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Court of Appeal of New Zealand |
Last Updated: 19 November 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellant |
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AND
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Respondent |
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Hearing: |
17 August 2015 |
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Court: |
French, Simon France and Asher JJ |
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Counsel: |
C L Bryant for Appellant
T Sissons and S F Gaines for Respondent |
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Judgment: |
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 considering whether it was strictly obliged to do so. I am satisfied that Mr and Mrs Ebert did not give any thought to the need for notice under the agreements until after the dispute arose and they obtained legal advice. I accept their evidence that they did not see either notice until they were provided by Savvy on discovery.
[21] The Judge also concluded the purchase price was to be calculated in the manner contended for by Savvy. As we have indicated, both of these findings were not challenged on appeal, although they were initially listed in the grounds of appeal. The appeal was pursued on a different point, not directly addressed in the decision of Gilbert J: namely that, despite the lack of notice, a contract was formed for the ongoing supply of grapes through the parties’ communications and dealings for the term of the agreement. Alternatively, it was argued the requirement for notice was waived, or Arck was estopped from relying on the requirement for notice.
[22] Mr Sissons for Arck accepted these issues were properly before us as grounds of appeal and could be determined by us. Accordingly we have proceeded on that basis, without the benefit of Gilbert J’s consideration of them.[3] We have before us all the relevant evidence, and no credibility issues or disputed questions of fact have been raised.
The option to purchase grapes
[23] Both grape supply agreements contain an identical provision for the exercise of an option (described as a right of first refusal) to purchase all or part of the grapes from each block for all or part of the term by the provision of notice:
2.2 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.
2.3 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 first refusal is exercised. Any notice given pursuant to this clause must identify the number of hectares (and the rows included in the hectares) of each variety the Buyer wishes to purchase.
2.4 If the Buyer exercises its right of first refusal in accordance with this clause the balance of the terms of this Agreement will apply.
2.5 The Grower agrees to sell to the Buyer and the Buyer agrees to buy from the Grower the entire crop of Grapes. The terms of such sale and purchase shall be as set out in this agreement, unless otherwise agreed between the parties.
[24] Under cl 2.2, Savvy can elect to purchase the grapes for part or the whole of the remaining term of the agreement, so long as the election is for a minimum of three years. The initial term of the agreement is 10 years (cls 1.1 and 3.1). Clause 3.2 states Savvy may twice extend the agreement for a further term of 20 years up to a maximum 50 year term.
[25] Clause 2.2 referred to the “right of first refusal” being exercised every three years, but at the end of the clause there is reference to the buyer electing to purchase “for the remaining term or any part of the remaining term of the agreement”. It was contemplated therefore that there could be an activation of the grape supply agreements under cl 2.2 for what was remaining of the term of 10 years, and that election could be as early as the commencement date.
[26] Under cl 2.3, a notice of election must be first provided at any time prior to the term ahead (including the term starting with the commencement date). The notice must identify how many hectares of grapes from each vintage will be purchased.
[27] Clause 38 of the agreements sets out a detailed provision for the service of these notices, including a requirement that any notice must be in writing and served personally or at a specified address.
[28] Importantly, on the assumption the grapes would be purchased by Savvy, the agreements set out detailed terms of purchase. Therefore, agreements to purchase were in place, but under cl 2.4 they depended on notice being given to bring them to life.
[29] As noted above, Mr Vegar prepared notices exercising Savvy’s option to purchase the entire crop of grapes from each block for the full term of the agreements. While the notices were prepared, it was not proven the notices were sent. Despite the lack of notice, all of the grapes were supplied from the 10 hectare block in 2010 and 2011, and from the 30 hectare block in 2011. No grapes were supplied in 2012 and thereafter.
[30] Although Arck’s position is that there was no obligation to supply grapes after 2011, it accepts Gilbert J’s finding that nothing prevents Savvy from exercising its option for future harvests.[4] Under the agreements the option to purchase accrued every three years (if not exercised). If the notices were for three year terms, the three year cycles for the 10 hectare block were 2010–2012, 2013–2015, 2016–2018, with the last cycle presumably being for two years. For the 30 hectare block the cycles were 2011–2013, 2014–2016, 2017–2019, then through to 2021. Without prejudice to the outcome of this appeal, Savvy has exercised its option to purchase crops from the 10 hectare block from 2016 onwards and from the 30 hectare block from 2017 onwards.
