Savvy Vineyards 3784 Limited v Arck Limited
[2014] NZHC 1822
•4 August 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-007725 [2014] NZHC 1822
BETWEEN SAVVY VINEYARDS 3784 LIMITED
Plaintiff
AND
ARCK LIMITED Defendant
Hearing: 10 July 2014 Appearances:
Nicola Penman-Chambers for the Plaintiff
Terry Sissons for the DefendantJudgment:
4 August 2014
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by on 4 August 2014 at 4:30pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
SAVVY VINEYARDS 3784 LIMITED v ARCK LIMITED [2014] NZHC 1822 [4 August 2014]
Introduction
[1] The plaintiff, Savvy Vineyards 3784 Limited (“Savvy”) applies for an interim injunction restraining the defendant from continuing to manage its vineyards and restraining the defendant from preventing the plaintiff from performing its obligations under vineyard management agreements (“VMAs”).
[2] The grounds relied upon are that Gilbert J, in a judgment dated 5 May 2014, declared:
(a) the VMAs legally binding and on foot;
(b)Savvy advised ARCK Limited (“ARCK”) it is to ready and willing to immediately resume its duties to manage ARCK’s vineyards;
(c) ARCK has refused to allow Savvy to resume its duties as vineyard manager and has advised it intends invoking the dispute resolution provisions of the VMAs with a view to exercising its right of termination;
(d)damages would not be an adequate remedy and are not readily quantifiable in any event; and
(e) the overall justice of the case favours such relief being granted.
Background
[3] The background and relationship between the parties is fully set out in the judgment of Gilbert J.1
[4] Savvy is part of a group of companies owned and operated by Peter and Jean
Vegar (the “Vegars”). The companies manage vineyards in the Marlborough region
from which they purchase grapes.
1 Savvy Vineyards 3784 Limited v ARCK Limited [2014] NZHC 903, 5 May 2014.
[5] This business arose from concerns which the Vegars held in around 2006 as to how they might source good quality grapes in sufficient volumes to supply their operations in Marlborough as suitable local viticultural land became scarce. Bare land was sold to passive investors. Under agreements between Savvy and the owners, the properties would be developed by Savvy into vineyards. Savvy would manage each vineyard under a VMA. A separate agreement covered the supply of grapes to Savvy, known as a Grape Supply Agreement (“GSA”).
[6] Both agreements were for an initial term of 10 years with Savvy having the right to extend for two further terms of 20 years, i.e. a potential term of 50 years. Under the GSAs Savvy had the option, exercisable by notice in writing at specified times, to purchase part or all of the harvest for a minimum of three years.
[7] ARCK is owned by Tony and Jenni Ebert (“the Eberts”) who operate a real estate agency in Auckland. Prior to their involvement with Savvy they had no knowledge of viticultural practice. Both were North Shore real estate agents.
[8] ARCK purchased a 10 hectare block in June 2007 and a 30 hectare block in
November 2007.
[9] Separate VMAs and GSAs were completed for Savvy for each of ARCK’s
blocks on the terms and conditions summarised above. [10] Savvy:
(a) undertook to manage the vineyards established on the land under the
VMAs; and
(b)obtained a right of first refusal to purchase grapes grown in the vineyards pursuant to the GSAs. In that sense Savvy’s right to purchase was potential. It depended on whether Savvy exercised its right of first refusal.
[11] Once the right of first refusal was exercised Savvy was required to purchase the grapes for successive harvests on specified terms. The GSAs granted Savvy the right of first refusal “for the next three years”. The right is:
…deemed to be effective on the Commencement Date and to be repeated on each third anniversary of the Commencement Date to the intent that the Buyer [Savvy] may on any such date elect whether it proposes to purchase any Grapes for the remaining term or any part of the remaining term of the Agreement.
[12] The Commencement Date of the GSA for ARCK’s 10 hectare block was
1 May 2009, and 1 May 2010 for its 30 hectare block.
[13] Savvy did not give notice exercising its right of first refusal on or before the Commencement Date.2 ARCK claims that even if Savvy gives notice before 1 May of the relevant year the right to purchase grapes from the 10 hectare block will not crystallise until the 2016 harvest and 2017 for the 30 hectare block. Savvy challenges this interpretation.
[14] ARCK paid Savvy a monthly fee for managing the vineyard under the VMAs. This fee apparently covered costs only. The benefit to Savvy lay in securing a long term supply of grapes and control over the quality of grapes.
[15] ARCK’s vineyards were developed and managed by Savvy. The 10 hectare block produced its first harvest in 2010 and the 30 hectare block in 2011. Savvy purchased all grapes from the 10 hectare block for the 2010/2011 harvests and all the grapes from the 30 hectare block from the 2011 harvest. This was pursuant to the GSAs.
[16] In early 2012 the Eberts became concerned that Savvy was making significant profits from the harvests; profits well in excess of the agreed target cropping levels. They were also concerned that Savvy had harvested over 90 tonnes of grapes from the 10 hectare block in 2009 without disclosing the fact or paying anything for it. Following an exchange of emails between Messrs Ebert and Vegar, ARCK purported to terminate the GSAs and the VMAs. Savvy brought proceedings to obtain a declaration that the purported terminations were invalid and the GSAs
and VMAs remained binding. It also sought damages for losses arising out of
ARCK’s alleged breach of these agreements.
