WAIHOPAI VALLEY VINEYARD LTD v SAVVY VINEYARDS 3550 LTD & ORS [2014] NZHC 1599

WAIHOPAI VALLEY VINEYARD LTD v SAVVY VINEYARDS 3550 LTD & ORS [2014] NZHC 1599 [9 July 2014]PUBLICATION VERSIONIN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2014-404-001177[2014] NZHC 1599BETWEEN WAIHOPAI VALLEY VINEYARDLIMITEDPlaintiffAND SAVVY VINEYARDS 3550 LIMITEDFirst DefendantCONSTELLATION BRANDS NEWZEALAND LIMITEDSecond DefendantGIESEN WINES LIMITEDThird DefendantTREASURYWINE ESTATES (MATUA)LIMITEDFourth DefendantHearing: 8 July 2014Appearances: I C Bassett for PlaintiffC L Bryant for First DefendantJudgment: 9 July 2014 at 3pmJUDGMENT OF ANDREWS J[Application for discovery of specified documents]Introduction[1] The plaintiff ("Waihopai") owns two vineyards in Marlborough. The first defendant ("Savvy") has for five years managed the vineyards and has bought theharvested grapes, pursuant to Vineyard Management and Grape Supply agreements. Savvy has on-sold the harvest to various local wineries ("the wineries") pursuant tosupply agreements.[2] On 19 May 2014, Waihopai issued this proceeding against Savvy, claiming that Savvy is in breach of a fiduciary duty owed as manager, and in breach of a contractual duty of good faith. The claim relates to the provisions of the supply agreement, [REDACTED]. On 3 June 2014, Waihopai issued notices terminating the management and supply agreements.[3] Although the pleadings have reached the stage of an amended statement of claim and a statement of defence to the amended statement of claim, there has to date been no case management conference. Standard procedural directions have not yet been made.[4] However, Waihopai has applied for an order for disclosure of "weighbridge"records (which record the tonnage of harvested grapes); for summary judgment by way of a declaration that it validly cancelled the management and supply agreements; for an order for "specific discovery"1 of the supply agreements between Savvy and the wineries; and for an order to preserve funds.[5] Further, Savvy has applied for an interim injunction to prevent Waihopai from acting on the notices of termination, and requiring Waihopai to allow Savvyaccess to the vineyard to carry out its duties as manager. Savvy's application for aninjunction has been set down for a hearing on 14-15 July 2014. Savvy has also applied for an order to remove the wineries as parties in the proceeding.21 But relying on High Court Rules 8.8, which refers to "tailored discovery".2 The 5th defendant has been removed as a party. The 1st to 4th defendants have been excused from taking any steps in the proceeding.[6] Waihopai's application for discovery of the supply agreements betweenSavvy and the wineries was set down for hearing before me on 8 July 2014. Discovery was sought as follows:(a) Contract documents as between [Savvy] and [the wineries] for the sale of grapes from the 2014 harvest.(b) Documents relevant to the dates of due payment, the dates of actual payment and the sums already paid or to be paid variously by [the wineries] to [Savvy] for the sale of grapes from the 2014 harvest.(c) Documents relevant to any sale by [Savvy] of grapes from the 2014 harvest to any wineries other than [the wineries].[7] In his oral submissions, Mr Bassett identified two classes of documents as to which Waihopai sought discovery, and which he submitted were relevant to, andnecessary for, submissions to be made on behalf of Waihopai on Savvy's applicationfor an interim injunction. The two classes of documents are:(a) evidence of any funds received by Savvy from the wineries; and(b) copies of the contractual documents between Savvy and the wineries.[8] At the conclusion of the hearing I directed that Savvy is to provide Waihopaiwith a solicitor's letter disclosing any payments made to it under the supplyagreement for the 2014 harvest, including the amount of any such payments. I further directed that Waihopai is not to use this information for any purpose otherthan for its submissions on Savvy's application for an interim injunction (to be heardon 14/15 July 2014) and should Waihopai contemplate any other use of the information, it is to give notice to Savvy. Leave is reserved for any consequent application to the Court.[9] I also directed that in the light of clarification given by Ms Bryant on behalf of Savvy as to the terms concerning the calculation of payments by wineries, I would make no order for discovery of the contracts between Savvy and the wineries, and tothat extent Waihopai's application was dismissed.[10] Finally, costs were reserved.