New Zealand Wine Company Limited v Gray HC Blenheim CIV 2007 406 44

[2007] NZHC 1690

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

CIV 2007 406 44

BETWEEN  THE NEW ZEALAND WINE COMPANY LIMITED

Plaintiff

AND  JOHN DOUGLAS GRAY AND OLGA GRAY

Defendants

Hearing:         8 March 2007

(Heard at Wellington)

Counsel:        D J Clark for Plaintiff

D R Forman for the Defendants

Judgment:      8 March 2007

JUDGMENT OF WILD J

Introduction

[1]      By application filed on 26 February the plaintiff applied for the following orders against the defendants:

(1) An interim injunction restraining the defendants from selling grapes grown on their property at 145 Conders Bend Road, Renwick being Lot 4 Deposited Plan 8785 Marlborough Registry for the harvest of them in 2007 other than to the plaintiff.

(2) An interim injunction compelling the defendants to make available the grapes on their land as described in paragraph 1 for harvest by the plaintiff for the 2007 vintage.

(3) An Order that the defendants pay the costs of and incidental to this application.

THE NEW ZEALAND WINE COMPANY LIMITED V GRAY HC BLE CIV 2007 406 44  8 March 2007

(4) Such  other  ancillary  relief  as  this  Honourable Court  shall  deem appropriate in the circumstances to enable the Applicant to complete the harvest of the grapes on the defendants’ land.

[2]      The application came briefly before Gendall J on 28 February.  Defendants’ counsel  requested  a  little  more  time  to  respond  to  the  application.    Gendall  J therefore adjourned it for hearing this morning.  In doing so he directed the plaintiff to file a statement of claim, and the defendants a notice of opposition to the application, both by 7 March.  He also made an order restraining the defendants from selling or disposing of the grapes in issue pending the Court’s further order.

Background

[3]      The dispute relates to contractual arrangements (or the lack of them) between the parties for supply of grapes by the defendants to the plaintiff.

[4]      On 20 October 1998 the parties entered into a Grape Purchase Agreement covering the supply by the defendants to the plaintiff of sauvignon blanc grapes to be planted by the defendants on 4.5 acres of their vineyard land at Renwick in the Wairau Valley in Marlborough.   That is a nine page written agreement.   Its seven year term commenced with the 2001 harvest, reflecting that new vines take about three years to produce their first commercial harvest.

[5]      On 5 November 1999 that agreement was extended to 3.5 hectares of pinot noir grapes which the defendants were to plant, using vines supplied to them by the plaintiff.   The term of the extension agreement was the same:   seven years, commencing with the 2001 harvest.

[6]      That much is not in dispute between the parties.

[7]      On 14 October 2002 the parties signed an agreement whereby:

a)        The defendants supplied to the plaintiff grafted sauvignon blanc vines on concessionary terms spelt out in the agreement.

b)       “The  vines  were  supplied  on  condition  that  their  receipt  constitutes  an agreement to sign a Grower Agreement with the plaintiff for the supply of grapes for an initial contract period of ten years, the final details of which are still under negotiation.”

[8]      This third and most recent agreement is in the form of a letter addressed by the plaintiff to the defendants,  which both parties have signed  in the  following format:

The following undersigned Agree to the Terms and Conditions set out on page one of this letter.

Signed:          Date, being 19th Day of October 2002

Doug Holmes – Viticulturist, New Zealand Wine Company Limited

John Gray – Owner     Date, being 19th Day of October 2002

[9]      Although not  stated in that third agreement, those  sauvignon  blanc  vines occupy  13.5   acres   of  vineyard   and   are   expected   this   harvest   to   produce approximately 60 tonnes of grapes which will make approximately 4 cases of wine (12 bottles @ 9 litres equivalent to the case).

[10]     Although the defendants supplied the grapes from the sauvignon blanc vines to the plaintiff up to and including the 2006 harvest, the defendants depose:

From 2004 until the current vintage our relationship (with the plaintiff) has got progressively worse culminating in our current situation.

