SAVVY VINEYARDS 3784 LTD v ARCK LTD [2015] NZCA 534

SAVVY VINEYARDS 3784 LTD v ARCK LTD [2015] NZCA 534 [11 November 2015]IN THE COURT OF APPEAL OF NEW ZEALANDCA290/2014[2015] NZCA 534BETWEEN SAVVY VINEYARDS 3784 LIMITEDAppellantAND ARCK LIMITEDRespondentHearing: 17 August 2015Court: French, Simon France and Asher JJCounsel: C L Bryant for AppellantT Sissons and S F Gaines for RespondentJudgment: 11 November 2015 at 12.00 pmJUDGMENT OF THE COURTA The appeal is allowed. The decision dismissing the appellant's claim forlosses arising from the non-supply of the 2012 and subsequent vintages isset aside.B The appellant is entitled to losses arising from the non-supply of the 2012and subsequent vintages.C The proceeding is remitted to the High Court for determination of thequantum of losses sustained by the appellant as a consequence of therespondent'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.____________________________________________________________________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 throughthe 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.2Background[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.1 Savvy Vineyards 3784 Ltd v Arck Ltd [2014] NZHC 903.2 At [3]–[13].[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'sbrother, 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 dated26 July 2007, and for the 30 hectare block, 13 November 2007. The agreements arefor an initial term of 10 years (10 fruit producing vintages), with Savvy having theright to extend for two further terms of 20 years. Under the grape supply agreementsSavvy had the option, exercisable by notice in writing at specified times, to purchasepart or all of the harvest for a minimum of three years. The vineyard managementagreements were not subject to the exercise of options.[8] Target cropping levels are specified in each grape supply agreement. Theserange for the 10 hectare block from 2.25 tonnes per hectare for the second vintageafter planting to 9 tonnes per hectare for the fifth and subsequent vintages and from2.33 tonnes to 9.3 tonnes per hectare for the 30 hectare block. Both agreements setout how the purchase price is to be calculated.[9] Mr Vegar prepared a letter dated 27 April 2009 for the purpose of givingnotice of the exercise of Savvy's option to purchase all grapes produced from the10 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 thefollowing year, on 26 April 2010, for the purpose of exercising Savvy's option topurchase 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 thetarget 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 waslooking for alternative uneconomic uses for the grapes which would still providesome 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 soughtdamages 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 excessgrapes, and that there were misrepresentations and contractual mistakes. However,all were abandoned save for the defence that Savvy did not exercise its option topurchase under the grape supply agreements by serving the requisite notice in theprescribed manner. Arck argued also that on their true construction the grape supplyagreements did not entitle Savvy to take Arck's grapes harvested in excess of thetarget 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'sjudgment. 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. Iam 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 theongoing 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 usall the relevant evidence, and no credibility issues or disputed questions of fact havebeen 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 eachthird anniversary of the Commencement Date, to the intent that theBuyer may on any such date elect whether it proposes to purchase anyGrapes for the remaining term or any part of the remaining term of theAgreement.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 the3 See Court of Appeal (Civil) Rules 2005, rr 47–48.number of hectares (and the rows included in the hectares) of eachvariety the Buyer wishes to purchase.2.4 If the Buyer exercises its right of first refusal in accordance with thisclause 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 agreedbetween 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 threeyears, 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 wascontemplated therefore that there could be an activation of the grape supplyagreements under cl 2.2 for what was remaining of the term of 10 years, and thatelection 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 servedpersonally 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 topurchase 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 grapesafter 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 prejudiceto the outcome of this appeal, Savvy has exercised its option to purchase crops fromthe 10 hectare block from 2016 onwards and from the 30 hectare block from 2017onwards.[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.74 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.[33] The nature of an option was discussed by Cooke J in Murray v Scott.8 Heobserved there are four traditional answers to the "perhaps academic riddle" of whatis 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 torevoke 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 hadsome academic support and had been recently accepted by Gibbs J in the High Courtof Australia.11[35] Elsewhere the irrevocable offer theory has been criticised as illogical. As Diplock LJ said in Varty v British South Africa Co:12To 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" connotesthe 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 viticultureconsultant, provision for the buyer's viticulture input, provisions for vineyardmanagement including the creation of an annual plan, target brix levels, disease andpest status, detailed statements as to cropping levels and harvest date, time and8 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) 132 CLR 57 at 75–76.12 Varty v British South Africa Co [1965] Ch 508 (CA) at 523.method, as well as a host of detailed clauses relating to the mechanics of thetransactions.