[11] I now set out a brief outline of counsels' submissions, and my reasons for theruling.Submissions[12] Mr Bassett submitted for Waihopai that it is necessary to have information as to funds received by Savvy, in order to make a submission as to the overall justice ofSavvy's application for an injunction. First, he intends to submit that Savvy, as manager of the vineyards, is a fiduciary, and has an obligation to account to Waihopai for any funds it receives that belong to Waihopai. He submitted thatWaihopai has a good case that because of Savvy's breaches, the grapes harvested in2014 belong to Waihopai, not Savvy, that Savvy had no right to on-sell the grapes, and that any funds received belong to Waihopai. He submitted that the fact that for some two months since the harvest was completed in mid-April 2014 Savvy has failed to account to Waihopai goes directly to a submission that the overall justice lies against granting the injunction sought by Savvy.[13] Secondly, Mr Bassett submitted that evidence of funds received by Savvy goes to a submission that Savvy does not come to the Court seeking an injunction with clean hands. Rather, it comes to Court in breach of its obligations as fiduciary. He submitted that this is a prime reason why Savvy should be denied equitable relief, and why the interim position should not be held or maintained, as Savvy seeks.[14] Regarding the contractual documents, Mr Bassett submitted that it is essential for these to be available to Waihopai, and before the Court, in order to determine whether there are further payments due from the wineries, when such payments are to be made, and how much they will be. Secondly, Mr Bassett submitted that having the contracts with the wineries will give the Court the full evidential picture. He submitted that the contracts are part of the key factual scenario as to the flow of the annual crop and the flow of funds.[15] For Savvy, Ms Bryant submitted that the issue is whether Waihopai'stermination notices should stand. She submitted that the supply agreements have the same termination provision, requiring compliance with a specified process. She submitted that it is common ground that that process has not been complied with.Accordingly, the issues for determination will be whether Savvy has a reasonably arguable case that the termination notices are invalid for non-compliance and, if so, whether an injunction should be granted.[16] Ms Bryant accepted that overall justice is a factor to be considered. She further submitted that for the purposes of the injunction hearing, there is no dispute that Savvy has sold the crop, and that it has not accounted for any proceeds of sale. Accordingly she submitted, if Waihopai succeeds in its allegation of a fiduciary duty, the cause of action under that heading is made out, in the light of the fact that Savvy has not accounted to Waihopai. She submitted that that is so whoever it is holds any of the proceeds of sale.[17] Ms Bryant also drew my attention to the fact that on 17 June 2014, Asher J made orders in accordance with consent memoranda, pursuant to which the wineries are holding funds payable to Savvy (and claimed by Waihopai) and to pay thosemonies into their respective solicitor's trust accounts. The funds are to be heldpending further order of the Court, on interest bearing deposit. Ms Bryant also submitted that apart from a payment [REDACTED] from one of the wineries on 19 May 2014, Savvy has not received any money since this proceeding was filed. However, she acknowledged that there may have been advance payments made to Savvy. Ms Bryant submitted that because of the consent order, the funds payable in respect of the 2014 harvest are secure.[18] Ms Bryant further submitted that the total amount of proceeds of sale hasbeen disclosed to Waihopai, by way of a letter from Savvy's solicitors. This letterwas sent in accordance with directions made by Thomas J. Ms Bryant submitted that the information contained in that letter is sufficient for the purposes of argument onSavvy's application for an injunction.[19] Regarding the request for an order for disclosure of contractual documents, Ms Bryant submitted that Waihopai has claimed a right to the money payable to Savvy under the supply agreements, that Savvy has disclosed what it is going to receive and that the remainder of the terms of contract between Savvy and the wineries is irrelevant to the issues raised in the injunction application, and arematters solely between Savvy and the wineries. She submitted that the Court does not need to know what is due to be paid, and when, given that payments are now being held by the wineries, and it is accepted that Savvy has not accounted to Waihopai.