About this case:

• Citation:
  [2022] NIQB 51
• Judgment:
  External link
• Court:
  NI High Court
• Judge:
  Mr Justice Michael Humphreys

Background

The plaintiff was a company that raises and produces pigs from premises at Sion Mills in Co Tyrone. The defendant was a Yorkshire-based food production company which processes and supplies pork products to retailers.

On 11 December 2020, the parties entered into a production and cost sharing agreement where the plaintiff agreed to supply pigs to the defendant, and the defendant would pay for the cost of rearing and producing the pigs.

In November 2021 the plaintiff issued proceedings seeking payment for outstanding invoices in relation to the cost of pig production. The defendant counterclaimed in respect of alleged overpayments, claiming excessive costs for production of pigs which were not ultimately delivered.

The contract

Under the contract, the defendant was obliged to “pay all operating costs incurred by the [plaintiff] in the production of the products up to and including delivery to the [defendant’s] premises”.

The contract costs, known as ‘costs of production’, were defined as being “swine/pigs ordered by and supplied to the [defendant]”.

Central to the agreement was a prediction of how many pigs would be produced and supplied, during any given 12-month period. This prediction also included the estimated weight of the pigs, which would be used to determine a quarterly price per kilo of product.

Part of this prediction model provided for both mortality of the pigs and replacement sows.

Pursuant to the agreement, therefore, the plaintiff was only entitled to be paid for the cost of producing pigs actually supplied to the defendant, but this cost recognised that some pigs would die and sows may require to be replaced.

The missing pigs

The defendant’s pleaded case was always that there was a discrepancy between the number of pigs the plaintiff claimed to supply and the number actually received.

Sworn answers to interrogatories by Mr McReynolds, director of the plaintiff company, acknowledged there was a discrepancy, but claimed this was due to human error in stock counting and/or mortality in pigs.

In cross-examination, Mr McReynolds was compelled to accept that neither of these reasons accounted for the high quantity of the missing pigs. Ultimately, experts and counsel agreed that the number of missing pigs was 1,233.

The parties then agreed that the plaintiff was not entitled to be paid in respect of this number of pigs but disagreed as to the correct means of calculating this particular cost.

The cost arguments

The expert accountants agreed that the amount due and owing to the plaintiff was £270,413. However, this figure needed to be reduced by the number of missing pigs.

There were four different methods suggested to calculate the true amount due:

1. Assume that all of the missing pigs would have been delivered at the end of their production cycle, weighing an average of 89 kg. Following this approach, the deduction would have amounted to £190,942, leaving a balance due of £79,471.
2. Assume all of the missing pigs were mid-way through production, at a mid weight, around 78.7 kg. This would result in a deduction of £169,815 and a balance due of £100,598.
3. Assume the same assumption as (2) but the calculation is based on a dead weight of 59.8kg, rather than a live weight. The deduction generated by this figure is £129,059 and a balance due of £141,353.
4. Assume that the missing pigs were all at different development stages, including (1) and (2). Depending on how this average cost is split, the deduction, in the view of the experts, would be between £93,591 and £126,557, leaving a balance due between £143,856 and £176,822.

Consideration

The court was cognisant of the fact that it was not possible to determine the exact age and size of each of the 1,233 missing pigs. However, it was incumbent on them to carry out an assessment of loss so as to resolve the dispute as fairly as possible.

The court quoted Justice Devlin in Biggin v Permanite [1951] KB 422, who noted: “Where precise evidence is obtainable, the court naturally expects to have it, [but] where it is not, the court must do the best it can.”

Here, the defendant offered evidence that the pigs were likely lost at the later stages of their development. This is because, during the early stages, the pigs are housed on secure premises, and were being monitored by closed circuit cameras.

It was therefore more likely that the pigs were lost or killed during their final stages of production, when they would be sent to finisher farms.

The plaintiff accepted this proposition, but argued that it would be wrong to assume that all of the pigs were at the final stage of development, as outlined in scenario (1).

Ultimately, the court concluded that, in light of the evidence, it would be appropriate to assume the missing pigs were at the average weight at the end of their production. The only distinction left was whether this calculation should involve live or dead weight.

The contract terms relied on dead weight to calculate the cost of production. Although the agreement did not address how to calculate missing pigs, the court found it reasonable to adopt the dead weight to calculate this also.

Conclusion

The court found that the defendant was not obliged to pay for the cost of production of the 1,233 missing pigs and there should be a cost deduction based on the average mid dead weight of the pigs at the finishing stage of production.

Accordingly, the sum properly due and owing to the plaintiff was £141,353. The counterclaim was dismissed.

SM Pigs Limited v Karro Food Group Limited [2022] NIQB 51