Body Corporate 329331 v Escrow Holdings Forty-One Ltd
[2017] NZHC 754
•20 April 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-3154 [2017] NZHC 754
BETWEEN BODY CORPORATE 329331
Applicant
AND
ESCROW HOLDINGS FORTY-ONE LIMITED
First Respondent
KALLINA LIMITED Second Respondent
Hearing: 10 April 2017 Appearances:
P H Lowndes for the Applicant
T J Herbert for the RespondentsJudgment:
20 April 2017
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 20 April 2017 at 10:00am
pursuant to Rule 11.5 of the High Court Rules
………………………………………………….
Registrar/Deputy Registrar
Solicitors:
Ogles Podwin & Associates (Chris Podwin), Royal Oak, Auckland, for the Applicant
Goodwin Legal (J M Goodwin), Greenhithe, Auckland, for the Respondents
Copy for:
P H Lowndes, Barrister, Auckland
T J Herbert, Barrister, Auckland
BODY CORPORATE 329331 v ESCROW HOLDINGS FORTY-ONE LIMITED [2017] NZHC 754 [20 April
2017]
[1] Body Corporate 329331 applies under s 145A of the Land Transfer Act 1952 to sustain caveat 10409236.1. The interest claimed in the caveat is:
As grantee of a right to light and air over the properties described in CFR 221841 in the name of Kallina Limited as registered proprietor and CFR NA70A/978 in the name of Escrow Holdings Forty-One Ltd as registered proprietor, together as grantor and the caveator as grantee on the terms specified in the application for consent for the subdivision and by virtue of the requirement to register the easement shown on DP126975.
[2] The body corporate is the registered proprietor of a unit title development at
23 Hargreaves Street, College Hill, Auckland.1 The property is lot 5 deposited plan
126975 described in identifier 1426640 (North Auckland Registry). Kallina Ltd and
Escrow Holdings Forty-One Ltd own a neighbouring property, lot 4 deposited plan
126975, as tenants in common in equal shares. Lot 4 is the servient tenement for the easement claimed by the body corporate.
[3] Kallina Ltd’s ownership is recorded and described in identifier 221841. Escrow Holdings Forty-One Ltd also owns lot 3, deposited plan 121257. Its ownership of lot 3 and a half share of lot 4 is recorded in identifier NA70A/978. Mr Humphrey O’Leary is the director of both Escrow and Kallina.
[4] Lots 4 and 5 were created under a subdivision of land in deposited plan
121257 under a consent given by the Auckland City Council in 1988. The owners were Lakeland Properties Ltd and Upland Holdings Ltd. The 1988 subdivision plan provided for a number of easements, including a light and air easement over part of the land in proposed lot 4. The plan was deposited and titles issued. A number of easements were granted in accordance with the subdivision consent, but the title
records to the properties do not show any light and air easement appurtenant to lot 5
1 As something of a disclaimer it is important not to confuse this property with a neighbouring unit title development at 21 Hargreaves Street, which has been the subject of extensive litigation. See Body Corporate 341188 v District Court at Auckland [2012] NZHC 2301; Body Corporate
341188 v District Court at Auckland [2015] NZCA 393, (2015) 16 NZCPR 667; Escrow Holdings Forty-One Ltd v Body Corporate 341188 [2016] NZSC 167; Body Corporate 341188 v Kelly [2014] NZHC 1454; Body Corporate No 341188 v Kelly [2015] NZHC 1647; Body Corporate 341188 v Kelly [2016] NZHC 2230; Body Corporate 341188 v Kelly [2017] NZHC
94. Mr Kelly also figures in this case through his directorship of Volcanic Investments Ltd, which at one time owned Lot 5, but he and his company were not required under any council consent to create any light and air easement.
or registered over the titles to lot 4. Since the original subdivision, lots 4 and 5 have changed ownership a number of times. Notwithstanding the absence of any registered easement, the body corporate contends that Escrow Holdings Forty-One Ltd and Kallina Ltd own lot 4 subject to an unregistered equitable light and air easement in favour of its property.
[5] There are two main issues:
1 Was an equitable light and air easement created?
2If it was, are Escrow Holdings Forty-One Ltd and Kallina Ltd bound by it?
General principles on caveat applications
[6] In Holt v Anchorage Management Ltd, McMullin J stated the purpose of a caveat against dealings under the Land Transfer Act:2
Once lodged, a caveat is notice to all who search the title to the land against which it is registered and to the registered proprietor of the land (to whom notice of its receipt is given pursuant to s 142) that the caveator claims the estate or interest the subject of the caveat. It is both a warning to the persons mentioned that the caveator asserts rights against the land and a protection of those rights. (Section 143(1) uses the phrase "protected by the caveat".) Once the caveat is lodged the Registrar is prohibited from making any entry on the register which has the effect of charging or transferring or otherwise affecting the estate or interest protected by the caveat (s 141).
[7] In caveat applications under ss 143, 145 and 145A of the Land Transfer Act
1952, the caveator generally has the onus of showing a reasonably arguable case for the interest claimed. The interest must come within s 137(1) of the Act:
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
2 Holt v Anchorage Management Ltd [1987] 1 NZLR 108 (CA) at 113.
(b) is transferring the land or estate or interest to any other person to be held in trust.
