Escrow Holdings Forty-One Limited v Heartland Bank Limited
[2021] NZHC 3227
•29 November 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-004-000241
[2021] NZHC 3227
BETWEEN ESCROW HOLDINGS FORTY-ONE LIMITED
Plaintiff
AND
HEARTLAND BANK LIMITED
Defendant
Hearing: 31 May, 1, 2, 3, 4 June, 30 September, 1 October 2021 Appearances:
T J Herbert for Plaintiff
T J G Allan & T P Kelly for Defendant
Judgment:
29 November 2021
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 29 November 2021 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Goodwin Legal, Auckland Grove Darlow, Auckland
ESCROW HOLDINGS FORTY-ONE LTD v HEARTLAND BANK LTD [2021] NZHC 3227 [29 November 2021]
Introduction
[1] This proceeding arises from a dispute between a property owner and a bank regarding two neighbouring properties in Hargreaves Street, Auckland. The plaintiff, Escrow Holdings Forty-One Limited (Escrow) is the owner of the property located at 19 Hargreaves Street on which there is a multi-level building currently used for commercial office premises.1
[2] Escrow sues Heartland Bank Limited (Heartland) for damages, alleging breach of the terms of a deed entered into on or about 10 October 2008 (the Deed). The Deed required Heartland’s predecessor, Marac Finance Limited (Marac), to install screens on decks and windows on the top floor units of the neighbouring property at 21 Hargreaves Street (21 Hargreaves) when it was being converted from commercial offices into unit title residential units by Central Stata Management Ltd (CSM), which owned the property and had borrowed development finance from Marac which held a registered first mortgage over the title of the property.
[3] Escrow says that Marac failed to install the screens as required by the deed before 21 Hargreaves was sold to a new owner, resulting in the present and any future owners and occupants of the top floor residential units of 21 Hargreaves being able to look across into the upper levels of 19 Hargreaves Street (19 Hargreaves). Escrow claims that this ability for the owners and occupants of 21 Hargreaves to look into the upper levels of 19 Hargreaves has reduced the value of its property, for which it claims damages of $506,685.
[4] Heartland was incorporated on 30 September 2010. On 1 December 2013, Marac Finance Limited, PGG Wrightson Finance Limited and Heartland Bank Limited amalgamated to become Heartland Bank Limited and from that date Heartland assumed any obligations of Marac.2
1 Being Lot 3 of Deposited Plan 121257 in the Land District of North Auckland (“Lot 3”).
2 On 31 December 2015 six companies including Heartland Bank Limited amalgamated to become Heartland New Zealand Ltd, which then changed its name to Heartland Bank Limited.
Background
[5] In the course of the first stage of converting 21 Hargreaves from commercial offices into residential units, CSM constructed balconies on the building which encroached into and above a registered right of way easement (Easement L) which as owner of 19 Hargreaves, Escrow was entitled to the benefit of.
[6] When Escrow complained about the encroachment, CSM commenced proceedings in the Auckland District Court applying for orders modifying Easement L so as to retrospectively permit the encroachments by the balconies. Escrow opposed CSM’s application. The dispute was resolved on terms of an agreement reached between Escrow, Marac as mortgagee and provider of project finance to CSM, CSM itself, and the body corporate3 representing the unit owners (the Body Corporate), and set out in a Deed of Settlement dated 10 October 2008.
[7] The terms of the Deed would enable CSM and the Body Corporate to make a new application to the Auckland Council with Escrow’s consent to proceed with the development of the conversion to residential units, extinguish Easement L, create replacement right of way easements, include the balconies within the legal boundaries of the relevant unit titles, and obtain certificates of title for the residential units. The terms of the Deed also provided that Escrow would consent to an application by CSM and Marac to undertake development of the top floor units at level four of the building (the Top Floor Development) as shown on a plan attached to the Deed (“sheet 6”).
The Deed
[8] There are four parties to the Deed: CSM; Body Corporate 341188; Marac; and Escrow.
[9] At the time when the terms of settlement of the dispute and the Deed were being negotiated, CSM was effectively insolvent. Its sole director was Mr Stephen Kelly. The unauthorised encroachment of the balconies built by Mr Kelly’s company on 21 Hargreaves had caused Escrow’s sole director Mr Humphrey O’Leary, to hold
3 Body Corporate 341188.
significant concerns regarding Mr Kelly’s ability to undertake complex construction work. Mr O’Leary conducted the negotiations on Escrow’s behalf, and Mr Chris Wilkinson and Mr Grant Anderson conducted the negotiations on behalf of both Marac and CSM. Mr Kelly was not directly involved in any of the settlement negotiations with Mr O’Leary.
[10] Recital J to the Deed recorded that CSM and/or Marac intended to carry out further development of the Top Floor Units as marked on “sheet 6 of the plan attached as Schedule 2 (‘the Top Floor Development’).”
[11] A further term of the Deed provided that when Marac undertook the building work for the Top Floor Development, the building contractors it engaged would not be CSM, Mr Kelly, or any entity associated with them.
[12]The Deed also provided:
Following the Top Floor Development, CSM/Marac has indicated that it may consider developing the roof level of the building on DP341188 as shown on sheet 7 of the plan attached as Schedule 2 (“Roof Development”). For the avoidance of doubt, Escrow Holdings does not currently consent to the Roof Development. The parties have agreed, as part of this settlement, that for as long as Marac continues to hold Marac’s Interest, or any other direct or indirect interest over any property in the development, Marac will make Escrow aware, 14 days in advance of the lodging of any Resource Consent application to carry out the Roof Development, of the intended content and lodging of that application. The purpose of the foregoing is to notify Escrow Holdings prior to any such application being made.
[13] Mr O’Leary says that in the course of negotiating the settlement, Mr Wilkinson told him that Marac which had full control of property, intended to undertake the proposed Top Floor Development itself, as by doing so it could recoup its position as the provider of finance for the project. Mr O’Leary became concerned that the Top Floor Development residential units would look directly across into and down onto 19 Hargreaves and adversely affect the privacy of residents in the event that Escrow converted its building to residential apartments. He considered that while this would not be of significance while 19 Hargreaves continued to be used for commercial office premises, if Escrow should decide in the future to convert the existing commercial offices to residential apartments, then being overlooked by the occupants of 21 Hargreaves’ level four would adversely affect the privacy of residents of 19
Hargreaves, and also the value of the property. Mr O’Leary accordingly proposed that in order to protect the privacy of any future residential occupants of 19 Hargreaves, CSM, Marac and their assignees and successors, be required to erect screens on the decks and windows of the residential units proposed to be built on level four (the Top Floor ) of 21 Hargreaves. As a result of negotiations between the parties directed at this issue, the Deed further provided that:
Terms of Settlement
1 The parties agree the following terms:
…
(f)If the Council grants the New Application:
…
(iv)Marac and/or CSM will install screens on decks and windows on the Top Floor Units as marked on sheet 6 in the plan attached as schedule 2; and
(v)Marac and CSM will be jointly and severally liable for all reasonable costs that have or will be incurred by Escrow Holdings arising from the changes referred to in paragraph 1(f)(i) and (iv) above (for the avoidance of doubt, to include Escrow Holdings’ legal costs from 8 October 2007 onwards).
[14] The Deed also provided for Marac to pay Escrow financial compensation for the loss of value caused to 19 Hargreaves by the encroaching balconies as follows:
(h)Marac will pay to Escrow Holdings:
(i)contemporaneous upon the execution by Escrow Holdings and Marac of this deed, the amount of $100,000 (plus GST, if any); and
(ii)within 5 working days of and conditional on the issue of Certificates of Title for the New Units, the sum of $350,000 (plus GST, if any),
the total of $450,000 (plus GST, if any) representing compensation for loss of value to Lot 3 caused by the continuing existence of the Balconies; and
…
[15] The Deed further provided it contained all of the terms, representations and warranties made between the parties and that it superseded all prior discussions and agreements regarding the matter. It also provided that the payments to be made and
the undertakings to be given to Escrow, would be consideration for full and final settlement of all disputes, claims and causes of action between the parties relating to the encroachment of the balconies into Easement L, the proceedings in the Auckland District Court and all other matters which were the subject of the Deed. It also stipulated that references to CSM, Marac, the Body Corporate, and Escrow are deemed to include their respective successors and assignees.
Completion of Schedule 2
[16] The Deed, as I have noted, is dated 10 October 2008. It was executed by all four parties on or about that date, and the signatories also initialled each of the pages of Schedules 1, 2, 3 and 4, with the Body Corporate affixing its common seal on each page. Schedule 2 comprises seven pages of plans prepared by Kea Consultants Ltd showing the residential unit development of 21 Hargreaves. They include a schedule of the easements to be extinguished, and floor plans showing the basement level, ground floor level, and first to fourth floor levels. The plan of the fourth floor is “Sheet 6 of 9” and is entitled “Plan at Fourth Floor Level” (sheet 6).
[17] Although the Deed provided that Marac and/or CSM would install screens on decks and windows “on the Top Floor Units as marked on sheet 6 in the plan attached as schedule 2”, when the Deed was executed on 10 October 2008, sheet 6 in Schedule 2 of the Deed had not been marked to show the location of the screens.
[18] On 15 October 2008 Marac’s solicitor, Ms Liza Irvine of Glaister Ennor, wrote to Escrow’s solicitor, Mr Herbert of Lee Salmon Long, enclosing the original settlement Deed signed by all parties, and requesting that the easement documents be executed by Escrow and sent back to her.
[19] Then on 6 November 2008 Ms Irvine wrote again to Mr Herbert proposing an amendment to a clause in the easement. Ms Irvine attached two plans to her email and referring to them said:
We have also noticed that the original Deed you have does not have the location of the screens and windows marked on page 6 of the Schedule 2 plan and it should. These markings are referred to in cl 1(f)(iv) in the Deed. Your client supplied our client with a plan showing where your client wanted the screens and windows to go (see copy attached) and these were marked on an
earlier copy of the Deed sent to you by letter on 5 September for signing. Your client then wanted the 4th floor plan changed (which it was). The new 4th floor plan was attached to the Deed for signing, but unfortunately page 6 of the Schedule 2 plan attached to the Deed you have does not have the screen and window markings on it. Can you please mark your original copy in the same manner as the plan attached to this email and titled “Signed Deed”.
The “Plan supplied by Mr O’Leary”
[20] In her email of 6 November 2008 Ms Irvine said that prior to execution of the Deed by the parties, Mr O’Leary had provided Marac with a copy of a floor plan to show where Escrow wanted screens and louvre windows to be placed on level four. The “copy attached”, Ms Irvine refers to in her email has the handwritten notation, “Plan supplied by Mr O’Leary” and “(fourth floor)” written on it. It also has handwritten notations “Louvre Screen” and “Louvre Windows” with arrows pointing to sections of the exterior walls along the north side of the building. However Mr O’Leary said in evidence that none of the handwriting on this floor plan is his, and that he does not know whose handwriting it is. As Mr Wilkinson was dealing with the matter for Marac these handwritten notations and arrows are likely to have been made by him following his discussions with Mr O’Leary.
