Carefully Craft the Terms of Your Contract Brewing Agreement

There’s a great piece in the recent edition of the New Brewer by Jack Curtin on the ins and outs of contract brewing and alternating proprietorship brewing.  These agreements can be complex for good reason.  There are a host of possibilities and predicaments that the contract needs to address should the parties come to a dispute.  Carefully crafting these clauses makes all the difference.  Anyone who tells you that the agreement should be short and simple has never been on the wrong end of a dispute that could have been prevented if the parties’ contract addressed the situation and how it should be dealt with.

A good arbitration provision can be an example of this.

Consider the case of High Falls Brewing Company, LLC v. Boston Beer Corporation.  Boston Beer and High Falls had a dispute over payments between them and ownership of equipment that Boston Beer had bought and put in High Falls’ brewery in Rochester, New York.  The parties had a contract brewing arrangement.

As part of the contract brewing agreement, the parties also entered into some leases for Boston Beer to purchase the new equipment and parts for use and High Falls’ brewery.  There was an equipment lease for required additional equipment and an equipment lease for “bottling line 2”.  We’ve done our best to give you copies of what was filed for these documents, some of them are redacted in the court filings.

When the dispute arose between them, Boston Beer filed an action for arbitration with the American Arbitration Association based on the Arbitration provision in the brewing agreement that read:

26. ARBITRATION
Any controversy or claim arising out of or relating to this December 2004 Agreement, or the breach hereof, with the exception of any claim for a temporary restraining order or preliminary or permanent injunctive relief to enjoin any breach or threatened breach hereof, shall be settled by binding arbitration to be conducted by the American Arbitration Association (‘AAA’) in New York City in accordance with the Optional Procedures for Large Complex Commercial Disputes (the “Complex Procedures”), and to the extent any such matter is not addressed by the Complex Procedures, in accordance with the Commercial Arbitration Rules of applying the laws of New York.

High Falls didn’t want the arbitration and went to court to try and stop it.  Now, the Court’s opinion finding that the arbitration clause at issue was enforceable and covered the disputes that High Falls didn’t want to arbitrate reasoned that the wording and broad form of the arbitration clause trumped any lack of an arbitration clause in forum selection clauses in the leases and sent the matter to arbitration:

Since these clauses do not specifically preclude arbitration or otherwise provide positive assurance that the subject equipment claims are excluded from arbitration, the arbitration clause prevails.

Now, if the clause hadn’t been drafted with the care and precision in the broad form it was drafted in, the Court’s analysis might have come out different – or the parties could have ended up expending more time and energy trying to argue about its application.  But they didn’t have to on account of the crafted language.  Note that this is just clause 26 in an extensive agreement that has terms and provisions to cover a litany of operating functions, relationships and procedures.  The adage that an ounce of prevention is worth a pound of cure is applicable.  Taking the time to ensure that you’ve got your bases covered will save you time, energy, and money later on.