Plaintiffs v Defendants

Plaintiffs v Defendants - [2010] VSC 156 - VSC 2010 case summary — Zoe

[21]

11 Rentiers contended that Wingara breached its duty by the reduction of irrigation. In support of that proposition it pointed to the evidence of Mr Brodie and Mr Thornton as well as the correspondence in November 2005. Mr Brodie was the general manager of vineyards and viticulture for the Wingara Wine Group. He had been in that position since about November 2005 and was responsible to oversee all vineyard operations in Coonawarra on a daily basis and of its Deakin Estate production in Mildura through Wingara's manager, Craig Thornton. The day to day management of the vineyards in Mildura was undertaken by Craig Thornton who was Wingara's vineyard and citrus manager reporting to Mr Brodie. Mr Brodie's experience with wine production at Coonawarra and Mildura was detailed and considerable. He began his career as a clerk in the Bank of New Zealand after leaving school. He then began work as an assistant orchard manager growing kiwi fruit in New Zealand, eventually becoming the technical services manager and horticulturalist at Wingara Mildura from about August 1997. Mr Thornton also had considerable experience in growing grapes in the Mildura area. He held the position of vineyard and citrus manager at Wingara since 2005 having previously been assistant manager since about September 2000. Before that he was working as an agronomy consultant at Sunraysia Environmental in Mildura from 1998, and between 1995 and 1998 he was the assistant manager with the predecessor company to Wingara in a task described as "technical and trials" in the Mildura region. That involved him in looking after the vineyard areas developed together with Mr Jeff Milne (to whom Mr Thornton reported) and others, and closely checking vines for proper irrigation, healthy growth and the elimination of pest and disease. It was Mr Thornton who made the daily operations decisions when he assumed the role of manager. Before then it had been Mr Milne's role and Mr Thornton had worked closely with Mr Milne as the latter's assistant.

[23]

13 There is some evidence, however, that greater yields could have been achieved by Wingara on the Rentiers Mildura vineyards. Principally the expert evidence of Ms Davidson, who was called on behalf of Rentiers, is to the effect that greater yields could have been achieved by Wingara. Wingara did not maintain that greater yields could not have been achieved but, rather, that the yields obtained were obtained in the honest and diligent discharge of the management agreement with Rentiers. The probability (to put the evidence of Ms Davidson and others at its highest) that greater yields could have been achieved on Rentiers' Mildura vineyard does not establish a breach of Wingara's duties under any of the terms of the Rentiers Management Agreement. Both Mr Brodie and Mr Thornton gave evidence, which I accept, that they (and therefore Wingara) did not adopt an irrigation practice to reduce yields. Mr Brodie said that Wingara did not irrigate to decrease yield but to maintain a healthy canopy and healthy shoots at all times of the year. Mr Thornton said that the irrigation management adopted by Wingara was to apply water at the right time to secure the right canopy architecture and bunch architecture of the grapes. There was no evidence by anyone, including Ms Davidson, to suggest that the farming, cultivating and management of the vines failed to accord with good horticultural practice and approved methods in the district. I accept that some form of irrigation, known as "deficit irrigation" or "regulated deficit irrigation", formed part of the regular horticultural practices in the Mildura region and in particular of Wingara at the Rentiers land. Ms Davidson expressed the view that this was a high risk management strategy if not done correctly and could have adverse impact, but I accept that it was done correctly by Wingara. It was Mr Brodie and Mr Thornton who had the day to day management responsibility for the irrigation needs of the Rentiers vineyard in Mildura. Their evidence was of detailed attention to the crop to obtain quality produce. Ms Davidson had only limited access to the property some years after the years in dispute. It is impossible, as Ms Davidson agreed in evidence, from a distance of time to second guess the daily decisions of the irrigators and managers about such matters as how much water to apply to vineyards. A table produced as part of her expert report showed that the average yields obtained from the Rentiers vineyards during the periods 1998 to 2001 was, on average, about the same as for the whole of the period from 2002 to 2009. The 2007 year was particularly low but that was explained by Ms Davidson as affected by a previous frost which might also have had an impact on the 2008 year.

[24]

14 Rentiers also pointed to the fact that greater yields were achieved by other growers in the same area as that under Wingara's management of Rentiers' land. To this may be added the opinion of Ms Davidson that she thought she could have obtained a greater yield (20% in some cases ) "with water and some other management practices". However, reliance upon these matters is, in my view, to perpetuate the false dichotomy which Rentiers otherwise rightly criticises. The Rentiers Management Agreement did not require the production of maximum yield. Its obligation in clause 3.1(a) was that Wingara engage in the efficient management and conduct of the property for the production "of high quality produce". I do not construe that clause as imposing an obligation upon Wingara to produce the maximum amount of high quality produce capable of being produced during the term of the agreement. Such an implication would impose upon Wingara an obligation which is unlikely to be found in the commercial agreement between these parties for the production of grapes where so many variables (including natural climatic variables) may involve difficult judgments on a day to day basis. The standard of management required by the management agreement is deliberately couched in terms of obliging the manager to do all things "reasonably necessary". The obligation expressed in such terms gives the manger, in this case Wingara, a sufficient band within which to exercise expert and experienced judgment. The obligation in clause 3.1(b) was to farm, cultivate, harvest and manage the vines according to good horticultural practices and approved methods in the district in which the vines were located and to do so in a proper and workmanlike manner including harvesting the produce. The obligation in clause 3.1(c) was to tend and take all reasonable steps to protect the vines including proper pruning, proper training, proper irrigation and proper spraying and fertilising. I do not find established any breach of any of these obligations by the way in which Wingara admittedly undertook its functions under the Rentiers Management Agreement. It did undertake steps directed to the production of high quality produce as it was required to do under the management agreement. That, in part, may have resulted in lower yields than if it had not done things directed to the production of high quality produce but had focussed upon maximising yields. Its obligation, however, was not to maximise yield at the expense of quality. The witnesses for Wingara rejected suggestions that their irrigation of the vines was conducted "so as to reduce" yields. Their evidence (which I accept) was that Wingara's irrigation was undertaken, rather, with a view to the maintenance of a healthy crop directed to the production of high quality produce. It may be that other growers in the region did achieve higher yields than Wingara on the Rentiers land but that circumstance does not establish the breach of any of the obligations imposed upon Wingara by clause 3.1. No breach of the obligation in clause 3.1(c) for proper irrigation as part of the broader obligation to tend and protect the vines was established in any way by the evidence. The evidence clearly established that the irrigation was undertaken in a careful, planned and constantly monitored basis to ensure the production of good quality produce. In the circumstances I reject the first claim against Wingara of breaches of the Rentiers Management Agreement.

