Kingston Estate Wines Pty Ltd v Marangalli Vineyard Trust - [2005] SADC 13

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
KINGSTON ESTATE WINES PTY LTD v MARANGALLI VINEYARD TRUST & ANOR
Judgment of His Honour Judge Robertson
17 February 2005
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
Application by Plaintiff for interlocutory injunction - Plaintiff is a wine producer - Defendants are grape growers - Plaintiff seeks an order requiring the Defendant to deliver Viognier grapes - Plaintiff claims Defendant in breach of an agreement of July 2000 in refusing to deliver grapes to Plaintiff - Defendant claims agreement is not enforceable - principles applicable to the granting of a mandatory injunction - application refused.
Films Rover International Ltd v Cannon Film Sales Ltd (1986) 3 All ER 772, discussed.
Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499; Cash Converters Pty Ltd v Hila Pty Ltd and Others (1993) 9 WAR 471; Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd & Ors [2000] WASC 84; Active Leisure (Sports) Pty Ltd v Sportman's Australia Limited (1991) 1 Qd R 301; Silktone Pty Ltd v Devreal Capital Pty Ltd and Others (1990) 21 NSWLR 317; State Transport Authority v Apex Quarries Ltd (1988) VR 187; Equitable Remedies (6th Edition) (571-572), considered.

KINGSTON ESTATE WINES PTY LTD v MARANGALLI VINEYARD TRUST & ANOR
[2005] SADC 13

The Plaintiff claims against the Defendants specific performance of a written agreement entered into between the parties and dated 1 July 2000 (“the July Agreement”). In the alternative, the Plaintiff claims equitable compensation in lieu of specific performance.
The Plaintiff is a wine producer and the Defendants are grape growers. The July Agreement provides that the Defendants are to sell to the Plaintiff a number of varieties of grapes in each year for a price to be determined in accordance with a specific procedure set out in the July Agreement. For most of the grape varieties the duration of the July Agreement for the supply of grapes is for five vintages, the last being in the year 2005. However, with respect to the supply of Viognier grapes the July Agreement expires in 2008.
The Defendants have supplied the Plaintiff with the grapes identified in the July Agreement in each of the years up to the present 2005 vintage. They have refused to supply the grapes for this vintage. In a letter from the Defendants’ solicitors, dated 22 December 2004, the Plaintiff was informed that the Defendants’ view was that the July Agreement was no longer on foot. It is the Defendants’ contention that in each of the previous four years the grapes were sold to the Plaintiff pursuant to specific annual agreements for each of the four vintages and not pursuant to the July Agreement. The Defendants further contend that the July Agreement has been superseded by the annual agreements.
The Plaintiff denies that the documents relied upon by the Defendants as the annual agreements are in fact agreements. The Plaintiff contends that each of these documents are in fact “Price Notices” which were required to be delivered by the Plaintiff as part of the procedure under the July Agreement to determine the price to be paid for the grapes in each year.
The foregoing is a brief summary of the respective positions of the Plaintiff and the Defendants. Time does not permit a more extensive description of the position of each of the parties. There are other issues which are likely to arise in the proceedings. The Defendants also assert that the Plaintiff has been guilty of misleading and deceptive conduct. The proceedings also have the potential for the issue of equitable estoppel to arise.
The Plaintiff has brought an application seeking an interlocutory injunction. In its initial application the Plaintiff sought an order requiring the Defendants to deliver up all of the grapes of the 2005 vintage, the subject of the July Agreement. However, the Plaintiff now only seeks an order that the Defendants deliver up the Viognier grapes.
I need to briefly highlight the reason that the Plaintiff continues to seek an order for the delivery of the Viognier grapes. The Plaintiff has been using the Defendants’ Viognier grapes in making a premium Viognier wine since 1999. The vintage was initially produced under the label “Kingston Limited Release Viognier”. However, since 1993 the wine has been produced each year under the label “Kingston Empiric Viognier”.
Mr Moularadellis, the Managing Director of the Plaintiff, has deposed that it has only been the Defendants’ Viognier grapes which have been used to make the wine. He says that Viognier grapes used in the wine are of high quality. Furthermore, that because one source of the grapes are used in each year there is a consistency in the wine from vintage to vintage. He says that the wine is marketed in Australia and the United Kingdom. With respect to the latter country, Mr Moularadellis says that the Viognier wine and other varieties produced by the Plaintiff are sold by a large supermarket chain operating under the name of “Morrisons”. It is Mr Moularadellis’s evidence that if the Plaintiff is unable to acquire the Defendants’ grapes for this year then the Plaintiff will not be able to produce the “Empiric” label Viognier in 2005. Indeed, he goes so far as to say that there is a paucity of Viognier grapes in Australia and he doubts if the Plaintiff could obtain any Viognier grapes from whatever source to make a Viognier wine in 2005.