[8] A personal or contractual right is not enough. The caveator must show an entitlement to a beneficial interest in the land under the caveat.3 Something more than a potential or future interest is required.4 Caveat applications are summary and are therefore not suitable for deciding disputed questions of fact. On the other hand, the court is not required to accept uncritically as raising a dispute of fact which calls for further investigation, every statement in an affidavit, however equivocal, lacking
in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent or inherently improbable it may be. For a caveat to be removed, it must be patently clear that the caveat cannot stand either because there was no ground for lodging it at the outset or because any such ground no longer exists. In addition, the court has a residual discretion not to uphold a caveat that is exercised cautiously, as when the caveat could serve no useful purpose
or alternative safeguards are available.5
[9] To establish a reasonably arguable case there must be evidence tending to prove the facts relied on. Assertion, whether in pleadings or affidavit, is not enough. The evidence need not be as extensive as that given in a hearing on the substantive merits. It may be circumstantial. But if there is no evidence to prove the facts contended for, the caveator will not have made out a reasonably arguable case for those facts. As a qualification to the reasonably arguable standard, where there are allegations of fraud or other reprehensible conduct, it is necessary to show a prima
facie case.6
3 Guardian Trust and Executors Company of New Zealand, Limited v Hall [1938] NZLR
1020 (CA) at 1025.
4 Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA).
5 Pacific Homes Ltd (in rec) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at
656;Stewart v Kaipara Consultants Ltd [2000] 3 NZLR 55 (CA).
6 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], followed in Trustees
Executors Ltd v Steve G Ltd [2013] NZHC 16 at [63]-[66]; Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2013] NZHC 1297 at [78] (overturned on appeal, but not on this point: Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd [2014] NZCA 164, (2014) 15
NZCPR 227); S & S Ltd v XYZ Ltd [2016] NZHC 26 at [6]; and Virtual Spectator v Rothlander
[2016] NZHC 499.
Applicable law
[10] Much of this case concerns events in the 1980s. Relevant legislation has changed markedly. The territorial authority for the site was the Auckland City Council, not the body with the same name but a larger territory that replaced it under the 1989 reorganisation of local government, which was in turn replaced by the Auckland Council in 2010 under the Local Government (Auckland Council) Act
2009. Under the Town and Country Planning Act 1977 land use was controlled by district scheme ordinances. Subdivision of land was regulated under Part 20 of the Local Government Act 1974. The Resource Management Act 1991 has replaced those two Acts. The Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 varied the ways to create registered easements. The standard ways before were by memorandum of transfer and easement certificate (especially on a subdivision). Sections 123-125 of the Property Law Act 1952 governed creation of light and air easements. Sections 299 and 300 of the Property Law Act
2007 now apply.
Reasonably arguable facts
[11] Mr O’Leary has never had any connection with Lakeland Properties Ltd and
Upland Holdings Ltd. Those companies, incorporated under the Companies Act
1955, were removed from the register before they were required to re-register under the Companies Act 1993. In 1988 they had obtained consent to divide their property at Hargreaves Street into three lots, each to have an office building. Lakeland applied again to divide lot 1 into two new lots, lots 4 and 5. Lot 4 was to be used for parking for those using the buildings on lots 2 and 3. Lot 5 would have the third office building. The proposed lot 4 would be jointly owned by the owners of lots 2 and 3. In its application, Lakeland proposed to create a light and air easement over the air space in lot 4 to “negate the necessity of fire rating on the rear wall of building A,” (which was to go on proposed lot 5). The application sought a dispensation from parking requirements under s 76 of the Town and Country Planning Act 1977 and permission to subdivide under Part 20 of the Local Government Act 1974.
[12] In May 1988 the Auckland City Council granted the application, adopting the recommendations of its principal planner. The consent activity was to be “in general accord with submitted plans”. The submitted plans showed a number of easements to be created, including a proposed light and air easement over areas marked L, R and S on proposed lot 4. The consent was subject to the following condition:
That proposed Lot 4 DP121257 have registered on its title a restriction that is to the satisfaction of the City Solicitor to prevent:
1it being used for other than car parking and accessways for the relevant lots concerned (as per submitted plans) without prior consent of Council; and
2Lot 4 being owned by other than the owners of lots 2 and 3, DP121257.
[13] A survey plan for the subdivision, DP126975, was deposited on 11 December
1989. The plan shows the new lots 4 and 5. There is a table of easements to be created, including the light and air easement over areas L, R and S. Upland Holdings Ltd and Lakeland Properties Ltd signed the plan to show their consent. The plan was approved as to survey. It also shows the Council’s approval:
Pursuant to a resolution of the Auckland City Council passed on the 11th day of August 1988 approved pursuant to section 305 of the Local Government Act 1974 this survey plan is conditional upon the granting of easements shown in the memorandum endorsed thereon and subject to the conditions of amalgamation set out hereon.
[14] Easements for rights of way and for parking, created by both easement certificate and memoranda of transfer, were in due course registered against the title. The title records for lot 4 and lot 5 do not show the registration of any light and air easement.
[15] Section 309 of the Local Government Act 1974 (now repealed) was enacted as a safeguard against easements being omitted when a council consent required them:
309 Plan approved subject to grant or reservation of easements
(1) Where the Council approves a survey plan conditionally on any specified easements shown on the plan being duly granted or reserved, the following provisions shall apply:
(a) No such easement may be surrendered by the owner of the dominant tenement or, in the case of an easement in gross, by the grantee of the easement, or be merged by transfer to the owner of the servient tenement, or be varied, except with the consent of the Council. The District Land Registrar shall endorse on the instrument by which the easement is granted or reserved and also on the relevant certificates of title a memorial that the easement is subject to the provisions of this paragraph:
(b) There shall be endorsed on the survey plan of the land deposited in the Land Registry Office or in the Deeds Register Office, as the case may be, a memorandum showing with respect to each such easement which is the dominant tenement and which is the servient tenement or, in the case of an easement in gross, the name of the proposed grantee and which is the servient tenement.
