Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd
[2015] NZHC 2089
•31 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1177 [2015] NZHC 2089
BETWEEN WAIHOPAI VALLEY VINEYARD LTD
Plaintiff
AND
SAVVY VINEYARDS 3550 LTD First Defendant
CONSTELLATION BRANDS NEW ZEALAND LTD
Second Defendant
GIESENS WINES LTD Third Defendant
TREASURY WINE ESTATES (MATUA) LTD
Fourth Defendant
Hearing: 29 and 30 June, 1, 2, 3, 6, 7 and 9 July 2015 Counsel:
G M Illingworth QC and I C Bassett for Plaintiff
K W Fulton for First DefendantJudgment:
31 August 2015
JUDGMENT OF BREWER J
This judgment was delivered by me on 31 August 2015 at 4:30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors: McLeod &Associates (Auckland) for Plaintiff
Craig Griffin & Lord (Auckland) for First Defendant
Counsel: G M Illingworth QC; I C Bassett; K W Fulton
WAIHOPAI VALLEY VINEYARD LTD v SAVVY VINEYARDS 3550 LTD [2015] NZHC 2089 [31 August
2015]
Table of Contents
Introduction ............................................................................................................. [1] Background.............................................................................................................. [4] Structure of the judgment .................................................................................... [11] A. The Grape Supply Agreement ......................................................................... [13]
Was Savvy entitled to purchase Waihopai’s crop in 2014 by reason of the
valid prior exercise of a right of first refusal? ................................................ [14]
Does cl 4.6 of the GSA limit the right of Savvy to buy the grape harvest
for a price calculated on cl 12.1 tonnages? ...................................................... [26]
Principles of contractual interpretation .......................................................... [29] The contractual scheme of the VMA and the GSA ........................................... [32] The Vineyard Management Agreement ............................................................ [33] The Grape Supply Agreement .......................................................................... [42] The relevant background ................................................................................. [55] Savvy’s interpretation....................................................................................... [70] Discussion........................................................................................................ [80]
Did Savvy validly increase the 12.1 tonnages in 2013?
The parties’ submissions ................................................................................ [118]
Discussion ...................................................................................................... [123] Did Savvy breach the GSA? .......................................................................... [127] Did Savvy breach clause 4.7 in 2011? ........................................................... [132] Did Savvy breach clause 4.7 in 2014? ........................................................... [137]
Did Savvy’s breaches of cl 4.6 and 4.7 of the GSA give rise to a right of termination? .................................................................................................... [148]
Did Savvy repudiate the contract? ................................................................. [151] Essentiality ..................................................................................................... [158] Is cl 4.6 an essential term?............................................................................. [164] Did the breach of cl 4.6 substantially alter the benefits and burdens
under the GSA? .............................................................................................. [171]
Did the failure to provide the weighbridge records in 2011 and 2014
give rise to a right of cancellation? ............................................................... [176]
Conclusion ..................................................................................................... [178]Did Waihopai’s notice of cancellation of 3 June 2014 terminate the
GSA? ................................................................................................................ [179]
The relevant provisions .................................................................................. [180] The parties’ arguments ................................................................................... [181] Does cl 23.9 apply to the present proceedings?............................................. [184] Did Waihopai validly terminate the GSA at common law?............................ [188] Did Savvy waive the dispute resolution and notice provisions of the GSA? .. [198]
Did Savvy’s conduct amount to misleading or deceptive conduct under
the Fair Trading Act? ..................................................................................... [208]
Summary of findings on the GSA issues....................................................... [210]
B. The Vineyard Management Agreement Issues................................................................................................................ [211] Did Savvy act in breach of a duty to inform under the VMA? .................. [212]
Does the VMA contain a duty of disclosure? ................................................. [215]
Does a duty of disclosure arise out of a fiduciary relationship between
Waihopai and Savvy? ..................................................................................... [234]
Was the contractual and/or fiduciary duty of disclosure breached?.............. [252]
Can Savvy raise any defence to the alleged breaches?.................................. [255]
Did Savvy act in breach of a duty to comply with agreed standards
with regard to the 2011 and 2014 vintage?................................................... [262]
In 2011 and 2014, did Savvy breach an obligation to aim for the cl 12.1 levels set out in the GSA, with the 40 per cent margin being the acceptable slippage to ensure that the harvest did not fall below the cl 12.1 yields? ..... [263] Did the 2014 harvest direction to maximise yields breach the VMA? ........... [264] Did Savvy breach the VMA by withholding information from the
Independent Viticultural Consultant which prevented him from providing
an accurate report? ........................................................................................ [268] Did Waihopai validly cancel the VMA on 3 June 2014? ............................. [272] Summary of findings in relation to the VMA issue ..................................... [288]
C. Relief ................................................................................................................ [289] Were the proceeds from the 2014 harvest held on trust for Waihopai? .... [290] Constructive trust created by breach of fiduciary duty .................................. [293] Constructive trust over proceeds of sale ........................................................ [295] What relief should be granted to Waihopai? ............................................... [296] What relief should be granted to Savvy? ..................................................... [299] Is either party entitled to costs? .................................................................... [303] The future........................................................................................................ [304]
Introduction
[1] The plaintiff (Waihopai) owns a vineyard in Marlborough. It has been managed by the first defendant (Savvy) pursuant to a Vineyard Management Agreement (VMA). Savvy has also exercised rights under a Grape Supply Agreement (GSA) to buy the grapes produced by the vineyard.1
[2] Waihopai has cancelled the VMA and the GSA. It says that Savvy breached both of the agreements and also its fiduciary obligations to Waihopai arising from the VMA. It wants damages or an account of profits. Savvy denies any breach and says that Waihopai had no right to cancel the agreements. It wants them reinstated and it wants damages for being denied access to the vineyard and to the 2014/2015 grape crop.
[3] The heart of the dispute is the scope of Savvy’s rights to buy the grapes under the agreements. Waihopai pleads that if the grape harvest in a season yields a tonnage which is 40 per cent or more over the tonnage prescribed in the agreements then Savvy has only a right of first refusal to buy the grapes. Savvy’s case is that in such a situation it has the right to buy the entire harvest and to pay only for the prescribed tonnage.
Background
[4] The person behind Savvy is Mr Vegar. In 2006 he persuaded Mr Chen, the person behind Waihopai, to invest in the Marlborough wine industry. The idea was that Mr Chen (and other investors) through Waihopai would buy bare land which was capable of being developed as a vineyard. In 2006, Waihopai bought its land. Mr Vegar (through various companies) developed the land until it was a producing vineyard. All costs were paid by Waihopai, although Mr Vegar says that his companies did not charge a margin for their work. The VMA and GSA were signed
as part of the purchase of the land.
