IN THE DISTRICT COURT Decision 26 of 2009 OF SOUTH AUSTRALIA ACTION NO 308 of 2008

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1 IN THE DISTRICT COURT Decision 26 of 2009 OF SOUTH AUSTRALIA ACTION NO 308 of 2008 ROSENZWEIG VINEYARDS PTY LTD Plaintiff -and- DONALD GURSANSKY NOMINEES PTY LTD and ORS Defendants REASONS FOR DECISION OF DISTRICT COURT MASTER RICE POSTED TO PARTIES ON Application - strike out claim against second to fifth defendants The second and fifth defendants (not second and third defendants) by application 15 April 2008 (FDN 5) seek an order that the action against the second and third defendants as executors, be dismissed and the claim against the fourth and fifth defendants as trustees, be dismissed. In support of the application the following affidavits have been filed: 1. Affidavit of Mr P Pedler, solicitor, 15 April 2008 (FDN 4) filed on behalf of the defendants; 2. Affidavit of Mr I Maitland, solicitor, 21 May 2008 (FDN 8); 3. Affidavit of the second defendant, Mr B Mansom, filed 20 June 2008 (FDN 9). I was also provided with written outlines on 19 and 23 June the application was argued on 23 June The delay thereafter, was mine. Statement of Claim The proceedings were issued on 4 March An amended statement of claim was filed on 16 April 2008 (FDN 6). Mr D Gursansky operated a vineyard through Donald Gursansky Nominees Pty Ltd. That entity was the trustee of the Donald Gursansky Trust. Mr Gursansky died on 5 February Messrs Mansom and Canaway are the executors of Mr Gursansky s estate and are directors of the company. Mr Mansom had been Mr Gursansky s accountant. On 17 July 2005 the first defendant entered into a Vineyard Management Agreement with the plaintiff over two properties for a period of ten years, three months, for the plaintiff to

2 2 manage the defendant s vineyard. The agreement, as alleged, was partly written as set out in statement of claim 5 and partly oral as set out in statement of claim 7. The agreement provided that it would commence on 1 July 2005 and continue until 30 September 2015 unless terminated earlier. The contract in paragraph 3.2, allowed that at the expiration of 30 September 2015 the contract could continue on for rolling terms one year. The agreement goes on to state a party wishing to terminate the agreement must give at least one year s notice of intention to terminate, and such notice must expire on 30 September in any particular year. One of the issues in the trial of this action will be what was intended by those clauses as they are not entirely consistent. It may allow for termination prior to 30 September It is perhaps arguable that the contract was capable of being terminated at any time on one year s notice, although clause 3.3 suggests that no notice of termination could be given prior to 30 September The tensions in the construction of the agreement are issues for trial. Further, Mr Gursansky, as lessor of the properties, entered into an unregistered lease with the first defendant for a period in excess of fifteen years, commencing 1 July 2005 to 30 September The lease was not registered at any time. Following Mr Gursansky s death, title to the property was transferred to the beneficiaries. The transfer of the two properties were not subject to the unregistered lease. By statement of claim 13, on 10 August 2007 the first defendant s solicitors, Duncan Basheer, wrote to the plaintiff declaring the Vineyard Management Agreement terminated forthwith. The claim asserts at statement of claim 12 that in March 2008, Mr Mansom, as a director of the first defendant company and/or as an executor of Mr Gursansky s estate, advised the plaintiff that its right of access to the land was henceforth denied. At statement of claim 18 asserts that the second and third defendants, Messrs Mansom and Canaway as directors, knew of the existence and terms of the Vineyard Management Agreement and wrongfully denied the plaintiff access to the properties. Further, the second and third defendants caused the defendant company (the first defendant) to terminate the agreement and/or permitted or acquiesced in the transfer of the land, not being the subject of the lease between Mr Gursansky and the first defendant (statement of claim 18.2).

3 3 It is said as a consequence that they preferred their interest as trustees and/or the interest of the beneficiaries of the company over the interests of the first defendant (statement of claim 18.3) and thereby knowingly induced the first defendant to breach the Vineyard Management Agreement. This is said to give rise to a cause of action against the directors and/or trustees personally. Statement of claim 19 alleges that Messrs Mansom and Canaway, in their capacity as executors of Mr Gursansky s estate, knew of the lease between Mr Gursansky and his company, and for the same reasons in paragraph 18: (i) (ii) denied the plaintiff access to the land; allowed the transfer to take place without being subject to the lease; and (iii) permitted the purported termination of the lease or alternatively, knowingly induced the first defendant to terminate the lease. The plaintiff claims nearly $261,000 damages. The claim does not state how that figure is calculated. Defence The first defendant company filed a defence on 23 April 2008 (FDN 7). It takes issue with the alleged oral terms of the agreement as clause 15 of the Vineyard Management Agreement provides that the written terms of the Agreement represent the entire understanding and agreement of the parties. The defence admits the Vineyard Management Agreement and admits the lease arrangement between the late Mr Gursansky and the first defendant and admits that the land was transferred to the beneficiaries of Mr Gursansky s estate without being subject to the unregistered lease. Further, it admits the statements of termination of the arrangements in statement of claim at paras13 and 14. As to quantum, the first defendant says that the figure is grossly inflated as the management fee was $50 per hour as adjusted for inflation. Particulars as to the inflated claim state that the gross management fees in the previous twelve months were $7,330. At defence 11 and in respect of the Vineyard Management Agreement, the first defendant asserts that the Agreement was uncommercial because of: 1. The number of years of operation;

