Playford Vineyard Pty Ltd (ACN 604 608 157) v Wishford Nominees Pty Ltd (ACN 008 077 236) - [2018] SASC 84

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
PLAYFORD VINEYARD PTY LTD (ACN 604 608 157) v WISHFORD NOMINEES PTY LTD (ACN 008 077 236)
[2018] SASC 84
Judgment of The Honourable Justice Stanley
22 June 2018
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
This is a dispute about a vineyard. In February 2015 the defendant contracted to sell the land to the plaintiff. The sale was subject to a three-year lease back and an annual option to repurchase.
In September 2017 the plaintiff purported to terminate the lease with immediate effect and to re-enter the land on the basis that the defendant had defaulted on its obligations under the lease. The right of the plaintiff to terminate the lease and re-enter was disputed by the defendant. Following its re-entry, the plaintiff undertook certain works upon the vines.
The principal issues in the proceedings are whether the defendant was in breach of the lease, and the terms of any option to repurchase the defendant had.
The plaintiff submits that the defendant breached the terms of its lease in managing the vineyard in such a way as to reduce productivity and diminish its value by failing to cultivate, maintain and manage the vineyard in a proper and husband-like manner. It submits that the defendant’s response to its notice of default constituted a repudiation of the contract and the termination notice brought the lease to an end. It submits that from that time it was entitled to possession of the land, which it has been denied by the defendant’s actions. It further submits that the defendant did not have an option to repurchase the vineyard which was exercisable in 2018.
The defendant denies that it has breached the terms of its lease. It asserts that the option contained in the land sale contract can be exercised during the lease term in 2018 under the lease agreement. In the further alternative the defendant asserts that in the event the Court construes the land sale contract to mean that the defendant does not have the right to exercise the option at the conclusion of the lease term then it seeks rectification of the land sale contract including the memorandum of lease.
Held:
1. The plaintiff has not proved the defendant was in breach of its lease obligations. It was therefore not entitled to terminate the lease and re-enter.
2. On the proper construction of the agreement between the parties, the defendant does not enjoy the right to exercise an option to repurchase in 2018.
3. The objective circumstances do not establish a shared common intention of the parties that there would be an option to repurchase the land exercisable by the defendant in 2018. On the contrary, the evidence establishes that the last option window was to be in 2017. Accordingly, the defendant’s application for rectification is rejected.
Law of Property Act 1936 (SA) s 30(2); Real Property Act 1886 (SA) s 57, referred to.
Jones v Dunkel (1959) 101 CLR 298; Masters v Cameron (1954) 91 CLR 353; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Williams v Lewis [1915] 3 KB 493; Simic v NSW Land and Housing Corporation [2016] HCA 47; Barrier Wharfs Ltd v W Scott Fell & Company Ltd (1908) 5 CLR 647; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216; Doug Rea Enterprises Pty Ltd v Hymix Australia Pty Ltd [19897] 2 Qd R 495; Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226; G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Commercial Bank of Australia Ltd v G H Dean & Co Pty Ltd [1986] 2 Qd R 204; Godecke v Kirwan (1973) 129 CLR 629; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; Lory v London Borough of Brent [1971] 1 All ER 1042; Leigh v Hewitt (1803) 102 ER 789; Meux v Cobley [1892] 2 Ch 253; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; Australia Hotel Co Ltd v Moore (1899) 20 LR (NSW) Eq 155, applied.
Rosa Investments Pty Ltd v Spencer Shire Pty Ltd [1965] VR 97, distinguished.
Jones v Dunkel (1959) 101 CLR 298; Masters v Cameron (1954) 91 CLR 353; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Williams v Lewis [1915] 3 KB 493; Simic v NSW Land and Housing Corporation [2016] HCA 47, discussed.

PLAYFORD VINEYARD PTY LTD (ACN 604 608 157) v WISHFORD NOMINEES PTY LTD (ACN 008 077 236)
[2018] SASC 84
Contents
Introduction
Evidence admitted de bene esse
The plaintiff
The defendant
The evidence of the plaintiff’s witnesses
Evidence of David Stephen Harris
Evidence of Ashley Michael Ratcliff
Evidence of Samuel John Bowman
Evidence of Sam Savvas Sialis
Evidence of Alan Jeffrey Hillier
Evidence of Richard William Phillips
Evidence of Gregory Clive Koch
Evidence of Helen Kay Foggo
Further evidence of Mr Harris and Mr Bowman
Affidavit of Peter Kenneth Hourigan
Assessment of the plaintiff’s witnesses
Evidence of the defendant’s witnesses
Evidence of Thomas Michael Wake
Evidence of Pietro Giovanni Falcinella
Evidence of Scott Mackenzie Curtis
Evidence of Russell Stuart Johnstone
Evidence of Shane Steven Phillips
Assessment of the defendant’s witnesses
The parties’ overview of the case
Findings of fact
Between 8 April 2015 and 4 September 2017 was the defendant in possession of the land as lessee pursuant to the terms of the written lease agreement dated 22 February 2015?
Lease terms and nature of occupancy of the land
Was the defendant in breach of clauses 4.12.1, 4.12.3, 4.12.4, 4.12.9 or 9.3.2 of the lease agreement as at 4 September 2017?
Clauses 4.12.1 and 9.3.2
Clause 4.12.3
Clause 4.12.4
Clause 4.12.9
Did the defendant’s refusal to comply with the notice constitute a repudiation of the lease agreement and/or entitle the plaintiff to issue the notice of termination and re-entry of 4 September 2017?
Does the defendant have a further period of time in which to exercise an option to purchase the land between 1 April 2018 and 7 April 2018?
Rectification
Damages
Conclusion
PLAYFORD VINEYARD PTY LTD ACN 604 608 157 v WISHFORD NOMINEES PTY LTD ACN 008 077 236
Civil
STANLEY J.
Introduction

This is a dispute about a vineyard. The vineyard is located on land at Playford Road, Sunlands, in the Riverland. It is known as the Playford vineyard (the vineyard). The land is just over 128 hectares. Vines have been planted on about 98 hectares. The remaining area is native Mallee timber. The vineyard was established in 1998. The land was purchased by the defendant in 2011 from the liquidators of Great Southern Vineyard Holdings Pty Ltd. At that time the vineyard had been substantially neglected and fallen into disuse.
The defendant is a company in the Wake Group, which has interests in vineyards in the Clare Valley and the Riverland. The Group is controlled by Michael Wake, his brother Brian Wake and his brother-in-law Michael Tilley.
The vines in the vineyard are all red grape varieties of which shiraz comprises about 52 hectares, cabernet sauvignon about 38 hectares and merlot about 8 hectares. The vines have been planted in rows about 2.75 metres apart. The vines are supported by a trellis structure of pine strainer posts with angled struts and pine intermediate posts in rows with a two wire vertical trellis. It is what is referred to as a high trellis. There are two cordons on each vine: an upper cordon on the upper wire and a lower cordon on the lower wire. The state of the lower cordon is a significant issue in the proceedings.
At some time when the vineyard had been operated by Great Southern Vineyards Holdings Pty Ltd (Great Southern) the lower cordon had been neglected and had deteriorated. The vineyard was not pruned in 2010 and perhaps in 2009. Grapes were not harvested during the 2010 vintage. The vineyard had not been irrigated during that period. To all intents and purposes it had been abandoned.
The defendant purchased the land in 2011. It set about rejuvenating the vines. The defendant left the lower cordon much as it was when it acquired the vineyard. It is the defendant’s case that there was only a very small volume of grapes produced from the lower cordon, which was inhibited and produced a very low percentage of the crop. The defendant pruned the canes that were growing off the lower cordon to restrict the growth in 2013 and 2014, but this did not occur every year.
After the defendant acquired the vineyard, grape prices in the Riverland through the next few seasons were very low. It was difficult to obtain a profit from growing and harvesting the grapes. The defendant wanted a capital injection. After unsuccessfully seeking an equity investment, the defendant accepted an offer from a consortium of investors to purchase the land so as to inject some capital into the grape growing entities operated by the Wake Group.
That consortium was led by Mr David Harris. Before settlement, the consortium assigned its interest in the contract to the plaintiff. The plaintiff company is the trustee of the Playford Vineyard Unit Trust. Its managing director is Mr Harris. Before purchase Mr Harris and another investor, Mr Gregory Koch, inspected the vineyard.
On 22 February 2015 the defendant contracted to sell the land to the plaintiff (the contract). The contract was executed by Mr Tilley for the defendant. At that time, Mr Tilley was the defendant’s sole director. In issue is the condition of the lower cordon at this time. The sale was subject to a three-year lease back and an annual option to repurchase.
The nature and terms of the lease are also a significant issue in the proceedings. There is a further issue as to the terms of any option to repurchase the defendant had. The issue is whether the defendant had possession as lessee pursuant to the terms of a written memorandum of lease dated 22 February 2015 or whether the defendant occupied the land on the basis of a tenancy at will or a year to year tenancy. As contemplated by the contract, the memorandum of lease was prepared in registerable form. However, it was not executed by the defendant and, as a consequence, never registered.
The defendant occupied the property from 8 April 2015 and 20 September 2017 to from 31 October 2017 to 7 April 2018. It grew and harvested grapes from the vineyard which it sold to various wineries in the 2016 and 2017 vintages. Its intention is to do the same for the 2018 vintage, although ownership of the harvest in 2018 also is a significant issue in the proceedings.
The plaintiff re-entered the property on 20 September 2017 pursuant to an order made by a Master of this Court which I subsequently set aside.
The background to the re-entry commences with a report commissioned by Mr Harris from a consultant, Mr Bowman, dated 22 September 2016. That report was critical of the defendant’s management of the vineyard, and in particular, the pruning of the vines. Subsequently a meeting was arranged at the vineyard in December 2016 between Mr Harris, Mr Bowman, Mr Michael Wake, a director of the defendant, and the defendant’s vineyard manager Mr Falcinella. At that meeting there was discussion about the pruning of the vineyard. Mr Harris expressed concern whether the vineyard was being properly maintained and managed. At issue was the nature and extent of the pruning that had been undertaken by the defendant. It was agreed that 15 hectares of the vineyard would be more heavily pruned during the following winter. This involved a technique described as “close pruning” or “saw pruning”.
In or about early August 2017 Mr Harris contacted Mr Bowman and asked him to undertake a further inspection of the vineyard. Mr Bowman did so on 9 August 2017 and subsequently advised Mr Harris that only one hectare of the vineyard had been saw pruned by the defendant.
On 11 August 2017 Mr Wake and his wife, on behalf of the defendant, sent an email to Mr Harris advising him that the defendant believed it still enjoyed an option to purchase the land exercisable during the period from 1 April 2018 to 7 April 2018 and that the defendant intended to exercise the option during that period.
On 14 August 2017 Mr Harris and Mr Bowman again attended at the vineyard. Mr Wake was not present. They inspected the state of the vines and the extent of the pruning that had been undertaken. At that stage it was still the case that only one of the 15 hectares that was to be saw pruned had been closely pruned. The rest of the vineyard had been machine pruned in a fashion which Mr Wake described as minimal pruning.
