A Court of Appeal battle between multinational liquor giants Lion Beer, Spirits & Wines (NZ) and Pernod Ricard has cast light on the way the Countdown supermarket chain manages the price of wine.
The dispute centred on Lion's purchase of about a third of Pernod's New Zealand-produced wine brands in 2010 for $88.3 million, including the popular Lindauer sparkling wine range, the court said in a decision.
Lion alleged that Pernod had breached warranties it had provided in respect of the deal by failing to disclose the existence of a general margin agreement (GMA) it had with Progressive Enterprises, which owns the Countdown chain.
Pernod is this country's largest wine company and at the time of the sale its main brands included the Montana range of wines (since rebranded as Brancott Estate) as well as Lindauer.
The GMA stipulated that Progressive was to receive a specified overall average margin across all of the different wines it bought from Pernod. This meant the price and margin provided on individual wines could move up and down as long as Progressive's average margin across the entire range met a specified figure. The actual margin figures submitted in evidence have been withheld from the public version of the judgment due to commercial sensitivity.
According to the Court of Appeal judgment on the case, "the essence of the agreed arrangement was that, if the margin received by Progressive on all wines purchased by it from Pernod during a particular period was less than the agreed margin, Pernod would make a payment to Progressive to put Progressive in the position it would have been in if the agreed margin had been achieved".
"It is unclear if Progressive had to make a refund if the agreed margin were exceeded, but the evidence was that Pernod ensured that this did not occur," the judgment said.
Lion only found out about the GMA when it was informed of its existence by Progressive, on the day after the deal to buy the Pernod brands was signed.
Lion claimed this lack of knowledge had caused it to overestimate the value of the wine brands it had bought and inflated the price it paid for them.
It sought damages from Pernod of between $6.25m and $8.96m.
In an earlier judgment, the High Court found that a breach of warranty had occurred, but Lion had not suffered a loss as a result and that Lion would have accorded little weight to the GMA if it had been made aware of it.
The Court of Appeal noted in its decision that the GMA that had applied to Pernod was not binding on Lion, and that each GMA was usually in force for a relatively short period of time, often for three months, and that the required margin could vary between agreements.
It also noted that Progressive's margin expectations from its suppliers, including Lion which had its own wine brands, were the same whether a GMA was in place or not.
So Lion had other sources of information which should have indicated to it what Progressive's margin expectations were, the judgment found.
The court dismissed Lion's appeal and ordered the company to pay Pernod's costs.
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