Auckland Council v Pallister
[2013] NZHC 2717
•18 October 2013
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3411 [2013] NZHC 2717
UNDER THE Land Transfer Act 1952, section 145A
IN THE MATTER of registered Memorandum of
Encumbrance B783972.1 and caveat
9423851.1 on CT NA74C/895
BETWEEN AUCKLAND COUNCIL Applicant
AND MARGARET ELLEN PALLISTER, WENDY JUNE PALLISTER AND JILLIAN MARY MENZIES (AS TRUSTEES OF THE MARGARET E PALLISTER FAMILY TRUST)
First Respondents
BOTANY LAND DEVELOPMENT LIMITED
Second Respondent
Hearing: 8 October 2013
Appearances: B J Upton and T K Cunningham-Adams for applicant S O McAnally and B M Hajabri for first respondents R D Butler for second respondent
Judgment: 18 October 2013
JUDGMENT OF LANG J
[on application to sustain caveat]
This judgment was delivered by me on 18 October 2013 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
AUCKLAND COUNCIL v MARGARET ELLEN PALLISTER, WENDY JUNE PALLISTER AND JILLIAN MARY MENZIES (AS TRUSTEES OF THE MARGARET E PALLISTER FAMILY TRUST) [2013] NZHC
2717 [18 October 2013]
[1] This proceeding concerns a 1.2 hectare parcel of land situated at the eastern end of Umupuia Beach (“the land”). The land has been owned by members of the Duder family for more than 150 years.
[2] The land is currently owned by the first respondents, who are the trustees of the Margaret E Pallister Family Trust (“the trustees”). Mrs Margaret Pallister is one of the trustees, and is also a member of the Duder family.
[3] The trustees have entered into an unconditional agreement to sell the land to the second respondent, Botany Land Development Limited (“Botany Land”). Completion of the sale is being thwarted by the existence of a caveat registered against the title to the land by the Auckland Council (“the Council”).
[4] In this proceeding the Council seeks to sustain the caveat. It maintains that the trustees are obliged to offer to sell the land to the Council by virtue of an encumbrance registered against the title in February 1988. The Council seeks to sustain the caveat in order to protect its contractual right to receive that offer. The trustees and Botany Land want the caveat to be removed so that they can complete the existing agreement for sale and purchase.
Relevant principles
[5] The principles to be applied in applications such as this are well established through the decisions of the Court of Appeal in cases such as Sims v Lowe1 and Pacific Homes Limited v Consolidated Joineries Limited.2
[6] I propose to apply the following principles in reaching my decision:
a) The onus is on the caveator to demonstrate that it holds an interest in the land which is sufficient to support the caveat.
1 Sims v Lowe [1988] 1 NZLR 656 (CA).
2 Pacific Homes Ltd v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).
b)The caveator must put forward a reasonably arguable case to support the interest it claims.
c) An order for the removal of the caveat will only be made if it is clear that there was either no valid ground for lodging it in the first place or, alternatively, that such ground as then existed has now ceased to exist.
d)The present proceedings are wholly unsuitable for the determination of disputed questions of fact.
Issues
[7] Four issues need to be determined. They are:
(i) Does the Council have a caveatable interest in the land?
(ii)Does the Council’s existing registered interest under the encumbrance prevent it from sustaining the caveat?
(iii) Has the encumbrance been terminated?
(iv) Should the Court exercise its discretion to remove the caveat?
[8] Before considering those issues, it is convenient to set out the terms of the encumbrance.
The encumbrance
[9] The encumbrance was registered against the title to the land on 18 February
1988. The recitals and operative part to the encumbrance are as follows:
MEMORANDUM OF ENCUMBRANCE
Encumbrancer: JOHN DUDER of Dargaville, Farmer and MARGARET ELLEN PALLISTER of Brookby, Married Woman as (in this Memorandum called “the Encumbrancer”) tenants in common in equal shares
Council: THE MANUKAU CITY COUNCIL
(in this Memorandum called “the Council”)
WHEREAS:
(1) The Encumbrancer is registered as proprietor of an estate in fee simple in the land described in the Second Schedule.
(2) The land is situate in the district of the Council.
