Davey v Baker
[2016] NZCA 313
•11 July 2016 at 10.00 am
| For a Court ready (fee required) version please follow this link |
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA587/2015 [2016] NZCA 313 |
| BETWEEN | IAN WALTON DAVEY, NOVA ELIZABETH DAVEY AND LAWSON NEIL DAVEY AS TRUSTEES OF THE GAP TRUST IAN WALTON DAVEY AND NOVA ELIZABETH DAVEY |
| AND | NICHOLAS JOHN DE CHAIR BAKER AND HEIDI MARIE BAKER |
| Hearing: | 27 April 2016 |
Court: | Stevens, Wild and Cooper JJ |
Counsel: | G W Allan and H I Palmer for First and Second Appellants |
Judgment: | 11 July 2016 at 10.00 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe cross-appeal is dismissed.
CThe appellants must pay the respondents costs for a standard appeal on a band A basis (reduced by 25 per cent to take into account the cross‑appeal) and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Stevens J)
Table of Contents
Para No
Introduction [1]
Background [8]
High Court judgment [24]
Rectification [26]
Order under s 317 of the 2007 Act [29]
Agreement to arbitrate [33]
Issue estoppel [34]
Declarations [35]
Rectification [36]
Appellants’ submissions [36]
Applicable legal principles [37]
Factual context [41]
Our analysis [44]
Availability of order under s 317 of the 2007 Act [49]
The statutory provisions [50]
Appellants’ submissions [53]
The power to modify [56]
Our analysis [69]
Cross-appeal [79]
Result [83]
Introduction
The appellants, who we shall refer to collectively as the Daveys, own and occupy a block of rural land adjacent to the Motueka Highway. In 1988 the neighbouring property was purchased by a Mr and Mrs Pavelka (the Pavelkas). The two properties shared a common boundary. In 1992 Mr Pavelka and Mr Davey agreed on a boundary adjustment, the essence of which was that an area of the Daveys’ land would be transferred to the Pavelkas and a right of way easement would be put in place so that the Daveys could retain access to the hill block on their property. The surveying work for the required easement was carried out by a firm of surveyors and the relevant documents were duly registered.
The respondents, the Bakers, acquired the Pavelkas property in 2002.[1] At that time, the Daveys had no need for, and did not use, the right of way. However, in 2010, circumstances changed and Mr Davey wished to exercise the right to construct a roadway along what he thought was the right of way, an old farm track, for access to the hill block with his tractor.
[1]From a third party, the Pavelkas having sold the property in 1996.
The Daveys subsequently discovered that the right of way did not follow the old farm track. The Daveys considered that the route of the proposed roadway (said to have been agreed in 1992 with the Pavelkas) was not accurately defined in the right of way easement. Construction of the roadway along the registered right of way will be more problematic and expensive than if the right of way were along the old farm track. The Bakers, however, sought to confine the Daveys to construction of the roadway to the registered right of way.
Proceedings were commenced by the Daveys in the High Court to move the location of the registered right of way. The Daveys sought either an order for rectification of the easement or, alternatively, an order under s 317 of the Property Law Act 2007 (the 2007 Act) modifying the easement, so that the course of the right of way would run on the Bakers’ land some five metres north of (but roughly parallel to) the position of the right of way shown in the registered easement.
In the High Court Brown J declined both orders.[2] Rather he made a declaration that the Daveys were entitled to form a driveway along the right of way, subject to compliance with local government requirements.[3]
[2]Davey v Baker [2015] NZHC 2282 [High Court judgment].
[3]At [102(a)], together with orders for consequential declarations and costs.
The Daveys appeal against this decision on the grounds that the Judge erred in finding that:
(a)there was no power for the Court to rectify the agreement regarding the placement of the right of way; and
(b)the Daveys were not a qualifying person under s 316 of the 2007 Act and did not have standing to bring a s 317 application, and in holding the location of an easement facility within a servient tenement could not be modified.[4]
[4]The notice of appeal also referred to an error in granting the declaration as to the formulation of the roadway along the right of way but this was not pursued.
The Bakers have cross-appealed. In his judgment, Brown J held that it was too late (in closing submissions) to raise the defence of issue estoppel in relation to the Daveys’ claim for removal of trees on the right of way.[5] The Bakers submit this was in error.
Background
[5]High Court judgment, above n 2, at [100].
The factual background is essentially uncontroversial, albeit there remains contention surrounding the detail of what was agreed between Mr Davey and Mr Pavelka between 1989 and 1991. We will address this later in the judgment.[6] The following outline of the context draws on the narrative as found by Brown J.[7]
[6]At [44]–[46] below.
[7]High Court judgment, above n 2, at [6]–[20].
In 1976 the Daveys acquired a large block of farming land, Lot 1 DP8528 (the Davey land). The Pavelkas’ property was Lot 1 DP8527. It had a common boundary with the Davey land, as shown on the plan annexed to this judgment in Schedule 1.
The water supply for the Pavelkas’ property was a spring located on a hill within the Davey land. The Pavelkas were keen to preserve their access to the water catchment area and this resulted in the commencement of discussions in 1989 in which it was proposed that the Pavelkas might acquire a portion of the hill block, including the location of the spring.
While discussions with Mr Davey were ongoing, a landslide occurred in August 1990 in which debris from the Davey land caused substantial damage to the Pavelkas’ home. The landslide also damaged an old farm track which ran behind (to the south of) the home, up a slope, to the hill block on the Davey land. This occurrence gave new impetus to the discussions.
The farm track had been established prior to the Pavelkas’ ownership. Mr Davey suggested that if he were to transfer the area of land sought by the Pavelkas to protect their water source, the Pavelkas would agree that the existing farm track be protected by a right of way easement. This would ensure Mr Davey had ongoing access between the hill block to the east and a “leg in strip” to the west that provided unformed access from the Motueka Highway. The Pavelkas agreed to this request. They therefore agreed to the sale and purchase of an area of approximately 6,500 m2 with a reservation back of a right of way. The area eventually sold is shown in Schedule 1 as Lot 1 DP15668. Legal and surveying costs were to be paid by the Pavelkas.
