Savvy Vineyards 3784 Limited v Old Oak Limited [2015] NZHC 513 (18 March 2015)

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UNDER	The Land Transfer Act 1952
IN THE MATTER	of an application under Section 145A that Caveat Notice 9446783.1 registered against title MB5C/1400 not lapse
BETWEEN	SAVVY VINEYARDS 3784 LIMITED Applicant
AND	OLD OAK LIMITED Respondent

Hearing:	11 March 2015
Appearances:	Ms Christina Bryant for Applicant Mr Simon Gaines for Respondent
_Judgment:	_{18 March 2015}

[1] The applicant company seeks the extension of a caveat that it has lodged over a

92.5 ha property situated in the Marlborough region. It alleges that it has a right of first refusal in regard to the property which is owned by the respondent.

[2] At the close of 2014, the respondent applied for the early lapse of the caveat. The applicant now seeks an order that the caveat not lapse.

[3] The applicant, Savvy Vineyards 3784 Ltd, is associated with two brothers, Peter and Paul Vegar who, through their companies, own vineyard land in Marlborough and also provide services by way of project management agreements and grape supply agreements for existing vineyards.

(”Matakana”) had previously owned the 92.5 ha block of land (“the property”). In

2008, it sold the property to a company called Golden Oak Estate Vineyard Limited (“Golden Oak”) and, as part of the arrangement, had acquired a second mortgage securing part of the purchase price which had been advanced to Golden Oak. In its capacity as mortgagee, it sold the property to the respondent.

[5] Golden Oak, as owner of the property, had acquired it subject to the assignment of a suite of Vineyard agreements that had been entered into between Matakana and Goldridge Estate Limited (GEL). Golden Oak, therefore, acquired obligations under the Vineyard agreements to GEL.

[6] The respondent company, Old Oak Ltd, is owned by Mr and Mrs Ebert. Mr and Mrs Ebert also own other vineyards in Marlborough which have been developed by the Vegars. The agreement between the respondent and Matakana settled on 20

April 2009, at which date the respondent, as nominee under the agreement for sale and purchase, acquired the estate in fee simple for the property.

[7] Therefore, neither of the parties to the present litigation had been parties to the earlier agreements which dated back to 2008. However the agreement for sale and purchase pursuant to which the respondent purchased the property contained the following stipulation:

16.2 The Purchaser acknowledges the Property is sold subject to a vineyard management agreement, a vineyard development agreement and a grape supply agreement each in favour of Goldridge Estate Limited. The Purchaser will, if required by the Vendor and prior to this agreement being made unconditional, enter into a fresh grape supply agreement, vineyard management agreement and project management agreement with Goldridge Estate Limited in the form previously signed by the mortgagor and the Goldridge Estate Limited (including any signed variations)

[8] It is either agreed or reasonably arguable that there was no requirement to comply with clause 16.2 imposed by the vendor under the agreement.

[9] However, it is also accepted that a suite of Vineyard agreements was in fact entered into between the respondent (as the landowner) and the applicant on 8

October 2010. Those agreements conferred upon the applicant a right of first refusal. The content of those agreements will be discussed further below.

[10] The respondent has had second thoughts about its ownership of the property and is intending to sell it. It offered the property to them on 3 March 2015 after it was advised that Savvy was in a position to purchase the property (5 days before the hearing). The applicant says that it is entitled to first refusal of the property and seeks a caveat to protect its position. The respondent opposes the order which the applicant seeks for an order that the caveat presently over the property does not lapse.

[11] The right of first refusal in this case was expressed in the following terms:

26.1 If the Grower wishes to sell the Vineyard during the Term, and if the Buyer is not in default of any provision of the agreement, the Grower shall first provide a written offer to sell the Vineyard to the Buyer.

26.3 If the Buyer does not except such offer within 60 working days of receipt of the offer, the offer shall be deemed to have been declined

and the Grower shall be free to deal with the Vineyard as the grower may desire.

26.4 The terms of which the Grower offers the Vineyard for sale to the buyer shall be no more onerous than the terms of the Grower proposes to offer to the market at large. If the offer to the Buyer is declined, the Grower shall not offer the Vineyard for sale to any other person on more favourable terms without first offering the Vineyard to the Buyer on the same terms.

[12] At the hearing before me, the parties agreed that the respondent had in fact offered the property for sale without first offering it to the applicant. In evidence, an advertisement of the property which was run on 14 May 2013, offering the property for sale at a price of three million dollars, was produced. An agreement for sale and purchase of the property to a Mr and Mrs Van Asch, which seems to have been entered into earlier this year and which reached the stage where a cross offer was made of $2.5 million (but which was not proceeded with, by, I understand, the purchasers), was also put in evidence by consent. As well, there was produced, by consent, a letter which the respondent sent to the applicant on 4 March 2015 offering to sell the property to it for $2.45 million. That agreement was open for acceptance until 9 March 2015. The offer was not accepted.