[21] However, the “Plan supplied by Mr O’Leary” differs from the one attached as sheet 6 to Schedule 2 of the Deed, as although it is described in the handwritten notation as being a plan of the “fourth floor” it is identified as being the “Level 6 Floor Plan” in the printed title given to it by the architect who prepared it. The residential unit shown on this plan has an exterior deck located on the north wall and another exterior deck on the north-east wall. Both are labelled on the plan as, “Deck 8m2”. One of the “Louvre Screen” notations written on this plan is located immediately adjacent to the deck on the north wall, and the second “Louvre Screen” notation has an arrow from it to the deck on the north-east side of the unit. The “Louvre Windows” notation has an arrow to a section of the exterior wall on the north-east side of the unit. The effect of these several notations is that both of the decks have louvre screens, while the windows are shown as having louvre windows. Moreover, while the deck on the north wall is shown as requiring a louvre screen, there is no deck shown on the north wall of the “Signed Deed” plan.
[22] On 7 November 2008 Mr Herbert replied to Ms Irvine’s email of 6 November 2008 advising that Escrow accepted the proposed amendments to the easement, and he requested that a new document be sent for execution by his client. He added:
We will also arrange for the change as to the Deed re screens and windows.
The “Signed Deed” version of the Plan at Fourth Floor Level
[23] The “Signed Deed” version of the fourth floor plan attached to the Deed as a result of these arrangements is produced as Exhibit CB2 292. It is a further copy of the plan entitled “Plan at Fourth Floor Level” showing level 4 of 21 Hargreaves and identified as being “Sheet 6 of 9” which had been attached to the Deed. It is initialled by the four parties to the Deed, has the Body Corporate’s seal affixed and is also signed by Mr O’Leary.
[24] On this “Signed Deed” version of the level four plan, are the handwritten notations, “Louvre Windows” and “Louvre Screen”. Beside the words Louvre Windows is a hand-drawn arrow pointing to a section of the exterior of the north side of Unit 41 (which is the side of 21 Hargreaves nearest to and directly opposite 19 Hargreaves), and a second arrow pointing to the section of the exterior wall located on the north-eastern side of Unit 41. Small marks or lines placed on either side of where these arrows point, appear to define the sections of the exterior wall referred to by the notation. Another hand-drawn arrow from the Louvre Screen notation points to the north-eastern side of the deck of Unit 41. Therefore on the basis of the “Signed Deed” version of the plan, the only area to have a louvre screen installed was the exterior deck, and the windows were to have louvre windows installed.
[25] On 11 November 2008 Mr O’Leary and Mr Wilkinson had a telephone conversation regarding the terms, Louvre Windows and Louvre Screen, as used on the “Signed Deed” copy of the floor plan which was to be attached to the Deed. Mr O’Leary was concerned that those terms were not sufficiently specific and that they would enable Marac or CSM to install louvres or screens that could be adjusted or folded back, thereby defeating Escrow’s objective of preventing people in the residential units on the top floor from looking across and down into 19 Hargreaves. In
the course of their telephone conversation Mr O’Leary and Mr Wilkinson agreed that Marac and CSM would be required to install fixed louvre screens in all locations.
[26]On 13 November 2008 Mr Herbert wrote to Ms Irvine. He said:
…
The plan attached to the Settlement Deed, showing the location of these screens, refers to “louvre windows” and “louvre screens”.
On the basis that this might cause confusion, we understand that the parties have discussed the nature of the screens and agreed that should all (whether marked “windows” or “screens”) be fixed louvred screens for the purpose of privacy.
We would, however, appreciate your written confirmation of that agreement. Please would you provide this as soon as practicable.
[27] Glaister Ennor referencing their client CSM, responded to Mr Herbert by letter dated 14 November 2008, advising:
We have taken instructions from our client and they agree that all references to “louvre windows” and “louvre screens” on the plan attached to the Settlement Deed should all be “fixed louvred screens.”
Resource consent granted by Auckland Council (2013)
[28] At the time that Marac entered into the Deed in October 2008 it was a wholly owned subsidiary of Pyne Gould Corporation Limited (PGC). On 30 October 2009 Marac transferred its registered mortgage over 21 Hargreaves to Real Estate Credit Limited (RECL). RECL was wholly owned by Marac Financial Services Limited which was wholly owned by PGC. On 23 December 2010 RECL assigned and transferred the mortgage to Property Assets Limited (PAL) which was also wholly owned by PGC. On 8 July 2011 pursuant to its mortgagee’s power of sale, PAL transferred title to the property to Land House Limited (LHL) which was wholly owned by PAL which was also within the PGC corporate structure. On 15 July 2011 by order of this Court CSM was put into liquidation. A year later on 9 July 2012, LHL transferred title to the property to Stephen Kelly and Final Hargreaves Trust Company Limited (FHTC Ltd), subject to a registered first mortgage to FM Custodians Limited with a registered second mortgage to Allenby Group New Zealand Limited.
[29] It is therefore apparent that although Marac had transferred its security interest to another company within the PGC corporate structure on 30 October 2009, the interest it held as mortgagee in possession of the property continued to be held by various other PGC companies through until 12 July 2012, and accordingly Marac or its successors had effective control of the building throughout that period.
[30] On 31 January 2013 the Auckland Council granted resource consent to FHTC Ltd to construct eight residential units at 21 Hargreaves in accordance with plans prepared by architects Milic Auckland Limited and entitled “5th Floor Office – Apartments Conversion. Stage 2”. On 2 September 2013 Auckland Council granted Mr Kelly and FHTC Ltd building consent to undertake the work of converting the existing commercial offices to five residential units. However, as the work had not commenced within 12 months of the building consent being granted, Mr Kelly applied for and was granted extensions of time in 2014 and 2015. The architects’ plans for which building consent was granted by Auckland Council did not show any louvre screens on the north and east sides of the top floor units of 21 Hargreaves adjacent to 19 Hargreaves.
[31] Pursuant to the resource and building consents, construction of the residential Top Floor units was undertaken during 2015 – 2016 by a new owner of the property Project Solutions Limited (Project Solutions).
Escrow sends letter before action
[32] On 23 July 2015, approximately 18 months before this proceeding was commenced, Mr Herbert wrote on behalf of Escrow to Heartland’s solicitors, Grove Darlow & Partners. He noted that CSM had been put into liquidation and said the only party to the Deed capable of compliance with it was Heartland. He said:
The various easement modifications were granted in November 2008, on the basis that the Auckland Council had granted the resource consent application. However, no screens have been installed on the decks and windows in the Top Floor Units ( as defined in the Deed).
…
Obviously, events have moved forward with the Top Floor Units. My client has been patient during these events, but that patience has now expired.
….
In the absence of a sensible proposal as to compliance, I anticipate that my client will now seek to enforce the Deed against [Heartland Bank] or claim damages in substitution. It will also seek any legal costs that it incurs in so doing on an indemnity basis, as per clause 1(f) (v) of the Deed.
[33] During the course of construction of the top floor residential units on 21 Hargreaves, negotiations took place between Escrow, Heartland and the building owner Project Solutions regarding the terms on which the screens provided for in the Deed could be erected on the building. On 2 November 2015, Mr David Morrison of Grove Darlow wrote to Mr Herbert saying:
3.As you are aware, the top floor development is not at a stage where the external walls have been constructed and consequently, not a stage where louvres could be installed so we are wondering if Heartland does have an obligation, how could it in the circumstances, undertake and complete that obligation? The answer to that is that Heartland cannot (if it is obliged to do so) do anything until the external walls are completed and it is safe to install the louvres.
…
6.In the event Heartland has an obligation and Heartland is frustrated from performing that obligation, then the issue will boil down to what damages Mr O’Leary will be entitled to (if any). To date Mr O’Leary has provided only the following “ In Mr Deane’s [sic] opinion, on a conservative basis, the loss will be $116,250.00 inclusive of GST”. The top floor development looks down on Mr O’Leary’s building, so the issue will be is Mr Deane’s [sic] opinion sustainable or is it some lesser sum?
[34] In December 2015 Heartland sought permission from Project Solutions to enter its premises to install fixed louvred screens on the north and north-east sides of the building where the screens were shown on the Deed. Project Solutions responded advising that it was willing to permit Heartland access to its premises to install fixed louvred screens subject to Heartland providing it with the specifications of the screens and payment of a sum to represent the reduction in value of the relevant unit caused by the installation of the screens. Because of what was described by Project Solutions’ solicitor as the “materially detrimental impact on the views” that the proposed fixed screens would have on the views enjoyed from the unit and which were said to be one of its main attributes, it sought compensation of 50 per cent of its value, being a sum of $675,000.
[35] In January 2016 Mr Peter Dyke of Heartland requested and obtained a quote from a joinery manufacturer to supply fixed louvre screens for installation on the fifth floor apartments at 21 Hargreaves. With his written request to Bradnam’s Windows and Doors NZ, Mr Dyke enclosed a copy of the Milic architects’ plan of the fifth floor of 21 Hargreaves on which lines had been drawn along the north and north-east walls of Unit 41 and along the north-east side of the exterior deck. Associated with each of these lines were two handwritten notations reading: fixed louvre screen and fixed louvre screens with a line drawn from the notations to indicate the position of the screens along the exterior of the walls. Mr Dyke advised Bradnam’s in an email after conferring with Mr Paul Lamb of Project Solutions that:
Mr Lamb has advised that:
“Windows are located on the northern boundary of FDU #3, if they view page DWG-A20 this highlights the particular unit and also the decks that are an (sic) issue. Measurements are as per scale on the drawings.”
Please also refer to page DWG 60 and for this exercise use the Slider dimensions for the Fixed Louvers (sic) plus the other windows for unit 41(FDU 3 – refer DWG 20)
[36]Bradnam’s provided an estimated cost to supply and install fixed louvres of
$16,091.00 plus GST.
[37] Subsequent negotiations between the parties, including an approach made to the Body Corporate, failed to resolve the matter. In a letter from Grove Darlow to Mr Herbert on 3 March 2016, Heartland denied that it had any liability for the damages claimed by Escrow and advised that it considered that Escrow had not suffered any loss as a result of fixed screens not being installed for several reasons including that owners of commercial property do not have rights to privacy in respect of adjacent residential units, and because the Auckland Council when granting resource consent had already determined that Escrow was not adversely affected by the residential units established at 21 Hargreaves. For its part the Body Corporate advised Heartland’s solicitors in a letter dated 27 October 2016 that it did not have any obligation to permit Heartland to undertake installation of the screens.
[38] Escrow then commenced proceedings in the Auckland District Court on 22 December 2016 in which it claimed damages of $146,000 for the reduction in value
of 19 Hargreaves resulting from Heartland’s failure to install the louvre screens on 21 Hargreaves in breach of the provisions of the Deed.4 Following the promulgation of the Auckland Unitary Plan, Escrow decided to increase the amount of its claim and by consent the proceeding was transferred to the High Court on 7 February 2019. In an amended statement of claim dated 7 March 2019 Escrow claims that Heartland’s failure to install the screens has adversely affected any future residential development of its property, which has reduced its value prior to development, by $517,650.