The necessary survey work was carried out by a Mr Selwyn Light of the firm Cotton & Light. He was instructed by Mr Pavelka in September 1991 and seems to have had no dealings with Mr Davey.[8] The note taken by Mr Light of the meeting with Mr Pavelka was brief:
N. PAVELKA
Interview 24-9-91
Boundary adjustment to add spring & straighten bdy.
Ring before going to inspect.
Monday or Friday best.
[8]As the Judge found at [48].
Mr Light gave evidence that his practice was to visit the actual property prior to undertaking any survey work. He did so on this occasion, although he did not recall any detail of what was discussed with Mr Pavelka. Nor did he recall any particular stipulation with regard to the right of way to be surveyed. He would have expected to remember if it was considered important at the time. He recalled there was already a rough farm track “on the relevant part of the land to be subdivided”. The track appeared to be suitable for use by a tractor but not by ordinary road vehicles. Mr Light said he understood his instructions were to complete the subdivision of the Davey land and to reserve from that subdivision a right of way for future access. On that basis he prepared a scheme plan of subdivision which divided out from Lot 1 DP8528 an area of 6549 m2 with a proposed right of way marked “A” on the existing boundary with Lot 1 DP8527. The land being transferred (Lot 1 DP15668) was described as the servient tenement while the remaining Davey land (Lot 1 DP8528) was the dominant tenement.
On 4 November 1991 Mr Light sent a copy of the proposed scheme plan of subdivision to the Tasman District Council (the Council). The accompanying letter included a description of the scheme for which “preliminary approval” was sought:
Mr and Mrs Pavelka wish to acquire a small area of the Davey property shown as Lot 1 on the plan and amalgamate this land with their title CT 4A/642. Their reason for wanting title to this land is that it contains the water supply to their house which is at present out of their control on the adjoining land.
The access to Lot 1 DP 8528 owned by Mr Davey is unformed because he owns adjoining farm land to the north and east and enters the property from that direction. To maintain frontage for the balance of Lot 1 DP8528 the access strip has been extended along the south west boundary of Lot 1. However this is steep land and not suitable for physical access so a right of way is shown through Lot 1 along the line of an existing track. While Mr Davey continues to own the property this right of way will not be used but would be necessary if the property is sold in the future.
(Emphasis added).
Mr Light said the expression “along the line of an existing track” was a commonly used by survey expression and was not intended to convey the meaning that the whole of the existing track lay precisely within the right of way. Mr Light’s usual practice was to show the client a copy of the scheme plan before submitting it to the Council. Mr Light says he showed the plan to Mr Pavelka but does not recall receiving any comment from him about the proposal. Mr Light said this about the location of the right of way:
While the scheme plan does not show the relationship of the formed track to the surveyed right of way at least two things should have been obvious from that plan to anyone familiar with the land. Firstly, the bottom part of the rough track was distinctly curved and the relevant part of the surveyed right of way was shown as a straight line. Secondly, the right of way followed the line of the boundary.
In January 1992 the Council wrote to Mr Light advising that consent had been granted to the proposed subdivision subject to two conditions:
1. Amalgamation
That Lot 1 hereon be transferred to the owner of Lot 1 DP8527 (CT 4A/642) and that one certificate of title be issued to include both parcels.
…
2.That the proposed right of way shown as “A” on your plan be duly granted or reserved in favour of Pt Lot 1 DP8528. Reference to the right of way should be included in the Council resolution. Formation of the right of way is not a condition of scheme plan approval.
Mr Light sent a copy of the letter from the Council advising that the Council had approved “the boundary adjustment” to Mr Davey. Mr Light gave an estimate of the costs involved to complete the work. He later received instructions to prepare a survey plan, Deposited Plan 15668 (DP15668), as shown in Schedule 2 of this judgment.
The right of way is legally reserved in the memorandum of transfer 321996.1 shown in Schedule 3 of this judgment. The transfer was signed by Mr Davey and the Pavelkas (on a following page). The transfer contains a schedule B which describes the covenants entered into by the Pavelkas as transferees with Mr Davey the transferor:
1.The rights and powers set out in the Seventh Schedule of the Land Transfer Act 1952 and in the Ninth Schedule of the Property Law Act 1952 are herein implied as to the Right of Way reserved herein except that the Transferee may erect gates or cattle stops at both ends of the said Right of Way such gates to be opened only for the purpose of ingress, egress and regress and to be closed immediately following such use.
2.In the event of any dispute or difference arising between the registered proprietors for the time being of the said dominant and servient tenements as to the use of any of the facilities for which rights are herein created as to the extent or share of liability of any person or persons towards the costs of any maintenance repair and or renewal required to the said facilities or as to any of the covenants herein contained or as to any other matter relating to the easements or the meaning or interpretation of this Memorandum of Transfer the same shall be referred to arbitration in accordance with the provisions of the Arbitration Act 1908 and its amendments.
In March 1992 Mr Davey signed the memorandum of transfer reserving the right of way easement. He also signed the survey plan DP15668. The transfer and the plan were both deposited with Land Information New Zealand (LINZ).
Mr Davey says he thought the right of way was on an existing farm track which, at the western end, began to follow a northerly route towards the “leg in strip” before petering out in a paddock owned by the Pavelkas. This would have put the right of way on flat land. In reality, the right of way ran in a largely straight line from west to east, adjacent to the northern boundary of the transferred land, on the slope of the hill itself. Mr Davey confirmed in evidence he did not use the right of way to access his hill block. Gum trees had been planted between 1989 and 1990 by Mr Pavelka partly on the right of way and partly on land that continues to be owned by the Daveys.
In 1996 the Pavelkas sold the property to Motueka Farms Limited. The Bakers acquired the property in 2002 without notice of any issue about the location of the legal right of way. In 2010 the Bakers had a surveyor determine the actual route of the right of way. On discovering this, the Bakers put up a white rope demarcating the boundaries.
