Pikes Wines Pty Ltd v Kelly & Ors No. Scgrg-00-319

PIKES WINES v KELLY & ORS
[2000] SASC 380

1................ WILLIAMS J... This is an application by Patricia Anne Kelly and Geoffrey James Knappstein (the second and third defendants) seeking summary judgment pursuant to Supreme Court Rules (Civil) 1987 (SA) (“SCR”) 25.04. The application dated 10 August 2000 is supported by the affidavit of a solicitor (Mr Turner) sworn 9 August 2000 but the applicants also rely on the affidavit of Mr Vincent Kelly (the first defendant) sworn 1 September 2000. The rule of Court requires the defendants’ affidavit to show why the plaintiff’s claim “cannot succeed on any possible view of the facts or the law”.

The matter came before me at first instance upon the order of a Master made on 11 August 2000.
I note that by application dated 7 July 2000, the first defendant sought that the plaintiff’s claim be summarily dismissed pursuant to SCR 25.04. The Master dismissed that application (in the then state of the pleadings) with the following remarks:
“I am satisfied that summary disposal is inappropriate in this case. I believe that the calling of evidence as to the relationship between the parties over a significant period is a necessary precursor to a proper interpretation of the agreement relied upon by the plaintiff. The provisions of that agreement in my view cannot be properly interpreted in vacuo. However assuming I am wrong in that observation I must say that I think it reasonably arguable that this was not simply an agreement to agree and thus unenforceable at the suit of the plaintiff. Having in mind clause 2 of the agreement it seems to me reasonably arguable that the method of calculating the price payable is sufficiently certain to ensure the enforceability of the agreement. In essence, I agree with plaintiff’s counsel that the clause in question can be properly interpreted as requiring the grower to sell at a base price up to at least the market price (or average price as it provides) easily assessed by reference to Farmer’s Federation figures. If the grower were to want more then it is reasonably arguable that in the event of disagreement the parties are left to the mutually agreed market price as defined in the document.
As to clause 6 of the agreement it seems reasonably arguable that such is there to benefit the plaintiff alone giving it a right of refusal in the event of its dissatisfaction with the quality of the fruit on offer.
There is another matter that leads me to refuse the application. It is all set out in the plaintiff’s reply whereby it is pleaded that there are certain terms to be implied in the agreement as a matter of law. These relate to questions of an implication that the parties and particularly the first defendant are required to do all such things as are necessary to effectuate the contract. To take steps to identify the average price (the market price). To avoid doing anything (which the plaintiff alleges has been done) to destroy or diminish the capacity to supply the produce. Generally, if I may use my own terms for the defendant to act in good faith it being alleged that he has not. I cannot on this application dismiss these matters as lacking any merit whatsoever. Indeed, I think them reasonably arguable.”
The first defendant was not represented before me.
The parties are in agreement that this application should be dealt with upon the basis of a draft amended statement of claim which was placed before me. I directed that the plaintiff seek the consent of the first defendant to the filing of this fresh document, to stand as an amended statement of claim; that consent dated 29 September 2000 is before me. At the request of the parties, an amended defence in terms of Exhibit 1 to the affidavit of Mr Turner was treated as being before me. An amended reply in terms of Exhibit 1 to the affidavit of Mr Nobbs sworn 25 September 2000, is also treated by consent as being before me.
Counsel for the applicants points out that the application is for the claim against the second and third defendants as trustees of the Windsgate Family Trust to be “struck out or alternatively summarily dismissed”. The applicants contended during argument, that by reason of the use of this language in their summons, the application should be treated in the alternative as one made pursuant to SCR 46.18, to strike out the statement of claim as disclosing no reasonable course of action. (I observe that the application was expressed to be made pursuant to SCR 25.04).
The distinction between the operation of SCR 25.04, 46.18 and 75.02 should be recognised. I have the impression that the applicants in their reliance upon SCR 46.18 were seeking to follow the course adopted in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1994) 61 SASR 424, where SCR 46.18 was employed although “the demurrer type procedure” (see per Gummow J below) may have been more appropriate.
Upon appeal in the Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) case (1997) 188 CLR 241 McHugh J said at 271:
“The power to strike out pleadings under r 46.18 cannot be exercised unless “the case of the plaintiff is so clearly untenable that it cannot possibly succeed.” In General Steel, Barwick CJ warned that the power to strike out a pleading must be sparingly exercised; the mere fact that the plaintiff’s prospects of success are slim is not enough to strike out a pleading.”