(c) The District Land Registrar or, as the case may require, the Registrar of Deeds shall refuse to register any instrument of transfer or conveyance or lease or other disposition of any allotment shown on the survey plan, unless he is satisfied that all easements so specified which are appurtenant to that allotment or to which that allotment is subject have been duly granted or reserved or will by the registration of that instrument be granted or reserved.
(2) Where the Council approves a survey plan conditionally on any specified easements shown on the plan being duly granted or reserved, the Council may at any time, whether before or after the survey plan has been deposited in the Land Registry Office or the Deeds Register Office, revoke any such condition in whole or part.
(3) Where the Council revokes any such condition in whole or in part, then—
(a) in any case where the survey plan has not been deposited, a memorandum of the revocation shall be endorsed on the survey plan:
(b) in any case where the survey plan has been deposited, the Council shall forward an authenticated copy of the resolution of the Council revoking that condition to the District Land Registrar or Registrar of Deeds, as the case may require, who shall note his records accordingly.
The current counterpart is s 243 of the Resource Management Act 1991.
[16] Notwithstanding s 309(1)(c) dispositions of Lots 4 and 5 have been registered. Mr Herbert submitted that there were four possible explanations for the registration of further dealings, notwithstanding the terms of the council’s decision:
1The Auckland City Council agreed to the surrender of the light and air easement under s 309(1)(a).
2The council revoked the condition and the District Land Registrar did not endorse that revocation on the survey plan or note it on his records
– ss 309(2) and (3).
3The District Land Registrar was satisfied that all the easements required by the council had been granted and registered the dispositions accordingly.
4 The District Land Registrar erred in registering dispositions.
On the present state of the evidence any of those explanations is tenable. The one
most favourable to the body corporate’s case is the fourth.
[17] In April 1990 the share of lot 4 now owned by Escrow Holdings Forty-One Ltd was transferred to Fremen Holdings Ltd and in November 1990 to Escrow. As to the other half share, City Realties (No.6) Ltd became its proprietor in January 1989, followed by Amtrust Pacific Properties Ltd in December 1989, Central Strata Management Ltd in July 2003, Hump O Kelly Ltd in September 2006, Volcanic Investments Ltd in September 2006, Stretch Land Ltd in September 2006 and Kallina Ltd in July 2009, which bought under a mortgagee’s sale.
[18] In May 1990 Lot 5 was transferred to MFL Mutual Fund Ltd, and later to Volcanic Investments Ltd. The lot was converted into a unit title development in March 2004. The office building has been converted into an apartment complex.
[19] In November 2003, Escrow Holdings Forty-One Ltd, as owner of lot 3
DP12157, Central Strata Management Ltd, as owner of lot 2 in DP121257, Volcanic Investments Ltd, as owner of lot 5, and Escrow and Central, as owners of lot 4, made a written agreement regarding easements. The body corporate relies on
certain terms of that easement to make out its case for an equitable easement. I deal with that below.7
[20] There is a memorandum of encumbrance (C07959.15) registered against the titles for lot 4 under which the owners of lot 4 (City Realities No.6 Ltd, Upland Holdings Ltd and Lakeland Properties Ltd) covenanted with the Auckland City Council not to permit or cause the land to be used for any purpose other than carparking or access for the benefit of lots 2 and 3 of deposited plan 121257 without the consent of the council. The encumbrance is a rent charge which continues to bind after any change of ownership. The practical effect of the encumbrance is to give those living in the apartments on lot 5 similar protection from further structures being erected on lot 4 as they would if a light and air easement had been put in place. Only the Auckland Council (as successor to the Auckland City Council) may enforce the encumbrance against the owners of Lot 4.
[21] The body corporate is concerned that the owners of lot 4 may persuade the Auckland Council to consent to other activities on lot 4, including further buildings. According to counsel, the basis for its concern is advice from a resource management consultant that under the Auckland Council’s Unitary Plan there is a shift away from allowing parking in the CBD with a view to encouraging intensification of development and greater use of public transport. If the memorandum of encumbrance were a consent notice under s 221 of the Resource Management Act 1991, any application to vary it, including any application for consent to a change of activity, would follow the same procedure as an application
for resource consent.8 The body corporate would likely be notified and have the
opportunity to submit on any such proposal. There is no assurance that the body corporate would be heard on an application for a change of use under the encumbrance imposed under a subdivision consent given under the Local Government Act 1974. In Kapiti Environmental Action Inc v Frandi the Court of Appeal held that under s 221 of the Resource Management Act 1991, as it then
stood, a consent authority could consider an application to vary a consent notice
7 Below, [38]-[41].
8 Resource Management Act 1991, s 221(3A).
without giving notice as for a resource consent application.9 Subsection 3A was enacted to alter that, but no corresponding change was made to the Local Government Act. As best I can judge, the Resource Management Act does not affect the encumbrance. While judicial review might be available to the body corporate to challenge any decision by the Council to vary or cancel the memorandum of encumbrance,10 that protection is weaker than any claim that the body corporate might have against the owners of lot 4 under a private law easement. The point is not moot. Mr Herbert accepted that the owners of lot 4 might invite the
council to review the encumbrance restricting use of their property. As a possible sign that a consent authority may review consent conditions, in May 2005 the Auckland City Council resolved to cancel the amalgamation condition for ownership of Lot 4.
