The full bottle: Bordeaux château flops Aussie wine injunction claim

A Bordeaux wine estate’s recent injunction claim against a Tasmanian winemaker has produced a rich blend of intriguing information about the international wine business and Australian wine consumption.

Vieux Château Certain produces two types of expensive French red wine using various high-end grapes.

It sued Australian brand Pipers Brook Vineyard, a company majority owned by Kreglinger for wrongly representing an association with and passing-off as its elite château product.

VCC’s Federal Court injunction claim in Melbourne claimed a high degree of visual similarity between the presentation of its wine – the use of a pink cap, a label featuring a stately rural home, French text, and the name “Certan” – and Pipers Brook New Certan product and that the Tasmanian producer thereby represented it was in some way connected with or approved by VCC. .

VCC produces 30,000 to 50,000 bottles annually but sales in Australia have been very limited. It retails here for between approximately $500 and $800 per bottle.

One of Pipers Brook’s estate – Mount Pleasant – is situated on land owned by Paul de Moor, a Krelinger director who claimed to be a descendant of the Belgian wine merchant Georges Thienpont whose family had developed a VCC estate in Pomerol in the Bordeaux region of France that lies to the east of the Dordogne River, part of the wine making region referred to as the Right Bank.

To decide the contest Justice Johnathan Beach heard evidence from 10 wine experts over six days to determine whether or not the similarities were likely to mislead consumers of fine wine and members of the fine wine trade to erroneously believe there was such an association.

His 112 page judgment is a rich in observations from wine experts about French and Australian vino.

Imported wines accounted for 31.4% of the Australian wine market by value, (US $1.907 billion) of which  the majority of those wines originate from France (37.6% by value) and New Zealand (40.1%).

Bordeaux represents just 1% of all French wine sold in Australia for off-premises consumption.

$25 is the demarcation price point for identifying non-premium product according to wine author and critic, Jeremy Oliver.

A consumer purchasing a wine under $25 is someone who “likes wine but is not obsessed by it”. This type of consumer, he said, may buy a $50 bottle of wine for a gift or special occasion, but not very often.

Such a consumer has minimal knowledge of Bordeaux estates but might have heard of some of the more elite châteaux like Lafite and Latour, and maybe even Haut-Brion from Graves.

Buyers of $70 to $100 bottles of wine on the other hand are likely to be people with a cellar or collection, are wealthier, better educated about wine, subscribers to a wine publication or website, users of wine apps such as Vino and Decanter, members of a wine club or a wine group and visitors to wineries much of which they do to gain knowledge they can show off.

A typical Australian buyer of a $500 Pomerol wine would generally obtain a personal allocation from a “negociant” and buy it to consume at the optimum time a decade or so later.

Tasmanian pinot noir is typically light to medium body in structure and of medium flavour intensity – he observed – whereas the premium wines from the right bank in Bordeaux deliver significant depth of flavour and structure. In his opinion, they could hardly be more different.

Mr Oliver said that in his experience a Tasmanian pinot noir drinker would be more expected to gravitate to and be far more interested in Burgundy and Rhone wine, unless they are an individual who likes and purchases every style of wine, which is rare.

Other experts gave evidence including wine writer and critic Jane Faulkner, wine importer and distributor Daniel Airoldi, MW Master of Wine Andrew Caillard, Negociants Australia’s Timothy Evans and wine judge Philip Rich.

None of these experts were in Justice Beach’s view “representative of the ordinary and reasonable consumer”.

Huon Hooke – a professional wine writer and critic – and Ms Faulkner both swore they thought the pink cap and label similarities and name “Certan” spoke to them of a connection between Pipers Brook and VCC.

In its defence Pipers Brook argued that despite the similarity of appearance, there was no risk of confusion because few Australian consumers of Tasmanian pinot noir would have heard of, far less be able to recall much if anything about the VCC product even if they had at one time or another encountered it.

After all, the brand described it as Pinor Noir from Tasmania not a Bordeaux from France.

And,  so ran their argument, New Certan is sold in a Burgundy shaped bottle – the bottle shape used for pinot noir – whereas VCC Wine is sold in a classic Bordeaux (cabernet sauvignon) shaped bottle.