[20] Ms Bryant further submitted that the Court will not need to have the "full evidential basis" for the injunction hearing. The Court will need only to have thosedocuments that are important for the argument. She submitted that the Court will not need to know what adjustments can be made to the price payable by the wineries. This is because the terms of agreement as to calculation of the amount payable byeach winery are summarised in Savvy's solicitor's letter of 26 June 2014. Ms Bryantstated to the Court that the letter sets out how much is to be paid, fully sets out the mechanism for setting the price, and confirms that that is the price to be paid. Ms Bryant further advised the Court that there is no room for any inference that there has been, or can be, any adjustment to the price paid by the wineries. In the circumstances, she submitted, there is no need for disclosure of the full contractual documents.[21] Ms Bryant further submitted that Waihopai has an ulterior motive for seeking details of monies, and copies of contractual documents. First, she submitted, Waihopai seeks to starve Savvy of funds, and will seek to freeze any monies it sees coming in to Savvy. She further submitted that the contractual documents are confidential. Waihopai has cancelled the management and supply agreements withSavvy and has said it wants to go to the market for a buyer for next year's harvest.She submitted that it would significantly disadvantage if the full terms of its contracts with wineries were known to Waihopai. This submission was rejected by Mr Bassett.[22] It is relevant that Savvy's solicitor's letter of 26 June 2014 followed atelephone conference with Thomas J, following which her Honour recorded theparties' respective positions concerning Waihopai's application for discovery, in particular as to whether the documents sought were relevant to Savvy's injunction application. Her Honour directed Ms Bryant to address two issues: Savvy's abilityto exit from the agreements with the wineries, and [REDACTED].[23] The letter is under two headings: "Avoidance of the agreements" and "Price". In the first section ("Avoidance") it is stated that there is no provision which enablesSavvy to avoid the sale to the wineries [REDACTED]. The letter goes on to note a provision in the agreement between Savvy and one of the wineries pursuant to which, if Savvy does not receive grapes under its vineyard agreements then, subject to certain requirements, Savvy would not be deemed to be in breach of its obligation to deliver grapes.[24] Under the second heading ("Price") [REDACTED]. However, the letter goeson to state:[REDACTED].The letter then goes on to summarise the manner in which the price for grapes supplied by Savvy is established, for each of the wineries concerned.[25] I accept Ms Bryant's advice that the information given to Waihopai complieswith the directions of Thomas J, and sets out the mechanism for setting the price to each winery, and confirms that that is the price paid by the wineries and, further, that there is no room for any inference that there has been any adjustment to the pricepayable by the wineries. In the light of that advice, I accept Ms Bryant's submissionthat there is no need for an order that the contracts with the wineries be disclosedprior to the hearing of Savvy's application for an injunction.[26] With respect to the application for disclosure of monies paid, the only issue concerns any payments that may have been made before the order was made for funds to be withheld by the wineries. Accordingly, I directed that Savvy is toprovide Waihopai with a solicitor's letter disclosing any payments made to it underthe supply agreements with the wineries for the 2014 harvest, including the amount of any such payments.[27] I accept Ms Bryant's submission that this is confidential information, and Ihave directed that Waihopai may not use the information for any purpose other thanfor its submissions on Savvy's application for an interim injunction, to be heard on 14/15 July 2014. I further directed that should Waihopai contemplate any other useof the information, it is to give notice of that to Savvy, and leave is reserved for any consequent application to the Court.Orders[28] Except as to the letter to be provided to Waihopai (see [26], above)Waihopai's application for discovery is dismissed. The use of the informationprovided by Waihopai is restricted, as set out in [27], above.[29] Costs in respect of the application for particular discovery are reserved.________________________Andrews J