements, as can excess MOG—water, organic materials or critters.

Logistics: If picking or delivery was delayed or deficient, who’s to blame? Who pays for a Force Majeure, when weather or labor problems make delivery problematic?

Value issues may come down to the questions: Did the buyer/seller get a reasonable price? Did both act reasonably? Who lost profit? Who benefited from the bargain? Did the parties try to mitigate their damages?

For his international audience, Branch will address the choice of legal forum. If a German company buys California grapes, litigation, arbitration or negotiation could happen in either the EU or the U.S. Specifying the venue in a written contract will simplify resolution. Litigation, he points out, is expensive, including use of paid experts; it’s time consuming, and courts and juries are not used to this type of litigation. Foreign litigation also raises issues of enforcement across borders.

Arbitration, Branch says, comes too late for government intervention; requires pre-agreed enforcement procedures; will not provide injunction or processor licenses; and may be more expensive than going before a judge.

Mediation, on the other hand, can start immediately: “It can be an old-fashioned meeting,” with only the interested parties and mediators on hand. The process is reasonably cheap but mandates a compromise agreement. Because it requires self-evaluation of issues, not everyone is a candidate: Those who can’t admit they are wrong are not likely to benefit.

Why compromise?
A buyer, Branch suggests, might agree to compromise and raise the final price if:

• “He knows these are good grapes and worth a lot;
• “He knows it’s too late to find other grapes to make his great wine;
• “He might be able to pay over time instead of up front;
• “The MOG/logistical delays have not been that severe.”

A grower, on the other hand, might be willing to compromise and lower the price if:

• “Producer lien may be difficult to enforce outside the U.S., and may not apply at all since the wine has been sold to China.
• “Grapes are really bad—he knows this and doesn’t need an expert to tell him.
• “He would rather have something than nothing.
• “The buyer doesn’t have the money to pay a higher price.
• “There are no other buyers and the grapes will not be sold (sort of blackmail.)
• “Payment up front, as opposed to having a producer’s lien.”

AIDV will host a joint Australasian conference with the World Intellectual Property Organization in Launceston, Tasmania, from Oct. 21 until Oct. 23. Click here for details. Contact KC Branch at (707) 204-9593 or KC@kcbranchlaw.com.

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