[17] The grounds for ARCK’s purported revocation included allegations by ARCK that under the VMAs Savvy had mismanaged the vineyards. This allegation was not pursued at trial although in affidavit evidence on the present application Mr Ebert maintained this claim. Since early 2012 ARCK has employed the services of a local viticultural manager and advisor to manage its vineyards. Since that time Savvy has been denied access to the vineyards and has not been able to perform management services under the VMAs.
[18] On 15 May 2014, 10 days after Gilbert J’s judgment was delivered, Mr Vegar became aware that ARCK had started pruning the vineyards in preparation for the
2015 harvests. He was concerned this was too early. His view was this should not have occurred until mid-June to early September. He instructed his lawyers to make contact with ARCK’s solicitors for the purpose of suspending the pruning. Advice was received that ARCK did not intend to permit Savvy to manage its vineyards. In response, Savvy’s solicitors advised they would be seeking urgent injunctive relief unless an undertaking was obtained from ARCK it would stop pruning operations immediately until the issue was resolved. ARCK agreed to cease pruning at 5:00pm on 16 May 2014.
[19] Before Gilbert J there were two issues for determination:
(a) whether Savvy had exercised its option under the GSAs to purchase the entire crop of grapes produced by both vineyards; and
(b) the basis for calculation for the purchase price of the grapes.
[20] In relation to the first issue, his Honour concluded Savvy had failed to satisfy him it had served notice under either GSA to purchase although he noted there was nothing to prevent it from doing so for future harvests.3
[21] In relation to the basis for calculating the purchase price of the grapes he
found in favour of Savvy’s interpretation.4
[22] Of particular significance to the present application is that in the course of his evidence at trial Mr Ebert accepted the GSAs and the VMAs remained “operational” notwithstanding ARCK’s purported revocation. Gilbert J, by consent, made a declaration that the GSAs and VMAs remained legally binding and on foot.5
[23] Gilbert J concluded the plaintiff was entitled to damages following ARCK’s wrongful repudiation of the VMAs. He noted that if the parties were unable to agree on quantum a further hearing would be required.
[24] I have been advised that the parties are unable to agree on quantum and a further hearing on that issue is to be scheduled before Gilbert J later this year.
The present application
[25] The application before the Court seeks an interim injunction restraining ARCK from continuing to manage its vineyards and thus preventing Savvy from performing its obligations under the VMAs.
[26] The application is brought to enforce the effect of Gilbert J’s consent order that the GSAs and VMAs “remain legally binding and on foot”.
[27] Given Savvy’s legal and contractual right to manage the vineyards had already been determined by Gilbert J, Ms Penman-Chambers accepted that the plaintiff’s application was not an application for an interim injunction in the ordinary sense where the parties’ interests have yet to be determined and relief was for the purpose of maintaining the status quo.
[28] It was, she submitted, in effect more in the nature of a permanent mandatory injunction seeking orders to compel ARCK to comply with its obligations under the
4 At [38].
VMAs or, alternatively, an order that ARCK specifically perform its obligations under the VMAs to permit Savvy to manage the vineyards.
[29] Savvy claims that as the quantum hearing remains to be heard it had little option but to bring the present application to enforce its rights under the VMAs.
[30] In response, Mr Sissons submitted that the remedy being sought by Savvy cannot be ordered on an application for an interlocutory injunction. He pointed out that the judgment on the substantive issues was delivered and sealed by Gilbert J on
5 May 2014. The remedies were granted and the only issue remaining is the quantification of damages. Gilbert J did not reserve leave to the parties to seek any further remedy and the High Court Rules do not contemplate a re-opening of a final judgment so as to obtain a further remedy. He referred to the Court’s powers to recall a judgment but noted that the present circumstances neither lend themselves to such an approach nor does Savvy seek such.
[31] He pointed out that what is, in effect, sought by the applicant is the enforcement of Gilbert J’s order that the contracts remained viable. The High Court Rules prescribe the methods by which judgments may be enforced in r 7.3.
[32] Although the rule is expressed in permissive rather than mandatory language it is apparent that an injunction is not an available means by which a judgment may be enforced.
[33] Mr Sissons also submitted that the Court does not have jurisdiction to make an order for specific performance on an injunction (interim or permanent) by way of the enforcement of a judicial declaration.
[34] Under r 7.44 of the High Court Rules on an interlocutory application a Judge may only make an interlocutory order or grant interlocutory relief. Specific performance is a final remedy available in substantive proceedings. It is not available on this application.
[35] I have considered whether I might be able to meet Savvy’s concerns by amending the pleadings or the procedure. Rule 1.9 of the High Court Rules permits the Court, either on its own initiative or on the application of a party to the proceedings, to make any amendments to any pleading or the procedure necessary for determining the real controversy between the parties.6 Although this rule provides a Judge with a wide and practical discretion to amend, resort to this provision in the present circumstances would result in a fundamental change to the essential nature of the application. Furthermore, a retrospective amendment of this
sort would prejudice ARCK who presented and argued their case on the basis of the application as filed.
