Goldridge Estate Vineyards 3552 Limited v Kakara Estate Limited HC Auckland CIV 2010-404-2838

[2010] NZHC 1689

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-002838

BETWEEN  GOLDRIDGE ESTATE VINEYARDS

3552 LIMITED First Plaintiff

AND  GOLDRIDGE ESTATE VINEYARDS

4334 LIMITED Second Plaintiff

ANDKAKARA ESTATE LIMITED First Defendant

ANDWETA ESTATE LIMITED Second Defendant

Hearing:         13 July 2010

Appearances: D Jones QC and M Chisholm for the Plaintiffs

A Gilchrist for the Defendants

Judgment:      3 August 2010 at 4:30 pm

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie on 3 August 2010 at 4:30pm

pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors/Counsel:

Hesketh Henry, Private Bag 92 093, Auckland Mail Centre, Auckland 1142

Boyle Mathieson, P O Box 26 140, Henderson, Waitakere City

D Jones QC, P O Box 1750, Shortland Street, Auckland 1140

A Gilchrist, P O Box 5444, Wellesley Street, Auckland 1141

GOLDRIDGE ESTATE VINEYARDS 3552 LIMITED AND ANOR V KAKARA ESTATE LIMITED AND ANOR HC AK CIV 2010-404-002838  3 August 2010

[1]      The plaintiff companies were both formed to manage vineyards owned by one  or  other  of  the  defendant  companies  and  to  buy  grapes  grown  on  those vineyards.  Each does or can do so pursuant to a series of agreements between it and the applicable defendant company.

[2]      The agreements comprise a number of grape supply agreements and vineyard management agreements.   The defendants have sought to terminate the vineyard management agreements. The plaintiffs now seek interim injunctions to restrain the defendants from acting on the purported termination and to require them to honour their obligations under the vineyard management agreements.

Issues for determination

[3]      There is no dispute between counsel as to the applicable principles.  They are derived from such well known authorities as American Cyanamid Co v Ethicon Ltd[1] and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.[2]   In the context of this case, it is common ground that the issues to be determined are as follows:

[1] [1975] AC 396 (HL).

[2] [1985] 2 NZLR 129 (CA).

a)        Is  there  a  serious  question  to  be  tried  between  the  parties  in  the following respects:

i)Does clause 2.6 of the grape supply agreements between the parties confer a discrete right on the defendants to terminate the vineyard management agreements?

ii)If it does, are the defendants entitled to utilise clause 2.6 in the circumstances that have arisen?

b)If there is a serious question to be tried, where does the balance of convenience lie?

c)        Stepping back and looking at the overall justice of the case, should an interim injunction be granted in the circumstances of this case?

[4]      Before addressing each issue, it is necessary to consider in more detail the somewhat convoluted factual background.

Relevant background

[5]      Goldridge Estate Limited (“Goldridge”) is the principal company in the Goldridge group of companies.  The corporate group includes both of the plaintiff companies — Goldridge Estate Vineyards 3552 Limited (“3552”) and Goldridge Estate Vineyards 4334 Limited (“4334”).  A Mr Peter Vegar and his wife own and control 3552 and 4334.  They also own and control Goldridge.

[6]      3552  and  4334  are  named  after  the  respective  street  addresses  of  the defendants’ vineyard properties located on SH63 in the Awatere Valley, Marlborough.

[7]      The properties were initially purchased as undeveloped bare land by an entity known as Vines Development Company Limited (“Vines”).  That company is owned and controlled by a Mr Paul Vegar, who is the brother of Mr Peter Vegar.

[8]      The Vegar family have a long association with the wine industry.   Messrs Peter and Paul Vegar own the Matakana Estate and Goldridge Estate wine labels through various entities.   Both labels are well-known in New Zealand and Peter Vegar has deposed that they are recognised internationally.

[9]      Goldridge sources grapes and supplies wine from the key wine regions in

New Zealand, including Marlborough, Hawke’s Bay, Gisborne and Matakana.

[10]     Sauvignon  blanc  is  a  premier  grape  variety.     It  accounts  for  a  large percentage of New Zealand’s wine production.  Marlborough sauvignon blanc wines are recognised as a benchmark and they have an international reputation.   Global wine companies have invested substantial sums in purchasing land suitable for viticulture in Marlborough.  As a result, there is now little suitable viticultural land left available in this area.

[11]     Goldridge believes that the global demand for Marlborough sauvignon blanc will continue to grow, but that supply will become fixed within a short timeframe. With this in mind, some years ago, it established what it refers as investor vineyards in Marlborough.   It developed a business model whereby it or one of its related companies secures land in the Marlborough area.  The land is on-sold to investors and  a  vineyard  is  developed  on  the  land  by  Goldridge  through  an  associated company.  The associated company continues to manage the vineyard and it has the right to purchase the grapes grown in the vineyard.  Goldridge thereby secures its future by ensuring the supply of quality grapes in the long term.

[12]     This business model has been effected by having a series of inter-related agreements which investors are required to enter into.   These agreements give Goldridge or an associated entity the first right to purchase the grapes from the investors’ vineyards, and the ability to manage those vineyards.