[31] The issue therefore is whether Arck was and remains bound to supply all of the grapes between 2012 and 2016 for the 10 hectare block and 2012 and 2017 for the 30 hectare block, as if the options had been exercised.
The nature of the options in this case
[32] The options were not exercised in accordance with the terms of the agreements. As Gilbert J observed,[5] an option must be exercised strictly in accordance with its terms.[6] Any errors or deviations from the terms of the option if notice was given would have amounted to a counter-offer.[7]
[33] The nature of an option was discussed by Cooke J in Murray v Scott.[8] He observed there are four traditional answers to the “perhaps academic riddle” of what is the nature of an option.[9] Assuming there is an option to purchase, these are:[10]
- (i) An irrevocable offer to sell; or, more fully stated, an offer to sell coupled with a contract, made for consideration or by deed, not to revoke it.
- (ii) A conditional contract of sale.
- (iii) Either of the first two, but the difference being one of form only and not of any practical effect.
- (iv) Perhaps, either of the first two and the difference depending on form but having some practical effect.
[34] Justice Cooke observed the irrevocable offer theory is the one most commonly adopted in New Zealand, but the conditional contract of sale theory had some academic support and had been recently accepted by Gibbs J in the High Court of Australia.[11]
[35] Elsewhere the irrevocable offer theory has been criticised as illogical. As Diplock LJ said in Varty v British South Africa Co:[12]
To speak of an enforceable option as an “irrevocable offer” is juristically a contradiction in terms, for the adjective “irrevocable” connotes the existence of an obligation on the part of the offeror, while the noun “offer” connotes the absence of any obligation until the offer has been accepted.
[36] In our view, the grape supply agreements are best described as conditional contracts. The options were part of detailed agreements for the supply of grapes that set out the terms of the contract that would be constituted should the option be exercised. The obligations in the agreements included the term, the purchase price, adjustments for seasonal climatic conditions, provision for an independent viticulture consultant, provision for the buyer’s viticulture input, provisions for vineyard management including the creation of an annual plan, target brix levels, disease and pest status, detailed statements as to cropping levels and harvest date, time and method, as well as a host of detailed clauses relating to the mechanics of the transactions.
[37] They were potentially full operating contracts, awaiting option notices to bring them to life. That position can be contrasted to contracts where on exercise of the option an agreement must be drawn up, which Cooke J in Murray v Scott considered indicative of an irrevocable offer.[13] The agreements can therefore be seen as contracts for the supply of grapes conditional upon the sending out of notices as prescribed in cl 2.2.
Approach to whether there was an agreement
[38] In approaching the analysis of whether agreement was reached, Ms Bryant and Mr Sissons both adopted the “acid test” approach to contract formation, referred to by Cooke J in Meates v Attorney-General:[14]
The real question in this part of the case is whether an implied contract can be spelt out of the words and acts of the parties. As indicated in Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 and having regard to the authorities there cited, I would not treat difficulties in analysing the dealings into a strict classification of offer and acceptance as necessarily decisive in this field, although any difficulty on that head is a factor telling against a contract. The acid test in a case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.
[39] Ms Bryant submitted Arck and Savvy by their actions after 2010 reached an agreement to supply all of the grapes for the 10-year term of the agreement. Mr Sissons for Arck submitted there is nothing in the parties’ written or verbal communications that objectively establishes, on the balance of probabilities, that the parties had agreed to be bound for the balance of the term as opposed to just the 2010–2011 harvests. He suggested there was an ad hoc agreement or agreements for those vintages, with a mere expectation or assumption about 2012 and 2013. Given those competing contentions, it is necessary to consider more closely the dealings between the parties.
The dealings between the parties
[40] The unsent notice relating to the 10 hectare block drafted by Mr Vegar was as follows:
27 April 2009
Tony Ebert
Arck Ltd,
C/- Withers Tsang & Co. Ltd,
24-26 Pollen Street,
Ponsonby,
AUCKLAND
Dear Tony
RE: NOTICE OF EXERCISE OF RIGHT TO PURCHASE GRAPES
[Savvy] hereby gives notice that it exercises its right of purchase pursuant to clauses 2.2 and 2.3 under the Agreement for the Supply of Grapes and will purchase all the fruit from the 2010 vintage from the Arck (10 hectare) vineyard. The purchase of all fruit will accordingly commence from and including the 2010 vintage until the termination of the Grape Supply Agreement.