1 The vineyard is in two blocks. Each is subject to separate VMAs and GSAs. They are almost identical. I will refer to them in the singular.
[5] Savvy’s profit was to be made through its rights to buy the grapes produced by the vineyard. Savvy would pay the Purchase Price, a term which is defined in cl 1.1 of the GSA:
“Purchase Price” means the price payable in each year for the Grapes which shall be the Marlborough average price per tonne of each variety of the Grapes as published in the New Zealand Grape and Wine Industry Statistical Annual (or any replacement publication) and shall be assessed in accordance with clause 4 of this Agreement.
[6] Clause 4.2 of the GSA then sets out the method for assessing the Purchase
Price:
The Purchase Price shall be calculated based on the tonnes harvested or the target cropping level outlined in clause 12.1, whichever is the lesser.
[7] Clause 12.1 specifies target cropping levels for each variety of grape and on a vintage by vintage basis. By the fifth vintage after planting the target cropping levels peaked as follows:
Sauvignon Blanc: 9.0 tonnes per hectare Pinot Noir: 6.0 tonnes per hectare Pinot Gris: 9.0 tonnes per hectare
[8] At the heart of the dispute is cl 4.6, which provides:
If the target cropping levels outlined in clause 13.1 are exceeded by 40% or more, the Grower will still offer them to the Buyer for purchase on a first refusal basis at a price to be negotiated in good faith by the Buyer and the Grower. If the Grower and the Buyer are not able to agree on a price within
14 days, the Grower may offer the Grapes for sale to a third party.
[9] The reference to cl 13.1 is a typographical error. Waihopai submits that the reference should be to cl 12.1.
[10] In 2011 and in 2014, the grape harvests were more than 40 per cent of the cl 12.1 target cropping levels. Savvy did not tell Waihopai that. It sought invoices on the basis that the cl 12.1 targets had been met. Its case is that it was entitled to do so on its reading of the agreement. Savvy paid for the 2011 crops at the cl 12.1 tonnages. In 2014 Waihopai, realising that the crop was likely to be 40 per cent or
more above the cl 12.1 tonnages, refused to issue the requested invoice and cancelled the agreements. Savvy sold the grape harvest to the second, third and fourth defendants. The proceeds of those sales are frozen by order of the Court and those other defendants do not take any active part in this case because no interests of theirs are at issue.
Structure of the judgment
[11] I heard the proceeding over a two week period. It gives rise to a number of complex factual and legal issues. I have divided the judgment into three sections under each of which I have grouped the factual and legal issues. They are:
(a) Issues pertaining to the GSA. (b) Issues pertaining to the VMA. (c) Issues pertaining to relief.
[12] At the beginning of each section, I will set out a list of the legal and factual issues that will be addressed within it.
A. The Grape Supply Agreement
[13] I must decide the following issues pertaining to the Grape Supply Agreement:
(a) Was Savvy entitled to purchase Waihopai’s crop in 2014 by reason of the valid prior exercise of a right of first refusal?
(b)Does cl 4.6 of the GSA limit the right of Savvy to buy the grape harvest for a price calculated on cl 12.1 tonnages?
(c) Did Savvy validly increase the 12.1 tonnages for the 2014 harvest? (d) Did Savvy breach the terms of the GSA?
(e) Did the breaches of cls 4.6 and 4.7 of the GSA give rise to a right of termination?
(f) Did Waihopai’s notice of cancellation of 3 June 2014 terminate the
GSA?
(g) Did Savvy’s conduct amount to misleading or deceptive conduct
under the Fair Trading Act?
Was Savvy entitled to purchase Waihopai’s crop in 2014 by reason of the valid
prior exercise of a right of first refusal?
[14] The parties agree that the “Commencement Date” in the GSA is 1 May 2009.
[15] Clause 2.2 of the GSA provides:
The Grower hereby grants to the Buyer a right of first refusal to purchase the entire crop of Grapes or any part of the entire crop of Grapes for the next 3 years. 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, to the intent that the Buyer 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.
[16] The clause grants to Savvy a right of first refusal for a minimum period of three years from the commencement date with the right renewed at three yearly intervals thereafter. It allows the buyer to exercise the right of first refusal for the remaining term or any part of the remaining term of the GSA and requires the buyer to make its election “on the date in question”.
[17] Clause 2.2 is qualified by cl 2.3, which provides:
Should the Buyer wish to exercise its right of purchase pursuant to this Agreement it shall first provide the Grower with notice of such exercise. Such notice may be given at any time prior to the Commencement Date or such other date as the right of refusal is exercised. Any notice given pursuant to this clause must identify the number of hectares (and the rows in hectares) of each variety the Buyer wishes to purchase.
[18] Waihopai identifies the two important elements of the clause to be that:
(a) it is a mandatory obligation for Savvy to give notice to Waihopai; and
(b)despite the earlier requirement in cl 2.3 to elect whether to exercise the right “on” the Commencement Date (or three yearly anniversaries from the Commencement Date), cl 2.3 allows notice to be given at any time prior to the relevant date.
[19] For the sake of completeness, I set out cl 1.1, which defines “term”:
“Term” means the initial term of this Agreement as set out in clause 3 and any extension of the term granted in accordance with the provisions of this Agreement or, if earlier terminated either by breach or mutual agreement, then from the Commencement Date until the date of such termination.
[20] Also, cl 3 states:
3.1This Agreement is for an initial period from the Commencement Date to the completion of the harvest of the 10th Fruit Producing Vintage.
3.2The Buyer shall have 2 further rights to extend the Term each for a further term of 20 Fruit Producing Vintages.
[21] There is a dispute between the parties as to whether Savvy had actually given notice to Waihopai so as to create a right to purchase Waihopai’s 2014 crop. Savvy says that it gave notice on 12 October 2006 “for the entire term of the GSAs”. This was the day after Waihopai and Savvy entered into legal relations. Waihopai does not accept that the 12 October 2006 notice was ever given to it.
[22] It is not necessary for me to decide whether notice was in fact given in 2006. This is because the parties are agreed that a valid notice was given to Waihopai at some point between May and October 2008 which gave Savvy the right to purchase the grapes pursuant to the GSA for a three year period commencing on 1 May 2009 and ending on 30 April 2012. It follows that Savvy validly exercised its right of first refusal so as to entitle it to the harvests in April 2010, April 2011 and April 2012.
