Beechnest (2014) Limited v Marshall
[2023] NZHC 519
•15 March 2023
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2022-442-000030
[2023] NZHC 519
IN THE MATTER OF An appeal against the decision of the District Court BETWEEN
BEECHNEST (2014) LIMITED
Appellant
AND
LEIGHTON WATSON MARSHALL and ALEXANDRA UNTERBERGER and NELSON TRUSTEES NO. 8 LIMITED as
trustees of the Portixol Family Trust First Respondents
AND
GISELA BARBARA PURCELL and WAYNE CALVIN POOL
Second Respondents
AND
RUSSELL MAURICE McGUIGAN and FRANCESCA FIONA DEBORAH McGUIGAN
Third Respondents
AND
ERIN LESLEY McLEOD and JARRON STEWARD McLEOD
Fourth Respondents
Hearing: 15 November 2022 Appearances:
D M O’Neill for Appellant
B McDonald for Respondents
Judgment:
15 March 2023
JUDGMENT OF GRICE J
BEECHNEST (2014) LIMITED v MARSHALL [2023] NZHC 519 [15 March 2023]
Contents
Introduction[1]
Background[8]
Grounds of appeal [14]
Principles on appeal[16]
Grounds of appeal[20]
First ground of appeal — substantial injury[23] Assumptions made on the placement of dwellings on the new lots[26] Counterfactual[31]
Views[38]
Knowledge of the subdivisions by the respondents[42]
Ambience and amenities[50]
Economic effects[56]
Conclusion on first ground of appeal[70]
Second ground of appeal — covenants imposed in error [71] Third ground of appeal — changes since the creation of covenants [82] Fourth ground of appeal — impediment of the reasonable use in a different way
[88]
Fifth ground of appeal — discretion [94]
Conclusion[110]
Costs[113]
Introduction
[1] This is an appeal by Beechnest (2014) Ltd (Beechnest)1 against a District Court judgment refusing an application under the Property Law Act 2007 to allow the modification or extinguishment of a registered land covenant restricting further subdivision of two large lots of land owned by Beechnest in a residential subdivision at St Arnaud, near Nelson.2 The area boasts spectacular alpine and wetland views and the proposal has drawn strong opposition.
[2] The modification sought would enable Beechnest to subdivide the two lots which it owns into nine lots in total, each of which could then be sold and a residential dwelling erected on each. At present, due to an apparent error, which brought down a restrictive covenant onto the two titles, only one residential dwelling can be built on each of the two lots. Not realising that, Beechnest has already obtained resource consent from the Tasman District Council to enable it to subdivide the existing Lot 55 into seven lots and Lot 20 into two lots. It has also invested approximately $600,000 in work to establish building platforms on the lots. There were already other services running up to the proposed new lots.
[3] The respondents are neighbours who own properties in the Beechnest subdivision. They opposed the application in the District Court. They say their interests will be substantially injured by the proposed subdivision. Two respondents whose houses are in the vicinity of Lots 20 and 55 are particularly concerned. The injurious effects claimed go beyond views, but include loss of amenity, ambience, and economic damage.
[4] The trial Judge concluded that the prerequisites for modifying or extinguishing the covenant under s 317 of the Property Law Act had not been satisfied.3 In any case, the Judge said, if he was required to exercise his discretion, which is the second stage of the consideration, he would have exercised it against granting the modification or extinguishment.4 The primary factor was the “question of justice between the
1 The appellant, Beechnest (2014) Ltd, is a company owned by Mr Hermann Seifried and Mrs Agnes Seifried, who also own a home in the existing residential subdivision.
2 Beechnest (2014) Ltd v Marshall [2021] NZDC 16591 [District Court decision].
3 At [105].
4 At [105].
parties.”5 The Judge concluded that it was just that the consequences of the error in bringing down the restriction should be borne by Beechnest.6
[5] The effect of the modification sought would be to extinguish the covenant prohibiting subdivision of Lots 20 and 55, enabling the appellant to subdivide those lots into two lots and seven lots respectively. The proposed process for achieving that outcome was proposed in a memorandum to the District Court. As part of that process, a height restriction would be placed on some of the new lots in the proposed Lot 55 subdivision. That would have the effect of five of the seven lots carrying building height restrictions of six metres, as opposed to the general restriction of7.5 metres. The two remaining lots would not carry restrictions because pole houses would need to be built on those lots due to the nature of the terrain. For convenience, I refer to the modifications sought as the extinguishment of the covenant.
The relevant provision of the Property Law Act reads as follows:
317 Court may modify or extinguish easement or covenant
(1)On an application (made and served in accordance with section 316) for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—
(a)the easement or covenant ought to be modified or extinguished (wholly or in part) because of a change since its creation in all or any of the following:
(i)the nature or extent of the use being made of the benefited land, the burdened land, or both:
(ii)the character of the neighbourhood:
(iii)any other circumstance the court considers relevant; or
(b)the continuation in force of the easement or covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen by the original parties to the easement or covenant at the time of its creation; or
(c)every person entitled who is of full age and capacity—
5 At [110].
6 At [110].
(i)has agreed that the easement or covenant should be modified or extinguished (wholly or in part); or
(ii)may reasonably be considered, by his or her or its acts or omissions, to have abandoned, or waived the right to, the easement or covenant, wholly or in part; or
(d)the proposed modification or extinguishment will not substantially injure any person entitled; or
(e)in the case of a covenant, the covenant is contrary to public policy or to any enactment or rule of law; or
(f)in the case of a covenant, for any other reason it is just and equitable to modify or extinguish the covenant, wholly or partly.
(2)An order under this section modifying or extinguishing the easement or covenant may require any person who made an application for the order to pay to any person specified in the order reasonable compensation as determined by the court.
[7] There were also a number of errors in the covenant which needed to be tidied up, and these were corrected by the Court at the request of the parties. The Judge made those corrections under s 317(1)(f) of the Property Law Act.7 No issue is taken with that aspect of the judgment.
Background
[8] The Beechwood subdivision is situated in a particularly scenic alpine location. It is near the base of Lake Rotoiti close to the outlet to the Buller River. The subdivision is situated on higher ground behind the St Arnaud village centre and enjoys views toward the lake, the surrounding mountain ranges and the upper Buller Valley. Beechnest Drive, on the lower part of the subdivision, connects with Glacial Terrace which steeply climbs from the wetlands at the base of the subdivision up to the top lots and curls around the higher parts of the subdivision.8
[9] It is common ground that it was a previous owner and the original developer of the subdivision, Mr F Lotze, who in 2002 obtained the resource consent for the Beechwood subdivision, which at that time comprised a 63-lot residential subdivision. The subdivision was developed further and in 2009 the plan was deposited, creating,
7 At [115].
8 At [4]–[5].
among other lots, Lots 20 and 55, which are the two lots the subject of these proceedings. In 2009, various restrictive covenants and easements were registered against all the lots in the subdivision. One of the covenants prohibited further subdivision of the lots.
[10] A March 2009 Tonkin + Taylor engineering report (the Tonkin + Taylor report) indicated that the two large lots, Lot 20 (0.3040 hectares) and Lot 55 (0.8041 hectares), could not at that stage be further subdivided due to geotechnical problems caused by the wetlands which were at the north-western edge of the subdivision along Beechnest Drive. Lot 55 was on the lower side of Beechnest Drive. The Tonkin + Taylor report included a comment that those two lots had been “set aside for subdivision.”