This resulted from a dispute with Mr Davey about his using another part of the Baker property (over which the Daveys have no rights). The Bakers withdrew permission for Mr Davey to use that part of the property and sought to enforce their right to confine Mr Davey to using only the registered right of way. Mr Davey initially accepted this but found he could not get his tractor down the right of way because the gum trees were in the way. In 2011 Mr Davey brought proceedings in the District Court for the removal of the trees. The proceedings were stayed pending a reference of the dispute to arbitration. No agreement was ever reached. In 2013 the High Court proceedings were commenced.
High Court judgment
In the High Court the Daveys brought two main claims in order to move the right of way to their preferred location:
(a)A claim for rectification of the easement to accord with the “common intention” of Mr Davey and Mr Pavelka about the location of the right of way.
(b)A claim for modification of the location of the right of way easement pursuant to s 317 of the 2007 Act.
Alternatively, if the location remained unaltered, the Daveys sought an order requiring the Bakers to remove trees and trim the bank of the hillside to allow a roadway to be constructed along the right of way. They also sought aggravated and exemplary damages.
Rectification
Brown J held there was an “obstacle” with the claim for rectification. The Daveys were seeking an order for a right of way over land that had always been owned by the Pavelkas (now the Bakers). Had the Daveys sought an order for the rectification which specified a different area of land within DP15668 over which the right of way was to be reserved, then an order could have been granted (so long as the principles governing rectification were satisfied).[9] But, what the Daveys sought was essentially a redrawing of the right of way on DP15668 over land always owned by the Pavelkas (Lot 1 DP8527) and the execution of a further memorandum of transfer providing for an express grant of a right of way easement over that land. Brown J found to do this would be stepping beyond the proper ambit of the power to order rectification.[10]
[9]High Court judgment, above n 2, at [31]–[35].
[10]At [37].
In case this conclusion was wrong, Brown J went on to consider the case advanced in support of rectification. The law required a common continuing intention in respect of the matter at issue, outward expression of the accord, and that by mistake the document does not reflect that common intention.[11] The Judge found that there was no clear evidence of any agreement having been concluded as to the precise location of the right of way. The alleged agreement was vague as was the evidence about the foundation of any agreement. The right of way was created upon the transfer of land and the parties did not directly turn their minds to the proposition that a right of way be granted over land which the Pavelkas already owned and which was not included in land to be transferred by the Daveys.[12]
[11]At [22] citing the criteria from Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 2 EGLR 71 at [33].
[12]High Court judgment, above n 2, at [50].
In any event, Brown J determined that the Bakers were purchasers for value without notice, and thus relief would have been declined had the rectification claim been successful.[13]
Order under s 317 of the 2007 Act
[13]At [53].
Under s 316(1) of the 2007 Act, the Daveys could only bring an application for modification under s 317 if they were bound by an easement, positive covenant or restrictive covenant (including a covenant expressed or implied in an easement). The Daveys sought to invoke the s 317 jurisdiction on three separate bases, namely, that:
(a)the right of way easement is subject to a restrictive covenant as to the limited extent of the use of the easement over the servient land;
(b)they are burdened by a restrictive covenant in the form of a certificate required by s 243 of the Resource Management Act 1991; or
(c)they are burdened by a positive covenant in respect of the formation and maintenance of the roadway along the right of way easement.
As to the first ground, the Daveys claimed that, because the condition of the land transfer was that a right of way was to be reserved, the ability to form a driveway and pass over the servient tenement creates a restrictive covenant binding on them.[14] Thus they were only able to pass over the land designated in the right of way. This, it was claimed, satisfied the requirements of s 316. Brown J rejected this argument. He held that the act of specifying the particular location of a right cannot of itself constitute a burden which can be relied upon as a basis for seeking modification of the easement.[15] Moreover, the grant of a right of way by re‑grant to a former registered proprietor over a particular portion of land could not be fairly analysed as a covenant by the former owner to refrain from doing something in relation to that former owner’s land.[16]
[14]Defined in s 4 of the Property Law Act 2007 (the 2007 Act) as: a covenant, including an express or implied covenant in an easement, under which the covenantor undertakes to refrain from doing something in relation to the covenantor’s land which, if done, would detrimentally affect the value of the covenantor’s land or the enjoyment of that land by any person occupying it.
[15]High Court judgment, above n 2, at [61].
[16]At [63].
As to the second ground, s 243 of the Resource Management Act provides that no variation of a reserved right of way can take place without Council consent. The Daveys argued that the location of the right of way on the subdivision plan was not what the Council actually approved, because, having inspected the area and the terrain, the Council must have proceeded on a misunderstanding as to the location of the intended right of way. If the Daveys were to form a roadway on the registered right of way, this would in effect amount to a variation of what the Council must be taken to have approved on the basis of the assumed inspection. Brown J found no factual basis for this proposition. Moreover, even if such misapprehension were true, formation of a roadway along the easement granted would not amount to a variation in respect of which the Council’s consent was required.[17]
[17]At [70].
As to the third ground that the easement involves an implied positive covenant, the Judge found there was no covenant on the part of the Daveys in relation to their own land with reference to the formation and maintenance of a driveway on the land of the Bakers.[18] It mattered not that the Daveys had once owned that land.[19] Further, even if the burden of the right of way easement were properly analysed as a positive covenant, the “person bound” by it would be the Bakers, as they are the owners of the land against whom the covenant is enforceable.[20] As such, the Daveys lacked standing under s 316 to bring a claim under s 317, and the claim for an order under s 317 failed.[21]
Agreement to arbitrate
[18]A positive covenant is defined in s 4 of the 2007 Act as a covenant, including an express or implied covenant in an easement, under which the covenantor undertakes to do something in relation to the covenantor’s land that would beneficially affect the value of the covenantee’s land or the enjoyment of the covenantee’s land by any person occupying it.
[19]High Court judgment, above n 2, at [80].
[20]Applying the definition of “person bound” set out in s 4 of the 2007 Act.
[21]High Court judgment, above n 2, at [83].
The Judge found that the other issues raised by the Daveys (an order for the removal of gum trees and allegation that the Bakers breached a requirement to act in good faith) were subject to an agreement to arbitrate.[22] Accordingly the Court had no jurisdiction.
Issue estoppel
[22]At [91]–[92] and [99] applying Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 385 at [51].