[13] The respondent’s principal ground of opposition, as set out in the notice of

3.1 The applicant does not have an existing right of first refusal; such a right will not arise until after the commencement of the Grape Supply Agreement (GSA) which is dependent upon the development of the land into an operational Vineyard-refer clauses 26.1 (the “if the grower wishes to sell the Vineyard during the term”), clause 3.1 (commencement of Term and Commencement Date (one may before first planned harvest of grapes), and clause 12.1 (first planned harvest of grapes second vintage after planting of sauvignon blanc and third vintage after planting Pinot Noir);

3.2 No vines have been planted on the land and the Term of the GSA has not commenced;

3.3 Neither party has the financial means to develop the land into an operational Vineyard;

3.4 Of the right of first refusal provided in clauses 26.1 to 26.4 of the Grape Supply Agreement (GSA) is a mere contractual right that does not create an interest in the land;

3.5 The applicant does not have the financial means to purchase the land and could not obtain specific performance of the right claimed;

[14] I shall deal with each of those defences in turn after making brief reference to the appropriate principles to be applied.

[15] The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe¹and Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd.²

c) An order for the removal of the caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively, that such ground as then existed has now ceased to exist.

[17] In much summarised form, the argument between the parties concerns a first right of refusal contained in one of the three agreements entered into between the parties, the GSA. However the GSA was not to come into effect immediately but

_{was dependent upon the purchaser first developing the Orchard as a
vineyard. The}

²Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (HC).

development has not occurred. The respondents say that the reason for that is that they have not had the funding necessary to carry out the development.

[18] The applicant, on the other hand, says that the respondent had an unqualified obligation to develop the vineyard. It is not excused from doing so because it says it is having difficulty arranging the financial resources for that purpose. The applicant says that the respondent cannot rely upon the fact that there has been no development in the Orchard, and therefore no triggering of the GSA which contains the first right of refusal, because that state of affairs has come about by the respondent breaching its contract.

[19] As will be apparent from the notice of opposition, the respondent also takes the position that the applicant does not have an interest in land which is necessary in order to support a caveat. The contention of the respondent is that any rights that the applicant might have had under the GSA were mere contractual rights and that they fell short of conferring upon the applicants in all the circumstances of the case an entitlement to seek specific performance of an agreement that could result in the applicant being able to compel transfer of the property to itself pursuant to the right of refusal.

[20] Further, the respondent contends that the balance of convenience does not merit the making of an order sustaining the caveat in this case.

[21] It is the case for the respondent that the first right of refusal does not accrue until the GSA took effect. The commencement date of the GSA, which contained the first right of refusal, was defined as being 1 May of the year before the first planned harvest. This last event was further defined as well, but the short point is that the respondent has not carried out development of the Vineyard and has not planted the requisite grapes to generate the first vintage. Therefore, the respondent argued, the right of first refusal has not accrued.

[22] The applicant, on the other hand, submitted that the respondent had no right to defer development of the Vineyard. Planting of the Vineyard ought to have taken

effect no later than the end of spring 2012 or the end of the spring of the year the grape plants were available. There is no suggestion that the grape plants were not available. Rather, the respondent chose, for financial reasons, not to proceed with the planting. That delay, for the applicant, amounts to a breach of contract and a party to a contract cannot take advantage of its own wrong.³The applicant therefore contends that the respondent’s breach cannot defeat the right of first refusal.

[23] For the respondent, Mr Gaines submitted that the respondent had the right to defer planting, if in its judgement, it was not financially viable for it to do so. The respondent argues that in agreements that had been entered into between predecessor parties, who had owned the property and the party who provided the project management for the property, it had been provided that the obligation to develop the Vineyard contemplated that development would commence on a certain date “dependent on the availability of [the owner’s] funds...”

[24] As already noted, the vendor had the contractual right to require the owner to enter into a suite of Vineyard agreements that reflected the terms of those previously entered into between Golden Oak and GEL, provided that a requirement to that effect was given before the contract was unconditional. The applicant said that that did not happen and that fresh Vineyard agreements were entered into. Those agreements did not include any condition to the effect that the obligation to develop the Vineyard was dependent upon the owner’s financial resources.

[25] Had the agreements contained the condition in question, there would have been no unconditional obligation upon the owner/respondent to have commenced with the planting in 2012. That, in turn, would have had the consequence that commencement of the GSA would have been indefinitely suspended. Had a similar provision been included in the contract between the present parties, the owner/respondent would not have been in breach of its obligations to the Vineyard contract/applicant by bringing about deferral of the commencement of the GSA.