[13]     In the present case:

a)        Vines  purchased  bare  land  suitable  for  viticulture  in  the  Awatere

Valley in Marlborough.  After a period of negotiation, on 20 October

2006, Vines as vendor and Kakara Estate Limited (“Kakara”) as purchaser executed a conditional agreement for the sale and purchase of part of the land for $4.8 million plus GST.

b)The property being sold comprised two potential vineyards — each approximately 75 hectares in area.  Pursuant to the agreement, Vines was required to enter into two agreements for the supply of grapes and two vineyard management agreements in respect of the vineyards with Goldridge.  It was also required to enter into a vineyard development agreement with Goldridge.   On settlement, Vines was  required  to assign the benefit of those agreements to Kakara.

c)       Copies of the various agreements were annexed to the agreement for sale and purchase.

d)Pursuant to this obligation, on the same day — 20 October 2006 — Vines  and  Goldridge  executed  two  agreements  for  the  supply  of grapes (one in respect of each vineyard), two vineyard management agreements (again in respect of each vineyard), and a project management (or vineyard development) agreement in respect of the whole of the property being purchased by Kakara.

e)        On settlement, Vines assigned its rights under these agreements to

Kakara.

f)        The two vineyards were developed at Kakara’s cost pursuant to the project management agreement.  There has been a significant increase in the value of the property as a result.

g)      On 28 August 2009, deeds of assignment of Kakara’s vineyard management and  grape supply agreements were executed between Goldridge as assignor and 3552 as assignee.  As a consequence, 3552 and Kakara are now the parties to the two agreements for the supply of grapes and the two vineyard management agreements.

[14]     A similar process was followed in relation to the vineyards purchased by Weta Estate Limited (“Weta”).  It entered into an agreement for sale and purchase with Vines as vendor on 14 December 2007.  The purchase price was $9.8 million

plus GST.   On the same day, Vines and Goldridge entered into two vineyard management agreements, one for lots 1 and 2, and the other for lots 3 and 5, each lot being approximately 50 hectares; two agreements for the supply of grapes; and two project management agreements.  Deeds of assignment were then executed by Vines as assignor, Weta as assignee, and Goldridge.  The vineyards were developed and on

28 August 2009, deeds of assignment of Weta’s vineyard management and grape supply agreements were executed by Goldridge as assignor and 4334 as assignee.

[15]     Kakara  and  Weta  have  the  same  shareholders  and  directors.    They  are engineers based in Auckland.   They purchased the vineyards because they were looking for an investment that would produce high capital growth yet be readily saleable to provide flexibility.

[16]     It is part of the Goldridge business model that it purchases any grapes that

3552 and 4334 purchases from Kakara and Weta.  It does so at the same price as

3552/4334  purchases  the  grapes  from  Kakara/Weta.    While  this  is  part  of  the business  model,  it  was  not  written  into  the  grape  supply  agreements  between

3552/4334 and Kakara/Weta.   Indeed, consequent on the assignments, Goldridge now has no rights under either the grape supply agreements or the vineyard management agreements.

[17]    The vineyards are currently being managed through an entity known as Hillersden Vineyards Contracting Limited (“Hillersden”).  Hillersden is part of the Goldridge corporate group.  It is controlled by Messrs Paul and Peter Vegar, and by Mr Peter Vegar’s wife, and it has contracts direct with Kakara and Weta for the services it carries out on their vineyards.   Those contracts were entered into in August 2009.   Mr Peter Vegar signed on behalf of Kakara and Weta — it seems pursuant to a claimed right under the vineyard management agreements.  What right Mr Vegar had to sign those agreements on behalf of Kakara and Weta is not clear to me, but it was not an issue pursued by the parties, so I take it no further.

[18]     While there are minor differences in the wording in the various agreements, for present purposes, there is no difference in the applicable clauses.  They comprise principally clauses 2.2 to 2.6 in the grape supply agreements, and clause 26.1 in the vineyard management agreements.

[19]     The grape supply agreements provide as follows:

2.2The Grower hereby grants to the Buyer a right of first refusal to purchase the entire crop of Grapes grown on each of the Blocks. Such right of first refusal shall be deemed to be effective on the Commencement Date and to be repeated on each third anniversary of the Commencement Date provided that if the Buyer does not exercise the right of first refusal in respect of any Block for 2 consecutive  periods  of  3 years  the right  of first  refusal  shall  be deemed to have lapsed.  If the Buyer elects to purchase part of the crop of Grapes only then the Buyer must at the time of giving notice as provided in this agreement specify the specific Block or Blocks in respect of which the Buyer wishes to purchase Grapes.  The Buyer must purchase all Grapes from any such Block or Blocks specified for the remainder of the term of this agreement.

2.4Should the Buyer wish to exercise its right of purchase pursuant to this Agreement it shall give written notice of that exercise in the manner hereinbefore specified at any time prior to the Commencement Date or such other date the right of first refusal is to be exercised.   Once notice is given to purchase Grapes from any Block or Blocks then the Purchaser shall have an ongoing obligation to purchase of all the Grapes from such Block or Blocks for the term of this agreement.

2.5The terms of such sale and purchase shall be as set out in this agreement, unless otherwise agreed between the parties.

2.6The Buyer acknowledges that the Grower (as owner pursuant to the Vineyard Management Agreement) shall have the right to terminate the Vineyard Management Agreement in respect of the Block or Blocks not the subject of a notice pursuant to Clause 2.4 by written notice of not less than three (3) months given to the Buyer.

As a result of the assignments referred to above, the grower referred to in the clauses is either Kakara or Weta.  The buyer is either 3552 or 4334.

26.1The owner shall have the right in addition to all other rights which it may have in law equity to terminate this agreement upon 1 month’s notice in writing to the Manager in respect of any part of the Vineyard in respect of which the Grape Supply agreement has lapsed at any time after such lapse.  It is the intention of the parties that the Manager must manage those parts of the Vineyard in respect of which the Grape Supply Agreement applies but that in the event of its lapsing in relation to any part of the Vineyard the Owner shall have the discretion as to whether this management agreement shall continue to supply.

