Playford Vineyard Pty Ltd (ACN 604 608 157) v Wishford Nominees Pty Ltd (ACN 008 077 236)
[2019] SASCFC 99
•12 August 2019
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
PLAYFORD VINEYARD PTY LTD (ACN 604 608 157) v WISHFORD NOMINEES PTY LTD (ACN 008 077 236)
[2019] SASCFC 99
Judgment of The Full Court
(The Honourable Justice Peek, The Honourable Justice Parker and The Honourable Justice Doyle)
12 August 2019
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH - REPUDIATION AND NON-PERFORMANCE - REPUDIATION
CONVEYANCING - THE CONTRACT AND CONDITIONS OF SALE - GENERALLY
CONVEYANCING - THE CONTRACT AND CONDITIONS OF SALE - OTHER PARTICULAR CONDITIONS
The Playford vineyard in the Riverland was purchased by the respondent in 2011. In February 2015, the respondent contracted to sell it to the appellant. The contract was subject to the parties entering a lease, under which the respondent would occupy and manage it. The respondent was given an option to repurchase exercisable in each year of the term. Settlement was due in March but delayed to April, following which the respondent’s management commenced.
The lease required the respondent to maintain the vineyard in accordance with best husbandry practices for the region. In late 2016, the appellant raised concerns about the respondent’s pruning practices. The parties agreed that a further 15 hectares would be more heavily pruned during the following winter. Again, in early August 2017, the appellant raised concerns about pruning including that only one hectare had been pruned. On 15 August, the appellant served on the respondent a notice of default, demanding that it remedy alleged defaults within 14 days. On 29 August, the respondent replied, alleging that it had no obligation to attend to additional pruning but agreeing to do further pruning “under protest”.
On 4 September, the appellant purported to terminate the lease, asserting that the respondent was in breach of its obligations including under-vine pruning and/or the state of the lower cordon and that, by its conduct, it had repudiated the lease.
The Judge found that the respondent was not in breach of the lease and did not repudiate the contract of sale; and that the appellant was not entitled to terminate. The appellant appeals. There was also an issue concerning the repurchase option; the respondent alleged that it was exercisable in 2016, 2017 and 2018, whereas the appellant asserted it was exercisable only in 2015, 2016 and 2017. The Judge found in favour of the appellant and the respondent cross-appeals.
Held, per Peek J, dismissing both the appeal and the cross-appeal (Parker and Doyle JJ agreeing):
1. The respondent was not in breach of its husbandry obligations. It was open to the learned trial Judge to conclude that: (1) the respondent had an intention to undertake further pruning in accordance with its ordinary vineyard practice; and (2) that the respondent’s management practices were not responsible for the state of the lower cordon.
2. By its letter dated 29 August 2017, the respondent did not repudiate the lease. The respondent’s stated position was directed to the obligation to perform further pruning within the timeframe referred to in the notice of default rather than to any obligation to undertake future pruning.
3. The appellant has not proven breach of: an essential term; unwillingness to perform a non-essential term; or an unwillingness to render substantial performance of the contract.
4. The appellant is not entitled to recover its legal costs on an indemnity basis.
5. The option to repurchase the vineyard was exercisable in 2015, 2016 and 2017. There was no option to purchase the vineyard in 2018, either between 1 April to 30 June 2018 or between 1 April and 7 April 2018 or at all.
Supreme Court Act 1935 (SA) s 50; Supreme Court Civil Rules 2006 (SA) r 286, referred to.
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115; Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Playford Vineyard Pty Ltd (ACN 60 608 157) v Wishford Nominees Pty Ltd (ACN 008 077 236) [2018] SASC 84; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Shevill v Builders Licencing Board (1982) 149 CLR 620; Sopov v Kane Constructions Pty Ltd (2007) 20 VR 127; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2007) 219 CLR 165; Williams v Lewis [1915] 3 KB 493, discussed.
Bampton v Viterra Limited (2013) 123 SASR 80; Masters v Cameron (1954) 91 CLR 353; Warren v Coombes (1979) 140 CLR 531, considered.
PLAYFORD VINEYARD PTY LTD (ACN 604 608 157) v WISHFORD NOMINEES PTY LTD (ACN 008 077 236)
[2019] SASCFC 99Full Court: Peek, Parker and Doyle JJ
Peek J: This is an appeal against a decision of a single Judge of this Court that the respondent did not breach lease obligations and that the appellant was not entitled to terminate the lease and re-enter the subject property.
Introduction
The dispute concerns the Playford vineyard at Playford Road, Sunlands, in the Riverland (the vineyard). It covers an area of just over 128 hectares of which 98 hectares comprised vine plantations, the remainder being native Mallee timber. All of the vines were red grape varieties: 52 hectares of shiraz, 38 hectares of cabernet sauvignon and 8 hectares of merlot. The vines were planted on what was referred to as an “H trellis” structure, a trellis system in the shape of the letter “H”, the standard format in the Riverland. The vineyard, like many others in the region, had both an upper cordon and a lower cordon upon which grapes were grown. The vine stems are strung along each cordon so that they grow along the cordon and join up. The dispute relates in large part to the maintenance of the lower cordon.
The parties
The appellant and cross-respondent is Playford Vineyard Pty Ltd (ACN 604 608 157), the trustee of the Playford Vineyard Unit Trust (to be referred to as the appellant). Mr David Harris, who gave evidence at trial, is its managing director and Mr Gregory Koch, who also gave evidence, holds an interest in the appellant.
The respondent and cross-appellant is Wishford Nominees Pty Ltd (ACN 008 007 236), the trustee of the Wake Family Trust, the Thomtess Trust and the Thomas and Tessa Discretionary Trust (to be referred to as the respondent). Mr and Mrs Wake are its only shareholders and directors. It was incorporated on 28 June 1985 and is part of the Wake Group of companies. Mr Michael Wake, who gave evidence, commenced as a director and the secretary of the respondent in July 2015, prior to which time the sole director had been Mr Michael Tilley, Mr Wake’s brother-in-law. The Wake Group also maintains an interest in Hill River Estates Wines Pty Ltd, which operates vineyards at Ramco, Playford and Hill River.
The acquisition of the vineyard by the respondent
The vineyard commenced operation in 1998 and the Wake Group commenced management of it at some time in 2005. In 2007, it was purchased and operated by Great Southern Vineyard Holdings Pty Ltd (Great Southern)[1] but the Wake Group continued to manage it on behalf of Great Southern for a year following the acquisition. In 2009, Great Southern went into administration and later into liquidation; the respondent acquired the vineyard from the liquidator in 2011.
[1] This is the year specified at page 12 of the McGees Property Report handed up by Senior Counsel for the appellant during the hearing of the appeal. The Judge found, at paragraph [468] that the land was purchased by Great Southern in 2009. With respect, it seems that 2007 is the date to be preferred. At trial, when Mr Thomas Wake was asked in cross-examination at which point Great Southern acquired the Playford vineyard, he gave evidence that he was “pretty sure it was 2007”. Further, in cross-examination, Mr Curtis supported Mr Wake’s account and gave evidence that it was his recollection that Great Southern commenced ownership in 2007. However, nothing turns upon this difference.
At the time of the respondent’s acquisition, the vineyard had been neglected and had fallen into disuse. There was evidence that Great Southern had failed adequately to manage the vineyard in the years leading up to the respondent’s acquisition. The vineyard had not been pruned in 2010 and apparently not in 2009 either.[2] The vineyard was not harvested or irrigated during the 2010 vintage. Accordingly, as at the date it was purchased by the respondent, it had, for all intents and purposes, been abandoned.
[2] In Mr Wake’s affidavit dated 13 October 2017, he suggested that the vineyard may have been pruned in 2009 but nothing appears to turn on this point.
On acquiring the vineyard, the respondent commenced a process of rejuvenation. The respondent asserted that the lower cordon had been left in much the same condition as that in which it found the vineyard and that there was only a small percentage of grapes produced from the lower cordon.[3] The respondent asserted that it had pruned the canes that were seen growing off the lower cordon to restrict the growth in 2013 and 2014 but this process did not occur every year.
[3] Senior Counsel for the respondent was at pains to emphasise the importance of precise use of terminology. He explained that the two-cordon system means that there was an attempt to train the vines to grow along the two cordons, but that does not necessarily equate to success in the process.
The transactions relevant to the present dispute
In about 2014 the respondent was seeking a capital injection and entered into negotiations with a consortium of investors (led by Mr David Harris) interested in purchasing the vineyard. Negotiations commenced in August 2014 and an offer to purchase was made on 28 August 2014. In September 2014, Mr Scammell, a representative of the respondent, informed Mr Harris orally that the respondent had accepted the offer. Mr Harris and Mr Koch, representing the appellant, conducted an inspection in January 2015. The negotiation process continued into February 2015, at which time the consortium formally agreed to acquire the vineyard from the respondent for $1.8 million.
The contract of sale was dated 22 February 2015 (the contract). Appended to it was a memorandum of lease which enabled the appellant to lease back the vineyard (the lease). It also provided the respondent with a structured option to repurchase the vineyard.[4]
[4] The terms of the contract of sale and the lease are discussed in more detail below.
On 22 February 2015, the contract was executed by Mr Tilley, the then sole director of the respondent. It was amended by hand to reflect that the settlement date was to be 15 March 2015. On 5 March 2015, Mr Scammell provided the executed contract to Mr Phillips, the appellant’s solicitor. On 12 March 2015, Mr Phillips wrote to Mr Portway, the respondent’s solicitor, via email and attached a number of documents, including the signed contract with the lease appended, the memorandum of transfer and an assignment of contract.
Settlement did not take place on 15 March 2015. An email from Mr Phillips to Mr Portway on 18 March 2015 confirmed that the appellant had, at that time, executed the memorandum of transfer. On 26 March 2015, Mr Portway by reply email to Mr Phillips attached a signed annexure to the memorandum of transfer, noting that the original would be exchanged at settlement. On 28 March 2015, the consortium assigned its interest in the contract of sale and the lease to the appellant pursuant to a deed of assignment and on 8 April 2015, settlement of the contract and transfer of the vineyard finally occurred.