Yours sincerely,
Peter Vegar
Managing Director
[Savvy]
[41] Apart from the references to the particular vineyard and the year of the first vintage, the notice for the 30 hectare block drafted a year later was in identical terms. Both notices provided for the purchase of all fruit being from that vintage “until the termination of the Grape Supply Agreement”. The notices prepared by Mr Vegar did not limit the supply of grapes to the first three years, but envisaged the purchase of all fruit until the end of the 10 year term.
[42] There is no evidence of any discussion or communication between the parties about the unsent notices or the issue of the option before they fell out. The issue of the need for a notice exercising the option was, apart from Mr Vegar drafting the initial notices, ignored.
[43] Savvy purchased grapes for the 2010 and 2011 seasons from the 10 hectare block, and for the 2011 season from the 30 hectare block. It is clear from the evidence in chief of Mr Vegar and Mr and Mrs Ebert that at the time of the first harvest in 2010 of the 10 hectare block, the parties proceeded on the basis Savvy would purchase all the grapes for the year in question. There was no specific evidence as to how that supply and purchase was initiated, but it can be assumed there were communications about the vintage. There was no need to discuss terms because they were all set out in the signed agreements.
[44] On 24 February 2011 Mrs Ebert for Arck sent an email to Mr Vegar seeking “Sales and expenditure projections for the Vineyards until June 2013”. She advised Mr Vegar that she had given the bank the expected tonnages for 2012 and 2013, but more information was wanted. She asked why there was a cap on the tonnage per hectare and stated the bank manager was querying that. She asked for some sort of overview of the expected tonnages, costs and scenarios.
[45] Mr Vegar responded one month later, referring to an expected increase in the price of grapes before the “next vintage” (the 2013 vintage). He explained this and stated in “future years” they would not have the same situation again. He did not answer Arck’s question about why there was a cap on tonnage.
[46] The reference to the 2013 vintage is of importance as the first three year period for the 10 hectare block would have expired by then. Ms Bryant argued this indicated the agreements would apply in 2013. We agree the February email exchange presupposed Savvy would be buying the grapes in 2013. The references to 2013 sales and future years would have been unnecessary if it was not assumed Savvy would be the purchaser in that year. The exchange is only explicable in light of an agreement, at least in respect of the 10 hectare block, continuing beyond 2012 and into the future.
[47] On 7 March 2011 Mrs Ebert sent an email to Mr Vegar saying:
sorry to put pressure on you but that scenario re the future of the vineyards we need by 12 th March thanks
[48] Mr Ebert emailed on 8 March 2011:
Good to hear that your wine sales are going well under Voluntary Liquidation ...
These comments all appear to presuppose an ongoing purchase and supply beyond 2012.
[49] The parties met on 11 March 2011. Mr Vegar gave evidence, which was not contested, about what the Eberts said. The Eberts were very concerned by the problems of the oversupply of grapes, and they understood the problems in the industry. They saw the contracts and business relationship with Savvy as being for the very long term and were prepared to work with Savvy on payment terms for the 2011 vintage, as they sympathised with Savvy’s situation. They wanted to help given the relationship between the families, and it was in their own interests to assist Savvy. Arck was unlikely to find another buyer. Arck would not survive without Savvy’s purchase given their own difficult financial situation.
[50] An Annual Vineyard Management report was prepared and circulated between the parties in June 2011. It was for the 2011–2012 period and referred to Savvy throughout as “the buyer”. It did not deal with the 2013 vintage or later vintages.
[51] Then on 7 February 2012 in the last positive email between the parties Mr Vegar said he had “excellent news” for the Eberts, and, referring to contracts to onsell Sauvignon grapes, said: “We have received proposals for 2 to 3 year contracts which we will have signed up by the end of this week...”. Mr Ebert, in the first unfriendly email, on 8 February 2012 told him not to sign such contracts, referring to the 2012 vintage about to be picked, as they wished to discuss issues about the previous year’s vintage. Mr Vegar responded that evening asserting Savvy had the contractual right to purchase grapes from Arck from both vineyards for the 2012 vintage “and for future years”.