Again as a result of the assignments, the owner is now either Kakara or Weta, and the manager is 3552 or 4334.

[21]     It is common ground that the commencement date in respect of the Kakara vineyards was 1 May 2009.   3552 did not give notice exercising the right of first refusal to purchase grapes from any part of the Kakara vineyards.  There is a dispute as to the commencement date for the Weta vineyards.   4334 says that the commencement date was 1 May 2010 and that it gave notice on 30 April 2010 exercising its right of first refusal to purchase grapes from two blocks from the first producing vintage in 2011.    Weta says that the commencement date was 1 May

2009, and that no notice was given prior to termination of the vineyard management agreements.

[22]     By letter dated 17 February 2010, Kakara purported to terminate both the vineyard management and the grape supply agreements under clause 2.6 of the grape supply agreement.  The letter reads as follows:

I have been instructed by Boyle Mathieson, Solicitors, to act on behalf of Kakara Estate Limited in relation to various Agreements between that company and your company following the assignment of Agreements to them  that  were  originally  between  The  Vines  Development  Company Limited and yourselves.

Under  two  Agreements  for  the  supply  of  grapes,  your  company  was obligated, at clause 2.4, to give written notice of an exercise of right of first refusal by 1 May 2009 for grapes for each particular block.   I have been instructed that no notice for either block was given by that date (or subsequently).

Your company acknowledged, at clause 2.6 of the same Agreement, that

Kakara  Estate  Limited  would  have  the  right  to  terminate  the  Vineyard

Management Agreement in respect of the blocks, not the subject of such a notice, by providing you with written notice of not less than three months.

On behalf of Kakara Estate Limited, I hereby give you three months notice from the date of the receipt of this letter of the termination of both the Agreements for supply of grapes and the Vineyard Management Agreements in relation to the abovementioned lots.

My client shall be in subsequent contact with you direct to discuss an orderly transmission to those who will be managing the property after the three months notice period has expired.

A similar letter was sent on behalf of Weta.

[23]     The parties then engaged in correspondence but they were unable to resolve the issues between them.  As a result, 3552 and 4334 filed these proceedings seeking a declaration that the agreements remain in force and in the alternative, rectification of the grape supply agreements.

[24]     The first call of the proceedings was in the Duty Judge list on 10 May 2010. Pending the substantive hearing, Kakara and Weta then undertook (on a without prejudice basis) as follows:

a)       they would not take steps in reliance on the letters dated 17 February

2010 from the defendants’ lawyer to [Goldridge] to terminate or effect the termination of the grape supply agreements and/or vineyard management agreements between the parties;

b)they would not otherwise act in contravention of or inconsistent with the terms of the agreements; and

c)       from 10 May 2010 until the injunction hearing, they would comply with their obligations pursuant to the agreements, including their obligation  to  pay on  monthly invoice  for  the  management  of  the vineyards in accordance with the contracts entered into on their behalf by the plaintiffs with Hillersden.

[25]     3552 and 4334 seek the continuation of these orders pending a decision on the substantive proceeding.

[26]     I now turn to consider the first issue for determination.

Is there a serious question to be tried?

[27]     Kakara and Weta no longer assert that they were entitled to terminate the grape supply agreements.  That is clearly an appropriate concession.  Clause 2.6 of the grape supply agreements refers only to termination of the vineyard management agreements.

[28]     Kakara  and  Weta  argue  that  clause  2.6  in  the  grape  supply  agreements confers a discrete right permitting them to terminate the vineyard management agreements because no notices exercising the right of first refusal to purchase were given on or prior to the commencement date.   This is denied by 3552 and 4334. They say that the clause permits Kakara and Weta to terminate the vineyard management agreements only after all rights to purchase have finally lapsed.

[29]     Under clause 2.2 of the grape supply agreements, 3552/4334 have the right of first refusal to purchase the entire crop of grapes grown on each of the “blocks” comprising the vineyards.   A block  is an  area within the vineyards comprising approximately 25 hectares.  The right of first refusal arises on the “commencement date”.   It is then repeated on the third and on the sixth anniversaries of the commencement date.  The commencement date is 1 May of the year before the first planned harvest of grapes.  If 3552/4334 do not exercise the right of first refusal in respect of any block for two consecutive periods of three years, the right of first refusal is deemed to have lapsed.  Should 3552/4334 wish to exercise their right of purchase, they are required to give written notice at any time prior to the commencement date or such other date as the right of first refusal is to be exercised

— clause 2.4.  Once the right to purchase has been exercised over a particular block or blocks, there is then an obligation on 3552/4334 to purchase the grapes grown on that block (or those blocks) for the duration of the term of the agreement — initially until completion of the harvest of the tenth fruit producing vintage, but with two further rights to extend the term each for a further 20 fruit producing vintages.  The words “fruit producing vintage” mean a year that culminates in the harvest of grapes.

Potentially the obligation to purchase, if the right of first refusal is exercised, enures for 50 fruit producing harvests.  This is likely to equate to 50 years.