[39] In its statement of defence Heartland admits that Marac did not install the louvre windows and screens on the top floor unit of 21 Hargreaves as marked on sheet 6 of the plans attached to the Deed. However it denies that Escrow has suffered any loss as a result of the louvre screens not being installed, and says that any loss of amenity of privacy is minimal.
[40]The defendant also pleads four affirmative defences:.
(f)that the relevant term of the Deed is vague and unenforceable;
(g)that there was an implied term of the Deed requiring Escrow to notify Heartland of the requirement that it install the screens within a reasonable period, which it failed to do;
(h)that by reason of Marac/Heartland ceasing to hold an interest in the property at 21 Hargreaves the terms of the Deed are frustrated and Heartland is thereby discharged from further performance of the obligation to install the screens;
(i)and contributory negligence on the part of Escrow which caused or contributed to its own loss by failing to notify Marac/Heartland that the top floor development of 21 Hargreaves was to be carried out and thereby denying it the opportunity of either compelling or negotiating the installation of the louvre screens with the new owner of the
4 CIV 2017-004-241.
building. The defendant also pleaded but at trial abandoned an affirmative defence of laches.
Submissions as to liability under the Deed
The relevant floor plan and variation to refer to fixed louvres
[41] Escrow notes that although prior to trial, the defendant had disputed whether it was bound by the original obligation contained in the Deed, it notes that in closing its case the defendant acknowledges that by being a party to the Deed Marac bound itself to comply with paragraph 1(f)(iv) and to install screens on decks and windows on the top floor units of 21 Hargreaves as marked on the signed schedule that was substituted into the Deed following its execution. The plaintiff accordingly notes that there is no dispute as to whether the defendant is bound by the terms of paragraph 1(f)(iv) of the Deed and that the relevant plan showing the position of the louvre screens is the signed plan of level four of 21 Hargreaves with the handwritten notation, “Signed Deed” written on it.
[42] The plaintiff says that the original terms of the Deed as set out in paragraph 1(f)(iv) and the “Signed Deed” floor plan, were orally varied by Marac and itself following a telephone conversation between Mr O’Leary and Mr Wilkinson in which it was agreed that the louvres would be “fixed”. The plaintiff notes that this amendment was confirmed in correspondence between the parties’ solicitors and the statement by Glaister Ennor in their letter of 14 November 2008 that:
We have taken instructions from our client and they agree that all references to “louvre windows” and “louvre screens” on the plan attached to the Settlement Deed should all be “fixed louvre screens.”
[43] Although Glaister Ennor’s letter of 14 November 2008 is referenced “Escrow Holdings Forty-One Ltd – Central Strata – Louvre Screens” and does not expressly refer to Marac, that subject reference repeats the reference used in the letter from Escrow’s solicitor Mr Herbert, dated 13 November 2008. It is clear from Mr Herbert’s letter that Escrow was proceeding on the basis that Glaister Ennor were acting for both Marac and CSM as he referred in his letter to “your clients” as having an obligation to install screens on decks and windows on the top floor units at 21 Hargreaves. It is also
implicit from the wording of Glaister Ennor’s letter that they were acting for both CSM and Marac. Unfortunately, the issue of who Glaister Ennor were acting for in relation to the fixed louvre correspondence cannot be determined by reference to their solicitors’ file as it appears that the relevant files were destroyed as part of the firm’s routine process in 2017, and Heartland was unable to locate any internal Marac correspondence relevant to the matter.
[44] However I am satisfied that Glaister Ennor was acting for both CSM and Marac in relation to the fixed louvre correspondence, as it was Mr Wilkinson of Marac who had reached the agreement with Mr O’Leary, and it was Marac which had an obligation under the deed to install the screens. In correspondence at the time the Deed was entered into and its provisions were being implemented, Glaister Ennor referenced emails they sent as: “Re: Escrow Holdings/CSM/Marac”, and were clearly acting for Marac in relation to its payment of Escrow’s legal costs as required by the terms of the Deed. Moreover, Marac as mortgagee in possession of the property had effective control of it and there was no other firm of solicitors acting for it in relation to the issues and dispute settled by the Deed. Furthermore, in response to a query from Mr Herbert in 2009 as to whether Glaister Ennor were only instructed by Marac and CSM and not the Body Corporate, Ms Irvine replied: “[n]o we are not the office of service for the Body Corporate,” thereby confirming that Glaister Ennor was instructed by both Marac and CSM.
[45] The plaintiff notes that Mr O’Leary’s evidence regarding the agreement he made with Mr Wilkinson was not challenged in cross-examination, and that at least from 14 November 2008 Marac had an obligation to install fixed louvre screens where marked on the “Signed Deed” floor plan for the purpose of affording privacy to future residential occupants of 19 Hargreaves.
[46] The defendant does not dispute that Mr Wilkinson and Marac agreed to a variation of the terms of the deed to include the “fixed louvre clause”. However the defendant notes that the other two parties to the Deed, namely the Body Corporate and CSM as the owner of the property, did not agree to the variation and consequently the louvre screens could never have been required to be installed and thereafter remain fixed.
[47] Although I have found that Glaister Ennor were acting on behalf of both Marac and CSM in connection with: the dispute that had been settled by the Deed; the arrangements made following execution of the Deed to substitute the “Signed Deed” version of the level four plan; and also as regards the agreement to include a reference to fixed louvre screens, there is no evidence of the Body Corporate having been involved in any of the discussions or arrangements, notwithstanding that it was a party to the Deed and would be directly affected by the installation of the fixed screens.
[48] The Deed contained provisions stipulating that it expressed the whole of the agreement between the parties and that the payments and undertakings provided for in the Deed were in full and final settlement of all disputes, claims, and causes of action between the four parties to the Deed. Having regard to those provisions of the Deed, the arrangements made between the plaintiff, Marac and CSM regarding the screens being fixed and which are recorded in correspondence between their respective solicitors do not constitute a valid and binding variation of the Deed.
[49] I note that the substituted level four plan is signed by Mr O’Leary, and has the common seal of the Body Corporate affixed, and is initialled by the other parties in the same manner as the original version of the plan at sheet 6 of Schedule 2 of the Deed. As such the “Signed Deed” version of the level four plan was confirmed by all four parties as being intended to form part of the Deed.
[50] I accordingly find that the agreement made between Escrow, Marac, and CSM stipulating that the references to screens or louvre screens in the Deed are to be treated as referring to fixed louvre screens is not a term of the Deed, and consequently the fixed louvre clause is not enforceable under the Deed. That finding means that the screens referred to in the Deed are those described on the Signed Deed version of the plan of level four as “Louvre Windows” and “Louvre Screen”, and consequently that the fixed louvre arrangement entered into by Marac and Escrow does not form part of the terms of the Deed. In order for the varied deed to be valid, the proposed variation required the agreement of all parties to the deed.5
5 McCombie v Waihi Extended Gold-Mining Co Ltd [1920] NZLR 333 (SC) at 335, MacDonald v C1 Gloucester Street Ltd [2012] NZHC 2842 at [26].
[51] Nevertheless, I find that as Marac’s successor, Heartland is required to comply with the terms of the Deed which required it to install the louvre screens on the windows and deck of level 4 at 21 Hargreaves in the places depicted by the notations, arrows and markings placed on the level four plan. In my view the adjective “fixed” is of no significance in relation to the interpretation of what is meant by the terms Louvre Windows and Louvre Screen insofar as being fixed to the exterior of the building. In my view it is implicit in the use of those terms that the screens would be fixed to the exterior of the building or along the side of the deck in a manner that was intended to be permanent and form part of the building.
[52] This interpretation also gains support from Marac’s Mr Dyke obtaining a quotation from Bradnam’s Windows for the supply and installations of screens along the windows on the north and north-east sides of Unit 41. Bradnam’s quote was based on supplying louvres from its “ … Highbrook range in any standard Bradnam’s powder coat colour” at a cost of $16,091 plus GST.
Interpretation of the louvre screen obligation in the Deed
[53] The plaintiff says that the context and background of the Deed as referred to in the section headed “Background” informs its proper interpretation. The plaintiff says that the clear purpose of the screens provisions contained in the Deed was to prevent Escrow suffering a loss of market value of its property as a result of the loss of privacy to residential occupants of 19 Hargreaves due to the proximity and views into its building by people on level four of 21 Hargreaves and specifically those viewing from Unit 41 on the north and north-east corner of 21 Hargreaves.
[54] The plaintiff notes that the terms of settlement contained in the Deed included Marac and CSM paying Escrow $450,000 plus GST (if any) “representing compensation for loss of value to [19 Hargreaves] caused by the continuing existence of the Balconies …” The plaintiff also notes that Mr O’Leary explained in evidence that the money was paid as compensation for the loss of privacy as:
…and that was the best that could be done, given the fact that the balconies were there and they already [had] the sale and purchase agreements as I understood it on them, so they were hand[s] tied.
[55] The plaintiff says that rather than seeking monetary compensation in relation to the effects of the further development of the top floor units which was yet to be completed, it decided that it could effectively prevent the detrimental effect that the top floor units at 21 Hargreaves would have on the privacy amenities of a future residential development of 19 Hargreaves by the installation of permanent screens. The plaintiff says that if the privacy purpose of the screens is not clear enough from the Deed itself, it also relies on the correspondence sent by Escrow’s solicitors to Marac’s solicitors on 12 November 2008 advising that the parties had discussed the screens and had agreed that they should “all be fixed louvred screens for the purpose of privacy”.
[56] However, in my view the statement in the plaintiff’s solicitor’s letter regarding the parties’ agreement does not inform an interpretation of the Deed as providing for screens to achieve privacy for people occupying a future residential development of 19 Hargreaves. Rather, it shows that the suggestion that the louvre screens be fixed in order to achieve the objective of privacy was a subject first discussed well after the settlement and execution of the Deed, and was considered necessary because Escrow was concerned that the terms louvre windows and louvre screen were themselves unclear and as the plaintiff’s solicitor put it: “might cause confusion”.
[57] The plaintiff further says that on a proper interpretation of the louvre screen obligation in the Deed, Marac and CSM were bound to install the screens and to do so in a manner and on a basis that would ensure that they remained permanently installed. The plaintiff says that when the Deed was entered into, neither Marac nor CSM had decided on the details of the top floor development as appears from the outline plan for level four used in the Deed. The plaintiff says that therefore the terms of the deed providing for the screens left Marac and CSM considerable latitude as to when and how they undertook and arranged the installation of the screens. The plaintiff further says that the only restriction on them, was that whatever they did should ensure the privacy of 19 Hargreaves from Unit 41 on level four. Mr Herbert says that so far as the plaintiff is concerned it would not matter whether the screens were placed on the exterior or the interior of Unit 41. The plaintiff submits that as CSM was at that time the owner of the building, and Marac had effective control of it pursuant to is mortgage security, it could have agreed to a registerable covenant with Escrow to maintain the
screens which would bind its successors in title. The plaintiff says that had a restrictive covenant been created, pursuant to s7 of the Unit Titles Act 1972, the subsequent deposit of a unit plan for the premises would have not have any effect on the covenant. Escrow nevertheless accepts that the Body Corporate was not bound by the louvre screens obligation in the Deed, and as I have already noted it had no involvement in the discussions between Mr O’Leary and Mr Wilkinson or the correspondence between the solicitors recording their agreement regarding the screens being fixed.