Justice Beach agreed. Very few consumers would ever have been exposed to the pink cap and other visual features of the VCC presentation and, he thought, they would not be representative of the ordinary and reasonable consumer.

That said, he accepted that those very fortunate people who can afford to collect wines from Pomerol and Right Bank châteaux – typically deep enthusiasts – might also be prepared to buy a $75 to $95 Tasmanian pinot noir.

Thus by a thin margin he was satisfied VCC has made out its case that at lease that narrow class of consumers – members of the fine wine trade who had knowledge of the French original – were likely to have been misled or deceived into thinking that the New Certan wine had some association with VCC.

That though was only up to the time Pipers Brook changed the presentation of its New Certain pinot noir. The change to a bronze cap and an off white, straight-edged label, eliminated any prospect of confusion and therefore CVV’s request for an injunction should be refused.

The judge – in assessing what loss VCC had suffered by reason of the “passing-off” for that limited period to a very limited class of consumer – concluded there had been no loss or damage to it from Piper Brook’s conduct.

The judge also found Mr de Moor had not created the label with any intention to deceive or mislead: “His motivations for creating the New Certan wine were quite personal,” derived from his familial connection to VCC in that he was in fact the grandson of Georges Thienpont’s only daughter.

He accepted Piper Brook’s undertaking not to sell the remaining 1,755 bottles of New Certan in pink cap bottles that had previously been marketed on the Kreglinger website and via the Qantas Frequent Flyer loyalty program.

Justice Beach also refused CVV’s demand that the Piper Brook trademark for “New Certan” be cancelled  on the ground of its similarity to its “Vieux” (old) Certan label because that argument wrongly assumed Australian consumers understand the meaning of that word and would recollect the name Vieux Château Certan.

Because each party had had “some measure of success” on their arguments, he ordered that Pipers Brook was not required to pay any of CVV’s legal costs of its claim.

Societe Civile et Agricole du Vieux Chateau Certan v Kreglinger (Australia) Pty Ltd [2024] FCA 248 Beach J 15 March 2024

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Buyer falls flat: No PEXA extension for lenders failure to settle

A property developer who signed up the $4 million buy of a 52 acre development site in Rockbank, in Melbourne’s outer west in August 2017 has stumbled at the finish line when it failed to have finance available to settle 5 years later.

The contract required VS Property to settle with sellers Nick and Sherryn Zurzolo on 5 November 2020.

After signing, a dispute arose with the relevant water authority – to which the buyer became a party – in relation to the vendors’ grant of an easement to the authority over part of the subject land.

The dispute remained unresolved due in part to the buyer seeking a significantly higher amount of compensation for the easement than that which the Zurzolos had agreed to.

The settlement date of 5 November 2020 passed and with no resolution in sight.

In March 2022, the Zurzolos – who were facing personal and financial difficulties due to the delay – called for settlement on or before 2 May 2022.

Buyer and seller were both aware the value of the land had also increased significantly.

After a further failure to settle on 11 May, the Zurzolos purported to terminate the contract due to the purchaser’s failure to settle.

But then in late June they served a 14 day default notice on VS calling for settlement by 12 July under pain of termination.

The water easement dispute was eventually settled in July with a settlement deed that agree the settlement date be extended to 15 September 2022.

The buyer was however unable to put the finance required to settle in place and completion did not occur.

The vendors – who had been ready, willing and able to settle – terminated pursuant to the settlement deed provision that treated the contract as automatically at an end by reason of the buyers not completing on the due date.

VS contested the termination and issued court proceedings for specific performance.

Its first contention was that the settlement deed automatic termination provision was not engage because the failure to settle was not a “default” on its part resulted only by reason of delay in their lender’s processes.

Justice Michelle Quigly agreed there was a distinction between the terms ‘fault’ and ‘default’ but held the buyer’s conduct was indeed a ‘default’ notwithstanding it arose from someone else’s ‘fault’.

The buyers further contended the termination – in the absence of a prior 14 day ‘Default Notice’ that the contract itself otherwise provided – was invalid.