(3) As a result of the circumstances disclosed in the Third Schedule the
Encumbrancer has agreed: -
(a) to grant and make the rent charge with the Council as set out, and subject to the conditions expressed, in the First Schedule; and
(b) to enter into the covenants in the Council’s favour as set out in
the Fourth Schedule.
NOW THIS MEMORANDUM WITNESSES that the Encumbrancer ENCUMBERS the land for the benefit of the Council as set out in the First Schedule AND COVENANTS with the Council as set out in the Fourth Schedule.
IN WITNESS WHEREOF this Memorandum has been executed this
[30] day of [November] 1987. SIGNED ...
[10] The relevant covenants in the Fourth Schedule to the encumbrance are:
1. THAT the land and the dwellings thereon shall be principally occupied and used as a residence only by the said JOHN DUDER and MARGARET ELLEN PALLISTER, their mother, their respective spouses and children (hereinafter called “the Family”).
2. UPON the land, or any part thereof for which there is, or may be a separate Certificate of Title, being no longer occupied as to the dwelling or dwellings thereon by a member or members of the family, then the land in that Certificate of Title shall forthwith be offered for sale to the Council by notice in writing setting out the price and terms of the offer. The offer shall be open for acceptance by the Council for not less than 90 days from the date of its receipt and in default of such acceptance the Encumbrancer may thereafter sell the land and dwellings to any other person or persons but only at the same price and on the same terms as it was offered to the Council. These provisions shall also apply to any revised or amended offer which the Encumbrancer may subsequently make to the Council.
[11] The obligations of the Encumbrancer under the Fourth Schedule are covenants in gross, because they are owed to the Council and not to a dominant tenement. For that reason an instrument containing such obligations would not
normally be registerable against the title to the land under the Land Transfer Act
1952.
[12] The rentcharge payable under the encumbrance means, however, that the encumbrance is treated for the purposes of the Land Transfer Act 1952 (“Land Transfer Act”) and the Property Law Act 2007 as a mortgage. It may therefore be registered against the title to the property to which it relates and, by virtue of s 203 of the Property Law Act 2007, it will bind successors in title to the land. Encumbrances of this type have long been used as a conveyancing device to enable covenants in gross to be registered when that would not otherwise have been possible. There has been debate about the effectiveness of encumbrances, and the Law Commission has recently discussed actual and potential difficulties that they
create in its recent report “A New Land Transfer Act.”3 The Law Commission has
recommended that these issues be addressed by redefining the term “mortgage” in the Land Transfer and Property Law legislation so as to exclude rentcharge instruments from the definition.4 Some of the issues raised in the present case demonstrate the validity of the Law Commission’s concern.
1 Does the Council have a caveatable interest in the land?
[13] Clause 2 of the Fourth Schedule to the encumbrance requires the trustees to offer to sell the land to the Council when it is no longer occupied by a member of the Duder family. The agreement for sale and purchase that the trustees have entered into with Botany Land requires the trustees to provide Botany Land with vacant possession of the land upon settlement. Although the date for completion of the agreement has now passed, the only matter preventing the completion of the transaction is the existence of the Council’s caveat. The Council submits, and I accept, that it can reasonably be assumed that the sale of the land will be completed as soon as the caveat has been removed. At that point it can also reasonably be
anticipated that Mrs Pallister will cease to occupy the land.
3 Law Commission A New Land Transfer Act (NZLC R116, 2010).
4 Ibid at 54-56.
[14] The Council contends that the trustees have now arguably repudiated their obligations under the Fourth Schedule, because they have entered into a contractual obligation to provide Botany Land with vacant possession of the land upon settlement of the existing unconditional agreement. I accept that proposition. The existence of the obligation to provide Botany Land with vacant possession arguably confirms that the trustees have decided that Mrs Pallister will vacate the land and that it will be sold to Botany Land without first being offered to the Council. Should the trustees do that, they will be in breach of their obligations under Clause 2 of the Fourth Schedule.
[15] The Council develops this submission by arguing that the repudiation entitles it to obtain an order for specific performance against the trustees. That order would require the trustees to perform their obligation under the Fourth Schedule to offer to sell the land to the Council when Mrs Duder vacates the land. The Council says that this ability to apply for specific performance means that it now has an equitable interest in the land that is distinct from any interest that it might hold under the encumbrance. As a result, the Council contends that it is entitled to maintain the caveat that it has registered against the title to the land.