In closing submissions, the Bakers sought leave to amend the statement of defence to introduce the new defence of issue estoppel. Counsel argued that the Daveys had commenced proceedings in the District Court seeking removal of trees along the right of way and such proceedings had been stayed pending arbitration. The Judge determined that it was too late to raise an issue of this kind.[23]
Declarations
[23]High Court judgment, above n 2, at [100].
The Judge declined the orders for rectification of the memorandum of transfer and relief under s 317 of the 2007 Act. He did however make a declaration that the Daveys were entitled to form a driveway along the route of the right of way, subject to compliance with any requirements of the Local Government Act 2002 and to the obtaining of any necessary resource consent for the removal of trees and cutting back of the bank.[24] The Judge also stayed the proceeding and referred to arbitration the balance of the Daveys’ claims in the third, fourth and fifth causes of action including all issues concerning the extent or share of liability of the parties for the costs of the construction and maintenance of the driveway along the right of way.[25]
Rectification
Appellants’ submissions
[24]At [102(a)].
[25]At [102(b)].
On appeal, the Daveys submit that the Judge erred in determining that rectification was not available. The error was in considering that the Daveys sought an amendment to the memorandum of transfer only, and that rectification involving both a new survey plan and memorandum of transfer was beyond the power of rectification. Mr Allan for the Daveys submits the Judge gave insufficient consideration to the evidence of the agreement as to the intended route of the legal right of way. The key issue for this aspect of the appeal is therefore a factual inquiry: did the Judge omit to consider relevant evidence of agreement that the proposed right of way would follow the existing old farm track?
Applicable legal principles
There is no dispute as to the applicable principles. This Court in Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd held that rectification will be ordered where the parties have agreed a contractual arrangement but the terms in which the arrangement is recorded do not accurately reflect the agreed terms.[26] In Chartbrook Ltd v Persimmon Homes Ltd[27] Lord Hoffman approved the following summary of the law from a judgment of Peter Gibson LJ in Swainland Buildings Ltd v Freehold Properties Ltd:[28]
The party seeking rectification must show that:
(1)the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
(2)there was an outward expression of accord;
(3)the intention continued at the time of the execution of the instrument sought to be rectified;
(4)by mistake, the instrument did not reflect the common intention.
[26]Hanover Group Holdings Ltd v AIG Insurance New Zealand Ltd [2013] NZCA 442, (2013) 12 TCLR 702 at [30].
[27]Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [48].
[28]Swainland Buildings Ltd v Freehold Properties Ltd, above n 11, at [33].
This summary was relied on by Brown J in the High Court.[29] The Judge also stated accurately that the burden of proof in a rectification claim lies on the party seeking to establish that there was a common intention which was not properly recorded in the document.[30]
[29]High Court judgment, above n 2, at [22]. These principles are discussed in John Burrows, Jeremy Finn and Stephen Todd (eds) Law of Contract in New Zealand (5th ed LexisNexis, Wellington, 2016) at [10.6.1].
[30]High Court judgment, above n 2, at [39] citing Burrows, above n 29, at [10.6.1].
Rectification is an equitable and therefore discretionary remedy. Even if the prerequisites are satisfied, relief may be denied if on the facts it would be inequitable to grant it. Relief will not be ordered where it would prejudice the position of a third party who has acted innocently and provided consideration.[31]
[31]Australian Mutual Provident Society v Bridgemans Art Deco Ltd [1996] 2 NZLR 263 (CA) at 277.
It is suggested that a mistake in the interpretation of an instrument or in the legal consequences of entering into an instrument is regarded as insufficient to ground rectification; rectification is a remedy to ensure the instrument contains the provisions which the parties intended it to contain, and not those which it would have contained had the parties been better informed.[32] The remedy of rectification is strictly limited to a clearly established disparity between the words of the document and the intentions of the parties.
Factual context
[32]Francis Dawson “Rectification of voluntary settlements” (2014) 130 LQR 356 at 359.
As to the facts of this case, the memorandum of transfer refers to an agreement dated 18 September 1992. As the Judge observed this date is “closely proximate to the date of the transfer itself”.[33] The Judge found that there was no evidence of any agreement of that date, written or oral, relating to the right of way.
[33]High Court judgment, above n 2, at [40].
The agreement advanced by the Daveys, however, related to an existing track, some of which was said to be within the area of the right of way shown at A on DP15668.[34] A key pleading in the second amended statement of claim alleged:
The line of the existing track and where the track was indefinite the most practicable and obvious route was agreed between I.W. Davey as Grantee and N. Pavelka, the then owner of the Servient Land as Grantor.
[34]This was reflected in part of the pleading by the Daveys of the rectification cause of action.
As the Judge observed, the route of the existing track was not specifically delineated on a drawing or plan and, so far as the western end was concerned, the only instruction was to follow the most practicable and obvious route.[35] The Judge concluded:[36]
… there is force in the [Bakers’] submission that the alleged agreement so far as concerns the route of the western end of the right of way is too vague. I also agree with the [Bakers’] submission that the evidence both as to the foundation of an agreement concerning the right of way and the provision of instructions to Mr Light was vague.
Our analysis
[35]High Court judgment, above n 2, at [43].
[36]At [45].
We have carefully considered Mr Allan’s submissions and the evidence relied upon by him to establish the pleaded common continuing intention. We are satisfied there was no proven consensus between Mr Pavelka and Mr Davey as to the necessary detail of the proposed right of way. There was a lack of clarity about the precise location of the right of way when the topic was first discussed in 1989, and this continued down to the time when the survey plan was created and the memorandum of transfer executed in October 1992. This vagueness is exemplified particularly in the evidence of Mr Pavelka, a key person involved in the transaction.
Even if the initial discussions between Mr Davey and Mr Pavelka contemplated a right of way that followed the old farm track, the proposal had changed by the time Mr Light wrote to the Council in early November 1991.[37] Mr Pavelka had no recollection of any discussion with Mr Light regarding the location of the proposed right of way. Mr Davey had no dealings with him. Mr Davey would have had an opportunity to check the position when he attended his lawyer’s offices to sign the subdivision plan and the legal paperwork. It seems he assumed that everything was in order and said nothing when signing the documents showing the right of way following the line of the boundary of the land being transferred. Plainly this was inconsistent with the path of the old farm track, which was in part distinctly curved.