And Gummow J said at 293-294:

“The strike-out application was made under the summary procedure provided in r 46.18 of the Supreme Court Rules 1987 (SA). It was accepted that this procedure should be reserved for a plain case in accordance with the principles identified in General Steel Industries Inc v Commissioner for Railways (NSW). Rule 75.02(c) provides for what King CJ identified as a “demurrer type procedure”. This was not utilised but may have been more appropriate.
The Full Court reached what the Chief Justice described as the clear conclusion that the statement of claim did not disclose a cause of action in negligence. Accordingly, the appeal was allowed and certain paragraphs of the statement of claim and other consequential passages were struck out. Those elements of the statement of claim were the sole basis for the claim in negligence. However, on the grant of special leave by this Court, no condition was imposed which would shut out Esanda subsequently from seeking further to amend, for example, in the light of what might be disclosed on discovery. Esanda has not forgone any rights it may have in that respect.
The matter thus comes to this Court neither upon a demurrer nor after a trial in which the facts have been found. That is an important consideration for the framing of these reasons for judgment.”

I discussed this topic more generally in Catto & Ors v Hampton Aust Ltd (In Liq) & Anor [2000] SASC 104.
The present application does not require me to dispose of a point of law arising on the pleading in accordance with SCR 75.02. If the parties wish to take advantage of that procedure and obtain a preliminary determination of issues of law, a question will arise as to what extent the points of law have been properly raised upon the existing pleadings (see SCR 46.10). However, I should make it clear that I do not regard the procedure of SCR 75.02 as having been invoked for the purpose of my consideration of the matter. It may be that the defence (par 3.4) could be regarded as raising such a point of law (as to whether a contract exists), but there would have to then be an order for that question to be separately disposed of if SCR 75.02 procedure is to be followed; the first defendant would also have to be party to the argument so that all parties are bound by the outcome.
It appears that in pursuing the present application, the applicants are content to rely on the statement of claim and the agreement dated 29 October 1997 therein referred to, although an affidavit was filed to identify the applicants’ contentions. The applicants also refer to the terms of their defence and to the reply.
The plaintiff is a winemaker. The plaintiff alleges that by an agreement in writing dated 29 October 1997 made with Mr Vincent Mark Kelly (the first defendant), it agreed to purchase selected grapes from nominated properties until the agreement is terminated by two years notice. The properties in question were registered in the names of Vincent Mark Kelly and his parents, Brian Patrick Kelly and Patricia Anne Kelly. Brian Patrick died on 19 March 1996. As at 29 October 1997, Mr VM Kelly was operating the land under an arrangement with the other registered proprietors whereby he was entitled to the benefit of the produce. It is alleged that Mr VM Kelly operated the properties as Trustee of the Windsgate Trading Trust (and in that capacity entered into the agreement with the plaintiff). It is also alleged that the nominated properties were held by the defendants as trustees of the Windsgate Family Trust. Apparently Mr Brian Patrick Kelly was a trustee of the Family Trust at the time of his death and he was replaced by the defendant Knappstein.
On 2 June 1999, whilst the defendant Knappstein was retained as a commission agent for the sale of the properties in question, the plaintiff supplied Knappstein with a copy of the agreement dated 29 October 1997, so as to place him on notice of its terms.
The agreement has been placed before me; it is exhibit AP3 to affidavit of Mr Andrew Walter Pike sworn 2 April 2000. It is alleged that on 5 July 1999 Knappstein became a trustee of the family trust and a transfer of the land into the name of Knappstein and Patricia Anne Kelly and Vincent Mark Kelly was executed on 5 July 1999 and registered on 9 August 1999.
The agreement does not stand in isolation. Between 1985 and 1997, the plaintiff has provided management and viticultural advice to Mr VM Kelly and also to his father.
On 9 August 1999 (according to the statement of claim), the three defendants settled on a sale to third parties of the relevant land in two separate transactions, one in respect of the Spring Farm block, and the other in respect of Polish Hill River block.
On 5 August 1999 it is alleged that VM Kelly gave to the plaintiff notice of termination of the agreement at the expiration of two years.
In par 29 of the statement of claim the plaintiff alleges:
“On the 10th day of February 2000, the Defendant Vincent Mark Kelly for and on behalf of the Defendants, orally informed the Plaintiff that, in breach of the Agreement, the Defendants:-
29.1. Were not in a position to deliver to the Plaintiff the fruit grown on the Property as the Defendants have now sold the Property;
29.2Were not in a position to deliver grapes in the Vintage 2000 of the variety, standard or quality identical or similar to the grapes grown upon the Property and which the Plaintiff had contracted to purchase from the Defendants pursuant to the Agreement.”
The plaintiff makes a claim in damages for the loss of access to a premium grape supply.
The plaintiff makes its claim based upon, (1) a breach of contract by the first defendant, (2) wrongful derogation by the defendants as trustees of the family trust from an irrevocable demise, (3) interference with contractual relations with the plaintiff and (4) unjust enrichment of the defendants by reason of the work of the plaintiff in improvements to the properties. The plaintiff alleges that the defendants were acting as trustees of one or other of the two trusts, and the plaintiff claims (inter alia) to be entitled by subrogation to stand in the shoes of the trustee of one of the trusts (the trading trust of which Mr VM Kelly was trustee) for the purposes of a claim against the trustees of the family trust - who are now the present defendants.
The plaintiff refers to an irrevocable demise by the trustees of the Family Trust to Mr VM Kelly. I assume that the plaintiff is referring to a profit à prendre in gross which has been granted by the owners of the land to Mr VM Kelly and then assigned to the plaintiff. Such an interest is described by Stonham in The Law of Vendor and Purchaser at 219:
A profit à prendre in gross, although not annexed to any land, is, nevertheless, an interest in land; and is capable of disposition, in default of which it will pass as part of the estate of the proprietor thereof. It is capable of being held in fee, or for a term of years, and may be created in respect of land, which is under the Torrens System. It is an incorporeal hereditament, and, therefore, to create it, it must be under seal in the case of Old System title land, or in the case of Torrens System, must be granted by a Memorandum of Transfer under the provisions of that Act. Otherwise, at law it will be a mere licence, but the agreement may be capable of specific performance in equity and the execution of a proper grant at law may be decreed.”