[11] By that stage, Beechnest Ventures Ltd (BVL) owned the subdivision. That company went into receivership and the receiver sold the balance of the subdivision, being 19 lots (including Lots 20 and 55, which had not been sold at that date) to Beechnest, the present appellant, a company unrelated to BVL.
[12] A geotechnical report by Terrafirma Engineering Ltd dated 25 July 2017 makes recommendations for the development of Lots 20 and 55. As a result of that report, in December 2017 the appellant obtained from the Tasman District Council a non- notified resource consent for the subdivision of Lot 55 into seven further lots and Lot 20 into two lots. The consent included conditions that notices be registered on all the titles issued requiring engineering investigation and notifying that design for the foundations and other structures would be required. A dispensation to the boundary setback requirements was also granted allowing building up to five metres of the boundary. The consent stated that the lots were located within the St Arnaud Landscape Priority Area and the construction of any dwelling on a lot would require a further resource consent. Sensitive design and construction of a dwelling would be required to avoid degrading the scenic and natural values of the special landscape of St Arnaud.
[13] When the appellant obtained the resource consent, it did not realise that the covenant prohibiting subdivision was registered against the two lots. It appears that
the solicitor for the appellant, who was also the sole director at the time, had overlooked the covenant when the subdivision was purchased from BVL’s receiver.
Grounds of appeal
[14] In summary, the appellant says the Judge erred in finding that the application satisfied the requirements of s 317. In argument the appellant focused on the findings of the Judge that the respondents would be “substantially injured” by the granting of the application and extinguishment of the restrictive covenant. In addition, the appellant submitted that the Judge erred in his findings in relation to other requirements under s 317, and that the Judge was in error in indicating that he would have exercised his discretion against granting the application, had it not failed at the first stage.
[15] The respondents, who own properties which have the benefit of the covenant, oppose the lifting of the restrictive covenant from the titles to Lots 20 and 55. They say that the application to extinguish the covenant should not be granted because the requirements of s 317 of the Property Law Act have not been met. In particular, they say that the proposed extinguishment would “substantially injure” them as persons entitled to the benefit of the covenant. They opposed the application in the District Court and opposed the appeal as respondents.
Principles on appeal
[16] The appeal in part is a general appeal governed by the principles in Austin, Nichols & Co Inc v Stichting Lodestar.9 That decision reaffirmed the appellate court’s obligation to form its own independent judgment.10 Nevertheless the appellate court should “exercise caution in considering challenges to findings of credibility.”11
[17] The appellant bears the onus of persuading the appellate court to reach a different conclusion, and as such must identify the respects in which the judgment under appeal is said to be in error.12 The appellate court must also take into account
9 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
10 Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [29].
11 At [32].
12 At [30].
any particular advantages enjoyed by the trial court, in particular in relation to determining questions of fact, especially where assessments of credibility and reliability are involved.13 In Green v Green, French J noted that the trial judge saw and heard the witnesses and was able to evaluate the strength of the evidence as it progressively unfolded.14 Citing the earlier Court of Appeal decision Rae v International Insurance Brokers (Nelson Marlborough) Ltd, her Honour noted the trial judge gains an impression from the evidence which may not be apparent from the transcript.15 As the Court had stated, “[t]he Judge perceives first hand the probabilities inherent in the circumstances traversed in the evidence and can obtain a superior impression of those probabilities as a result.”16
[18] In this case, the advantages enjoyed by the trial Judge include not only hearing from 19 witnesses in total, including three experts called by the appellant, but also, at the request of both parties, undertaking a site visit. Counsel described the Judge as “donning his gumboots” to walk over both Lots 20 and 55 and to walk along the building pads which have been established on those lots. He also had a 7.5 metre pole held upright on Lots 20 and 55 to see its effect on the views. His Honour looked at the views from each of the respondents’ properties, standing on decks and by windows. He also walked up to the second respondents’ home to observe the views of the lake available from higher up on Glacial Terrace.
[19] The second stage of the enquiry under s 317(1) is the exercise of discretion. In Brown v Brown, in the context of a Family Protection Act 1955 appeal, the Court of Appeal noted that an appellate court “should not substitute its discretion for that of the trial judge unless there be made out some ‘reasonably plain ground’”.17
13 At [31].
14 At [31].
15 At [31], citing Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 199.
16 Rae v International Insurance Brokers (Nelson Marlborough) Ltd, above n 15, at 199, cited in
Green v Green, above n 10, at [31].
17 Brown v Brown (as executors and trustees of estate of Brown) [2022] NZCA 476 at [65], citing
Little v Angus [1981] 1 NZLR 126 (CA) at 127.
Grounds of appeal
[20] The appellant raised six grounds of appeal, each of which was underpinned by a number of subsidiary points. The grounds are:
a)Substantial injury — s 317(1)(d): The Judge erred in concluding that the granting of the application would cause substantial injury to, in particular, the second and third respondents, who were likely to be the most affected by the proposed subdivision of the lots.
b)Covenants imposed in error — s 317(1)(a)(iii) (change in circumstances) and s 317(1)(f) (“for any other reason it is just and equitable to modify or extinguish the covenant”): The Judge erred in finding that the fact the covenants were imposed over the subject lots in error did not meet the requirements of those provisions for modifying or extinguishing the covenants.
c)Changes since the creation of covenants — s 317(1)(a): The Judge erred in concluding there was no change to the subject lots in any of the respects identified in s 317(a). The change from two lots to 10 subdivided lots as was originally intended points to a change in the use of the land and/or the character of the neighbourhood.
d)Impediment of reasonable use in a different way — s 317(1)(b): The Judge erred in concluding that s 317(1)(b) was designed for cases where a reasonable use of the land has emerged that was not reasonably foreseeable when the covenant was created. The imposition of the restrictive covenants was an error which was not contemplated by the original party and not part of the original owners’ future plan for the land. Consequently, the imposition of the restrictive covenant on the two subject lots has curtailed the ability to subdivide and impeded the reasonable use of the land.
e)Discretion: The Judge erred in holding that the consequences of the error made by the original developer should be borne by the appellant.
This finding is contrary to the weight of evidence and a factor that should not have been taken into account.
[21] The parties agreed in general terms upon the legal principles applying in relation to an application under s 317. The Judge set out the principles based on Chand v Auckland Council, a decision given with the benefit of the Supreme Court’s earlier decision in Synlait Milk Ltd v New Zealand Industrial Park Ltd.18 The Judge noted the points which he found particularly relevant to the present case as follows:19
·‘Substantially injure’ means that the modification must detrimentally affect any one of the respondents’ properties and a real and significant manner.
·The injury may be of an economic kind, a physical kind or an intangible kind.
·Covenants of this nature are property rights.
·Such property rights may be sold by the owner, enforced by the courts and, apart from statutory provisions like s 317, may not be alienated without the owner’s consent
·Loss of such rights by modification by the court forms part of the injury done by that modification
·Although if the modification is made, the court may grant compensation for the corresponding loss of property rights over the burdened land, the ability to order compensation must be ignored when deciding whether absence of substantial injury has been established.
