Cambray North Island Ltd v Minister for Land Information HC Auckland CIV 2011-404-000513

[2011] NZHC 901

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-000513

UNDER  the Property Law Act 2007

IN THE MATTER OF     extinguishing encumbrance and easement

BETWEEN  CAMBRAY NORTH ISLAND LIMITED First Applicant

ANDELAN DEVELOPMENTS LIMITED Second Applicant

ANDTHE MINISTER FOR LAND INFORMATION

Respondent

Hearing:         10 August 2011

Counsel:         J Strauss for the Applicants

M Parker for the Respondent

Judgment:      10 August 2011

INTERIM ORAL JUDGMENT OF WYLIE J

Distribution:

J Strauss: [email protected]

M Parker: [email protected]

CAMBRAY NORTH ISLAND LIMITED & ANOR V THE MINISTER FOR LAND INFORMATION HC AK CIV

2011-404-000513 10 August 2011

[1]      The   applicants   Cambray   North   Island   Limited   (“Cambray”)   and   Elan Developments Limited (“Elan”) seek orders under s 317 of the Property Law Act 2007 extinguishing an easement, number 7086374.17, and a memorandum of encumbrance, number 7086374.20.

[2]      It is common ground that the memorandum of encumbrance has been satisfied and that it should be discharged.   The respondent, the Minister of Land Information, however asserts that he still relies on the easement.   He says that it should only be extinguished if compensation is paid by the applicants pursuant to s 317(2) of the Act.

Background

[3]      The  servient  tenement  subject  to  the  memorandum  of  encumbrance  and easement is owned by Cambray.  The property is Lot 11 DP355123.  The Certificate of Title reference is identifier 224911 in the North Auckland Land Registration District.

[4]      The dominant tenement is owned by the respondent.   It is  Lot 2 DP14543, identifier NA 57D/217, North Auckland Land Registration District.   The respondent acquired the property from previous owners, the McCooks, for the construction of the Upper Harbour Motorway, State Highway 18.   That work has now been completed. Only part of the land was required for the public work and the balance of the land, on which  a house is  situated, is  surplus  to  the respondent’s  requirements.    Mr Parker appearing for the respondent, advised that in due course, it will be disposed of under either s 40 or s 42 of the Public Works Act 1981.

[5]      When the respondent’s land was originally subdivided it was accessed from a road known as Kyle Road by a right of way.  But for that right of way, it would have been land locked.   The right of way ran across the adjoining property that has subsequently been acquired by Cambray.   The original right of way easement was granted in 1985 by the then owners of the land.

[6]      The land owned by Cambray was suitable for subdivision, but the existence of the easement restricted the land being developed to its full potential.   Accordingly, Cambray approached Transit New Zealand, the respondent’s predecessor, and sought its

agreement to a replacement easement that would provide access and services to the

respondent’s land via a road to be developed as part of the proposed subdivision.

[7]      The parties entered into an agreement on 11 August 2006.   In broad terms, it provided that the existing easement would be surrendered by the respondent and that a new easement would be granted over Lot 11, which lot was to be created as part of Cambray’s proposed subdivision.   Lot 11 would, in turn, have access to a road that Cambray proposed to form, which was to be called Lemon Grove Lane.  Lemon Grove Lane was to vest in the North Shore City Council as a road.   The agreement also provided  for  Cambray  to  sign   a  memorandum  of  encumbrance  to  secure  its performance.  The memorandum referred to the development of adjacent land proposed by the second applicant, Elan.  It was recorded that Elan was to subdivide its land and that it would vest a Lot in the subdivision (Lot 52) as a road.  This was to take place by

31 July 2008.   Lot 52 would give the respondent legal title and physical access to Kyle Road.  Once Lot 52 vested as road, then the respondent was to execute a release of the encumbrance and the easement.   The agreement between Cambray and the respondent recorded that if Elan did not vest Lot 52 as a road by 31 July 2008, then Lot 11 would be vested by Cambray in the Council as a road.  Thus, the outcome either way would be that the respondent’s land would have direct road access, and would not be required to rely on a right of way easement.

[8]      It is common ground that the Elan block was subdivided, and that Lot 52 was vested as a road by the required date, namely 31 July 2008.  The respondent’s block has direct road access across as a consequence.

Analysis

[9]      As noted above, the application is made under s 317 of the Property Law Act

2007.   Section 317 provides for the extinguishment of an easement or a covenant in defined circumstances.  Relevantly, it provides 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…

[10]     Mr Parker accepted that the creation of the new road via Lot 52 formerly owned by Elan, and the agreement between Cambray and the respondent to discharge the easement over Lot 11 when that access was available, are relevant circumstances justifying the extinguishment of the easement and memorandum of encumbrance.