[37]In terms of the letter set out at [15] above.
We uphold the Judge’s finding the parties did not directly turn their minds to the concept that a right of way should be granted over land which the Pavelkas’ already owned.[38] This is what would have been required (at least in part) had the right of way followed precisely the old farm track. We conclude that there was no existing and continuing common intention between Mr Davey and Mr Pavelka inconsistent with the location of the right of way in the area marked A on DP15668. It follows that the Judge made no error of law or fact in his analysis of the claimed common intention said to be the basis of the rectification cause of action.
[38]High Court judgment, above n 2, at [50].
We also agree with Brown J’s conclusion that the Daveys faced other insuperable difficulties in making good a rectification claim. The first concerned the nature of the orders sought and the land (previously owned by the Pavelkas and now the Bakers) over which the pleaded right of way would run.[39] The second difficulty was the finding that the Bakers were subsequent purchasers for value without notice of any mistake on the part of Mr Davey and Mr Pavelka.[40] On this basis the Judge concluded that, had the rectification claim not been rejected on the first two grounds, relief would have been declined on this further basis.[41]
[39]As described at [26] above.
[40]High Court judgment, above n 2, at [51]. Compare the situation with the purchaser in Green Growth No 2 Ltd v Queen Elizabeth II Trust [2016] NZCA 308 at [96]–[98].
[41]High Court judgment, above n 2, at [53] applying Doubtless Bay Water Supply Co Ltd v Robinson (1997) 3 NZ ConvC 192,579 at 192,585.
For the above reasons we see no error in Brown J’s conclusion that a claim of rectification was unavailable to the Daveys. This ground of appeal therefore fails.
Availability of order under s 317 of the 2007 Act
The Daveys submit the Judge erred in dismissing their application for modification of the easement in finding that they were not qualifying persons for the purposes of s 316(1). They contend they had standing to bring a s 317 application and that the Court should exercise the power under s 317 to modify the location of the right of way easement in the manner sought.
The statutory provisions
An application for a modification order under s 317 of the 2007 Act is made under s 316 which provides:
316 Application for order under section 317
(1)A person bound by an easement, a positive covenant, or a restrictive covenant (including a covenant expressed or implied in an easement) may make an application to a court for an order under section 317 modifying or extinguishing that easement or covenant.
(2)That application may be made in a proceeding brought by that person for the purpose, or in a proceeding brought by any person in relation to, or in relation to land burdened by, that easement or covenant.
(3)That application must be served on the territorial authority in accordance with the relevant rules of court, unless the court directs otherwise on an application for the purpose, and must be served on any other persons, and in any manner, the court directs on an application for the purpose.
Section 317 gives the Court power, by order, to:
(1)… 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 benefitted land, the burdened land, or both:
(ii) the character of the neighbourhood:
(iii)any other circumstances the court considers relevant; or
(b)the continuation in force of the easement or covenant in its existing form would impeded 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—
(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.
(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.
The interpretation of the above provisions requires reference to the following terms defined in s 4 of the 2007 Act:
person bound means, in relation to an easement, a positive covenant, or a restrictive covenant burdening land, an owner or occupier of the land against whom the easement or covenant is enforceable
person entitled means, in relation to an easement, a positive covenant, or a restrictive covenant benefiting land, an owner or occupier of the land who is entitled to enforce the easement or covenant
…
positive covenant means a covenant, including an express or implied covenant in an easement, under which the covenantor undertakes to do something in relation to the covenantor’s land that would beneficially affect the value of the covenantee’s land or the enjoyment of the covenantee’s land by any person occupying it
…
restrictive covenant means—
(a)a covenant, including a covenant expressed or implied in an easement, under which the covenantor undertakes to refrain from doing something in relation to the covenantor’s land which, if done, would detrimentally affect the value of the covenantee’s land or the enjoyment of that land by any person occupying it; or
(b)a restrictive covenant in gross expressed or implied in an easement
Appellants’ submissions
The Daveys’ arguments for standing under s 316 of the 2007 Act are that they are bound by (a) the restrictive location of the easement within the servient tenement or (b) a positive covenant arising from the import of sch 9 of the Property Law Act 1952 (the 1952 Act). Schedule 9 implies statutory rights and powers into easements of vehicular right of way, relevantly:
1.The right of the grantee, the grantee’s servants, tenants, agents, workmen, licensees, and invitees (in common with the grantor, the grantor’s tenants, and any other person lawfully entitled) at all times by day and by night to go, pass, and repass, with or without vehicles, machinery, and implements of any kind, over and along the land over which the easement is granted.
2.The following rights of the occupiers of the land for the benefit of which, and the land over which, the easement is granted:
(a)The right to establish a driveway, and to effect necessary repairs to any existing driveway, and to carry out any necessary maintenance and upkeep, where necessary altering the state of the land over which the easement is granted; and any necessary rights of entry on the land over which the easement is granted with or without machinery, plant, and equipment:
…
(c)The right to a reasonable contribution from other occupiers towards the costs of establishment, maintenance, upkeep, and repair of the driveway to an appropriate standard:
…
As noted, Brown J rejected the Daveys’ submissions both on the basis that (a) the easement qualified as a restrictive covenant to which the Daveys were bound and (b) it involved a positive covenant. As to the restrictive covenant, the Judge said:[42]
In my view the grant of a right of way (by re‑grant to a former registered proprietor) over a particular portion of land cannot fairly be analysed as a covenant by the former owner to refrain from doing something in relation to that former owner’s land. To come within the definition it would be necessary for the plaintiffs to have made a covenant in relation to their own land, that is, Part Lot 1 DP8528. A so-called covenant by the plaintiffs with reference to the covenantees’ land (that is, the defendants’ land) would not satisfy the requirements of the definition in s 4.
[42]High Court judgment, above n 2, at [63].