The respondent began its occupation of the property pursuant to the contemplated lease arrangement at that time. However, the evidence was that while the parties executed the contract, they never formally executed the memorandum of lease. The nature and terms of the lease under which the respondent was in occupation was a significant issue at trial.
The events following the appellant’s acquisition of the Playford vineyard
The respondent grew, harvested and sold grapes from the vineyard during the 2016 and 2017 vintages.
On 22 September 2016, Mr Bowman inspected the vineyard at the request of the appellant.[5] On 21 December 2016, Mr Bowman and Mr Harris met with Mr Wake and Mr Falcinella, the respondent’s vineyard manager. The parties discussed issues raised by the appellant concerning the state of the pruning. The parties agreed that 15 hectares would be more heavily pruned during the following winter.
[5] Mr Harris had requested that Mr Bowman prepare a report in relation to the respondent’s management of the vineyard. The report was prepared but not provided to the Wake Group or the respondent until August 2017.
On 1 January 2017, the rent payable pursuant to the lease arrangement became due and payable by the respondent but it was not paid until 5 April 2017.
On 21 January 2017, Mr Wake met with Mr Harris. Mr Don Wake and Mr Falcinella were also in attendance. Mr Wake gave evidence that the respondent then avowed its intention to buy back the vineyard. The appellant disputes that.
Between 19 June and 22 June 2017, there was email correspondence between Mr Tilley and Mr Harris concerning the respondent’s intention to repurchase the vineyard and the respondent asserts that on 24 June 2017, Keyston Capital approved finance for the respondent’s proposed repurchase.[6] On 30 June 2017, Ms Wake, on behalf of the respondent, emailed to Mr Harris a notice of exercise of its option to repurchase the land pursuant to the contract of sale. On 4 July 2017, Mr Phillips wrote to the respondent asserting that the purported exercise of the option was invalid because the respondent had been in default in respect of payment of rent and rates thus disentitling it to exercise the option. The respondent did not suggest at trial or on appeal that this was a valid exercise of an option.
[6] The appellant disputes that the letter from Keystone Capital amounted to an approval of finance. It says that it was indicative only. Nothing in this appeal turns on that fact.
In early August 2017, Mr Harris requested Mr Bowman to undertake a further inspection of the vineyard. On 9 August 2017 Mr Bowman informed Mr Harris that only one hectare of the vineyard had been saw pruned by the respondent and asserted certain other issues.
Purported termination by the appellant
On 14 August 2017, Mr Harris and Mr Bowman attended at the vineyard and noted that only one of the 15 hectares that the respondent had previously undertaken to prune had been closely pruned. The respondent asserts that the remainder of the 15 hectares had been machine pruned in a fashion they described as ‘minimal pruning’,[7] but this was and remains disputed by the appellant. On 15 August 2017, the appellant served upon the respondent a notice to remedy the default pursuant to the lease (Notice of Default), which appeared as follows:
[7] There was expert evidence as to the various types of pruning methods employed in Riverland vineyards.
This letter of demand is issued to Wishford on instructions from the landlord.
…
2. Default
We are instructed that Wishford is in default of the Lease as follows:
2.1 failure to comply with clause 4.12.1, in that Wishford has not maintained or managed the Vineyard in a proper manner, or in accordance with best local horticultural or agricultural practices;
2.2 failure to comply with clause 9.3.2 in that Wishford has allowed the Vineyard to deteriorate by not using accepted methods of vineyard management, resulting in reductions in both productivity and value of the Vineyard.
3. Details
At a meeting in September 2016 between Mike Wake and Peter Falcinella (for Wishford) and Sam Bowman (Viticultural Consultant introduced by the Landlord) maintenance of the Vineyard was discussed, and it was mutually agreed that Wishford would cut back (prune) the Vineyard in the winter of 2017 to get the fruiting height and width closer to the cordon. It was agreed that 20% of the total Vineyard area would be remedied as part of a program to re-work the vineyard over 5 years.
At a visit to the Vineyard on 9 August 2017 by Mr Bowman, it was clear that insufficient rework had been performed by Wishford. Only a 1 hectare block (out of the total Vineyard area of 80 hectares)[8] had been properly reworked.
[8] This is incorrect. The evidence was that the vineyard in fact extended to an area as large as 98 hectares.
Across the rest of the Vineyard, only a very light pruning has occurred this year exacerbating the problems which were identified by the Landlord in September 2016. Across the bulk of the vineyard canes have been left hanging down to ground level.
The Landlord’s viticultural advice is that, should these defaults not be remedied:
3.1 it will be difficult to use machinery in the vineyard rows for pruning and other maintenance in the future;
3.2 80-90% of the lower cordon will be left unviable because of shading from the overgrown upper cordon leaving the vines permanently out of balance and less productive;
3.3 the top cordon of the vines will need to be cut off and retrained to return to proper productivity; and
3.4 There will be a significant capital (value) loss from the loss of production whilst the vineyard is reworked and from the cost of performing vineyard remediation work.
4. Remedy of default
The Landlord HEREBY DEMANDS that Wishford remedy its defaults referred to above, within 14 days from the date of service of this letter of demand, by arranging and completing;
4.1 the cutting back of at least a further 15 hectares of the Vineyard area as agreed in September 2016. This work is to be conducted in consultation with the Landlord’s viticultural representative in order to ensure it is performed to proper standard.
4.2 Under-vine trimming to be conducted over the rest of the vineyard to ensure low hanging canes are removed to prevent soil borne diseases.
5. Failure to remedy default
Failure to remedy the above defaults as demanded will entitle the Landlord to act in accordance with its rights at law and under the Lease, without further notice to Wishford.
Without prejudice to any other rights accruing, the Landlord may terminate the Lease and take possession of the property but without prejudice to the Landlord’s rights against Wishford arising from its breach.
…
On 29 August 2017, Mr Portway replied to the Notice of Default thus:
Our client Wishford Nominees Pty Ltd (Wishford) comprehensively and unequivocally denies that there is any default of the Lease.
Wishford has retained Mr Peter Falcinella to advise on the allegations of breach made in your letter. He has 46 years of viticulture experience in the Riverland.
Mr Bowman opines (as we understand it) that the bottom cordon is unviable.
…
Mr Falcinella considers that the vineyard has been competently maintained and managed.
Landlord’s demand for additional work
There is no obligation on Wishford to attend to additional pruning. There is no default. The vineyard has been maintained and managed in a competent and proper manner and in accordance with best local horticultural and agricultural practices; that is particularly so having proper regard to context, which is the condition of the vineyard when Wishford took over its maintenance and management.
Nonetheless, Wishford is prepared to cut back a further 15 hectares of the vineyard area at its cost. That work will be done under protest; meaning that the work will be done notwithstanding Wishford’s strong denial of an obligation to do it. You also refer to an agreement in September 2016. We are not going to respond here to the assertion of an agreement for that work in September 2016, but rather make the point that it is the terms of the Lease which apply and not subsequent discussions between our respective clients.
The cutting back cannot be done in the 14 days demanded (viz by 29 August 2017) and it is unreasonable to make that requirement. No contractor is available to complete the work within that timeframe.
Wishford has engaged the pruning contractor Marangalli Vineyards to start on 5 September 2017. [Emphasis added]
On 3 September 2017, Mr Falcinella showed Mr Harris around the vineyard, including pointing out a damaged pruner. Mr Harris observed that the work required to be performed in the Notice of Default had not been performed. Mr Harris consequently instructed Mr Phillips to prepare a notice to the respondent notifying it that the appellant was terminating the lease and on 4 September 2017, the appellant served by its solicitor on the respondent the following purported Notice of Termination and Re-Entry:
To:WISHFORD NOMINEES PTY LTD ACN 008 077 236
C/- Hillier Ellis
Chartered Accountants
174 Fullarton Rd, Dulwich 5065
South Australia
(“the Lessee”)
RECITALS
…
E. The Lessee has defaulted in performance of its obligations under the lease.
F. A Notice of Lease Default dated 15 August 2017 was served on the Lessee, giving notice of the Lessee’s default in proper management of the vines on the Property, amounting to a default under clause 4.12.1 of the Lease, requiring rectification of default within 14 days.
G. The Lessee has not rectified its default within the 14 day period.
OPERATIVE PART
Please take notice that PLAYFORD VINEYARD PTY LTD (the Lessor) HEREBY:
1 TERMINATES the Lease with immediate effect; and
2 HEREBY RE-ENTERS the Property …
On the same day, 4 September 2017, Mr Harris entered the vineyard and placed padlocks on three of the gates, thus preventing access. On 6 September 2017, on Mr Harris’ instructions, Mr Bowman attended at the vineyard and noticed that the locks had been broken and informed Mr Harris of this.
On 8 September 2017, Mr Phillips wrote to Mr Portway in respect of the alleged breaking of the locks, in part as follows:
…
I am instructed that your client, together with others, yesterday broke the Lessor’s locks at the Vineyard and entered on to the property and later, put new locks on the gates.
Our client takes the position that it has validly terminated the Lease, and that unauthorised access by your client and others amounts to trespass.
Our client will immediately take back possession and control of the Vineyard.
Any future unauthorised access by your client or any one authorised by your client [sic], will amount to unlawful trespass.
I am instructed to advise that if this occurs, then the matter will be reported to police and my client will press for criminal charges to be laid against the relevant person or people for unlawful trespass and malicious damage.
By email on the same date, Mr Portway wrote to Mr Phillips informing him that: the respondent did not accept the appellant’s purported termination of the lease or that the appellant was entitled to possession of the vineyard; that any attempts by the appellant to re-enter the vineyard would be resisted; that the claims in respect of trespass were opposed; and that the respondent had informed the police that the matter was a civil dispute and that police were on standby in the event of any potential breach of the peace.
The appellant’s re-entry pursuant to the orders of Judge Bochner
On 18 September 2017, the appellant filed an interlocutory application seeking, inter alia, an injunction prohibiting the respondent’s entry onto the vineyard and interference with the appellant’s use, occupation and quiet enjoyment of it; and a further order granting the appellant possession of it until further order.