[16] The trustees and Botany Land deny that this is the case. They say that the Council does not yet have any interest in the land that is capable of being protected by a caveat. They rely upon the fact that the encumbrance requires the trustees to offer the land to the Council when it ceases to be occupied by a member of the Duder family. That point has not yet been reached, because Mrs Pallister still occupies the land. They therefore submit that the Council would not be entitled to an order for specific performance, and that it has no equitable interest in the land capable of supporting a caveat.
[17] I accept that, if the trustees had not entered into the agreement with Botany Land, the Council would have no grounds to apply for specific performance. The right to be offered the land does not arise until Mrs Pallister ceases to occupy it. Because that point has not been reached, the Council could not argue that the trustees were under any obligation to offer to sell the land to the Council.
[18] For the same reason, the Council could not have claimed that it held an equitable interest in the land capable of supporting a caveat. In this context the principles identified by Tipping J in Motor Works Ltd v Westminster Auto Services Ltd5 are relevant. That case concerned a lease containing a provision giving the lessee a right of first refusal to purchase the leased premises. The right would be triggered “in the event that the Landlord wishes to sell the premises.” In that event
the lessor was required to offer to sell the premises to the lessee for the price the lessor was prepared to accept from any third party. Tipping J was required to determine whether the lessee was entitled to maintain a caveat in circumstances where it had declined a formal offer by the lessor to sell both the premises and its business to the lessee for a stated price. In declining the offer, however, the lessee had confirmed that it remained interested in buying the premises alone. It also advised the lessor that it expected the lessor to continue to honour the right of first refusal in respect of the premises.
[19] Tipping J considered that the question of whether or not the existence of a right of first refusal created a caveatable interest in land needed to be considered in four stages.6 The first stage was where the lessee had a bare right of pre-emption because the event triggering the right to receive an offer had not occurred. Tipping J considered the position of the lessee at this stage was clear. The lessee had no interest in the land capable of sustaining a caveat because a bare right of pre-emption does not create an interest in land.7
[20] I consider that the right given to the Council in the Fourth Schedule to the encumbrance is analogous to a right of first refusal. Applying the reasoning in Motor Works to the present case, it is clear that the Council would ordinarily have no caveatable interest in the trustees’ land until such point as Mrs Pallister ceased to
occupy it. The right to be offered the land would not be triggered until that occurred.
5 Motor Works Ltd v Westminster Services Ltd [1997] 1 NZLR 762 (HC).
6 Ibid, at 765.
7 Mackay v Wilson (1947) 47 SR (NSW) 315, Re Rutherford (1977) 1 NZLR 504, Pritchard v Briggs [1980] All ER 294, Anderson v Te Wharau Investments Ltd (1990) ANZ ConvR 156 and Gainsford v Stinson (1993) 2 NZ ConvC 191,768 (CA).
[21] Tipping J also considered the position was clear in relation to stages three and four.8 Stage four is reached when the parties have entered into a contract for the sale and purchase of the land. At that point the purchaser clearly has a caveatable interest in the land. Stage three is where the vendor has made an offer to sell the land to the party holding the right of pre-emption, but that party has not yet accepted the offer. Tipping J considered that this situation could not be materially distinguished from
that in which a party has an option to purchase land. The party considering the offer therefore held an interest in land capable of supporting a caveat.9
[22] The situation in the present case clearly does not fall within either of these stages. It is therefore necessary to consider whether it falls within stage two, in respect of which Tipping J had this to say:10
It is at stage two where the difficulties arise. At this stage an event has occurred which requires the vendor to make an offer to the person holding the right of pre-emption but no such offer has been made. The distinction between stage two and stage one is that at stage one no triggering event has occurred. That is why at that stage it is clear no interest in land can arise because the vendor may never wish to sell during the currency of the right. At stage two the vendor has decided to sell but, in breach of the right, has failed or refused to make the necessary offer to the holder of the right. It is at this point that the holder of the right will usually be most vulnerable. Clearly an injunction may be appropriate but a caveat may well be better because of its effect as notice to others interested in buying.