[58] In considering the context and background of the Deed as informing an interpretation of provisions which refer to the installation of screens it is significant in my view that the term privacy is not used anywhere in the Deed. The Deed records that the terms of settlement set out are in full and final settlement “relating to the encroachment of the balconies on Easement L,…” It is also clear that the principal matter which was being addressed and compensated for is the encroachment of the balconies constructed on 21 Hargreaves over the right of way easement L which runs along the eastern side of the building and which provides access from Hargreaves Street to 21 and 19 Hargreaves. The balconies encroach into the easement space to the extent of approximately three metres at various heights the lowest of which is approximately 2.44 metres above ground level.
[59] However I note that Escrow’s architect, Mr Allan Taylor, prepared a set of diagrams in July/August 2007 entitled “Visual Privacy-Planning Contravention” on which he showed the bulk and location of both 19 and 21 Hargraves with an outline diagram of the exterior walls of 19 Hargraves as would be the case if it were to be developed as residential apartments in the future. Mr Taylor included on his diagrams the then applicable provision of the Auckland District Plan dealing with “Visual Privacy [Rules]” for a Mixed Use Zone which provided:
Protection of neighbours private open space
Direct views from habitable rooms of buildings in the Mixed Use zone into the principal areas of adjoining private open space of residential units should be screened or obscured within a 9m radius and 45 degrees of the wall containing the window by either:
a solid wall or screen not less than 1.8 m in height constructed of concrete, timber, stone;
or planting
Any such screening shall be established in a workmanlike manner
[60] As the heading of the rules clearly indicates the rules were intended to protect the privacy of neighbours’ open space and required the installation of a screen on buildings in the Mixed Use Zone where there are direct views from habitable rooms into principal areas of adjoining private open space. Mr Taylor prepared separate diagrams showing the extent of the area affected by the Visual Privacy Rules as they would apply to each level of a notional redevelopment at 19 Hargreaves into residential apartments which would have a view from habitable rooms across and into the private open spaces on the various level of 21 Hargreaves. In the case of the top floor of 21 Hargreaves the area encompassed within the visual privacy rules is shown on the diagram as extending to and including the windows on the north and north-east walls and the north-eastern side of the deck. The diagram therefore illustrates that application of the rules would require the installation of a screen on 19 Hargreaves in order to protect the privacy of the occupants of the top floor of 21 Hargreaves. Significantly there is no assessment or diagram showing the effect of the rule as it applies to the habitable rooms of 21 Hargreaves in relation to a future residential development of 19 Hargreaves.
[61] Mr Taylor also prepared computer generated three dimensional perspectives to show the views from locations from the top floor (level 5) within proposed residential apartments 1 and 2 of 19 Hargreaves looking across towards 21 Hargreaves, and specifically to show how far the eastern side of the building projected into the common right of way area of Easement L. These visual privacy plans prepared by Mr Taylor in 2007 show the effect of the rule on all five levels of 21 Hargreaves, and specifically on the residential units on the north side of the building. The diagrams show that only part of the exterior deck or balcony on each level would fall within the nine metre radius area covered by the rule when measured from what Mr Taylor termed “imaginary windows”, located on the south wall of a future residential development of 19 Hargreaves.
[62] It therefore appears that, although privacy was one of the issues that was considered and discussed by the parties prior to the Deed being finalised, as Mr Taylor’s diagrams show, the issue that he was addressing was the effect of the visual privacy rules on a future development of 19 Hargreaves where the rules would require the installation of screens on that building, and not on 21 Hargreaves. It is also clear from the terms of the Deed that the compensation was paid to Escrow for the effects of the encroachment of the balconies into the right-of-way easement to which Escrow, as the registered owner of 19 Hargreaves, was entitled. Had the issue of privacy been the principal reason for the payment of that compensation that issue would have been referred to in the detailed provisions of the Deed setting out the background to the terms of settlement. Therefore, although I accept that the issue of privacy as it applied to residents of a future development of 19 Hargreaves was one of the aspects of the development at 21 Hargreaves relied on by Escrow as justifying is claim for compensation in respect of the levels below the top floor level, I do not accept Mr O’Leary’s evidence that the compensation sum of $450,000 payable pursuant to the terms of settlement related only to the loss of value caused to 19 Hargreaves by a loss of privacy in respect of views towards 19 Hargreaves available from the 21 Hargreaves levels other than from the top floor.
Escrow’s notional design for future residential apartments
[63] Escrow’s case is founded on the plans prepared by Mr Allan Taylor of Allan Taylor Architects Limited showing a possible redevelopment of 19 Hargreaves into residential apartments. Escrow says that as a direct consequence of Marac and its successor Heartland failing to install screens on the decks and windows on the Top Floor Units in accordance with the marked copy of the plan (sheet 6) annexed to the Deed, it has suffered a loss of value of its property, notwithstanding that it has not yet taken any steps to convert the use of 19 Hargreaves from commercial offices to residential apartments, and that it has no immediate plans to do so. Escrow says that had the screens been installed as required in accordance with the terms of the Deed, they would have enhanced and protected the privacy of the residents of 19 Hargreaves if at some future date it is converted from commercial offices to residential apartments. The plaintiff says that although its building is presently used for commercial office premises and the absence of screens on 21 does not presently affect any residential
tenants occupying its building, the fact that the screens were not installed adversely affects the current value of the property because any future residential apartments it establishes will have a reduced value because of their compromised privacy as a result of being in the view of the occupants of the unscreened top floor apartment of 21 Hargreaves.
[64] Although Escrow has no present intention to construct the residential apartments, in order to illustrate and quantify the loss it claims to have suffered, it engaged Mr Taylor to prepare a set of plans for residential apartments at 19 Hargreaves. The plans Mr Taylor was engaged to prepare are intended to show what could be constructed in the future at 19 Hargreaves and if so, how the privacy amenities of those future residential apartments would be adversely affected by the absence of screens on the top floor of 21 Hargreaves. On the basis of Mr Taylor’s plans, Escrow relies on evidence from a registered valuer, Mr Stephen Dean, to quantify the amount of the reduction in value of the residential apartments due to their compromised privacy and to express his opinion as to the effect that has on the present value of the property.
Mr Taylor’s plans
[65] In his evidence Mr Taylor said that in early 2018 he was engaged by Escrow to prepare concept plans for a “notional” development at 19 Hargreaves. He was briefed on Marac’s failure to install louvred screens on the top floor level of neighbouring 21 Hargreaves, and was instructed to design a residential development as if the failure to install the screens had not occurred. Mr Taylor explained that he was instructed to assume that 19 Hargreaves would have the benefits afforded by the installation of the louvred screens – mainly that of privacy. Mr Taylor explained that the plans he initially prepared were for a “notional development” and were an outline concept representing the first stage in the development process in order to show bulk and location of the building and to explore the potential of the site. He says that the first set of plans he prepared were never intended for anything beyond that preliminary concept stage because there was little purpose in designing a block of apartments that were hypothetical and not intended to be built. Mr Taylor says that he was subsequently instructed by the plaintiff to confer with a planning consultant, Mr Paul
Arnesen, and prepare a second set of plans that would be capable of obtaining resource and building consent. Following consultation with Mr Arnesen, Mr Taylor prepared a further set of plans which he considers to be capable of obtaining resource consent from Auckland Council (the consent plans).
[66] Mr Taylor’s consent plans comprise five sheets on which are shown: Ground Floor Entrance & Carpark level; Apartment Plan Levels 1-4; Apartment Plan Level 5; the East and North Elevations; and the West and South Elevations.
[67] The consent plans provide for “Privacy Louvres” to be placed on the windows of the bedroom located on the south side of apartment number 5 on levels 1 - 4 so that those bedrooms would be afforded privacy from viewing by people using the deck of its neighbouring apartment in the same building which is described on the consent plans as “Proposed Studio Apartment 6”. Mr Taylor says that although he has placed windows on the south and south-east sides of the apartments in positions where they would be directly adjacent to the north side of 21 Hargreaves, he considers that nevertheless desirable views are afforded from these windows, which he has illustrated with a series of photographs he took from approximately the same elevation of the windows at level 5.
[68] Mr Taylor said that the design brief he was given by Mr O’Leary was fairly simple as he was basically to look at how many apartments could be fitted in, while dealing with the existing shape and condition of the 19 Hargreaves building as much as possible. He said that Mr O’Leary had asked him to provide him with plans that would show the effect that the building at 21 Hargreaves would have on his building at 19 Hargreaves, if 19 was developed and converted to residential use. He said that when he prepared the plans he had been told by Mr O’Leary that the required screening of the windows on the top floor apartments of 21 Hargreaves had not been done, and that he had marked a copy of his plan for level 5 of 19 Hargreaves to show the location of the “Not installed Privacy Screens” on 21 Hargreaves. He said that although Mr O’Leary told him that he would like the plans to provide for as many apartments as he could fit into the site, as the architect it had been his decision to design the building with its south wall hard up against the boundary line, and to include windows in the wall along the boundary line. He said that his placement of windows right on
the boundary was a “design solution” that he had proposed, although it was not the final design solution as it still needed to be audited by fire and structural engineers and would also have to be approved by a planning assessment.
[69] To show the bulk and location of the notional residential apartment development built in accordance with his consent plans relative to 21 Hargreaves, Mr Taylor prepared a series of plans and computer generated images. These show the location of the notional residential apartments on 19 Hargreaves with its south wall built right up to and along the boundary with 21 Hargreaves, and includes a computer generated image of the view from the top floor of 19 Hargreaves looking back towards 21, and show the location of the windows and decks on 21 in relation to the apartments on 19 Hargreaves.
[70] The plaintiff also called evidence from Mr Arnesen who had been asked to undertake an assessment of Mr Taylor’s consent plans and provide his opinion as to whether they would be likely to support a successful application to the Auckland Council for resource consent. In his evidence Mr Arnesen explained his examination of the plans and the site. He assessed the proposal against the requirements of the Auckland Unitary Plan Operative in Part (AUPOP). He found that the proposed development complies with the 16 metre occupiable height control of the AUPOP using the average ground level methodology. He noted that the development does infringe the Mixed Use zone outlook space requirements as a result of a slight overlapping of the outlook space of the bedroom in Apartment 5 and the living area of Apartment 6 on levels 1 - 4 of the building. Mr Arnesen concluded that the development would require resource consent under the AUPOP for three reasons:
(f)For the conversion of a building to dwellings as a restricted discretionary activity.