On 20 September 2017, a Master of this Court made an order permitting the appellant to re-enter the vineyard. The appellant then undertook a process of pruning. On 22 September 2017, the appellant’s contractors completed the process of pruning in respect of 15 hectares of the vineyard[9] and on 3 October 2017, they completed a process of Spagnolo pruning, further mulching and slashing. On 11 October 2017, the appellant commenced a process of hand pruning.
[9] Prior to the appellant’s re-entry, the respondent had pruned 9 hectares of the Playford vineyard. This meant that, by 22 September 2017, the appellant had completed a further 6 hectares of pruning, bringing the total to 15 hectares.
The respondent’s re-entry pursuant to the orders of the trial Judge
On 31 October 2017, interlocutory proceedings came on before the trial Judge who set aside the Master’s order and ordered instead that the respondent be reinstated to possession. The respondent resumed, and has continued, the management of the vineyard since that date.
The trial proceedings
At trial, by their Second Points of Claim, the appellant sought declarations that the respondent had not validly exercised the option to purchase the vineyard pursuant to the lease and that the appellant had validly terminated the lease on 4 September 2017. Following a number of procedural hearings, the matter came on for trial before Stanley J on 27 November 2017.
The trial was heard over 21 days and concluded on 9 March 2018. On 22 June 2018, his Honour delivered judgment and found largely in favour of the present respondent. He found that the appellant had failed to prove that the respondent was in breach of its obligations under the lease and that it was not entitled to terminate the lease. However, he found that the respondent did not have an option exercisable in 2018 to repurchase the vineyard and that the last option window had been in 2017.
The grounds of appeal
The Grounds of Appeal were as follows:
3.1The learned trial Judge erred in law and in fact in determining that the Appellant had failed to establish a default and was thereby not entitled to issue a notice to remedy default by:
3.1.1 rejecting the opinion evidence advanced by the witnesses Mr. Greg Koch, Mr. Sam Bowman and Ms. Helen Foggo and thereafter finding that the evidence did not establish the existence of a generally recognised and accepted best practice for the pruning of vines in the Riverland (at [498] – [500] and [530]);
3.1.2 misinterpreting the terms of the lease addressing the lessee’s obligations by incorporating a factor of productivity and profitability into the consideration of the obligations such as to confine the obligations (at [491] and [506]);
3.1.3 failing to find that a decision to abandon the lower cordon did not constitute a breach of the duty to maintain the premises in the condition as it existed at the commencement of the lease (at [518] – [522]);
3.1.4 determining that the Respondent intended as at 4 September 2017, and for some time prior thereto, to undertake under-vine trimming of canes and water shoots in October 2017 (at [526]);
3.1.5 determining that an intention to prune (do further works) at a later time, which intention was undeclared and in fact denied, precluded the existence of a default (at [528]); and
3.1.6 failing, in respect of paragraphs 3.1.1 to 3.1.5 above, to act upon the evidence and the weight of the evidence; particularly having regard to the failure of the Respondent to call witnesses who were the natural witnesses of the Respondent, namely Mr. Henry Crawford, Mr. Linden Catford and Mr. Sam Scammel.
3.2The learned trial Judge erred in law in determining that the Respondent, by its response to the Notice of Default by letter dated 29 August 2017, did not repudiate the lease (at [546]).
3.3The learned trial Judge erred in determining that the Appellant is not entitled to recover its legal costs of and incidental to the within action from the Respondent on an indemnity basis pursuant to clause 4.4.3 of the Lease (at [549]).
In its written submissions, the appellant confined the Grounds of Appeal to the following three key complaints of error on the part of the trial Judge:
17.1. failing to find that the respondent was in default of its obligations under the lease as at 15 August 2017 and, therefore, that the appellant was entitled to issue its Default Notice;
17.2 failing to find that the respondent’s letter dated 29 August 2019 [sic], in response to the appellant’s Default Notice, amounted to a repudiation of the lease by the respondent, thereby entitling the appellant to terminate the lease; and
17.3. failing to find that the appellant was entitled to recover its legal costs associated with the proceedings below and the costs incurred in carrying out the works required by the Default Notice, from the respondent, pursuant to its contractual rights under clause 4.4.3 of the lease (and/or 6.4.3).
I would dismiss the appeal. My reasons follow.
The nature of the appeal
The disposition of this appeal is governed by s 50 of the Supreme Court Act 1935 and r 286 of the Supreme Court Civil Rules 2006. The appellant did not point to any error of law but rather asserted that this Court should come to a different view of the facts on the basis that this is a Warren v Coombes[10] case. I cannot agree. The Judge extensively reviewed the evidence and his assessment of witnesses very much does specifically take into account matters of credibility and impartiality. The advantage of the Judge in hearing and seeing the witnesses is important here.
[10] (1979) 142 CLR 531.
The terms of the memorandum of lease annexed to the contract of sale
At trial, there was an issue concerning whether the parties’ rights and obligations were governed by the memorandum of lease having regard to the fact that the respondent never executed it. The Judge held that the parties were bound to observe its terms. His Honour referred to Masters v Cameron[11] and stated:[12]
480. In this case the parties’ conduct evidences that they were bound to comply with the terms of the contract and the memorandum of lease.
…
483. It is common ground that the parties intended to be bound by the contract and by the Special Conditions annexed thereto. Moreover, the parties agreed that they would execute the lease which was attached to the contract after insertion of the matters specified in clause 1.3 of Annexure A to the contract. In my view the memorandum of lease is a contract that falls within the first category in Masters v Cameron. I am reinforced in that conclusion by the subsequent conduct of the parties which evidences an agreement to be bound by the terms of the memorandum of lease. The memorandum of lease contains the terms of that contract. The execution of the lease by the parties was a term of the contract they made for the sale and purchase of land but I am satisfied that they agreed to be bound by the terms of the lease from the execution of the contract. This is a case where the parties have agreed on all the essential matters for a concluded agreement being the lease, and only intended in the future to execute the document which had been brought into existence. The fact that the parties contemplated the execution of the memorandum of lease would occur subsequently does not of itself exclude their having intended to be bound immediately by the lease agreement. [Citations omitted]
[11] (1954) 91 CLR 353.
[12] Playford Vineyard Pty Ltd (ACN 604 608 157) v Wishford Nominees Pty Ltd (ACN 008 077 236) [2018] SASC 84 (Playford Vineyard Pty Ltd).
No Ground of Appeal relates to these findings and in its written submissions, the appellant stated that “the Memorandum of lease, on the terms as annexed to the Contract of Sale, is binding upon the parties pursuant to the authority of Masters v Cameron…”. The respondent does not dispute that proposition.[13] I proceed on the basis that the parties are bound by the terms of the lease.
[13] In the appellant’s written submissions, it is noted that paragraphs [1] and [4] of the respondent’s Points of Defence admit that it is bound by the terms of the lease. The respondent appears to admit such matters save for the fact that it asserts, at paragraph [1] of its Points of Defence, that the lease was never executed and, instead, that it is bound by an “Agreement to Lease”. Further, at paragraph [4] of its Points of Defence, it notes that its permission to use the vineyard “for the growing and harvesting of wine grapes during the Term was pursuant to the Agreement to Lease”. In any event, the parties both appear to accept that the terms are as stated in the form of the lease annexed to the contract of sale.
By item 22 of the Schedule to the contract, the form of the memorandum of lease was annexed as Annexure A. In clause 1.1 of the Special Conditions to the contract, there was a notation that the vineyard was sold subject to the grant by the appellant to the respondent of a lease over the entirety of the vineyard in consideration for the payment by the respondent of an annual rental payment payable quarterly. By clause 1.5 of the Special Conditions, the provisions of the lease are stated to prevail to the extent of any inconsistency between the lease and the terms of the contract of sale.
The repair and maintenance provisions
At issue is the state of repair of the vineyard throughout the duration of the lease up to, and including, the date of the appellant’s purported termination. Clause 4 contained the covenants made by the respondent as lessee. By clause 4.12.1, the respondent covenanted to “cultivate, maintain and manage the Land (both soil and vines) in a proper and husbandlike manner and in accordance with the best local horticultural and agricultural practices”. By clause 4.12.3, the respondent covenanted to “erect and keep in good repair and condition all trellises and fences on the Premises”. Clause 4.12.4 required the respondent to adopt measures which were necessary to prevent the presence of pests and disease in the vineyard. Clause 4.12.9 contained a covenant as to “windmills dams fire breaks wells water courses drains irrigation equipment and other improvements” and required the respondent to keep such affairs “in a good and substantial state of condition and repair” and to prevent such affairs deteriorating or being “prejudicially affected or impaired”. Clause 4.13.1 contained a covenant by the respondent to “keep the Premises in at least the same general condition and repair as existed at the date of commencement of the Term”.
In addition to the general provisions in respect of maintenance and repair, clause 9 contained covenants by the respondent in respect of the permitted use of the vineyard. Clause 9.1 provided that:
The Lessee will keep repaired and maintained all Fixed Improvements,[14] water tanks, windmills, troughs, gates, fences, dams, pumping equipment, pipes, drains, culverts, water boxes and regulators on the Land, fair wear and tear and damage requiring structural repair and damage by storm tempest or by fire (unless it has been caused by the default or neglect of the Lessee) except that the Lessee must take all reasonable measures and precautions to ensure that any defects, damage or dilapidation which has been occasioned by fair wear and tear does not give rise to or cause or contribute to any substantial injury or nuisance to the Land.
[14] "Fixed Improvements” was defined in clause 3.1 as “all fixed improvements erected on the Premises and includes all posts, trellises, wires, pipes, pumps and other watering infrastructure, any houses, sheds, enclosures, yards, other fixed plant equipment fixtures and fitting therein of the Lessor or installed at the request or with the consent of the Lessee, and any amenities and appurtenances on the Land”.
By clause 9.3.2, the respondent covenanted to:
… keep and maintain the Land in good heart and condition using and adopting the best and most accepted methods of husbandry in the local district and will not do anything on the Land which is likely to reduce its productivity or diminish its value.