Mr Wake gave evidence that the defendant had attempted saw pruning with its own equipment but the nature of the pruning caused some damage to the equipment and they had experienced difficulty in engaging external contactors with heavier equipment to conduct the pruning due to the close planting of the rows. The defendant had contracted a firm of pruners, Marangalli Vineyards Pty Ltd, to undertake the work but they had not commenced the work before 14 August 2017 as they needed to obtain heavier blades.
Mr Harris and Mr Bowman were also concerned by the number of low hanging canes they observed which they considered posed a disease risk. On 15 August 2017 the plaintiff issued a notice to remedy default pursuant to the memorandum of lease.
The default notice of 15 August 2017 was sent to the defendant’s solicitors. It asserts that the defendant was in breach of clauses 4.12.1 and 9.3.2 of the memorandum of the lease and demands that the defendant remedy its default within 14 days by arranging the completion of the cutting back of at least a further 15 hectares in accordance with the agreement it asserts was made on 21 December 2016, and under-vine trimming of the remainder of the vines upon the vineyard to ensure that low hanging canes are removed to prevent soil borne disease. It notified the defendant that a failure to comply with the notice may result in the plaintiff terminating the lease and taking possession of the property.
By letter from the defendant’s solicitors to the plaintiff’s solicitors dated 29 August 2017, the defendant asserted that it was not obligated to attend to any additional pruning. Nonetheless, it was prepared to cut back a further 15 hectares. It advised that this could not be completed within 14 days.
Due the importance of the allegation of breach, I set out the terms of each of these letters. The letter from the plaintiff’s solicitors of 15 August 2017 is as follows:
Dear Sirs
Re:    Lease Default – Playford Vineyard
(RP/KC140623.L10)
We act for Playford Vineyard Pty Ltd, registered proprietor of the Playford Vineyard at Waikerie, comprised in Certificate of title Volume 5569 Folio 549 (“the Landlord”).
This letter of demand is issued to Wishford on instructions from the Landlord.
1.     Lease Contract
The Landlord purchased the property from Wishford Nominees Pty Ltd (“Wishford”) under a Contract dated 22 February 2015. Settlement of this sale and purchase occurred on 8 April 2015.
The Contract was subject to a lease-back to Wishford for a 3 year term from settlement, expiring 7 April 2018.
The form of the lease applicable to the property (the “Lease”) was attached to the Contract, and Wishford has occupied the property under the terms of the Lease since settlement.
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) had been properly reworked.
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.
6.     Legal Costs
Pursuant to clause 4.4.3 of the Lease, the Landlord is entitled to payment from Wishford for legal costs incurred by the Landlord as a direct result of Wishford’s aforementioned breaches. Legal costs to date are estimated in the sum of $550.00 (GST inclusive). These costs will continue to accrue should Wishford not immediately, and without delay, remedy its defaults as set out above.
The Landlord asks that Wishford comply with this letter of demand as a matter of urgency, and in order to avoid termination of the Lease.
Yours faithfully
BROWN & ASSOCIATES
The response from the defendant’s solicitors of 29 August 2017 is as follows:
Dear Sir
Lease – Playford Vineyard
We refer to your letter of 15 August 2017.
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.
Shading was created by an earlier owner of the vineyard (Great Southern Vineyards). Great Southern Vineyards removed the bottom cordon at some stage and attempted to rewrap this later while the top cordon was to remain producing grapes. This could never be achieved as shading would always be an issue. This vineyard was then allowed to die (no water, no fertilizer, no pruning) because the owner became insolvent.
Cropping level on one cordon can produce grapes at a recommended contracted level for the Riverland of 20 – 25 T/Ha. This information and the cropping level has previously been forwarded to the Landlord. Wishford achieved the cropping levels or above recommended for the Riverland for the 2017 vintage and it would have been even higher if wineries had accepted the grapes at the optimum time. The quality of wine made was of a high standard. All the wine has been sold.
Wishford has used an independent company to monitor pest, disease, and fertilizer programme. The petiole results have been already forwarded to the Landlord. They show that all nutrient levels were in recommended range. The spray programme was implemented as directed and all these applications were carried out and appear in all spray diaries forwarded to wineries.
The irrigation system has been maintained with the replacement of all filter disc’s in the main filter, upgrade of water monitoring system (soil moisture) and replacement of some jets and dripper tubes where required. This information has also been previously supplied to the Landlord.
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.
Yours sincerely
HEUZENROEDERS LAWYERS

On 4 September 2017 the plaintiff purported to terminate the lease with immediate effect and to re-enter the land. The plaintiff gave notice in writing that the defendant had defaulted on its obligations pursuant to clause 4.12.1 of the lease and had failed to rectify the default within 14 days. The right of the plaintiff to terminate the lease and re-enter was disputed by the defendant. As I have indicated, ultimately, the plaintiff obtained orders from a Master of the Court permitting it to re-enter.
Following its re-entry on 20 September 2017, the plaintiff undertook certain works upon the vines in the period to 31 October 2017. Those works included saw pruning six hectares of the vines (by the time of re-entry the defendant had saw pruned a total of nine hectares); Spagnolo pruning of the remaining vines; slashing and mulching between the rows, under-vine trimming, cutting off water shoots protruding from the trunks of the vines and low hanging canes coming off the cordons; the application of fungicide and the engagement of irrigation technicians to test and repair the irrigation system.
After the defendant was reinstated on 31 October 2017 it continued to undertake the management of the vineyard in preparation for the 2018 vintage.
Whether the defendant was in breach of the lease on 4 September 2017 is the principal issue in the proceedings. That issue directs attention to particular clauses in the lease.
The memorandum of lease provides that in consideration of the defendant making payment of an annual rent (payable by calendar quarterly instalments in advance on the first day of each quarter during the term of the lease) commencing on the date of settlement (8 April 2015) and expiring three years from the date of commencement (at midnight on 7 April 2018), and observing and performing all the covenants, agreements and conditions contained in the lease, the defendant is permitted to use the land for the growing and harvesting of wine grapes during the lease period.
Clause 4.12.1 of the memorandum of lease requires the lessee to cultivate, maintain and manage the land (both soil and vines) in a proper and husband-like manner and in accordance with the best local horticultural and agricultural practices.
Clause 9.3.2 of the memorandum of lease requires the lessee 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 prohibits the lessee from doing anything on the land which is likely to reduce its productivity or diminish its value.
The meaning of these covenants also is a significant issue in the proceedings.
Other relevant terms of the lease are clauses 4.12.3, 4.12.4, 4.12.9, 6.4.1 and 11.1.
Clause 4.12.3 requires the lessee to erect and keep in good repair and condition all trellises and fences on the land.
Clause 4.12.4 requires the lessee to adopt such measures which may be reasonably necessary to keep the land free from pests and diseases.
Clause 4.12.9 requires the lessee to keep and maintain, inter alia, irrigation equipment and other improvements standing or situated on the land in a good and substantial state of condition and repair and not permit or suffer the same to become in any deteriorated condition or prejudicially affected or impaired.
Clause 6.4.1 provides that each of the covenants contained in subclauses 4.1, 4.2, 4.3, 4.5, 4.6, 4.12, 4.13, 4.15 and 4.17 of the lease are of a fundamental character and are essential terms of the lease and the lessor shall be entitled to treat any breach thereof or default thereunder by the lessee as a repudiation of the lease.
Clause 11.1 provides that the lessor grants to the lessee an option to purchase the land provided the lessee shall not have been in default of any rent and/or outgoings by more than 30 days during the preceding 12 months, or have committed any other breach or non-observance of any of the covenants on the part of the lessee in the lease to be observed and performed, for which written notice to rectify has been given by the lessor.
The plaintiff alleges the defendant breached clauses 4.12.1, 4.12.3, 4.12.4, 4.12.9 and 9.3.2 of the lease.
The principal issue in relation to the defendant’s management of the vineyard concerns the pruning of the vines. The plaintiff asserts that in contravention of clause 4.12.1 the defendant failed to cultivate, maintain and manage the land in a proper, husband‑like manner in accordance with the best local horticultural and agricultural practices in the 2015/16 and 2016/17 seasons by failing to properly prune the upper cordon of the vines and by leaving long downward pointing canes on the vines, leading to an increase in bud numbers and a risk of disease, causing an uneven budburst resulting in uneven ripening of fruit and, by failing to prune the lower cordon, leaving it unviable.
In addition, the plaintiff asserts that in contravention of clause 9.3.2 the defendant failed 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 breached the covenant not to do anything on the land that is likely to reduce productivity or diminish its value in the 2015/16 and 2016/17 seasons by its failure to properly prune, by leaving long canes hanging on the vines and by the failure to repair the posts and trellises.
The plaintiff also asserts the defendant failed to keep and maintain the irrigation equipment in a good and substantial state of condition and repair during the 2016/17 season as the modem to the irrigation control unit had been corrupted and was inoperable, the main filtration system was blocked, the tubes forming the distribution system needed to be flushed of mud, the soil probes that monitor the soil moisture content were damaged, and a number of taps were damaged and leaking at the end of rows. The plaintiff asserts that the defendant failed to keep all trellises in good condition and repair during the 2015/16 and 2016/17 seasons as broken posts in the vineyard had not been replaced. The plaintiff asserts the defendant failed to adopt such measures as were reasonably necessary to keep the land free from pests and diseases during the 2015/16 season as damage was caused to leaf, trunk, shoots and buds of the vines by earwigs, and during the 2016/17 season the vines suffered outbreaks of powdery mildew, downy mildew and botrytis.
On 30 June 2017 the defendant purported to give notice to the plaintiff of its election to exercise the option to repurchase. By letter from the plaintiff’s solicitors to the defendant on 4 July 2017, the plaintiff notified the defendant that the purported exercise of the option was invalid and not accepted on the basis that the defendant had been in default of the payment of rent and outgoings by more than 30 days during the preceding 12 months and the notice of exercise of option had not been served personally by ordinary post or by security post as required by clause 6.19 of the lease. The defendant no longer seeks to rely upon this purported exercise of the option to repurchase the land.
As I have noted earlier, the time when the option can be exercised also is a significant issue in the proceedings.
The defendant asserts that the option contained in the land sale contract of 22 February 2015 can be exercised during the lease term in April 2018 under the lease agreement.
In the further alternative the defendant asserts that in the event the Court construes the land sale contract to mean that the defendant does not have the right to exercise the option at the conclusion of the lease term then it seeks rectification of the land sale contract including the memorandum of lease.
The plaintiff submits that under the lease the last option to repurchase the vineyard was exercisable by the defendant in the period 1 April 2017 to 30 June 2017. If that is the case, it submits the defendant’s claim for rectification cannot succeed.
