Savvy Vineyards 4334 Limited v Weta Estate Limited
[2018] NZHC 112
•12 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2735 [2018] NZHC 112
BETWEEN SAVVY VINEYARDS 4334 LIMITED
First Plaintiff
SAVVY VINEYARDS 3552 LIMITED Second Plaintiff
AND
WETA ESTATE LIMITED First Defendant
TIROSH ESTATE LIMITED Second Defendant
Hearing: On the papers Counsel:
D P H Jones QC and C L Bryant for Plaintiffs
R E Harrison QC for DefendantsJudgment:
12 February 2018
JUDGMENT OF WHATA J
This judgment was delivered by me on 12 February 2018 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Hesketh Henry, Auckland
Boyle Mathieson, Auckland
SAVVY VINEYARDS 4334 LIMITED v WETA ESTATE LIMITED [2018] NZHC 112 [12 February 2018]
[1] A preliminary liability hearing is set down for March. It will mark the ninth year of the litigation. Before we get there, I have before me another salvo – an application for discovery of the financial records of the plaintiffs in the key periods of alleged breach of a grapes supply agreement. The defendants say, in short, whatever the merits of the claim, the plaintiffs were never financially able to exercise their rights under the agreement. This, they also say, goes to liability. The plaintiffs do not accept this.
Background
[2] The history to this proceeding is long and winding. It is not necessary to repeat in detail, as the renewed pleaded claims are reasonably straight forward. In summary:
(a) The defendants executed grape supply and vineyard management agreements in relation to specified blocks of land with Goldridge Estate Limited (GEL) on 20 October 2006 and 14 December 2007 (the “property agreements”).
(b) GEL went into liquidation on 21 November 2010.
(c) By novation, GEL ceased to be a party to the supply agreements and the plaintiffs became the buyers and the managers under the supply agreements.
(d)Pursuant to clauses 2.2 and 2.4 of the agreements the buyer had an option to purchase grapes grown on specified blocks on 1 May 2009 and on each third anniversary.
(e) On 17 February 2010, the defendants wrongly purported to terminate the supply agreements.
(f) Litigation ensues and an injunction is granted.
(g)On 20 December 2010, the defendants purport to terminate the property agreements again, relying on GEL’s liquidation and this is refuted by the plaintiffs.
(h)Agreement is reached to continue to as if the vineyard management agreement is in place.
(i) Trespass notices are served on the plaintiffs on 11 March 2011.
(j)On 14 March 2012, the High Court finds the agreements had been novated from GEL to the plaintiffs and an appeal against this decision was lodged with the Court of Appeal on 27 March 2012.
(k)The plaintiffs and the defendants agreed on 30 April 2012 to extend the exercise of the options arising to 1 May 2013.
(l)On 12 April 2013, the Court of Appeal overturned the High Court decision and as a matter of law the supply agreements were at an end.
(m)Leave to appeal was granted to the Supreme Court on 17 June 2013 and on 5 September 2014, the Supreme Court set aside the Court of Appeal decision.
(n)At no time during this process did the defendants claim the options had lapsed.
(o)On 17 November 2014, the plaintiffs gave notice to the defendants exercising options to purchase grapes from the specified blocks.
(p)On 8 December 2014, the defendants notified the plaintiffs of their refusal to supply the grapes.
(q)The first cause of action claims that but for the defendants’ repudiation on 20 December 2010 the plaintiffs “would have exercised their options to purchase prior to a 1 May 2013 deadline” and:
53. By reason of that repudiation [the plaintiffs] lost the opportunity to profit from the purchase and on-sale of the grapes and/or the wine made from those grapes from the Vineyards for the 2014 and subsequent harvests.
(r) The second cause of action claims that the defendants letter of 8
December 2014 the defendants repudiated the supply agreements and:
55. By reason of the repudiation on 8 December 2014 [the plaintiffs] lost the opportunity to profit from the purchase and on-sale of grapes from the Vineyards for the 2016 and subsequent harvests.
Preliminary questions
[3] By consent order, Associate Judge Matthews set down the following preliminary questions:
(a) Are the defendants liable to the plaintiffs under the first, second, and/or third causes of action in the statement of claim (paragraphs 51-57)?
(b)Are the plaintiffs entitled to the declarations sought relating to the second and third causes of action in the statement of claim?1
(c) Are the defendants entitled to the declaration sought in their joint
Counterclaim (paragraph 59)?2
(d)Have the defendants established that orders for rectification should be made as sought (paragraphs 60 to 67 for Tirosh and paragraphs 68-73
for Weta)?
1 The plaintiffs seek a declaration that they were entitled to purchase the 2016 harvest and are entitled to purchase subsequent harvests on the terms set out in the Weta and Tirosh Grape Supply Agreements.
2 The defendants seek two declarations. First, that the plaintiffs’ purported exercise on or about 17
November 2014 of options to purchase grapes from the Weta and Tirosh Vineyards for the 2016 and all the subsequent harvests were and are invalid and ineffectual. Secondly, that the plaintiffs’ purchase options under the Grape Supply Agreements have now permanently expired and lapsed.