Although the agreement of 29 October 1997 is expressed as an agreement for sale and purchase of a selection from a growing grape crop, I will treat the plaintiff in effect as complaining about being deprived of the benefit of an interest in land, and an associated licence. The plaintiff apparently complains that despite notice of the plaintiff’s interest, the defendants disposed of the land with disregard of the plaintiff’s rights. (I am not concerned with the damage which is alleged to flow from the plaintiff’s inability to secure a satisfactory alternative source of grape supply).
Upon this application, counsel for the second and third defendants make the following submissions:
1...... The agreement upon which the plaintiff sues is an “agreement to agree” and does not have contractual status.
2.The purported agreement is too vague to be enforceable.
3...... The second and third defendants cannot be liable in tort for interfering with contractual relations, because their acts in selling the land is not independently unlawful; the second and third defendants always had a right to sell the land irrespective of the activities of Mr VM Kelly.
4.The right granted by Mr VM Kelly to the plaintiff was extinguished upon his acquiescence in the sale; Mr VM Kelly surrendered his own right (which was at will) to take produce from the land.
5...... There is no right for Mr VM Kelly to be indemnified by the other defendants and the plaintiff by subrogation cannot get into any better position than Mr VM Kelly.
6.The defendants as trustees of the family trust were not enriched by anything which occurred after the date of the supposed agreement with the plaintiff.
The submissions of the applicants are conveniently summarised in par 4 of the affidavit of Mr Turner sworn 9 August 2000.
In my opinion the questions raised are not suitable to be decided upon a claim for summary judgment, or upon a strike out application. I do not consider that the applicants can satisfy the requirements of SCR 25.04. There are substantial arguments of law and of fact to be resolved. It seems to me that the state of knowledge of the second and third defendants is likely to be crucial to the determination of the legal issues. If they chose to turn a blind eye to a commercial arrangement with the plaintiff (which in one form or another seems to have operated for many years), then their encouragement of Mr VM Kelly to ignore his obligations may be actionable - see Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762 at 781 per Lord Denning:
“Even though the person who induces a breach does not know the precise terms of the contract, he is acting unlawfully if he says to himself: “Whether it is a breach of contract or not, I care not.” If he induces a breach of contract recklessly, careless whether it is a breach or not - turning a blind eye to it - he is liable for interfering with contractual relations.”
It may be that upon the claim for interfering with contractual relations, the question of the alleged liability of the applicants or defendants in the action turns on the question of “justification”. The principles are discussed by Jordan CJ in Independent Oil Industries Ltd v The Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 at 415-418. I mention this only to demonstrate that the lawfulness of the actions of the second and third defendant acting in combination with the first defendant may not be clear cut (see per Jordan CJ at 416), and may depend upon the inferences of fact to be drawn from the evidence. There will also be a novel question as to whether a claim for interfering with contractual relations arises as between the defendants, where the first defendant is sued in two capacities. It may be that there is a much less difficult way of approaching the problem based upon the defendants’ alleged failure to respect the plaintiff’s equity.
There appears to be an argument (indeed, quite a strong argument) that the arrangement relied upon by the plaintiff does give rise to an enforceable contract. However, even if this were not so, it would not necessarily be an answer to the plaintiff’s claim regarding interference with contractual relations (see JT Stratford & Son Ltd v Lindley [1965] AC 269 at 324 per Lord Reid - as to future or anticipated contracts).
Whether the defendants had a bona fide belief and reasonably entertained that the arrangement with the plaintiff had been rescinded, might bear upon liability of the second and third defendant (see Short v City Bank of Sydney (1912) 15 CLR 148 at 160).
I mention these matters only to demonstrate the unsuitability of the present application (in either of its alternatives) as a vehicle for resolving the issues which need to be addressed, - some by way of possible defence.
The applicants assert that Mr VM Kelly was granted the right by the owners of the land to grow and sell grapes at the will of the land owners (see par 4.3 of Mr Turner’s affidavit). Nothing has been put before the court as to the details of this transaction. I do not know whether the arrangement with Mr VM Kelly and his parents was a formal or informal one. I do not know what knowledge the owners of the land had with respect to the longstanding arrangements with the plaintiff, and its contribution to the working of the land. One might expect the court to treat the arrangements with the plaintiff as irrevocable except upon reasonable notice. I do not know what language the parties employed in setting up the arrangement for Mr VM Kelly to operate the land, nor do I know the facts upon which any aspect of the arrangement is to be inferred. However, a starting point would be to measure up the arrangements against the comments of Dixon J in Reid v Moreland Timber Co Pty Ltd (1946) 73 CLR 1 at 11:
“If the draftsman of the agreement had been minded to express it according to the technical conceptions of the law of real property and of the use and enjoyment of land, he might have considered whether he would grant a lease or licence of the 201 acres giving exclusive occupation but subject to restrictive covenants confining the use of the land to the cutting and removal of timber, whether he would grant a profit à prendre, whether he would grant a licence under seal or a bare licence, and whether, in the case of the profit à prendre or the licence, he would make them exclusive or non-exclusive. He preferred to express himself in more direct language which the parties would probably better understand.”
Until all the facts are known, it is not possible to assess how the alleged “demise” and the alleged term of “non derogation” should be viewed.
It seems to me, that so much is as yet unknown in terms of the facts, that the issues of law cannot be conveniently applied to an established set of facts. Each side has submitted a detailed written and oral argument. I have examined these arguments closely. However, it is not possible at this stage to say, that upon no view of the facts and law can the plaintiff succeed.
Although I would not grant relief to the applicants upon the arguments put before me, I have reservations as to the form of the statement of claim. It is alleged by the plaintiff that there exist two trusts, - a Trading Trust and a Family Trust. The statement of claim refers to these as if they were legal entities. So, for example, in par 39 of the statement of claim it is alleged that:
“39.3.. The Family Trust proceeded to sell the Property without any regard to the liabilities of the Trading Trust and in breach of its obligations both express and implied not to derogate from the grant described in paragraphs 9 and 10 hereof because such derogation would cause loss and damage to the Trading Trust and consequently to the Plaintiff;”
(Emphasis added).