(g)For additions and alterations to a building within the Business Mixed Use zone, as a restricted discretionary activity.
(h)For providing Outlook Space from separate units that overlap, as a restricted discretionary activity.
[71] Mr Arnesen said that in his opinion the proposed development would be granted resource consent. He noted that the reasons that resource consent was required were relatively few, and the scope of the assessment required relatively confined.
[72] Mr Herbert submits that the plaintiff’s damages claim is not for a loss it will suffer in the future only if and when it converts its building to residential apartments. He says that its claim is based on the loss of value resulting from it being unable to use the property in the way it would have been able to, had the screens on Unit 41 been installed as required by the Deed. Mr Herbert says that based on Mr Arnesen’s evidence and opinion that the consent plans prepared by Mr Taylor would obtain resource consent, it has proved that its plans for developing the site as residential apartments are feasible and possible, and that the consent plans demonstrate the adverse effects of the loss of privacy caused by the absence of screens on Unit 41.
Escrow’s assessment of loss of value - Mr Stephen Dean – Registered valuer
[73] The plaintiff engaged Mr Nigel Dean who is a registered valuer, to make an assessment of the impact of Marac’s failure to install window and deck louvre screens on the top floor of 21 Hargreaves, on the value of residential apartments at 19 Hargreaves were they to be built in accordance with the consent plans. He said that in his experience apartments which can be seen into by other apartments because of the loss of privacy will be of less value than those which are not, particularly where it is the living areas that are impacted. Mr Dean examined Mr Taylor’s plans and elevations for the proposed residential apartments and concluded that the lack of screening on level 5 (the top floor) of 21 Hargreaves will have “a deleterious impact on the value of 19 Hargreaves”.
[74] In his evidence Mr Dean explained that more highly valued apartments are likely to suffer a greater reduction in value as buyers at the upper end of the market are likely to be more discerning and likely to choose another apartment that cannot be overlooked or viewed from another. He said by comparison smaller apartments have a wider appeal and their market is more competitive. Mr Dean said that although the price of a smaller apartment that can be seen into will be detrimentally affected, the
loss of value on that account is likely to be less significant than for high value apartments.
[75] Mr Dean said that based on his examination of Mr Taylor’s first set of plans and his site visit and inspection of level 5 of 21 Hargreaves (the top floor), level 4 of 19 Hargreaves (the top floor), and the rooftop of 19 Hargreaves, he concluded that the non-installation of screening on the top floor of 21 Hargreaves would result in the apartments on the northern side of the building and specifically from their north and north-east facing windows, to look directly into the southern windows of the proposed penthouse apartment and down into the southern windows of the “front” and “rear” apartments of 19 Hargreaves. Conversely, the penthouse apartment on 19 Hargreaves would have a view through its southern windows into the north and north-eastern windows of the apartments on the northern side of 21 Hargreaves. And the front and rear apartments of 19 Hargreaves would look up into the north and north-eastern windows of the apartments on the north side of level 5 (the top floor) of 21 Hargreaves. Mr Dean said that if the level 5 screening on 21 Hargreaves had been put in place these views would not be possible, and he concluded that the failure to install the screening on the top floor of 21 has caused a reduction in the value of the penthouse apartment and the front and rear apartments located on the south side of 19 Hargreaves.
[76] In order to quantify the loss of value due to the lack of privacy, Mr Dean undertook a valuation of the proposed penthouse and the front and rear apartments at 19 Hargreaves. He identified a number of comparable apartment sales which he considered informed an assessment of the value of the proposed apartments at 19 Hargreaves, and he expressed their values in terms of square metres. He concluded that the value of the penthouse on 19 Hargreaves should be determined based on
$13,500 per square metre; the front apartment on $12,000 per square metre, and the rear apartment on $11,000 per square metre. Applying those rates to the relevant areas of those apartments he concludes that the market value of the apartments that would apply had the screens been installed and their privacy been protected, would be:
(a) The penthouse: 174.8 m2 x $13,500 = $2,360,000.00.
(b) The front apartment: 106.8 m2 x $12,000 = $1,282,600.00.
(c) The rear apartment: 64.8 m2 x $11,000 = $713,000.00.
[77] Mr Dean then assessed the impact of the detrimental effect of the loss of privacy to each of the three apartments by applying a percentage reduction of their value. Because the rear apartment was the least affected as it occupies a recessed rear position in the development, Mr Dean considers a five per cent reduction in its value is appropriate to recognise the loss of privacy. As the front apartment will be more “heavily” overlooked, particularly by views into its living area, Mr Dean considers that a more substantial reduction of 10 per cent of its value is appropriate. In relation to the penthouse, Mr Dean considers that although some of the intrusion is into two of the bedrooms, given the amount of the living areas affected its value will be compromised and he says that a reduction of 15 per cent is appropriate.
[78] Based on these assessments made with reference to Mr Taylor’s first set of plans for 19 Hargreaves he calculates the appropriate deductions to recognise the loss of privacy resulting from the non-installation of screens on level 5 of 21 Hargreaves as totalling $517,650 comprised as follows:
(a) The penthouse, $2,360,000 x 15 % = $354,000.
(b) The front apartment: $1,282,600 x 10% = $128,000.
(c) The rear apartment: $713,000 x 5% = $35,650.
[79] However after reviewing some further relevant market sales data and Mr Taylor’s consent plans in which the floor area of the penthouse is reduced from 174m2 to 169 m2, Mr Dean said he considered it necessary to reduce his valuation of the penthouse from $2,360,000 to $2,286,900 and consequently the total loss of value to $505,685.
Heartland’s case
[80] As I have already noted, Heartland acknowledges that Marac did not install any screens on 21 Hargreaves. It says however that the louvre screens and louvre window terms of the Deed are vague and uncertain and that consequently the terms of
the Deed which purport to impose an obligation on Marac and it successors to install screens on the top floor of 21 Hargreaves are unenforceable. However, as an alternative defence Heartland says that in any event Marac’s failure to install the screens on the top floor of 21 has not caused and will not cause Escrow any loss.
The failure to install screens has not caused any loss
[81] In order to show that Marac’s failure to install louvred screens on the top floor of 21 Hargreaves did not cause the plaintiff any loss, the defendant engaged and called evidence from Mr Paul Leuschke who is a Registered Architect and Director of Leuschke Kahn Architects. Mr Leuschke has practiced in Auckland as an architect for
36 years. He has extensive experience in designing commercial and residential buildings including the development project at Princes Wharf which incorporated apartments, penthouse apartments, a parking building, commercial offices, hospitality venues, and a hotel.
[82] Mr Leuschke was asked to assess Mr Taylor’s plans and provide an independent expert opinion regarding the design and its implications. He examined Mr Taylor’s plans for the development and conversion of 19 Hargreaves into residential apartments and considered the contents of the Deed, the briefs of evidence of the plaintiff’s witnesses, the pleadings, and undertook a site visit which included a viewing of Unit 41.
Would Mr Taylor’s plans obtain resource consent?
[83] Mr Leuschke said that when considering an application for a resource consent for 19 Hargreaves the Council would be concerned regarding the effect that a proposed conversion of commercial to residential use will have on existing residential neighbours, and since 21 Hargreaves is already established as a residential development the Auckland Council could be expected to be more concerned by the effects of the proposed development on the existing residential occupants of 21 Hargreaves.
[84] He said that pursuant to the Auckland Unitary Plan (AUP) a height restriction of 16 metres for an occupiable building applies, with a further two metres for “roof
form” which can include mechanical services which protrude above the roof level. He says that the plaintiff’s proposed building with its additional level above the existing building takes it substantially above the height restriction permitted under the provisions of the AUP. He said that although he had doubts that the height of the lift shaft would comply with the applicable height restriction, he nevertheless acknowledged that the other aspects of the development which would make it a restricted discretionary activity are minor, and he accepts that Mr Taylor’s revised plans may get resource consent.
[85] However, Mr Leuschke described the consent plans as “a very preliminary design,” and said that in his experience the placement of “huge” windows right on the boundary as shown on the plans would never be accepted by the Council. He said:
…. the first thing I looked at was the fact that all these windows on the boundary, you can’t actually do. You cannot build windows on the boundary.
…. when I looked at the plans, the plans show the layout that couldn’t be built.
[86] Referring to Mr Arnesen’s opinion that Mr Taylor’s consent plans would get resource consent, Mr Leuschke said:
I agree with him that the plans will get resource consent but it won’t necessarily get building consent, and since this man is not a fire engineer he has no ability to tell you whether those windows will be able to be put there or not.
Counsel: Are you a fire engineer?
My experience and expertise says that they do not like and do not encourage and vigorously fight not to have windows on boundaries. The principle is easy. If you put a window on a boundary and the guy next door builds up against it that room has no windows. In residential architecture, which is not the same, you can’t put windows on boundaries. You have to fire rate any wall that you put on a boundary. So you’re protecting your neighbour from you if there is a fire.
Taking advantage of the site and mitigating undesirable aspects
[87] Mr Leuschke said that while architects generally design buildings, particularly residential buildings, away from negative aspects, both Mr Taylor’s initial plans and his revised “consent” plans had not configured the apartments to mitigate the negative aspect of the proximity of 21 Hargreaves. He said that even if there were louvre
screens on Unit 41, that would not change the way in which a prudent architect would and should design the units located on the southern boundary of 19 Hargreaves. He said:
A prudent architect would still be taking advantage of the view and designing out the negative aspect, namely the presence of 21 Hargreaves whether unit 41 had louvres (inside or out) or not. No one wants to look at a building, whether it has louvres or not.
[88] He explained that when designing any project, an architect’s intention is to maximise the advantages and minimise the disadvantages of the site. He said that in his opinion it would make logical sense for any architect designing a residential development at 19 Hargreaves to take advantage of the views available in the 180 degree arc passing from west, through north, to east. He said that water views will generally carry the most value and as developers seek to maximise profit, where an apartment can be given a water view, its value will consequently increase.
[89] Mr Leuschke said that in the case of 19 Hargreaves, the available harbour and city views add great value to the property. Conversely, the south facing views towards neighbouring 21 Hargreaves would add no value to the property as there are no desirable views in that direction, and views of neighbouring residential buildings, do not add value. He notes that the plans prepared by Mr Taylor would give the apartments on the southern boundary views into either a blank wall, or into a residential unit at 21 Hargreaves. He says that where there are negative aspects to a site, such as another building in close proximity, then an architect would try to remove or lessen the impact of that negative aspect in the design that they produce for the site, and in this case by deleting the windows facing those negative views, so that the negative aspects are no longer relevant.
[90] Mr Leuschke described a number of amendments to the proposed design that could be made in order to take advantage of the views available rather than the negative aspects of the site. He said that in his opinion the plans prepared for the plaintiff make no effort to take advantage of the desirable view, but rather crudely make use of the undesirable views. In his opinion no reasonable or prudent architect would design a conversion from commercial offices to residential apartments in the manner that has been done in the plaintiff’s consent plans.