[23] The effect of the 2008 notice elapsed on 30 April 2012. In order to have the right to purchase the 2014 harvest, Savvy had to give another notice. Savvy says it gave notice on 14 December 2011. That notice is contained in a letter from
Mr Vegar to the directors of Waihopai. The letter records that a copy was also to be sent to Mr Chen. Savvy says that Mr Vegar gave the notice to Mr Chen in a meeting that day. Waihopai says it never received the notice and disputes its authenticity.
[24] On the balance of probabilities I am prepared to find that notice was given on
14 December 2011 which renewed the GSA for the 2013, 2014 and 2015 harvests. I understand that the issue as to whether notice was given was not raised until after Waihopai cancelled the GSA on 3 June 2014. I would think it to be very unlikely that the parties would have proceeded with the GSA arrangement well into 2014 without Savvy having given notice. This is because in 2008 the giving of notice was a condition that needed to be satisfied before ASB would provide finance to Waihopai to carry out the first stage of vineyard development. The 2008 notice was the subject matter of a large amount of correspondence between ASB, Mr Vegar, Waihopai and Waihopai’s lawyers. I cannot accept that Waihopai “forgot” about the notice requirement, or would “not have been worried” about receiving notice. The fact that Waihopai was able to purchase the 2013 harvest without complaint from Waihopai and was also ready to purchase the 2014 harvest indicates to me that a valid notice was given.
[25] I also find that Savvy gave to Waihopai notice on 24 April 2015 renewing the GSA for the 2016, 2017 and 2018 harvests. Whether Savvy is entitled to purchase the harvests for those years will ultimately depend on how I determine the cancellation issues. I deal with this at [148]-[207].
Does cl 4.6 of the GSA limit the right of Savvy to buy the grape harvest for a price calculated on cl 12.1 tonnages?
[26] Waihopai argues that cl 4.6 covers situations where there is a bumper harvest beyond what the parties expected the vineyard to be able to produce. Waihopai says that where the harvest is 40 per cent or more above the targets set out in cl 12.1, it is no longer bound to sell to Savvy the grapes for the purchase price set out in the GSA. Nor is Savvy bound to buy the grapes. Instead, cl 4.6 requires Waihopai to offer to Savvy the grapes on a first refusal basis at a price to be negotiated in good faith. That price is most likely to be higher than the GSA purchase price. If no
agreement is reached, then Waihopai is able to sell the grapes to a third party purchaser.
[27] Savvy, on the other hand, argues that cl 4.6 is a “buyer remedy clause”. When the yield of a harvest is high, the quality of the grapes can be low. Therefore, if the yield is 40 per cent above the target harvest levels, Savvy is released from purchasing the entire harvest for the purchase price contained in the GSA, and instead can negotiate a lower price with Waihopai.
[28] The analysis required of this interpretation issue is reasonably complex. I
think it is helpful at this point to set out how I will deal with it:
(a) First, I will set out the New Zealand approach to contractual interpretation.
(b) Second, I will discuss the scheme of both the VMA and the GSA.
This is because an understanding of Waihopai and Savvy’s respective rights and obligations under the two contracts is essential to work out the meaning of cl 4.6.
(c) Third, I will set out what I find to be the relevant background circumstances known to both parties at the time they entered into the GSA.
(d) Fourth, I will examine Savvy’s argument as to the meaning of cl 4.6.
(e) Fifth, I will explain why I do not accept Savvy’s argument in the light of the scheme of the GSA and the relevant background circumstances. I will conclude that Waihopai’s interpretation of cl 4.6 is the correct one.
Principles of contractual interpretation
[29] I adopt Toogood J’s helpful restatement of the principles of contractual interpretation as set out in New Zealand Carbon Farming Ltd & Anor v Mighty River Power Ltd:2
In Firm P1 Ltd v Zurich Australian Insurance Ltd,3 the New Zealand Supreme Court confirmed that the approach to contractual interpretation applicable in New Zealand is an objective one which draws on the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society4 and Chartbrook Ltd v Persimmon Homes Ltd.5 Lord Hoffmann described contractual interpretation as “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”6
The objective meaning is taken to be that which the parties intended.7 The
background includes “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man,”8 subject to the requirement that “it should have been reasonably available to the parties”9 and that it is background that a reasonable person would regard as relevant.10
[30] I interject to add that evidence of background circumstances is not relevant if it only tends to prove what individual parties subjectively intended their words to mean or to prove what a party’s negotiating stance may have been at a particular time.11 Both parties must know the background facts in question.12
[31] Justice Toogood continues:13
The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.14
The Supreme Court identified in Firm PI 1 Ltd that the text remains centrally important and if the language, in context, has a natural and ordinary meaning
2 New Zealand Carbon Farming Ltd & Anor v Mighty River Power Ltd [2015] NZHC 1274 at
[53].
3 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
4 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
5 Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 WLR 267 (HL).
6 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 4, at 912.
7 Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988 (PC) at [16].
8 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 4, at 913.
9 At 912.
10 Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, [2002] 1 AC 251 at [39].
11 Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608 at [32].
12 Ansley v Prospectus Nominees Unlimited [2004] 2 NZLR 590 (CA).
13 New Zealand Carbon Farming Ltd & Anor v Mighty River Power Ltd, above n 2, at [54]-[55]
14 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 4, at 913.
that “will be a powerful, albeit not conclusive, indicator of what the parties meant”.15 But where a Judge concludes from the background “that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had”.16 So, where it is clear that “something has gone wrong with the language” and also “clear what a reasonable person would have understood the parties to have meant”, then there is not “a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed”.17 The Supreme Court noted in Firm PI 1 Ltd that it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.18
If a particular meaning produces a commercially absurd result, that is a reason to read the contract in a different way than the language might suggest.19 The Supreme Court has warned that “a court is not justified in concluding that a contract does not mean what it seems to say simply because the court considers that, so interpreted, the contract is unduly favourable to one party”.20 Commercial absurdity “tends to lie in the eye of the beholder”.21 Given the commercial context in which the contract is drafted (i.e. the parties themselves have control over the language they used, judges are not commercially minded, and contracts emerge from the process of negotiation and will reflect accommodations of the parties’ varying interests which are not easily perceived by the Court),22 a conclusion that the natural meaning of the contract produces a commercially absurd result should be reached only in the most obvious and extreme of cases.23
The contractual scheme of the VMA and the GSA
[32] The effect of the VMA and the GSA is to make Savvy both the vineyard manager and the buyer of the vineyard’s produce. Because the VMA and the GSA are separate agreements, the manager and the buyer could have been separate entities. I turn now to look at Waihopai and Savvy’s rights and obligations for each agreement.