[22]I now deal with each of the issues on appeal.
First ground of appeal — substantial injury
[23] If the appellant could not satisfy the court on the balance of probabilities that the proposed extinguishment of the restrictive covenant would not substantially injure any person entitled, the application had to be dismissed.20 The first ground is brought on the basis that the Judge erred in concluding that the proposed extinguishment of the covenant would substantially injure, in particular, the second and third respondents.
18 Chand v Auckland Council [2021] NZCA 282; and Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657.
19 District Court decision, above n 2, at [61] (footnotes omitted).
20 Property Law Act 2007, s 317(1)(d).
[24] Mr O’Neill treated this issue as the primary focus of the appeal. The Judge had emphasised the injury to two respondents, the second respondents (Mr Pool and Ms Purcell) and the third respondents (Mr and Ms McGuigan), because they would be most affected by the increase in the number of lots on which dwellings might be built on the subdivided Lots 20 and 55. Therefore Mr O’Neill submitted that if the court were satisfied that the Judge had erred in his findings as to “substantial injury” in relation to those respondents, the injury to other respondents, who were higher up the hill, was much lesser and those claims would fall fall away.
[25] Under a heading referring to s 317(1)(d) and substantial injury to any person entitled, the Judge referred to the focus of that enquiry, and in particular to the position of Mr Pool and Ms Purcell, as follows:
[45] The focus of that enquiry is the effect of the proposed modification on all the persons who own land benefited by the existing covenants. This category includes all named respondents, not solely the opposing respondents. The Court heard evidence on this issue not only from the latter group but also from other named respondents who have not filed a notice of opposition … That evidence formed part of the evidence called by the opposing respondents.
[46] While I have had regard to the evidence of those witnesses, I have focussed on the position of the opposing respondents. Their properties form a block directly facing or, in the case of Mr Pool and Ms Purcell, directly adjoining the subject lots and at only a slightly higher level. By contrast the other witnesses’ properties are all at some distance from the subject lots and at significantly higher levels. Their properties are much less affected than those of the opposing respondents.
[47] The injury identified by all the opposing respondents is the loss of views across the wetland which borders the lower side of Beechnest Drive. The subdivision of Lot 55 and the extinction of the covenant limiting construction to no more than one residential unit on it has the probable consequence that those currently unimpeded views would be replaced for the Beechnest Drive respondents with a fairly close view of a line of seven residential houses across the road. For the reasons explained below, it is very likely that these houses will be built close up to the front boundary with Beechnest Drive and closely spaced.
[48] The subdivision of Lot 20 into three titles and construction of residential units on them will primarily affect Mr Pool and Ms Purcell. This will affect their near views and physically surround their property by houses on two sides where there is currently open space.
…
[62] It follows that all the respondents in this case will suffer an injury in the form of the loss of property rights which they hold over Beechnest’s land. It also seems to follow that it is appropriate, when deciding whether this
ground has been made out, to focus on the effect of the proposed modification on the respondents who own the properties most affected by it.
[63] These appear to me to be Mr Marshall and Ms Unterburger in respect of Lot 55 and Mr Pool and Ms Purcell in respect of Lot 20. If either couple is detrimentally affected in a real and significant manner, this ground will fail. On the other hand, if the conclusion is reached that neither couple is detrimentally affected in that way, the same conclusion would have to follow in respect of all other respondents.
Assumptions made on the placement of dwellings on the new lots
[26] Of relevance to the Judge’s assessment was his assumption that the houses on Lot 55 fronting Beechnest Drive, which was to be subdivided into seven lots, would be “built close up to the front boundary with Beechnest Drive and closely spaced.”21
[27] Mr O’Neill criticises this assumption on the basis that it would have been possible for dwellings to be built on the seven new lots which were not in a line or in a row. He said that while it was accepted there would be a line of six houses where only one house could be built now, those houses could be at various places on the respective lots and the Judge was not entitled to assume they would be close up to the front boundary and/or closely spaced.
[28] The Judge based his assumptions as to the likely building configuration of the counterfactual for Beechnest Drive Lot 55 on the following:
(a)Arising from a “practical” rather than a “legal” imperative, any residential unit would have to be sited on the building platforms which had been constructed on eight of the lots. The platforms on the five southernmost lots he observed which had been formed from Lot 55 were all close to the front boundaries with Beechnest Drive. He observed this was presumably the case because the land was increasingly soft and wet toward the rear boundaries with the wetland behind. Therefore, he concluded:22
… The likely effect will be that residential units built on those lots will form a row very close to the road frontage and,
21 At [47].
22 At [52].
therefore, as close as possible to the respondents’ homes on the other side of the road.
(b)While the proposed new lots would all be a little over 1,000 square metres:23
… their long narrow shapes combined with the position of the building platforms means that there is little or no practical opportunity to do other than position each residential unit close up to the front boundary and across a large part of its width. To that degree, the modification sought is likely to result in an increase in the density of housing on the lower side of Beechnest Drive compared to the respondents’ side and the appearance of a row of houses rather than the collection of widely spaced houses in the original subdivision.
(c)The reduction in maximum building height made a difference as it would be difficult to build a two-storey house with a six-metre height limit.24 The proposed reduction in height from 7.5 metres to six metres would therefore probably remove the possibility of two-storey dwellings on eight of the lots involved.25 However, he concluded:26
… it is hard to assess whether that reduction will have any actual effect on the counterfactual. Because of the size of the subject lots, the shape and position of the building platforms and the fact that they both have a permanently unrestricted view over the wetland, any residential unit built on either is likely to be single storey anyway.
[29] It is also relevant that the resource consent for the subdivision of Lots 55 and 20 waived the setback requirements from the boundary.
[30] There was ample evidence for the Judge to make the assessment he did as to the likely placement of dwellings on the new lots along Beechnest Drive. First, there was the material in the 2017 geotechnical report by Terrafirma and the earlier Tonkin + Taylor report done in 2009 which indicated the difficulties encountered on those lots in relation to establishing a building platform and the need to avoid undue interference with the wetlands. In addition, each new building would require a
23 At [54].
24 At [57].
25 At [57].
26 At [57] (footnote omitted).
separate resource consent. To obtain such a consent, the owner was required to provide evidence of inspection and supervision of the foundations by an appropriately qualified engineer. A further difficulty, which had not been brought to the attention of Mr Bennison, the valuer who gave evidence on behalf of the appellant in the District Court, was that new requirements would have to be met under recently introduced regulations concerning interference with the wetlands. In addition, the building platforms had been costly to form because of the geotechnical problems. All of those factors supported the Judge’s assessment that the houses would likely be built on the building platforms along the Beechnest Drive frontage and form a row of houses. This was unlike the placement of houses on other sites in the subdivision, which were less restricted in building area.
Counterfactual
[31] A further argument by the appellant is that the Judge failed to properly consider, when looking at the likely detrimental effects of extinguishing the covenant, the counterfactual if the covenant was not extinguished. This counterfactual, Mr O’Neill said, was that a large 7.5 metre dwelling house could be built across a substantial part of the boundary with Beechnest Drive. This house would be much worse for the respondents than seven smaller dwellings spaced apart and non-aligned, with viewing spaces between the houses, five of which would be less than six metres high. The remaining two could be built up 7.5 metres and were likely to be pole houses on the wetland area at the north-westerly end of the present Lot 55.