The issue as to the option has its genesis in a meeting on 12 August 2014 between Mr Wake, Mr Tilley and Mr Brian Wake for and on behalf of the defendant, and Mr Harris for the plaintiff. At the meeting Mr Michael Wake and Mr Harris agreed that the defendant, if it agreed to sell the land to the plaintiff, would have an option to repurchase the land exercisable by notice. The parties are at issue as to what agreement, if any, was reached as to when the option was exercisable. There is no dispute that there was an agreement that the lease was for a period of three years and that there was an option to purchase which could be exercised on an annual basis. At issue is when annually that was to occur. Clause 1.1.10 of the Special Conditions to the land sale contract provides as follows:
Purchase Option Lessee to have an option to purchase the property between 1^st April and 30 June after each full year of the lease. The option price shall be $1,800,000 plus a compounding increase in the price over the initial $1,800,000 of 3% per full year of the lease.
The contract was executed by the parties.
Attached to the land sale contract was a memorandum of lease. Clause 11 of the memorandum of lease provides as follows:
11.Option to Purchase
11.1In 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 this lease provided that the Lessee shall not have been in default in any rent and/or outgoings payments by more than 30 days during the preceding 12 months or have committed any other breach or 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.
11.2Subject to clause 11.1, at any time between 1 April and 30 June in any Lease Year during the Term, the Lessee shall be entitled to give notice in writing to the Lessor of the Lessee’s desire to exercise its option to purchase the Land (the “Lessee’s Notice”) on the following basic terms and conditions:
11.2.1 consequence of exercise of the option
Upon the exercise of the option by the Lessee (service of the Lessee’s Notice) there shall be deemed to be constituted a binding agreement between the Lessor and the Lessee in respect of sale and purchase of the Land and the date of the Lessee’s Notice shall be the date of the Land Contract.
11.2.2 purchase price
11.2.2.1 notice given between 1/4/15 and 30/6/15 $1,854,000.00
11.2.2.2 notice given between 1/4/16 and 30/6/16 $1,909,620.00
11.2.2.3 notice given between 1/4/17 and 30/6/17 $1,966.910.00
As I say, the memorandum of lease was not executed by the defendant. Whether it governed the rights and obligations of the parties also is a significant issue in the proceedings.
Evidence admitted de bene esse
During the course of the trial, I admitted certain evidence de bene esse.
Upon further consideration, I exclude the evidence of Mr Wake regarding construction of the lease and evidence concerning whether the defendant deliberately kept from the plaintiff in September 2017 its intention to undertake certain works on the vineyard in the anticipation that the plaintiff would incur expenditure in undertaking those works itself.
I exclude the former evidence on the basis that Mr Wake’s opinions as to construction are irrelevant to the issue of construction. Further, his evidence is irrelevant to the issue of rectification because the evidence relevant to that issue is the evidence of the controlling mind of the defendant at the time the contract was made. That person was Mr Tilley, not Mr Wake.
I exclude the latter evidence on the basis that this was said to be relevant to whether the Court should find the existence of an equitable lease. The evidence was adduced by the plaintiff in cross-examination. This evidence could not be relevant to the issue of the existence of an equitable lease because, on the plaintiff’s case, the lease had been terminated by 4 September 2017. In any event, as will become apparent, I do not find that an equitable lease existed.
I also exclude the evidence in Exhibit D60, being the second report of Shane Phillips. I exclude this report on the basis that it is irrelevant to this part of the proceedings. The report concerns the reduction in yield in the 2018 vintage as a result of the pruning of the vineyard undertaken by the plaintiff upon re‑entry. The evidence is relevant only to the issue of damages.
I admit the rest of the evidence that I previously admitted de bene esse.
The plaintiff
The plaintiff is a proprietary limited company pursuant to the Corporations Act 2001 (Cth) and is the trustee of the Playford Vineyard Unit Trust. It has been the owner and lessor of the vineyard since 8 April 2015. The land sale contract was entered into on 22 February 2015 between the defendant and 100 % Focus Pty Ltd, DS & JC Harris Superfund and the Greg Koch Superannuation Fund. The contract and lease were assigned to the plaintiff on 28 March 2015.
Mr David Harris is the managing director of the plaintiff and of Riverland Vintners, a grape processing business. Mr Gregory Koch also holds an interest in the plaintiff.
The defendant
The defendant is a proprietary limited company incorporated pursuant to the Corporations Act 2001 (Cth). It is a trustee of the Wake Family Trust, the Thomtess Trust, and the Thomas and Tessa Discretionary Trust. Mr Michael Wake is a director of the defendant. The defendant was incorporated on 28 June 1985 as a property owning company in the Wake Group of companies. The shareholders of the defendant are Mr Wake and his wife Tessa Wake. They are the directors of the defendant and Mr Wake is the secretary. However, Mr Wake did not become a director of the defendant until July 2015. Prior to that appointment the sole director of the defendant was Mr Wake’s brother-in-law Mr Michael Tilley.[1]
[1] Although Mr Wake previously had been a director of the defendant in the early 1990s.
The Wake Group of companies has interests in vineyards and a winery. It also has a trading company Hill River Estate Wines Pty Ltd which operates vineyards at Ramco, Playford and Hill River. Mr Wake’s brother, Brian Wake, and Mr Tilley, also have interests in the Wake Group of companies.
The evidence of the plaintiff’s witnesses
Evidence of David Stephen Harris
Mr Harris was involved in both the sale and purchase of the land and also prosecuting the alleged default of the lease terms. He gave evidence of his recollection of the negotiations leading to the contract for sale of the land and memorandum of lease, the purported decline in the physical state of the vineyard and the circumstances surrounding the default notice. He gave evidence orally and by three affidavits.[2]
[2] P2, P3 and P4. Later, the plaintiff tendered a further affidavit from Mr Harris which became P33.
Exhibited to Mr Harris’ first affidavit[3] is a valuation report for the vineyard prepared prior to the plaintiff purchasing it from the defendant in 2015, and a bundle of photographs taken by the valuers in the preparation of that report.[4] Mr Harris affirms that the photographs contained in DSH‑4 and DSH-5 are representative of the state of the vineyard before it was purchased by the plaintiff.
[3] Affirmed 24 October 2017.
[4] DSH4 and DSH5 (P2).
Exhibited to Mr Harris’ second affidavit[5] are copies of the contract, the deed of assignment dated 28 March 2015 by which the contract was assigned to the plaintiff, and the memorandum of lease.
[5] Affirmed 24 November 2017.
Mr Harris affirms that it was a term of the lease that the defendant was required to manage the land in a proper husband-like manner and in accordance with the best local horticultural and agricultural practices, keep and maintain the land in good condition using the best and most accepted methods of husbandry in the local district, and not do anything to the land to reduce its value.
Mr Harris says that in September 2016 he called Mr Bowman and asked him to inspect the vineyard. On about 22 September 2016, following his attendance at the vineyard, Mr Bowman provided a report dated September 2016 in relation to the condition of the vines. Having reviewed Mr Bowman’s report, Mr Harris met with Mr Bowman, Mr Falcinella and Mr Wake at the vineyard on or about 21 December 2016. At the meeting, Mr Harris expressed his concern about the condition of the vineyard. He said it was a disgrace. Mr Harris says at that meeting Mr Wake agreed to cut back about 16 hectares of the vineyard each year to get the vines under control.
Mr Harris affirms that in August 2017, he asked Mr Bowman again to inspect the vineyard. Mr Bowman attended the vineyard on 9 August 2017. He subsequently informed Mr Harris that only one hectare of the vineyard had been cut back since the previous year.
Accordingly, on or about 14 August 2017, Mr Harris attended the vineyard to inspect the vines. He says he observed that the canopy of the upper cordon was over nine feet high in some places, only about one hectare of the vineyard had been pruned, and no under-vine or between cordon trimming had been performed. He took a number of photographs on that occasion[6]. As a result of what he observed during his visit on 14 August 2017, Mr Harris formed the view that the defendant was in default for “the second year in a row” and that it had not complied with the agreement reached on 21 December 2016. Consequently, Mr Harris instructed the plaintiff’s solicitor, Mr Richard Phillips of Brown and Associates, to issue a default notice to the defendant[7]. The notice was dated 15 August 2017. It required the defendant to cut back a further 15 hectares of the vineyard and perform under-vine trimming by 1 September 2017.
[6] DSH14 (P3).
[7] DSH15 (P3).
Heuzenroeders Lawyers, acting for the defendant, responded to the default notice by letter to Brown and Associates dated 29 August 2017.[8]
[8] DSH17 (P3).
Mr Harris affirms that in or about August 2017, he engaged Berry2Wine Pty Ltd to prepare a report on the condition of the vineyard. That report is dated 18 August 2017.[9]
[9] DSH16 (P3).
Mr Harris affirms that on or about 3 September 2017, he attended the vineyard and observed the additional work had not been performed. Accordingly, he instructed Mr Phillips to issue a notice to the defendant terminating the lease. A notice of termination and re-entry dated 4 September 2017,[10] was served on the defendant on that date. That night, Mr Harris attended the vineyard and padlocked three gates to prevent access to the land.
[10] DSH18 (P3).
Mr Harris says on or about 6 September 2017, Mr Harris received a telephone call from Mr Bowman, whom he had asked to inspect the vineyard. Mr Bowman told him the gates had been unlocked and there were a number of utility vehicles and people on the land. Mr Harris telephoned the defendant’s solicitor, who informed him that the defendant considered the eviction to be unlawful.
Following this, Brown and Associates sent a letter to Heuzenroeders Lawyers dated 8 September 2017[11] to the effect that the plaintiff intended to take back possession of the vineyard immediately. In response, Mr Portway of Heuzenroeders Lawyers sent an email to Mr Phillips of Brown and Associates dated 8 September 2017 to the effect that any attempt by the plaintiff to re-enter the vineyard would be resisted, and that the police had been notified of the civil dispute regarding the land and were on standby to attend it.
[11] DSH19 (P3).
On 20 September 2017, the Master made orders returning possession of the land to the plaintiff. Mr Harris affirms that within 13 days of repossession by the plaintiff, the whole of the vineyard had been Spagnolo pruned, leaving around 50 buds per metre to generate around 20 tonnes of fruit per hectare. The plaintiff’s aim was to generate the maximum income per hectare whilst minimising the risk of disease.

Exhibited to Mr Harris’ third affidavit[12] is a copy of the initial offer to purchase the vineyard,[13] made by Mr Harris on behalf of Agri Partners Pty Ltd by letter to Mr Sam Scammell, the chief executive of Hill River Estate Vineyards, dated 28 August 2014. The offer proposed that the contract would be finalised by the end of October 2014; settlement would occur on 1 December 2014 (or thereabouts); the vineyard would be leased back for three years; and the lessee would have the option to repurchase the vineyard back at the end of each year during April to June. Mr Harris says he intended to convey the offer to repurchase the vineyard on the basis that the lease would commence on 1 December 2014 and expire on 30 November 2017 or thereabouts, and the lessee would be entitled to give notice of its election to repurchase the vineyard during the months of April to June in 2015, 2016 and 2017. In the event the lessee gave notice of its election to repurchase the vineyard, ownership would be transferred at the end of the lease year. For example, if the lessee gave notice on 2 April 2016, settlement would take place at the conclusion of that full lease year, being on 1 December 2016. He did not intend that the lessee would have an option to repurchase exercisable during the months of April to June in 2018.