[11]     Reflecting that, on 29 July 2004 the defendants gave the plaintiff three years notice of termination of the Grape Purchase Agreement, as required by clause 6.1 of that Agreement.  That this notice is effective is apparently disputed by the plaintiff.

[12]     Also in dispute is the price paid by the plaintiff to the defendants for grapes supplied  in the  2006  harvest.   Pursuant  to the  Grape  Purchase Agreement, that dispute has been submitted to arbitration.   The arbitrator is Mr Q A M Davies of Blenheim, a solicitor.  He has set a timetable for the arbitration.

Contractual arrangements

Plaintiff’s position

[13]     For the plaintiff, its viticulturist Mr D P Holmes deposes that the defendants were happy in October 2002 for the new agreement to be covered (like the second,

1999,  agreement)  by an extension to  the  Grape  Purchase  Agreement.    He then deposes:

[15]      …  However at that time NZ Wine was trying to have all its growers covered by the same standardised agreement for simplicity and we wanted that to be the case with the Grays.  There is no difference in substance between the old agreement and the new agreements.

Defendants’ position

[14]     The defendants reject as “entirely incorrect” Mr Holmes’ assertion that they were happy for the new October 2002 agreement to be covered by an extension to the Grape Purchase Agreement.  They say that they made it clear to the plaintiff at the time that  any agreement  extending  beyond  the  term of the  Grape  Purchase Agreement would need to be a new agreement on different terms and conditions.

[15]     Mr Gray deposes:

9.As a result, the New Grapes were not dealt with by an extension of the vines/grapes coming under the Agreement, as had been the case with the Pinot Noir grapes.  Instead we signed a letter recording our intention to negotiate a new agreement with NZ Wine for the supply of the New Grapes (“Letter of Intent”).

[16]     Mr  Gray  states  that  he  is  not  aware  of  any  industry  standard  Grower Agreement.  He maintains that each Agreement is different, especially in relation to how price is determined.

[17]     The defendants’ position is that the commitment they made on 14 October

2002 was a commitment to “discuss and negotiate new terms and conditions with (the plaintiff) in the hope that we could agree on terms suitable to us”.   Mr Gray adds:

10.…  We fully intended that if NZ Wine did not agree to whatever our required terms and conditions were then we would sell our grapes to another party.

[18]     Mr Gray deposes that since signing the 14 October 2002 “Letter of Intent” the  defendants  have  had  no  further  contact  or  discussions  with  the  plaintiff  in relation to negotiating a new agreement for the sauvignon blanc grapes.  Instead, he states that the parties have “acted on a season-by-season basis”.

Interim injunction principles

[19]     With  one  possible  exception  relevant  here,  these  are  thoroughly  well established.   A plaintiff seeking interim injunctive relief must meet the threshold requirement of establishing that it has a case seriously arguable at trial.  Effectively, this is a filter to stop, at the threshold, the granting of relief in a proceeding which is meritless, frivolous or vexatious, or a combination of those.   In simple terms, the plaintiff must establish it has “a real prospect” of obtaining a permanent injunction at trial:  Re Lord Cable (deceased) v Waters [1976] 3 All ER 417 at 431 per Slade J.

[20]     It seems to be generally agreed that there is a higher threshold requirement for a plaintiff seeking mandatory injunctive relief, though there is disagreement as to exactly what that higher threshold is.  For the defendants, Mr Forman referred me to three cases which offer different formulations.  First, in Weddel New Zealand Ltd v Taylor  Preston  Ltd  [1993] 2 NZLR 104 at 112, Heron J expressed himself as satisfied that “the plaintiff has established a strong case to have this contract enforced …”. Second, in Oggi Advertising Ltd v McKenzie HC AK CP147/98 6

June 1998 at  p13, Baragwanath J referred  to the  plaintiff having  “a powerfully arguable case” against the first defendant.  Lastly, in Telstra NZ Ltd v Telecom NZ Ltd HC AK CL16/99 6 July 1999 at p22, Williams J stated that “it remains the case that mandatory injunctions are normally (only) made in clear cases where there are special circumstances or the matter is urgent or where the order is directed at an act which is easily remediable …”.