Provisions relating to default
Clause 6.4.1 delineated the “essential terms” of the lease. It provided that:
Each of the covenants contained in sub-clauses 4.1, 4.2, 4.3, 4.5, 4.6, 4.12, 4.13, 4.15 and 4.17 are of a fundamental character and are essential terms of this Lease and the Lessor shall be entitled to treat any breach thereof or default thereunder by the Lessee as a repudiation of this Lease. [Emphasis added]
Clause 6.1.2 provided that a breach of any covenant or condition of the lease, irrespective of whether such covenant or condition was an essential term, would be treated as an event of default. Clause 6.2 provided that, upon the occurrence of an event of default, the appellant would have the right to terminate the lease either by re-entering the vineyard without notice; or by giving notice of termination to the respondent. Clause 6.6.1 conferred upon the appellant the right to remedy any default in the event that it had provided notice of such event of default to the respondent and the respondent had, following the expiration of a period of 14-days following the issuing of such notice of default, failed to remedy the alleged default. Clause 6.6.2 provided that the appellant was to be compensated for the works it performed in remedying any default under the lease.
The option to re-purchase the vineyard
Clause 1.1.10 of the Special Conditions to the contract set out the terms of the purchase option. In essence, the respondent was to have an option to purchase the vineyard between the period of 1 April and 30 June “after each full year of the lease”, at the price of $1,800,000, subject to a compounding increase over the initial purchase price in the amount of 3% “per full year of the lease”. Clause 11.1 of the lease provided that:
In consideration of the Lessee’s covenants herein contained the Lessor HEREBY COVENANTS AND AGREES with the Lessee to grant and the Lessor hereby grants to the Lessee an option to purchase all of its estate in fee simple in the Land during the Term of the Lease provided that the Lessee shall not have been in default in any rent and/or outgoings payment by more than 30 days during the preceding 12 months or have committed any other breach of non-observance of any of the covenants on the part of the Lessee in this Lease contained to be observed and performed, for which written notice to rectify has been given by the Lessor.
Clause 11.2 granted the respondent the option to give written notice to the appellant of its desire to exercise the option “at any time between 1 April and 30 June in any Lease Year during the Term”. Clause 3.3 of the lease defines “lease year” as “any period of 12 calendar months ending on the 30th day of June”.[15] Clause 11.2.1 provided that the exercise of the option by the respondent would have the effect that there would be deemed a binding agreement between the parties in respect of the sale and purchase of the vineyard. Clause 11.2.2 set out in specific detail the purchase prices foreshadowed in clause 1.1.10 of the Special Conditions and identified the price that would be payable at each of the three periods delineated therein in which the option could be exercised.
[15] The significance of this definition is dealt with in detail below.
Was the appellant entitled to issue its notice of default?
Broadly speaking, Grounds of Appeal 3.1.1 to 3.1.6 can be distilled to the core issue of whether the appellant was entitled to issue its Notice of Default on 15 August 2017. In essence, these Grounds of Appeal rise or fall on the determination of whether the Judge was in error in concluding that the respondent was not in breach of its obligations under the lease.
This Court must determine first, the appropriate construction of the provisions of the lease as they bear on the maintenance and repair of the vineyard referred to above; secondly, whether the respondent is in default by virtue of its failure to perform under-vine pruning in 2017; and thirdly, if the Court answers the second issue in the negative, whether the respondent is in default by virtue of the state of the lower cordon.
The reasons of the Judge
The Judge undertook a detailed analysis of the contractual provisions. His Honour commenced with a consideration of the submissions as to the construction advanced by the respondent:
486. The defendant submits that there is an inconsistency between clause 4.12.1 and clause 9.3.2 and that inconsistency is to be resolved by construing clause 4.12.1 as subject to clause 9.3.2.
487. I do not accept that submission. In my view there is no inconsistency between the two provisions. The two provisions can comfortably sit together. They impose substantially the same obligation on the lessee. The relevant distinction is that clause 9.3.2 imposes an additional obligation which is to oblige the lessee not to do anything on the land which is likely to reduce its productivity or diminish its value. The additional obligation imposed by clause 9.3.2 should be construed as an obligation intended to protect the interests of the lessor. To that extent I reject the defendant’s submission that it is to be construed as prohibiting the doing of anything on the land which is likely to reduce its current productivity or value.
488. Further, it would be contrary to the terms of clause 6.4.1, which provides that clause 4.12 is an essential term of the lease, to construe clause 4.12, which is of a fundamental character, to be qualified by, or subject to clause 9.3.2, which is not an essential term of the lease. Accordingly, I reject the defendant’s contention that the qualified construction of clause 4.12.1 is warranted because a breach of its provisions can lead to forfeiture, on the basis that conditions of forfeiture will be construed narrowly. This submission relies upon the authority of Rosa Investments Pty Ltd v Spencer Shier Pty Ltd, but that case is authority only for the proposition that the common law requires strict compliance with the terms of a forfeiture clause, not that the conditions of a forfeiture clause will be construed narrowly.
489. In any event, the High Court in Progressive Mailing House Pty Ltd v Tabali Pty Ltd declined to follow Rosa Investments holding that the terms of a lease are to be construed in accordance with the ordinary principles of contract construction. Adopting that approach it would be wrong to read down an essential term in the manner for which the defendant contends on the basis that breach of the essential term could lead to forfeiture.
His Honour reiterated the view that clause 4.12.1 and clause 9.3.2 do not give rise to any inconsistency:
490. In my view there is no inconsistency between the two provisions. Both clauses oblige the lessee to cultivate, maintain and manage the land, including the vines, in a proper and husband-like manner that accords with the best and most accepted practices in the local district, namely the Riverland. In doing so the lessee will not do anything on the land which is likely to reduce its productivity or diminish its value. Having regard to the commercial purpose of the lease, that obligation would apply in respect of both the medium and long term. I accept that it would not prohibit the doing of anything on the land which might reduce its productivity or diminish its value in the short term if the purpose in doing so was to increase the productivity of the vineyard in the medium and long term. Necessarily, in managing a vineyard, like many other crops, good husbandry may have the consequence of inflicting some damage on the vines having regard to the cyclical nature of the management of the crop. That is not inconsistent with such actions being taken for the medium to long-term benefit of the vineyard.
His Honour considered in detail the obligations in respect of husbandry. He concluded that the obligation “must be understood as directed towards achieving a reasonable standard of efficient production of bulk wine grapes given the nature of the grapes grown in the Riverland region”;[16] that the obligation must take into account the particular circumstances of the vineyard;[17] that it is erroneous to view the obligation by way of a “snapshot”; and that the respondent’s compliance with its obligations cannot be assessed by the state of the vineyard at any one time, that is, “the temporary condition of the vineyard at a particular time”.[18]
[16] Playford Vineyard Pty Ltd [2018] SASC 84, [491].
[17] Playford Vineyard Pty Ltd [2018] SASC 84, [491].
[18] Playford Vineyard Pty Ltd [2018] SASC 84, [492].
Turning to the question of breach of the covenants, his Honour held:
495. I do not consider that the complaints raised at trial by the plaintiff on these topics established a breach of the defendant’s covenants. It is notable that the plaintiff did not rely upon any allegation of breach in relation to these matters, either in the default notice or the notice of termination, although I accept that some of these matters may not have become apparent to the plaintiff until it was in occupation of the vineyard. Nonetheless, the principal focus of the plaintiff’s case at trial remained on the issue of pruning.
496. It is the plaintiff which bears the onus of proving a breach of the lease agreement. A number of witnesses gave evidence of what they considered best local horticultural and agricultural practice and what are the best and most accepted methods of husbandry in Riverland vineyards. Frequently, they disagree. This subject proved difficult. In my view, each clause is directed substantially to the same topic. The evidence given concerning this topic frequently failed to address the particular features of cultivating and maintaining a vineyard in the Riverland and amounted to the extrapolation of the witness’ subjective view of what he or she considered was desirable practice in vineyards generally, or specific to other wine growing regions, or even to vineyards in the Riverland.
497. In order to make out its case on breach of clauses 4.12.1 and 9.3.2, the plaintiff had to prove an anterior fact, namely, what constitutes the best and most accepted local horticultural and agricultural practices relevant to cultivating, maintaining and managing a vineyard in the Riverland. Absent establishment of that fact, no yardstick exists against which the defendant’s compliance or non compliance with the lease obligation can be measured. Proof of that fact requires the identification of a generally recognised and accepted standard practice or practices, bearing in mind that the relevant covenants oblige the lessee to meet the singular standard of “best” practices and methods. Until this fact is proved, it is not possible to find that the defendant failed to comply with the lease obligations that are based on that standard.
The Judge considered at depth the evidence given by witnesses on each side as to the appropriate method of husbandry required by the lease. His Honour acknowledged the varying opinions of the witnesses as to the prevalence of certain methods of pruning in the region; the nature and extent of the upper cordon dominance in the region; and the need for, and timing of, under-vine pruning.[19] His Honour concluded that such opinions “constituted no more than the witness’ subjective preference for a particular practice which he considered desirable” and that such opinions were not evidence of a “generally recognised and accepted ‘best’ practice”.[20] His Honour continued:
501. While clause 9.3.2 obliges the lessee to use and adopt the best and most accepted methods of husbandry in the local district, I consider that this is a compound expression. Evidence that more than half the vineyards adopt a style of tight box rather than loose box pruning does not establish that the defendant has not adopted the best and most accepted methods of husbandry in the Riverland. It is significant that the clause refers to “methods”. The use of the plural indicates the parties’ understanding that there might be more than one method of husbandry adopted by the lessee. That proposition might be considered to sit oddly with the concept of “best” which suggests a single method. One possible construction might be that the “most accepted” method should be construed as “best”. However, I cannot reconcile that construction with the clear intention of the parties that there must be more than one method that the lessee can adopt.
502. I am reinforced in this construction by the terms of clause 4.12.1 with its reference to “best local horticultural and agricultural practices”. The use of the plural in that clause supports the construction I give to clause 9.3.2. Further, it is not clear by whom it is that the methods of husbandry must be accepted. Evidence that the majority of vineyards adopt a different style of pruning from that adopted by the defendant does not establish that the defendant’s style is not the “best and most accepted” method in the Riverland, or even one of them, let alone that it involves a contravention of the obligation in clause 9.3.2.