The object of discovery
[4] Trite as it may be, it is apt to recall that the object of discovery is to ensure all relevant material is before the Court. Relevance is determined by the pleadings.3 The central issue for present purposes is whether the plaintiffs’ financial statements are relevant to liability. They will be relevant if, as per r 8.7:
(a) The document adversely affects the party’s own case; (b) The document adversely affects another party’s case; (c) The document support another party’s case.
Relevance
[5] It appears common ground the financial records may be relevant to quantum. In their joint memorandum seeking a preliminary issue hearing, the parties record, for the avoidance of doubt, assessment of the value and /or quantum of the plaintiffs’ claims for lost opportunity in the first and second causes of action is not included in
the preliminary questions.
[6] Mr Harrison QC maintains however that the records may also show a lack of ability to fund the purchase transaction, or even a degree of insolvency such that the plaintiff should not have been trading. Any claim based on lost opportunity may therefore fail at the outset. The context for this claim is set out in the affidavit of Mr Christopher Were. He notes in 2013 the plaintiffs’ principals were facing bankruptcy due to their guarantee of debts incurred by their numerous companies. He also refers to financial statements to March 2013 which suggest the plaintiffs had limited equity at that time.
[7] But the plaintiffs submit:
(a) The sole factual issue is whether the plaintiffs would have given notice exercising the option prior to 1 May 2013, were it not for the Court of Appeal’s judgment.
(b)The assessment of the value of the lost opportunity has been left to the second stage of the proceeding.
(c) As to the key factual issue, the plaintiffs evidence will be that its cash flow position is not relevant, as it simply would have on-sold the grapes, having lined up buyers for the 2014 and subsequent harvests.
(d)The defendants have the March 2013 accounts, and the 2014 accounts were not in existence at the time the options could have been exercised,
so cannot be relevant.
(e) More generally the 2014 accounts cannot be relevant to the counterfactual assessment, because they represent the position of the plaintiffs after the breach.
[8] Curiously the plaintiffs also state in their submissions “they did not have funds in May 2013 which would cover the cost of payments in May 2014 and February
2015”. It seems therefore this issue could be dealt with by admission by agreement pursuant to s 9 of the Evidence Act 2006.
[9] In any event, I will resolve the issue of relevance.
[10] Mr Harrison referred to NZ Rail Limited. In that case the defendant Port claimed NZ Rail’s financial position was relevant to NZ Rail’s purported right to use the Port’s facilities and more specifically the fee that should be payable by NZ Rail. While the High Court saw some relevance, the Court of Appeal rejected it, Richardson J observing:4
In short where, as here, the capacity of NZ Rail to pay any proper fee which may be set for its use of the terminal is not in question, the extent of its profits
from its passenger and freight business is not relevant to the assessment of the fee pay able for the use of the terminal.
[11] Mr Harrison submits by process, it appears, of reverse reasoning, ability to pay might be relevant in some cases.
[12] For my part I am little assisted by this process of reverse reasoning. Plainly there may be cases where an ability to pay may be relevant to liability, for example in cases where then ability to pay was a condition of a banking covenant. But in the present case it is not suggested anywhere that the plaintiffs’ options under the supply agreements were dependant on capacity to pay at the time of exercising the option.
[13] Furthermore, I do not accept that the allegation the plaintiffs “would have exercised their options to purchase prior to a 1 May 2013 deadline” raises an issue as to the financial capacity to pay for the purpose of establishing liability for breach of contract. The application of rudimentary contractual principles to the alleged facts is illustrative.5 The defendants alleged primary obligation was, in short, to supply the grapes. Whether they were obliged to supply the grapes depended (a) whether there was an enforceable agreement to supply and (b), whether the antecedent conditions of the supply agreement were present to trigger the primary obligation to supply. If a valid agreement existed and those conditions were present, in failing or refusing to supply, breach of the primary obligation will likely have been established. The issue then becomes whether the plaintiffs’ secondary obligation to pay damages for breach is triggered. This will depend on whether the breach caused any loss, including, as pleaded, loss of opportunity or chance. This issue has been expressly reserved to another stage in the proceedings.
[14] Even if I am wrong about this, the entire purpose of the preliminary question procedure is to resolve issues of narrow scope. In this case the parties by joint memorandum identified the key issue to be determined as follows:
A key issue is this proceeding is the status of the grape supply agreements between the plaintiffs and the defendants. The plaintiffs say they have exercised options under those agreements which give them an ongoing right
5 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283 at 294-295. The Court in Dorchester Finance Ltd v Deloitte [2012] NZCA 226 at [27] refer to the propositions in Lord Wilberforce’s judgment as “uncontroversial.”
and commensurate obligation to purchase grapes harvested from the defendants’ vineyards. The defendants say that the options were not exercised within the time allowed under the agreements, and the options to purchase under the agreements have now lapsed.
[15] The plaintiffs financial position at the key dates, even if relevant, has little probative value in terms of resolving this key issue. A potentially turgid debate about financial capacity and the various ways the plaintiffs may have financed the grape purchase at the option dates, however, would manifestly defeat the object of the preliminary question process and the basis upon which Associate Judge Matthews exercised the Court’s limited jurisdiction to engage that process.
[16] The application for discovery is therefore declined.
0
1