[30]     Mr Jones QC for 3552 and 4334 submitted that there are a number of key provisions  in  the  agreements  which  define  the  intention  of  the  parties  and demonstrate that Kakara’s and Weta’s purported termination in the circumstances that have arisen is untenable.  He referred to clause 26.1 in the vineyard management agreements and in particular to the second sentence in that clause.  He submitted that that clause clearly states the intention of the parties, and that the expressed intention is entirely consistent with the underlying inter-relationship of the various agreements entered into when the properties were purchased.  He asserted that the clause makes it clear that 3552 and 4334 “must manage” those parts of the vineyards in respect of which  the  grape  supply  agreements  apply.     He  said  that  it  is  only  through management that they can be sure of the quality of grapes grown in any block in the vineyard over which they have either exercised their right of purchase, or in respect of which they retain a right of purchase.  Mr Jones submitted that clause 2.6 in the grape supply agreements is no more than an acknowledgement of the right that exists in the vineyard management agreements at clause 26.1 — namely the ability to terminate the vineyard management agreements after the rights to purchase have lapsed.  He submitted that the rights do not lapse until they have not been exercised for two consecutive periods of three years, and that in effect that they do not lapse until six years after the commencement date.  He asserted that there is no distinct or discrete right of termination conferred by clause 2.6 and that any such interpretation would be contrary to the scheme of the agreements and the rights of first refusal conferred on 3552 and 4334 under clause 2.2.  He submitted that an interpretation of clause 2.6 in the grape supply agreements which enables Kakara and Weta to terminate the vineyard management agreements simply because notice was not given on or prior to the commencement date, would cut across the fundamental tenet of the agreements themselves, defeat the rights of first refusal, and negate the right to maintain the quality of the grapes that are the subject of those rights.

[31]     Mr Gilchrist for Kakara and Weta submitted that clause 2.6 of the grape supply agreements and clause 26.1 of the vineyard management agreements are “different animals”.   He noted that clause 2.6 provides for termination on three

month’s notice if the right to purchase is not taken up, whereas clause 26.1 refers to termination on one month’s notice.  He further noted that the right to terminate in clause 26.1 is expressed to be “in addition to all other rights which [the owner] may have  in  law  [or]  equity  to  terminate  [the]  agreement”.    He  submitted  that  the vineyard  management  agreement  confirms  that  there  are  other  circumstances  in which the agreement can be terminated, and that clause 2.6 is one of those circumstances.     Further,  he  argued  that  clause  26.1  expressly  refers  to  the termination rights created by that clause arising following the lapse of the rights of first refusal contained in the grape supply agreements, whereas clause 2.6 in those agreements makes no reference to lapse, or to the preceding clause 2.2.  He noted that clause 2.6 refers only to clause 2.4, and submitted that it provides a right to terminate the vineyard management agreement for any block not the subject of a timely purchase notice given pursuant to that clause.

[32]     I am not required to finally determine whether or not clause 2.6 in the grape supply agreements provides a discrete right to terminate.  Rather, I am required to be satisfied that the claims made by 3552 and 4334 in their statement of claim are neither frivolous or vexatious, and that there is a serious question to be tried.

[33]     As noted, 3552/4334 in their pleadings deny that clause 2.6 of the grape supply   agreements   gives   Kakara/Weta   the   right   to   terminate   the   vineyard management agreements.  They say that the precondition required for the ability to terminate to be triggered is unfulfilled.   They plead that Kakara/Weta’s purported termination of the vineyard management agreements is unlawful and of no effect. They seek:

a)       a declaration to that effect and an order that the agreements remain in force.  They also seek a declaration that clause 2.6 of the grape supply agreements does not provide a right to terminate the vineyard management agreements other than over blocks where the right to purchase under clause 2.2 has lapsed;

b)in the alternative, to rectify clause 2.6 of the grape supply agreements, by deleting the words:

...  not  the  subject  of  a  notice  pursuant  to  clause  2.4  by written notice of not less than three (3) months given to the Buyer.

and replacing them with the words:

... over which the right to purchase has not been exercised and  has  lapsed  pursuant  to  clause  2.2  by  giving  written notice of termination of not less than three (3) months to the Buyer.

[34]     I have concluded that there is a serious question to be tried and that 3552 and

4334  have  a  real  prospect  of  succeeding in  their  claims  —  particularly for  the declarations they seek.

[35]     I agree with Mr Jones that the interpretation advanced by Kakara and Weta would cut across the terms of the agreements read as a whole.  There is no dispute that the  grape supply agreements  and the vineyard management  agreements are inextricably intertwined.  Management of the vineyards was clearly considered to be important to the quality of the grapes produced, and the quality of the grapes produced is likely to drive, at least partially, 3552 and 4334’s decisions as to whether or not to give notice exercising the rights of first refusal to purchase.

[36]     This   is   clearly   recognised   in   the   vineyard   management   agreements.

3552/4334 “must” manage those parts of the vineyards in respect of which the grape supply agreements apply.   If the right of first refusal to purchase is exercised in respect of the whole of a vineyard, clearly 3552/4334 must manage that vineyard. Equally, they must manage the block or blocks the subject of a notice if the right is exercised over part of the vineyard only.   If they do not exercise the right of first refusal to purchase on the commencement date, the grape supply agreements still apply because there are two further rights of first refusal which fall to be exercised on the third and sixth anniversaries of the commencement date.   The agreements only lapse, either in whole or in part, once the second three yearly period has passed without notice being given.  Until such time as the grape supply agreements lapse,

the vineyard management agreements require that 3552/4334 “must” manage the vineyards.

[37]     The grape supply agreements are to similar effect.  Clause 2.2 confers a right of first refusal effective initially on the commencement date, and then again on the next two three yearly anniversaries of the commencement date.  In other words, the clause provides that the right of first refusal can be exercised on the commencement date (as defined in the agreement), on the third anniversary of the commencement date, and again on the sixth anniversary of the commencement date.   If it is not exercised on or before the sixth anniversary of the commencement date, the right lapses and the right to terminate under either clause 2.6 of the grape supply agreements or clause 26.1 of the vineyard management agreements arises.