When analysing the point at stage two, it should not matter whether the right of pre-emption is couched as a negative covenant or as a positive one, i.e. not to sell without first offering as opposed to offering before looking elsewhere. In substance the effect is the same. Once a triggering event has occurred, the holder of the right is entitled to receive an offer. The Court can undoubtedly restrain the vendor from offering to a third party without first making an offer to the holder of the right. More difficult is the question whether the Court can order the vendor to make an offer to the holder, a type of specific performance.
[23] Tipping J ultimately held that the situation with which he was concerned fell within stage one, because the rejection of the lessor’s offer to sell both the business and the premises left the parties in the same position as they were in before the offer was made. As a result, the lessee held only a bare right of pre-emption and therefore
did not have a caveatable interest in the land. Tipping J was prepared, however, to
8 Motor Works Ltd v Westminster Services Ltd, above n 5 at 765.
9 Morland v Hales (1910) 30 NZLR 201 (CA).
10 Motor Works Ltd v Westminster Services Ltd, above n 5 at 765.
leave in place an interim injunction preventing the lessor from offering to sell the premises to any third party without first offering to sell them to the lessee on the same terms.
[24] Importantly, Tipping J identified the point at which a caveatable interest will arise as being the point at which the holder of the right is in a position to seek an order for specific performance. He dealt with this issue as follows:11
Without prejudice to the question of an injunction, before any question of specific performance can arise, not only must the vendor have manifested a wish to sell but he must also have manifested the essential terms upon which he is willing to sell. Then, but only then, can there be any question of specific performance. Unless the Court can order specific performance I do not see how the holder can be regarded as having an interest in land. Thus, in short, at stage two the holder of the right of pre-emption will not have an interest in land unless and until the circumstances are such that specific performance can be ordered and the vendor thereby required to make an offer on sufficiently certain terms.
[25] The facts in the present case do not fit within stage two as it was described by Tipping J, because until Mrs Pallister ceases to occupy the land the triggering event will not occur. I consider, however, that the issue can be decided in accordance with the general principle that the Council will have a caveatable interest in the land if it can show that it is arguably entitled to obtain an order requiring the trustees to specifically perform their obligation under Clause 2 of the Fourth Schedule.
[26] As noted above, the trustees and Botany Land both contend that Mrs Pallister’s continued occupation of the land prevents the Council from obtaining such an order. This argument does not, however, deal with the Council’s submission that the trustees have repudiated their obligations under the Fourth Schedule by entering into the contract to sell the land to Botany Land and to provide it with vacant possession on settlement. In particular, it does not deal with the issue of whether the Council arguably has the right to obtain an order for specific performance given that repudiation.
[27] This issue arose in Hasham v Zenab,12 an appeal to the Privy Council from a judgment of the Court of Appeal for Eastern Africa. In that case the parties had
11 Ibid, at 766.
entered into an agreement for the sale and purchase of a two acre plot of land. The agreement required the purchaser to pay a deposit immediately, and the balance of the purchase price six months later. The vendor had repudiated the agreement by tearing it up a few moments after signing it, because she maintained that she had only agreed to sell half an acre to the purchaser and not the whole of the plot.
[28] The vendor issued proceedings seeking specific performance of the contract approximately seven weeks before the expiry of the six month period leading up to the date for settlement. The purchaser responded by alleging that the vendor had issued the proceeding prematurely, because the date for settlement had not yet arrived. The vendor also argued that although her anticipatory breach of the agreement may have given rise to a claim by the purchaser for damages, it could not support an order for specific performance. The vendor contended that the purchaser could not obtain such an order until the vendor had actually breached the contract on the due date for settlement.
[29] The Privy Council rejected this argument in the following passage of its advice:13
No authority for the defendant’s proposition was cited, but it is true to say that there is no express decision in any English case to the contrary. Their Lordships are of opinion that the fallacy of the submission consists in equating the right to sue for specific performance with a cause of action at law. In equity all that is required is to show circumstances which will justify the intervention by a court of equity. The purchaser has an equitable interest in the land and could get an injunction to prevent the vendor disposing of the property. The order for specific performance often falls into two parts. The first can be of a declaratory nature and the second contain consequential directions. The first of the forms in volume 3 of the seventh edition of Seton’s Forms of Judgments and Orders, at p. 2136, is clearly suitable to a case where the time for performance may not have arrived even at the date of the order, but in such a case, in the event of subsequent non-performance the court would not require the issue of a fresh writ before making the consequential directions for performance. The court will not, of course, compel a party to perform his contract before the contract date arrives, and would give relief from any order in the event of an intervening circumstance frustrating the contract.