It is apparent from some of the correspondence in evidence that there were problems with the business relationship between the Plaintiff and the Defendants during the year 2004. Mr Thompson, a member of the firm M K Thompson & Sons, one of the Defendants, has deposed that the annual agreements have superseded the July Agreement. He said that in the past he had sold a great deal of his grapes to the winemaker, Orlando. However, on 15 September 2004 Mr Thompson said that the Defendants entered into a written agreement with Southcorp to sell all the 2005 grapes which he had previously supplied to the Plaintiff. This agreement includes the Viognier grapes. That agreement is in evidence. It is the Defendants’ contention that they were free to do so because they are not bound by the July Agreement.
Having dealt briefly with the facts, I now turn to consider the principles upon which the application is to be determined.
It is clear that the application seeks a mandatory order. In other words, the application seeks an order that the Defendants deliver up the Viognier grapes. It also seeks orders requesting the Defendants to deliver up other documents which were required to be produced under the July Agreement and which are relevant to the Defendants’ cultivation of the grapes. The Plaintiff also seeks an order that its representative be permitted to enter the Defendants’ vineyards for the purpose of conducting a Baume sample test on the Viognier grapes.
In my opinion, the two criteria for determining whether an interlocutory injunction is to be granted is firstly, that there is a serious question to be tried and secondly, that the balance of convenience rests with the applicant. This criteria remains the same whether the injunction sought is prohibitory in nature or mandatory in nature.
The view held for some time in the past that a Court should not grant a mandatory injunction unless it feels a high degree of assurance that the applicant would succeed at trial and obtain the relief sought, appears to no longer hold universal favour. This is not to say that there should be excluded from a Court’s consideration the strength of the applicant’s case. However, the weight of authorities seem to favour the view that an evaluation of the strength of the plaintiff’s case where a Court is considering an application for a mandatory injunction is undertaken when the balance of convenience is being evaluated.
There has been support in some Australian Courts for the approach outlined by Hoffmann J in Films Rover International Ltd v Cannon Film Sales Ltd (1986) 3 All ER 772 (at 780-781):
“The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is that there is by definition a risk that the court may make the ‘wrong’ decision, in the sense of granting an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’ in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.
The passage quoted from Megarry J in Shepherd Homes Ltd v Sandham [1970] 3 All ER 402 at 412, [1971] Ch 340 at 351 qualified as it was by the words ‘in a normal case’ was plainly intended as a guideline rather than an independent principle. It is another way of saying that the features which justify describing an injunction as ‘mandatory’ will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage unless the court feels a ‘high degree of assurance’ that the plaintiff would be able to establish his right at a trial. I have taken the liberty of reformulating the proposition in this way in order to bring out two points. The first is to show that semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are barren. The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term ‘mandatory’ to describe the injunction, the same question of substance will determine whether the case is ‘normal’ and therefore within the guideline or ‘exceptional’ and therefore requiring special treatment. If it appears to the court that, exceptionally the case is one in which withholding mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a ‘high degree of assurance’ about the plaintiff’s chances of establishing his right, there cannot be any rational basis for withholding the injunction.”
This approach was adopted by Gummow J in the Federal Court decision of Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499 (at 501-503). It has also been adopted in decisions of the Western Australian Supreme Court (Cash Converters Pty Ltd v Hila Pty Ltd and Others (1993) 9 WAR 471 (at 483); Temwood Holdings Pty Ltd v Asean Australian Assets Pty Ltd & Ors [2000] WASC 84 (12-14)). By contrast the Queensland Court of Appeal in Active Leisure (Sports) Pty Ltd v Sportman’s Australia Limited (1991) 1 Qd R 301 (at 315) refused to follow the Films Rover approach and decided that the “high degree of assurance” requirement remained.
In determining the approach to be taken in the exercise of the discretion in this case, it is important not to lose sight of the fact that the relief sought by the Plaintiff in these proceedings is specific performance of the July Agreement. Furthermore, that the Plaintiff is seeking an order that the Defendants deliver up the Viognier grapes and perform other acts required by the July Agreement and which are associated with the cultivation, harvesting and delivery of the grapes. The Plaintiff is seeking, at the interlocutory stage, an order for part performance of the July Agreement by the Defendants. In those circumstances the strength of the Plaintiff’s case is an important factor.
In my opinion, the preferred approach is that an evaluation of the Plaintiff’s case is to be undertaken during the course of considering the balance of convenience. In this regard the observations of Dr Spry QC in his text “Equitable Remedies” (6^thEd) provide assistance (571-572):
“.... On all interlocutory applications the hardship or prejudice that may ensue if relief is granted or if conversely it is refused is weighed with other relevant considerations, including the strength of the plaintiff’s case (see generally American Cynamid Co v Ethicon Ltd [1975] AC 396 ....); and although the court acts with caution, a mandatory order is made if the balance of justice so requires. But when the plaintiff is seeking on an interlocutory application an order for the specific performance of part or all of the defendant’s obligations under a contract, being relief that is ordinarily granted only at the final hearing, that relief is, at least in the absence of special circumstances, granted only if its refusal would give rise to disproportionate prejudice or hardship to the plaintiff, as against the prejudice or hardship that its grant will cause the defendant (Films Rover International Ltd v Cannon Films Sales Ltd [1987] 1 WLR 670). Since account is taken of the strength of the plaintiff’s case, the more probable it appears that he will succeed at the final hearing or in other relevant proceedings, the less reluctance to intervene will be shown by the court (Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657).”