[21]     I do not accept that a higher threshold should apply to  plaintiffs seeking mandatory interim injunctive relief.   Nevertheless, I am content to require that the

plaintiff here give me a high degree of assurance that trial will confirm that any mandatory injunctive relief I grant was rightly granted.

[22]     The reason that I do not accept that there is a higher threshold for mandatory injunctive relief is that it makes no sense.  Apparently, the rationale is that interim injunctive relief is calculated to preserve the status quo, and that the granting of mandatory injunctive relief is necessarily inconsistent with this purpose.   If that is the objection it is unsound.  It is not difficult to think of any number of situations where  protecting  the  status  quo  requires  the  Court  to  order  one  party  to  do something, as opposed to ordering that party not to do something.   A further and related difficulty with the apparent rationale I have mentioned is that there can often be real disagreement as to what is the status quo which the Court is to preserve.  The unsoundness  of  the  apparent  rationale  for  a  higher  threshold  where  mandatory interim injunctive relief is sought is commented upon in Spry’s The Principles of

Equitable Remedies 5th Edition at 556-557.

[23]     If the plaintiff meets the threshold requirement, then the Court needs to strike “the balance of convenience”.  The description “the balance of the risk of doing an injustice” much better describes the process involved.  That is because the Court’s task is to adopt, for the interim, the course which carries the least risk of ultimate injustice.  Injustice to the plaintiff if interim injunctive relief is refused, but the Court at trial finds that permanent injunctive relief is justified (but by which stage it might be too late to grant it).  Conversely, injustice to the defendant if interim injunctive relief is granted, but discharged at trial.

Application of the principles here

Threshold requirement

[24]     In  my  view the  plaintiff easily  meets the  threshold  requirement,  even  if pitched at a stringently high level.

[25]     I  read  the  14  October  2002  letter  as  a  contractual  commitment  by  the defendants to enter into the plaintiff’s Grower Agreement when that agreement is finalised.   Mr Holmes’ evidence that the plaintiff was working on a standardised agreement for all its growers at the time is consistent with the statement in the letter that “the final details of (the Grower Agreement) are still under negotiation”.

[26]     Mr Gray deposes that it was the defendants who, at the time, were insistent that they negotiate a new agreement with the plaintiff.  It is not for me at this interim stage to make findings of fact, still less findings of credibility.  But I have difficulty in  reconciling  that  statement  with  Mr  Gray’s  acceptance  that  the  relationship between the parties was good in October  2002,  and  remained  good  until  2004. Significantly, Mr Gray offers no explanation as to why the defendants were unhappy with the Grape Purchase Agreement, and insistent on negotiating a new one.

[27]     In response to a question from me, Mr Clark confirmed that the plaintiff did finalise a new form of Grower Agreement, which most or all of its growers save for the defendants have signed.  He accepted that that Agreement ought to have been put in evidence.   Although it is not in evidence, I accept for the purposes of today’s application that it exists and will be in evidence at trial.  My view is that it is that Agreement which the defendants on 19 October 2002 committed themselves to sign.

[28]     Mr Forman protested that the defendants had no input into that Agreement. If that is correct, and if the defendants were aware at the time that a new Grower Agreement was being negotiated by the plaintiff with its growers (as the 14 October

2002  letter  suggests they  must  have  been),  then  the  defendants  will  only  have themselves to blame for that situation.

The balance of convenience

[29]     The first step in the balance is to consider the adequacy of damages.  Counsel and Judges alike sometimes overlook that it is a two way consideration.  If damages will adequately compensate the plaintiff, and the defendants are good for them, no interim  injunction should  normally  be granted.    If damages  will  not  adequately compensate the plaintiff, then would they adequately compensate the defendants if

the defendants are enjoined, but succeed at trial, and is the plaintiff’s undertaking as to damages good?  If yes to all those questions, then there is no reason to refuse an interim injunction.   The difficulty of assessing damages is well recognised  and, where real, that difficulty can render damages an inadequate remedy.