Justice Quigly also rejected this argument. In her view, the failure to settle triggered the operation of the termination clause but not to bring it to an automatic end but the settlement deed term specifying contract coming “immediately to an end” effectively overrode the 14 day default notice period in the contract itself.

By notification of termination in the absence of a default notice, the sellers had – she ruled –  lawfully terminated the contract.

Not to be outdone, the buyers also argued the seller’s termination was in breach of a special condition requiring – in the case of an electronic settlement – the parties to ‘do everything reasonably necessary to effect settlement on the next business day’ if it does not occur by the end of the agreed date.

Justice Quigly noted the ‘next day’ settlement provision was only to apply in circumstances where the PEXA electronic workspace was ‘locked’ at the nominated settlement time but settlement has not occurred by 4:00pm (or 6:00pm, if the nominated settlement time is after 4:00pm).

She noted the provision dealt with a situation where settlement does not occur because of some technical malfunction arising after the workspace has ‘locked’ and dismissed the assertion that the clause could be relied on in these circumstances.

“I reject the notion that Special Condition 2.7 can be relied on in circumstances where settlement did not occur at the scheduled settlement time because the purchaser had failed to secure finance by the agreed settlement date,” she wrote in her 47 page judgment.

“It would be a nonsensical interpretation to [say] it provides carte blanche to allow an additional day to complete settlement for a reason not associated with the mechanism and requirements of the technical procedure of the electronic settlement regime”.

The buyer’s claim for specific performance was dismissed and damages for the buyer’s breach were ordered as was the removal of the buyer’s caveat. The judgment does not refer to any amount of damages that the seller’s had claimed.

VS Property and Holding Pty Ltd v Zurzolo [2024] VSC 89 Quigly J, 6 March 2024

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Agency in rent roll contract win; judges errors prolong 6 year fight

Investors who defaulted on a rent roll buy have been ordered to pay more than $200,000 for the disruption caused to the seller by their last-minute refusal to settle.

Babstock Pty Ltd sold its $800,000 residential management portfolio to Marburg Investments Pty Ltd – of which Dorothy Marburg was the sole director – in December 2017.

The rent roll contract was due to complete in February but after a number of extensions settlement was set for May 2018.

Alan Marburg – Dorothy’s husband who was to operate the business despite no experience in the role – spent 4 weeks or so prior to completion in the seller’s Bellbowrie office to learn the ropes and get a taste of how hard managing residential tenancies, tenants and owners might be.

The couple also engaged an expert consultant – who reported only trivial irregularities in the management paperwork – to satisfy themselves of the agency’s paperwork compliance.

When it came time to stump up with the cash, Mr Marburg alleged flaws he had discovered in entry condition reports (ECRs) for some 30 of the 148 properties under management even though the buyer had notified it was satisfied with such issues on due diligence.

The seller called for settlement noting that the rent roll contract allowed for managements with unrectified documentation to be retrospectively rejected on the adjustment date 90 days following settlement and any money paid for them, refunded to the buyer from the retention fund.

Babstock had already announced the sale and the retirement of its key staff to its owners and introduced Mr Marburg as a competent and reliable successor by the time the buyers’ new solicitor contended that the seller was “in anticipatory breach” and purported to terminate.

The seller rectified most of the buyer-claimed paperwork defects before nominating a time and place for completion on the due date and when that didn’t occur, again one week later.

The Marburgs refused to settle and alleged the seller to have been in breach. They then sued for recovery of their $40,000 deposit. The agency counterclaimed for the managements and revenue it lost after having to go cap in hand back to owners to get new appointments signed up.

Judge Kenneth Barlow ruled in the Marburgs’ favour in the District Court in December 2020 by accepting their “anticipatory breach” contention.

That decision was reversed by the Court of Appeal in April 2022 which concluded the seller had not breached the sale contract when insisting on settlement regardless of paperwork deficiencies.

Its adherence to usual rent roll contract usual practice – for rejected managements to be accounted for at the end of the 90-day retention period if the deficiencies remained unrectified – was upheld.