[30] The Supreme Court of Canada took a similar approach in the earlier case of
Kloepfer Wholesale Hardware and Automotive Company Ltd v Roy.14 The parties in
12 Hasham v Zenab [1960] AC 316 (PC).
13 Ibid, at 329.
that case had entered into an agreement for the sale and purchase of land in Toronto. The agreement called for settlement to take place two months later. Approximately a week after the contract was signed, the vendor sent a telegraphic message to the purchaser purporting to cancel the contract. The purchaser did not accept the validity of the cancellation, and advised the vendor of that fact. Approximately three weeks before the date of settlement specified in the contract, the purchaser issued proceedings seeking an order requiring the vendor to specifically perform the contract.
[31] As in Hasham v Zaneb, the vendor argued that the purchaser did not yet have any right to an order for specific performance because the date of settlement had not yet arrived. Although the vendor accepted that the purchaser could sue immediately based on the anticipatory breach, it submitted that the purchaser could only seek damages and not an order for specific performance. The Supreme Court of Canada rejected this submission, and said:
2. No authority has been cited for the proposition advanced on behalf of the appellant and we find it untenable It is settled that an action may be brought upon an anticipatory repudiation of a contract (Fry on Specific Performance, 6th ed. para. 1062), and in paragraph 1311 of Williston on Contracts it is said:-
But would a court, it may be asked, grant specific performance on January 1, of the contract to convey Blackacre the following July, on the round that the defendant had been guilty of an anticipatory repudiation on the earlier day? If such repudiation is an actual breach justifying an action at law, there seems no reason why a suit in equity should not be maintainable. Certainly no decree would require performance before July 1, and it would at least be made clear that repudiation does not accelerate the obligations of a contract.
With that statement we agree.
3. The argument of the appellant overlooks the power of the Court to make a declaratory judgment: Ontario Judicature Act, R.S.O. 1950, c. 190, s.15(b). Although it was submitted that the point had not been advanced in Roberto v. Bumb (1), in the same manner as here, Laidlaw J.A. in that case did say, at page 310: “The cause of action was not complete when the proceedings were commenced in the Court”, and, at page 311: “I think that a court of equity would not permit an appellant to avoid the contract merely because the action was started prematurely, nor would the respondent be thus deprived of his equitable right to a decree of
14 Kloepfer Wholesale Hardware and Automotive Company Ltd [1952] 2 S.C.R 465.
specific performance, if he were otherwise entitled to it.” If these extracts mean merely that at the time of the issue of the writ the Court could not have ordered that specific performance be carried out immediately, no objection may be found with them; but if they mean that the plaintiff did not have a complete cause of action for a declaration that the agreement was a binding contract and that it ought to be specifically enforced, we are unable to agree. The plaintiff having that right, the agreement would be carried out when the time for completion had expired.
[32] These cases persuade me that the Court has the equitable jurisdiction to make an order for specific performance prior to the anticipated occurrence of an event that will leave a party in breach of his or her contractual obligations. In the present case it can reasonably be anticipated that such an event will occur when Mrs Pallister ceases to occupy the land when the trustees complete the sale to Botany Land. Prima facie, therefore, there is arguably nothing to stop the Council now seeking an order requiring the trustees to offer to sell the land to it when Mrs Pallister ultimately vacates it.
[33] Before the Court could make an order for specific performance, it would need to be satisfied that the terms upon which the trustees are to offer the land to the Council are sufficiently certain to enable an order to be made. I see no particular difficulty about that in the present case, because the Court would be entitled to proceed on the basis that the trustees are satisfied with the terms upon which they have already agreed to sell the land to Botany Land. The Court could therefore make an order requiring the trustees to offer to sell the land to the Council on those exact terms.
[34] These factors persuade me that the Council has an arguable case for an order for specific performance, and that this is sufficient to provide it with a caveatable interest in the land.
2 Does the Council’s existing registered interest under the encumbrance mean that it was not entitled to lodge the caveat?