[26] Mr Gaines submitted that the respondent was likely to succeed in intended proceedings that it would take, if necessary, to obtain rectification of the agreement

to add to the provisions relating to the commencement of the GSA a provision that the defendant’s obligation would be deferred “dependent on the availability of the client’s funds”.

[27] Apparently, it is not the intention of the respondent to attempt to demonstrate the existence of an express prior agreement between the parties to the effect that the written agreements that they contemplated entering into should include such a provision. The basis upon which rectification might be justified was not made entirely clear but seems to be connected with the fact that because the predecessor parties had included such a provision in their contracts, it was implicit that the agreements between the applicant and the respondent, too, would include such an arrangement. I understand that it is to be argued that it is a reasonable inference to be drawn from the circumstances of the case, that the parties had intended the inclusion of such a provision in the GSA.

[28] It is not disputed that the predecessor parties were separate corporate entities from those who are now before the court on the present application. The owner who entered into the agreement originally was the party who eventually sold the property to the respondent. That company was Matakana. It is clear that the other party to the original suite of agreements including the GSA, Goldridge Estate Limited, while a separate company from the applicant, was at least connected to it in the sense that there was a commonality of directors of the two companies.

[29] It is at least arguable that the applicant and respondent entered into the suite of agreements on the basis of their own volition not independently of the arrangements that any predecessor owners and contractors might have come to.

[30] The applicant is not required to do anything other than demonstrate an arguable case that the first right of refusal had come into existence. It can do that if it can satisfy the court that eventually hears the substantive proceedings that it is not open to the respondent to contest that the GSA had commenced in effect because to do so would involve it in pleading breach of its own contractual obligations. At this stage of this caveat hearing, the applicant need only demonstrate that it is arguable that it will achieve such an outcome.

[31] Because of the uncertainty that surrounds the basis upon which rectification is sought, it follows that it is at least arguable that the applicant will prevail on this issue.

[33] I will not repeat all that was said in that case about the various stages through which the parties progress when exercising a right of first refusal. I prefer to take up the judgment at the point where Tipping J, having concluded that the offeror of the right had in fact manifested an intention to sell, had not taken steps to offer a right of

Following that overt manifestation it was the duty of the landlord to offer the premises to the tenant first. Subject to questions of certainty, I consider that the tenant was thereupon are entitled to seek an order and the nature of specific performance requiring the landlord to make the appropriate offer. There may be difficulties about the terms on which the offer is to be made. The court cannot act without sufficient certainty at terms. Thus, if there has been no overt manifestation of the terms on which the vendor is prepared to accept elsewhere the matter can hardly proceed any further. The court cannot tell the vendor what the term should be.

Without prejudice to the question of an injunction, before any question of specific performance can arise, not only must the vendor have manifested wish to sell but he must also have manifested essential terms upon which he is willing to sell. Then, but only then, can there be any question of specific performance. Unless the court can order specific performance I do not see how the holder can be regarded as having an interest in land. Thus in short, at stage two the holder of the right of pre-emption will not have an interest in land unless and until the circumstances are such that specific performance can be ordered and the vendor thereby required to make an offer on sufficiently certain terms

[34] The parties did not provide, as part of the GSA, what the terms would be upon which the offer would have to be made in order to comply with the contractual obligation to extend a first right of refusal to the offeree.

[35] In Auckland Council v Pallister, a contractual provisions which substantially provided a first right of refusal had been considered in the High Court where the Judge had determined that an order ought to be made sustaining a caveat.⁶

[36] In that case, the offeror raised the question of whether there had been certainty of terms upon which any offer was to be made. The Judge concluded that, in accordance with the Motor Works judgment, the Court could satisfy itself as to certainty of terms by assuming that the offeror would be satisfied with the terms on which they had already agreed to sell the land to another party.

[37] On appeal, the Court of Appeal commented on this inclusion in the following way:⁷

[51] We are not inclined to go as far as this present preliminary stage. Whether the [offeree] is able to meet the requirement for sufficient certainty of terms is another issue that will arise in the substantive hearing. Much may turn on the specific type of relief sought by the [offeree] upon proof of breach of any clause 2 of the Fourth Schedule.

[52] The pleading in the substantive proceeding was not before us. Mr Upton for the [offeree] accepted that the current pleading would require amendment. This is an aspect on which we can make no further comment. The issue will need to be more fully explored in the High Court.