[22] The body corporate has also taken matters up with LINZ. It asked for a memorial under s 309(1)(c) of the Local Government Act 1974 to be put on the title to Lot 4. It was initially successful. It also asked for the light and air easement to be registered but the Registrar-General declined. The respondents later successfully applied to have the memorial under s 309 removed.
Was an equitable light and air easement created?
[23] A light and air easement is a negative easement. Under a positive easement, the owner of the servient tenement gives someone else the right to do some positive act on the servient land – for example, the right to pass under a right-of-way, the right to conduct water, electricity, or to park vehicles. Under a negative easement on the other hand the owner of the servient tenement is restrained from doing something on the land that may have an adverse effect on the dominant owner’s enjoyment of its land. A light and air easement restrains the owner of the servient tenement from building structures or carrying out other activities that might block the light to
windows of buildings on the dominant tenement or pollute the air.11
9 Kapiti Environmental Action Inc v Frandi [2003] 2 NZLR 338 (CA).
10 Frandi, above n 9, at [39].
11 Chastey v Ackland [1895] 2 Ch 389 (CA), Chastey v Ackland [1897] AC 155 (HL) is an example of the latter.
[24] During the 1980s the standard way by which an owner of land registered under the Land Transfer Act could create a legal easement was by execution and registration of a memorandum of transfer under ss 90 (repealed) of the Land Transfer Act 1952. Another was an easement certificate under s 90A (repealed) of the Land Transfer Act. Under that procedure a registered proprietor could execute and register an easement certificate specifying easements which would take effect upon the registration of any instrument of transfer or other disposition of the fee simple.
[25] In the case of light and air easements, there were additional requirements. Sections 123-125 of the Property Law Act 1952 provided:
123 Access or use of light or air
(1) Except as herein provided, no tenement shall become servient to any other in respect of the access of either light or air, and no person shall have or acquire by prescription, grant, or otherwise any claim or right to the access of light or air to any land or building from or over the land of any other person:
Provided that nothing in this section shall prejudice or affect any easement or right to access or use of either light or air existing or acquired, by prescription or otherwise, before the 27th day of July
1894 (being the date of the commencement of the Light and Air Act
1894).
(2) This section applies to all lands in New Zealand, including lands held by or on behalf of the Crown.
(3) Nothing in this section shall be deemed to repeal or affect any law or statute relating to the pollution of air.
124 Conditions precedent to grant of right of light or air
A grant of the right of access of light or air made at any time on or after the
24th day of November 1927 may be enforced if the grant –
1is made by deed, or by an instrument in an appropriate form provided by the Land Transfer Act 1915, or the Land Transfer Act 1952, as the case may require:
2is duly registered within 12 months from the date of the execution thereof by the grantor;
3limits and defines accurately the area or parcel of land on, to, or over which the uninterrupted access of light or air, or light and air, is intended to be provided for.
125 The effect of grants
(1) Every such grant shall, if duly registered within the period defined in the last receding section, confer upon the owner for the time being of the dominant tenement such rights as may be therein defined in respect of the access of light or air, or light and air; and those rights shall enure, unless otherwise provided, notwithstanding that any buildings erected upon the dominant tenement may be altered or destroyed and replaced by other buildings.
(2) The erection of buildings of any height not encroaching upon the area limited and defined as aforesaid shall not be deemed to be an infringement of the right or a derogation from the grant.
[26] These provisions are broadly reproduced in ss 299 and 300 of the Property
Law Act 2007, although there are drafting differences.
[27] The Light and Air Act 1894 changed the old law under which an easement right for access of light could be acquired by prescription.12 Under the 1894 act rights of access of light and air were enforceable only if made by deed, but with a limit of no more than 21 years. The 21 year limit was removed by s 5 of the Property Law Amendment Act 1927. Sections 123-125 of the Property Law Act
1952 re-enacted the 1927 act. Light and air easements could only be created in accordance with s 124 of the Property Law Act 1952. The effect of s 123 was not only to abolish the former law as to obtaining light and air easements by prescription, but also to preclude claims based on implied grant or reservation.
[28] The body corporate accepts that a legal light and air easement was not created on the subdivision creating lots 4 and 5 or since. No registered interest has been created under the Land Transfer Act. It says, however, that there is an equitable easement for access to light and air.
[29] In Mikitasov v Collins, the Court of Appeal recognised that equitable easements may arise by less formal means:13
Mr James submitted that an equitable easement might arise because of the conduct of the parties. In principle that can be so. But the ultimate test of an equitable easement is whether or not equity will direct the owner of the
12 Under Prescription Act 1832 (c 71), s 3 (Imp). Land registered under the Land Transfer Act could not be acquired by prescription except under the Land Transfer Amendment Act 1963.
13 Mikitasov v Collins [2008] NZCA 390, (2008) 9 NZCPR 735.
servient tenement to execute a registrable memorandum of transfer converting the equitable easement into a legal estate. Such memorandum has to be specific.
[30] In his work on easements, covenants and licences,14 Dr McMorland says that where an equitable easement is created by contract, three elements are essential:
1. The right to be granted must possess the essential characteristics of an easement;
2. valuable consideration (necessary for the existence of a contract); and
3. either a record in writing to satisfy s 24 of the Property Law Act 2007 or a sufficient act of part-performance.