[32]However, the Judge specifically referred to the counterfactual. He stated:27
[51] In considering the effect of the proposed modification on the opposing respondents, it must be kept in mind that the comparison is not with that of the current undeveloped state of the subject lots but with the counterfactual, the state of the subject lots if subdivision and construction is undertaken in compliance with the existing covenants. This permits one residential unit on each of Lots 55 and 20. Zone rules require a building height not exceeding 7.5m and site coverage not exceeding 20% of the area of each lot.
…
[55] If the restrictions are maintained on Lot 55, it is likely that any residential unit constructed would extend along the frontage with Beechnest
27 Footnotes omitted.
Drive across the width of two or more of the lots created by the 2018 subdivision. This is because the portion of the lot available for construction is that on which building platforms have been created. Maximisation of the permitted coverage would encourage the construction of a residential unit along the length of the building platforms. On Lot 20, one residential unit could be constructed subject to the same zone rules. There is no evidence which enables the Court to safely predict where on each of the subject lots one residential unit might be constructed except that it would have to be somewhere on the existing building platforms.
[56] That position is to be contrasted with the construction of up to seven closely spaced residential units along the Beechnest Drive frontage of Lot 55, with the two nearest the intersection with Glacier Terrace being pole houses likely to utilise the full 7.5m height limit or close to it and three further residential units across the road on the north-eastern corner of the intersection.
…
[59] Of course, the views across the wetland, which would be impeded to a greater degree than the counterfactual, depending on where the one residential unit might be situated on Lot 55, are only part of the views available from the opposing respondents’ homes. The majestic views of Mount Robert and the St Arnaud range would remain open. Nevertheless, I am satisfied that permitting the modification sought will result in a reduction in the aesthetic value of their views which is more than minor or trivial.
[60] Associated with the impairment of views over the wetland is its potential replacement by a line of closely spaced houses and, in the case of Mr Pool and Ms Purcell, up to three houses immediately in front of and beside theirs. I accept that those changes will to a degree alter the character of the immediate neighbourhood to one which is somewhat more built-up than the counterfactual. Instead of an additional two residential units, there may be up to ten. In my view, given the nature of the subdivision and of the area in which it is situated, that intensification will also create a diminution in the amenity value to the opposing respondents of their properties.
[33] The Judge then went on to set out points he considered to be relevant to this case from the Court of Appeal’s decision in Chand as above.28
[34] The Judge made reasonable assumptions as to the likely nature of the counterfactual. He assumed that the counterfactual dwelling would be large, and built on the building platform, rather than to the rear of the lot, given the wetland and the Council requirements. He assumed that it would be up to 7.5 metres high and, for the purposes of this assessment, would run across two or more of the new lots. The Judge noted there was no evidence which enabled the court to safely predict where on each
28 Chand, above n 18.
subject lot one residential unit might be constructed, apart from the fact it would have to be somewhere on the existing building platforms.29
[35] The Judge was also aware that a resource consent would be required for the building of each dwelling, and that a high continuous front fence line along the front of the seven new lots fronting Beechnest Drive would not be permitted.
[36] The Judge had carried out a site visit, at the invitation and in the presence of counsel for the parties. He had walked around Lots 20 and 55, walked up Glacial Terrace, and observed the views from the respondents’ homes with the assistance of a pole held up indicating a level of 7.5 metres so he could assess the effect of buildings on the lots up to that height. The Judge was in a particularly good position to assess the options available for building either a single residential dwelling on each of the two existing sites, or multiple dwellings on the new lots with the more restrictive height covenants on some of those new lots.
[37] The Judge was entitled to reach a conclusion on the evidence as to what might reasonably have been built on the relevant lots. He did so to establish the counterfactual, which he clearly took into account. The Judge also made reasonable assumptions based on the evidence to determine the likely configuration of dwellings likely to be built on the new lots. His determinations are well within range and supported by the evidence available. He made no errors susceptible to appeal in this regard.
Views
[38] The first injury the Judge identified was the loss of views across the wetland which bordered the lower side of Beechnest Drive. He noted that the “probable consequence” for the Beechnest Drive respondents would be a “fairly close view of a line of seven residential houses across the road.”30 He went on to give his reasons for that conclusion, which I have set out above.
29 District Court decision, above n 2, at [55].
30 At [47].
[39] The Judge accepted these would primarily affect Mr Pool and Ms Purcell, but he accepted the evidence given by all opposing respondents that the views available from their respective homes were a “major factor motivating the purchases of those sections.”31 He noted it was obvious both from the marketing material for the subdivision and from his site visit that:32
… outstanding views are available from all parts of the subdivision. It is also confirmed by the actions of the opposing respondents in building their homes in a way which maximised their views. The Marshall/Unterberger home was specifically positioned to capture the views to the west across the wetland and built with floor-to-ceiling windows. Mr and Mrs McGuigan installed a cathedral window looking across the wetland.
[40] The Judge accepted that the effects of loss of views, together with other similar detriments, were intangible, and there was a degree of “intrinsic subjectivity involved in assessing the significance of aspects of this nature”.33 Notwithstanding this, he noted the Court of Appeal’s recognition in Chand that “the subject of tastes, preferences or beliefs of particular individuals may, within the limits of reasonableness, give rise to injury in the relevant sense to those individuals.”34 Having heard the evidence of the four respondents most affected, the Judge was satisfied that the effects were “very real and significant to them.”35
[41]The Judge said:
[72] I was particularly impressed by Ms Unterberger’s evidence in this respect. Her respect for Mr and Mrs Seifried was obvious and the long and friendly relationship which she has had with them and their children is clearly very important to her. Her decision to oppose this application was not made lightly. That decision indicates the importance of these intangible effects to her enjoyment of the home she and her husband have built.
[73] Having also read and heard the evidence of Mr Pool and Ms Purcell, I am sure that they hold the intangible qualities of view, privacy and ambience attaching to the home which they have built with their own hands just as dearly.
[74] I do consider that the intangible detrimental effects of the proposed modification are real and significant to both couples. Nor do I think that their
31 At [58].
32 At [58].
33 At [70].
34 At [70], citing Chand, above n 18, at [51], adopting dicta in Mogensen v Portland Developments Pty Ltd (1983) NSW ConvR 56, 855 at 56,856.
35 At [71].
attitudes in this respect are unreasonable in light of the nature of the subdivision in which their properties are situated and its surrounding area.
Knowledge of the subdivisions by the respondents
[42] Mr O’Neill suggested that the respondents should have known that Lots 20 and 55 were going to be subdivided in the future. This knowledge was said to have been acquired because purchasers were given a bundle of material, including the 2009 Tonkin + Taylor report, which included in the text a reference to those lots being set aside for future subdivision. A map which indicated future subdivision for three lots was attached to the report.