[12] Affirmed 24 November 2017.
[13] DSH22 (P4).
Mr Harris says that due to delays in financing the purchase of the vineyard, the contract was not finalised or settlement able to occur until 1 December 2014 or thereabouts. In around mid-December 2014, Mr Harris provided a further draft contract and memorandum of lease to Mr Scammell which proposed the settlement date be 15 February 2015.[14] Clause 11 of the memorandum of lease provided the defendant could exercise the option to repurchase the vineyard between 1 April and 30 June in 2015, 2016 and 2017. Execution of the contract was further delayed by the discussion of potential amendments, which were later abandoned.
[14] DSH11 (P3).
Mr Harris affirms that on or about 22 February 2015, the contract was executed and item 15 of the contract amended by hand to provide that the settlement day would be 15 March 2015. Settlement occurred on 8 April 2015. At the time of execution of the contract and settlement, it was Mr Harris’ intention that the defendant be entitled to give notice of its election to repurchase the vineyard only during the months of April to June in 2015, 2016 or 2017.
Mr Harris says in June 2017 he corresponded by email with Mr Michael Tilley,[15] who informed him the defendant wished to repurchase the vineyard, with settlement to occur in mid-October. In response, Mr Harris informed Mr Tilley the defendant needed to exercise the option in accordance with the terms of the contract. On 11 August 2017, Mr Harris received an email from Mr and Mrs Wake[16] advising that they believed they had the option to repurchase the vineyard in 2018 and purporting to give notice of exercise of that option accordingly.
[15] DSH23 (P4).
[16] DSH24 (P4).
Mr Harris affirms that he took a number of photographs of the vineyard in September and October 2017, which are exhibited to his third affidavit as a bundle comprising 96 full page sized colour photographs.[17] Those photographs were referred to extensively by counsel for both parties in their cross-examination and re-examination of witnesses.
[17] DSH25 (P4).
In his evidence-in-chief, Mr Harris said that, while he understood the lease was not executed, he thought it to be operative nevertheless, such that the defendant had bypassed its last chance of exercising the option to repurchase, which Mr Harris understood to be 30 June 2017 at the latest.
Mr Harris gave evidence about the email from Mr and Mrs Wake dated 11 August 2017.[18] The email said that, while the memorandum of lease had not been executed, they understood the lease was for three years commencing 8 April 2015 and that it had been performed according to its terms. As such, the option to repurchase was able to be exercised until 8 April 2018. Mr Harris said he “disagreed with [the] logic” within that email on the basis that he had previously conveyed in a letter addressed to Mr and Mrs Wake that the last date on which the option could be exercised was 30 June 2017.
[18] DSH24 (P4).
In cross-examination, Mr Harris agreed that the email of 11 August 2017 was not the first time he knew of the defendant’s intention to exercise the option to repurchase the land. Further, he had realised during a discussion with a representative of the defendant in 2015 that there “was a misunderstanding between the parties”. It was put to Mr Harris that the default notice dated 15 August 2017 was triggered by the email communication of 11 August 2017. He denied that was the case.
In August 2017, a copy of Mr Bowman’s report was provided to the defendant. Mr Falcinella had requested a copy of the report at the meeting in December 2016. Mr Harris said the delay in providing the report was because “it was so blatantly obvious what they’d done to my vineyard that you don’t need Sam’s report”.
Mr Harris said that the initial purchase of the vineyard by the plaintiff came about because Mr Wake asked Mr Harris to inject equity into his company some time in early 2014. Mr Harris considered the best way to proceed was to purchase and lease back the land to minimise risk between the parties. He said that the defendant proposed a three year lease back with an option to repurchase. This was discussed at a meeting before Mr Harris wrote the letter to Mr Scammell dated 28 August 2014.[19]
[19] DSH22 (P4).
Mr Harris said primarily he discussed the proposed terms of the sale, lease and option to repurchase with Mr Scammell. In the letter of 28 August 2014 Mr Harris set out the terms of the offer to purchase the vineyard. He proposed that settlement would be on 1 December 2014, and that there would be an “[o]ption to purchase the vineyard back by Hill River Estate Vineyards exercisable at the end of each year during the months of April to June at an annual increase of three per cent of the purchase price”. On Mr Harris’ understanding, the first option would have been exercisable on 30 June 2015, just six months after the commencement of the first year of the lease. He said that the clause attracting an annual increase of three per cent would have operated after that first six months had the option been exercised.
In relation to the timing of the option, being “at the end of each year”, Mr Harris explained it “would’ve been said” that the option to repurchase was exercisable at the end of each vintage, being April to June each year. In that sense he was referring to the viticultural year. However, Mr Harris said it was probably the case that Mr Wake said to him before the letter of 28 August 2014 that he was prepared to sell the vineyard on the basis that the option was exercisable at the end of each year of the lease. He also acknowledged that an in principle agreement had been reached before he prepared and sent that letter. His evidence was that the notion of the “viticultural year” was first introduced by his letter and not before.
Mr Harris agreed that the contract had been provided to Mr Scammell on 5 March 2015. It had been executed by the plaintiff. The date of settlement was 8 April 2015, and Mr Harris agreed the reference in the contract to the “lease years” accordingly was from April 2015 to 2016, April 2016 to April 2017, and April 2017 to April 2018.
In re-examination, Mr Harris gave evidence that he did not receive a response to his letter of offer dated 28 August 2014. He further said that even though the purchase and sale contract had been prepared by December 2014 and was not signed by him until 22 February 2015 (such that he had a copy for some three months prior to signing it), it had not “gelled” with him that the option period was as agreed but the settlement period had decreased.
In relation to the physical state of the vineyard, Mr Harris gave evidence that he personally inspected the vineyard shortly prior to agreeing to purchase it. He said he would not have purchased a vineyard for $1.8 million without first doing so. He said that the vineyard appeared to be in the state depicted in the photographs in the valuation report.
Mr Harris gave evidence of a series of photographs he had taken, of the vineyard.[20] Mr Harris said they were representative of the vineyard when taken, which was mostly on 14 August and 21 September 2017. Mr Harris said that while some of the photographs demonstrated the vineyard was in a reasonable state, “the vineyard didn’t sort of collapse evenly”. He identified the date of each photograph by the presence, or otherwise, of green feed, or the visible signs of work that had been undertaken by the plaintiff subsequent to its repossession of the vineyard in September 2017.
[20] DSH25 (P4).
Evidence of Ashley Michael Ratcliff
The plaintiff called a viticulturist, Ashley Ratcliff. He prepared five reports dated 12 September 2017, 17 October 2017, 26 October 2017, 15 November 2017 and 21 November 2017, which were admitted into evidence.[21] In his oral evidence Mr Ratcliff addressed the scope of his reports, vineyard management practices, industry standard pruning and irrigation, yield, and his observations of the vineyard.
[21] P5, P6, P7, P8 and P9.
In his first report Mr Ratcliff says that the vines at the vineyard are established in an H-pattern. He says the common pruning practice for such a system is to machine prune both cordons and manually “clean up” the bottom cordon wire. If completed regularly, the time and cost of cleaning up the bottom cordon wire is relatively quick and cost effective (approximately $200 to $300 per hectare, depending on grape variety, the age of the vineyard and the condition of the vineyard). He says when he inspected the vineyard on 12 September 2017, the pruning of the vineyard was below industry standard, placing the vineyard at risk of commercial loss if it became affected by disease during the growing season. He recommends that, for the purposes of rejuvenation, the vineyard immediately be saw and Spagnolo pruned.
In his second report, Mr Ratcliff referred to his observations upon his second visit to the vineyard on 17 October 2017, by which time the plaintiff had re-entered and begun pruning were “very pleasing”. He says the vineyard appeared to have improved significantly, with the number of long and dead canes having been reduced by a combination of manual, saw and Spagnolo pruning. He observed that some areas had been saw pruned, while others had been Spagnolo pruned. In relation to the saw pruned hectares, he reports that approximately 80 to 90 per cent of wood had been cut from the vine, leaving only a small amount of viable buds. He states the estimated cropping level would have been reduced to one tonne per hectare for the saw pruned blocks. He says, further, that while the long-term purpose of saw pruning is to bring the fruiting zone closer to the top cordon, the success, or otherwise, of that approach would not be known until the following season. He concludes that the vineyard was, as at 17 October 2017, of industry standard.
In his third report, Mr Ratcliff elaborates on matters largely addressed in his first report. He defines the term “minimal pruning” as describing “non-pruned vines which have been skirted below the cordon to either facilitate cultural operations, e.g. spray application, or achieve some degree of control of crop load.” He says that minimal pruning is no longer predominant in the Riverland: It has been overtaken by “box pruning” which achieved by pruning the tops and sides of the vine using a Spagnolo pruner, spinning blades or other cutter types). He also reports that a greater gap between cordons will increase shading of the lower cordon, hence reducing its viability.
In his fourth report, Mr Ratcliff addresses questions put to him by the plaintiff flowing from the rejuvenation process suggested in his first report. He predicted that over a 10 year period, loss of revenue as a result of saw pruning for the entire vineyard would be just over $950,000. The cost of saw pruning and mulching would also be high, at a cost of more than $160,000.
In his fifth report, Mr Ratcliff refers to observations made on a visit on 20 November 2017, reporting in particular on expected yield. He predicts that the saw pruned blocks would return to 80 to 100 per cent of “full production” in the 2019 vintage, but would not produce a 2018 crop. The blocks that were Spagnolo pruned and irrigated using micro jets had a crop estimate of 16 to 21 tonnes per hectare, slightly below a commercial cropping level of 20 tonnes per hectare for the Riverland. The blocks that were Spagnolo pruned and drip irrigated would have a light crop level at three to 14 tonnes per hectare. He opined that the reduced crop expectation between the Spagnolo pruned blocks was consequent on the method of irrigation, not the method of pruning.
In cross-examination, Mr Ratcliff gave evidence that Mr Harris called him in late August 2017 and asked him to provide a report, focussing on the pruning of the vineyard. Upon his inspection of the vineyard, Mr Ratcliff did not make contact with any representative of the defendant save for Henry Crawford, whom he knew personally. When he arrived, Mr Ratcliff knew the vineyard to be about 97 hectares. He spent around five hours there and accepted that his inspection was limited to a sample of the vineyard only.
In his first report, Mr Ratcliff set out three considerations which he identified, having been instructed by Mr Harris to focus on the pruning at the vineyard. Those considerations were:
1.whether the pruning had been completed to “industry standards”;
2.whether the existing pruning standards posed a “commercial risk”, which Mr Ratcliff explained was risk caused by disease; and
3.whether the existing pruning standards would lead to “long-term degradation”, which Mr Ratcliff considered to be within five to 10 years.