[31] Putting the matter more generally, there must be an obligation enforceable in a court of equity, there must be someone against whom the obligation may be enforced, and the obligation must give rise to a registrable easement. There must also be someone with standing to enforce the obligation.
[32] The body corporate relies on the events up to the deposit of DP126975 as showing that an equitable light and air easement had been created. The area of the easement was shown on the plan. The space subject to the easement was defined both vertically and horizontally. The table of easements identified the areas to be subject to the easement and the servient and dominant tenements. It was a condition of the Auckland City Council’s consent that the easement be created.
[33] Before dealing with equity, it is useful to consider the position under the Local Government Act 1974. The consent to subdivide was subject to a condition requiring easements to be created, including a light and air easement. That requirement was a public law duty. Anyone exercising the consent was required to comply with the condition. While it might be enforced under the offence provisions (for example, s 311 of the Local Government Act 1974), s 309 also provided a safeguard. Both the council and the District Land Registrar had the means to enforce the condition. An owner of lot 5 might take the matter up with the Council or the
District Land Registrar, but they were not compellable.
14 D W McMorland McMorland on Easements, Covenants and Licences (3rd ed, LexisNexis, Wellington, 2015).
[34] Nothing in these circumstances gives any private law rights by which the owner of lot 5 can require the owners of lot 4 to create a light and air easement. There is no contract to be enforced or any comparable obligation enforceable at equity. A failure to comply with a public law duty does not give an owner of Lot 5 any enforceable private law right to have an easement created. The scheme plan showed an intended light and easement but that intention was not carried through. Something more is required to give a remedy in equity.
[35] The only people who might be compellable at equity would be the original developers, Upland Holdings Ltd and Lakeland Properties Ltd, and anyone exercising the subdivision consent. The respondents did not exercise the consent: it was already spent. They were not required to comply with the conditions of the Council’s consent of 23 May 1988. They are not compellable at equity.
[36] There is a further difficulty. An easement creates rights and obligations. For grants of light and air easements under s 124 of the Property Law Act 1952 those rights must be defined in the grant.15 Relevantly, the Land Transfer Act 1952 did not provide in the version in force in the 1980s any implied or default terms for light and air easements.16 Any equitable easement must likewise have similarly defined rights. In this case there is no document defining what those rights are. The subdivision plan simply identifies the area to be subject to the easement and the general nature of the easement, but it does not state what activities may or may not take place within it. The apparent purpose of the easement to save costs for fire rating the west wall of the building to be erected on lot 5 may be relevant to establishing any rights and obligations. After all, the purpose of the easement is not to protect views of the cars parked on lot 4. In the absence of any document setting out the obligations of the owners of the servient tenement, it is not possible to state the content of any light and
air easement.
15 See s 125(1). They confer upon the owner for the time being of the dominant tenement “such rights as may be herein defined…” For examples see EC Adams “Easements of Light and Air” (1945) NZLJ 231 at 246; Knowles v Henderson (1991) 1 NZ ConvC 190,704 (HC).
16 See Land Transfer Act 1952, Schedule 7 (repealed with effect from 25 August 2002 by s 64(1) Land Transfer (Computer Registers and Electronic Lodgment) Amendment Act 2002.)
[37] In summary when the new lots were created on the deposit of the plan with the issue of titles without any registered light and air easement, no equitable easement was created: not one enforceable against Upland Holdings Ltd and Lakeland Properties Ltd, not one enforceable by the body corporate.
The agreement of 20 November 2003
[38] This is the agreement referred to in [19] above. Central Strata Management Ltd and Volcanic Investments Ltd were companies under the control of Mr S Kelly. Volcanic owned lot 5. The agreement is in three parts. In the first part, Central Strata Management Ltd agreed to surrender a parking easement to Escrow on payment of $182,000 plus GST. In the second part, Escrow Holdings Forty-One Ltd granted Central Strata Management Ltd an option for seven months to purchase certain defined carparks, again for a price of $182,000 plus GST. In the third part, Escrow and Central declared their intention to work together in a joint venture to develop an apartment and carparking complex over lot 4 and part of the light and air space for lot 3. The features of the intended joint venture were:
1 to construct and sell apartments and carparks;
2 using a 50/50 joint venture company;
3 equal sharing of development costs;
4 equal sharing of profits; and
5protection of contributed assets, with marketing and sales to precede construction.
Escrow and Central agreed to negotiate in good faith to establish the joint venture.
[39] Clause 3.2 says:
3.2 It is acknowledged that:
(a) Escrow and Central own Lot 4 as tenants in common in equal shares;
(b) Volcanic has the benefit of a light and air easement over Lot 4; and
(c) Escrow owns Lot 3 adjoining Lot 4.
In order to facilitate the development of Lot 4 Escrow will contribute a light and air easement over part of Lot 3 (Escrow contribution) and Volcanic agrees to contribute by the relaxation/partial surrender/surrender of the height and air easement over Lot 4 (Volcanic contribution).
The body corporate relies on cl 3.2(b) as a written acknowledgment by Escrow as part-owner of lot 4 that the owner of lot 5 had a light and air easement over lot 4. No one contends that the proposed joint venture ever did go ahead. Notwithstanding that, the body corporate says that Escrow’s acknowledgment counts as evidence of an equitable easement.