[43] This knowledge was rejected by the Judge, who found as a matter of fact that none of the opposing respondents were aware of the proposed subdivision of those lots when they purchased their properties in reliance on the registered covenants. The Judge said in his view there was no reason the respondents should have been aware of the error of BVL, the previous owner of the subdivision.36
[44]He said:
[89] Those who purchased their properties from Beechnest relied on specific representations, confirmed by their own enquiry or by their solicitors, that their properties were protected by the covenants on the titles although Mr Batty, who was Beechnest’s agent, was careful to confine anything he said about the protection given to generalities.
[90] The opposing respondents were particularly concerned about the effect of the covenants on development of the subject lots which were directly opposite or adjacent to their properties. The terms of the covenants and the correct advice they received about them assuaged those concerns.
[91] The argument advanced by Beechnest that the respondents should have realised the subject lots might be subdivided in future because of the existence of the driveway entrances and the service connections or the statement in the Tonkin and Taylor report made available to them is unpersuasive in the face of the indisputable evidence that the respondents were fully aware of the terms and effect of the restrictive covenants affecting the subject lots and had taken steps to confirm their legal validity and enforceability at the time of their purchases. The installations on the subject lots had been there since before the failure of the original developer several years earlier and, if they were noticed, would not in the circumstances have conveyed a current intention to subdivide by Beechnest.
36 At [88].
[92] The argument is particularly unmeritorious in the context of the purchases by the McGuigans and by Mr Pool and Ms Purcell. It appears that at that time, Beechnest’s agent Mr Batty was aware of its plans to subdivide the subject lots although I think, like Mr Seifried, he was probably unaware they were subject to the covenants. In any event, having heard his cross-examination, I am satisfied that he took care to avoid disclosing Beechnest’s plans to those purchasers when those sales were being negotiated. It ill behoves Beechnest to suggest now that they should have been aware of them.
[45] The Judge’s findings in relation to the lack of knowledge by the respondents of the intention by Beechnest to subdivide was supported by the evidence before the court. For instance, Ms McGuigan discussed her understanding of the covenants on the lots in her affidavit. According to her affidavit, when Ms McGuigan asked Mr Batty about the issue he referred her “back to the covenants laid down to protect the area and [her] investment”. She also took and relied on legal advice that the covenants prohibited further subdivision of the relevant lots. Ms McGuigan did not notice the very small words on a map taken from the Tonkin + Taylor report, which under a large number 55 (indicating Lot 55) were the words “Future development”, and under a large number 20 (indicating Lot 20) were the words “Future development, Landcare”. In addition, the sales flyer she was given by Mr Batty when she met him at the subdivision clearly stated that “covenants are in place to protect your investment”. Ms McGuigan said she was pleased to read this. She said Mr Batty emphasised the need for the covenants to keep the area as a place of natural importance. She said she specifically asked about Lots 55 and 20 because she could see they were large sections and in the vicinity was a commercial building. She wanted to know if a similar fate might befall Lots 55 and 20. Ms McGuigan said that the lots were overgrown and she did not notice the driveway.
[46] Mr McGuigan said he had not seen the Tonkin + Taylor report. He said he noticed the driveways but did not think it indicated the lot would be subdivided.
[47] Mr O’Neill pointed out that Mr Marshall agreed in cross-examination that he must have got the report as part of the information package. However, Mr Marshall could not recall it and relied on the registered restrictive covenant.
[48] Mr Pool also agreed that he had seen the Tonkin + Taylor report but had not realised that the relevant lots would be further subdivided. He said in his evidence
that he interpreted the reference to future development and “Landcare” as a reference to an organisation named Landcare Trust an organisation supporting land and for the developing of “integrity of the land and water on [the] site”. He elaborated on this in his evidence-in-chief. He had gone through the report for Tonkin + Taylor and noticed that Lot 20 (his western neighbour) was marked “Future Development Landcare”. He emailed Mr Batty for clarification of what this meant but received no reply. Mr Poole did his own research and discovered that the Landcare Trust was an organisation mandated to improve “the sustainability of our land and water quality”. The information on the Landcare Trust website led him to believe that the trust specifically worked to protect wetlands and the reference to future development on the title was a reference to the protection of the land and water on the site for future generations by the Landcare Trust. He did not feel he needed to investigate further.
[49] The Judge made no error in concluding on the evidence that the respondents were not aware of the intention to subdivide the relevant lots either from the Tonkin + Taylor report or from the evidence of services installed, including the indications of driveways on the lots. The respondents were entitled to rely on the registered covenants as to the prohibition of subdivision on Lots 20 and 55.
Ambience and amenities
[50] Mr O’Neill focused on the injury to the respondents alleged to flow from the interference with views. However, the Judge referred to not only views but also to the effect of other intangibles on the respondents. He described these as follows:
[49] Allied with the impairment of views, the opposing respondents consider that the intensification of residential building, particularly along the lower side of Beechnest Drive, will detract from the open environment which is a major aspect of their enjoyment of their properties. Mr Marshall described the perceived effect as like living in suburbia.
…
[53] This circumstance [the building of a row of houses close to the road frontage on Beechnest Drive] will to some degree nullify the intention of the zone rules applying to the original subdivision in order to maintain an ambience more suited to St Arnaud than a suburban environment. This includes the requirement that no lot was to have an area less than 1000 m² which, with the zone rule that site coverage would be no more than 20%, means that houses would almost certainly be widely space compared to most
urban or suburban environments. That has turned out to be generally the case within the original subdivision.
…
[60] Associated with the impairment of views over the wetland is its potential replacement by a line of closely spaced houses and, in the case of Mr Pool and Ms Purcell, up to three houses immediately in front of and beside theirs. I accept that those changes will to a degree alter the character of the immediate neighbourhood to one which is somewhat more built-up than the counterfactual. Instead of an additional two residential units, there may be up to ten. In my view, given the nature of the subdivision and of the area in which it is situated, that intensification will also create a diminution in the amenity value to the opposing respondents of their properties.
…
[69] In respect of physical effects, in the short term there will be more disruption caused by the construction of ten houses as opposed to two, and probably over a longer period. In the longer term, there may be some increase in traffic and noise simply as a result of having more neighbours. Apart from the position and spacing of those houses, I do not think that either the houses or their potential owners are likely to differ in any material way from the existing homes in the subdivision and their current owners. In summary, although there would be some physical effects flowing from the proposed modification, I do not think that they could be turned significant.
[70] Intangible effects include impairment of views, unsightliness, loss of privacy and alteration to the character and ambience of the neighbourhood. This is the primary type of injury alleged by the opposing respondents. There is a degree of intrinsic subjectivity involved in assessing the significance of aspects of this nature …
[51] The Judge went on to refer to the confirmation by the Court of Appeal in Chand that “the subjective tastes, preferences or beliefs of particular individuals” could be taken into account “within the limits of reasonableness” to give rise to injury in the relevant sense to those individuals.37
[52]The Judge said:
[71] I have outlined above the potential (and probable) effect of the proposed modification of views and the ambience of the immediate neighbourhood. The assessment of whether those effects are real and significant involves a degree of subjectivity. Having heard the evidence of all four of the respondents most affected, I am satisfied that these effects are very real and significant to them.
37 At [70], citing Chand, above n 18, at [51], adopting dicta in Mogensen v Portland Developments Pty Ltd, above n 34, at 56,856.