[38]     It seems to me that on a plain reading of both the grape supply agreements and the vineyard management agreements, it is only when the grape supply agreements lapse that the right to terminate arises.

[39]     Kakara and Weta rely on the reference in clause 2.6 to the right to terminate the vineyard management agreements in respect of the block or blocks “not the subject of a notice pursuant to clause 2.4”.  Clause 2.4 details how and when any notice given by 3552/4334 should be given — it is to be given in writing at any time prior to the commencement date, “or such other date the right of first refusal is to be exercised”.  The latter words make it clear that notice can be given prior to any of the three dates referred to in clause 2.2 — the commencement date, the third anniversary of the commencement date and the sixth anniversary of the commencement date.  I cannot see that the right to terminate arises under clause 2.6 simply because notice is not given on the first of the three nominated dates.  It follows that in my judgment, there is no material inconsistency between clause 2.6 in the grape supply agreements and clause 26.1 in the vineyard management agreements.

[40]     Mr Gilchrist points out that the period of notice required to terminate in each claim  differs.    It  is  three  months  in  clause  2.6  and  one  month  in  clause  26.1. Ms Dorrington, a solicitor, who acted for the Goldridge group when the agreements were negotiated, suggests that the difference in the period of notice is simply an

error.    It  seems  to  me  that  this  is  a  likely  explanation.    In  any  event,  this inconsistency does not  dissuade me from my view that the clauses are broadly consistent and that clause 2.6 does not provide a discrete right to terminate if notice to exercise the right of first refusal to purchase is not given on or prior to the commencement date.

[41]     Kakara and Weta placed emphasis on the negotiations which occurred with

Goldridge.

[42]     The Court can read pre-contractual materials as an aid to interpretation even if there is no ambiguity in the wording of the contract.  Reference can be made to the negotiations in order to establish the commercial context, the market in which the parties were operating and the subject matter of the contract if it shows objectively

what the parties intended their words to convey.[3]

[3] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC).

[43]     Here there were extensive negotiations before the agreements were signed.  A Mr  Forlong,  who  is  a  shareholder  in  both  Kakara  and  Weta,  represented  those entities in the negotiations.  Negotiations focused in large part on Kakara and Weta’s rights to terminate the agreements.   The original draft agreements allowed the Goldridge interests to continue the vineyard management agreements even if the right to purchase grapes was never taken up.  Kakara and Weta wanted to maintain flexibility and to secure an ability to terminate should the need arise.

[44]     Mr  Forlong  has  set  out  his  understanding  of  the  negotiations,  and  his subjective  view  of  what  the  clauses  provide.    So  has  Mr Peter  Vegar.    Their subjective views are at odds.   Much of the material in the respective affidavits is simply declarative of the subjective intentions of the parties, and I have disregarded it.

[45]     It is clear that in the course of negotiations, some amendments were made to the standard form contracts which Goldridge was seeking to annex to the agreements for sale and purchase.

[46]     Draft copies of the various agreements were circulated between the solicitors. The original draft did not contain clause 2.6.   Rather, the right to terminate the vineyard management agreements was contained only in that agreement.

[47]     A Mr Boyle, who was acting for Kakara and Weta, received electronic copies of the documents from Ms Dorrington on behalf of 3552 and 4334 on 12 October

2006.   He suggested various alterations, and sent marked up versions of the documents back to Ms Dorrington by email on 17 October 2006.   Relevantly, he proposed changes to clause 2.2 and a new clause 2.6 in the grape supply agreements. He proposed that clause 2.6 should read as follows:

The grower shall have the right to terminate the vineyard management agreement in respect of the block or blocks not the subject of a notice pursuant to clause 2.4 by written notice of not less than three (3) months given to the buyer.

He also proposed a new clause 2.3, to provide that the right of first refusal would lapse, become  void  and  not  be  exercisable  in  respect  of  a  block  or  blocks  not nominated in a notice given pursuant to clause 2.4, and should not be able to be revived thereafter.

[48]     Ms Dorrington, replied on 19 October in the following terms:

Thank  you  for  the  documents  with  the  changes  suggested.    We  have discussed these in detail with our client.  We enclose further versions of the documents with your changes accepted and further changes made.

She accepted parts of Mr Boyle’s redraft of clause 2.2 and she proposed various further changes to that clause.   She deleted Mr Boyle’s suggested clause 2.3, and amended his draft clause 2.6 as follows:

The  Buyer  acknowledges  that  the  Grower  (as  owner  pursuant  to  the Vineyard Management Agreement shall have the right to terminate the Vineyard Management Agreement in respect of the Block or Blocks not the subject of a notice pursuant to clause 2.4 by written notice of not less than three (3) months given to the Buyer.

[49]     As can be seen from paragraph [19], it is this version of clause 2.6 (with the addition  of  a  bracket  after  the  word  Agreement)  which  found  its  way  into  the

document which was annexed to the agreement for sale and purchase signed by the parties.

[50]     To my mind, it is significant that the clause starts with the words, “The Buyer acknowledges ...”.   Mr Boyle initially proposed to delete the relevant termination clause in the vineyard management agreements.   Ms Dorrington required that the termination clause which is now clause 26.1 in the vineyard management agreements remain.   Both agreements were intended to work together.   The use of the word “acknowledges” in clause 2.6 reinforces the linkage between clause 2.6 in the grape supply agreements and clause 26.1 in the vineyard management agreements.