[40] Clause 3.2(b) is a recital, notwithstanding that it is in the body of the agreement. But as the body corporate is not a party to the agreement, it cannot assert any estoppel against Escrow based on cl 3.2(b). Similarly, it has not raised any argument as to equitable estoppel based on having acted in reliance on the agreement. It does not say that it has a claim to any property rights based on acting on any representation in the agreement. Instead, it says that cl 3.2(b) is evidence against Escrow.
[41] It is evidence that Escrow, Central and Volcanic bargained with each other on the basis of certain assumptions. One of those assumptions was the existence of a light and air easement. That assumption was wrong because, notwithstanding the subdivision plan, no light and air easement had been created. Perhaps an explanation for that assumption is that the parties were in the position to create the light and air easement but I accept that that is no more than speculation. The point remains that the reference to a light and air easement in cl 3.2(b) is not enough by itself to show an arguable case for an equitable easement, when none had been established earlier.
Relief from the Registrar-General?
[42] The body corporate submits that the Registrar-General may use his powers under the Land Transfer Act to rectify the register and to register the light and air easement. A caveat may accordingly protect the interest to be registered by the
Registrar-General under his powers of correction under the Land Transfer Act. The particular power relied on is s 85 of the Land Transfer Act 1952:
85 Court may order former certificate of title to be cancelled
Upon the recovery of any land, estate, or interest by any proceeding in any court from the person registered as proprietor thereof, the court may, in any case in which such a proceeding is not expressly barred, direct the Registrar to cancel any certificate of title or other instrument, or any entry or memorial in the register relating to the land, and to substitute such certificate of title or entry as the circumstances of the case require, and the Registrar shall give effect to the order accordingly.
[43] The section makes the court’s power to direct the Registrar to cancel entries or to substitute entries on certificates of title consequential on the court having found that a party to a proceeding is entitled to recover an estate or interest against a registered proprietor. That power cannot be used in this case, because the body corporate does not have an arguable case for the interest it has claimed in its caveat. In the absence of any land, estate or interest to be recovered under s 85, the court cannot direct the Registrar to do anything.
[44] There are other powers under Part 4 of the Land Transfer Act, but they do not apply in this case. The power to correct errors under s 80 applies only to slips and clerical errors.17 There is no error within s 80 when an instrument creating a light and air easement has not been presented for registration.
[45] Section 81 of the Land Transfer Act gives the Registrar more extensive powers:
81 Surrender of instrument obtained through fraud, etc
(1) Where it appears to the satisfaction of the Registrar that any certificate of title or other instrument has been issued in error, or contains any misdescription of land or of boundaries, or that any entry or endorsement has been made in error, or that any grant, certificate, instrument, entry, or endorsement has been fraudulently or wrongfully obtained, or is fraudulently or wrongfully retained, he may require the person to whom that grant, certificate, or instrument has been so issued, or by whom it is retained, to deliver up the same for the purpose of being cancelled or corrected, as the case may require.
17 Frazer v Walker [1967] 2 NZLR 1069 (PC) at 1076.
(2) If the Registrar is satisfied as to any matter referred to in this section and there is a computer register involved, the Registrar may cancel or correct any computer register and, if appropriate, create a new computer register.
(3) The Registrar must not take action under subsection (2) without first giving notice to any person appearing to be affected and giving a reasonable period for any response.
[46] Under s 81(1), the Registrar has the power to correct any computer register in three categories of cases:
1 error;
2 misdescription of land or boundaries; and
3 fraudulent or wrongful obtaining and retaining.
[47] In Housing Corporation of New Zealand v Māori Trustee,18 McGechan J reviewed the history of the Registrar’s powers under s 81 and its predecessors, and case law under those provisions. He noted that in Frazer v Walker19 the Privy Council held that the powers of the Registrar under s 81 are significant and extensive. McGechan J attributed this finding to a desire to provide a real safeguard against the worst drawbacks of immediate indefeasibility. He held:20
I see no escape from the conclusion that s 81 is alive and well, however unwelcome, and applies where the person obtaining registration does so in a manner which is “wrongful” in the sense that it infringes the legal rights of another. While immediate indefeasibility may bar the citizen, and indeed even this court, it will not in such situations bar the Registrar.
However, while that may represent the law, it does not represent present realities and modes of thinking. It is well established in New Zealand that, whatever his powers may be, the Registrar does not act of his own volition under s 81. If a person has been wronged by registration, the invariable practice has been to require that person to take court proceedings, following which the Registrar will then as a matter of discretion and practice implement the result. The Registrar has not, despite Frazer v Walker and the passage of a generation, himself as a matter of general practice invalidated registrations under his own powers, whether arising under indefeasibility exceptions in ss 62 and 63, or going beyond those exceptions. There are a number of reasons. He does not have the resources. Traditionally, it is not regarded as his function. An activist Registrar would be looked upon
18 Housing Corporation of New Zealand v Māori Trustee [1988] 2 NZLR 662 (HC) at 699.
19 Above n 17.
20 Above n 18, at 699.
severely askance. Doubtless also general uncertainty as to the extent of his powers has contributed.
[48] The powers of the Registrar under s 81 do not extend to creating an interest in land where none exists. The Registrar-General correctly recognised this in a letter to the body corporate’s solicitor dated 21 October 2015. The body corporate cited Millns v Borck in which the court recognised that the Registrar had a power of correction under s 80, not s 81.21 In that case a legal right-of-way was created over one lot in favour of another on registration of a transfer. When a certificate of title was later issued for the servient tenement, a memorial recording the easement was not registered. Ultimately the owners of the dominant tenement succeeded under s
62(b). Millns v Borck is distinguishable as involving an actual legal interest, whereas this case involves an intended interest.