[19] Playford Vineyard Pty Ltd [2018] SASC 84, [499].
[20] Playford Vineyard Pty Ltd [2018] SASC 84, [500].
His Honour concluded that the method of husbandry required pursuant to the lease inter alia “will include pruning and trimming of the vine to ensure annual cropping of a sufficient yield”[21] and that such methodology “requires management of the vineyard which has regard to the costs incurred in producing the crop and the prices to be obtained for that crop”.[22]
[21] Playford Vineyard Pty Ltd [2018] SASC 84, [506].
[22] Playford Vineyard Pty Ltd [2018] SASC 84, [508].
Turning to a construction of clauses 4.12.1 and 9.3.2, his Honour accepted the respondent’s submission that the obligations under the lease did not require the lessee to bring an impoverished vineyard into an improved condition; his Honour accepted it was an obligation to “husband what is there”.[23] His Honour found that:
[23] Playford Vineyard Pty Ltd [2018] SASC 84, [516].
-the evidence established that the respondent had inherited “an abandoned vineyard with an unresponsive and degraded lower cordon” in 2011;
-the respondent had rejuvenated the vineyard so as to grow its crop from the upper cordon by 2015;
-the “unproductive” state of the lower cordon resulted in the respondent taking few steps to rejuvenate it;
-there was an increasing average yield from the vineyard in the years following the acquisition by the respondent;[24]
-it was not the case that, as at the date of Mr Koch’s inspection of the vineyard prior to the appellant’s acquisition, the lower cordon was producing 30 to 40 percent of the grapes;[25]
-as at the commencement of the lease, the lower cordon was productive of between 10 and 20 percent of the total crop;[26]
-the state of the lower cordon was largely the result of the neglect which occurred during Great Southern’s management of the vineyard during the years 2009 to 2011;[27] and
-the vineyard was not a “well maintained two cordon vineyard” as at January 2015 that had declined during the term of the respondent’s occupancy pursuant to the lease.[28]
[24] Playford Vineyard Pty Ltd [2018] SASC 84, [518].
[25] Playford Vineyard Pty Ltd [2018] SASC 84, [519].
[26] Playford Vineyard Pty Ltd [2018] SASC 84, [520].
[27] Playford Vineyard Pty Ltd [2018] SASC 84, [521].
[28] Playford Vineyard Pty Ltd [2018] SASC 84, [522].
As to the respondent’s pruning practices, his Honour concluded:
526. Significantly, the minutes of the defendant’s management meeting of 28 April 2017 record that the vineyard required a “pruning tidy up and cut out [of] old wood”. The minutes of 24 August 2017 refer to various phone calls and email correspondence with pruning contractors, which evidences the planned pruning. Those minutes also record that an under-vine tidy up is to occur on the Playford block “as per normal vineyard practice”. They record that Mr Falcinella is to select the areas to be pruned aggressively. They also record that pruning had been attempted with the harvesting machine but this “was shaking the machine to pieces”. They refer to the purchase of a new tractor for this purpose. This is likely to be a reference to the Collard pruner which Mr Falcinella thought was purchased in July or August. It is to be noted that this meeting occurs subsequent to the default notice but prior to the defendant’s reply. It raises the question why the letter from the defendant’s solicitors of 29 August 2017 failed to refer to the intention to undertake this under-vine trimming but, nonetheless, I am satisfied that the evidence establishes it was the intention of the defendant as at 4 September 2017, and for some time prior thereto, to undertake under-vine trimming of canes and water shoots and that this was to occur in October 2017. I further reject the submission of the plaintiff that the defendant had no such intention as it could not have completed this work until about April 2018. The fact that this under-vine trimming was undertaken by the plaintiff during the period it was in occupation between 20 September 2017 and 31 October 2017 evidences the fact that the task could have been undertaken in a much shorter period even allowing for the likely use of greater resources by the plaintiff than were available to the defendant. Finally, I do not accept the plaintiff’s submission as its logical corollary is that Mr Falcinella deliberately sought to mislead the Court. He had no apparent motive for doing so and his evidence is corroborated by contemporary documents.
…
528. Accordingly, I am satisfied that the defendant had a plan, as at 4 September 2017, to undertake under-vine trimming of low-hanging canes and water shoots. The existence of these canes and water shoots at the time the plaintiff occupied the vineyard on 20 September 2017 does not prove a breach of clauses 4.12.1 or 9.3.7.[29] In these circumstances, the defendant’s failure to notify the plaintiff, prior to 4 September 2017, of its intention to conduct this work does not constitute a breach of its lease obligations.
[29] It is noted that “9.3.7” is a typographical error for “9.3.2”.
Accordingly, the Judge declined to find that the respondent had “failed to cultivate, maintain and manage the land in a proper and husband-like manner and in accordance with the best and most accepted practice in the Riverland”.[30] His Honour also made findings in respect of clauses 4.12.3, 4.12.4 and 4.12.9 respectively; however, none of these findings is the subject of an appeal Ground.
[30] Playford Vineyard Pty Ltd [2018] SASC 84, [530].
Grounds 3.1.1., 3.1.4 and 3.1.5: the appellant’s primary contention
The appellant submitted that Ground 3.1 of Appeal can be separated into two contentions, success on the primary contention meaning that the second need not be considered. The primary contention encompasses Grounds 3.1.1, 3.1.4 and 3.1.5 of Appeal concerning to the respondent’s alleged failure to prune long, low‑hanging canes and water shoots.
Here, the appellant embraces a number of the Judge’s findings including: his Honour's construction of clause 4.12.1 that it made under-vine trimming “necessary”; and that under-vine trimming “was the practice in the Riverland”; and that the appropriate time to conduct mechanical pruning was in the “dormant winter months”, being June to August in any given year, prior to “budburst” (in line with evidence given by a number of the witnesses at trial for both parties).[31]
[31] This particular contention is the subject of further discussion below at paragraph [78].
However, the thrust of the appellant’s submissions here relates to the timing in which the under-vine pruning should be completed in any given year. The appellant contested the Judge’s finding that it was not necessary that under-vine trimming be conducted every calendar year,[32] and submitted that the evidence demonstrated that best practice was to perform under-vine trimming every year.
[32] Playford Vineyard Pty Ltd [2018] SASC 84, [524], [527].
The appellant submitted that the respondent had been in default of its obligations pursuant to clauses 4.12.1 and 9.3.2 in the previous three seasons and that the evidence bore out its allegation that the respondent had not attended to under-vine pruning in any of the years of the term. The appellant submitted that, even if there was a future intention to conduct under-vine trimming (which it did not accept), such intention was only to remedy prior defaults rather than to comply with the respondent’s obligations going forward.
The appellant further submitted that the Judge erred in finding that the correct construction of the lease was that an intention to conduct under-vine pruning at some time in the future was sufficient to comply with the obligations in clauses 4.12.1 and 9.3.2; and further, that even if the Judge’s construction was correct, his Honour erred in finding that Mr Falcinella did in fact have such an intention to conduct under-vine trimming in the future. The appellant submitted that the statement in the respondent’s letter dated 29 August 2017 that “[t]here is no obligation on Wishford to attend to additional pruning” was necessarily inconsistent with the finding by the Judge that the respondent then intended to attend to under-vine pruning in the month of October, just over a month after the date of the letter. The appellant emphasised that no such intention was made known to the appellant until 13 October 2017, when the affidavit of Mr Wake was filed in the proceedings.[33]
[33] The appellant submits that the respondent’s intention to conduct under-vine pruning was not put to Judge Bochner during the submissions on 20 September 2017 and 12 October 2017 and further submits that the suggestion was absent from the affidavit of Mr Falcinella sworn on 18 October 2017, notwithstanding the fact that Mr Falcinella was ultimately the witness who adduced evidence of the respondent’s intentions in this respect at trial. Mr Falcinella, in his second affidavit sworn on 9 February 2018 deposed at paragraph [26] that he “had planned to carry out the pruning of the lower canes and water shoots in October”. In cross-examination, he maintained that that was his intention.
Grounds 3.1.2, 3.1.3 and 3.1.6: the appellant’s secondary contention
The appellant’s “secondary contention” encompasses Grounds 3.1.2, 3.1.3 and 3.1.6 concerning the respondent’s alleged abandonment of the lower cordon. The thrust of the appellant’s case at trial was that the vineyard, at the time of appellant’s acquisition in 2015, was a “productive two cordon vineyard”, that is, it was a vineyard in which both cordons were productive of grapes. The appellant submitted that: the respondent’s pruning practices turned the vineyard into a single-cordon vineyard, only the upper cordon being productive; that the evidence of the respondent’s expert Mr Phillips was that if there was a productive lower cordon as at the date of acquisition in 2015, best practice mandated that it be maintained; and that there was such a productive lower cordon which should have been maintained. The appellant therefore submitted that the respondent’s decision to manage the vineyard in a manner which led to the abandonment of the lower cordon was in breach of its obligations under the lease.
The appellant further submitted that the Judge erred to the extent that his interpretation of clauses 4.12.1 and 9.3.2 of the lease was such as to imply a term that the respondent was permitted to manage the vineyard in such a way as to ensure that it was able to derive a profit; and that such interpretation was inconsistent with the obligation to return the vineyard at the end of the lease in the condition it was in at commencement.
The respondent’s submissions as to the appellant’s secondary contention
The respondent submitted that the Judge was correct in concluding that the appellant had failed to establish any particular best practice in the Riverland and in his interpretation of clauses 4.12.1 and 9.3.2.
The respondent submitted that the obligations as to good husbandry contained in clauses 4.12.1 and 9.3.2 were necessarily dependent upon the “soil, climate and situation” present in the Riverland and were tied back to the obligation that the management of the vineyard was to be conducted “in accordance with the best local practices”, that is, the “commonly accepted practice in the Riverland”.
The respondent emphasised that the vineyard had been abandoned by Great Southern prior to its acquisition in 2011 and submitted that it was in a state of unproductiveness at that time and was currently in the process of restoration.
