Low lustre Emerald taken to court

As foreshadowed inCountryma n last year, Wheatbelt farmers who allege their entitlements were withheld from them, in breach of trust, have launched a multimillion-dollar legal claim against Emerald Grain.

The 47 farmers are taking on the company, owned by giant Japanese trading house Sumitomo, in a David and Goliath battle after a disastrous marketing venture left them out of pocket by $7.4 million.

The case centres on the contract entitlements of farmers who delivered more than 100,000 tonnes of wheat into a marketing pool run by Emerald in 2011-12. Emerald’s pool turned out to be a puddle compared with those run by other Australian grain marketers, returning up to $84/t less to growers.

It is alleged two families lost their farms and another farmer was forced into early retirement as a result. Others faced financial hardship and had to go further into debt to put in crops when the expected returns turned into a trickle.

Emerald was a major sponsor of peak industry lobby group WAFarmers at the time. Sumitomo bought 50 per cent of Emerald in 2010 and the remainder of the company in 2014.

Bencubbin farmer Mark Fitzpatrick was one of many counting on reasonable returns from Emerald after being hit hard by drought in 2012.

“I had 1000t in the Emerald pool at a time when the grain market was rising,” he said. “Emerald wasn’t able to capitalise on the rising market and we can’t understand why.

“There were seven other pools (run by other marketers) and Emerald came stone motherless last. If there was a shortfall of $10 or $15/t we would have been prepared to wear it, but it is unacceptable when it is $65 to $84/t on a rising market.”

Mr Fitzpatrick said farmers had no inkling that their final payments from the pool would be much lower than expected until the last minute, and received virtually no explanation from Emerald.

In a report inCountryman in February last year, the affected growers had sought a court order requiring the disclosure of documents containing information that could explain the reasons behind the poor performance of the 2011-2012 wheat pool.

Mr Fitzpatrick said at the time that the move to obtain this information was part of the preparation ahead of possible Supreme Court action.

The growers rejected an out of court settlement offer from Emerald Grain in 2014.

Mr Fitzpatrick said it was estimated the grain growers collectively lost in the order of $6-$10 million, but possibly more.

Granich Partners lawyer Nathan Draper, who has been working on the case with farmers since 2013, said much of the past few years had been taken up with attempts to negotiate a settlement and with an unsuccessful pre-action discovery application.

Mr Draper said Emerald had opposed the release of documents which could shed some light on what went wrong with the pool.

Granich enlisted the help of Chris Zelestis, regarded as one of WA’s top legal minds, to prepare a statement of claim and a writ was filed in the Supreme Court this week. “In the case of the 2011-12 pool managed by Emerald, we allege there has been a breach of trust given the returns to participants were well below the expectations marketed to growers and, incredibly, below the average returns calculated on the lowest prevailing wheat price experienced in the contract period of the pool,” Mr Draper said.

He said an independent report was commissioned in 2014 to ascertain whether or not the Emerald pool suffered any losses for the 2011-12 season and, if so, what the extent of those losses were — concluding there was a loss of significant magnitude.

He said the report pointed to intermingling of Emerald’s wheat trading entity with the management of the pool as a probable reason for the losses. Traditionally grain trading or marketing agents trade grain on separate accounts, having purchased wheat from growers separately to trade for profit on the market.

“If intermingling of operations did occur, it would have resulted in the pool and trading entities of Emerald effectively being in competition with each other, jeopardising the potential overall returns available for distribution to participants of the pool,” he said.

It was in the terms of each of the complainant contracts that Emerald would return to the grower their due proportion of the total sale proceeds after deduction of fees, costs and charges provided for in the pool contract, taking into account the weight and grade of grain delivered by the supplier to the pool.

“Under the terms of the contracts, Emerald was not entitled to include wheat purchased as part of its trading activities within the pool, nor was it entitled to pass on any losses incurred from any trading activities to participants in the pool, if in fact that was what occurred,” Mr Draper said.

Emerald general manager WA Dick McCagh declined to comment. He said Emerald and its lawyers would need time to examine the writ.