As to the pruning of the bottom cordon, Mr Ratcliff gave evidence that he observed it to have been inadequately “cleaned up”. He stated the time of year was such that pruning ought to have been finished and “hand-cleaned up”. His predominant concern was low hanging cane. The presence of the unpruned cane along the bottom cordon created problems with weed control; damage to equipment; and unintentional spraying to vines if not rectified. In his report he states that unpruned cane along the bottom cordon can lead to increased disease pressure (as some grapes may grow beyond the reach of disease control zones), occupational hazards, increased pruning costs and an increase in the presence of material other than grapes (MOG) during harvest.
Further, Mr Ratcliff gave evidence that he was concerned there was a surplus of dead wood and two year old water shoots. As Mr Ratcliff explained, water shoots are a few centimetres from the ground as they grow from the vine trunk very close to the ground. He observed there were a lot of uncut water shoots. However, Mr Ratcliff accepted that the cane along the bottom cordon was in a state which could grow fruit as it was “long enough” to do so. Further, as to his concern regarding damage to equipment, Mr Ratcliff said he was not aware of the spraying equipment actually in use. I infer from that that his opinion concerning the risk of damage to equipment was speculative.
Despite Mr Ratcliff’s observations as to the unsatisfactory state of the bottom cordon, he conceded that the top cordon had been pruned, albeit pruned long. He considered it “acceptable” but not “desirable”. He considered it acceptable because it would produce fruit to the ordinary expectation of productivity. Nonetheless, he adhered to his view the pruning was not to “industry standards”.
Informing his understanding of industry standards were two factors; first, a photographic example of another vineyard in a comparable climate having been pruned in a box fashion as depicted in his third report;[22] and second, even growth across both cordons. As to the second factor, Mr Ratcliff stated that the industry standard requires both fruit and growth across both cordons (bearing in mind that the top cordon will produce a greater crop than the bottom cordon). Mr Ratcliff also referred to a photo contained in his fourth report demonstrating good box pruning technique.[23] He described that photograph as depicting a tractor with a “box” and “cutter-bar” attached, which is designed to take the tops and bottoms from the vines. It creates a pruning box because it removes the long vertical canes and the long canes growing horizontally.
[22] P7.
[23] P8.
Mr Ratcliff said he would have expected a management plan to be in place, though he admittedly had “no idea” whether the defendant had one or not. Mr Ratcliff gave evidence he would have expected a management plan to address the following:
1.A system for maintenance of posts and trellises following the previous vintage.
2.A system for monitoring nutrient pest and disease levels (such as by employing the services of organisations such as the Fruit Doctor).
3.A system for fertilising, from just after budburst and at least until flowering.
4.A system for weed management, such as by the use of herbicide sprays.
5.A system for mowing and slashing.
6.A canopy spray program for those areas starting from 10 centimetres of growth.
7.A pruning program directed towards producing a state of budburst ahead of the next crop.
8.A system for cutting back water shoots on an annual basis (as water shoots can cause issues with equipment, are hazardous from an occupational safety perspective, and can cause issues with disease).
Mr Ratcliff accepted that those elements of the management plan involve a discretionary judgment on behalf of vineyard management. It became evident throughout Mr Ratcliff’s cross-examination that his concern as to the bottom cordon was in part attributable to a comparison with other vineyards in the region at that time of year when budburst was imminent. He conceded that he could not know whether his concerns were being addressed without knowing whether there was a management plan in place.
Mr Ratcliff said that management practices vary according to the climate of the vineyard in question. He said hot climate areas, such as the Riverland, are characterised by a hot atmosphere with little moisture, but there can still be significant rainfall events throughout the season. Typically, there is also more direct sunlight throughout the day. He said grapes cannot be grown in a hot climate without ample water (also due to the typically sandy soil in hot climate areas) but, currently, in the Riverland there is an ample supply of water at a reasonable price per megalitre. Further, he gave evidence that a high percentage of Riverland vineyards are established with both an upper and lower cordon. Mr Ratcliff said vines with higher canopies tend to incur the most post breakage. Other factors, including a type of post used and wind loading, contribute to breakage. Mr Ratcliff did not accept that the existence of two wires would protect against the leverage caused by wind loading, stating instead the single wire system is the strongest in the Riverland. He did accept wind loading can cause trunks to bow in some circumstances, however, he stated that bowing is more to do with poor training. He stated he did not observe bowing at the vineyard.
Mr Ratcliff said there is a greater need to protect grapes from the sun in hot climate areas such as the Riverland. He said growing larger canopies to provide shade is a method for doing so, albeit more water is required. He noted that fruit ought to be spread throughout the canopy along the bottom and top so as to avoid bunch crowding (and bunch rot). A disadvantage of growing a larger canopy is that grapes may not grow well along the lower cordon by reason of the increased shading, an issue which can be accentuated where there is inter-row shading. This is in contrast to cool climate areas, which Mr Ratcliff said are typically close pruned as, firstly, there is less sunlight and a large canopy can hamper the sunlight from getting to the fruit, and secondly, it was historically necessary to develop the bunches in such a way as to allow for hand picking. He also noted close pruning gives better control against disease, which is a heightened issue in cool climate regions given rainfall during harvest.

Mr Ratcliff agreed that choosing a pruning technique depends on a range of factors, such as the age, size and history of the vineyard, grape variety, availability of labour or plant and equipment, and resources.
Mr Ratcliff agreed that Russell Johnstone, in his report dated 20 November 2017,[24] reported an increase in the vineyard’s yield between 2012 and 2016. Mr Ratcliff agreed those yields were at least equivalent, if not in excess of, the usual yields that he set out in his report of 26 October 2017. He opined that the slow but gradual increase in yield could be a reflection of the previous poor state of the vineyard.
[24] D55.
Mr Ratcliff agreed there are three predominant irrigation methods: overhead sprinklers, which have been mostly phased out, undervine jets and drippers. Undervine jets are high maintenance because of the risk of blockage or damage from machinery, but they give full coverage watering (which can encourage weed growth). He said drippers deposit water onto the soil at a slow rate such that there is less of a need for pesticides and herbicides. Further, he said that drippers require an adequate soil depth, and adequate soil depth is dependent on matters such as the soil type and how much water it can hold. He could not specify the rate at which soil can take up water but he did add that a way of dealing with different soil types is to change the frequency of irrigation, to provide less water more often, to keep the profile full.
In his last report,[25] Mr Ratcliff concludes that the choice of irrigation method can result in a reduced yield. In cross-examination he said that what he was alluding to by that statement was the considerable difference in yield between those blocks that were drop irrigated, and those that were irrigated through microjets. He accepted the blocks irrigated by drip had been pruned by a Spagnolo pruner. He could not exclude that the reduced yield might be attributable to the pruning method. He said Spagnolo pruned blocks struggle to grow a substantial canopy.
[25] P9.
In re-examination, Mr Ratcliff said he had not received a copy of any management plan in relation to the vineyard.
He gave evidence that pruning would ordinarily take place between May to August and ought to be finished ahead of September. He could not say what type of pruner had been used at the vineyard based on his observations made on his visit of 12 September 2017.
He also explained that “dead wood” is wood that is dead and brittle. It is different to second year old wood, which can grow a shoot and remain on the vine.
He gave evidence that trellises can be “too high” or “too wide”. He said that high trellises can create complications with fruit picking as harvesters “can only go so high”. Likewise, trellises which are too wide create issues with spraying. I note that Mr Ratcliff did not take measurements of the trellis system at the vineyard during his inspection in September 2017.
Finally, Mr Ratcliff gave evidence that “nil” or “minimal pruning” techniques do not address water shoots but do address low hanging canes.
Evidence of Samuel John Bowman
Samuel Bowman was engaged as a viticultural consultant by Mr Harris’ consulting company, Agri Partners Pty Ltd. He gave evidence orally and by affidavit.[26]
[26] P11.
Mr Bowman is the director of Bowman Viticulture Pty Ltd, which is engaged by Agri Partners Pty Ltd to manage its vineyards in the Clare Valley. Mr Bowman has over 10 years’ experience in the wine industry, having overseen vineyard operations in Langhorne Creek, Clare Valley and the Adelaide Hills in South Australia, and in Victoria. He has published eight articles as a viticulture journalist, and has sat on a number of regional and national wine committees. In 2009 he commenced a Bachelor of Viticulture at Charles Sturt University, and in 2014 commenced a Bachelor of Wine Sciences. He is due to graduate from both degrees in 2018.
In his affidavit[27] Mr Bowman affirms he was asked by Mr Harris to inspect the vineyard and provide feedback regarding its management by the defendant. Mr Bowman visited the vineyard on 22 September 2016. He observed the vineyard uses an H trellis pattern, which is typical of warm climate areas. He observed the vine rows are planted 2.75 metres apart. Before Mr Bowman’s visit, Mr Wake had informed him pruning had been completed and some bud burst was visible. Mr Bowman says he was shocked and somewhat confused about the state of the vineyard as it was not what he would “expect a pruned vineyard to look like”. At Mr Harris’ request, he prepared a report.[28] For reasons identified in his report, he considered the vineyard the worst functioning he had seen in his career.
[27] Affirmed 26 October 2017.
[28] P12.
Mr Bowman says he returned to the vineyard on 21 December 2016 with Mr Harris, Mr Wake and Mr Falcinella to discuss his concerns about the state of the vineyard. He said at that time the canopy of the upper cordon was overgrown with uneven fruit distribution. By the end of the visit, Mr Bowman understood the defendant had agreed to saw prune the upper cordon over 15 hectares of the vineyard and trim the long canes. On 9 August 2017, at Mr Harris’ further request, Mr Bowman returned to the vineyard. Only one hectare had been saw pruned and not to the standard he expected.
Mr Bowman says the best and most accepted method for pruning bulk producing, warm climate vineyards that use H-pattern trellises, is by first using Spagnolo pruners to prune the boundaries of the canopy, and then removing the remaining long hanging canes and water shoots by hand. He says it is impractical to prune a vineyard by hand and the Spagnolo pruning machine is specifically designed to prune H-pattern trellises. It prunes the top and sides of the canopy, the area between the H trellis, the lower cordon and thin low-hanging canes as it moves along the row.
Mr Bowman says although the upper cordon is always more dominant, the lower cordon can be viable and produce fruit if kept within an acceptable height and width.
Mr Bowman says that the removal of long hanging canes increases airflow through the canopy and reduces disease pressure from soil borne pathogens. Water shoots must be removed in order to limit loss of water and nutrients to the main vine. Pruning should occur during the dormant months, to avoid pruning off new bud growth. Mr Bowman also affirms as to the best and most accepted methods of repairs and maintenance, irrigation, nutrient delivery and testing, and herbicide and fungal spraying.
Mr Bowman says the defendant’s minimal pruning style and failure to prune the lower cordon, remove low handing canes and water shoots, and replace broken posts, is contrary to the best and most accepted methods of vineyard management. This style has caused operational issues by impeding the movement of tractors and machinery through the rows, increasing the strain on the trellis and, through water shoots, diverting water and nutrients from the main vine.