[51]     Finally, I deal with Mr Gilchrist’s argument that clause 26.1 in the vineyard management agreements refers to other rights the owner may have to terminate the agreement.  In this regard, I note that the agreement itself provides for other rights in clause 26.2 and clause 26.3.  Both clauses give the owner the right to terminate the agreement in defined circumstances.  There may be other circumstances which could justify termination of the agreement, but it is not necessary to explore those for present purposes.

[52]     In my judgment, the claims made by 3552 and 4334 are neither frivolous nor vexatious and there is a serious question to be tried between the parties.  Given this conclusion, it is not necessary to go on to consider whether Kakara and/or Weta are entitled to utilise clause 2.6 in the circumstances that have arisen.

Balance of convenience

[53]     There are a number of factors affecting the balance of convenience which need to be considered.

Damages – an adequate alternative remedy?

[54]     3552 and 4334 have asserted that the purported termination of the vineyard management agreements would cause severe and irreparable damage to them, their

employees, and related third parties.   They argued that damages would not be an adequate remedy for them if the injunction is not granted and they succeed at trial.

[55]     It is not obvious to me that there could be any severe or irreparable damage to either  3552  or  4334  if  the  injunction  is  declined.    Neither  company  has  any employees or any independent business interests.   They appear essentially to be intermediaries between Goldridge, and Kakara and Weta.  Both charge out vineyard management fees to Kakara and Weta.   Both pay Hillersden for the management provided.   Neither company has any other income at present.   If the management agreements are cancelled, it is difficult to see that either company will suffer any severe  or  irreparable  damage.     They  will  not  receive  management  fees  but presumably they will not be obligated to pay Hillersden because no management will have been provided.  The grape supply agreements will remain on foot, and 3552 and

4334 will still be able to exercise the right of first refusal to purchase if they wish to do so.   It is not readily apparent that either company would suffer any damage as such.

[56]     Even if I ignore the fact that 3552 and 4334 pay over the management fee they receive to Hillersden, it seems  to me that  damages  would be an  adequate alternative remedy.  The vineyard management fees are readily ascertainable.  They are calculated on a per hectare basis pursuant to the vineyard management agreements.  There is ample evidence that Kakara and Weta are in a position to pay the likely damages.    Both  companies  have substantial  assets  in  their  respective vineyards.

[57]     Similarly, it seems to me that there is no severe or irreparable damage to Kakara or Weta if the injunctions are granted.  They will have to sell their grapes to alternative buyers at least until the third anniversary of the commencement date. There is some evidence from Mr Furlong that as a consequence, they may receive a reduced price, because they will have been denied the opportunity of offering the management of the vineyards to a potential purchaser of the grapes.  That evidence is disputed by Mr Peter Vegar, but I do not consider that dispute to be of any real moment for present purposes.

[58]     The vineyards have to be managed by people with appropriate expertise.

3552 and 4334 through Hillersden have that expertise, and the vineyards have been managed to date to a high standard.  Mr Vegar has annexed to his affidavits reports prepared by an independent expert which attest to the quality of management so far. Those reports have not been disputed by either Kakara or Weta.

[59]     While it may be that there is some limited economic loss to Kakara and Weta if they are required to remain in their present relationship with 3552 and 4334 pending  trial,  I  cannot  see  that  any  loss  would  be  significant.    3552,  4334, Hillersden, and another Goldridge subsidiary — NZ Terrain Investments Limited — have offered undertakings as to damages.   While there is little to support the undertakings given by 3552 and 4334, Hillersden does have some assets and, in my view,  it  is  quite  clear  that  New  Zealand  Terrain  Investments  Limited  has  a substantial surplus of assets over liabilities sufficient to support the undertaking.  I accept that the four companies jointly have the capacity to meet any damages which could be awarded against 3552 or 4334 in the event that an injunction is granted and they are ultimately unsuccessful at trial.

[60]     Essentially, it seems to me that as between 3552/4334 and Kakara/Weta, the adequacy of damages as an alternative remedy is neutral.  Damages are an adequate alternative remedy for all parties to the dispute, and there is no good reason to doubt the ability of either side to meet any award of damages that could result from the substantive litigation.

[61]     I should refer briefly to submissions made for 3552 and 4334 that damages would not be an adequate alternative remedy for others in the Goldridge group.

[62]     It  was  submitted  that  there  could  be  potential  financial  damage  for  the Goldridge group as a whole if an interim injunction is not granted.  It was noted that both the grape supply agreements and the vineyard management agreements secure the quality and scale of supply of grapes to Goldridge, and that supply is significant to Goldridge’s business both in New Zealand and overseas.

[63]     Whilst I do not doubt these assertions, I am not persuaded that Goldridge has any rights to damages under the agreements.  It is not a party to these proceedings.  It has not offered any undertaking as to damages to support 3552 or 4334.  It assigned its rights to 3552 and 4334 on 28 August 2009.  It did not reserve any rights to itself, and there is no privity of contract between it and Kakara or Weta.  Nor is Goldridge referred to by name, description or other reference in the grape supply agreements or in the vineyard management agreements.  I doubt that it can take advantage of the Contracts (Privity) Act 1982.

[64]     I am not persuaded that any financial consequence Goldridge might suffer should  be  taken  into  account  in  considering  the  adequacy  of  damages  as  an alternative remedy for the parties to the proceedings.

Rights of third parties

[65]     I accept that termination of the vineyard management agreements could cause damage  to   third   parties,   namely  Goldridge,   Hillersden   and   their   respective employees.

[66]     Mr Peter Vegar has deposed that Goldridge employs three individuals to manage the investor vineyards it has established.  The total area under management is 540 hectares.   Sixty two per cent of that area comprises the Kakara and Weta properties.  Mr Vegar asserts that those employees would become redundant if the vineyard management agreements were to be terminated.  It seems to me that this is a valid concern which counts in favour of the grant of an interim injunction pending trial.