[11]     It should be noted that s 316 provides for application to be made by the “person bound” by the easement or covenant.  These words are defined in s 4.   Elan is not a person bound by the easement or encumbrance here in issue.  Strictly it has no right to apply for the extinguishment.  Clearly, however, Cambray does.

[12]     What is principally in issue from the respondent’s perspective is the payment of

compensation.  In that regard, s 317(2) provides as follows:

(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.

[13]     There is little authority dealing directly with this section.

[14]     Mr Strauss appearing for the applicants, referred me to Harnden & P M Trustee Limited v Collins.[1]   In that case, Randerson J discussed the legislative history leading up to the enactment of s 317.   He noted that traditionally, the Courts have taken a conservative approach toward the exercise of any statutory discretion to extinguish easements.  He noted that one of the reasons for that conservative approach was that in

previous sections there had been no provision for the Court to order the payment of

compensation as a means of ameliorating adverse effects on the parties impacted by the grant of an order under the section.  He noted that s 317 came into force on 1 January

2008, some 14 years after a report of the Law Commission entitled A New Property Law Act.[2]   Neither the Law Commission in its report, nor the Property Law Bill as originally introduced, recommended or contained a power to award compensation.  The addition of the power to award compensation was recommended by the Select Committee which reported to the House on 25 June 2007.  The Select Committee considered that an award of compensation might be appropriate in some circumstances, and that the Bill should

be amended to give the Court the ability to award compensation where appropriate. Randerson J  considered  that  the provisions contained  in  s  317(2) are a significant improvement to the exercise of the jurisdiction under the section since they enable the Court in an appropriate cases to order compensation as a means of eliminating or diminishing any adverse effects of an order made under the section.

[1] Harnden & P M Trustee Limited v Collins HC Whangarei CIV 2009-488-571, 18 December 2009.

[2] (NZLC R29, 1994).

[15]     It is noteworthy, first, that s 317(2) confers a discretion on the Court to award compensation,  and  secondly,  that  the  subsection  is  conspicuously silent  as  to  how compensation is to be assessed.

[16]     Here, Mr Parker submitted that an award of compensation should be made.  He referred to the deed entered in to between Cambray and the respondent on 11 August

2006.

[17]     Relevantly, that deed provided as follows:

Background

ACambray  is  carrying  out  a  subdivision  of  the  Cambray  Land  (now known as Lots 1 and 2 on DP 209215) has requested the Crown to surrender (as dominant Owner) its interest in the Existing Easements.

BThe Crown has agreed to surrender its interest in the Existing Easements on the condition that Cambray provides, as part of the subdivision of the Cambray Lane, the Crown title with continued legal and physical access to Kyle Road.

Operative Part

1(a)       In consideration of the Crown surrendering its interest in the Existing Easements, Cambray agrees to grant to

the Crown a right of way, and a right to convey water, electricity, and telecommunications over that part of the Cambray Land shown as Lot 11 LT Plan 355123 such easement to be forever appurtenant to the Crown title (“the New Easements”) …

The deed referred to schedules. The following provisions are contained in Schedule C:

Schedule C:  Special Conditions

…

5.        The parties acknowledge:

(a)	Elan Properties Limited (“Elan”) is the Owner of land contained in Computer Freehold Register NA 19B/508 adjoining the Cambray Land and it is proposing a 57 lot subdivision of that land as shown on plan of proposed subdivision attached to this Deed as Schedule G (“the Elan Plan”);
(b)	The proposed plan of subdivision shows lot 52 to vest as road in North Shore City Council;
(c)	Lot 52, once vested as road, will give the Crown title legal and physical access to Kyle Road.
6.	(a)	If by 31 July 2008 (“the completion date”) Lot 52 on the Elan Plan has not vested as road, Cambray shall transfer Lot 11 on DP 355123 to North Shore City Council for road, apply for and satisfy, at its own cost all necessary consents and any other authorisations required to enable that land to vest as road.
(b)	Cambray agrees within 10 working days of being requested in writing by the Crown to do so, to sign the Encumbrance Instrument to protect the Crown’s interest in clause 6(a).
(c)	The  Crown  shall  prepare  the  Encumbrance  Instrument  at Cambray’s cost.
(d)	Cambray shall promptly register the Encumbrance against the title to Lot 11 on DP 355123 with priority over registration of any other encumbrance or charges whatsoever (excepting the easement to be created under clause 4 of this Schedule C) and shall provide written evidence of the registration of the Encumbrance Instrument.

7.Upon the earlier vesting of the Elan property as road providing adequate access from the Crown title to Kyle Road, the Crown shall execute a release  of  the  Encumbrance  Instrument  and  the  new easements  and Cambray shall pay the market value for the release of that easement to be determined by the parties.

