Savvy Vineyards 3784 Ltd v Arck Ltd

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 11 November 2015
• Neutral Citation: [2015] NZCA 534
• Docket Number: CA290/2014
• Court: Court of Appeal
• Date: 11 November 2015

Between

Savvy Vineyards 3784 Limited

Appellant

and

Arck Limited

Respondent

[2015] NZCA 534

Court:

French, Simon France and Asher JJ

CA290/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision which found the appellant had not exercised options to purchase grapes from the respondent in accordance with two supply agreements — the appellant did not dispute that the option notices were never served and therefore the options were not exercised, however it argued that, despite the lack of notice, a contract could be inferred from the parties' communications and dealings — in the alternative it said that the requirement of notice was waived or an estoppel arose, precluding the respondent from relying on the notice requirement — whether the grape supply agreements were conditional contracts or irrevocable offers — whether a contract had been formed through the parties' communications and dealings — whether the respondent was estopped from relying on the need for notice.

Counsel:

C L Bryant for Appellant

T Sissons and S F Gaines for Respondent

A The appeal is allowed. The decision dismissing the appellant's claim for losses arising from the non-supply of the 2012 and subsequent vintages is set aside.

B The appellant is entitled to losses arising from the non-supply of the 2012 and subsequent vintages.

C The proceeding is remitted to the High Court for determination of the quantum of losses sustained by the appellant as a consequence of the respondent's non-supply of the 2012 and subsequent vintages.

D The respondent is ordered to pay the appellant costs for a standard appeal on a band A basis together with usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Asher J)

Introduction

1 This is an appeal against part of a decision of Gilbert J, in which he found the appellant, Savvy Vineyards 3784 Ltd (Savvy), had not exercised its options to purchase grapes from Arck Ltd (Arck) in accordance with two supply agreements. 1

2 Savvy does not challenge the key finding that the option notices were never served and therefore the options were not exercised. Rather, it is argued that, despite the lack of notice, a contract was formed for the ongoing supply of grapes through the parties' communications and dealings, or, alternatively, the requirement of notice was waived or an estoppel arose precluding Arck from relying on the notice requirement.

3 We set out the background, drawing on the facts as summarised by Gilbert J. 2

Background

4 Savvy is one of a group of companies owned by Peter and Jean Vegar. Since 2006 Mr and Mrs Vegar have been involved in the management and purchase of grapes from vineyards in Marlborough. The grapes are onsold or used in the production of bulk wine.

5 In 2006 vineyards were rapidly expanding in the Marlborough area. In the face of increasing demand and competition, Mr and Mrs Vegar were concerned to secure access to an ongoing supply of grapes. They formulated a proposal whereby they would set up vineyards and attract passive investors to purchase and own them. The Vegar companies would enter long-term agreements with those investors for the management of the vineyards and the purchase of grapes.

6 The respondent, Arck, participated in this scheme. Through the Vegars, it purchased a 10 hectare block in June 2007 and a 30 hectare block in November 2007. Arck is owned by Tony and Jennifer Ebert, who own a real estate agency in Auckland. They were introduced to the prospect by Paul Vegar, Peter Vegar's brother, who had worked for the Eberts.

7 Separate vineyard management agreements and grape supply agreements were completed for each block. The agreements for the 10 hectare block are dated 26 July 2007, and for the 30 hectare block, 13 November 2007. The agreements are for an initial term of 10 years (10 fruit producing vintages), with Savvy having the right to extend for two further terms of 20 years. Under the grape supply agreements 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. The vineyard management agreements were not subject to the exercise of options.

8 Target cropping levels are specified in each grape supply agreement. These range for the 10 hectare block from 2.25 tonnes per hectare for the second vintage after planting to 9 tonnes per hectare for the fifth and subsequent vintages and from 2.33 tonnes to 9.3 tonnes per hectare for the 30 hectare block. Both agreements set out how the purchase price is to be calculated.