[67]     Mr Vegar has also given evidence to the effect termination would have on Goldridge.   It is important to Goldridge’s business that it is able to supply large volumes of wine to international distributors.  Goldridge is one of a comparatively small number of companies that can supply more than 500,000 cases of wine per year.   The ability to supply that volume has enabled it to enter into distribution agreements  with  top  tier  distribution  companies  in  the  key  export  markets  for New Zealand wine.  By way of example, it has recently entered into a distribution

agreement with a major distributor in the United Kingdom.   Goldridge would be likely to lose that distribution contract were it to lose the wine potentially available from the grapes grown on the Kakara and Weta vineyards.  Those vineyards make up

62 per cent of the vineyards over which Goldridge subsidiary companies have the right of first refusal to purchase.  Goldridge believes that it can only be confident of quality from those vineyards if they are managed by its subsidiaries, and that it will lose that quality guarantee if the vineyard management agreements are cancelled.

[68]     Goldridge also believes that loss of the Kakara/Weta vineyard management agreements might mean that it will have difficulty attracting a new equity partner to assist in its future growth.

[69]     Mr Gilchrist responded by saying that 3552, 4334 and Goldridge made their own decisions by not taking up the option to purchase at the appropriate time.  He also reminded me that the grape supply agreements are not being terminated.

[70]     I am not persuaded by these arguments.   In my judgment, it was always envisaged that 3552 and 4334 might not purchase grapes initially.  That is why the grape supply agreements conferred the right on three separate occasions. Notwithstanding their election as at the commencement date, 3552 and 4334 can exercise the right of first refusal to purchase on either the third or sixth yearly anniversaries of the commencement date.   Moreover, Mr Gilchrist’s argument overlooks the correlation between management and the exercise of the right to purchase.   If management is lost, the ability of 3552 and 4334, and through them Goldridge, to retain control over the quality of grapes the subject of the right of first refusal to purchase will be lost.

[71]     I accept Mr Jones’ argument that in those circumstances, Goldridge could be seriously and adversely affected.  The supply of quality grapes to satisfy its current and projected wine requirements could be compromised.   This is a matter of importance to it, and to its present and anticipated business operations.

[72]   Further, there is a potential effect on Hillersden.   That company was incorporated by the Vegar family to manage the vineyards.   It has purchased $1.6

million on machinery to enable it to undertake vineyard management.  Sixty two per cent of the land it manages is owned by Kakara and Weta.  It employs nine people.  I accept Mr Vegar’s evidence that the company is unlikely to survive if it loses the vineyard management agreements for the Kakara and Weta vineyards.

[73]     A number of peripheral matters have been raised by Kakara and Weta.  They have asserted that they have been overcharged by Hillersden.  They argue that more work is being done than is necessary, and that 3552 and 4334 should be charging no more than usual market contract prices for the appropriate work.

[74]     I cannot resolve these disputes in the present context.   There are dispute resolution provisions in the vineyard management agreements and in the direct agreements between Kakara/Weta and Hillersden.   Even if an injunction is to be granted, it will not preclude Kakara and Weta from invoking those provisions.

[75]     Similarly, a number of peripheral matters have been raised by 3552 and 4334. They point to the difficulties Hillersden would experience if the Kakara/Weta vineyards were to be managed by someone else.   I am not persuaded that those difficulties could not be worked through, and the fact remains that the agreements clearly envisage that ultimately the vineyards could be managed either in whole or in part by someone else if notices are not given in respect of all blocks in all vineyards.

Effect of injunction sought

[76]     Kakara  and  Weta  submitted  that  what  is  being  sought  is  effectively  a mandatory injunction that they perform agreements which have on their face come to an end.  They argued that the effect of the proposed injunction is to force them to continue to have a party manage their vineyards that they do not want to be in an ongoing relationship with.  They argued further that there are likely to be ongoing disputes between them, Hillersden, 3552 and 4334, and they submitted that it is not in  the  public  interest  to  waste  resources  by  yoking  the  parties  together  in  a

continuing hostile relationship.  They referred me to the decision of Lord Hoffman in

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd[4] in this regard.

[4] [1998] AC 1 (HL) at 15–16.

[77]     3552 and 4334 accepted that what is sought is in effect a hybrid injunction. They seek to restrain Kakara and Weta from pursuing their alleged entitlement to terminate the vineyard management agreements, but acknowledge that the indirect effect of such an order is mandatory, in that they will be able to continue to perform their tasks under the vineyard management agreements.

[78]     I accept that the injunction sought is in part mandatory, and that before granting a mandatory injunction, I have to feel a high degree of assurance that at trial, it will appear that the injunction has been rightly granted:   see Locabail International Finance Ltd v Agroexport.[5]

[5] [1986] 1 WLR 657.

[79]     As I have set out above when considering whether or not there was a serious question to be tried, in my view, on the materials currently available, the argument being advanced on behalf of Kakara and Weta is unlikely to succeed.  The point is essentially one of interpretation and it is unlikely that much or any further evidence will help resolve matters.  I am satisfied to the appropriate standard that in the event I grant the injunction sought, it is likely that it will prove to have been rightly granted when the matter proceeds to a substantive hearing.

[80]     Moreover, the dispute between the parties has to be seen in context.