[49] In Frazer v Walker, the Privy Council noted a further limit on the Registrar’s
powers under s 81:22
It is clear, in any event, that s 81 must be read and subject to s 183 with the consequence that the exercise of the Registrar’s powers must be limited to the period before a bona fide purchaser, or mortgagee, requires title under the latter section.
[50] Section 183 of the Land Transfer Act 1952 says:
183 No liability on bona fide purchaser or mortgagee
(1) Nothing in this Act or the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 shall be so interpreted as to render subject to action for recovery of damages, or for possession, or to deprivation of the estate or interest in respect of which he is registered as proprietor, any purchaser or mortgagee bona fide for valuable consideration of land under the provisions of this Act or the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 on the ground that his vendor or mortgagor may have been registered as proprietor through fraud or error, or under any void or voidable instrument, or may have derived from or through a person registered as proprietor through fraud or error, or under any void or voidable instrument, and this whether the fraud or error consists in wrong description of the boundaries or of the parcels of any land, or otherwise howsoever.
21 Millns v Borck [1986] 1 NZLR 302 (HC).
22 Above n 17, at 1079.
(2) This section shall be read subject to the provisions of sections 77 and
79.
[51] As noted above, ownership of lot 4 has changed a number of times. There is no evidence to suggest that any owner was not a bona fide purchaser for a consideration within s 183. Even if the Registrar had any powers under s 81, they expired, once the interests in the servient tenement were sold to bona fide purchasers under s 183.
If an equitable easement was created, are Escrow Holdings Forty-One Ltd and
Kallina Ltd bound by it?
[52] Even if there were an equitable easement (and I have not found that there was one), the body corporate needs to show that Escrow and Kallina are bound by it. As registered proprietors of the servient tenement, the respondents have indefeasible titles under the Land Transfer Act. Specifically, they rely on s 62.
[53] The body corporate accepts that it cannot rely on the exception for omitted easements under s 62(b) of the Land Transfer Act:
62 Estate of registered proprietor paramount
Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963, the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever,—
(a) except the estate or interest of a proprietor claiming the same land under a prior certificate of title or under a prior grant registered under the provisions of this Act; and
(b) except so far as regards the omission or misdescription of any right of way or other easement created in or existing upon any land; and
(c) except so far as regards any portion of land that may be erroneously included in the grant, certificate of title, lease, or other instrument evidencing the title of the registered proprietor by wrong description of parcels or of boundaries.
In Sutton v O’Kane the Court of Appeal held that s 62(b) does not apply to an equitable easement created after the servient tenement is brought under the Land Transfer Act.23 Instead, the body corporate says that the respondents were fraudulent in the Land Transfer sense. That is a recognised exception under s 62.
[54] There is a procedural problem. The body corporate did not allege fraud by the respondents in its notice of application. Its affidavits do not purport to set out a case for fraud. In Schmidt v Pepper New Zealand (Custodians) Ltd, a caveat case, the Court of Appeal said, in response to submissions as to fraud by unrepresented caveators:24
Allegations of fraud or dishonesty are very serious. They must be pleaded with care and particularity. As the authors of Bullen & Leake & Jacobs Precedence of Pleadings emphasise, counsel must not draft any originating process or pleading containing an allegation of fraud unless they have reasonably credible material which, as it stands, establishes a prima facie case of fraud – that is, material of such a character which would lead to the conclusion that serious allegations could properly be based upon it. Fraud cannot be left to be inferred from the facts. Fraudulent conduct must be distinctly alleged and as distinctly proved. General allegations, however strong the words may appear to be, are insufficient to amount to a proper allegation of fraud.
[55] Not only did the body corporate not raise the question of fraud in its application, it did not refer to it in the correspondence between lawyers before the proceeding started, including a lengthy letter setting out the body corporate’s case. The suggestion of fraud by the respondent was not raised until the body corporate’s submissions filed on 21 March 2017, after the respondents had given their evidence. The respondents have been prejudiced, having been accused of actual dishonesty, without having been put on notice of the charge and given fair opportunity to answer it.
[56] In any event, I am not satisfied that the fraud allegation has been made out to the requisite standard. For what follows, I assume notionally and contrary to my
finding above, that an equitable light and air easement was created at the time of
23 Sutton v O’Kane [1973] 2 NZLR 304 at 315, 319 and 349.
24 Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15], leave to appeal dismissed in Schmidt v Pepper New Zealand (Custodians) Ltd [2013] NZSC 29.
subdivision. That assumption is made for the sole purpose of allowing the priority question between alleged competing interests to be addressed.
[57] Hinde McMorland & Sim’s Land Law in New Zealand proposes the following conclusions as to the concept of fraud under the Land Transfer Act:25
1Fraud in the Torrens system is a separate concept. It is broader than common law concepts of deceit and fraudulent misrepresentation, and narrower than constructive or equitable fraud. Where, however, conduct amounting to equitable fraud involves dishonesty or moral turpitude, it may also amount to fraud within the meaning of the Torrens system statutes.
2Fraud means dishonesty of some sort. The test of dishonesty is a moral test: there must be something in the nature of moral turpitude. Whether conduct is dishonest does not always depend on whether it is made legitimate by the law.