The respondent submitted that clauses 4.12.1 and 9.3.2 must necessarily be read in conjunction with the permitted use of the vineyard in clause 3.6 of the lease, namely that the respondent was permitted to use the vineyard for “the growing and harvesting of wine grapes”, and that the appropriate construction of the husbandry provisions was one which takes into account the particular features of this particular vineyard, in the Riverland, established for the purposes of producing bulk wine. The respondent thus contended that the Judge was correct to interpret the requirements of good husbandry as being such as to enable the production of an annual crop of sufficient yield and quality to permit this vineyard to both make a commercial profit and continue functioning.
The respondent further submitted that each of the obligations in respect of which it was said to be in breach related to a course of management and that its performance could not be assessed simply by reference to a “particular snapshot in time”; the management in question related to a living organism “with a natural cycle of Growth and Recovery”. The respondent submitted that these matters had to be taken into account in assessing the nature of the obligations imposed; and that the appropriateness of a course of management had to be gauged by reference to a number of factors, including climate, weather, soil, topography, historical condition and the market. The respondent further submitted that performance falls for a determination based on what existed at the commencement of the lease and emphasised the Judge’s finding that the obligation imposed by the terms of the lease were to “husband what is there”.[34] Thus, as an important example, the revival of the lower cordon could only have been undertaken at the expense of sacrificing productivity of the upper cordon.
[34] Playford Vineyard Pty Ltd [2018] SASC 84, [516].
The respondent finally submitted that it was an erroneous construction of the Judge’s reasons to say, as the appellant did, that his Honour accepted that a bare assertion of an intention to perform under-vine pruning was sufficient to satisfy the lease conditions. The respondent stressed that the Court had evidence before it of a management plan which sufficed to evidence the respondent’s intentions to conduct under-vine pruning in October to December of 2017.
Ordinary contractual principles of construction apply to the construction of lease agreements notwithstanding the creation by the lease of an estate in land
The Judge accepted that the contract of sale and the lease were commercial contracts.[35] As to the way in which their terms were to be interpreted, he stated:[36]
… It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable business person would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable business person be placed in the position of the parties. It is from that perspective that the Court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it. The Court is entitled to approach the task of construction on the basis that the parties intended to produce a commercial result, which makes commercial sense. It goes without saying that this requires that the construction placed upon the contractual instruments be consistent with the commercial object of the agreement.[37]
[35] Playford Vineyard Pty Ltd [2018] SASC 84, [485].
[36] Playford Vineyard Pty Ltd [2018] SASC 84, [485].
[37] Electricity Generation Corporation v Woodside Energy Ltd & Ors [2014] HCA 7 at [35], (2014) 251 CLR 640 at 656-657; Ecosse Property Holdings Pty Ltd v GeeDee Nominees Pty Ltd [2017] HCA 12 at [16]-[17].
There is no error in his Honour’s analysis here. In Progressive Mailing House Pty Ltd v Tabali Pty Ltd, the High Court considered whether ordinary contractual principles (there, termination for repudiation or fundamental breach) apply equally to lease agreements. Each member of the Court found that they do. Mason J, with whom Wilson J, Deane J and Dawson J concurred in separate judgments, stated:[38]
… the balance of authority here as well as overseas, and the reasons on which it is based, support the proposition that the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases.
[38] (1985) 157 CLR 17, 29.
In slightly different terms, Brennan J held that:[39]
… I would hold that ordinary contractual principles do apply to a lease, but that the character of a lease as a demise distinguishes the consequences of their application to a contract that is not also a demise. If ordinary contractual principles apply to a lease, a fortiori they apply to an agreement to grant a lease or to an unregistered memorandum of lease which is not effective to convey a legal leasehold interest: cf. Leitz Leeholme Stud Pty. Ltd. v. Robinson. [Citations omitted]
[39] (1985) 157 CLR 17, 40-41. Deane J observed at page 53 that “it should be accepted that, as a general matter and subject to one qualification, the ordinary principles of contract law are applicable to contractual leases”.
Accordingly, the lease falls to be construed according to the ordinary principles of contractual construction. As an aspect of this, there are many statements in the cases affirming the need for the Courts to adopt a commercial approach when construing commercial agreements.[40] In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, the High Court held:[41]
… It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction[42]. [Emphasis added]
[40] See, eg, N C Seddon and R A Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths Australia, 11th ed, 2017) 466-467 [10.32]; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288, 300 (Isaacs J); Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502, 524 (Rogers CJ Comm D); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117 [51] (French CJ, Nettle and Gordon JJ).
[41] (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[42] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22].
More recently, the plurality in Electricity Generation Corporation v Woodside Energy Ltd stated:[43]
… The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean[44]. That approach is not unfamiliar[45]. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract[46]. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”[47]. As Arden LJ observed in Re Golden Key Ltd[48], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”[49]. [Emphasis added]
[43] (2014) 251 CLR 640, 656-657 [35] (French CJ, Hayne, Grennan and Kiefel JJ).
[44] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] per Gleeson CJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill.
[45] See, eg, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Australia) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; see generally Lord Bingham of Cornhill, “A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision”, Edinburgh Law Review, vol 12 (2008) 374.
[46] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ; at 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle (2011) 243 CLR 253 at 284 [98] per Heydon and Crennan JJ. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326, 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2906-2907 [14]; [2012] 1 All ER 1137 at 1144.
[47] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J, citing Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ.
[48] [2009] EWCA Civ 636 at [28].
[49] Zhu v Treasurer (NSW) (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464.
And in Australian Broadcasting Commission v Australasian Performing Right Association Ltd, Gibbs J (as his Honour then was) stated:[50]
… Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has not power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, “even though the construction adopted is not the most obvious, or the most grammatically accurate”… [Emphasis added]
[50] (1973) 129 CLR 99, 109.
As to the matters which may be considered in determining what the reasonable businessperson would have understood the parties to have intended from the words of their agreement, French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[51]
48. Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contract its plain meaning.
49. However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a contractual choice, does not arise in these appeals.
50. Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations. [Emphasis added] [Citations omitted]
[51] (2015) 256 CLR 104, 116-117.
The respondent was not in default by reason of its approach to under-vine pruning
Clauses 4.12.1 and 9.3.2 of the lease both require maintenance of the vineyard. While slightly different terms are used, the Judge was correct to conclude that they are not inconsistent.[52] The obligations are in essence to keep and maintain the vineyard (including soil and vines) and to adopt practices which are appropriate to the Riverland. For convenience, I will refer to these obligations as the ‘husbandry obligations’.
[52] Playford Vineyard Pty Ltd [2018] SASC 84, [487].
The Judge was correct to interpret the provision in clause 9.3.2 requiring the lessee to not do anything which would reduce the productivity or diminish the value of the land as imposing an obligation on the lessee to protect the interests of the lessor.[53] However, I accept the respondent’s submission that clause 3.6 (the “Permitted Use” of the vineyard) must be taken into account when construing the obligation to maintain the vineyard. The “Permitted Use” is defined as “the growing and harvesting of wine grapes” and, in the particular context of this Riverland vineyard, grapes for the production of bulk wine.
[53] Playford Vineyard Pty Ltd [2018] SASC 84, [487].
Accordingly, the Judge was correct to construe clauses 4.12.1 and 9.3.2 as requiring husbandry practices which sought to advance the achievement of a “reasonable standard of efficient production of bulk wine grapes” and that the maintenance provisions required pruning of the vineyard so as to ensure “the production of an annual crop of sufficient yield and quality to produce a profit”.[54] Quite clearly, his Honour was entitled to reach this conclusion. His Honour was also entitled to accept that the husbandry obligations included pruning of the vine to ensure cropping of sufficient annual yield; delivery of sufficient water to the vine to ensure growth; the application of herbicide and fungicide; fertigation and the delivery of nutrients to the vines; and detection of outbreak of disease.
[54] Playford Vineyard Pty Ltd [2018] SASC 84, [491].
The appellant submitted that the Judge found that the appropriate time to complete under-vine pruning was prior to budburst and referred to various paragraphs of the Judge’s reasons.[55] At these paragraphs, his Honour did summarise evidence of witnesses expressing the view that budburst was the threshold by which pruning should be gauged. However, his Honour’s ultimate conclusion was that the respondent was not in breach notwithstanding that its intention was to conduct under-vine pruning after budburst. His Honour clearly noted that the appropriate methods of husbandry vary from vineyard to vineyard based on “different timing priorities in the course of management”[56] and was entitled to conclude, based on the evidence, that there was no one pruning method required by the lease.
[55] Playford Vineyard Pty Ltd [2018] SASC 84, [109], [222], [290], [316], [368], [415], [441].
[56] Playford Vineyard Pty Ltd [2018] SASC 84, [507].
I accept the respondent’s submission that the husbandry obligations must be construed in light of the surrounding circumstances of the lease, namely that it required maintenance of a living organism. The Judge was correct to find that compliance with the lessee’s obligations cannot be assessed as a snapshot at any particular point in time; rather, it must be assessed holistically.
With these husbandry obligations in mind, I turn to the contentious issue of whether the respondent was in breach. In this regard, the evidence of Mr Falcinella is critical. In his second affidavit, Mr Falcinella deposed to the following intention in respect of under-vine pruning:[57]
I had planned to carry out the pruning of the lower canes and water shoots in October. I refer to paragraph 23 of my first affidavit and the purchase by Wishford of a Collard pruner. The Collard pruner is able to be set to prune the low hanging canes and water shoots and it was my intention to carry out that pruning using the Collard pruner in October. We would then follow up with a hand clean-up as necessary. There was no urgency to carry out this task as it does not affect the fruiting zone on either the top or even the bottom cordon and therefore there is no need for it to be carried out before bud burst. Any buds on the lower hanging canes and water shoots are not required anyway so there is no problem if they have shoots growing on them prior to being pruned.
[57] Second Affidavit of Pietro Giovanni Falcinella sworn 9 February 2018.
In cross-examination, Mr Falcinella confirmed his position that it was the respondent’s intention to conduct under-vine pruning in October 2017:
Q. And your plan as I understand it to carry out the pruning of the lower canes and water shoots in October, which I think is what you assert in para.26 of your second affidavit, I don't think you need to go to it unless you are concerned -
A. No, I know that, yes.
Q. Your plan to carry out the pruning of the lower canes and water shoots in October, I take it you would assert would be in compliance with best practice.