[37] They were potentially full operating contracts, awaiting option notices tobring them to life. That position can be contrasted to contracts where on exercise ofthe option an agreement must be drawn up, which Cooke J in Murray v Scottconsidered indicative of an irrevocable offer.13 The agreements can therefore be seenas contracts for the supply of grapes conditional upon the sending out of notices asprescribed in cl 2.2.Approach to whether there was an agreement[38] In approaching the analysis of whether agreement was reached, Ms Bryantand Mr Sissons both adopted the "acid test" approach to contract formation, referredto by Cooke J in Meates v Attorney-General:14The 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 anagreement 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 verbalcommunications that objectively establishes, on the balance of probabilities, that theparties had agreed to be bound for the balance of the term as opposed to just the2010–2011 harvests. He suggested there was an ad hoc agreement or agreements forthose vintages, with a mere expectation or assumption about 2012 and 2013. Giventhose competing contentions, it is necessary to consider more closely the dealingsbetween the parties.13 Murray v Scott, above n 8, at 656.14 Meates v Attorney-General [1983] NZLR 308 (CA) at 377.The dealings between the parties[40] The unsent notice relating to the 10 hectare block drafted by Mr Vegar was as follows:27 April 2009Tony EbertArck Ltd,C/- Withers Tsang & Co. Ltd,24-26 Pollen Street,Ponsonby,AUCKLANDDear TonyRE: 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 VegarManaging 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 hectareblock, and for the 2011 season from the 30 hectare block. It is clear from theevidence in chief of Mr Vegar and Mr and Mrs Ebert that at the time of the firstharvest in 2010 of the 10 hectare block, the parties proceeded on the basis Savvywould purchase all the grapes for the year in question. There was no specificevidence as to how that supply and purchase was initiated, but it can be assumedthere were communications about the vintage. There was no need to discuss termsbecause 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 advisedMr 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 ofoverview of the expected tonnages, costs and scenarios.[45] Mr Vegar responded one month later, referring to an expected increase in theprice 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 notanswer 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 yearperiod for the 10 hectare block would have expired by then. Ms Bryant argued thisindicated the agreements would apply in 2013. We agree the February emailexchange presupposed Savvy would be buying the grapes in 2013. The references to2013 sales and future years would have been unnecessary if it was not assumedSavvy would be the purchaser in that year. The exchange is only explicable in lightof an agreement, at least in respect of the 10 hectare block, continuing beyond 2012and 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 VoluntaryLiquidation  Jenni and I need a meeting with both of you together or byyourselves  Peter: If you and Jean will manage in the short term we need todiscuss our short term requirements as in projections up to 2013 forour 10h and 30h  We need to discuss our juice/grapes sale position and any otheroptions you would advise us to explore, if any  Jenni and I are still very passionate with the dream you introduced us too and we want to proceed with the strongest plan.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 notcontested, about what the Eberts said. The Eberts were very concerned by theproblems of the oversupply of grapes, and they understood the problems in theindustry. They saw the contracts and business relationship with Savvy as being forthe very long term and were prepared to work with Savvy on payment terms for the2011 vintage, as they sympathised with Savvy's situation. They wanted to helpgiven the relationship between the families, and it was in their own interests to assistSavvy. Arck was unlikely to find another buyer. Arck would not survive withoutSavvy'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 toSavvy 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 contractswhich we will have signed up by the end of this week". Mr Ebert, in the firstunfriendly 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 theprevious year's vintage. Mr Vegar responded that evening asserting Savvy had thecontractual right to purchase grapes from Arck from both vineyards for the 2012vintage "and for future years".[52] The emails thereafter became increasingly confrontational, the issue beingthe Eberts' concern that Savvy had been keeping excess grapes from the vintage foritself. Arck purported to terminate the grape supply agreements on 10 February2012.[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 explainedunder cross-examination:A. This was a hands-off investment, I didn't know anything or care reallyabout 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 theVegars, as far as we were concerned.A. I was never aware that a notice should be used to trigger, I was always –believed that we would supply the Vegars the grapes.Q. And so when the grapes were supplied, as far as Arck was concerned,the Grape Supply Agreements were well and truly in place andoperative?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:A. No it is not right My understanding was that we were going tosupply 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'vereceived 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.A. I hope that now we're in litigation, which I never chose, I hope that thatis a legal position that will be considered. Prior to that, sir, I always believed we were giving the grapes to them.Q. Under the Grape Supply Agreements?A. Under all of the agreements. You know, the whole thing. As you said –the package.DiscussionApproach to contract formation in this case[55] Before considering these exchanges we note the words of Lord Cairns LC inBrogden v Metropolitan Railway Co:15My 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 formalshape of executed and solemn agreements, a contract has really beenconstituted 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,16that a written agreement signed by one party and proffered to but never executed bythe other was of contractual effect if:17 the course of dealing and conduct of the party to whom the agreementwas propounded has been such as legitimately to lead to the inference thatthose with whom they were dealing were made aware by that course ofdealing, that the contract which they had propounded had been in factaccepted 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:18But I would respectfully keep it in mind as a reminder that a mechanicalanalysis in terms of offer and acceptance may be less rewarding than the testwhether, viewed as a whole and objectively, the correspondence shows aconcluded agreement. On either approach the point of view of the15 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.reasonable man in the shoes of the recipient of each letter is of majorimportance.