Mr Bowman affirms that, after being granted possession on 20 September 2018, the plaintiff performed works to the vineyard, including pruning the vines down to 10 centimetres off the upper cordon wire. The vineyard was Spagnolo pruned, slashed and mulched between rows, and hand pruned. Fungicide was applied nutrients were delivered, and the irrigation system was repaired. Mr Bowman says he and Mr Sam Sialis of Riverland Barrel Pruners agreed to set the Spagnolo pruning machines at a height of 1.3 metres and the width at 575 millimetres to avoid damaging the buds and vines, and to maintain sufficient fruit to achieve 20 tonnes per hectare for the 2018 harvest. Mr Bowman assessed that further work was required before harvest.
Mr Bowman says that one purpose of using two cordons is to distribute the fruit load over a larger area, allowing better airflow which, in turn, reduces disease pressure, and improves sunlight penetration for ripening. He says it also reduces stress on the trellis. Approximately 90 per cent of the vineyards Mr Bowman has visited in warm climate areas have two cordons. Only 10 to 15 per cent of vineyards in the Riverland have H-pattern trellises with an unviable lower cordon. The rejuvenation of the lower cordon at this vineyard would have been more successful if the amount of shading had been reduced by restricting the size of the upper cordon.
Mr Bowman affirms that minimal pruning was developed in the 1980s, but has since been found to be detrimental to the long-term viability of vines and to produce lower quality grapes. In a vineyard managed using best and most accepted methods of management, at least 20 to 40 per cent of the crop can be obtained from the lower cordon. Mr Bowman says he doubts the defendant hand pruned the vineyard several times between 2013 and 2016, given that the water shoots removed by the plaintiff were up to four years old. The plaintiff had no difficulty finding contractors to prune the vineyard due to the rows being 2.75 metres apart.
Mr Bowman says downy mildew is a soil-borne disease initiated by transfer of spores when soil is wet by rainfall. The disease is prevented by spraying the canopy of the cordon with protective sprays. Water shoots and low hanging canes are less effectively covered by spraying and are therefore the first point of infection for the spores.
As to the expected yield of the vineyard, Mr Bowman says the 15 hectares of the vineyard that were saw pruned by the plaintiff are unlikely to produce any fruit worth harvesting. He says the rest of vineyard will produce approximately 20 tonnes of fruit per hectare, mostly from the upper cordon.
Mr Bowman prepared a report for Mr Harris in September 2016.[29] This was admitted de bene esse. In evidence-in-chief, Mr Bowman addressed his engagement by the plaintiff and the preparation of his report, his observations as to the physical state of the vineyard before the plaintiff repossessed it, the works undertaken by the plaintiff, and yield.
[29] P12.
Mr Bowman gave evidence that he attended the vineyard at Mr Harris’ request on 22 September 2016, 21 December 2016, 9 August 2017 and 4 September 2017. Mr Bowman gave evidence that he did not observe any “rejuvenation or remediation” works when he attended the vineyard in September 2016.
By reference to a photograph, which he took on 22 September 2017, he criticised the height of the upper cordon which was 50 or 60 centimetres above the original wrap of the cordon. The photograph showed a large area of cane left underneath the cordon as well as canes leading from the top of the canopy down to the dripper line. Mr Bowman said that, as he had been informed by the defendant that the vineyard had been pruned, he would have expected no cane to remain underneath the lower cordon, nor water shoots. He said the area in the H‑pattern ought to have been relatively clear, the height of the cordon ought not to have been so advanced and there should not have been thick canes protruding through the top of the canopy. By comparison, he gave evidence that, after the plaintiff re-entered the vineyard and completed pruning works, both cordons and the trunk of the vine could be clearly seen and the water shoots and lower hanging canes had been removed. He considered this was evident in a photograph taken in October 2017. Mr Bowman also explained such pruning is necessary to remove dead wood to create better airflow, which also helps to eradicate pests such as earwigs. A higher canopy creates management issues in relation to access by machinery and harvesting.
Mr Bowman sent an email to Mr Harris dated 5 September 2017,[30] the day after he, Mr Koch and Mr Harris had conducted a further inspection of the vineyard and the plaintiff had purported to terminate the lease. In it he says “…it is clear there are issues with the management which have not been rectified”. The email contains a summary of his observations of that inspection. They are, broadly:
1.The top cordon height was at least 50 centimetres above the initial wrap, causing the vines to be top heavy and strain the trellis.
2.There was insufficient pruning along the bottom cordon, causing airflow and operational issues, and leaving the downward facing fruit on the vines.
3.There were numerous broken posts which appeared not to have been repaired for at least two seasons given the faded colour of the flagging tape. Some rows were on a permanent lean.
4.There were water shoots on some vines, in particular in the cabernet block. The canes were mostly three years old, though he observed up to four year old wood. The canes were now too long to be removed by machine pruning and could only be removed by hand.
5.There was weed growth, though some weed management may have been recently undertaken across some mid rows.
[30] P13.
In the same email Mr Bowman refers to his initial visit in September 2016, stating “[a]ll above mentioned issues were stated in the visit report…” He also refers to his meeting with Mr Harris, Mr Falcinella and Mr Wake on 21 December 2016 to discuss the vineyard’s longevity and remediation. He says it was agreed at that meeting to lower the cordon in the following years. He also asserts that it was agreed that downward canes had not been pruned from the bottom cordon in 2016, but that it would occur in the following year’s pruning. In cross-examination, Mr Bowman said that Mr Falcinella’s and Mr Wake’s responses conveyed a sense that they agreed his concerns ought to be taken seriously. Mr Bowman also records in the same email that on 9 August 2017 he attended the vineyard to “follow up” with Mr Falcinella, where they again discussed lowering the cordon and removing low hanging shoots. By that time one hectare had been pruned but due to mechanical issues, the remainder had not been completed.
Mr Bowman gave evidence that no irrigation was in place and that irrigation system upgrades were required when the plaintiff took possession in September 2017. At that time, the plaintiff had no information as to the previous irrigation cycles maintained by the defendant, which Mr Bowman attributed to a lack of communication with the defendant. He said the plaintiff put a program in place to irrigate the blocks given a lack of soil moisture, which had been assessed by a process of manually digging into the soil next to the vines. That was of concern to Mr Bowman given that at that time of the year budburst ought to have been imminent. He said the irrigation cycles put in place by the plaintiff were adjusted throughout the month of its possession. It was decided that shorter, more frequent cycles were appropriate towards the end of that period.
In cross-examination, Mr Bowman said that he understood at the time of his initial visit in September 2016 that Mr Harris was a director of Agri Partners and also a director of the plaintiff. Their professional relationship only commenced at that time and before then, Mr Bowman had no previous association with Mr Harris.
Before that first visit, Mr Bowman said that Mr Wake told him pruning had been completed and that a little bit of budburst was visible. He gave evidence that while on the vineyard, he came into contact with only one employee. Mr Bowman said his initial visit was for three to four hours, and agreed that his inspection was limited to a sample of the vineyard as it would not have been possible to cover the entire distance by foot. He was adamant that he took a sample of different parts of the vineyard such that it was representative.
Mr Bowman recalled the first time he spoke to Mr Falcinella was during the meeting on 21 December 2016, at the vineyard. He said Mr Falcinella “may have” asked for a copy of his report either before or at that meeting Mr Bowman responded he should ask Mr Harris for a copy. Later during cross-examination, Mr Bowman accepted he did not follow up the request with Mr Harris.
Mr Bowman said he attended the vineyard the day after repossession by the plaintiff on 20 September 2017. He had been asked to “interimly oversee the works that were asked to be performed by the courts and to oversee the functioning of the vineyard to keep the vineyard in a manageable state.” However, he said he had done “nothing” in relation to the vineyard between 5 and 20 September 2017. He denied any involvement in the preparation of the application to the Court for repossession. He said that, while he could not rule out whether he may have driven past or visited in that time, he “had nothing to do in terms of managing the vineyard or giving any more further recommendations.” I do note however that he later gave evidence of speaking with Mr Sialis on or around 19 September 2017 to organise pruning works.
Mr Bowman said that on 21 September 2017 Mr Sialis set to work on pruning. He said that Mr Sialis set up three Spagnolo pruners, each in a different area of the vineyard. He said the pruning continued each day until completion on 3 October 2017. Fifteen hectares were sawcut close by another pruning firm, and the remainder by Mr Sialis’ Spagnolo pruners. He accepted the Spagnolo pruning was done at the direction of himself and Mr Ratcliff, and that there would be a much lower yield for the 2018 vintage as a result.
Mr Bowman admitted he did not undertake a bud dissection prior to the commencement of those pruning works, albeit he said he often does not do so. He agreed that by the end of September in the merlot block there was a “slight” appearance of buds and that he was concerned to get the pruning done prior to any budburst. He conceded he could not be sure where the flowering buds might be and that the only way to be certain about the distribution of flowers would have been to do a dissection. I infer from that evidence that the pruning work which he instructed Mr Sialis to undertake could have resulted in the removal of flowering buds.
In forming his recommendation to Mr Harris that “something should be done quickly”, Mr Bowman said he did not seek information as to the vineyard’s past yields. He said he was more concerned with the health of the vineyard. He accepted that the evidence of the vineyard’s yields since 2012 revealed a low yield in 2012 for red varieties, with a clear increase in 2013 and then a slight plateau in 2014. There was a “significant jump” in 2015 and a drop in 2016 but still a better than average yield. The 2017 yield exceeded expectations. Mr Bowman volunteered that an improvement in yield does not necessarily mean the yield is of good quality. However, he accepted he was not aware of whether any of the yield was unsold or, when sold, subject to penalty for containing MOG.
In relation to irrigation, Mr Bowman said that from May to September a vineyard’s irrigation system is not usually used, other than for maintenance. There is generally a need to repair some elements of the system given the lengthy dormancy period. He gave evidence that the process of readying an irrigation system ahead of the growing season is rigorous, and involves checking the whole system for leaks, required repairs, flushing and cleaning. However, he said that the timing of when this must occur is not inflexible as it depends on factors such as budburst.
When Mr Bowman was at the vineyard on 21 September 2017 he spoke to Mr Crawford in order to enquire “where they were up to with the season”. He was informed that the process of commissioning had just commenced on one block. Mr Crawford said it was a fully automated irrigation system which was able to be remotely operated. He gave evidence that at a previous meeting Mr Falcinella had told him that significant time and money had been spent to upgrade the irrigation system. Mr Bowman agreed that when the defendant took control of the vineyard in 2011, it was unpruned and unirrigated with the whole of the lower cordon removed. Further, that restoring a vineyard in such a state requires long-term planning and any such restoration would have to occur progressively over a number of years depending on a number of factors. Mr Bowman agreed that he had no cause to think the defendant did not engage in long-term planning. Mr Bowman agreed an occupier of a vineyard who did not intend on restoring a vineyard would not make an investment of the size required to fully automate an irrigation system for a vineyard of that size.

There are obvious inconsistencies between clause 1.1.10 of the Special Conditions and clause 11 of the memorandum of lease. The right to exercise the option provided for by clause 11 is conditional, while clause 1.1.10 of the Special Conditions conferring the purchase option is unconditional. Clause 11.2.2 of the memorandum of lease provides for the exercise of an option to purchase in the years 2015, 2016 and 2017, while clause 1.1.10 of the Special Conditions necessarily provides for the exercise of the option to purchase in 2016, 2017 and 2018 in accordance with the formula prescribed therein.