[30]     Despite  Mr  Forman’s  strong  argument  to  the  contrary,  I  consider  that damages would not, or may not, be an adequate remedy for the plaintiff if it succeeds at trial.  The reason is that Mr Holmes deposes that the plaintiff has budgeted and marketed on the basis that it will receive the grapes in question.  It has geared up its winery to process those grapes, and it has committed to customers the 5000 approximately cases of sauvignon blanc those grapes will produce.   Mr Holmes deposes that disappointing those customers will adversely affect the plaintiff’s credibility.

[31]     Assessing the plaintiff’s winery losses from not having the grapes in question to process when it has geared up for them, is problematic enough.  But trying to put a figure on the adverse impact on the plaintiff’s business generally in terms of not having the 5000 approximately cases of wine would be very difficult, to the extent that I am satisfied damages are not an adequate remedy for the plaintiff.

[32]     The  situation  is  the  complete  opposite  for  the  defendants.    Mr  Forman accepted that the defendants will be paid by the plaintiff a price for the grapes in issue.  Let me call that price X.  Mr Forman also accepted that Mr Gray has deposed that the defendants “already have a purchaser lined up to purchase the New Grapes for the upcoming harvest and have agreed with that purchaser on a fixed price with no conditions as to quality of the harvested grapes.”  Let me call the fixed price Mr Gray there refers to Y.

[33]     Mr Forman was finally constrained to accept that the defendants’ loss (and they may not sustain one) is simply Y-X.   Nothing could be simpler, because the defendants are concerned only with the price they get for the grapes in issue this harvest.

[34]     Accordingly, the situation is that damages are not an adequate remedy for the plaintiff, but are an adequate remedy for the defendants.   In that situation, interim injunctive  relief ought  to  be  granted,  provided  the  plaintiff’s  undertaking  as  to damages is good. There is no suggestion to the contrary:  the plaintiff is a substantial company.

Overall justice

[35]     The Court of Appeal’s reminder to trial Judges that they need finally to stand back and ask themselves where overall justice lies is well known (it is in Cook J’s judgment for the Court in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 at 142). Mr Forman submitted, that if I stood back here, I would see that overall justice lay in refusing the application. He had two points. The first is that requiring the defendants to supply grapes pursuant to the terms of a Grower Agreement not before the Court left the plaintiff’s contractual position entirely unclear. My response to that is order c) in [38] following.

[36] Mr Forman’s second point is that it is unfair to force the defendants to comply with an agreement they have had no input into. I have already dealt with that point, in [28].

[37]     Overall justice lies in making the orders sought by the plaintiff.  Those orders do no more than require the defendants to do what it is strongly arguable they are contractually bound to do, and in a situation where they can adequately be compensated by damages if it is found that they do not have a contractual obligation to supply the plaintiff.

Result

[38]     I make the following orders:

a)        (Continuing the order made by Gendall J on 28 February 2007), an order  restraining  the  defendants  from  selling  the  sauvignon  blanc

grapes harvested off the vines on their property at 145 Conders Bend Road, Renwick being Lot 4 Deposited Plan 8785 Marlborough Registry in 2007, other than to the plaintiff.

b)       An  order  requiring  the  defendants  to  permit  the  plaintiff  or  its contractors to harvest the grapes referred to in order a) for the 2007 vintage.

c)       An order requiring the plaintiff’s solicitor immediately to forward to the   defendants’   solicitor   the   plaintiff’s   Grower   Agreement   as finalised, referred to in the plaintiff’s 14 October 2002 letter to the defendants.

Costs

[39]     The defendants are to pay the plaintiff’s costs of the application on a 2B basis, together with disbursements as fixed by the Registrar, those disbursements to include the travelling expenses of Mr Clark Blenheim-Wellington return for today’s hearing.

Solicitors:

Wisheart MacNab & Partners, Blenheim for Plaintiff

Raymond Sullivan McGlashan, Timaru for Defendants