3Fraud must be brought home to the person whose registered title is impeached or to that person’s agents. Fraud by other persons (for example, the transferor in the transfer instrument upon registration of which the registered proprietor acquired title) does not affect the registered proprietor.
4If the designed object of a transfer be to cheat a person of a known existing right, that is fraudulent.
5Dishonesty must not be assumed solely by reason of knowledge of an unregistered instrument.
6 Wilful blindness or voluntary ignorance may amount to fraud.
7In the present state of the authorities, the crucial date for determining whether a person has sufficient information about an unregistered interest to render it fraudulent to repudiate that equitable interest is the date of registration of that person’s instrument of acquisition.
8 It is not yet settled whether fraud may supervene after registration.
9The issue of fraud or not is a question of fact, the answer to which must depend on the particular circumstances of the individual cast.
10In the absence of fraud a claim in personam can be made by any plaintiff who can establish against the registered proprietor a recognised cause of action or inequity that involves unconscionable conduct relating to the land.
25 Hinde McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at
[9.023].
[58] There is no suggestion on the evidence or in submissions that the respondents acted fraudulently in becoming registered proprietors of lot 4. The body corporate submitted that the respondents had the opportunity to find out about the equitable easement, because the computer entries referred to the deposited plan and a careful comparison of the deposited plan and the easements registered against the respective titles would have shown that the light and air easement required by the Auckland City Council had not been registered.
[59] As to that, the respondents are protected under s 182 of the Land Transfer
Act:
182 Purchaser from registered proprietor not affected by notice
Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
(Emphasis added)
Relevantly the intermediate transfers of ownership of Lot 4 would reassure the respondents that any easement that should have been created was no longer a live issue.
[60] Instead the question is whether the respondents acted fraudulently after they became registered proprietors of lot 4. While the learned authors of Land Law in New Zealand note that the question is not settled,26 for caveat purposes I assume that in a suitable case at a hearing of the substantive merits, a court may find fraud based on conduct by the registered proprietor after registration. Authorities that may be
cited for this are Merrie v McKay,27 the dissenting judgment of Turner P in
26 Above n 25, at [9.0222]
27 Merrie v McKay (1897) 16 NZLR 124 (SC); cited with approval in Bunt v Hallinan [1985] 1
NZLR 450 (CA) at 461 per Richardson and McMullin JJ.
Sutton v O’Kane,28 Bahr v Nicolay (No.2),29 and Roke Realty Ltd v Malones Ltd.30
The basis of a supervening fraud can be seen in the judgment of Turner P in Sutton v
O’Kane:31
The argument must be: with the knowledge which the Suttons had, before purchasing, of O’Kane’s unregistered interest would have been fraudulent to purchase with the resolve to cheat O’Kane of that which in equity was his – and that it [is] equally fraudulent to form the same resolve after registration which, formed before it, would have been a dishonest resolve.
[61] Given the requirement to establish a prima facie case of fraud in the land transfer sense, the body corporate’s case is no more than speculative. The only evidence that the body corporate can refer to is the requirement for an easement to be created recorded on the subdivision plan and the acknowledgment of light and air rights in the cl 3.2(b) of the agreement of November 2003. The information on the subdivision plan is not by itself enough to show actual knowledge by the respondents of the equitable easement claimed by the body corporate. It is no more than constructive knowledge at best. The reference to the benefit of light and air rights in the agreement is clearly specific for that particular contract. It does not bind Escrow generally. The body corporate was not a party to the agreement and cannot sue on it. These circumstances do not make it fraudulent for the respondents as registered proprietors to deny the equitable easement claimed by the body corporate.
[62] This examination of the fraud question has been on a notional basis, on the assumption that the body corporate holds an equitable easement. Once it is appreciated that there is no actual interest, the stance taken by the respondents is not fraudulent. Wild CJ made that point in Sutton v O’Kane:32
For a person who has accepted a situation upon an erroneous belief to stand on his rights when he discovers their true nature might well be less than generous but in my view it is not dishonest. Mr O’Kane pleading was that the Suttons “repudiated their obligations” with fraudulent intent. I do not think it is fraudulent repudiation simply to disavow obligations that are found not to exist.
28 Above n 23, at 334.
29 Bahr v Nicolay (No 2) [1988] HCA 16, (1988) 164 CLR 604 per Mason CJ and Dawson J at 615.
30 Roke Realty Ltd v Malones Ltd [2013] NZHC 2520, (2013) 15 NZCPR 8.
31 Above n 23, at 334.
32 Above n 23, at 314.
Outcome
[63] For the above reasons, I find that the body corporate does not have an equitable easement for light and air and even if an equitable easement had been granted, the respondents have the benefit of indefeasibility as registered proprietors who acted without fraud. I accept that a light and air easement should have been created under the 1988, but it was not. The Registrar’s powers under the Land Transfer Act do not extend to creating an interest where none existed. Any powers expired once a bona fide purchaser acquired title. The result is unfortunate, especially given the fire safety purpose of the intended easement. Nevertheless, the body corporate does not have an arguable case against the respondents to create an easement now. I allow the body corporate time in which to consider its options.
[64] I make these orders:
1. Caveat 10409236.1 will be removed with effect from 12 May 2017;
2. The body corporate will pay the respondent’s costs on the application.
If the parties cannot agree costs, memoranda may be filed.
……………………………….
Associate Judge R M Bell
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