[18]     Mr Parker relied on cl 7.  He argued that it strongly supports his argument that compensation should be ordered under s 317(2) for the simple reason that the parties had envisaged at the outset that a payment would have to be made by Cambray to secure the discharge of the easement.

[19]     I agree with Mr Parker.

[20]     Curiously, neither party relied expressly on the deed, perhaps because of the obvious imperfections in its drafting.   While cl 7 refers to the market value for the release of the easement, those words are not particularly helpful, and the clause does not provide any default mechanism for the market value to be fixed if the parties are unable to  agree  the  same.    Both  Mr Parker  and  Mr  Strauss  acknowledged  that  there  are difficulties with the clause.  Cambray made application under s 317 and the respondent based its request for compensation on s 317(2).

[21]     Mr Strauss acknowledged that if there are any direct costs to the respondent, it should be compensated for those costs.  Otherwise, he argued that extinguishment of the easement and the memorandum of encumbrance will have no effect on the respondent and  that  therefore no  compensation  should  be payable because there is  nothing to compensate the respondent for.

[22]     Mr Parker argued that the willing seller/willing buyer test should apply and that compensation should be assessed on that basis.  He referred to cases decided under what was s 129B of the Property Law Act 1952.  He noted that section contained a similar compensation provision.

[23]     Section 129B permitted the Court to order the grant of an easement in favour of landlocked land.   Section 129B(8) provided for the payment of compensation by the applicant to any other person. The section was considered by the Courts on a number of occasions.     The  leading  decision  is  the  decision  of  the  Court  of  Appeal  in

Jacobsen Holdings Ltd v Drexel.[3]   Cooke P noted there as follows:[4]

[3] Jacobsen Holdings Ltd v Drexel [1986] 1 NZLR (CA).

[4] Ibid at 324.

Under the section the Court is not bound to award compensation, but usually it will be equitable between the parties to do so and to assess it on the footing of what a willing grantor and grantee of an easement or vendor and purchaser of the fee simple would agree in friendly negotiation…

In assessing compensation purely sentimental matters have to be put aside… [s]o too of course any question of personal impecuniosity or affluence…[.] Subject to those qualifications, all factors of benefit or detriment on either side are material under the section, including for instance  any inconvenience  or disturbance that the owner of the servient or transferred land may suffer and any advantage that he may gain.   These are all considerations which would legitimately influence the parties in the hypothetical friendly negotiation.  They all go to what sum is reasonable as the value or price or consideration or compensation - terms which seem to me to be interchangeable and identical in effect when a fair figure has to be arrived at as between the parties and there are no special limiting statutory provisions.

An impression left by exposure to such questions over the years, at the bar and on the bench, is that the hallowed willing seller-willing buyer test, if faithfully applied, solves any problems of principle.  Added complications of theory are to be viewed with suspicion.  The real difficulties arise in applying the basic test to the facts and are unlikely to be alleviated by any more refined formula.

[24]     These propositions have subsequently been cited with approval by the Court of Appeal in other cases, including Lowe v Brankin[5]  and Hajnal & Anor v Asmussen & Ors.[6]

[5] Lowe v Brankin [2006] 6 NZCPR 607 (CA).

[6] Hajnal & Anor v Asmussen & Ors [2010] NZCA 410.

[25]     I acknowledge that the legislative provisions discussed in Jacobsen Holdings are similar to those contained in s 317(2) and I accept the general proposition that compensation under s 317(2), when properly payable, should fall to be assessed on a willing  seller/willing  buyer  approach;  i.e.  what  would  the  owner  of  the  servient tenement reasonably expect to pay for extinguishment of the easement or covenant and what would the owner of the dominant tenement reasonably expect to receive if they are extinguished.  There are, however, in my view, two significant matters that affect the application  of the willing seller/willing buyer approach  in  the present  case.    First, Jacobsen Holdings and the cases that follow on from it deal with the grant of an easement in perpetuity.  They do not deal with the discharge of a temporary easement. Secondly, they do not deal with the situation where the party with the benefit of the

easement is contractually bound to release it in defined circumstances.

[26]     The  easement  the  subject  of  the  application  was  always  intended  to  be  a temporary easement until road access to the respondent’s land became available over Lot 52 previously owned by Elan.  That access is now available.  The respondent can be required under the deed to release the easement.  It seems to me that these are factors that must be relevant to any assessment of compensation.