[35] Section 137(1) of the Land Transfer Act prescribes the circumstances in which a person may lodge a caveat against dealings in any land or estate or interest under that Act. It provides:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person—
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise; or
(b) is transferring the land or estate or interest to any other person to be held in trust.
(Emphasis added)
[36] Section s 137(1)(a) only permits a caveat to be registered against a title to land where the caveator “claims to be entitled to, or to be beneficially interested in, the land … by virtue of any unregistered agreement or other instrument … or otherwise.” The trustees and Botany Land contend that the Council’s rights are already protected by the registered encumbrance. They say that the Council is therefore using the caveat procedure to protect an alleged interest in land in circumstances where that interest arises solely as a result of the rights given to the Council by a registered instrument. They therefore contend that the caveat procedure is not available to the Council, and that the caveat should be removed.
[37] The Council argues that the only right protected by the registered encumbrance is that relating to the rentcharge. It says that the encumbrance does not protect its rights under the Fourth Schedule.
[38] Logic would suggest that the drafter of the encumbrance sought to protect the Council’s rights under the Fourth Schedule. It is unlikely that the Council would have entered into the encumbrance solely for the purpose of being entitled to receive a rentcharge in the sum of $1 per year. The encumbrance was likely to have been intended to secure the Council’s right under the Fourth Schedule to have an opportunity to purchase the land when the last member of the Duder family ceased to occupy it.
[39] The likelihood that the encumbrance was intended to be tied to the covenants in the Fourth Schedule is also demonstrated by the fact that Clause 1 of the First
Schedule provides that the term of the encumbrance is 999 years “subject to earlier determination in the events provided in the Fifth Schedule.” The Fifth Schedule provides as follows:
Upon the Council being satisfied that the covenants of the Fourth Schedule have been duly performed and/or that the covenants have become obsolete, unnecessary or no longer enforceable.
[40] I consider, however, that the terms of the encumbrance arguably do not achieve the object that the drafter intended. This is because the operative part of the encumbrance only encumbers the land “for the benefit of the Council as set out in the First Schedule.” The only substantive right contained in the First Schedule is the Council’s right to demand and receive the rentcharge. The remaining terms in the First Schedule do not create rights or obligations on the part of either party. In particular, the First Schedule does not contain the obligation on the part of the owner and occupier of the land to offer the land to the Council upon the last member of the Duder family ceasing to occupy it. That obligation is contained in the Fourth Schedule. The only reference to the Fourth Schedule in the First Schedule is in
Clause 3.15 Clause 3 does not, however, create any substantive rights or obligations.
It merely restricts the Council’s rights in respect of persons against whom the
Council may enforce the covenants in the Fourth Schedule.
[41] It is therefore at least arguable, in my view, that the land is not encumbered by the covenants contained in the Fourth Schedule. If that is correct, the interest that the Council claims under the caveat would be distinct and different to that protected by the encumbrance. It follows that s 137 would not operate to prevent the Council from lodging the caveat.
3 Has the encumbrance been terminated?
[42] As noted above, the term of the encumbrance was 999 years subject to earlier termination in accordance with the Fifth Schedule. Counsel for the trustees and Botany Land contend that the covenants in the Fourth Schedule are now obsolete or no longer necessary. As a consequence, the encumbrance has effectively been
terminated in terms of the Fifth Schedule.
15 See Appendix One.
[43] This argument arises out of the circumstances in which the encumbrance came to be signed and registered. As the recitals at the beginning of the encumbrance note, these are set out in the Third Schedule to the encumbrance. The Third Schedule records:
THE THIRD SCHEDULE (the Circumstances)
Application has been made to the Council for consent to the subdivision of the land for the occupation of the Encumbrancer, their spouses, children and mother only, and in support of such application the Encumbrancer has offered to enter into this Memorandum and the covenants of the Fourth Schedule which are desirable having regard to the Designation of the land in the Council’s district scheme as a proposed reserve.
[44] Counsel for the trustees and Botany Land point out that matters have moved on since the parties entered into the encumbrance. The operative District Plan was reviewed in the late 1990’s and early 2000’s. The trustees’ land is no longer designated as a proposed reserve. Instead, the Council has chosen to zone a strip of land along the waterfront as a public open space. The land owned by the trustees has now been given a rural zoning. As a consequence, counsel submit that the circumstances underlying the need for the encumbrance have now disappeared, and that it is therefore both unnecessary and obsolete.