[38] I read those remarks as leaving open the question of whether the judgment in Motor Works was correct in concluding that the court may be able to assume that the terms on which a sale offer was made to another party would also be part of any offer that the offeror would be required to make, if ordered to make an offer in terms of the first right of refusal. The provision that was under consideration in the Motor Works case required that the landlord, in the event of wishing to sell the premises, was to first offer the premises to the tenant at a price the landlord “is prepared to accept from any third party”. Thereafter, if the tenant did not agree to purchase at that price the landlord would be free to sell the property to any third party provided that the offer would not be made to the third party “at any lower price or upon terms more favourable than those offered to the tenant without first re-offering the purchase of the premises to the tenant at such price and upon such terms.”

[39] In the present case, it is the obligation of the respondent (offeror) to specify in its offer to the applicant (offeree):

[40] The problem of certainty of terms probably does not loom so large in the circumstances of this case. The offeror could be ordered to perform this obligation. I would be prepared to accept that it is arguable that the offeror is subject to an implied obligation to make an offer that, as a minimum, could result in a binding agreement if accepted by the offeree. Business efficacy would seem to require such an outcome otherwise the offeror could offer to sell on conditions that were certain not to bind because they are not legally enforceable.

[41] Although the point has not been reached at this stage, the offeror could find that it would be no further ahead by making a type of offer other than on enforceable terms. Because if the terms were not acceptable to the offeree, any replacement agreement to a third party would need to contain terms which were no less favourable to the offeree.

[42] It is difficult to foresee just how the arguments on a proceeding for specific performance would develop in the circumstances of this case. I would not be prepared to conclude that the offeree does not have an arguable claim to specific performance of the agreement granting a first right of refusal.

[43] I next deal with the contention that the applicant does not have the financial resources to enable it to pay for the property so that it is not ready and able to perform its obligations under the contract.

[44] Evidence has been provided by one of the principals of the applicant that a trust controlled by a family member has offered to provide the necessary finance to complete the purchase. That evidence is not contradicted by the respondent. It is therefore arguable that the applicant would be able to proceed with the purchase. Therefore the respondent’s ground of opposition on this point no longer stands.

[45] I accept the submission which Ms Bryant, for the applicant, made that the correct approach to the relevance of the balance of convenience to applications in caveat cases was decided by Ellis J in Orams Marine (Auckland) Ltd v Ports of Auckland Ltd where he stated:⁸

NZLR 104 (CA); Holt v Anchorage Management Ltd [1987] NZCA 5; [1987] 1 NZLR 108 (CA); and Shell Oil New Zealand Ltd v Wordcom Investments Ltd [1992] 1

NZLR 129 (CA)) confirm that while consideration of the balance of convenience may be required in exceptional cases, once a reasonably arguable case has been established, justice will require the maintenance of

[46] Caution is required in invoking the concept of balance of convenience because the successful applicant, who asserts that it has a property right, ought not to have that right, which is able to be made out to the required standard at a hearing of this kind, defeated by considerations of convenience.

[47] In my view, this is not a case where the balance of convenience is to be taken into account.

[48] I come to the following conclusions. First, it is clear that the respondent manifested an intention to sell the vineyard. Indeed, it was not contested otherwise. The fact that the respondent advertised the property for sale and then subsequently entered into the Van Asch agreement establishes to at least an arguable point that

⁸Orams Marine (Auckland) Ltd v Ports of Auckland Ltd (1994) 6 TCLR 88 (CA) at [92].

[49] The second question is whether right of refusal had come into existence. That is to be resolved in favour of the applicant. It is at least arguable that it had come into existence and that it is unlikely that the respondent will be able to contend in any substantive proceedings brought to test the matter that delay to commencement of the GSA was other than a consequence of breach of contract on the part of the respondent.

[50] Further, the court is likely to be able to make an order for specific performance notwithstanding the asserted lack of certainty about the terms upon which the sale would take place.

[51] Bearing in mind that the only issue which needs to be decided is whether it is arguable that the court could ultimately find that there was sufficient certainty of terms, I do not consider that this aspect of the matter should be an obstacle to the applicant. The contractual position is likely to impose an obligation upon the respondent to formulate the terms that are acceptable to it and it may be that it is implicit in that obligation that such terms must be the minimum required for establishing an enforceable agreement.

[52] For all of those reasons, there will be an order that Caveat 9446783.1, registered against certificate of title MB5C/1400 (Marlborough Registry), shall not lapse until further order of this Court. It is a condition of making of the order that the applicant is to commence proceedings for the enforcement of its alleged contractual right and not less than 20 working days and thereafter as to make expeditious progress towards the determination of those proceedings. The parties should confer on the issue of costs and if they are unable to agree are to file memoranda concerning costs not exceeding five pages on each side within 10

High Court of New Zealand Decisions

Savvy Vineyards 3784 Limited v Old Oak Limited [2015] NZHC 513 (18 March 2015)