The Vineyard Management Agreement
[33] The nature of the management required by Savvy is set out in cl 2 of the
VMA:
15 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 3, at [63].
16 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 4, at 913.
17 Chartbrook Ltd v Persimmon Homes Ltd, above n 5, at [25].
18 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 3, at [61].
19 At [88]-[89].
20 At [89].
21 At [90].
22 At [90]-[91].
23 At [93].
2 NATURE OF MANAGEMENT REQUIRED
2.1The Owner hereby appoints the Manager to be responsible for the (sic) managing the day to day operation of the Vineyard. The Manager must, in an efficient and competent manner:
(a) Prepare the Annual Vineyard Management Plan and the
Annual Budget;
(b) Ensure the competent execution of all Vineyard Operations, in accordance with the Annual Vineyard Management Plan and the Annual Budget developed by the Manager and approved by the Owner;
(c) In accordance with clause 8.3, organise and supervise all contractors and or staff (employed on behalf of the Owner) as required to carry all Vineyard Operations, in accordance with the Annual Vineyard Management Plan and Annual Budget;
(d) Check all invoices received in relation to the Vineyard Operations, and if approved for payment and promptly pass such invoices on to the Owner for payment;
(e) Provide the Owner with a annual written report comparing actual costs with the Annual Budget;
(f) Do all such other things as are reasonably necessary to ensure compliance by the Owner with its obligations pursuant to the Grape Supply Agreement.
2.2During the term of this Agreement the Manager shall have the day to day management and control of the Vineyard and the Vineyard Operations. All questions of strategy or policy will be decided through the Annual Vineyard Management Plan process.
2.3The Manager, the Manager’s employees, subcontractors and other employees, successors, assigns and agents of the Manager shall have free ingress and egress at all times to and from the Vineyard and may remain there for the purposes of the Vineyard Operations and the Operations.
[34] Each year Savvy, at Waihopai’s cost, had to prepare an Annual Vineyard Management Plan (the Management Plan) and an Annual Budget (the Budget).24 If necessary, the parties are able to make adjustments to either document:
4 ADJUSTMENT FOR SEASONAL CLIMACTIC25 CONDITIONS
4.1The Manager will ensure that the climactic conditions of each season are monitored throughout the year. The Manager will implement
24 Vineyard Management Agreement, cl 3.
25 [Sic].
those adjustments to the Annual Vineyard Management Plan that are reasonably required to achieve the quality, brix levels, target cropping levels, disease status, crop protection and other requirements of this Agreement.
4.2The Manager will consult with the Buyer and seek the Buyer’s viticultural input in respect of any such changes and the Owner’s approval of consequential changes to the Annual Budget (if any).
[35] The VMA provides for the employment of an Independent Viticultural Consultant (the Consultant) to assess vineyard management practice against the obligations set out in the VMA. In each year Savvy, at Waihopai’s cost, had to provide Waihopai with a report from the Consultant. The report had to include:26
(a) A review of the performance of the Vineyard management for the previous year, commenting on whether the Vineyard has been managed competently and in accordance with standard industry practice and whether the management has achieved the requirements contained in this Agreement;
(b) A review of the Annual Vineyard Management Plan prepared for the next 12 months, commenting on whether it complies with standard viticultural industry practice and whether the Annual Vineyard Management Plan, if followed, is likely to achieve the requirements contained in this Agreement.
[36] Waihopai has the right to be consulted on the preparation of the Management Plan and on the Budget.27 Its approval of both is required. In the event of disagreement on any aspect of the Management Plan then the decision of the Consultant will be binding on the parties.
[37] Pursuant to cl 8.3(g), Savvy was obliged to:
Manage the Vineyard in a manner intended to achieve the target cropping levels contained in this Agreement.
[38] Savvy was obliged by cl 8.4 to do its best to ensure that its vineyard management programmes complied with standard criteria. Among them is:
(a) The crop level control programme of bud rubbing, shoot thinning and bunch thinning programme will be carried out to achieve crop yield targets outlined in this Agreement taking into account the particular conditions of the season. Cropping level estimates will be
26 Clause 5.
27 Clause 6.
carried out by the Manager at various key stages of the season. If the cropping level estimates are higher than target the Manager will carry out the required additional crop level control with the aim of bring [sic] cropping levels in line with target if this is requested (and only if requested) by the Buyer.
[39] The VMA sets target brix levels for each grape variety, standards in respect of diseases and pests, and specifies the target cropping levels for each grape variety. Importantly:
11.2 Cropping level estimates will be carried out by the Manager at various key stages of the Grape season as required by the Buyer. If the cropping level estimates are higher than the target, the Manager will carry out the required additional crop level control as specified in clause 8.4 above if this is requested (and only if requested) by the Buyer;
11.3 The Manager and the Buyer will discuss with a view to reaching agreement on the target bunches per vine to achieve the target cropping levels outlined in the Agreement (or any higher target cropping level required by the Buyer). The Buyer shall make the final decision on the target number of bunches per vine. The Manager undertakes it will use its best endeavours, using all due care, skill and diligence as may be reasonably expected from a vineyard manager performing services similar to the Manager, including the methods of pruning, bud rubbing, shoot thinning, bunch thinning to obtain the target bunches per vine required by the Buyer. The parties acknowledge that no warranty is given by the Manager that such targets will be reached.
[40] The date and time of the harvest was largely a matter for Savvy as buyer:
12.1 Subject to clause 12.2 the harvest date and time shall be set by the
Buyer of the fruit as advised by the Buyer to the Manager.
12.2The Manager shall arrange for the harvest at the date and time specified by the Buyer except if the Manager considers that the advised date and time will result in an adverse impact on the achievement of the brix targets or disease and pest status standards outlined in this Agreement. If so, the Manager will notify the Buyer immediately outlining its rationale and the harvest date will be set by mutual agreement between the Buyer and the Manager. If no agreement is reached the harvest date shall be set by the Independent Viticultural Consultant.
[41] Savvy, as manager, was entitled to an annual fee of $500 per hectare of planted vineyard (plus GST) adjusted in each year for inflation, and payable monthly. Waihopai was responsible for paying all the costs of operating the
vineyard, including the harvesting costs. In practice, Savvy sent all bills rendered by contractors and other third parties to Waihopai for payment.