If (as I believe to be the case) the complaint is as to the conduct of the defendants (or one or more of them), then the pleading ought to say so.
Another example of the problem appears in statement of claim par 39.2 which alleges:
“39.2.. At the time of the sale of the Property, the Family Trust knew that the Trading Trust would be unable to supply fruit to the Plaintiff in accordance with the Agreement from the Property which had been sold in circumstances where the Family Trust was aware that the Agreement was specific to certain sections of property owned by the Family Trust which are more particularly described in the Agreement;”
(Emphasis added).
It is knowledge of individuals (actual or imputed) which is in issue in the case. The case of the plaintiff would become much clearer if this important question were properly addressed. The defence of the present applicants says that “the Family Trust has not interfered with the contractual relations” (see defence par 10). I mention this only to demonstrate the way in which the parties have chosen to approach the case.
I have already noted that the reply contains material which should be in the statement of claim.
In all the circumstances I decided that I should hear the parties further (including the first defendant) as to the course which I should now follow.
Therefore, I brought counsel before me today (9 November 2000) and gave them an intimation as to my decision and obtained their assistance as to the course which should now be followed. In the result counsel for the second and third defendants renewed his application to strike out the statement of claim (based on the matters which I have raised) and counsel for the first defendant supported that application. Although for the purposes of dealing with costs I will treat the second and third defendants as being unsuccessful in the application which was argued before me I nevertheless now allow them to renew their application to strike out upon a different basis than previously argued.
I have heard counsel on all questions (including costs). The orders pronounced by me today are as follows:
1...... That the application of the second and third defendants dated 10 August 2000 for summary judgment be dismissed.
2.That the statement of claim be struck out with leave to the plaintiff to re-plead.
3...... That the second and third defendants pay to the plaintiff the costs of the application for summary judgment and that there be a certificate for counsel thereon.
4.That the plaintiff pay to the defendants the costs thrown away by reason of order 2.
5...... That the costs of today’s hearing (9 November 2000) be costs in the cause.
6.That the application be now treated as an application for directions and that the same be adjourned to a date to be fixed (including the question of fixing a timetable for re-pleading).

[2000] SASC 380

9 November 2000