But because Judge Barlow had addressed neither the Marburg’s misleading conduct claim nor the agency’s counterclaim, the appeal judges remitted the case back to him for further argument and a decision on those points.

In his second judgment in February 2023, the judge ordered the contract to be rescinded under Australian Consumer Law s 237 by reason of Alan Marburg having relied on misleading pre-contract statements.

Those statements – contained in the business broker’s Sale Information Booklet – were that the ECRs were 100% “fully signed by all tenants and agency staff” and all properties were in the immediate locality.

He concluded “at least 19 of the ECRs were not signed” or otherwise non-compliant and “16 properties were in suburbs other than Bellbowrie and Moggill” and that the buyer had relied on the former misleading statement (ECRs) but not on the second (property locations).

The ACL s 237 ruling was made notwithstanding the entitlement to such relief hadn’t been sought by Marburg “in pleadings or at the conclusion of the trial” and had only been asked for in submissions more than three years following the trial’s end.

The matter inevitably went to appeal for a second time.

On 25 January 2024, the Court of Appeal again reversed Judge Barlow’s decision by reason of the “substantial injustice” of numerous errors in his reasoning.

And in the absence of the determination of essential points by the judge, the appeal court was required to come to its own factual conclusions on many critical issues.

The appeal judges reasoned Babstock had correctly terminated the contract due to the buyer’s repudiation and thus “had an accrued right to keep the deposit and an accrued right to damages for breach of contract” which it assessed at $190,000.

Justice Jean Dalton in giving the lead judgment of the court concluded – by examining evidence that the trial judge hadn’t – that just 13 of the ECRs could not be described as “fully signed by all tenants and agency staff”.

Regardless, the buyer company could not have relied on the representations – which the seller conceded had been misleading – because the testimony of Dorothy Marburg, its sole director, was that “she had nothing to do with the proposed purchase…it was all her husband’s doing”.

“Mrs Marburg gave extraordinarily unhelpful evidence,” observed Justice Dalton. “I cannot see that any decision-maker could regard it as reliable, or a sufficient basis for a finding of reliance by Marburg Investments or by her as guarantor”.

Even if Mr Marburg was a de facto director – something the evidence hadn’t established – he knew there were ECR deficiencies but decided to go ahead at due diligence regardless.

“The trial judge was wrong to find that Marburg Investments relied upon the literal truth of the representations in the brochure; he ought to have found to the contrary”.

Justice Dalton further reasoned – in overruling the trial judge’s finding that somehow the buyer was still relying on the brochure representations when deciding not to terminate on due diligence grounds – that even if such reliance had been proven, the chain of reliance causation had been broken by the buyer choosing to commission its own report upon which to rely.

Finally, Justice Dalton observed the buyer had not proved that it would have sustained any loss as a result of the misleading statements had it been required to complete the contract. It could after all, have retrospectively rejected the tenancies still suffering from incomplete paperwork and be refunded the amount it had paid for them on the adjustment date. These were issues the trial judge did not consider.

In a summation with which Justices Bond and Mullins concurred, Justice Dalton declared “the overwhelming weight of the evidence was against the trial judge’s findings; he misunderstood the significance of some important evidence; and he nowhere rests his finding on his observations of the Marburgs as they gave evidence”.

Rescission of the contract should not have been ordered because the buyer’s case was simply wrong on all points.

The appeal court – in doing what in retrospect the trial judge ought to have done in December 2020 – awarded Babstock over $200,000 in damages and interest as well as ordering the company and Mrs Marburg as guarantor to pay all the seller’s legal costs of the hearings and appeals.

Once costs are accounted for, the buyers will likely have spent the full equivalent of the purchase price and – instead of an asset – have only the indelible scars that 6 years of ultimately unsuccessful litigation can leave, to show for it.

Babstock Pty Ltd & Anor v Laurel Star Pty Ltd & Anor (No 5) [2024] QCA 3 Mullins P and Bond and Dalton JJA, 25 January 2024

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Court voids utterly crushing 417% p.a. interest; 70% p.a. ok

A private lender’s interest rate of 417% has been ruled to be “utterly crushing” but a court has approved its 70% per annum rate on a $430,000 six-month loan.