As to whether the Daveys could come within the definition of “person bound” by a “positive covenant”, the Judge concluded:[43]
That definition is the mirror image of the definition of restrictive covenant discussed above. In substance, it requires a covenant by the covenantor in relation to the covenantor’s own land which would have an effect on the covenantor’s land. As with the plaintiffs’ first argument in reliance on an asserted restrictive covenant, I am unable to identify a covenant on the part of the plaintiffs in relation to their own land with reference to the formation and maintenance of a driveway on the land of the defendants (albeit formerly owned by the plaintiffs).
The power to modify
[43]At [80] (footnotes omitted).
The purpose of the modification power under ss 316 and 317 is to enable owners of land burdened by an easement or covenant, often referred to as the servient tenement, to relieve some or all of that burden.[44] If circumstances that once made the easement or covenant necessary change so that it becomes obsolete or detrimental to the land burdened by it, modification or extinguishment may become appropriate.[45] The issue with the Daveys’ application is that, in relation to the right of way easement, the Daveys are the dominant owners and are therefore “persons entitled” to the benefit of that easement. Essentially what the Daveys seek constitutes a broad extension of the principle and purpose of modification.
[44]Harnden v Collins [2010] 2 NZLR 273 (HC) at [57].
[45]David Brown “Easements, profits and covenants” in Tom Bennion and others (eds) New Zealand Land Law (2nd ed, Thomson Reuters, Wellington, 2009) 31 at [16.092].
The Daveys submit it is nevertheless possible for dominant owners to have standing under s 316. As in any contractual relationship, the benefits and burden of rights and obligations contained in an easement flow both ways.[46] Dominant land owners have brought successful applications for modifications of rights of way.[47] Accordingly, Mr Allan submits that because the Daveys are bound by the restrictive or positive obligations, referred to above at [53], they are able to bring an application for modification.
[46]Citing Rental Space Ltd v March (1999) 4 NZ ConvC 192,873 (HC)
[47]Walshe v Macrae [2012] NZHC 296, (2012) 14 NZCPR 71; BA Trustees Limited v Ma’a Limited [2014] NZHC 935, (2014) 16 NZCPR 266.
In order to test the argument of the Daveys, we have reviewed the case law on the modification provisions (those being s 127 of the 1952 Act as enacted, s 126G of the 1952 Act as amended in 1986, and ss 316 and 317 of the 2007 Act).[48] None have involved a successful application brought by a person who owns the dominant tenement in relation to an easement and who is not simultaneously subject to a positive or restrictive covenant as defined by s 4 of the 2007 Act. Some examples will illustrate the approach taken.
[48]These include: C Hunton Ltd v Swire [1969] NZLR 232 (SC); Child v Dynes [1985] 2 NZLR 554 (HC); Rental Space Ltd v March, above n 46; Luxon v Hockey (2003) 5 NZCPR 125; Organic Farming Ltd v Bryson (2007) 5 NZ ConvC 194,383; Harnden v Collins, above n 44; Walshe v Macrae, above n 47; and Gregory v EK Trust Ltd [2015] NZHC 1785, (2015) 16 NZCPR 519.
In C Hunton Ltd v Swire the easements sought to be modified were rights of way over a strip of land (the “servient tenement”) which was owned by a Mr Creyke.[49] The second defendant challenged the plaintiff’s standing to bring a claim, given that C Hunton Ltd was not the owner of the servient tenement land but the owner of one of the dominant tenements. Under s 127 of the 1952 Act,[50] only a person “interested in” the land subject to an easement could bring an application for modification. Wilson J did not think that an interest as a person entitled to the benefit of the easement over the servient tenement was a sufficient interest.[51] A beneficial interest in the servient tenement itself is necessary, although this is not limited to legal or registrable interests. An interest as an occupier was therefore sufficient; an equitable interest in the easement was not.
[49]C Hunton Ltd v Swire, above n 48.
[50]An earlier version of ss 316 and 317.
[51]C Hunton Ltd v Swire, above n 48, at 235.
In Rental Space Ltd v March the defendants enjoyed the benefit of a right of way which contained a condition that no building be erected having a frontage wholly to the right of way.[52] They sought extinguishment or modification of this condition under s 126G of the 1952 Act. The plaintiff contended that the defendants, as the owners of the dominant tenement, were not entitled to claim relief under s 126G. In response, the defendants claimed that the condition constituted a restrictive covenant, and, in any case, serviency is not a necessary precondition to jurisdiction under s 126G and the Court could entertain an application by the owner of the dominant tenement.
[52]Rental Space Ltd v March, above n 46.
Elias J (as she then was) held that the condition was a restrictive covenant. For the purposes of this restrictive covenant, the land of the covenantee is the servient tenement and the land of the grantor is the dominant tenement, even though for the purposes of the right of way, dominancy and serviency are reversed.[53] The Judge was thus satisfied that the defendants, being the occupiers of the land subject to the covenant, were entitled to apply for relief under s 126G.
[53]At 192,886.
The plaintiffs also objected on the basis that s 126G does not permit the extinguishment of a condition which will have the effect of increasing the burden on the right of way easement. Elias J did not accept that the term “modify” was to be restrictively interpreted, as the discretion conferred upon the Court in what is a broadly remedial provision is a wide one.[54] The Judge noted, however, that it would only be in unusual circumstances or where the increase in burden is insubstantial that it would be right to grant such modification or extinguishment of a restrictive covenant.
[54]At 192,887.
In Harnden v Collins, the appellants applied to move an easement (which gave access to various lots in a subdivision) from Lot 1 to Lot 3 as the existing easement had since become impassable.[55] The third appellant owned Lot 1 while the respondent owned Lot 3. The first and second appellants owned lots that used the easement to travel to and from an esplanade reserve. They were also servient owners to the extent that each of their properties was subject to the rights of other dominant owners to use the easement to access their own land.
[55]Harnden v Collins, above n 44.
In the High Court, Randerson J noted a progressive broadening of the scope of the section as well as a relaxation in the approach the courts have adopted to the exercise of discretion. However, the question was whether s 317 gave jurisdiction to extinguish or modify an easement by altering or extending the easement over land not owned by the applicant. Randerson J concluded that it did not. The first and second appellants were servient owners in respect of those parts of the easement to which their land is subject, but they did not seek any modification or extinguishment of the easement on their land. Their interest in this application was not as servient owners but as dominant owners entitled to the benefit of the easement. As such, they were not entitled to bring the application.[56]
[56]At [58].