A. Removing them, yes. We needed to remove them and we would have done that in October.
Q. As far as you are concerned such pruning is consistent with common viticultural practices in the Riverland.
A. To remove the bottom canes?
Q. Yes.
A. Yes, they are, yes.
Q. And you would concede and would agree necessary for the proper maintenance of the vineyard.
A. It makes the vineyard look tidier. I'm not sure what great effect it has on the vine, the grape quality or anything like that. I don't -
Q. That's beyond your expertise I take it.
A. Well, it's - yes. I mean that's just looking at it from my experience, yes.
As discussed above at paragraph [33], this is not a Warren v Coombes case. The advantage of the Judge in observing Mr Falcinella (and the other witnesses) giving evidence is important here. The Judge undertook an extensive analysis of each witness’ evidence and was entitled to accept or reject the evidence, wholly or partly. His Honour was entitled to accept, as he did, the evidence of Mr Falcinella.
In any event, as his Honour acknowledged, Mr Falcinella’s evidence is borne out by contemporaneous documentation. Of particular significance, the notes of the respondent’s management meeting of 28 April 2017 support that the respondent was considering the need to prune the vineyard as early as April 2017. Thus the notes record, in respect of “Playford”:
Needs to have a pruning tidy up and cut out old wood. Will reduce damage to plant.
Research, talk to Hutch. Peter to progress pruning plan…
From the context, it is clear that “Peter” referred to Mr Falcinella.[58] It thus appears that Mr Falcinella did proceed to progress the respondent’s pruning plan. As the Judge correctly observed, by the 24 August 2017 meeting conducted by the respondent, the pruning plan had been formulated thus:
Playford block – Under vine tidy up will occur as per normal vineyard practice. Peter will select the areas to be pruned aggressively. Attempted pruning with harvesting machine but this was shaking the machine to pieces. We do not have machinery capable of doing a radical prune. New tractor purchase as discussed in actions.
[58] Prior to these minutes, there was a reference to “Phone Hook up with Peter Falcinella”.
Accordingly, it was open to the Judge to find that in August 2017, shortly prior to its response to the Notice of Default, the respondent had an intention to undertake further pruning in accordance with its ordinary “vineyard practice”.
While it is unfortunate that the respondent did not convey that intention in its letter dated 29 August 2017, I do not accept the appellant’s submission that that letter is sufficient to indicate breach of clauses 4.12.1 and 9.3.2 in circumstances where the other evidence referred to indicated an intention to undertake further pruning. The Judge was entitled to accept that the respondent did have such an intention and that it sufficed to evidence compliance with the husbandry obligations under the lease.
I reject the appellant’s submission that his Honour erred in finding that Mr Falcinella’s intention to conduct under-vine pruning, without anything more, was sufficient to prevent default. Naturally, there could come a time when a failure to undertake under-vine pruning would amount to a breach of the lease, but the alleged breach here had to be assessed as at 4 September 2017. The Judge, having accepted Mr Falcinella’s evidence after close scrutiny, was entitled on the facts of this case to proceed on the basis that Mr Falcinella would have carried out his intention of pruning in October 2017. Accordingly, breach was not established.
Thus the effect of the authorities was summarised in Sopov as follows:[78]
[78] (2007) 20 VR 127, 132-133 [17].
1. For party A merely to assert, or argue for, a wrong interpretation of the contract will usually not be enough to justify party B drawing an inference of repudiation. The reason for this is that party A may be:
“willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him.”
Thus the inference of repudiation should not readily be drawn where, for example:
(a) party A makes “contentious observations in the course of discussions or arguments”; or
(b) party A’s conduct amounts to engaging in “a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear”.
2. The inference of repudiation can more readily be drawn when the interpretation relied on by party A is clearly or obviously untenable and party A:
(a) acts (or threatens to act) unilaterally on the basis of the interpretation; or
(b) persists in the interpretation in the face of communications from party B pointing out the error. [Citations omitted]
This is consistent with the decisions of the High Court which emphasise the hesitation that should be exercised in drawing a conclusion of repudiation.
The respondent did not repudiate the lease by its letter dated 29 August 2019
The respondent’s letter of 29 August 2017 did not rise to the level required by the authorities to amount to repudiation for the following reasons.
First, the appellant has not proven breach of an essential term of the lease. As noted above at paragraphs [40] and [51], while clause 6.4.1 of the lease makes clause 4.12.1 an essential term and the Judge found that the respondent had an obligation to perform under-vine pruning, the evidence accepted by the Judge bore out the respondent’s case that it intended to attend to under-vine pruning at a particular time in the future, namely October 2017.
Secondly, the terms of the letter of 29 August 2017 must be read carefully. In the discussions up to that time, the respondent had not denied that it had an obligation to maintain the vineyard; rather, the discussions had related to the precise nature of that obligation, a matter not expressly defined in the lease. There was a legitimate distinction between these two matters and the respondent’s assertion in the letter of 29 August 2017 that there was “no obligation … to attend to additional pruning” must be read in the context of that distinction. In other words, the respondent’s denial (“[t]here is no default”) was of an obligation to attend to additional pruning within the timeframe referred to in the Notice of Default, rather than of any obligation to undertake further pruning in the future.
Thirdly, the appellant has not proven an unwillingness or failure to perform a non‑essential term of the lease; for the reasons stated above, the respondent was not in breach of its obligation in respect of clause 9.3.2, such that the appellant would have been entitled to terminate the lease.
Fourthly, the appellant has not proven conduct on the part of the respondent which evinced an unwillingness or inability to render substantial performance of the contract. The respondent had not evinced by its management practices an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with its obligations.
In any event, even if the respondent had been asserting an erroneous interpretation of the lease, as the plurality observed in DTR Nominees, it may have been that it would have been “willing to recognize his heresy … or … to accept an authoritative exposition of the correct interpretation” by the appellant. However, by purporting to terminate the lease so shortly after the receipt of the letter of 29 August 2017, the appellant would have deprived the respondent of the opportunity which the authorities ordinarily afford a party to resile from an initial incorrect interpretation of the contract.
I emphasise that I say nothing of the result that may have been reached had the appellant persisted in putting to the respondent over a longer period that it was in default and had the respondent persisted in denying any obligation to conduct under-vine pruning. It may well be that such circumstances would at some stage have led to the conclusion that the respondent had repudiated the lease, entitling the appellant to terminate. However, on the facts as they stood at 4 September 2017, the respondent cannot be said to have repudiated. The appellant acted with undue haste in purporting to terminate the lease in the circumstances.
I would reject Ground 3.2 of Appeal.
The appellant’s claimed entitlement to recover its costs on an indemnity basis
In Ground 3.3 of Appeal, the appellant asserts that the Judge erred in concluding that the appellant was not entitled to recover its legal costs of and incidental to the within action from the respondent on an indemnity basis pursuant to clause 4.4.3 of the lease,[79] which provides in full:
The Lessee will pay all costs charges and expenses (including all reasonable legal fees on a full indemnity basis) which may be incurred or expended by the Lessor in consequence of any default in the performance or observance of any covenant or agreement herein contained on the part of the Lessee to be observed or performed or on the exercise or enforcement by the Lessor of any covenant agreement power or authority herein contained. [Emphasis added]
[79] Playford Vineyard Pty Ltd [2018] SASC 84, [549].
In its written submissions, the appellant further relies on clause 6.4.3 of the lease, which provides for compensation payable by the respondent in the event that it repudiates or breaches the lease.
In response, the respondent simply asserts that no default has been proved.
I accept the respondent’s submission. The occurrence of a “default in the performance or observance of any covenant or agreement” by the respondent is a condition precedent to the entitlement to claim costs on an indemnity basis and repudiation and/or breach is similarly a condition precedent to compensation pursuant to clause 6.4.3; therefore this Ground of Appeal must necessarily depend upon the success of the appellant’s other grounds. Those grounds fail and accordingly, I would reject Ground 3.3 of Appeal.
Conclusions as to the appeal
The appellant has failed to demonstrate: error in the Judge’s conclusions concerning the construction of the lease; or that the respondent is in breach of its obligations under the lease concerning under-vine pruning or pruning of the vineyard in general or the state of the lower cordon; or that the respondent repudiated the lease. Accordingly, I would dismiss the appeal.
CROSS-APPEAL: THE OPTION TO REPURCHASE THE VINEYARD
On 20 July 2018, the respondent filed a Notice of Cross-Appeal relying upon the following grounds:
3.1The learned trial judge erred in law in determining that the defendant (cross‑appellant) did not have an option to repurchase the land exercisable between 1 April 2018 and 30 June 2018.
The learned trial judge ought to have held that upon the proper construction of the contract for sale and purchase (Exhibit DSH 11), and in particular, the Special Conditions, Annexure A:
(a) the purchaser (plaintiff) granted to the vendor (defendant) an option to re‑purchase the land exercisable between 1 April 2018 and 30 June 2018 (the 2018 option); and
(b) the exercise of the 2018 option was not subject to any condition precedent.
Alternatively, if (which is contested) the exercise of each option was subject to a condition precedent, the learned judge ought to have held that it had been satisfied in relation to the exercise of the 2018 option.
I would dismiss the cross-appeal. My reasons follow.
In essence the dispute the subject of the cross‑appeal may be summarised thus. The respondent contends that it had an option to repurchase the vineyard which was exercisable in 2018 and which it then attempted to exercise. The appellant contends that the final year for exercise was 2017 (and, as noted above at paragraph [17], the respondent accepts that it did not then validly exercise it).
The respondent’s submissions
The respondent submitted that three “exercise of option periods” arose and that it was an unreasonable construction that the first of the periods should have been in 2015 because settlement occurred after the date upon which the 2015 period commenced. It was submitted that the three exercise of option periods were 1 April to 30 June in the years 2016, 2017 and 2018.
This submission depends upon the interpretation to be given to the definition of “Lease Year”. Such term is defined in clause 3.3 of the lease to mean “any period of 12 calendar months ending on the 30th day of June”. Clause 11.2 provides that an option will be exercisable “at any time between 1 April and 30 June in any Lease Year during the Term”.