The Grape Supply Agreement
[42] The GSA relates to all of the grapes grown in the vineyard:28
“Grapes” means the entire crop of grapes grown by the Grower at the
Vineyard during the Term of this Agreement.
[43] The “Purchase Price” (as quoted in [5]) is to be the Marlborough average price per tonne of each variety.
[44] Clause 2.5 provides:
The Grower agrees to sell to the Buyer and the Buyer agrees to buy from the Grower the entire crop (or part there of as outlined in clause 2.1) of Grapes. The terms of such sale and purchase shall be as set out in this Agreement, unless otherwise agreed between the parties.
[45] Clause 4 deals with the assessment of the Purchase Price. First, cl 4.1 sets out the target brix ranges for each variety of grape. Clause 9.1 of the VMA requires Savvy as manager of the vineyard to do its best to achieve the target levels in the ranges set out in cl 4.1. Interestingly, cl 10.1 of the GSA repeats cl 9.1 of the VMA but puts the requirement on Waihopai to ensure it does its best to achieve the target levels.
[46] The clauses that follow need to be read together and so I will set them out in full:
4.2The market average price per tonne shall in each case be the Marlborough average price per tonne for each variety of the Grapes for the current vintage as published in the New Zealand Grape and Wine Industry Statistical Annual (or any replacement publication). The Purchase Price shall be calculated based on the tonnes harvested or the target cropping level outlined in clause 12.1, whichever is the lesser.
4.3If the brix levels are below the minimum specified in clause 10.1, the Grower will still offer the Grapes to the Buyer for purchase on a first refusal basis at a price to be negotiated in good faith by the
28 Agreement for the Supply of Grapes Kintyre Vineyard, cl 1.1.
Buyer and the Grower. If the Grower and the Buyer are not able to agree on a price within 14 days, the Grower may offer the Grapes for sale to a third party.
4.4If the disease status does not comply with the standards specified in clause 11.1, the Grower will still offer the Grapes to the Buyer for purchase on a first refusal basis at a price to be negotiated in good faith by the Buyer and the Grower.
4.5If the target cropping levels outlined in clause 12.1 are exceeded by up to 40%, the Buyer will purchase and receive the entire crop of Grapes at the price calculated using the price per tonne outlined in clause 4.1 and the target cropping level outlined in clause 12.1.
4.6 If the target cropping levels outlined in clause 13.1 are exceeded by
40% or more, the Grower will still offer them to the Buyer for purchase on a first refusal basis at a price to be negotiated in good faith by the Buyer and the Grower. If the Grower and the Buyer are not able to agree on a price within 14 days, the Grower may offer the Grapes for sale to a third party.
4.7The Buyer will weigh the Grapes using an appropriate, accurate industrial standard weigh-bridge commonly used for weighing grapes and provide the Grower with a written weigh-bridge record of the tonnes of Grapes of each variety harvested from the Vineyard. The weigh-bridge record shall be prepared by the Buyer and shall be available for inspection by the Grower. The price of the Grapes shall be assessed based on the tonnes of fruit of each variety as set out in the written weigh-bridge record.
[47] If the vineyard fails to achieve the brix standards, as provided for in cl 4.3, then cl 10.2 of the GSA governs the consequences:
10.2Subject to cl [4.3],29 if the minimum brix levels are not achieved and the parties do not reach agreement following negotiation, the Buyer may reject all or any of the Grapes and shall not be required to purchase them.
[48] Similarly, if the disease status of the grapes does not comply with the standards set out in the GSA, as provided for in cl 4.4, then cl 11.2 provides:
11.2 Failure to meet the standards specified in clause 11.1 may, subject to clause [4.4]30 above may result in all or any of the Grapes being rejected by the Buyer if the parties do not reach agreement following negotiation.
29 Clause 10.2 reads “subject to clause 5.3…”, but this is clearly a typographical error.
30 Clause 11.2 reads “subject to clause 5.4…”, but this is clearly a typographical error.
[49] The GSA confers on Savvy as buyer powers to affect the viticultural practices of the vineyard. Clause 6.1 requires Waihopai to adjust for seasonal climatic conditions:
The Grower will ensure that the climactic [sic] conditions of each season are monitored throughout the year. The Grower will implement those adjustments to the Annual Vineyard Management Plan that are reasonably required to achieve the quality, brix levels, target cropping levels, disease status, crop protection and other requirements of this Agreement.
Clause 6.2 provides for Savvy the buyer’s input:
The Grower (or the Grower’s Vineyard Manager) will consult with the
Buyer and seek the Buyer’s viticultural input in respect of any such changes.
[50] Similarly, cl 8.1 gives Savvy as buyer the right to provide direct viticultural input into the preparation of the Annual Vineyard Management Plan. This goes beyond a right to be consulted:
(b) The Grower shall obtain the Buyer’s input in relation to all aspects of the Annual Vineyard Management Plan, and ensure that the Buyer’s recommendations are implemented into the Annual Vineyard Management plan accordingly.
In the event of dispute, the Independent Viticulture Consultant’s decisions will bind the parties.
[51] Waihopai is required by cl 9.2 to carry out stipulated vineyard operations and programmes, which include the obligation to:31
Manage the Vineyard in a manner intended to achieve the target cropping levels contained in this Agreement.
[52] Waihopai must also ensure:32
The crop level control programme of bud rubbing, shoot thinning and bunch thinning program will be carried out to achieve cropping level targets outlined in clauses 12.1 and 12.2 taking into account the particular conditions of the season. Cropping level estimates will be carried out by the Grower at various key stages of the season. If the cropping level estimates are higher than target the Grower will carry out the required additional crop
31 Clause 9.2(g).
32 Clause 9.3(a).
level control with the aim of bringing cropping levels in line with target if this is requested (and only if requested) by the Buyer.
[53] The target cropping levels are set out in cl 12.1 But:
12.2Cropping level estimates will be carried out by the Grower at various key stages of the Grape season as required by the Buyer. If the cropping level estimates are higher than the target, the Grower will carry out the required additional crop level control as specified in clause 9.3 above if this is requested (and only if requested) by the Buyer.
12.3The Grower (or the Grower’s Vineyard Manager) and the Buyer will discuss with a view to reaching agreement on the target bunches per vine to achieve the target cropping levels outlined in the Agreement (or any higher target cropping level required by the Buyer). The Buyer shall make the final decision on the target number of bunches per vine. The Grower undertakes it will use its best endeavours including the methods of pruning, bud rubbing, shoot thinning, bunch thinning to obtain the target bunches per vine required by the Buyer.
[54] All these provisions are mirrored in the VMA as set out in the discussion above.