[52] The emails thereafter became increasingly confrontational, the issue being the Eberts’ concern that Savvy had been keeping excess grapes from the vintage for itself. Arck purported to terminate the grape supply agreements on 10 February 2012.
[53] The evidence adduced indicated that, apart from Mr Vegar drafting notices, the parties did not think about the right of first refusal clause. Mr Ebert explained under cross-examination:
- This was a hands-off investment, I didn’t know anything or care really about any notice. What I wanted to know was, we had the vineyards, which we were very proud of and the grapes would always go to the Vegars, as far as we were concerned.
...
A. Yes, they were, because that’s how – why we supplied them.
[54] In cross-examination Mr Ebert replied to the accusation he could “pick and choose” whether the grape supply agreements applied in the following way:
- No it is not right... My understanding was that we were going to supply them the grapes, in October 211 I find that there is other reasons. Then I start looking for all of the other dishonest things and I find, through my counsel, that, hey, there is a notice that says you should’ve received for triggering it so therefore I took the opportunity straight away to use that in the case we are now discussing and I think that was, in my opinion, sir, a prudent business discovery.
...
Discussion
Approach to contract formation in this case
[55] Before considering these exchanges we note the words of Lord Cairns LC in Brogden v Metropolitan Railway Co:[15]
My Lords, there are no cases upon which difference of opinion may more readily be entertained, or which are always more embarrassing to dispose of, than cases where the Court has to decide whether or not, having regard to letters and documents which have not assumed the complete and formal shape of executed and solemn agreements, a contract has really been constituted between the parties.
[56] We also refer to Lord Hatherly’s conclusion in Brogden, referred to by the majority of the Supreme Court in Savvy Vineyards 3552 Ltd v Kakara Estate Ltd,[16] that a written agreement signed by one party and proffered to but never executed by the other was of contractual effect if:[17]
... the course of dealing and conduct of the party to whom the agreement was propounded has been such as legitimately to lead to the inference that those with whom they were dealing were made aware by that course of dealing, that the contract which they had propounded had been in fact accepted by the persons who so dealt with them.
[57] The majority in Kakara Estate also quoted Cooke J’s comments in Boulder Consolidated Ltd v Tangaere:[18]
But ... I would respectfully keep it in mind as a reminder that a mechanical analysis in terms of offer and acceptance may be less rewarding than the test whether, viewed as a whole and objectively, the correspondence shows a concluded agreement. On either approach the point of view of the reasonable man in the shoes of the recipient of each letter is of major importance.
[58] The minority relied on a statement by Cooke J in a later case, which, in citing the above statement, propounded the acid test relied on by both counsel:[19]
The acid test ... is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.
[59] As these authorities show, the common law adopts an objective approach to assessing the existence of a contract. Although the courts often refer to consensus ad idem or a meeting of the minds as a requirement, it is clear an apparent consensus will suffice.[20] It is permissible when examining whether a contract has been formed to consider the words and conduct of the parties towards one another subsequent to the alleged formation.[21]
Relevant case law
[60] The issue of contract formation has arisen in other cases where the parties have agreed on a prescribed method of concluding a contract through the exercise of an option or some other specified act and then despite the specified act not occurring have proceeded as if there were a contract.
[61] An early case was Bruner v Moore, where Farwell J found that, despite an option not being formally exercised, there was nothing to prevent the parties from coming to a subsequent agreement extending the period of the option.[22] Such an agreement did not need to be in writing but might be implied from a course of conduct that led one of the parties to suppose the strict provisions in the contract would not be enforced. He quoted the judgment of Lord Cairns LC in Hughes v Metropolitan Railway Co, in which he concluded the strict contractual provisions could not be used “where it would be inequitable having regard to the dealings which have thus taken place between the parties”.[23]
[62] In Goodwin v Temple the High Court of Australia considered an option in writing to purchase a sugar cane farm that was exercisable by a certain date.[24] The option was never exercised, but the purchaser proceeded to occupy the property and paid the agreed price over a number of years. It was held there was a contract to purchase formed even though the specified conditions had not been fulfilled. The option was treated as a form of conditional contract. It was stated:[25]
... the inference is irresistible that the parties agreed to treat the conditional contract constituted by the option as absolute and did so because they knew that [the purchaser] had elected unconditionally to become the purchaser.