The respondent submitted that this Court should interpret clause 11.2 such that it refers to a “full” Lease Year; that is, upon the completion of a full 12‑month period ending on 30 June. If that submission be accepted, an option could not have arisen in 2015 given the lease commenced on the settlement date, being 8 April 2015, and a full period of 12-months did not elapse before the arrival of 30 June 2015. On the respondent’s submission, the first period in which a full 12-month period elapsed during the term of the lease was as at 30 June 2016 and, accordingly, the first exercise of option period occurred in 2016 with the years 2017 and 2018 constituting the remaining two exercise of option periods.
The Judge’s reasons
The Judge considered in detail the provisions which bear upon this issue (set out at paragraphs [42] to [43] above). His Honour stated as to clause 11.2 of the lease:[80]
Clause 11.2 undoubtedly presents some difficulties in construction. In construing the contract and the memorandum of lease, the Court considers the circumstances surrounding the formation of the contract and the commercial purpose and objects to be achieved by it. The Court is entitled to approach the task of construction on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon the contractual instruments be consistent with the commercial object of the agreement.[81]
[80] Playford Vineyard Pty Ltd [2018] SASC 84, [563].
[81] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16]-[17], (2017) 91 ALJR 486 at 491.
As to the effect of clause 1.5 of the Special Conditions and its bearing upon the process of construction, his Honour observed:
564. In my view, clause 1.5 of the Special Conditions should not be construed in the manner for which the defendant contends. The contract made by the parties provided for a lease in express terms which was attached to the contract. The parties contemplated the possibility that there could be an inconsistency between the terms of the contract and the lease and provided a mechanism in clause 1.5 to resolve any inconsistency. The mechanism agreed was that, where any inconsistency existed between the attached memorandum of lease and the contract, the terms of the memorandum of lease would prevail. I do not accept that clause 1.5 of the Special Conditions is not referring to the provisions of the attached form of lease. Clause 1.2 of the Special Conditions makes clear that the contract for sale of the land is subject to the grant by the purchaser of a lease over the whole of the land to the defendant in the form of the lease which is attached to the contract. I do not accept the proposition that the parties had in contemplation some lease in different terms from the lease document attached to the contract. Accordingly, the difficulties of construction presented by the inconsistencies which exist between clause 11 of the memorandum of lease and clause 1.1.10 of the Special Conditions are resolved by the terms of clause 11 prevailing to the extent of the inconsistencies. [Emphasis added]
His Honour continued:
565. I accept that the terms of clause 11 of the memorandum of lease also present some difficulties in construction. However, when the circumstances surrounding the lease agreement and the commercial purpose and objects to be achieved by it are considered, I am satisfied that these difficulties can be resolved. While there is incongruity in the proposition that an option to purchase could be exercised between 1 April and 30 June 2015 when the lease agreement provides that it would commence on 15 March 2015, and that the option to purchase would be an amount representing a three per cent increase on the purchase price, that construction is not absurd having regard to the commercial risks the parties might have considered justified in the circumstances that existed at that time. Those circumstances include that it is unlikely that an option to purchase would be exercised that soon. If it was, the parties agreed that the lessor was entitled to a substantial return on its investment. The inflation of the repurchase price at that time could be seen as a premium the parties agreed as appropriate in circumstances where the plaintiff would have lost, so soon after its purchase, an expected income stream from leasing the land.
566. Crucially, the construction for which the defendant contends makes little commercial sense in circumstances where the parties had in contemplation, at the time the contract was made, that the term of the lease would be from 15 March 2015 to 14 March 2018. I cannot see the commercial purpose in providing an option to repurchase the land after the expiry of the lease. There is no obvious commercial sense in providing for a right to repurchase after the defendant’s occupation of the land has terminated.
567. In my view, the tension which exists in construing clause 11.2 of the lease is resolved by construing the reference to “any Lease Year” in clause 11.2 as referring to “any period up to 12 calendar months ending on the 30th day of June”.
568. That constructional choice is markedly more coherent and harmonious than the strained construction for which the defendant contends.
At trial, the respondent had advanced an alternative construction that if its primary submission in respect of an option window extending from 1 April 2018 to 30 June 2018 be rejected, the contract nonetheless contemplated an option exercisable in the period of 1 April 2018 to 7 April 2018. In dismissing this alternative submission, his Honour held:
569. I also reject the defendant’s alternative submission that there was a further option window in the period 1 April 2018 to 7 April 2018. The construction I have given to the terms of the contract between the parties which excludes any right on the part of the defendant to exercise an option to repurchase the land between 1 April 2018 and 30 June 2018 necessarily excludes any right on the part of the defendant to exercise an option to repurchase the land during that abbreviated period. The basis of the defendant’s alternative submission in support of the existence of an option to repurchase in the abbreviated period is the proposition that even if the existence of an option to repurchase was not open in the period subsequent to the lease coming to an end on 7 April 2018, it was open during the abbreviated period while the lease was still on foot. That alternative submission cannot survive the construction I have adopted which excludes any further right on the part of the defendant to exercise an option to repurchase after 30 June 2017.
570. Moreover, the alternative submission demonstrates that the existence of a further option to repurchase exercisable in 2018 is untenable. Implicit in the alternative submission is a recognition that the parties could not have intended that the option to repurchase could be exercised after the expiry of the lease period. At the time the parties entered into the contract, namely, 22 February 2015, it was intended that the lease period would run from 15 March 2015 to 14 March 2018. Of course, as events transpired, settlement did not occur until 8 April 2015. However, as at the date when the contract was made, the parties could not have intended that there be an option to repurchase exercisable after 14 March 2018.
Accordingly, upon the Judge’s construction, the respondent only enjoyed an option exercisable in 2015, 2016 and 2017 and the respondent did not enjoy an option exercisable in 2018, as it had contended.[82]
The lease shall prevail to the extent of any inconsistency between the lease and the Special Conditions of the contract of sale
[82] Playford Vineyard Pty Ltd [2018] SASC 84, [571]-[572].
The option to repurchase the vineyard is delineated both at Special Condition 1.1.10 in the contract and at clause 11 of the lease, but unfortunately in different terms. The words of Special Condition 1.1.10 refer to “1st of April and 30 June after each full year of the lease”; but clause 11 of the lease provides that the option shall be exercisable “at any time between 1 April and 30 June in any Lease Year during the Term”, importing into that provision the term “Lease Year” as defined in clause 3.3 of the lease.
As to this inconsistency, the Judge concluded that clause 11 of the lease shall prevail to the extent of any inconsistency with the terms of clause 1.1.10 of the Special Conditions by the force of clause 1.5 of the Special Conditions.[83] I agree that that is the clear effect of clause 1.5 of the Special Conditions to the contract of sale and the parties are bound by it.
[83] Playford Vineyard Pty Ltd [2018] SASC 84, [564].
Consideration
The Judge correctly observed that the construction of clause 11 of the lease involves some difficulties. Ultimately, the lease is a commercial document and must be construed so as to make commercial sense and to give effect to what the reasonable person would have understood the parties’ intention to have been.[84] There are a number of factors which are significant in this respect.
[84] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-657 [35].
First, although the definition of “Lease Year” refers to “any period of 12 calendar months ending on the 30th day of June”, to construe the option in clause 11.2 as contemplating an option exercisable only after the expiry of a full 12-month period would be to disregard almost entirely the period from 8 April 2015 (the date of settlement) to 30 June 2015. A construction of “Lease Year” as including “any period up to 12 calendar months ending on the 30th day of June”, as adopted by the Judge, avoids this lack of commercial sense and is to be preferred.
Secondly, the contract was executed on 22 February 2015 at which time it was contemplated that the term of the lease would commence on 15 March 2015.[85] While settlement did not in fact occur until 8 April 2015, the lease only commencing then, it is the intention of the parties at the time of executing the contract of sale which is relevant. At that earlier time, by reference to clause 11.2, it was contemplated that the respondent would have an option to repurchase the vineyard shortly after the commencement of the lease. Whether or not, in the circumstances that ultimately eventuated, the respondent would have had the means or inclination to exercise an option so soon after the commencement of the lease is irrelevant to the process of construction.
[85] Playford Vineyard Pty Ltd [2018] SASC 84, [565].
Thirdly, the express wording of clause 11.2.2 is important. It sets out the purchase prices payable pursuant to the formula in clause 1.1.10 of the Special Conditions, a purchase price of $1,800,000 “plus a compounding increase in the price over the initial $1,800,000 of 3% per full year of the lease”. While the reference to “per full year of the lease” in clause 1.1.10 of the Special Conditions arguably supports the respondent’s construction, the express wording of the provisions in clause 11 of the lease are clearly inconsistent with the terms of the Special Conditions and accordingly the express words in clause 11 must prevail to the extent of that inconsistency. In my view, the fact that clause 11.2.2 expressly identifies option windows in 2015, 2016 and 2017 is particularly significant; it should be read as a deliberate choice by the drafter in circumstances where there is no evidence to suggest that it was a mistake.
Fourthly, I do not consider the fact that the price payable by the respondent, had it exercised the option in the 2015 option window, was $54,000 greater than the price payable by the appellant on the date of settlement to detract from the construction preferred by the Judge. There could be any number of commercial reasons for such a differential. I agree with the Judge that the increase in the purchase price could have been to account for an agreed entitlement of the appellant to “a substantial return on its investment” or “as a premium the parties agreed as appropriate in circumstances where the plaintiff would have lost, so soon after its purchase, an expected income stream from leasing the land”.[86] Ultimately, however, it is not necessary to fix upon any particular intention in this regard.
[86] Playford Vineyard Pty Ltd [2018] SASC 84, [565].
I conclude that the option was exercisable in 2015, 2016 or 2017 but not in 2018 (either between 1 April to 30 June or between 1 April to 7 April or at all). Accordingly, it is unnecessary to consider the question of any condition precedent to the option.
I would dismiss the cross-appeal.
PARKER J: I would dismiss the appeal and the cross-appeal. I agree with the reasons of Peek J.
DOYLE J: I agree with the reasons of Peek J, and with the orders he has proposed.
2
18
1