4 4 2. No early termination mechanism. This is said to arise out of undue influence. This is said to arise because that by reason of Mr Gursansky s age, health, poor eye sight and lack of independent support; 3. Special relationship of trust and confidence arose between the plaintiff and Mr Gursansky where he, Mr Gursansky, was unduly influenced by of Mr Rosenzweig. The second to fifth defendants have not filed defences and rely on FDN 5. Affidavit evidence - defendants Mr Pedlar s affidavit (FDN 4) was the original affidavit in support of the application. Two points are raised. The first point relates to paragraph 18 of the claim. The affidavit asserts that the pleading is inadequate as it does not identify the legal duty which the director would owe to the plaintiff. Paragraph 7 asserts that the pleading cannot arise as a matter of law. The second point relates to the allegations against the fourth and fifth defendants, that is Messrs Mansom and Canaway as Executors of Mr Gursansky s estate. Paragraph 9 is said to be deficient in that no cause of action is pleaded against these parties. Further it does not plead why their conduct is said to be wrongful. The letter in support of the proposition sent on the 28 March 2008 states that, there is no basis for asserting that the agreement (the Vineyard Management Agreement) was an asset or liability of the estate. It is not clear why the agreement would not be a liability of Mr Gursansky s estate, in the sense that the estate would ordinarily be responsible for upholding that particular agreement even following the death of Mr Gursansky. Any wrongful breach could give rise to a claim against the estate.

5 5 The letter then takes up the issue of how their conduct was said to be wrongful. The letter takes up a separate issue not raised in the affidavit namely that in statement of claim 19.3 the Executors knowingly induced the defendant to breach the agreement. No particulars are provided. Affidavit - plaintiff The affidavit of Mr Maitland, (FDN 8), solicitor for the plaintiff, annexes a bundle of correspondence. Exhibit ILM1 is the Vineyard Management Agreement between the first defendant as trustee of the family trust and the plaintiff. It is dated 17 July At clause 3.1, the period of the Agreement commences 1 July 2005 until 30 September 2015 unless terminated earlier. As mentioned above clauses 3.2 and 3.3 are relevant. In addition clause 9.1 allows the Vineyard Manager (the plaintiff) to terminate per clause 3.2 and alternatively provides in the event of Mr Gursansky committing an act of insolvency or giving notice in writing at any time 1f Don [Mr Gursansky] fails to remedy any breach of his obligations under this agreement within 14 days, after written demand has been made by the Manager to do so. (Clause 9.13) Pursuant to clause 9.2 Mr Gursansky could terminate the lease by: 1. clause 3.2 (one year s notice and not before 30 September in any year; 2. the Manager (the plaintiff) committing an act of insolvency; 3. by giving notice as follows: By giving notice in writing of at any time if the Manager fails to remedy any breach of his obligations under this Agreement within 14 days after written demand that has been made by Don to do so. Clause 9.3 provides that any existing entitlements to recovery of money or damages for breach are not affected by the termination arrangement. Clause 18 is a dispute resolution clause requiring disputes to be referred to a meeting of the parties and for reference of any unresolved dispute to a further meeting whereby the

6 6 nominee of the President for the Viticulturalist Institute can act as an expert to resolve the dispute. This has apparently not been done. Exhibit ILM2 is a copy of the unregistered stamped lease with Mr Gursansky as lessor and first defendant as lessee, for a period of more than fifteen years commencing 1 July 2005, until expiring 30 September Clause 4 of the lease entitles the lessor to terminate the lease in the event the lessee commences any breach of the lease which remains unremedied for a period of 14 days. Exhibit ILM9 is the termination letter from Duncan Basheer to the plaintiff dated 10 August It pointed out that the first defendant initially had an informal arrangement with Mr Gursansky to operate the vineyards on his behalf. Then the Vineyard Management Agreement was entered into. As a result of Mr Gursansky s death the letter states that the first defendant has no longer any rights in respect of the vineyards and will be unable to continue with the Vineyard Management Agreement. The letter also advises that the Executors, in order to give effect to the Will, have resolved to terminate the informal agreement with the first defendant so the land can be conveyed to the beneficiaries. The reference to the informal agreement with the first defendant, is intended to be, I believe, a reference to the Vineyard Management Agreement between the plaintiff and first defendant. The letter then formalises the position by advising that the Vineyard Management Agreement is thereby terminated forthwith. Affidavit Mr Mansom The final affidavit is from Mr B Mansom (FDN 9). He confirms that he and Mr Canaway were appointed as directors of the first defendant on the death of Mr Gursansky, namely on the 5 February He annexes a copy of the Vineyard Management Agreement termination letter from Duncan Basheer Hannon to the plaintiff.

7 7 At paragraph 4 he states that at the time of the termination of that Agreement he was not aware that a lease had been entered into between the plaintiff and the first defendant and that no record of the lease was maintained in the company records Submissions I had the advantage of written outlines and oral submissions from counsel on 23 June The position of the applicants was that all claims against the second to fifth defendants be dismissed.