[27]     The respondent has provided a valuation from a Mr Roberts.  Mr Roberts is an experienced valuer with formidable experience in the assessment of compensation under inter alia the Public Works Act.  He has assessed the compensation which the Crown says should be paid in this case at $230,000. With respect to Mr Roberts, it seems to me that his approach is flawed.  Essentially, what he has done is value Lot 11.  He then says that the easement renders the lot incapable of development and that the compensation payable should be the market value of the lot, less its residual value.  In my judgment, this  approach  takes  no  account  of the  fact  that  the respondent  can  be  required  to surrender the easement.  It makes no allowance for the fact that there is no detriment to the respondent’s land because it has road access via Lot 52.  It does not attempt to assess what Cambray as the owner of the servient tenement would reasonably expect to pay for extinguishment of the easement or what the respondent would reasonably expect to receive.   It does not consider the benefits or detriments to either party.   Rather, it effectively seeks to appropriate to the respondent the vast majority of the value of Lot

11.  With respect to Mr Roberts, it seems to me that he is equating the compensation properly payable to the respondent for surrender of the easement with the market value of the lot.

[28]     In my judgment, the correct approach is first, to identify if there is any actual detriment to the respondent if the easement is extinguished.  Here, there is uncontested evidence that the respondent will have to put in place a new vehicle crossing.   That work has been costed by a quantity surveyor at $5,600 exclusive of GST.  Further, it will have to relocate telephone and power services.   That work has been costed at

$31,700.   It seems to me that these are costs that the respondent should properly be compensated for if the easement is extinguished.  A hypothetical willing seller would seek to recover his “out of pocket” expenses in any negotiated “sale” of the easement.

[29]     The next issue to consider is whether or not there are other factors of benefit or

detriment to either side that would affect what one or other was willing to pay in hypothetical willing seller and willing buyer negotiations.

[30]     Here, Cambray will gain Lot 11 free from the easement and the memorandum of encumbrance.   That  will  mean  that  the lot  can  be developed and  sold.    It  cannot effectively be developed and sold at the moment because of the existence of the easement.   There is therefore a significant benefit to Cambray.   It must however be acknowledged that this is a benefit Cambray could always have anticipated provided it complied with its obligations under the deed to provide the respondent with alternative access over the Elan land.   It has done so.   It is entitled to call for the respondent to surrender the easement.  There is however an element of circularity in this argument.  If Cambray were to call on the respondent under the deed, the respondent for its part would undoubtedly refer to cl 7 and seek to require Cambray to pay the market value for release of the easement.  That begs the question of what is the market value for release of the easement.   For the reasons I have given when commenting on Mr Roberts’ valuation, it cannot in my view, be the full value of Lot 11: it must be less than the value of the lot.  To award the Crown any significant sum by way of compensation would be in effect to permit the Crown to renegotiate the deed entered in to in 2006 with the benefit of hindsight.  In my view, that would be unfair to Cambray.  Nevertheless, in my view, a hypothetical willing seller and willing buyer would both put some value on the fact that Lot 11 will be released from the easement in the event that it is extinguished, and both would factor that into their negotiations.

[31]     Looking at the matter from the respondent’s perspective, insofar as I can see, it suffers no direct detriment if it receives compensation for its out of pocket costs in relocating the vehicle crossing and in relocating the services.  It has road access via Lot

52 that is no less advantageous to it.  It will lose the benefit of an easement over the Cambray land, but it was always faced with that prospect once Cambray complied with the provisions of the deed.

[32]     Accordingly, in my judgment, in this case compensation can be assessed as follows:

(a)       The costs of a new vehicle crossing:  $ 5,600 (b)        The costs of relocating the services:  $31,700

$37,300 (exclusive of GST)

In addition, for the reasons I have endeavoured to set out, it seems to me that there must be some additional compensation payable.  In my judgment, a willing buyer would be prepared to pay something to free up the development potential of Lot 11 and a willing seller could reasonably expect to receive some monies for “selling” the easement.

[33]     I have considered whether or not I should fix a figure myself.   However, the affidavits are silent on this issue, and any figure I might fix would simply be a “stab in the dark”.

[34]     Accordingly, I adjourn this matter part-heard.  I direct the parties to file further evidence by way of affidavit relevant to the assessment of compensation in this matter. In particular, I would request that the respective valuers should focus on what the parties would have agreed in a friendly negotiation, taking into account all factors of benefit or detriment  on  either  side  that  would  legitimately  influence  the  parties  in  their hypothetical negotiations.  The assessment will necessarily have to take into account the provisions contained in the deed, because those provisions would have informed the thinking of both parties.

[35]     These affidavits are to be filed within 20 working days of the date of this oral judgment.   The Registrar is then to allocate further hearing time in consultation with counsel so that I can deal with the outstanding issue of compensation.  I would estimate that no more than half a day will be required.

[36]     Both Mr Parker in his written submissions, and Mr Strauss orally, suggested that it may be that the parties will be able to reach agreement with the benefit of this judgment.  In the event that they are able to do so, I would invite them to file a joint memorandum in that regard.  In that event, the filing of any further affidavits and any further appearances can be excused.

[37]     The costs of today’s hearing are reserved.

Wylie J