The defendant also contends that there is an apparent inconsistency between clause 11.2 and clause 11.2.2 of the lease agreement. In considering the text of clause 11.2 of the memorandum of lease and incorporating the defined terms in the document in respect of “Lease Year” and “Term”, the provisions of clause 11.2 would be understood to confer a right to give notice of the intention to exercise the option to purchase “at any time between 1 April and 30 June in any period of 12 calendar months ending on the 30^th day of June during the period of 3 years commencing on 15 March 2015”. That literal construction creates obvious tension between clause 11.2 and clause 11.2.2. According to clause 11.2, an option can be exercised in any period of 12 calendar months ending on 30 June. In the year 2015, there is no such period: the lease is stipulated to commence on 15 March 2015. By 30 June 2015, the lease would have been in operation for only three months. The first period of 12 months ending on 30 June, and incorporating the period 1 April to 30 June would be the 12 month period ending on 30 June 2016. A literal reading of clause 11.2 therefore identifies only two option periods: April to June in each of 2016 and 2017.
On the other hand, the defendant contends that clause 11.2.2 provides for three option notices: in 2015, 2016 and 2017. Further, clause 11.2.2.1 provides for a purchase price of $1,854,000 if an option notice is given in 2015. Clearly, this does not reflect the requirements of clause 11.2. Moreover, the defendant submits, clause 11.2.2.1 proposes a purchase price after only three months of the lease, which price represents an increase of three per cent over the base amount of $1,800,000. This is inconsistent with the provisions of clause 1.1.10 of the Special Conditions. The defendant contends this incongruity is accentuated by the circumstance that the purchase price provided by clause 11.2.2 for 2016 and 2017 respectively reflects the three per cent compounding increases contemplated by clause 1.1.10 of the Special Conditions for the years 2017 and 2018.
The defendant contends that the Court should adopt a construction of clause 11.2 which would harmonise with the Special Conditions. It submits that clause 11.2 is open to such a construction. The defendant submits that an harmonious and coherent construction of the lease agreement provides for the exercise of the option to purchase in the option period in the years 2016, 2017 and 2018. The tension stems from the phrase “in any lease year during the term”, where “Lease Year” has the defined meaning. Taken literally, the only 12-month periods ending on 30 June during the three year term commencing 15 March 2015, are those ending 30 June 2016 and 30 June 2017, a position inconsistent with both clause 1.1.10 of the Special Conditions and clause 11.2 of the memorandum of lease. If, however, the phrase were taken to mean any 12-month period ending on 30 June and commencing during the Term, the tension with clause 1.1.10 would be eliminated, and the notice periods prescribed in clause 11.2.2 of the memorandum of lease would be seen as a simple error. The existence of a 2015 notice is inconsistent, on any view, with the requirement that the option period lie within a Lease Year (as defined), and the purchase price of the 2015 notice accords with the purchase price for the 2016 option, calculated by reference to the formula in clause 1.1.10 of the Special Conditions.
The defendant submits that it follows that clause 11.2.2 would harmonise with clause 11.2 and with clause 1.1.10 of the Special Conditions, if the notice period for each purchase price specified were advanced by one year, so that clause 11.2.2.1 referred to a 2016 notice; clause 11.2.2.2 to a 2017 notice; and clause 11.2.2.3 to a 2018 notice. As they stand, those sub-clauses are inconsistent with both clause 11.2 (however interpreted) and clause 1.1.10 of the Special Conditions. The defendant submits that something has to give and the tail (namely clause 11.2.2) cannot be allowed to wag the dog (namely clause 11.2 of the memorandum of lease and clause 1.1.10 of the Special Conditions).
I do not accept the defendant’s submission.
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.[118]
[118] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 at [16]-[17], (2017) 91 ALJR 486 at 491.
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.
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.
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.
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 30^th day of June”.
That constructional choice is markedly more coherent and harmonious than the strained construction for which the defendant contends.
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.
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, this construction leads to the conclusion that the option to purchase conferred on the defendant was subject to the conditions prescribed in clause 11.1 of the memorandum of lease and was only exercisable in the years 2015, 2016 and 2017.
On the proper construction of the agreement between the parties, the defendant does not enjoy the right to exercise an option to repurchase in 2018.
Rectification
Given my conclusion in relation to the terms of the contract regarding the option to repurchase the land, it is necessary to consider the defendant’s claim for rectification.
The defendant submits that the contract should be rectified to conform to the true agreement of the parties as it existed on 22 February 2015, namely, that clause 11 of the memorandum of lease should provide for an option to repurchase exercisable during the period of 1 April to 30 June in the years 2016, 2017 and 2018.
Rectification is a remedy which permits a court to make the terms of a contract conform to the true agreement of the parties where the text of the contract, by common mistake, fails to express accurately the contractual agreement made between the parties.[119] In proceedings for rectification the clearest and strongest evidence is required.[120] A court will require very strong proof, before ordering a contract to be rectified on the ground of mistake.[121] The type of intention required is referred to as the subjective intention, also called actual intention, of the parties.[122] The remedy of rectification does not depend upon proof of an antecedent concluded contract.[123] Rather it is necessary to show a concurrent intention of the parties, existing at the time when the written contact was executed, as to a term which would have been embodied in the contract if the parties had not made a mistake in expressing their intention. Proof of such an intention is necessary to “displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties”.[124]
[119] Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23, (1973) 128 CLR 336 at 350.
[120] Australia Hotel Co Ltd v Moore (1899) 20 LR (NSW) Eq 155.
[121] Kenny v Sholl (1905) 7 WALR 197.
[122] Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65, (2007) 69 NSWLR 603 at 627.
[123] Slee v Warke (1949) 86 CLR 271 at 281; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23, (1973) 128 CLR 336.
[124] Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23, (1973) 128 CLR 336 at 351; see also Pukallus v Cameron [1982] HCA 63, (1982) 180 CLR 447 at 250 (Brennan J); Simic v NSW Land and Housing Corporation [2016] HCA 47 at [103], (2016) 260 CLR 85.
Most recently the remedy of rectification was considered by the High Court in Simic v NSW Land and Housing Corporation.[125]In their joint reasons Gageler, Nettle and Gordon JJ said:[126]
Rectification is an equitable remedy, the purpose of which is to make a written instrument “conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately”. For relief by rectification, it must be demonstrated that, at the time of the execution of the written instrument sought to be rectified, there was an “agreement” between the parties in the sense that the parties had a “common intention”, and that the written instrument was to conform to that agreement. Critically, it must also be demonstrated that the written instrument does not reflect the “agreement” because of a common mistake. Unless those elements are established, the “hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties” cannot be displaced.
The issue may be approached by asking – what was the actual or true common intention of the parties? There is no requirement for communication of that common intention by express statement, but it must at least be the parties’ actual intentions, viewed objectively from their words or actions, and must be correspondingly held by each party.
[Citations omitted.]
[125] [2016] HCA 47.
[126] [2016] HCA 47 at [103]-[104].
Kiefel J (as she then was) said:[127]
[127] [2016] HCA 47 at [40]-[46].
The primary judge adopted as correct what was said in Elders Lensworth Finance Ltd v Australian Central Pacific Ltd concerning the principles to be applied with respect to the remedy of rectification. In that case the Full Court of the Supreme Court of Queensland drew largely on what had been said by Street J in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd and by Wilson J in Pukallus v Cameron. In Street J’s view, what is necessary for rectification is to find an “identical corresponding contractual intention on each side” which was “manifested by some act or conduct”. From such facts may be inferred “objectively a consensual relationship between the parties”.
It has for some time been settled law that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification and that rectification may be granted in cases where the instrument sought to be rectified is the only agreement between the parties. The focus of the courts turned to the common intention of the parties up to the time the relevant instrument was made. That intention must be proved by admissible evidence and proved to a high standard. In a passage from Fowler v Fowler, which has been cited with approval by this Court, Lord Chelmsford said that:
a person who seeks to rectify a deed upon the ground of mistake must be required to establish, in the clearest and most satisfactory manner, that the alleged intention to which he desires it to be made conformable continued concurrently in the minds of all parties down to the time of its execution.
What is necessary to be shown is the actual intention of each of the parties. This has often been referred to by intermediate appellate courts as the subjective intention of the parties. A court, in determining whether the burden of proof is discharged, may be said to view the evidence of intention objectively, in the sense that it does not merely accept what a party says was in his or her mind, but instead considers and weighs admissible evidence probative of intention. It is in this sense that statements such as that of Hodgson J in Bush v National Australia Bank Ltd, that common continuing intention “must be objectively apparent from the words or actions” of each party, may be understood.
It is not to be expected that parties to contractual negotiations will express themselves in terms of their intentions. It is therefore to be expected that proof to the necessary standard will usually require some manifestation of the intention of each party by their words or conduct and that the requisite common intention will be a matter of inference for the court from that evidence. As Yeldham J pointed out in Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd, it would not be sufficient for proof of intention to refer to a party’s state of mind which remained undisclosed in the course of negotiations.
Yeldham J also observed that there was some divergence of judicial and academic opinion as to whether more was required for proof of intention and, in particular, whether intention must be evidenced by “some outward expression of accord”, as was suggested in Joscelyne v Nissen. Further, in Maralinga Pty Ltd v Major Enterprises Pty Ltd, Mason J referred to what had been said by Buckley LJ in Lovell & Christmas Ltd v Wall, namely that it was necessary for rectification to find that intention “was communicated by one side to the other”.
In Pukallus v Cameron it was not necessary to resolve the question as to what was required to prove intention, but Wilson J was moved to suggest that, notwithstanding the views expressed in Joscelyne v Nissen and Maralinga, it may not be necessary to prove an outward expression of accord. His Honour appears to have preferred the view expressed in an article, that the requirement of an outward expression of accord was not justified by principle or authority. On this view, the absence of an outward expression of accord may go to whether the burden of proof can be discharged, but an outward expression of accord is not itself a requirement of rectification.
Regardless of these issues it may be said that the traditional approach of the courts, following cases such as Fowler v Fowler, is to grant rectification only if the instrument in question did not reflect the actual common intention of the parties. That intention is proved in the usual way, by admissible evidence to the requisite standard. The assessment undertaken by the court may, in the sense referred to above, be described as an objective one. But the term “objective” is apt to be misunderstood because it can be applied with respect to a quite different process, as the decision in Chartbrook Ltd v Persimmon Homes Ltd shows.
[Citations omitted.]
The defendant submits that clause 11 in the memorandum of lease was drafted by the plaintiff’s solicitor, Mr Phillips, of his own initiative, without reference to Mr Harris and was not in accordance with Mr Harris’ instructions or the terms of the letter from Mr Harris to the defendant of 28 August 2014.