Connie Huang and her adult daughter Stephanie Chien applied for a “cash flow funding” loan in October 2019 through a website controlled by broker MaxFunding.

They offered their Burwood residence to which they attributed a value of $3 million as security and disclosed that it had a current $1.5 million mortgage debt to NAB.

MaxFunding referred the loan application to lender Commercial N who approved an advance repayable in 26 weeks with interest at 1.36% per week except when the lender notified in writing that it would accept interest at a lower rate of 0.35% per week.

The borrowers received advice from a local solicitor they had chosen from those suggested in the area by the broker and signed the loan and security documents which also provided that the higher interest rate was payable in all circumstances when the borrower was in default.

The valuation for the property came in late and low – just $2.6 million – resulting in reduction in the amount of the advance from $600k to $430k and denying the borrowers the additional cash they needed to service the interest for the six-month period.

The proceeds were fully deployed to pay out arrears on the NAB loan, clear another short-term $370k loan and meet the lender’s expenses.

When it came time to pay the first interest payment of $6,325 in November, they asked for a deferral and paid it in early December after a default notice had issued.

No further payments were made.

In March 2020 they were advised a payout figure of $530,000.

The lender filed suit in November 2022 to recover the principal and interest of $3.2 million calculated on a monthly compounding basis at the higher rate which annualised at 70.72%.

The borrowers retaliated with a challenge to the higher rate arguing it was as a penalty and therefore void.

The contract provided the higher rate was payable at all times unless notified otherwise and was not one that increases the rate of interest upon failure to make prompt payment.

The lender contented the interest rate provisions thus did not operate to penalise the borrower for breach but rather provided for a ‘concessional’ lower rate whilst ever there has been no default.

Put another way – it argued – the liability to pay interest at the higher rate compounding monthly “does not impose an additional or different contractual liability that arises upon the non-observance of the primary contractual obligation”.

Justice Trish Henry agreed. “The formula provides for an amount of interest that I would readily accept is seemingly extravagant, out of all proportion or unconscionable due to the operation of the capitalisation /compounding factor [but] I am not satisfied that those clauses are unenforceable as contractual penalties,” she decided.

Mrs Huang and Ms Chen also argued the terms were unconscionable having regard to s 12CC(1) of the ASIC Act and s 22(1) of the ACL and should therefore be varied.

The lender had known they were at a ‘special disadvantage’ – they alleged – particularly because Mrs Huang did not speak, read or write English and no translation certificate had been procured for her signing the documents. Further they were both financially experienced and the security documents were long and complicated.

They also submitted that a reasonable lender would have known they were certain to have defaulted once the advance was reduced and there were no surplus funds to pay interest while their exit strategy was put in place.

Justice Henry observed that an “unconscionability” finding requires more the mere breach of accepted standards of commercial behaviour and more than mere element of hardship or unfairness.

Rather, she explained “it requires conduct that is characterised by a substantial departure from that which is generally acceptable commercial behaviour that is so plainly or obviously contrary to what is expected, that it is offensive”.

The judge agreed that Mrs Huang’s inadequate English seriously affected her ability to make a judgement as to her own best interests and she therefore suffered a special disadvantage but concluded the loan was not unconscionable on that ground given there was “no doubt” both borrowers “understood the risk of not meeting their obligations to repay loan monies, particularly where secured by a registered mortgage against their residence”.

Neither was the “very high” 70.72% annual interest rate unconscionable in the absence of expert evidence stating same to be “excessive or even unusual in the context of a short-term financing by way of a second mortgage”.

That said, monthly capitalisation that lead to total interest of $3.2 million at an effective annual rate of about 417% “could never be said to be reasonably necessary for the protection of legitimate interests [and] is utterly crushing”.

She declared the monthly capitalisation provision to be void by reason of its unconscionability and ordered the interest to be calculated on a simple basis at 70.72% p.a. totalling $882k.

Commercial N Pty Limited v Huang & Ors [2024] NSWSC 23 Henry J, 31 January 2024

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