[43]

29 The grapes were not graded as grade one quality wine grapes at the relevant time. There is no suggestion of any dishonesty on the part of those grading the grapes at the time. Mr Brodie's evidence was that wine produced from grapes graded as grade two may nonetheless be assessed to have reached the standard necessary for release under those premium labels. However good the wine may have been once produced, and however much the ultimate quality may owe to the grapes (as distinct from the skill of the winemaker), there is no secure foundation to reject the appropriateness of the grading of the grapes at the time when they were graded nor to grade them now as grade one grapes. There was no direct evidence about the grapes from which I could determine that they were grade one grapes. Understandably no grapes were tendered nor was there any evidence about their quality or features from which I could form a judgment that they were grade one grapes. The evidence from which such a conclusion was urged upon me was that the grapes were used to produce the premium quality labelled wines of Prodigy and Odyssey. However, the process from harvesting to bottling is consistent with grade two grapes being used. Wingara graded the grapes after fermentation some six months after harvest. There was no determination or evaluation of the grapes at that time beyond that undertaken by Wingara and not then challenged. There is no material from which I can conclude that the grading done at that time was wrong. Mr Brodie's evidence was that it was possible that grapes graded as grade one and earmarked for Prodigy and Odyssey might not ultimately be used in those bottles under those labels and vice versa. His evidence was that it was a matter for the winemaker to determine whether the grapes may be assessed to have reached the standard necessary for release under those premium labels notwithstanding that they might initially have been graded (correctly) as grade two grapes. I have no reason to doubt his evidence and accept it in this regard completely. Accordingly, I do not accept this claim to have been made out.

[47]

31 Wingara entered into many contracts with other growers before and after entering into the Rentiers Produce Supply Agreement. At least some of these contained minimum price terms that remained current during the terms of the Rentiers Produce Supply Agreement and, therefore, provided for amounts to become payable by Wingara to other growers. A consequence of this is that there were contracts which required Wingara to pay during the currency of the Rentiers Produce Supply Agreement amounts that were higher than the weighted average price as contemplated by paragraph (a) in the comparative formula for the determination of the price which Wingara had to pay to Rentiers. Rentiers contended that the phrase "the highest price offered during the relevant season" included prices under contracts entered into before the season in respect of which Wingara was to pay amounts to Rentiers pursuant to the formula. I am unable to agree with that construction. The intention revealed by the clause is to secure for Rentiers the highest price "offered" during any relevant season. Rentiers was thereby guaranteed to receive the best price on "offer" for its grapes during any year provided that it was not less than the weighted average price. The use of the word "offered" as distinct from the word "paid" is perhaps sufficient to reveal the intention that what Rentiers was to receive was the best price Wingara was prepared to offer someone else as distinct from a price it might historically have become obliged to pay but would not otherwise have offered when required to pay it. I should also add that the construction urged upon me by Rentiers would render nugatory the point of the comparison provided for in the formula agreed for the determination of price, since it is of the nature of a weighted average price that it will be less than the highest price offered: in other words, the construction urged upon me by Rentiers would render the first limb of clause (a) unnecessary. Accordingly, I am unable to accept this claim.

[51]

34 The relevant survey when the Rentiers Produce Supply Agreement was entered into was the Regional Wine Grape Crush Survey 2000 to which Rentiers urged that I should have regard when construing the provision for payment of the district weighted average price. Having regard to the document, however, does little to assist in construing the terms of the agreement. Page 10 of the survey stated that the weighted average was calculated "by dividing the total farm gate value ... (summed across all wineries) by the total tonnes of the same variety purchased from other growers. Winery grown grapes are not included in the calculation of weighted average price". It does not, however, indicate whether the survey took into account indicative prices of the kind subsequently supplied by Wingara and complained about in these proceedings by Rentiers. It is probable that it did. It is clear that subsequent publications were based upon calculations taking into account indicative prices as well as actual prices. It is accepted that Wingara submitted indicative prices for each variety of grapes for vintages from 2002 to 2009 and I infer that it did so before the year 2002. In any event, there is no evidence led on behalf of Rentiers that Wingara did not submit indicative prices in the years before 2002 or that the survey was not based in part upon such indicative prices. No suggestion has been made, and none is open on the evidence, that the supply by Wingara of indicative prices was made improperly to defeat Rentiers' entitlements under the Rentiers Produce Supply Agreement. Nor is it clear that the inclusion of indicative prices would necessarily be to the disadvantage of Rentiers. In the circumstances it seems to me that the term should be construed at face value, namely, that the amount payable was that identified as the weighted average price in the publication nominated in the agreement. The contract selected the price by reference to the act of another entity, namely, the publication by the relevant Council or any successor or replacement. As such, Wingara's obligation would remain one to pay the price "as published". Accordingly I reject this claim by Rentiers.

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