In Walshe v Macrae, the Macraes had the benefit of a right of way over the Walshe land, subject to a condition that the right of way service only one “dwelling”.[57] When Mr Walshe brought a claim that the Macraes were in breach of this condition of the easement, the Macraes counterclaimed with an application for an order modifying the easement under s 317. Mr Walshe contended that the Macraes could not apply under s 317 because they lacked standing under s 316, being the owner of the dominant tenement and thus not the “person bound” by the easement. Keane J noted, however, that there were two relationships in law with opposed benefits and burdens. The Macraes were the “person entitled” to the benefit of the easement conferring the right of way but were also the “person bound” by a restrictive covenant as to the purpose for which they may exercise it and that Mr Walshe was entitled to enforce.[58]
[57]Walshe v Macrae, above n 47.
[58]At [60]. Although the High Court decision was overturned on appeal, the Judge’s finding on the issue of standing was not.
Keane J then considered whether under s 317 the Macraes could reduce their burden under the restrictive covenant when this would increase the burden for Mr Walshe under the easement. Whilst “modify” most naturally means to reduce the burden, so narrow a reading could not be taken here. Although it might be highly unusual to enlarge the burden, this is within the Court’s power; the issue is one of discretion.[59]
[59]At [62].
In Gregory v EK Trust Ltd a right of way was established by two separate cross easements; the western strip of the right of way was owned by the respondent and the eastern strip by the applicant.[60] The respondent had removed a gate that was on the western right of way. On application for an interim injunction to have the gate restored, the applicants claimed that if the easement did not require a gate, the Court could modify the easement to provide for such a right under s 317 of the 2007 Act. Katz J held this issue did not even surmount the “serious question to be tried” hurdle for interim relief.[61] This was because, on the plain meaning of ss 316 and 317, they simply were not the “person bound” and thus not entitled to bring an application.
[60]Gregory v EK Trust Ltd, above n 48.
[61]At [52].
In that case, counsel for the applicant submitted that a literal interpretation would result in unfairness, as it deprives the dominant owners of any ability to seek to modify an easement that has been granted in their favour, and this cannot be consistent with the statutory purpose of s 317. However, Katz J noted that the literal interpretation was consistent with the broader statutory scheme, including the various grounds that must be satisfied under s 317, which have an asymmetrical focus on the “person entitled” (the applicants here). This asymmetry reflects that s 317 is directed at relieving the burden of the easement on the applicant’s land rather than improving the position of the person with the benefit of the easement.[62]
Our analysis
[62]At [47].
It is clear that the Daveys are not the “person bound” by the easement. In this case, the easement burdens the Bakers’ land and is therefore enforceable against the owners of that land. The “owner” of the land against whom the easement is enforceable is defined as the holder of an estate in fee simple or a life interest in the land.[63] A mere interest as a person entitled to use the easement is not, and has never been, sufficient to bring an application for modification.[64] Thus, the Daveys do not come within the definition of “person bound” by an easement for the purposes of s 316.
[63]The 2007 Act, s 4, definition of “owner”.
[64]See C Hunton Ltd v Swire, above n 46.
Nor do the Daveys come with the definition of a “person bound” by a positive or restrictive covenant expressed in the easement. Mr Allan claims that the Daveys were bound by a restrictive covenant which limits the use of the easement facility within the servient tenement and/or a positive covenant to contribute to the upkeep and maintenance per sch 9 of the 1952 Act. However, we agree with Brown J that neither of these fit within the statutory definitions given in s 4 of the 2007 Act (set out at [52] above). In neither case are the Daveys undertaking to do something, or refrain from doing something, in relation to their own land that would be for the benefit of the Baker’s land.
The strongest argument for the Daveys is that they are “bound by … a covenant expressed or implied in an easement”; that is, they are bound by the covenant in the easement that the rights and powers set out in sch 9 of the 1952 Act are implied into the right of way. This includes the right of the Bakers to require contribution by the Daveys to the cost of establishment and maintenance of a driveway over the right of way. The ability to modify the operation of sch 9 appears to have been contemplated when it was inserted into the 1952 Act. The Report of the Property Law and Equity Reform Committee, which recommended these obligations be implied into vehicular rights of way, noted the injustice this might cause as owners and usage changes.[65] Consequently, s 126G(2) of the 1952 Act specifically set out the power to make an order modifying or excluding the operation of any of the provisions of sch 9. Such an interpretation is also consistent with the Law Commission report preceding the 2007 Act, which expressly indicated the Court should have the power to modify covenants implied into easements by what is now sch 5 of the 2007 Act.[66]
[65]Property Law and Equity Reform Committee Positive Covenants Affecting Land (June 1985).
[66]Law Commission A New Property Law Act (NZLC R29, 1994) at 26.
The problem, however, is that the Daveys are not seeking to modify this covenant or the rights implied into the easement by sch 9. Rather, they are seeking to modify the easement itself, specifically the location of the easement, which is an intrinsic part or term of the easement.[67] Under s 316, a person bound by an easement or covenant may make an application for an order modifying or extinguishing that easement or covenant. The clear implication is that it is only the easement or covenant to which the person is actually bound that can be modified by the Court. This interpretation is supported by the considerations which must be satisfied under s 317 — two of the four considerations refer to the “person entitled” but there is no corresponding consideration of the “person bound”. This asymmetry reflects the need for the application to relate to the easement or covenant to which the applicant is in fact bound and to which there is an associated person entitled whose interests are a dominant consideration.
[67]See Organic Farming Ltd v Bryson, above n 48, at [57].
This is the approach taken in many of the cases referred to by Mr Allan where the applicant was the “person entitled” to the easement but simultaneously the “person bound” by a restrictive covenant; the focus was on what the person was actually bound by, as this is what could be modified.[68] A similar approach was taken by Randerson J in Harnden v Collins where the Judge noted that s 317 was not intended to allow an application to modify part of an easement to which the applicants were not the “person bound” although they were bound by the part of the easement on their land.[69] Accordingly, we do not accept that the Daveys have standing under s 316 to bring an application to modify the location of the right of way easement.