9 Mr Vegar prepared a letter dated 27 April 2009 for the purpose of giving notice of the exercise of Savvy's option to purchase all grapes produced from the 10 hectare block, starting with the first vintage anticipated in 2010 until termination of the grape supply agreement. Mr Vegar prepared a similar letter to Arck the following year, on 26 April 2010, for the purpose of exercising Savvy's option to purchase all grapes produced from the 30 hectare block, starting with the 2011 vintage. In the High Court there was a dispute about whether either of these notices was served in accordance with the requirements of the grape supply agreements.

10 The first harvest from the 10 hectare block was picked on 20 April 2010 and 91.16 tonnes of Sauvignon Blanc grapes were harvested. This represented a little over nine tonnes per hectare as compared with the target cropping level in that year of 4.5 tonnes per hectare.

11 On 24 May 2010 Mr Vegar sent Mrs Ebert an email asking her to send an invoice for 54.77 tonnes of Sauvignon Blanc at $1,650 per tonne. This was based on the target cropping level. Mrs Ebert responded by producing an invoice in these terms and it was duly paid.

12 The grape harvest from the 10 hectare block as well as the 30 hectare block also exceeded the target cropping levels the following year. On 29 April 2011 Mrs Ebert prepared invoices in accordance with Mr Vegar's request based on the target cropping levels. This was a bad time economically for the Eberts and the Vegars because of a glut of grapes on the market. As the Eberts knew, Savvy was looking for alternative uneconomic uses for the grapes which would still provide some return.

13 In early 2012 Mr and Mrs Ebert became concerned the Vegars were making significant profits from grapes harvested in excess of the agreed target cropping levels. They were also concerned Savvy had harvested over 90 tonnes of grapes from the 10 hectare property in 2009 without disclosing this or paying anything for it. This was a misunderstanding arising out of an erroneous report prepared by the vineyard manager that indicated the first harvest from the 10 hectare block was in 2009, when in fact the first harvest was not until 2010.

14 Following an exchange of emails between Mr Ebert and Mr Vegar, Mr Ebert purported to cancel the agreements by email on 10 February 2012. Arck refused to supply the 2012 and subsequent vintages and then prevented Savvy and its agents from entering either block for the purpose of carrying out its obligations under the vineyard management agreements.

15 Savvy commenced the proceeding to obtain a declaration that the purported terminations were invalid and that the agreements remained binding. It also sought damages for losses arising out of Arck's alleged breach of the agreements.

16 When the trial commenced before Gilbert J, Arck raised nine defences, including claims the grape supply agreements were void for uncertainty, unenforceable because of lack of consideration in relation to the supply of excess grapes, and that there were misrepresentations and contractual mistakes. However, all were abandoned save for the defence that Savvy did not exercise its option to purchase under the grape supply agreements by serving the requisite notice in the prescribed manner. Arck argued also that on their true construction the grape supply agreements did not entitle Savvy to take Arck's grapes harvested in excess of the target cropping levels without paying for them.

17 At the trial, Arck acknowledged it had wrongfully purported to cancel the agreements. It was prepared to consent to the declarations sought by Savvy that all agreements remained in full force and effect.

18 The parties also reached agreement at the hearing that the quantum of any damages suffered by Savvy should be deferred pending the issue of Gilbert J's judgment. The Judge would, in the substantive hearing, determine whether the options were exercised and how the purchase price was to be calculated.

19 Thus the shape of the case changed considerably during the course of the four day hearing before Gilbert J with defences being abandoned and a central focus becoming the factual question of whether the notices were sent. It was not in dispute at the hearing that notices exercising the option, which had been discovered not long before the hearing, had indeed been prepared by Mr Vegar, but there was no email or letter indicating service, and Mr Vegar could not recall an act of service.

The decision under appeal

20 Justice Gilbert determined that Savvy had failed to discharge the onus on it to prove on the balance of probabilities it had served notices under either grape supply agreement exercising the option to purchase. Having made that finding, the Judge observed:

[30] Mr Jones submits that the purchase of the 2010 and 2011 harvests must have proceeded on the basis of the grape supply agreements and that notice must therefore have been given. I accept that the purchase of the initial harvests was made on the terms, including as to price, set out in the grape supply agreements. However, it does not follow that notice was given in accordance with those agreements triggering an obligation to buy and sell. I find that ARCK supplied these harvests to Savvy at the price set out in the agreements without...