[81]     There has been a breakdown in the relationship between the Vegars and the principals  behind  Kakara  and  Weta.     However,  having  carefully  considered Mr Forlong’s affidavits, I cannot see that there are any alleged breaches identified by Kakara and Weta that are fundamental to the relationship between 3552/4334 and Kakara/Weta.  The evidence is that the vineyards are being well managed by 3552 and 4334.  Indeed Mr Forlong has confirmed that in the event that an injunction is declined, and the vineyard management agreements come to an end, Kakara and

Weta will be seeking to ensure that management is continued by at least some of the

Goldridge vineyard managers and the Hillersden staff.

[82]     The agreements between the parties here in issue are not strictly personal service contracts.   Rather the agreements are between business concerns.   The agreements do not require regular and ongoing personal dealings between the parties who are in dispute.   They can be expected to make them work in their own best interests.  The Courts are of course reluctant to hold parties to contracts of personal service by way of interim orders, but I am satisfied that that reluctance would be inappropriate in the present case.  It is possible to obtain an injunction to prevent a breach by a party for whom services are being performed:  see, for example Kelly

Enterprises Ltd v Whitireia Community Polytechnic.[6]

Public policy

[6] HC Wellington CIV-2007-485-861, 4 May 2007.

[83]     In my view, there is some force in the position taken by 3552 and 4334 that Kakara and Weta have failed to comply with  their obligations contained in the agreements — both by purporting to terminate and by failing or refusing to pay for vineyard management undertaken.   To allow a party to avoid its obligations and thereby defeat the commercial expectations of the plaintiffs and third parties would in my view be contrary to public policy considerations.   A respondent should not generally be entitled to use its own defaults as a ground for avoiding injunctive relief.

Relative strength of the parties’ cases and their conduct

[84]     I have already noted that, in my view, that Kakara and Weta are on weak ground in relying on clause 2.6 of the grape supply agreements as permitting their unilateral decision to terminate the agreements.

[85]     While it may be that 3552 and 4334 did string Kakara and Weta along, and that they delayed making their respective decisions as to whether or not they would

purchase grapes, I am not persuaded that any conduct by 3552 or 4334 is such as to disentitle them to relief.  The grape supply agreements specified a time when notice had to be given if 3552 or 4334 wished to purchase grapes as from the commencement date.   3552 and 4334 were entitled to take advantage of the agreements in this regard.

[86]     Nor in my view can it be asserted that 3552 or 4334 stood back and delayed commencing these proceedings.  The parties sensibly endeavoured to resolve matters before resorting to the Courts.  Neither side can be criticised for that.  The statement of claim and application for interim relief were filed promptly once those endeavours proved unsuccessful.

Overall justice of the case

[87]     Finally, I stand back and ask myself where the overall justice lies as between the parties.

[88]     Having considered all matters, I am satisfied that the overall justice lies with

3552 and 4334.  The claims they have made are neither frivolous nor vexatious, and they raise a serious issue to be tried.   The balance of convenience, in particular insofar as the rights of third parties are affected, lies in their favour.  I cannot see that there is any great disadvantage in restraining Kakara and Weta from relying on the notices of termination that they have given until the substantive trial, particularly given that they can invoke the dispute resolution provisions in the vineyard management agreements and in the individual contracts to sort out any problems they believe they have with Hillersden.   In the circumstances, it is in my view appropriate that an interim injunction should be granted.

Terms of injunction

[89]     I am not, however, satisfied that the interim injunction should be in the terms sought.  In particular, it seems to me inappropriate to make an injunction requiring that Kakara and Weta not act in contravention of or inconsistently with the terms of

the grape supply agreements and the vineyard management agreements.   Nor is it appropriate  to  require  that  they comply with  the  obligations  contained  in  those agreements pending trial.  Such orders would require the ongoing supervision of the Court and that is inappropriate.   If an order is made precluding Kakara and Weta from taking any steps in reliance on their letters of termination dated 17 February

2010, the agreements will remain on foot.  3552 and 4334 will be entitled to resort to the appropriate dispute resolution procedures if the agreements are breached.  To my mind, 3552 and 4334 should not be entitled to any greater imprimatur from the Court by way of an interim order.

[90]     In the circumstances, I grant an interim injunction precluding Kakara and Weta from taking steps in reliance on the letters dated 17 February 2010 from their lawyer to Goldridge Estate Limited to terminate or effect termination of the grape supply agreements and/or vineyard management agreements between the parties. Such order is to remain in force pending the further order of the Court.   It  is conditional  upon  undertakings  as  to  damages  being  signed  by Goldridge  Estate Vineyards 3552 Limited, Goldridge Estate Vineyards 4334 Limited, Hillersden Vineyard Contracting Limited and NZ Terrain Investments Limited, such undertakings to be signed and filed within five working days of the date of this order.

Costs

[91]     3552 and 4334 are entitled to their reasonable costs and disbursements.  It is my preliminary view that costs on a 2B basis are appropriate, and I would request the parties to endeavour to reach agreement on the same.   If there is any dispute, the same is to be referred to me.  3552 and 4334 are to file any submissions they wish to make in relation to costs within 15 working days of the date of this judgment. Kakara/Weta are to respond within a further five working day period.   I will then deal with the issue of costs on the papers unless I require the assistance of counsel.

Postscript

[92]     Finally, I observe that the letters of termination in issue were written by Kakara and Weta’s counsel, Mr Gilchrist.  I raised this matter with the parties during the course of the hearing and no issue was taken with the fact that the letters were sent.  Potentially, however, Mr Gilchrist is a witness.  I refer to the observations of Wilson J in Vector Gas.[7]   Mr Gilchrist will have to consider whether he can continue to act in the event that this matter proceeds to a substantive hearing.

[7] At [147]–[149].

Wylie J