[53] I have referred earlier to the Judge’s comments in relation to Ms Unterberger’s evidence in this respect, and also that of Mr Pool and Ms Purcell. The Judge concluded that the intangible detrimental effects of the proposed modification were “real and significant to both couples”.38 He also noted that their attitudes were not unreasonable in light of the nature of the subdivision in which the properties were situated and the surrounding area.39
[54] The Judge went on to say that Beechnest had not established that the proposed modification would not cause substantial injury to Mr Marshall and Ms Unterberger or to Mr Pool and Ms Purcell. He also noted that while he made those findings specifically in relation to those respondents, he had not overlooked the evidence of the effects on the other opposing respondents as well. Due to his findings in relation to the two most affected respondents, he said it was therefore not necessary for him to go any further to discuss the specific injurious effects on the other respondents.40
[55] The Judge made no errors in his findings on the evidence as to the detriment suffered by the respondents in relation to views, amenity and ambience.
Economic effects
[56] Mr O’Neill said the Judge had accepted the evidence of the expert valuer, Mr Bennison, who gave evidence for Beechnest. In addition, Mr O’Neill said the Judge noted that the respondents had called no expert valuation evidence to support the opinions that some expressed that the impairment of views and increased building density would result in a reduction in the value of their properties.41
[57] Therefore, Mr O’Neill said, the Judge was in error in finding that while it was “not possible to conclusively prove” that there would be a loss of value of any of the respondents’ properties by the proposed modification, “nor ha[d] it been positively proved there [would] not be.”42
38 At [74].
39 At [72]–[73].
40 At [76]–[77].
41 At [50].
42 At [68].
[58] Mr O’Neill pointed out that the making of a profit by Beechnest, while it acquired the lots at a price favourable to it from the receiver, was due to Beechnest taking on the risk of the development. Mr O’Neill suggested that the respondents would lose nothing by the extinguishment of the restrictive covenant. He said there was always going to be at least one house on each lot, which could present a greater detriment to the respondents’ views and other intangible amenities compared to seven height-restricted houses.
[59] However, this submission overlooks the actual findings of the Judge in relation to Mr Bennison’s evidence.
[60] It also overlooks the separate economic loss which the Judge referred to, being the loss of property rights by virtue of the respondents losing the benefit of the covenant.
[61] The covenant prohibiting subdivision on the burdened lots was of value to the respondents. The specific value would be difficult to assess, but it is a real value represented by the ability to prevent a lot from being subdivided enabling multiple residences to be built.
[62]The Judge said in relation to Mr Bennison’s evidence:
[64] Turning first to the economic effect, the only expert evidence called was that of Richard Bennison, a very experienced valuer whose practice has been particularly focused on the rural districts of the Nelson region administered by the Tasman District Council. He has an intimate knowledge of St Arnaud and the Beechnest subdivision. He made an analysis of the 23 sales in the subdivision between 2015 and January 2021 in order to assess whether there was any premium paid for any expectation that the views across Beechnest Drive to the wetland would remain unimpeded. The result of that analysis was that none could be detected.
[65] I accept that evidence. His conclusion was not weakened by cross- examination. However, the analysis was necessarily a general one. It involved all sales including many at higher levels of the subdivision from which views across the wetland are more distant and relatively less important than those of the respondents which are at lower levels close to the level of Lot 55 and much closer to it.
[66] The true comparison is one which would be very difficult or even impossible to confidently assess, that is, the difference in the price which a potential buyer might pay for each of the respondents’ properties with the
benefit of the existing covenants compared to what such a person might pay if the covenant permitted the subdivision of the subject lots into ten new lots with the right to build one residential unit on each with a reduced height limit of 6m. This involves a perception of change as opposed to the completed reality of change, a distinction which Mr Bennison alluded to.
[67] What Mr Bennison did make clear was that views have a positive effect on house values and that people take into account a range of factors when buying a property and that different people value various factors differently. While that is true, people who have purchased in the Beechnest subdivision are very likely to put a high value on views because that is its most outstanding feature. My subjective view is that most potential purchases of the respondents’ properties, like the respondents themselves, would prefer the existing covenants.
[63] It was with those background comments that the Judge said he drew from the evidence that it was not possible to prove there would be a loss of value on any of the respondents’ properties, but it had not been positively proved there would not be.43
[64] This was a finding open to the Judge. Mr Bennison made it clear he was doing a market value analysis using the traditional comparative sales technique. The subjective preferences of an individual when it came to buying a house could well be affected by the fact there was a row of houses in front of the wetland.
[65] Mr Bennison had agreed in response to questions that he was only qualified to comment on “market value” in financial terms not in “amenity terms”. He relied entirely on the fact that market data does not show any premiums paid for properties that had the prospect of not having a house built in front of it “if there ever was such a thing”. He agreed that people buy properties for a whole range of reasons and that views were an important part in that but not the only reason. Mr Bennison agreed that people could be put off buying, but emphasised he was looking at the market which is an amalgam of a range of people and of properties. He agreed that it would depend on the individual what they liked in terms of natural landscape.
[66] Mr Bennison had specifically completed his valuation on the basis that the dwellings to be built on the new lots would be “developed with housing of the same style and character as the balance of the Beechnest subdivision” to reach his conclusion that there would be no diminution of property values as the respondents
43 At [68].
claimed.44 Mr Bennison had assumed that the new houses to be built on the new lots would maintain the “style and character” of the balance of the subdivision, which was by then well-established. Mr Bennison does not appear to have factored in the geotechnical evidence and the fact that undue interference with the wetlands may be an issue that the Tasman District Council would be alerted to when considering any resource consent for buildings on the relevant sites.
[67] The Judge did not attempt to put a value on the loss in this respect. Nevertheless, it was available to him to conclude, as he did, that from a subjective point of view there could be a loss of value in relation to the particular houses involved. In that respect he was focusing on the two respondents who were most affected by the lifting of the prohibition on subdivision. He made no error in his assessment of Mr Bennison’s evidence.
[68] The second type of economic loss is that related to the loss of property rights. This was very difficult to value, as the Judge acknowledged. Mr Bennison had noted that for each of the seven lots he would expect to get a price of somewhere between
$270,000 and $300,000. Multiplying that by 10 lots gives a figure of somewhere in the range of $3,000,000 which could be achieved in the sales of those lots. Regardless of the loss in value of a respondent’s land, if any, caused by the extinguishment of the covenant, the Judge recognised that a respondent ought to be compensated by receiving some proportion of the resulting increase in value of the applicant’s land.45
[69] Despite the fact this economic value would be almost impossible to quantify, nevertheless the Judge was not in error in taking it into account. He did so, not as amounting of itself to substantial injury in terms of s 317(1)(d) but, as the Court of Appeal recognised was appropriate in Synlait, adding weight to other factors sufficient to reach the threshold of substantial injury.46
44 Affidavit of Mr Richard Bennison, 18 March 2021, at [49].
45 District Court decision, above n 2, at [75], citing Dooley v Sturgess Consulting Ltd [2016] NZHC 1905; and Reynolds v Parklands Properties Ltd [2021] NZCA 394.
46 At [76].
Conclusion on first ground of appeal
[70] In conclusion, the Judge made no error in relation to the manner in which he dealt with the effects on not only views, but also on the ambience and amenities as well as the economic effects and the contribution of all of those factors to constitute substantial injury to the respondents.