When a vendor sells land the consideration which the contract secures for him is payment of the purchase money for which he stipulated. It is indeed a legal incongruity for the vendor to receive and retain the whole of the purchase money and then complain that conditions of the contract operating pending completion have not been performed and on that ground claim to be relieved of his obligation to transfer the land.
[63] In Bowman v Durham Holdings Pty Ltd there was an option to purchase an interest in coal and minerals under certain land.[26] The appellants did not take the steps prescribed in the contract to extend the term of the option. It was held to nevertheless remain on foot as the parties’ conduct after the notice of extension was sufficient evidence of an agreement to extend the option for a period of 12 months.
[64] We are conscious this case involves not a single purchase, but an annual supply and purchase of grapes. However, these cases show a contract can be inferred from conduct when an option or other initiating process has been ignored.
Analysis of the exchanges
[65] It is clear the parties signed the grape supply agreements, acted consistently with their terms, and in 2010 and 2011 proceeded as if they were bound by them. There is no evidence of the initial communications in 2010, but Savvy must have approached Arck to purchase the grapes and Arck must have agreed to supply the grapes for that 2010 season. The grapes were supplied by Arck and purchased by Savvy despite no option notices being served. The same happened in 2011. Importantly, the detailed contractual terms of the grape supply agreements were treated as activated and applicable for both years. For example, when it came to the difficult 2011 season, Savvy assumed it was obliged to purchase all the fruit from Arck, although it had difficulties in onselling it as well as paying Arck for it.
[66] Given they acted as parties who were bound to supply and purchase all rather than part of each vintage, the only issue is whether the contract formed was for the duration of the whole term or a portion of the term.
[67] In our view Arck acted as if bound to supply grapes in the long term, rather than as part of an ad hoc arrangement to supply each year. In March 2011 Arck did not contest, and by its conduct impliedly accepted, Savvy’s assertion that Arck’s fruit would be onsold “in future years”. The express references by Arck to the 2013 harvest, which was beyond the expiry of any initial three year period for the 10 hectare block, also suggests it was bound for the long term. This is consistent with Mr Ebert’s evidence that the “grapes would always go to the Vegars as far as we were concerned”.
[68] For its part, Savvy acted as if it were bound to purchase the grapes in 2010, 2011 and in the future. As noted, it assumed in 2011 that it was obliged to purchase all the fruit from Arck even though it could not sell it. This was in an economic situation that had deteriorated and where it was contrary to Savvy’s interests to purchase the grapes. And when Mr Vegar gave the “excellent news” of an improved market on 7 February 2012, Mr Vegar reported Savvy had received proposals for two to three year contracts, which Savvy would have signed within the week. Consistent with entering a long term agreement for the purpose of ensuring supply, Savvy’s actions suggest it was focused on the years ahead.
[69] The lack of any explicit exchange of promises from 2010 onwards is not surprising, given the detailed terms of the contract were already agreed and set out in writing in the agreements. All that was needed was for them to be activated in some way.
[70] Put together and objectively assessed, there was in our assessment mutual agreement between the parties that not only were the contracts binding but that all the grapes would be supplied and purchased for the entire term. There is no evidence inconsistent with that mutual intention. If no dispute over tonnage had arisen, it could have been expected the parties would have continued in a similar manner for the duration of the agreement.
[71] We consider the alternative, argued by Arck, that the parties entered into annual ad hoc agreements to be inconsistent with the parties’ conduct. They did not act as if they could walk away at any time. Rather, their references to the contract continuing into the future, and their actions once the dispute arose in February 2012 are explicable only in terms of a binding long term supply agreement.
[72] We have also considered whether the agreements were for additional three year terms only, and not the full terms. This was not an argument pursued by Arck and in our view would not be a realistic way of viewing what was agreed. This is because there is no indication in any of the evidence that the parties were thinking along the lines of the three year periods referred to in cl 2.2.
[73] Put in terms of offer and acceptance, we conclude Savvy, through Mr Vegar’s correspondence and actions, indicated its intention to purchase the grapes for the duration of the initial term of the agreements. Arck, through Mr and Mrs Ebert, signaled their acceptance of that offer. Their conduct, objectively assessed, shows they regarded themselves as contractually bound. They had a concluded agreement for the supply of grapes in accordance with the agreements for their 10 year terms.