[91] Mr Leuschke said he would redesign the units on the south side of the building so that they were configured to come within the requirements of the AUP, and would not place any windows in the wall on the south side of the building, not only because of the negative view they would have, but also because windows in that location would need to meet the requirements of specific fire rating regulations and compliance with those regulations is expensive. He said that reorienting the windows to the more desirable views would make the apartments more desirable and therefore of increased value. Conversely, by using the design set out in the plaintiff’s plans the value of the apartments would be reduced.
[92] Mr Leuschke also said that there are a number of further design measures that if employed would mitigate any impact caused by the absence of louvre screens on Unit 41 given its proximity to the apartments on the southern side of 19 Hargreaves. He notes that the plaintiff’s plans show four windows on the southern boundary of 19 Hargreaves: two in the penthouse and two in the rear apartment. There are also windows on both the penthouse and the front apartment that look across the southern boundary from a distance of 4.8 metres. Mr Leuschke says that design measures he would employ would remove or reduce any impact of Unit 41 not having louvres, and could be achieved without incurring significant cost, and well below the cost implications of including fire rated windows on the southern boundary wall. The available design measures could include changing the orientation of the windows on the south side from the horizontal plane presently adopted in the plans (which Mr Leuschke says in his view appear designed for the worst possible outcome and without mitigating the proximity of 19 to 21 Hargreaves), to the vertical plane and moving the window to the eastern end of the south wall and into the corner of the room. With that orientation the window could be made narrow and extend from floor to ceiling thereby allowing the same amount of light into the room while minimising any view from 21 Hargreaves and affording privacy. The use of frosted glass or a frosted pattern on glass would ensure privacy without reducing the light, or the installation of a perforated roller blind which would enable the occupant of the room the ability to look out while maintaining their privacy. Other design measures described by Mr Leuschke are the use of tinted film on the windows, the installation of internal wooden louvres, the installation of external horizontal or vertical louvres,
or a decorative screen installed on the exterior of the building which can provide an aesthetic privacy solution.
[93] Mr Leuschke costed the various design solutions he proposed on the basis of their installation on the windows located on the southern boundary and those which are southern facing but not on the boundary. The most expensive solution being the decorative screens at a cost of $23,100. The cheapest being the use of frosted glass, blinds and tinted film which he costed at approximately $1,300 to $1,400, and the internal and external louvres at approximately $10,000 to $13,000.
[94]He said:
I maintain the opinion that the plans exhibit signs of hasty consideration. A prudent architect would have ensured the plans went through several more iterations before they are finalised for consent. The Original Plans look as if they tried to maximise views to the south. The Revised plans …look to do the same while also maintaining compliance with the AUPOP.
In my opinion, the Revised plans …do not design away from the southerly aspect but simply attempt to make the plans conform to what Mr Taylor believes will obtain consent.
As I said in my earlier brief, the plans are not configured in a way to make best use of the space and do not show a sense of reality. I would expect such concept plans to be worked on for several months to create the optimal layout.
Louvre screens
[95] Mr Leuschke also commented on the terms louvre screen and louvre windows. In his experience as an architect the words have very different meanings. He says that in his opinion a louvre window, means a window with a bank of operable glass, wood, or metal blades. If the blades were made of clear glass they would certainly not provide any visual privacy, and if the blades were made of wood or metal and could be rotated then again the louvred window would not offer visual privacy.
[96] As regards the term louvre screen, Mr Leuschke says that it could be a wall comprising either fixed or operable louvre blades, with the blades spaced and angled in such a way as to allow air to flow through it. Depending on whether they were placed vertically or horizontally, the angle of the blades would allow either a
downward view through the gaps of horizontal blades or to the left or right through the gaps between vertical blades.
[97] Mr Leuschke says that within the plans and Deed he has not seen any size requirements for the louvred screen or any details showing how the screen is designed to provide privacy, thus leaving open the possibility that the louvres could be horizontal, vertical, adjustable, or positioned at varying degrees or angles. He says that there are several orientations that would fit within the definition of louvre screen or louvre window, and if there is no significant impact on the views and the louvres are designed in a way to only partially limit views between 19 and 21 Hargreaves, in his opinion there would be no diminution in the value of 19 Hargreaves.
Mr Guilford’s evidence
[98] The defendant also called evidence from Mr Ian Guilford who is a property developer with over 25 years’ experience in high rise development for residential apartments, apartment hotels, student accommodation, terrace houses and land subdivision.
[99] Mr Guilford described the factors a developer will take into account when considering the redevelopment of an existing building such as 19 Hargreaves from commercial to residential apartments. He said that it was of particular importance to weigh up the value that can be attributed to each apartment that would be established and what it could be expected to sell for, against the cost of the property and converting it to apartments. Mr Guilford said that in his opinion there are a number of “red flags” associated with 19 Hargreaves that could prevent him from undertaking a redevelopment of the property. These included: the age of the building and the uncertainty as to its condition; the potential for it to lose the currently valuable views to the north; the lack of available space for car parking within the building; proximity to 21 Hargreaves; views from the lower levels into a retaining wall and 17 Hargreaves Street; and car traffic around the building.
[100] Mr Guilford said that in his opinion no competent developer or architect would look to take advantage of the southern aspect of 19 Hargreaves as it receives no light and is up against an adjacent building. He said there is a reason why the lifts and
stairways on 19 Hargreaves are located on the southern boundary, and in his opinion any architect a developer engaged on the project, would look to orientate the apartment views to the east.
[101] Mr Guilford said that he considered the absence of louvre screens on 21 Hargreaves to be relatively insignificant to an assessment of the value of the building at 19 Hargreaves. He said that as it was unlikely that the proposed plans would get resource consent, and the plans would need to be modified anyway. He said that the proposed changes to the plans suggested by Mr Leuschke were just one solution, and he was sure there are others.
Mr Churton’s assessment of the plaintiff ’s loss
[102] The defendant also called evidence from a registered valuer, Mr John Churton, of Churton Valuation Services Limited. Mr Churton has considerable experience as a valuer having been involved in valuation work for 38 years and in private practice as a registered valuer for 33 years. His valuation experience covers a wide range of residential, commercial and industrial properties and he has given expert evidence previously at arbitration and court proceedings.
[103]Mr Churton was engaged by the defendant to provide his expert opinion on:
(f)How an estimate of the diminution of value of a property is calculated.
(g)Whether 19 Hargreaves has suffered a diminution of value as a result of fixed louvre screens not being present on three windows in Unit 41 of 21 Hargreaves.
(h)What, if any, is the estimated quantum of diminution of value due to fixed louvre screens not being installed on Unit 41.
(i)Whether the loss of privacy claimed to have been caused by the absence of three fixed louvre screens on Unit 41 could be ameliorated or mitigated altogether by design measures or features which mitigate or completely extinguish any adverse effect.
[104] Mr Churton reviewed the briefs of evidence of Mr Dean and Mr O’Leary, Mr Taylor’s plans and undertook a site visit to both 19 and 21 Hargreaves. He was also provided with copies of the pleadings and relevant documents including copies of the Deed, an Auckland Council Report dated 10 March 1998 relating to an application for resource consent for the construction of an additional floor at 19 Hargreaves, and copies of signed lease agreements relating to the current tenants of 19 Hargreaves.
[105] In his evidence Mr Churton noted that the principal view from the top floors of 19 Hargreaves are to the east of the building over Victoria Park and toward the Auckland Central Business District. He said that this view carries significant value for a residential apartment. There are also views to the north from the top floors.
[106] Mr Churton notes that the AUP height restriction in the Business - Mixed Use zones in which 19 Hargreaves is located is 16 metres with an allowance of two metres for roof form. He says on the basis of the information contained in the 1998 Auckland Council Resource Consent report, it appears that 19 Hargreaves is currently near the maximum height of 16 metres, and from the proposed plans for redevelopment including the addition of another floor the maximum permitted height would be exceeded. Mr Churton concluded that the proposed residential conversion of 19 Hargreaves is a significant departure from the 1998 application which sought to add another floor level to extend the commercial office space as 21 Hargreaves was a commercial office block in 1998 and is now residential apartments. He says that because of its significant impact on adjoining properties a proposed residential development of 19 Hargreaves would undoubtedly require resource consent by reason of the excess height above the allowed 16 metres and because the building is located right on the southern boundary.
[107] Mr Churton says that the issue of whether the proposed development of 19 Hargreaves could obtain resource consent is fundamental to an assessment of diminution of value, as without the ability to obtain resource consent to convert the building to residential apartments there would be no diminution of value as a result of the absence of screens on Unit 41. He says that while he is unable to comment with certainty on the issue of whether the proposed plan would obtain resource consent,
given the significant differences in the proposal to the 1998 resource consent application, he says that in his opinion it is clear that a resource consent would not be granted as of right.
[108] Mr Churton says that someone considering a conversion of 19 Hargreaves would undoubtedly seek to make use of the available outlook, which does not include a view to the south. He says that the orientation of any living or bedroom area would be towards the principal outlook to the east and not towards an adjoining building. He says there would be little added value in developing a southerly outlook or placing a window on the south side, and fire rated windows are expensive. He says that if windows were to be placed on the southern wall then the best option for privacy would be to place fixed louvres, blinds, or one way glazing on 19 Hargreaves and not 21 Hargreaves, and any development looking to maximise the principal outlook would use orientation, design features and appropriate angles to overcome any issues relation to privacy. He said:
…building right up to the boundary brings with it issues as to feasibility. Without intruding on the adjoining property, it raises issues relating to construction where there may be issues in terms of fire rating of joinery on the boundary, and matters relating to building maintenance. I understand that neighbour’s consent or a court order would need to be sought to maintain any windows from the adjoining property if the building was built right up to the boundary. It is unlikely the ability to access the neighbouring property for maintenance would be as of right. Consent from the neighbouring body corporate cannot be assumed given the impact on 21 Hargreaves.
My conclusion is that on assessment of the property, I do not believe the development would be feasible as of right. If it is unable to go ahead then there is no diminution of value to 19 Hargreaves Street resulting from the failure to install fixed louvre screens on Unit 41.
[109] Mr Churton nevertheless went on to consider the value of the penthouse and top floor apartments were they to be established at 19 Hargreaves in accordance with the plans and to assess the diminution of value caused by the absence of screens on Unit 41. He considered that the most directly comparable residential apartments and sales to inform his valuation assessment were those at 21 Hargreaves. He identified a number of sales of apartments in 21 Hargreaves from December 2017, and analysed seven apartment sales and calculated a value expressed per square metre. He also noted that two apartments were listed for sale, including the penthouse apartment.
However as the asking prices would not necessarily provide a reliable indication of value he disregarded those apartments for his valuation purposes.