Second ground of appeal — covenants imposed in error
[71] The court may modify or extinguish a covenant under s 317(1)(a) if there has been a change warranting the modification or extinguishment since its creation. To be relevant in terms of s 317(1)(a)(i) or (ii), the change must be to (i) “the nature or extent of the use being made of the benefited land, the burden of land, or both” or (ii) “the character of the neighbourhood”. The Court may also modify or extinguish a covenant under s 317(1)(f) if “for any other reason it is just and equitable” to do so.
[72] The second ground of appeal is that the Judge erred in concluding that the fact the covenants were imposed in error did not amount to a change in circumstances under s 317(1)(a) or meant for any other reason it was just and equitable to modify or extinguish the covenant under s 317(1)(f).
[73] It is difficult to see how the appellant’s failure at the time of purchase to ascertain that there was a restrictive covenant prohibiting subdivision on Lots 20 and 55, but later after obtaining resource consent realising the restrictive covenant applied could fit within a “change of circumstances” in the terms of the Act. There was no evidence as to how the error occurred. However, I was advised by counsel that the appellant’s solicitor and sole director had at the time of purchase overlooked the presence of the restrictive covenant. At that time, it had purchased the 19 remaining lots in the subdivision which were not already sold. It now retains four of these, including the two relevant lots, Lots 20 and 55.
[74] The only circumstance that changed was the subjective knowledge of the appellant when it realised the restrictive covenants applied. The Judge found as a fact that the respondents did not know of the error by BVL. The Beechnest agent, Mr Batty, was aware of Beechnest’s plans to subdivide on the subject lots but when he
was responding to queries by the McGuigans and by Mr Pool and Ms Purcell, the Judge was satisfied that he “took care to avoid disclosing Beechnest’s plans to those purchasers when those sales were being negotiated.”47
[75] The Judge concluded that whether Beechnest’s ignorance was its own fault or that of its advisers made no difference.48 The covenants registered against the relevant titles constituted notice to the world at large. The Judge considered Beechnest had to be treated as having been on notice at the time of its purchase, and “[w]hether the imposition of the covenants was intended or not by its predecessor in title” — that is, BVL — was “irrelevant to the issue of justice and equity between the parties to this litigation.”49
[76] The Judge went on to say that Beechnest had not identified any other aspect bearing on the justice and equity of the case which would favour modification of the covenant. That the land in question would become more valuable to Beechnest was not a factor which engaged the concepts of justice and equity.50 The Judge found that the argument was particularly unmeritorious in the context of the purchases by the McGuigans and Mr Pool and Ms Purcell given Mr Batty’s “care to avoid disclosing Beechnest’s plans to those purchasers”.51
[77] The respondents hold the benefited land and nothing has changed concerning the use of that. The burdened land is contained in Lots 20 and 55. Nothing has changed relation to the use of those lots. The covenants have at all time only allowed for a single residential unit to be built on each of those lots.
[78] The building of the pads was undertaken at the time the resource consents were obtained. These were obtained at a time when restrictive covenant was registered. Beechnest cannot say the building of the pads is a change in circumstances, as the covenants were extant at the time. Beechnest cannot take advantage of its own actions in breach of the covenant.
47 At [92].
48 At [96].
49 At [96].
50 At [96].
51 At [92].
[79] Apart from its discovery of its error, Beechnest cannot point to any change which would be relevant in terms of s 317(1)(a)(iii).
[80] The Judge made no error in finding there had not been a change of circumstances which qualified for the purposes of the section. Neither did the Judge make any error in relation to his finding that the appellant’s subjective understanding as to the restrictive covenant was not a factor which made it “for any other reason ... just and equitable” to modify or extinguish the covenant under s 317(1)(f).
[81]The Judge made no error under this head.
Third ground of appeal — changes since the creation of covenants
[82] Mr O’Neill submitted that when seen against the fact the subject lots were intended to be subdivided into 10 sections as part of the original residential subdivision, the Judge was in error when he found there was no change since the creation of the covenants in terms of s 317(1)(a), that is in:
(a)the nature or extent of the use being made of the benefited land, the burdened land, or both;
(b)the character of the neighbourhood; or
(c)any other circumstance the court considers relevant.
[83] Mr O’Neill said the subject lots were always meant to be part of the residential subdivision, in that they were intended to be subdivided in the future.
[84] The Judge concluded there was nothing in the evidence or counsel’s submissions which pointed to a change in the use of the land or the character of the neighbourhood. He said that the use of both the benefited and the burdened land contemplated at the time the covenants were created was that they would be used for single unit residential sites.52
52 At [99].
[85] Mr O’Neill says the nature of the subdivision was residential, which must include the subject lots. Mr O’Neill points to the physical aspects which were part of the land, that is the driveways and service connections intended for use by the further subdivided lots. He says these services should have been obvious to the respondents, and consequently it must have been obvious to the respondents that Lots 20 and 55 were to be subdivided further.
[86] I have already dealt with the Judge’s findings as to what the respondents knew. I have concluded the Judge made no error in finding both that the respondents did not know, nor was there any reason for them to be on notice, that the appellant intended to subdivide those lots. Further, the terms of the covenants restricting any further subdivision were registered and could be relied upon.
[87] There is nothing in Mr O’Neill’s submissions on appeal that was not before the Judge. I agree with the Judge’s finding that there was no change which met the requirements of s 317(1)(a).
Fourth ground of appeal — impediment of the reasonable use in a different way
[88] The fourth ground of appeal concerns the Judge’s conclusion, with regard to s 317(1)(b), that this provision was designed for cases where a reasonable use of the land had emerged that was not reasonably foreseeable when the covenant was created and which was impeded by the terms of the covenant. Mr O’Neill submitted the Judge was in error in reaching this conclusion, as well as in finding that cases where a covenant is inadvertently imposed did not fit within s 317(1)(b).
[89] Mr O’Neill says the imposition of the restrictive covenant over the appellant’s lots means that if the covenant continues in its existing form restricting the ability of the appellant to subdivide the lots into new additional lots there is an impediment to the reasonable use of the land.
[90] Further, Mr O’Neill argues that it would have been reasonably foreseeable by the original parties to the covenant (BVL as both the covenantor and the covenantee) that they would subdivide the land at some stage, and as a result the imposition of the covenants impedes that reasonable use.
[91] However, the impediment to the use is the prohibition contained in the restrictive covenant. That covenant always prohibited a subdivision of the relevant lots. It is not impeding the use in any different way now to that which it was when it was created or, relevantly, when it was purchased by the appellant. The Judge, said that from BVL’s point of view, the restrictive covenant had been put on by mistake, as BVL had always intended to subdivide the land. Therefore, he said the appellant was not now seeking to use the land in a different way or to a different extent from that which it could reasonably have contemplated when the covenant was created.
[92]The Judge concluded:
[104] Thus, I do not think that s 317(1)(b) was designed for cases in which a covenant has been inadvertently imposed. Rather, it is designed for cases where a reasonable use of land has emerged which was not reasonably foreseeable when a covenant was created and which is impeded by the terms of that covenant …
[93] The Judge made no error in this conclusion. It is a correct interpretation of the provision. In any event, the circumstances in which the appellant finds itself do not fit within the wording of s 317(1)(b) however it is interpreted.