[45] The answer to this argument lies in the fact that the Fifth Schedule does not provide that the encumbrance will be terminated when it becomes obsolete or unnecessary. Rather, it will be terminated when the Council is satisfied that the covenants in the Fourth Schedule are obsolete or unnecessary. This would require an actual decision to be made by the Council.
[46] There is no evidence, however, that the Council has ever satisfied itself that the covenants in the Fourth Schedule are now obsolete or unnecessary. To the contrary, the Council has recently purchased a parcel of neighbouring land that was also owned by members of the Duder family. It did so in accordance with the provisions of a registered encumbrance containing the same provisions as that with which this proceeding is concerned. This suggests that the Council remains of the view that the covenants in the Fourth Schedule continue to be necessary.
[47] Reduced to its essentials, the argument for the trustees and Botany Land on this point is that it is probable that the Council would have terminated the encumbrance if it had been asked to do so in or about 2002 when the land ceased to be designated as a proposed reserve. Even if that proposition is correct, it would not be sufficient to establish that the Council has made a positive decision that it is satisfied that the covenants in the Fourth Schedule are now unnecessary or obsolete. This argument fails as a result.
4 Should the Court exercise its discretion to remove the caveat?
[48] Counsel for the trustees contends that the Court should exercise its discretion in favour of removing the caveat. He submits that the evidence establishes that Mrs Pallister did her best to offer the land to the Council between mid-2011 and early
2012. The Council did not express any great enthusiasm for purchasing the property during that period, and that was why Mrs Pallister ultimately entered into the agreement to sell the land to Botany Land. She did so in the belief that the Council had no interest in buying the land. She also believed, mistakenly as it turns out, that the encumbrance had been removed from the title.
[49] Counsel for Botany Land makes the same submission. He relies upon the fact that representatives of Botany Land met with officers from the Council, including the officer who had dealt with Mrs Pallister in 2011, several times before the contract to buy the land from the trustees became unconditional. The purpose of those meetings was to ascertain whether the Council was likely to permit Botany Land to subdivide the land on broadly the same terms as were contained in a subdivision consent the Council had granted to members of the Duder family some years earlier. During these meetings the Council officers never suggested to Botany Land’s representatives that the Council might be interested in purchasing the land. Counsel for Botany Land submits that it would now be wrong for the Council to be permitted to insist on strict compliance with the terms of the encumbrance, and that the Court should therefore exercise its discretion to remove the caveat.
[50] Counsel for Botany Land also contends that the Council will retain the benefit of the encumbrance even if the trustees complete the sale of the land to
Botany Land. He points out that the encumbrance will remain on the title. If Mrs Pallister vacates the property on settlement, Botany Land will then be required to offer the land to the Council just as the trustees would otherwise have been required to do. He therefore submits that the Council will not be in any worse position if the caveat is now removed, and the sale is permitted to proceed.
[51] It is not necessary for present purposes to decide whether the obligations under the Fourth Schedule will run with the land so as to render Botany Land liable to perform them if Mrs Pallister vacates the land on settlement. If the Council has an arguable right at this point to obtain an order for specific performance against the current owners of the land, it should not be placed in a position whereby that right would effectively be rendered nugatory. I do not consider that this argument is sufficient to justify the Court exercising its discretion to order the caveat to be removed.
[52] I accept that the trustees are now in an unfortunate position. They stand to be held in breach of the agreement with Botany Land if they are now required to offer the land to the Council. As I advised counsel during the hearing, however, I do not consider that the manner in which the Council dealt with either Mrs Pallister or Botany Land should be determinative of the present application. If that factor is to be taken into account at all, it should be considered when the rights of the parties are substantively determined.
[53] I therefore decline to exercise the Court’s discretion so as to order the removal of the caveat.
Result
[54] I grant the Council’s application for an order that the caveat be sustained.
[55] The order is conditional upon the Council issuing proceedings seeking specific performance of the covenants in the Fourth Schedule to the encumbrance within one month from the date of delivery of this judgment. Botany Land will
necessarily be a party to that proceeding given its interest in the land under the existing agreement with the trustees.