[36] In my view the appropriate course is for Savvy to commence substantive proceedings based on a claim that ARCK has breached the terms of the VMAs. Interim relief by way of an interlocutory application for an interim injunction would then be available in the conventional way. Alternatively, Savvy could have recourse to the dispute resolution provisions under the agreements.
[37] Due to this jurisdictional finding I am not required to make a determinative finding on the merits of a mandatory injunction or specific performance. I note however that I am not satisfied that such a remedy would be appropriate.
[38] As both counsel accepted the difficulty in the present case is that, the remedy sought by the plaintiff is akin to an order for specific performance.
[39] Mr Sissons submitted that orders for specific performance of agreements for the provision of personal services are rarely granted. Both counsel referred me to authorities where this principle has been discussed.7
[40] In the Co-operative Insurance Society Limited case, in the context of a permanent injunction, Lord Hoffman discussed the undesirability of ordering a
6 High Court Rules, r 1.9(2).
7 Co-operative Insurance Society Limited v Argyll Stores (Holdings) Limited [1998] AC1; Thomas Borthwick & Sons (Australasia) Limited v South Otago Freezing Co Limited [1978] 1 NZLR 538 (CA).
remedy which would consign the opposing the parties to a chronic continuation of their unhappy relationship. He put it this way:
From a wider perspective, it cannot be in the public interest for the Courts to require someone to carry on business at a loss if there is any plausible alternative by which the party can be given compensation. It is not only a waste of resources but yokes the parties together in a continuing hostile relationship. The order for specific performance prolongs the battle. If the defendant is ordered to run a business, its conduct becomes the subject of a flow of complaints, solicitors’ letters and affidavits. This is wasteful for both parties and the legal system. An award of damages, on the other hand, brings the litigation to an end. The defendant pays damages, the forensic link between them is severed, they go their separate ways and the wounds of conflict can heal.
[41] While Savvy disputes the VMAs are contracts for personal service they nonetheless require the maintenance of a co-operative and effective working relationship between the parties. Under the present agreements there is a requirement for the parties to confer on a regular basis. For example, under the
GSAs the parties are required to: 8
… discuss with a view to reaching agreement on the target bunches per vine to achieve the target cropping levels …
[42] There are other examples9 under both the VMAs and GSAs which impose duties and responsibilities on the parties requiring them to maintain an effective and co-operative relationship. The relationship is similar to a joint venture. As such it requires continuing mutual goodwill, confidence, trust and co-operation. In the course of argument the parties accepted the present relationship is “pathological”. Plainly, comity and trust between the parties has all but completely disintegrated. To make an order which handcuffs the parties and compels them to continue to work co- operatively together in compliance with their respective obligations under the agreements for anything up to the next 50 years is not only unrealistic but also unfair. It would, in Lord Hoffman’s words, consign the parties to a prolongation of the battle with all its attendant casualties. I do not accept Savvy’s submission that ARCK’s investment is “hands off” and its involvement in the operational aspect of
the vineyards is minimal. The essence of the agreements requires the maintenance of
8 [1.3] of the Vineyard Management Agreement of 26 July 2007.
9 See other examples of VMA of 26 July 2007 ([2.1], [2.3], [6.1], [8.3], [11.3], [12.2], [13.1]). Also see GSA of 26 July 2007 ([6.2], [7.1], [8.1], [12.3], [13.2]).
an effective, aligned community of interest and effort, potentially for decades to come. I note this view is consistent with Brewer J’s decision in Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550.10
Interim interlocutory injunction
[43] For completeness I note that an interim injunction is not available to Savvy. Interim injunction applications involve the consideration of two primary questions:11
(a) Is there a serious question to be tried?
(b) Where does the balance of convenience lie?
[44] The difficulty for Savvy has been discussed earlier in this judgment. Liability has already been determined by Gilbert J. Interim injunctive relief will not serve to protect Savvy’s interests pending final determination because a final determination, subject to quantum, has already been made.
[45] While I accept that the “serious question threshold” is not only directed at the cause of action but also to the remedy, currently no final remedy is sought which would be supported by an interim injunction. In this respect there is no serious question to be tried. This highlights the inappropriateness of an interim injunction. As there is no serious issue to be tried at any point in the future which would finally resolve the issues between the parties any interim injunction would be permanent in nature.
Result
[46] The plaintiff’s application for injunctive relief is declined.
[47] Counsel did not address on the question of costs. Counsel are to confer and if they are unable to agree, memorandum in support, opposition and reply shall be filed
and served at seven-day intervals following the delivery of this judgment. The
10 Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 [2014] NZHC 1708 at [55].
11 American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); Klissers Farmhouse Bakeries Ltd v
Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
memoranda shall then be referred to me for final determination on the question of
costs.
Moore J
Solicitors/Counsel: Hesketh Henry, Auckland T Sissons, Wellington Gaines Law, Blenheim
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