[110] From his analysis Mr Churton comments that the value of each proposed residential unit in 19 Hargreaves would be highly dependent on the size, layout, and quality of the amenities and features provided. He says that if all the units are completed to a high standard the distinguishing feature effecting value, would be the views from each unit. He notes that the outlook from the apartments to all points other than directly to the south is unaffected by the presence or otherwise of fixed louvre screens on Unit 41. Mr Churton identifies three apartments as being potentially affected by privacy issues on the south side. They are: proposed apartment 5 on level 6 (the Penthouse); and the two apartments on the level below the Penthouse labelled as Proposed Apartment 5 (the Front apartment) and Proposed Apartment 6 (the Rear apartment).
[111] Mr Churton notes that the Penthouse apartment would be at a higher elevation to the floor of Unit 41. Its views towards the Auckland CBD from the south-east through to the north-east would not be affected by Unit 41 directly to the south. The “Master” bedroom, bedroom 2, and the living and sitting room are shown on the proposed plan as all having windows with views to the south. There is also a terrace off the “Master” bedroom and living room which would overlook 21 Hargreaves. In Mr Churton’s opinion, the perception that there will be a loss of privacy would not be remedied by fixed louvre screens installed on Unit 41, although screens on Unit 41 would be likely to enhance the privacy of that unit rather than the Penthouse on 19 Hargreaves. However, in his view privacy for the Penthouse apartment could be achieved by the provision of blinds or one-way glazing or a window coating. If that were done, overall the diminution of value on account of privacy issues would be minor.
[112] On the basis of confirmed sales of similar apartments in the area, Mr Churton assesses the value of the Penthouse apartment as in the range of $1,750,000 to
$1,850,000. Allowing for two secure car parks at $50,000 would yield a rate of between $9,439 m2 to $10,011 m2.
[113] Assuming that they had a high standard of finish and included car parking, Mr Churton assesses the value of the Front apartment between $900,000 and
$950,000, and the Rear apartment between $650,000 and $700,000.
[114] Mr Churton says that where there is a perception of a minor change in value by reason of a reduced amenity such as privacy, while it is difficult to measure, in his opinion the negative impact would be plus or minus 2.5 per cent. This would increase if the impact is measurable but not decisive to plus or minus five per cent. Where the perception or change is easily observable the impact could be 10 per cent or more.
[115] In his opinion the diminution to the value of the Penthouse and to the Front apartment due to the absence of screens on Unit 41 would equate to 2.5 per cent of their value. He assesses the Rear apartment to be impacted to a lesser degree and the diminution to be 1.25 per cent.
[116] On the basis of those valuations and diminutions he concludes that the amount of diminution would be: the Penthouse, $43,000; the Front apartment, $21,000; and the Rear apartment, $8,000. A total of $72,000 (inclusive of GST, if any).
Discussion and Analysis
The Deed - Meaning of the terms louvred windows and louvred screen
[117] Apart from the description of the screens in the Deed as expressed by the notations louvre windows and louvre screens and the arrows associated with those notations and the hand drawn marks which appear to indicate the extent of the area to be covered, the Deed contains no other detail of what is required to satisfy the obligation for their placement on Unit 41.
[118] The word “windows” in the phrase louvre windows, implicitly refers to a see- through installation rather than one which obstructs a view through it. Unless some specific type of louvred window is specified, such as having opaque glass which would operate as a screen, the meaning of the phrase louvred windows as used in the Deed is inherently uncertain and open to several interpretations. Moreover, when the term “louvred windows” is used together with the term “louvred screen” it clearly implies
that they are different things – one a window, the other a screen. If it was intended that that the installations in both locations were to operate as a visual screen to prevent any viewing through both of them in both locations on the north and north-east sides of Unit 41, it would be inconsistent with that intention to use two apparently inconsistent terms to describe what was to be installed.
[119] There are no measurements to define the length and height of the screens, and the hand drawn marks on the exterior wall do no more than provide a general indication of the dimensions. Although Mr Herbert submitted that it was possible using the adjacent deck area of 8m2 to calculate the length of the screen along the north wall as being at least six metres long, the deck that calculation is based on appears only on the “Plan supplied by Mr O’Leary” floor plan and not on the “Signed Deed” version of the floor plan.
[120] There are also no specifications as to materials, or how the louvres are to be positioned or as to whether they are to be positioned horizontally or vertically, and nothing requiring the louvre screens to be positioned or fixed so as to protect the privacy of future residential occupants of 19 Hargreaves.
[121] The terms louvre windows and louvre screen do not provide any detail as to whether they would be vertical or horizontal louvres, or whether the louvre elements would themselves be adjustable to change their angle and orientation. There is certainly nothing in the Deed to indicate or convey a requirement that the louvres of the louvre screens be set in a fixed position to prevent someone in Unit 41 from being able to view the southern side of 21 Hargreaves and be able to look into the windows or onto the decks along that side of the yet to be constructed residential apartment building.
[122] Mr Herbert submitted that the words of clause 1(f)(iv) of the Deed “Marac and/or CSM will install screens on decks and windows on the Top Floor Units …” should be interpreted as imposing an obligation on Marac to install a screen on all windows and decks on the Top Floor units. However Mr Hebert’s submission overlooks the qualifying phrase that follows, namely: “ … as marked on sheet 6 in the plan attached as Schedule 2; and”. It is clear from the wording that the only places
where screens are to be attached pursuant to the provision are those marked on the attached plan.
[123] The lack of any specific provisions in the Deed and the lack of certainty of what was required by the Deed, is further evident and illustrated by the steps taken by Escrow a month after execution of the Deed by seeking to add the adjective fixed to the terms louvre windows and louvre screens in an attempt to add some specificity as to what those terms meant and required. The lack of clarity and certainty surrounding the terms louvre windows and louvre screens is also reflected in the various attempts made by the parties to themselves describe what was intended by the Deed. In the version of the top floor plan endorsed with the description “Plan supplied by Mr O’Leary”, which I have found was likely prepared by Mr Wilkinson, he has used a different plan and has added three notations. Because the plan he has used is not the same as the level four plan used in the Deed version, his notations and arrows refer to louvre screen in the location of the two exterior decks shown on the plan he used, and a single notation of louvre windows.
[124] Yet another description of what the terms of the Deed required is contained in Mr Dyke’s instructions to Bradnam’s and the plan he provided to them to indicate the location and dimensions of the screens required. On his plan of the top floor of 21 Hargreaves, Mr Dyke drew a line to indicate the position of a fixed louvred screen along the entire length of the wall and windows on the north side of Unit 41, as well as the windows on the north-east wall and deck. He instructed Bradnam’s to take the dimensions for fixed louvred screens from the architect’s plans and specifically drawing 60 on which the aluminium window joinery for Unit 41 is detailed. Mr Dyke’s instructions to Bradnam’s made no reference to louvred windows.
[125] Mr Herbert submitted that the plaintiff’s strongest point as to certainty was illustrated by Marac’s Mr Dyke requesting a quotation for the supply and installation of screens and thereby showing that Marac was itself able to interpret the requirements of the Deed. However Mr Dyke used a different plan from the “Signed Deed” sheet 6, and drew a much longer line along the north exterior wall of Unit 41 to indicate where the screen would go. He also used different terminology – “Fixed louvred screens” as applicable to that area, rather than the term “Louvre Windows” as provided
for on the Signed Deed version of the plan. But contrary to Mr Herbert’s contention and rather than showing that the terms of the Deed were expressed with certainty, Mr Dyke’s interpretation of what was required was yet another permutation of the Deed’s requirements, and one using different terminology and different dimensions from those appearing on the Signed Deed version of the floor plan for the Top Floor and Unit 41.
[126] I therefore find that there is significant uncertainty as to what would be required by Marac or its successor in order to discharge the obligation upon it in the Deed to install the screens referred to in clause 1(f) (iv) and the level four plan bearing the louvre windows and louvre screens notations, arrows, and markings.
[127] If the provisions of the Deed do not enable the parties to be certain as to what is required to comply with the obligation to install the louvred screens and there is no mechanism provided for within the Deed to determine that issue, and the provision of the Deed is vague and uncertain, then the Court cannot fill the gaps by means of an implied term or terms then the contract will be is unenforceable.
[128] In Fletcher Challenge Energy Ltd v ECNZ Ltd the majority of the Court of Appeal said:6
[67] Lack of clarity or ambiguity in express terms can also be resolved so as to “save” the contract. It is only if there is such uncertainty in an essential term that the Court cannot determine what the parties meant that the agreement will be held to be meaningless or void – where “the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention” (G Scammell and Nephew Ltd v Ouston [1941] AC 251 per Lord Wright at 267). Where the term in question is meaningless but inessential (both in law and to the parties) it will simply be disregarded in determining the rights of the parties under the contract.
[129] Here the express terms and circumstances do not enable the Court to interpret the terms of the Deed by filling the gaps or implying a contractual term in order to give effect to an intention of the parties where their intention is not clear or apparent. It is not open to the Court to construct an enforceable contract by implying terms which
6 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [67].
prescribe what the terms louvre windows and louvre screen mean in this context when there are so many possibilities and where the claimed contractual objective of providing privacy to future residential occupants of 19 Hargreaves is not referred to or described in the express terms of the Deed.
[130] In my view the background and context of the Deed and its settlement provisions do not support the plaintiff’s submission that the terms “Screens”; “Louvre Windows” and “Louvre Screen” together with the arrows and marks on the level four plan should be interpreted as requiring the placement of louvred screens in such a manner as would prevent a person inside Unit 41 or on the exterior deck of that unit from being able to see across to any part of the south wall of 19 Hargreaves which may be built as part of a future residential development on that site.
[131] I accordingly find that the terms of the Deed requiring Marac and/or CSM to “install screens on decks and windows on the Top Floor Units as marked on sheet 6 in the plan attached as Schedule 2…” is unenforceable. Having found the relevant provision of the Deed to be unenforceable, the plaintiff’s claim against Heartland fails, however I shall nevertheless also address the effect of Marac’s failure to install louvre windows and a louvre screen on Unit 41.
The effect of the failure to install louvre windows and screens
[132] The plaintiff claims that Marac’s failure to install the louvre windows and louvre screen, has enabled people in Unit 41 to have an unobstructed view across towards 19 Hargreaves, which has had the effect of reducing the current value of its property, because of the adverse effect such an unobstructed view will have on the value of any future residential apartments that may be built.
[133] Mr Herbert submits that the provisions of the Deed which required the installation of louvre windows and a louvre screen meant that the plaintiff or its successors, could build residential units in the “box of air” located within its boundary which would not be adversely affected by privacy issues. Mr Herbert says that because of Marac’s breach and failure to install the louvre screen, Escrow can no longer do with its asset what it would otherwise be able to do, with the result that the present value of its property has been reduced and resulting in it suffering loss.