[68]See Rental Spaces Ltd v March, above n 46; and Walshe v Macrae, above n 47.
[69]Harnden v Collins, above n 44.
It is true that the modification powers have been widened over the years and the legislation is of a “broadly remedial” nature.[70] However, the approach of the legislation to standing to bring an application has remained constant, with the owner of the land “burdened” by the easement or covenant being able to bring a claim to alleviate some or all of that burden. We consider caution is required in relation to modification, in part because of the adverse impact on private property interests that may follow the making of an order.[71] Here the private property interest involved is not simply losing the benefit of an interest in an easement but rather concerns an intrusion on the indefeasible title that the Bakers have to their land not currently subject to the easement. These factors arguably warn against an over-broadening of the statutory provision in order to incorporate the Daveys’ application.
[70]See Rental Space Ltd v March, above n 46, at 192,887; and Organic Farming Ltd v Bryson, above n 48, at [62]–[63].
[71]Rental Space Ltd v March, above n 46, at 192,887; and Harnden v Collins, above n 44, at [24].
Furthermore, we are satisfied that the overall justice in this case is against modification being granted. Even if the Daveys were able to establish standing under s 316 and one of the grounds under s 317 of the 2007 Act, this is not enough; the Court must then consider whether it would be appropriate to exercise its discretion.[72] Indubitably the Daveys find themselves in an unfortunate predicament in that, according to the Daveys, the Bakers have been less than reasonable by not enabling the issue to be resolved in a less expensive way. However, this is not enough to warrant the granting of relief when looking at what the appropriate result would be in this situation. Rather, it appears to be both unjust and inequitable to allow the Daveys’ application to modify the easement in the manner they seek.
[72]Waikauri Bay Reserve Limited v Jamieson HC Auckland CP1981/87, 12 February 1990 at 13.
The following factors are relevant to that assessment:
(a)The Daveys’ predicament is of Mr Davey’s own making. Mr Davey took no steps at the time of signing the survey plan and the legal documents to ensure the track as surveyed followed the old farm track. The Bakers played no role in locating the easement or the planting of trees which now impacts the right of way.
(b)The Bakers had no notice of any discrepancy with the location of the legal easement when purchasing. Their behaviour of now enforcing their legal rights cannot be viewed as unconscionable.
(c)Sanctity of contract and expropriation of private property considerations both point against modification. In terms of the expropriation of property, the modification sought would divest the Bakers of some of their property and thus impact on their indefeasible title.
(d)The equity of rectification could be denied to the Daveys solely on the basis that the Bakers were bona fide purchasers for value without notice. The fact that an equitable remedy is unavailable suggests that extending the legal remedy of modification to this situation would not be a just and equitable result.
The Daveys are not left in an unreasonable or impossible position. Under sch 9 of the 1952 Act the Daveys have the right to pass and re-pass along the land over which the right of way is granted, with or without machinery and equipment of any kind. They therefore have a right to an unobstructed path, and this places mutual obligations on both parties to ensure the right of way can be made passable. The Daveys also have the right to a reasonable contribution towards the cost of the driveway to be established to ensure the right of way is usable. Further, under s 313 of the 2007 Act, they can apply to the court for an order regarding the shared cost for the construction of the driveway, should arbitration be unsuccessful.
For the above reasons this ground of appeal fails.
Cross-appeal
The Bakers brought a cross-appeal in respect of Brown J’s conclusion that the Bakers were too late to raise the defence of issue estoppel in relation to the Daveys’ claim for removal of trees on the right of way.[73] The Bakers submit that it was not too late to raise the issue estoppel argument in closing submissions, and, in any case, the issue estoppel argument was raised in the opening statement by counsel for the Bakers. Mr Downing for the Bakers indicates that the cross‑appeal was filed “out of an abundance of caution” not knowing what the Daveys’ grounds of appeal would be, but the cross-appeal has not been abandoned. Accordingly, we will briefly consider it.
[73]High Court judgment, above n 2, at [100].
The basis for the claim of issue estoppel was the fact that Judge Zohrab in the District Court had already determined that the Daveys’ claim for removal of trees could not be heard by that Court as it needed to be referred to arbitration. Accordingly, Judge Zohrab ordered a stay of proceedings.[74] The defence of issue estoppel was not pleaded in the Bakers’ second amended statement of defence. In the High Court, in closing submissions, the Bakers sought leave to amend the statement of defence to add the positive defence of issue estoppel. Brown J held it was too late to raise an issue of that kind in closing submissions, and leave to amend was declined.
[74]Davey v Baker DC Nelson CIV-2011-042-56, 8 July 2011.
Pursuant to r 5.48 of the High Court Rules, an affirmative defence must be pleaded. Although it was mentioned in opening submissions, issue estoppel was not pleaded in the statement of defence and leave to amend the statement of defence was only sought in closing submissions. Whilst it is possible for an affirmative defence that has not been pleaded to arise and be considered in the course of a hearing, leave must first be granted to amend and add that defence.[75] As the trial Judge, Brown J had discretion to grant such leave. We see no error in his decision not to do so, even if the issue had been raised in opening submissions. In particular, the Judge had already made the finding that the claim for the removal of trees needed to be referred to arbitration.[76] This is effectively the same outcome as would have been accomplished as a successful plea of issue estoppel. There was therefore little point in granting leave.
[75]Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZCA 154, (2012) 21 PRNZ 235 at [22].
[76]High Court judgment, above n 2, at [89]–[91] and [102(b)].
Accordingly, the cross-appeal is dismissed.
Result
The appeal is dismissed.
The cross-appeal is dismissed.
The appellants must pay the respondents costs for a standard appeal on a band A basis (reduced by 25 per cent to take into account the cross-appeal) and usual disbursements.
Solicitors:
Pitt & Moore, Nelson for First and Second Appellants
McFadden McMeeken Phillips, Nelson for Respondents
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