[74] We prefer to decide the case on this basis rather than on waiver or estoppel, given that in their dealings between each other the parties at no stage specifically addressed the requirements for the exercise of the option, or, after Mr Vegar had drafted his initial notices, turned their minds to that issue. Moreover, as Cooke J observed in Meates v Attorney-General:[27]
The doctrine of estoppel seems an unnecessary importation into this case. The appellants rely for the estoppel on the same factual foundation as they use to try to show implied contracts. If a contract is to be inferred from this material, estoppel is superfluous; if not, there is no apparent reason why the Crown should not be heard to say so.
[75] We are conscious that we reach this decision without having had the benefit of Gilbert J’s decision on the point. However, he makes an observation in his judgment consistent with our conclusion:[28]
It appears that Mr Vegar overlooked the need to serve the notices in accordance with the notice requirements set out in the agreements. This is likely to be explained by the fact that, at that time, both parties simply assumed that Savvy would purchase the entire harvest of grapes in accordance with their mutual expectation when the agreements were signed. Certainly, this is what the Eberts expected; they did not contemplate trying to find another purchaser for their grapes until after the dispute arose.
Conclusion
[76] We conclude that, viewed as a whole and objectively from the point of view of both sides, the dealings show a concluded bargain. We are therefore prepared to grant the relief sought by Savvy for an order setting aside the High Court decision that no contract was formed requiring Arck to sell and Savvy to purchase the grapes for the 2012 and subsequent vintages. We remit the proceeding to the High Court for the determination of the losses sustained by Savvy as a consequence of Arck’s refusal to supply Savvy with grapes for the 2012 and subsequent vintages.
Result
[77] 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.
[78] The appellant is entitled to losses arising from the non-supply of the 2012 and subsequent vintages.
[79] 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.
[80] There is no reason why costs should not follow the event. We order that the respondent pay the appellant costs for a standard appeal on a band A basis together with usual disbursements.
Solicitors:
Hesketh
Henry, Auckland for Appellant
Gaines Law, Blenheim for Respondent
[1] Savvy Vineyards 3784 Ltd v Arck Ltd [2014] NZHC 903.
[2] At [3]–[13].
[3] See Court of Appeal (Civil) Rules 2005, rr 47–48.
[4] Savvy Vineyards 3784 Ltd v Arck Ltd, above n 1, at [31].
[5] At [19].
[6] Buckland v Bay of Islands Electric Power Board (1980) 1 NZCPR 217 (CA) at 219.
[7] Reporoa Stores Ltd v Treloar [1958] NZLR 177 (CA) at 188.
[8] Murray v Scott [1976] 1 NZLR 643 (SC).
[9] At 655.
[10] At 655.
[11] At 665, citing Laybutt v Amoco Australia Pty Ltd [1974] HCA 49; (1974) 132 CLR 57 at 75–76.
[12] Varty v British South Africa Co [1965] Ch 508 (CA) at 523.
[13] Murray v Scott, above n 8, at 656.
[14] Meates v Attorney-General [1983] NZLR 308 (CA) at 377.
[15] Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 (HL) at 672, cited in Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) at 566 per McMullin J.
[16] Savvy Vineyards 3552 Ltd v Kakara Estate Ltd [2014] NZSC 121, [2015] 1 NZLR 281 at [111].
[17] Brogden v Metropolitan Railway Co, above n 15, at 682.
[18] Savvy Vineyards 3552 Ltd v Kakara Estate Ltd, above n 16, at [111], citing Boulder Consolidated Ltd v Tangaere, above n 15, at 563.
[19] At [29], citing Meates v Attorney-General, above n 14, at 377.
[20] David McLauchlan “The Drastic Remedy of Rectification for Unilateral Mistake” (2008) 124 LQR 608 at 610.
[21] Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 (CA) at [56]; Pascoe Properties Ltd v Attorney-General [2014] NZCA 616 at [73].
[22] Bruner v Moore [1904] 1 Ch 305 (Ch) at 312.
[23] At 313, citing Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 (HL) at 448.
[24] Goodwin v Temple (1956) 180 CLR 68.
[25] At 79.
[26] Bowman v Durham Holdings Pty Ltd [1973] HCA 55; (1973) 131 CLR 8.
[27] Meates v Attorney-General, above n 14, at 377.
[28] Savvy Vineyards 3784 Ltd v Arck Ltd, above n 1, at [28].
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