[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:19The 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 toassessing the existence of a contract. Although the courts often refer to consensus adidem or a meeting of the minds as a requirement, it is clear an apparent consensuswill suffice.20 It is permissible when examining whether a contract has been formedto consider the words and conduct of the parties towards one another subsequent tothe alleged formation.21Relevant 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 ofan option or some other specified act and then despite the specified act not occurringhave 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 anagreement did not need to be in writing but might be implied from a course ofconduct that led one of the parties to suppose the strict provisions in the contractwould not be enforced. He quoted the judgment of Lord Cairns LC in Hughes vMetropolitan Railway Co, in which he concluded the strict contractual provisions19 At [29], citing Meates v Attorney-General, above n 14, at 377.20 David McLauchlan "The Drastic Remedy of Rectification for Unilateral Mistake" (2008) 124LQR 608 at 610.21 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [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.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 inwriting to purchase a sugar cane farm that was exercisable by a certain date.24 Theoption was never exercised, but the purchaser proceeded to occupy the property andpaid the agreed price over a number of years. It was held there was a contract topurchase formed even though the specified conditions had not been fulfilled. Theoption was treated as a form of conditional contract. It was stated:25 the inference is irresistible that the parties agreed to treat the conditionalcontract constituted by the option as absolute and did so because they knewthat [the purchaser] had elected unconditionally to become the purchaser.When a vendor sells land the consideration which the contract secures forhim is payment of the purchase money for which he stipulated. It is indeed alegal incongruity for the vendor to receive and retain the whole of thepurchase money and then complain that conditions of the contract operatingpending completion have not been performed and on that ground claim to berelieved of his obligation to transfer the land.[63] In Bowman v Durham Holdings Pty Ltd there was an option to purchase aninterest in coal and minerals under certain land.26 The appellants did not take thesteps prescribed in the contract to extend the term of the option. It was held tonevertheless remain on foot as the parties' conduct after the notice of extension wassufficient 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 beinferred 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 have23 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) 131 CLR 8.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 thedifficult 2011 season, Savvy assumed it was obliged to purchase all the fruit fromArck, 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, ratherthan as part of an ad hoc arrangement to supply each year. In March 2011 Arck didnot contest, and by its conduct impliedly accepted, Savvy's assertion that Arck's fruitwould be onsold "in future years". The express references by Arck to the 2013harvest, which was beyond the expiry of any initial three year period for the10 hectare block, also suggests it was bound for the long term. This is consistentwith Mr Ebert's evidence that the "grapes would always go to the Vegars as far as wewere 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 purchaseall the fruit from Arck even though it could not sell it. This was in an economicsituation that had deteriorated and where it was contrary to Savvy's interests topurchase the grapes. And when Mr Vegar gave the "excellent news" of an improvedmarket on 7 February 2012, Mr Vegar reported Savvy had received proposals for twoto three year contracts, which Savvy would have signed within the week. Consistentwith entering a long term agreement for the purpose of ensuring supply, Savvy'sactions 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 inwriting in the agreements. All that was needed was for them to be activated in someway.[70] Put together and objectively assessed, there was in our assessment mutualagreement between the parties that not only were the contracts binding but that allthe grapes would be supplied and purchased for the entire term. There is noevidence inconsistent with that mutual intention. If no dispute over tonnage hadarisen, it could have been expected the parties would have continued in a similarmanner for the duration of the agreement.[71] We consider the alternative, argued by Arck, that the parties entered intoannual ad hoc agreements to be inconsistent with the parties' conduct. They did notact as if they could walk away at any time. Rather, their references to the contractcontinuing into the future, and their actions once the dispute arose in February 2012are explicable only in terms of a binding long term supply agreement.[72] We have also considered whether the agreements were for additional threeyear terms only, and not the full terms. This was not an argument pursued by Arckand in our view would not be a realistic way of viewing what was agreed. This isbecause there is no indication in any of the evidence that the parties were thinkingalong 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'scorrespondence and actions, indicated its intention to purchase the grapes for theduration of the initial term of the agreements. Arck, through Mr and Mrs Ebert,signaled their acceptance of that offer. Their conduct, objectively assessed, showsthey regarded themselves as contractually bound. They had a concluded agreementfor 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 specificallyaddressed the requirements for the exercise of the option, or, after Mr Vegar haddrafted his initial notices, turned their minds to that issue. Moreover, as Cooke J observed in Meates v Attorney-General:27The 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 benefitof Gilbert J's decision on the point. However, he makes an observation in hisjudgment consistent with our conclusion:28It 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 togrant the relief sought by Savvy for an order setting aside the High Court decisionthat no contract was formed requiring Arck to sell and Savvy to purchase the grapesfor the 2012 and subsequent vintages. We remit the proceeding to the High Court forthe determination of the losses sustained by Savvy as a consequence of Arck'srefusal to supply Savvy with grapes for the 2012 and subsequent vintages.Result[77] The appeal is allowed. The decision dismissing the appellant's claim forlosses 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 andsubsequent vintages.27 Meates v Attorney-General, above n 14, at 377.28 Savvy Vineyards 3784 Ltd v Arck Ltd, above n 1, at [28].[79] The proceeding is remitted to the High Court for determination of thequantum of losses sustained by the appellant as a consequence of the respondent'snon-supply of the 2012 and subsequent vintages.[80] There is no reason why costs should not follow the event. We order that therespondent pay the appellant costs for a standard appeal on a band A basis togetherwith usual disbursements.Solicitors:Hesketh Henry, Auckland for AppellantGaines Law, Blenheim for Respondent