There can be no doubt that the applicant has established that there is a serious question to be tried. It relies on the July Agreement to found its case for specific performance. As I mentioned earlier, it is the Defendants’ case that the July Agreement was superseded by annual agreements for the sale of grapes to the Plaintiff and as a result the July Agreement is not enforceable. There are other issues which may also arise and to which I made mention earlier.
I now turn to consider the balance of convenience. Counsel for the Plaintiff, Mr Robertson, submitted that the balance of convenience was weighted heavily in the Plaintiff’s favour. He pointed to the fact that if the Plaintiff does not receive delivery of the Viognier grapes, then the Plaintiff will not be able to produce the 2005 vintage of “Empiric” Viognier wine. Mr Robertson submitted that this is likely to have serious repercussions in the future marketing of the wine in both Australia and the United Kingdom, which repercussions will translate into financial loss to the Plaintiff. There is the potential of losing market share in both countries. If the wine has been a profitable item in the past, then the Plaintiff will suffer the loss of profits associated with the sale of the wine. Mr Moularadellis has deposed to receiving advice from the Accounts Managers for Morrisons, the supermarket chain in the United Kingdom, that any variation from the current supply arrangement would result in the Plaintiff losing its listings for all varieties in 2005.
Mr Robertson submitted that, on the other hand, the position of the Defendants is at the very least partly protected. The Plaintiff has stated that it is prepared to pay the same price for the Viognier grapes which Southcorp is prepared to pay under the agreement it has with the Defendants. To that extent, Mr Robertson submitted that the Defendants will not suffer any loss. He acknowledged that there is a risk that if Southcorp does not receive the Viognier grapes then it could exercise its right to terminate the agreement with the Defendants.
On the face of it, if the Defendants fail to deliver the Viognier grapes to Southcorp then that is a breach of the agreement which would allow Southcorp to terminate it pursuant to Clause 12.1. There is no evidence before me to indicate the attitude Southcorp would take to the Defendants’ failure to deliver the Viognier grapes. All I can do is acknowledge that there is option available to Southcorp to terminate the contract. Of course, if Southcorp terminates the contract then the Defendants will be left with the problem of selling the other grapes, the subject of the agreement, elsewhere. These are matters which must be considered in evaluating the balance of convenience.
The impact of an interlocutory order on an innocent third party is also a relevant matter in considering the balance of convenience (Silktone Pty Ltd v Devreal Capital Pty Ltd and Others (1990) 21 NSWLR 317 (at 324)). On the evidence before me, the only impact on Southcorp is that if the mandatory order sought is made, then Southcorp will not receive the Viognier grapes.
In the end, following a trial, if the Plaintiff establishes that the July Agreement is valid and enforceable, and the Defendants have failed to deliver the Viognier grapes pursuant to their obligations under that agreement, then they will be in breach of the July Agreement. The relief sought by the Plaintiff is for specific performance of the contract and/or damages. In evaluating the balance of convenience, a necessary enquiry is whether it is “just in all the circumstances, that a plaintiff should be confined to his remedy in damages” (State Transport Authority v Apex Quarries Ltd (1988) VR 187 (at 193)). In my view, that approach is to be preferred than that of asking whether damages are an adequate remedy.
Mr Robertson submitted it was not just in all the circumstances for the Plaintiff to be left to his remedy in damages for the breach of the July Agreement. He submitted that the difficulties associated with proving damages leads to the conclusion that it is not “just” to leave the Plaintiff to that remedy. I do not agree. The assessment of damages may have its complexities, but I do not consider such complexity to be of such a level as to lead to the conclusion that would not be “just” to confine the plaintiff to its remedy in damages. The conclusion I have reached that it would be “just” in the circumstances to confine the plaintiff to a remedy in damages carries substantial weight in determining where the balance of convenience loss. In the circumstances of this case it could be said that the finding leads to the balance of convenience resting with the Defendants. However, there is a further important factor which favours the balance of convenience lying in the hands of the Defendants.
Mr Robertson submitted that at this stage, on the evidence before the Court, it can be said the cases of the Plaintiff and the Defendants respectively are evenly balanced. I think that assessment is probably correct. As I said earlier, the Plaintiff’s application is seeking an order for specific performance of part of the July Agreement before the matter goes to trial. As a result, the evaluation of the strength of the Plaintiff’s case is an important factor in determining where the balance of convenience lies. The comments of Hoffman J in Films Rover (supra) (at 781) are relevant; :
“An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.”
The fact that my evaluation of the Plaintiff’s case is that it is no stronger or weaker than the Defendants’ case is a matter that weighs in the Defendants’ favour in assessing the balance of convenience. Of course, if what is required is that the Court must have a high degree of assurance that the Plaintiff will ultimately succeed, then this makes the Defendants’ position even stronger.

In the end, I have formed the opinion that the balance of convenience favours the Defendants. In my view, the ordering of a mandatory injunction in the terms sought by the Plaintiff carries a greater risk of injustice than if I withhold granting it.
For these reasons, the application for an interlocutory injunction is refused.