[56] In the event that the Council elects not to issue the proceeding, counsel for the trustees and Botany Land have leave to ask the Registrar to list the present proceeding for mention before me on 48 hours notice so that the position can be reviewed in light of that fact.
Costs
[57] I invite counsel to endeavour to reach agreement regarding the issue of costs. Should that not be possible, counsel have leave to file brief memoranda (ie not more
than five pages) dealing with that issue. I will then determine costs on the papers.
Lang J
Solicitors:
Simpson Grierson, Auckland
Keegan Alexander, Auckland
Gregory Simon Law, AucklandCounsel:R Butler, Auckland
APPENDIX ONE
FIRST SCHEDULE
(Terms and Conditions of Encumbrance)
1.The term of this Encumbrance is 999 years commencing from the date hereof subject to earlier determination in the events provided in the Fifth Schedule.
2.The rent charge is ONE DOLLAR ($1.00) to be paid to the Council by the 1st day of January in each year if demanded by that date. The first payment if so demanded is due on or before the 1st day of January next succeeding the date of this Memorandum.
3.The covenants of the Fourth Schedule shall be enforceable only against the owners and occupiers for the time being of the land and not otherwise against the Encumbrancer and his successors in title.
4.Section 104 of the Property Law Act 1952 applies to this Memorandum of Encumbrance but otherwise (and without prejudice to the Council’s rights of action at common law as a rent-chargee):-
(a) The Council shall be entitled to none of the powers and remedies given to Encumbrancees by the Land Transfer Act 19562 and the Property Law Act 1952; and
(b)No covenants on the part of the Encumbrancer and his successors in title are implied in this Memorandum other than the covenants for further assurance implied by Section 154 of the Land Transfer Act
1952.
5.Insofar as the exercise of its discretion by the Council in the circumstances set out in the Third Schedule may amount to moneys worth provided by the Council within the meaning of Section 3(1)(a) of the Credit Contracts Act
1981 then the moneys worth so provided equates or exceeds the aggregate of
the annual rental charge payable by the Encumbrancer during the term hereof.
6.In the event of the Encumbrancer wishing to enter into a mortgage or mortgages of the land to have priority to this Memorandum the Encumbrancer shall be entitled at his own cost in all things to a Memorandum of Priority granted by the Council in favour of any such mortgages [sic] or mortgages PROVIDED that the mortgagee thereunder consents to and acknowledges that it is bound by the covenants of this Memorandum for the purposes of Section 105 of the Land Transfer Act 1952.
7. In the Memorandum and its Schedules:-
(a) “the land” refers to that described in the Second Schedule and any part of it.
(b) “Schedule” refers to the several Schedules attached to this
Memorandum.
(c) Words importing the singular number or plural number shall include the plural number and singular number respectively and words importing the masculine gender shall include the feminine or neuter gender.
APPENDIX TWO
THE FOURTH SCHEDULE (the Coveanants)
1. THAT the land and the dwellings thereon shall be principally occupied and used as a residence only by the said JOHN DUDER and MARGARET ELLEN PALLISTER, their mother, their respective spouses and children (hereinafter called “the Family”).
2. UPON the land, or any part thereof for which there is, or may be a separate Certificate of Title, being no longer occupied as to the dwelling or dwellings thereon by a member or members of the family, then the land in that Certificate of Title shall forthwith be offered for sale to the Council by notice in writing setting out the price and terms of the offer. The offer shall be open for acceptance by the Council for not less than 90 days from the date of its receipt and in default of such acceptance the Encumbrancer may thereafter sell the land and dwellings to any other person or persons but only at the same price and on the same terms as it was offered to the Council. These provisions shall also apply to any revised or amended offer which the Encumbrancer may subsequently make to the Council.
3. THE said dwellings on the land shall not be in any way extended or materially altered or improved by the Encumbrancer provided that nothing herein shall prevent the carrying out of normal maintenance work or interior alterations to permit the continued enjoyment of the dwellings by the Encumbrancer.
4. THAT the Encumbrancer shall pay legal costs and disbursements directly or indirectly attributable to the preparation execution stamping registration enforcement and ultimate discharge of this Memorandum and its covenants.
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