[134] Consideration of the effect of the absence of louvre screens on Unit 41 on the value of 19 Hargreaves must start with the question of whether the plaintiff would be able to redevelop its building and convert it to residential apartments, and whether it can show that it could obtain the required consents to establish residential apartments on its property which would be adversely affected by a lack of privacy from the occupants of Unit 41. The consent plans prepared by Mr Taylor have not been granted resource consent by the Auckland Council, and notwithstanding Mr Arnesen’s opinion and evidence, in my view the plaintiff has failed to show that there is a realistic prospect of the plans obtaining resource consent and building consent in their current form with windows located right on the southern boundary.
[135] Given the location of several wide windows on the southern boundary wall and the likelihood that the height of the proposed development would exceed the maximum height permitted by the AUP, the issue of whether the plaintiff’s plans in their current form are capable of satisfying the Council’s requirements and assessments is at best problematic and uncertain. The placement of wide windows on the southern boundary is inevitably going to attract careful scrutiny by the Council, and the issue of whether the plans with those windows are approved by the Council, and if so, whether the construction of the windows remains financially viable having regard to the high cost of satisfying the fire-rating requirements cannot be predicted with any confidence. Furthermore, the plaintiff has no intention of lodging the plans for consideration by the Auckland Council and no current intention of proceeding with a development to convert its present commercial office premises into residential apartments. Such a development project may never happen. In these circumstances I consider Mr Leuschke’s description of the plaintiff’s proposed building as “fictional” is appropriate and entirely justified.
[136] However the issue as to whether or not the plaintiff’s consent plans would or could be granted a resource consent does not determine the issue of whether or not Marac’s failure to install screens has caused the plaintiff loss by adversely affecting its ability to develop its property in the future. I agree with Mr Leuschke that it appears that the plaintiff’s plans have been developed to maximise the intrusion of privacy caused by the absence of louvre screens on Unit 41. By not adopting the approach of designing to take maximum advantage of the available views, and by not
employing design solutions to enhance and achieve privacy while also minimising the ability of any occupants of 21 Hargreaves and specifically Unit 41 to have unobstructed views into the apartments, the plaintiff’s plans represent an unrealistic basis on which to make an assessment of the impact and effect of Marac’s failure to install louvre screens on Unit 41. In my view it is significant that Mr Taylor was instructed by Mr O’Leary to endeavour to fit as many residential apartments as possible into his plans for the future development of 19 Hargreaves. Furthermore, although Mr Taylor said that it was his decision as the architect to design a building that extended right up to and along the southern boundary, it also appears that there was little or no consideration given by either him or Mr O’Leary to develop a design that took advantage of the views available to the north and north-east and mitigated the effect of viewing by occupants of Unit 41 by designing away from the negative and undesirable views to the south.
[137] In preparing his design Mr Taylor placed large windows for the master bedrooms of the two top floors, and a second bedroom and living room right on the boundary in a position where windows are required to be fire rated. As I have noted, in his evidence Mr Taylor explained that his placement of windows on the boundary was not his final design solution. Nevertheless, his placement of wide windows right on the boundary when other options such as those explained by Mr Leuschke were available, is an illustration of how his plans appear to have been intended to emphasise the impact of the absence of any screens on Unit 41, rather than seeking to develop a design that mitigated the adverse privacy effects on those apartments due to available viewing from Unit 41.
[138] It is also clear from Mr Guilford’s and Mr Leuschke’s evidence that any architect given a brief to maximise the potential of a proposed property development in terms of the value, would take full advantage of the most desirable views, while minimising the effects of negative or less desirable or undesirable views. Here, as Mr Leuschke and Mr Churton have explained, there are desirable views from 19 Hargreaves in the arc passing from the north-west, through to the north and to the north-east, and with the least desirable view towards the south. To the north-east is a view over the city towards Rangitoto Island, and to the east is a view over Victoria Park towards the central city and Sky Tower.
[139] The plaintiff or any subsequent owner of 19 Hargreaves can be expected to seek to maximise the value of any redevelopment and do so by exploiting and taking advantage of the most desirable views. The absence of louvre windows and a louvre screen on the north and north-east sides of Unit 41 would not have any significant impact on the value of residential apartments designed to take advantage of the most desirable views, and designed to minimise views towards the south. By doing so the developer would increase the value of the apartments and there would be no reduction or loss of value caused by occupants of Unit 41 being able to have an unobstructed view towards 19 Hargreaves.
[140] There are also a number of possible design solutions that could be employed at a relatively low cost in the context of a development project such as would be required to covert 19 Hargreaves to residential apartments, that would be effective to substantially mitigate if not practically eliminate any adverse effects in terms of privacy due to the ability of people in Unit 41 to look across towards 19 Hargreaves.
[141] My finding that the absence of louvre windows and a louvre screen on Unit 41 would not be detrimental to the value of any future residential apartments designed and developed by a properly briefed and competent architect and built by a developer motivated to maximise the value of the project by taking advantage of the desirable view amenities, means that the absence of any louvre screen and windows on Unit 41 cannot have had any adverse effect on the present value of 19 Hargreaves.
[142] I accordingly find that the plaintiff has failed to prove on the balance of probabilities that Marac’s failure to install the louvre windows and louvre screen referred to in the Deed has caused it any loss of value of its property at 19 Hargreaves. Not only has the plaintiff failed to show that the plans upon which its claim is based represent a viable building plan capable of obtaining resource consent, but it has also failed to show that the plans represent what would be a realistic basis for future development, as the plans its claim is based on were prepared in order to support the plaintiff’s case rather than being for an actual proposed development intended to maximise the amenities of the site and the value of the apartments and consequently the profit to be gained from the development.
[143] The implausibility of the plaintiff’s claim to having suffered loss by reason of the unobstructed views from Unit 41 is also illustrated by the fact that people located in and on the exterior deck of the unit immediately below Unit 41 in 21 Hargreaves would also have an unobstructed view across towards 19 Hargreaves. Although they would be looking up towards the upper levels of 19 Hargreaves, their proximity and ability to do so would not be significantly less intrusive upon the privacy of the occupants of 19 Hargreaves, than would be the case as a result of unobstructed viewing from Unit 41. As Mr Churton explained:
… To me the privacy [of 19 Hargreaves] has already been compromised before the extra floor goes on. The floor below [Unit 41] can look into the proposed top floor of the 19 building, adding it an extra degree of loss of privacy is only adding an extra degree of loss of privacy. It’s not adding a whole new spectrum of loss. So I – it’s not going to make much of a difference at all.
[144] Significantly in my view, when the terms of settlement recorded in the Deed were negotiated Escrow did not seek the installation of louvre screens on the level below Unit 41 or on any of the other apartments located on the north side of 21 Hargreaves. Mr Herbert argues that the privacy of the top floor apartments (level 5) on the proposed development at 19 Hargreaves could not be affected by people viewing from the floor below Unit 41 in 21 Hargreaves because their sight angle from that level would be too acute, and that would appear to be the case. However the viewing angle from the level below Unit 41 across towards level four of the proposed apartments on 19 Hargreaves would not be at such an acute angle and people using the exterior deck of level 4 would be fairly close to and within the direct view of people in and on the deck of the apartment below Unit 41. Thus, the privacy of the occupants of levels four and five of the proposed residential apartments on 19 Hargreaves would be affected by viewing from 21 Hargreaves in any event irrespective of the presence or absence of screens on Unit 41.
[145] Accordingly, and in addition to my finding that the terms of the deed are unenforceable by reason of their uncertainty, I also find that the plaintiff has failed to prove on the balance of probabilities that it has suffered any loss as a result of Marac’s failure to install louvre screens on Unit 41. The plans on which it bases its case provide no more than a vague and uncertain foundation for its claim to have suffered loss of value of its property by being unable to develop residential apartments at some future
date. Furthermore the plaintiff’s failure to employ any design solutions to reduce or eliminate any privacy intrusion due to the availability of unobstructed views from Unit 41, is another illustration of the essentially tenuous nature of its claim.
[146] Although these findings make it unnecessary to determine the amount of diminution of value that would result from Marac’s failure to install louvre screens had it been required to do so, I also find that Mr Churton’s valuation analysis and opinion and his assessment of the degree of diminution of value due to the absence of any screens on Unit 41 is to be preferred over the assessments and opinion of Mr Dean. In my view the sales data relied on by Mr Churton being based on actual concluded sales was more directly comparable and probative than the market data and sales information relied on by Mr Dean for his valuation opinion.
[147] I also prefer and accept Mr Churton’s evidence as to the percentage value diminution caused by the adverse effect on the privacy of the occupants of 19 Hargreaves due to the absence of screens on Unit 41. In this regard I note Mr Churton’s reference to the five per cent value diminution awarded by the Land Valuation Tribunal in Samson Corporation Limited v Auckland Council (CRL Acquisition)7 as compensation for the diminution of value due to the Auckland City Rail Link tunnel passing beneath the properties of the claimants.8 The Tribunal considered that the overall compensation should reflect the view of potential buyers of the property as to constraints and the reasons for them, imposed by both the acquisition of the right to a portion of the land under Samson’s property along the rail line to enable the tunnel to be constructed, and more particularly the restrictive covenant imposed from the top of the acquisition level to a distance five metres below ground level. The Tribunal found that the existence of the restrictive covenant would add an additional layer of complexity to ownership of the site, and in particular complexities relating to obtaining consents for future redevelopment of the site and
7 Samson Corporation Limited v Auckland Council (CRL Acquisition) [2021] NZLVT 5.
8 At [17] and [18]. The Tribunal found that the impacts on the area above and adjacent to the tunnel from noise or vibration of the train tunnel would be minimal and could be disregarded, and the issue was the extent of the impact on the subject property of the acquisition of the tunnel area itself and the imposition of a restrictive covenant that would extend from the tunnel to five metres below Samson’s property.
the potential costs associated with applying for consents. The Tribunal concluded that the site was affected by around five per cent of its capital value.9
[148] That level of diminution in value also informs my view that any diminution of value caused by the absence of screens on Unit 41 would be minimal. In contrast to the owner (or future owners) of the property in Samson who cannot avoid the consequences of the acquisition and restrictive covenant, the owners and architects engaged to design a future residential development at 19 Hargreaves will be able to design away from any intrusion of privacy from 21 Hargreaves and Unit 41, and employ design solutions and privacy mechanisms such as screens, blinds, and one- way glass to significantly mitigate, if not entirely eliminate, any visual intrusion of privacy from people in Unit 41 in such a manner as would not only avoid a loss of value of the apartments, but which would enhance their value.
Result
[149]The plaintiff’s claim against the defendant fails and is dismissed.
[150] The defendant is entitled to costs on a Scale 2B basis together with reasonable disbursements. In the event that the parties are unable to agree on the plaintiff’s costs, they are directed to file costs memoranda.
[151] The plaintiff is to file and serve its costs memorandum within 10 working days following delivery of this judgment. The defendant is to file and serve its costs memorandum in reply within five working days following its receipt of service of the plaintiff’s costs memorandum. The memoranda are not to exceed three pages in length apart from the title page and any annexures or schedules.
[152] Upon the filing of the memoranda by both parties, I shall determine costs on the papers.
Paul Davison J
9 At [117]–[119].
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