The relevant background
[55] It is with the scheme of the VMA and the GSA in mind that I now turn to consider what were the relevant background circumstances known to both parties upon entering the GSA.
[56] A helpful starting point is the genesis of the VMA and the GSA. Mr Vegar’s aim was to establish a model whereby investors could contribute capital which would see bare land acquired and developed to be a producing vineyard. Thereafter the vineyard would be managed for the investors, at their cost, and they would receive a share in the proceeds of sale of the harvests. As owners of the vineyards, the investors would benefit from any capital gain.
[57] Mr Vegar tied together the purchase of the bare land, the management of the vineyard and the purchase of the grapes. It was a package deal. It could also be a long-term package deal. The VMA and GSA were renewable by Savvy for a maximum period of 50 years. Mr Vegar intended that the management of the
vineyard would be at cost33 and that Savvy’s profit would come from selling the grapes. Savvy had the right to purchase at the Marlborough average price and (putting aside cl 4.6) if the cl 12.1 tonnages were exceeded then the effect was to lower the cost of the grapes to below average. The greater the excess, the further below the average price.
[58] Mr Chen came to the deal in 2006 with no experience of the wine industry and an adequate, but not fluent, command of English. He learned from Mr Vegar about the package. At the time, Mr Vegar and Mrs Vegar owned a winery at Matakana. He visited the winery and was shown how grapes are transmogrified to wine. Mr Vegar, at a meeting at Matakana, described how he expected the package, or model, to work.
[59] The Waihopai vineyard was the second vineyard bought by Mr Chen through Mr Vegar. The first was not developed. It was sold soon after it was acquired because the Waihopai vineyard became available and it was larger.34 Mr Chen had legal advice on the contracts in the package for that first vineyard. He did not take legal advice on the contracts in the Waihopai package. I do not know how closely the two packages align, but Mr Chen was content that the advice he got on the first
package was sufficient for him to understand the second package.
[60] I take it from the evidence that Mr Vegar was, at the time the agreements were signed in 2006, very experienced in the wine industry. By contrast, Mr Chen was a novice. This makes it difficult for me to accept Mr Fulton’s submission that accepted viticulture practices were in the reasonable contemplation of the parties at the time that they entered into the contract. Although such practices would have been in the contemplation of Mr Vegar, they are less likely to have been in Mr Chen’s. I will be cautious therefore about ascribing too much weight to accepted viticulture practice when interpreting the text of the GSA. Of course, where the agreements refer specifically to “standard viticultural industry practice” or “accepted viticulture practice for similar vineyards in the Marlborough area”, and the like, then
those objective provisions must be given objective effect.
33 I accept Mr Vegar’s evidence on this point, although I note that Savvy’s cost included payments
to Mr and Mrs Vegar for their work.
34 Mr Chen said also that the financier thought that the price of the first vineyard was too high.
[61] During the course of the hearing before me, Mr Chen and Mr Vegar both gave evidence as to their understanding of cl 4.6 at the time that they entered into the agreement.
[62] Mr Chen’s evidence is that he always understood that Savvy would be able to buy the grapes calculated on cl 12.1 tonnages if those tonnages were exceeded. That is how Savvy would make its profit. His understanding was that the cl 12.1 tonnages were reasonable estimates of what the vineyard should be able to produce, that they could well be exceeded, but that excesses of 40 per cent or more would be unusual. He saw cl 4.6 as a safety measure. If the grape harvest was 40 per cent or more above the cl 12.1 tonnages then the basis on which the parties had contracted, the package deal, was invalid. In such a situation, Savvy’s right to purchase at the cl 12.1 tonnages was suspended, but a right of first refusal remained. Mr Chen told me that this is how Mr Vegar explained the GSA to him.
[63] Mr Vegar’s evidence is that he never saw cl 4.6 in that light and never told
Mr Chen that. It would be commercially nonsensical.
[64] In my view, both Mr Chen’s and Mr Vegar’s understandings of cl 4.6 owe a lot to hindsight. Having considered the evidence that was presented to me, I find that when the agreements were signed in 2006 the cl 12.1 tonnages were considered to be reliable but conservative estimates of what the vineyard would produce. The up to 40 per cent margin was considered a generous one. On the balance of probabilities, I do not find that Mr Chen really turned his mind to how cl 4.6 might work or what it meant. He did not study the agreements, but relied on the advice he received from his lawyer on the first set of agreements and on his discussions with Mr Vegar.
[65] Likewise, the background to the transaction indicates to me that Mr Vegar did not consider cl 4.6 to be a clause that would likely be operative, and how it might be interpreted if it were. I base this latter finding on the following:
(a) This was Mr Vegar’s first construction of his model. The VMA and
the GSA were drafted by his lawyers. They were novel, because the
model was novel. They had similarities with agreements entered into by wineries and contract grape growers, but there were differences to reflect the package deal.
(b) The parties’ mutual expectation was that vineyard production would
rarely, if ever, exceed the 40 per cent margin over cl 12.1 target levels.
(c) The planting density in the original agreement was changed to a denser planting pattern, and hence, post-contract, the expectations of yield increased.
(d)In later examples of the model, involving other investors, Mr Vegar had the VMAs and GSAs changed to remove cl 4.6 and to change cl 4.7 so that weigh-bridge records would be supplied only if yield fell below cl 12.1 levels. I do not accept that this was done to allay the anxieties of the owners that big crops might be rejected. It is more likely than not that Mr Vegar realised the problem that these clauses could cause him in a bumper harvest.
(e) Mr Vegar, during negotiations for alterations in the Waihopai package of agreements, but before this dispute arose, attempted to make these same changes to the Waihopai agreements. I do not accept that all he was trying to do was align the Waihopai agreements with his other agreements, as much – in these respects – for Waihopai’s benefit as otherwise. I find that Mr Vegar appreciated that there was an alternative interpretation.
[66] One further background circumstance that I find to be relevant is that when the agreements were signed, Mr Vegar was a winemaker and Mr Chen knew that. The common assumption at the time of contracting was that Mr Vegar would make wine from the vineyard’s grapes. The evidence was that the pinot noir grapes could either be trucked to Mr Vegar’s Matakana winery or be processed locally. The white grapes could be processed in Marlborough for Mr Vegar’s labels. But following the conclusion of the contract, and during the development of the vineyard, Mr Vegar’s
Matakana winery went into liquidation and so he was no longer in the winemaking industry. Instead, Savvy became a seller of grapes to third party winemakers.