Fifth ground of appeal — discretion
[94] The Judge concluded that Beechnest had failed to meet the first stage requirements under s 117 of the Property Law Act and therefore the second stage considerations, which involved the exercise of discretion by the Judge, did not arise. However, he indicated that if he was wrong about that he would have exercised his discretion against granting the application.53
[95]The Judge said:
[110] In my view, the primary factor in the exercise of the discretion is the question of justice between the parties. The outcome of this application will decide which party bears the consequence of the error which was made by BVL when the covenants were created. I have no doubt that it is just that those consequences are borne by Beechnest …
53 At [105] and [114].
[96] The Judge then summarised his reasons for indicating that he would have exercised his discretion against the appellant as follows:
(a)The appellant is the successor in title to BVL, which created the covenants. Beechnest should have been aware of the terms of the covenants burdening the land when it purchased the land. They were intrinsic to the value of that land.54
(b)The opposing respondents were “fully aware” of the effect of the terms of the registered covenants which benefited their land when they purchased the land.55 They decided on the position and orientation of the homes they built in reliance on the covenants. According to the evidence of Mr Marshall and Ms Unterberger, without the protection of the covenants over Lot 55, they would not have purchased their property.56
(c)Financial compensation was never likely to adequately compensate the respondents’ intangible losses. This was not a purely commercial matter as was the situation in Synlait.57 The respondents had emotional connections with their homes which could not be replaced with money.58
(d)The appellant was the vendor of two sections purchased by two of the respondents, the McGuigans, and Mr Pool and Ms Purcell. The appellant therefore contracted to sell land which “included the property rights constituted by the restrictive covenants.”59 The covenants were an important factor in the purchase decision and the effect of the modification was to remove the rights which came with the land that the appellant sold to them.60
54 At [110].
55 At [111].
56 At [111].
57 At [112], referring to Synlait, above n 18.
58 At [112].
59 At [114].
60 At [114]. The Judge found this to be an important factor militating against exercising the discretion in the appellant’s favour.
[97] The fifth ground of appeal is that the Judge erred in holding that the consequences of the error made by the original developer, BVL, should be borne by the appellant. Mr O’Neill submits that this finding is contrary to the weight of evidence and additionally it is a factor that should not have been taken into account under s 317.
[98] Mr O’Neill’s argument appears to be that it was the original developer who in error registered the restrictive covenant against the relevant lots and it is not appropriate in those circumstances that the error should weigh against Beechnest.
[99] Mr O’Neill sought to distinguish the present case from the situation in Synlait on the basis that here Beechnest did not know about the covenant, whereas in Synlait the applicant had acquired land knowing it was subject to a covenant but had then sought to use the land in a way that required alteration to the rights conferred by the covenant.61 By contrast, the appellant here did not know about the covenant due to an error on the part of the professional advisors and was not a situation where the appellant had deliberately chosen to ignore the covenant. Mr O’Neill submitted, therefore, the error should not be a factor that counted against the appellant in terms of s 317.
[100] Mr O’Neill also says the Judge incorrectly approached this particular aspect by assuming that the respondents were entitled to an unobstructed view of the wetlands. Mr O’Neill says this was never the case, as there was “always the potential for the [appellant] to build a residential property on each lot, stretching the entire length of the lot and going up 7.5 metres in height.” He further says that the appellant had offered to place a height restriction of six metres on eight of the 10 lots.
[101] Mr O’Neill recognised that the courts had taken a “conservative” approach to the exercise of discretion under s 317 for a number of reasons, including:62
(a)the potential for an application under s 317 to impact adversely on existing property rights;
61 Synlait, above n 18, at [169].
62 Harnden v Collins [2010] 2 NZLR 273 (HC).
(b)it being a statutory interference with the sanctity of the contract entered into between the dominant and servient tenements (or predecessors in title); and
(c)that before the enactment of s 317 there had been no provision for the court to order payment of compensation as a means of diminishing adverse effect on parties impacted by the granting of an order.
[102] Mr O’Neill submitted, however, that since that time there had been a progressive broadening of the scope of the section and a relaxation of the approach the courts had adopted in the exercise of the discretion, which was a remedial provision. He accepted a degree of caution was appropriate but the power to modify should not be restrictively applied or it would defeat the purpose of the provision.
[103] As noted, Mr O’Neill also referred to Synlait, where the Supreme Court indicated it would not overlay the requirements of s 317 with additional, non-statutory criteria that affected the clear parliamentary intention that relevant covenants are amenable to modification and extinguishment in defined circumstances.63
[104] In addition, Mr O’Neill noted that the Court had said that the contractual and property rights can be “significant”, but were not “generic fetters on the court’s discretion.”64 As the Court of Appeal noted in Chand, each case must be considered on its own merits using the two-stage test set out in Synlait.65
[105] This was the approach which the Judge correctly applied in this case. In the exercise of his discretion, at the second stage, he was entitled to take into account all relevant factors. He has done that, as is clearly apparent from his summary set out above.
[106] I note in particular the Judge found as a fact that the agent of the appellant “took care to avoid disclosing Beechnest’s plans to [the] purchasers when those sales
63 Synlait, above n 18, at [85].
64 At [88]; and Chand, above n 18, at [37].
65 Chand, above n 18, at [37].
were being negotiated.”66 In assessing the justice and equity of the situation it was appropriate that he took into account the fact the respondents most affected by the application had been misled (albeit by omission) by an agent of the appellant.
[107] Although Mr Seifried personally may have always intended to subdivide and build on Lots 20 and 55, the appellant did not make that clear to purchasers prior to selling them the land. Even without Mr Batty’s involvement, which was clearly significant, the real estate flyer for at least one of the lots specifically referred to the views and stated, “Covenants apply to protect your investment”.
[108] An appellate court must not substitute its discretion for that of the trial Judge unless there is some “reasonably plain ground” for doing so.67 The Judge here was exercising his discretion. The Judge took into account relevant factors in the exercise of his discretion. He made no error in reaching the conclusion he did.
[109]This ground of appeal is dismissed.
Conclusion
[110] The Judge made no errors either in his determination in the first stage assessment under s 317 or in the exercise of his discretion under the second stage of that analysis.
[111] In particular, the Judge was correct in his conclusion that he could not be satisfied that the respondents would not be substantially injured by the proposed extinguishment of the covenant, particularly the two respondents who would have been most affected had the application been granted.
[112]Accordingly, the appeal is dismissed.
66 District Court decision, above n 2, at [92].
67 Brown v Brown, above n 17, at [65].
Costs
[113] The appellant indicated it would agree to costs following the event on a 2B basis. The respondent’s counsel indicated he did not have instructions on the point. I would be inclined to grant costs against the appellant on a 2B basis together with reasonable costs and disbursements. That indication may assist the parties to resolve costs without further application. However, if there are any issues arising an application may be made by submissions within five days of the date of this judgment. Any response should be filed within a further five days and any reply within a further three days.
Grice J
Solicitors:
Wain & Naysmith, Blenheim Hamish Fletcher Lawyers, Nelson
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