On 28 August 2014, Mr Harris, in his capacity as a director of the firm Agri Partners, wrote to Mr Scammell of Hill River Estate Vineyards with an offer to purchase the vineyard. He proposed a process involving an initial option to purchase agreement being entered into between the parties and exercisable by Agri Partners, or a related entity, by 5 September 2014, with a purchase contract to be finalised by the end of October 2014 and settlement on 1 December 2014, or thereabouts.
Curiously, the offer was expressed to be open until close of business on 5 August 2014. In any event, it was also expressed to be subject to a number of matters, namely, satisfactory lease agreement of the property to Hill River Estate Vineyards on terms which included a lease period of three years and net rental of five per cent; the rent paid monthly in advance, with a three month bond at commencement; arrears of rental payments to attract the Australian Tax Office penalty interest rate; and the vineyard to be managed and maintained within industry best practice. Further, the offer was expressed to be subject to a satisfactory “grape contract processing agreement” for the term of the lease with Riverland Vintners for the production from the Ramco, Clare and Playford vineyards not sold as fruit to third parties; with the processing agreement to be agreed between the parties without external legal input and legal expenses in relation to the sale and lease agreements to be shared equally between the parties.
Importantly, the offer was subject to an option to purchase back the vineyard by Hill River Estate Vineyards, exercisable at the end of each year during the months of April to June, at an annual increase of three per cent of the purchase price.
Mr Harris gave evidence that, in about September 2014, he had a conversation with Mr Scammell concerning Agri Partners’ offer to purchase the vineyard. He gave evidence that Mr Scammell indicated that the defendant accepted the offer. It is common ground between the parties that the defendant’s acceptance of the offer to purchase the vineyard was subject to preparation of a formal contract. Mr Wake gave evidence that it was Mr Scammell’s responsibility to oversee that process. I find that Mr Harris met with Mr Scammell in about December 2014 to finalise the contract which had been prepared by Agri Partners’ solicitor, Mr Phillips. Mr Harris said Mr Scammell read through the draft of the contract and indicated that he was generally happy with its form.
Mr Harris gave evidence, which I accept, that due to the need to find suitable equity partners for the purchase of the vineyard, the contract was not finalised to allow settlement to occur by 1 December 2014. As a consequence, in about mid‑December 2014, Mr Harris provided a further draft of the contract to Mr Scammell that proposed a settlement date of 15 February 2015. That contract had attached to it the memorandum of lease document.
The contract included the Special Conditions set out in paragraph [470] above. The memorandum of lease included clause 11, the relevant provisions of which are set out above in paragraph [47].
Mr Harris gave evidence that execution of the contract was further delayed as a result of discussions between him and Mr Scammell during January 2015. The topic of those discussions is irrelevant as, eventually, they went nowhere.
Notwithstanding the caution I feel in relying upon the evidence of Mr Harris, I accept his evidence in relation to this topic.
The contract was executed on 22 February 2015, at which time item 15 of the contract was amended by hand to provide that settlement would occur on 15 March 2015. As I noted earlier, settlement did not, in fact, occur until 8 April 2015.
Mr Harris gave evidence that he did not intend, either at the time of making the offer on 28 August 2014 or at any time at all, that Hill River Estate Vineyards or the defendant would have an option to purchase the vineyard exercisable during the months April to June 2018.
Of course, I recognise that, in accordance with the reasons of Kiefel J (as she then was) in Simic v NSW Land and Housing Corporation,[128] the actual intention of the parties for the purposes of an application for rectification is to be determined objectively. The Court will not merely accept what a party says was in his or her mind but, instead, considers and weighs admissible evidence probative of intention so that evidence of a common intention must be objectively apparent from the words or actions of the parties.
[128] [2016] HCA 47 at [103]-[104].
I accept Mr Harris’ evidence of the plaintiff’s intention as at 22 February 2015. It is consistent with the history of the drafting of the contract and memorandum of lease. As I have indicated earlier, at the time the contract was executed, it provided that settlement would occur on 15 March 2015 and the term of the lease would be for three years from 15 March 2015 to 14 March 2018. I consider it entirely credible that, as at the date of execution, namely 22 February 2015, which is the relevant date for the purposes of any claim for rectification, Mr Harris did not intend that the defendant would have an option to purchase the vineyard exercisable at a time after the expiry of the term of the lease, namely, 14 March 2018. In those circumstances, an option to purchase exercisable between 1 April 2018 and 30 June 2018 does not make commercial sense from the perspective of the plaintiff. The plaintiff would be back in occupation for a period of weeks or months when the defendant could exercise the option to repurchase. I do not consider it likely that Mr Harris would have intended that outcome. I find that as at 22 February 2015 the plaintiff did not intend that the defendant would have an option to purchase the land exercisable in the period 1 April 2018 to 30 June 2018.
The intention of Mr Harris, as the controlling mind of the plaintiff, at any time other than 22 February 2015, is irrelevant to the question of rectification, except to the extent that it throws light on his intention as at that date. Mr Harris was the author of the letter of 28 August 2014 from Agri Partners to Mr Scammell. As has been discussed above, that letter put an offer to purchase the vineyard. That offer was expressed to be subject to an option to repurchase the vineyard “exercisable at the end of each year during the months of April to June at an annual increase of three per cent of the purchase price...” Mr Richards, the solicitor for the plaintiff, gave evidence that he prepared the contract for sale, including the Special Conditions in Annexure A and the memorandum of lease, on instructions from Mr Harris. Those instructions were provided in December 2014. As discussed, there is an obvious inconsistency in relation to the timing of the option to repurchase between the contract for sale and the memorandum of lease. I am not satisfied that the evidence concerning Mr Harris’ instructions or the terms of the letter of 28 August 2014 from Mr Harris to Mr Scammell establishes an intention on the part of the plaintiff that there was to be an option to repurchase exercisable in the period 1 April to 30 June 2018. The evidence is unclear and ambiguous. Given the time at which the letter was written, the time at which Mr Harris gave instructions to Mr Phillips and the time when harvest and pruning usually occurs, it is at least possible that, in 2014, the plaintiff intended that the first option was to be exercisable following the first harvest under the proposed lease in the period 1 April to 30 June 2015 and that the only further options were exercisable during the same period in the calendar years 2016 and 2017.
Accordingly, the defendant’s claim for rectification cannot succeed. The very strong proof required for rectification has not been established.
In coming to that finding, I do not overlook the evidence of the parties’ subsequent conduct and, in particular, the emails of Mr Scammell to Mr Phillips, the plaintiff’s solicitor, of 13 May 2015 and 15 July 2015.
On 13 May 2015, Mr Scammell sent an email to Mr Phillips in the following terms:
Hi Ric,
I have just received the 3 execution copies of the lease for Playford Vineyard from Oliver Portway.
I am querying the dates set out in Clause 9.2 for exercise of the option to purchase the land.
The Lease provides for the exercise of the option “between 1 April and 30 June in any Lease Year” where the “Lease Year” is defined as “any period of 12 months ending on 30 June”.
The lease term actually runs from 8^th April 2015 to 7^th April 2018. I think therefore that the exercise of the option should be between “9^th January and 7^th April in any Lease Year” and the relevant notice periods in clause 9.2.2 should be as follows:
9.2.2.1      notice given between 9/1/16 and 7/4/16.
9.2.2.2      notice given between 9/1/17 and 7/4/17.
9.2.2.3      notice given between 9/1/18 and 7/4/18.
If you agree I can make the necessary changes by hand or alternatively you may wish to amend and send fresh execution copies to me at 138 Greenhill Road Unley SA 5061.
Regards
Sam
Mr Scammell was referring to a version of the memorandum of lease prepared by Mr Phillips subsequent to settlement on the sale of the land on 8 April 2015. That version was prepared in registrable form and provided to the defendant’s solicitor for the defendant to execute. Clearly, what was clause 11 in the memorandum of lease attached to the contract had become clause 9 in the version to which Mr Scammell was referring.
Mr Phillips gave evidence, which I accept, that he does not recall responding to Mr Scammell’s email of 13 May 2015.
Mr Scammell’s email of 15 July 2015 provided:
I have attached the original offer to purchase Playford Vineyard and it refers to an option to purchase “at the end of each year”.
My earlier e-mail was trying to give effect to this by making it clear that the option to purchase could be exercised at the end of each year ie at the end of 2015-15; 2016-17; and 2017-18. As currently drafted the option to purchase for the first year has already expired ie the option to purchase is to be exercised at the beginning of each year.
Please call to discuss if this is not clear.
Thanks
Sam
Mr Phillips gave evidence that he did not recall responding to Mr Scammell’s email of 15 July 2015. He could find no note on his file that might refresh his memory. However, Mr Phillips gave evidence that on or about 24 September 2015 he had a telephone conversation with Mr Scammell in relation to the lease and, in particular, about the option to purchase exercise windows. He gave evidence by reference to a file note made on 24 September 2015. Mr Phillips said that Mr Scammell said to him, in the course of the telephone conversation, that the defendant thought it “should have a proper three month window in 2018 in which to exercise the option to purchase the land”. Mr Scammell said it seemed unfair to have the first window to exercise the option only weeks after settlement. Mr Phillips said he responded by saying it was never intended for the defendant to have an ability to exercise an option after the lease expires. He said the option dates were always clear and obvious. Mr Phillips says that Mr Scammell responded that he would talk to Mr Harris again concerning the matter.
Mr Phillips says he had no further contact from either Mr Portway, the defendant’s solicitor, or Mr Scammell in respect of the matter.
I accept Mr Phillips’ evidence.
In my view, this evidence only serves to reinforce the finding I have made in relation to the intention of Mr Harris and the plaintiff at the time the contract was executed on 22 February 2015. At its highest, Mr Scammell’s emails and his discussions with Mr Phillips only evidences an intention on the part of the defendant at the time of those communications. Of course, the relevant time is the date of execution, namely, 22 February 2015.
Importantly, in that regard, there is no evidence of the defendant’s subjective intention as at 22 February 2015. Mr Wake’s evidence is irrelevant as he was not the controlling mind of the defendant at the time of settlement. He was not a director of the defendant on 22 February 2015. Mr Tilley was the sole director of the defendant at that time. He executed the contract on behalf of the defendant. Mr Tilley did not give evidence before me.
The objective circumstances referred to above do not establish a shared common intention of the parties as of 22 February 2015 that there would be an option to repurchase the land exercisable by the defendant between 1 April 2018 and 30 June 2018. On the contrary, the evidence to which I have referred satisfies me that the last option window was to be in the period 1 April to 30 June 2017.
For these reasons, I reject the defendant’s application for rectification.
Damages
The parties have agreed that the issue of damages payable to either party is to be left until after judgment has been delivered in this part of the proceedings.
Conclusion
For these reasons, I find that the plaintiff has not proved the defendant was in breach of its lease obligations as at 4 September 2017. Accordingly, it was not entitled to terminate the lease and re-enter. Further, I find that the defendant did not have an option to repurchase the land exercisable after 1 April 2018.
If any party seeks orders from the Court at this stage of the proceedings, I direct that party is to bring into Court minutes of order consistent with these reasons.
I will hear the parties as to costs.