[67] The understanding that Savvy would produce the wine from the grapes is reflected in cl 2.6 of the GSA:
The Grower agrees to provide Premium Quality Grapes to the Buyer, being grapes that are clean, free from disease and displaying true varietal character for the vintage to enable the Buyer to make and market varietal label wines.
[68] Another provision relevant to the understanding is cl 21.2:
The Grower agrees that any awards won or accolades gained in relation to wine produced using the Grapes and marketed under a label owned by the Buyer are for the benefit of the Buyer.
[69] To summarise, two salient points arise from my consideration of the relevant background:
(a) There was an understanding that the cl 12.1 target levels were unlikely to ever be exceeded; and
(b) Savvy would use the grapes to make its own wine.
Savvy’s interpretation
[70] I turn now to Savvy’s interpretation of cl 4.6. [71] Savvy contends:
(a) Clause 4 sets the price that Savvy must pay for the grape harvest by reference to the quantity and quality of the grapes.
(b) Clause 4.3, which deals with brix levels, is a “buyer remedy clause”.
Clause 10 specifies the target brix levels, and discounts the price where the grapes fall at the lower end of the brix range. Clause 4.3 gives to Savvy a right of first refusal if the brix levels are below the range specified in the GSA.
(c) Similarly, cl 4.4 deals with disease status. Clause 11 specifies disease standards. If the standards are not met, cl 4.4 gives Savvy a right of first refusal.
(d)Clauses 4.5 and 4.6 are also “buyer remedy clauses” directed at the quality of the grapes. So, when these clauses are read together, they have a similar effect to cls 4.3 and 4.4. High yields of grapes can cause quality issues. If yields are up to 40 per cent above target levels then there is no price consequence. But after that, there could be and so Savvy as buyer is entitled to negotiate a lower price on the same first refusal basis as applies for brix levels and disease status.
[72] Mr Fulton for Savvy acknowledges that there are two differences between the operation of the quality controls in cls 4.3 and 4.4 and the operation of cl 4.6:
(a) There are no prescribed standards for quantity of grapes as there are for the brix levels (cl 10.1) and the disease status (cl 11.1); and
(b)Savvy has no right to reject all or any of the grapes for high quantity as it does where there is failure to reach brix targets (cl 10.2) or adhere to disease standards (cl 11.2). There is only the right of first refusal.
[73] Mr Fulton submits that, despite these differences, cl 4.6 is still a quality control provision. His point is that there is no need for a right of rejection for high quantity because cl 12.2 and cl 12.3 permit the yield to be managed down by standard methods of viticulture practice such as bunch thinning, for example. The application of such methods is in Savvy’s hands as buyer. Waihopai cannot require
it:35
In Savvy’s submission that is an irresistible underscoring of the Buyer right and rejection position. They can take the emerging yield or they can manage it back. In context, once the clause 2.2/2.3 notice is triggered it is already a sale agreement. Rights already exist for the Buyer.
35 Closing submission on behalf of first defendant dated 9 July 2015, at [18].
[74] Mr Fulton submits that the definition of “purchase price” in cl 4.1 is clear. Savvy has to pay at the cl 12.1 tonnages, or the tonnages harvested, whichever is the lesser. So, Savvy cannot be compelled to pay for more than the cl 12.1 tonnages, but it can negotiate a lesser purchase price if the harvest is 40 per cent or more above those tonnages. It would do so if the quality of the grapes, as a result of the quantity,
made that a commercially valid decision:36
It is submitted that the reference in clause 4.3 and 4.6 to negotiation does nothing more than recognise that the Buyer may not want the produce at the market average price formula; it has it is submitted nothing to do with the total payment tonnage. The clause says “still offer” and that is important, because it suggests that despite the problem the Buyer remains entitled to look to accept them and complete the agreement to sell.
[75] Commercial commonsense supports Savvy’s interpretation, Mr Fulton submits. Savvy, as buyer, has control of the harvest yield. It can increase the target yield levels beyond the cl 12.1 levels and manage the vineyard to achieve them. In a particular year, standard viticultural practice might be to aim for tonnages 40 per cent or more above the cl 12.1 levels. By contrast, Waihopai’s interpretation does not make commercial sense as it gives Savvy as buyer the right to achieve high tonnages but “entrenches a severe penalty” if it achieves them, being that Savvy could lose the ability to purchase the whole crop. In practice, to avoid that penalty Savvy would have to manage the harvest so it never exceeded 39.9 per cent of the cl 12.1 levels, no matter how good the crop yield potential.
[76] Savvy submits that its interpretation is also supported by the reality of the timing of the grape harvest. The different varieties of grapes are harvested separately. They are taken at once to the wineries where they are processed into juice. They are weighed at the wineries as they arrive. If cl 4.6 were given the meaning Waihopai contends, then after this point the parties would enter into negotiations as to price, but there would be no grapes to sell to third parties if, after
14 days, a new price has not been agreed.
[77] It follows from the timing of the grape harvest, on Mr Fulton’s submission,
that cl 4.6 must be seen as a clause for Savvy’s benefit as buyer. If Savvy has not
36 At [23].
rejected the grapes pre-harvest, then it has waived its right to do so, has accepted the grapes, taken delivery of them and is obliged to pay for them at a price calculated on the cl 12.1 tonnages.
[78] Mr Fulton’s submission on cl 4.7 is that the weigh-bridge records are of interest to the parties only to the extent that they verify whether or not the cl 12.1 tonnages have been achieved. The weigh-bridge records will only be relevant to determining the price under cl 4.2 if the targets are not reached.
[79] So far as the typographical error in cl 4.6 is concerned (the reference to “clause 13.1”), Mr Fulton’s submission is that it does not matter if the reference intended is to cl 12.1 or cl 12.3. The clauses 12.1, 12.2 and 12.3 have to be read together. Savvy, as buyer, had no obligation to restrict vineyard yields to the cl 12.1 target levels. Instead, cls 12.2 and 12.3 provide Savvy with the right to prune the crop back or take the yield as it grows. Clause 12.1 is there only to limit the purchase price, not to limit the yield to which Savvy is entitled.
Discussion
[80] Having traversed the principles of interpretation, the scheme of the agreements and the background circumstances, I now consider the meaning that a reasonable person with knowledge of the relevant background circumstances would attribute to cl 4.6.
[81] The starting point for interpreting the meaning of cl 4.6 is cl 2.5 of the GSA. Pursuant to cl 2.5, Waihopai agreed to sell, and Savvy agreed to buy, the entire crop of grapes in each year. There is in parenthesis after “the entire crop” the words “or part thereof as outlined in clause 2.1”. I do not know what those words mean since cl 2.1 provides:
The Grower shall plant all of the plantable area of the Vineyard with 70% Sauvignon Blanc, 20% Pinot Noir and 10% Pinot Gris (or such similar proportions as are agreed by the Buyer and Grower) by the latter of the end of Spring 2007 and the end of Spring of the year that such grape plants are available for planting, which planting shall be completed with the following configuration:
(a) 2.4 metre gap between rows
(b) 1.8 metre gap between vines for Sauvignon Blanc, Pinot Gris and
Riesling
(c) 1.5 metre gap between vines for Pinot Noir
[82] It does not, however, matter. There is no doubt, in the light of the background, that the parties agreed that Savvy was obligated to take the entire crop in accordance with the provisions of the GSA.
[83] It is with cl 2.5 in mind, that it is now necessary to consider part 4 of the GSA, which governs how the Purchase Price is to be assessed. Both parties argue that cl 4.6 takes its meaning from the other clauses within that part. Accordingly, I turn to consider the individual clauses and how they affect cl 4.6’s meaning.
[84] Clause 4.1 provides that the Purchase Price “shall be assessed” by taking the average price per tonne for Marlborough grapes of each variety. The clause also provides for a price reduction of five per cent or 10 per cent if brix levels fall within specified bands that are below the target range for the season. The clause does not state whether Savvy has to buy the grapes if the brix levels fall below those specified bands.
[85] Clause 4.2 then caps the Purchase Price by providing that: “The Purchase Price shall be calculated based on the tonnes harvested or the target cropping level outlined in clause 12.1, whichever is the lesser.” Clause 12.1 contains the tables which specify “target cropping levels” by grape variety and by vintage.
[86] So, to summarise:
(a) Clause 2.5 requires Waihopai to sell to Savvy, and for Savvy to purchase from Waihopai, the entire harvest for each year.
(b) Clause 4.1 sets the purchase price for that harvest. (c) Clause 4.2 caps the purchase price.
[87] Clauses 4.3, 4.4, 4.5 and 4.6 then qualify the primary obligations contained in cls 2.5, 4.1 and 4.2.
[88] Clause 4.3 is a quality control clause to protect Savvy as buyer. It specifies Waihopai’s obligations if the brix levels are below the minimum levels that are specified in cl 10.1. In such circumstances, Waihopai “will still offer the Grapes to [Savvy] for purchase on a first refusal basis at a price to be negotiated in good faith …”.
104 Attorney General for Hong Kong v Reid [1994]1 NZLR 1 (PC) at 3-4.
[294] I have found that Savvy as manager owed certain fiduciary duties of disclosure to Waihopai. Savvy as manager, in breach of those duties of disclosure, allowed the sale of the grapes to itself as buyer without disclosing to Waihopai either (a) the tonnage or (b) the decision to increase the harvest levels. As a result of the breach, Savvy, in its position as buyer, received grapes which it was not entitled to purchase pursuant to the terms of the GSA. Savvy then on-sold those grapes for a profit. I find that an institutional constructive trust was created in respect of the grapes when Savvy took possession of them. Given that the grapes no longer exist, the trust now attaches to the proceeds of Savvy’s sale of the grapes to the second to fourth defendants.
Constructive trust over proceeds of sale
[295] I wish to make a brief comment about the second ground upon which Waihopai claims a constructive trust to exist. Waihopai says that where a defendant on-sells property without title for money, a constructive trust arises over the proceeds of the sale. I acknowledge that it is accepted at common law that in such a situation, the plaintiff has a personal claim in conversion against the third party, and he may
also have a claim in conversion against the purchaser based on retention of title.105
He can also waive the tort and sue for the proceeds of the sale.106 But I am unaware of any judicial decision which would allow the plaintiff an equitable interest in the proceeds such that a constructive trust may be created.107
What relief should be granted to Waihopai?
[296] I make the following declarations:
(a) that Savvy has not obtained title to the 2011 and 2014 grape harvests.
105 Cynthia Hawes “Interference with Goods” in Stephen Todd (ed) The Law of Torts in
New Zealand (6th ed, Thompson Reuters, Wellington, 2013) 595 at 624.
106 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 (HL) at 28-29 (per Lord Atkin).
107 One Australian Academic suggests that a possible implication of the Australian High Court decision in Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426 is that a thief holds the proceeds of stolen property on constructive trust: see John Tarrant “Theft Principle in Private Law” (2006) 80 ALJ 531 at 533.
(b)that the second, third and fourth defendants hold the proceeds of the on-sale of the 2014 harvest on constructive trust for Waihopai.
[297] I make the following orders:
(a) Savvy is required to account to Waihopai for the sum of the proceeds of the on-sale agreements of the 2011 and the 2014 harvests and interest thereon.
(b) Waihopai is entitled to an inquiry as to damages, including interest.
(c) The second, third and fourth defendants are to pay to Waihopai the sums held by them in respect of the 2014 harvest and until now frozen by order of the Court. Those sums to be applied to the account ordered in (a).
[298] I reserve leave for Waihopai to apply for inquiry into damages if agreement cannot be reached.
What relief should be granted to Savvy?
[299] I declare:
(a) that the VMAs have at all times been and remain in force and are binding on the parties;
(b)that the GSAs have at all times been and remain in force and are binding on the parties;
[300] I make the following orders:
(a) Waihopai is required to specifically perform its obligations under the
VMAs and GSAs;
(b)Waihopai is required to pay to Savvy damages in respect of the 2015 harvest.
(c) Waihopai is required to pay to Savvy damages in respect of unpaid management fees.
(d) Savvy is entitled to an inquiry as to damages, including interest.
[301] I reserve leave for Savvy to apply for an inquiry into damages if agreement cannot be reached.
[302] I reserve leave for Savvy to apply for such ancillary relief as may be necessary to give effect to the orders in (a) and (b).
Is either party entitled to costs?
[303] Costs are reserved. Any application for costs shall be made by memorandum filed and served not later than 30 September 2015. Any memorandum in reply shall be filed and served not later than 23 October 2015.
The future
[304] I am well aware that this judgment will satisfy neither Waihopai nor Savvy. For one thing, my finding that Waihopai was not entitled to cancel the agreements means that the parties will have to resume a relationship which has broken down and from which trust has deserted. My suggestion is that the parties now engage through the dispute resolution provisions in the agreements to work through the practical
aspects of restoring the relationship, at least in commercial terms.
Brewer J
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