Fox Mortimer Trustee Company Limited v MGH Trah Limited
[2020] NZHC 321
•28 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000251
[2020] NZHC 321
BETWEEN FOX MORTIMER TRUSTEE COMPANY LIMITED
PlaintiffAND
MGH TRAH LIMITED, LIONEL JOHN HART and JUDEE LOUISE HART as
trustees of the Andre and Joshua Hart Trust Defendants
Hearing: 17 – 20 February 2020 Counsel:
DR Bigio QC and MA Keil for Plaintiff
ARB Barker QC and A Lenard for Defendants
Judgment:
28 February 2020
JUDGMENT OF DOWNS J
This judgment was delivered by me on Friday, 28 February 2020 at 1 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Lane Neave, Christchurch.
Malloy Goodwin Harford, Auckland. DR Bigio QC, Auckland.
ARB Barker QC, Auckland. MA Keil, Auckland.
A Lenard, Auckland.
FOX MORTIMER TRUSTEE CO LTD v MGH TRAH LTD [2020] NZHC 321 [28 February 2020]
The parties and the claim
[1] Fox Mortimer Trustee Company Ltd brings this claim. It is the trustee of a trust for the Mortimer family, which includes Andrew and Larissa Mortimer. MGH Trah Ltd is a trustee of the Andre and Joshua Hart Trust. The other trustees of that trust are Lionel and Judee Hart. Mr and Mrs Hart are directors of MGH Trah Ltd, and property developers. All three are defendants.
[2] The defendants subdivided rural land and sold one lot—with a large, north facing home—to the plaintiff for $5.6 million. The defendants kept a lot for themselves, as the immediate neighbours to the north. The plaintiff and defendants agreed in the sale and purchase agreement:
Clause 21: The vendor warrants that any future dwelling to be constructed on the proposed LOT 1 (as per the attached plan) will only be single level and will be positioned on the land so as to minimise any impairment to the view of the dwelling situated on LOT 2.
[3] The plan identifies as “X” the site of the future home. X coincides with a natural bowl in the ground. A copy of the plan is attached to this judgment as Appendix I.
[4] The plaintiff contends clause 21 creates a restrictive covenant benefitting its property, especially the rural view north, a feature of the purchase price (and value). The defendants contend otherwise. They submit clause 21 does not substantially affect what they may do on their property; and most importantly, does not preclude its subdivision, hence the construction of a home additional to that at X, in an area to the east of X, up and beyond the bowl.
[5] Related matters arise. The plaintiff contends the defendants engaged in misleading and deceptive conduct “in trade” when they entered the agreement, primarily as Mr and Mrs Hart represented they could not subdivide their adjoining land, implying there would be no home other than the single storey one at X. The defendants say the possibility of further subdivision was not discussed before the agreement was entered, and only later did they appreciate it may be possible. They contend clause 21 does not preclude subdivision.
[6] The defendants also counterclaim. Settlement went ahead, but $1.12 million of the purchase price was set aside, in trust. The defendants seek interest on the late payment of this sum even if the plaintiff succeeds.
Background
[7] In early 2018, Mr and Mrs Mortimer began looking for a family home in Coatesville. Mrs Mortimer wanted one with rural views and privacy. She had lived in homes with these features and was prepared to accept a long commute. The Mortimers were interested in the defendants’ property at 59 Hartway Grove. The Mortimers lived in, and liked, the area. They also knew the Harts.
[8] Mr and Mrs Hart bought this and adjoining land as one parcel in 2012. From late 2016, Mr Hart subdivided the land to four lots. In October 2017, the Harts engaged Jacqui Cantell of Harcourts to market Lot 2, number 59.1 A (March 2018) valuation report captures the property:
The subject property is a lifestyle block which will extend to an area of 2 hectares with the title yet to issue. On the site is a recently completed/constructed single levelled superior quality four bedroomed residence which incorporates double garaging facility under the main roof and has a well-appointed range of internal amenities and facilities. A spacious courtyard which incorporates an inground swimming pool offers a good extension to the social areas of the interior with a separately located “pool house” also being provided. The property enjoys a quiet and peaceful rural setting in an established lifestyle block area of Coatesville … and is well positioned in regard to access to numerous local amenities and facilities.
The list price was $6 million.
[9] Mr Mortimer went to the property on 17 February 2018. Mr and Mrs Hart were both there. Mr Mortimer returned to the property on 22 February, this time with his wife. Mr and Mrs Hart were again there. So too Ms Cantell.
[10] On 23 February 2018, Ms Cantell sent the Mortimers an email attaching what was described as a “Confirmed Subdivision Plan”. The plan showed only four lots— what became 53, 55, 57 and 59 Hartway Grove—and other detail discussed shortly.
1 Lot 4 was already being marketed by Harcourts on behalf of the Harts.
[11] Mrs Mortimer returned to the property without her husband on 28 March 2018. Mrs Hart and Ms Cantell were there. Mr Hart was not. More about these meetings soon.
[12] On 29 March 2018, the parties entered a conditional sale and purchase agreement in relation to number 59. As observed, the price was $5.6 million. The agreement included clause 21 reproduced at [2]. The plan identified in the clause was not annexed to the agreement. However, it is common ground this was an error as the parties intended to annex it. It is also common ground the plan does form part of the clause, hence the agreement.2
[13] The plan is the Confirmed Subdivision Plan foreshadowed at [10]. It identifies as “X” a 400 square metre area where a single level home may be built on Lot 1 (57 Hartway Grove). As observed, X coincides with a natural bowl. So, a single level home could be built at X with little, if any, effect on the property at Lot 2 (59 Hartway Grove).
[14] Titles were issued 6 July 2018. These corresponded to the approved, four-lot subdivision. Lot 1 became 57 Hartway Grove; Lot 2, 59 Hartway Grove.
[15] On 29 August 2018, Mr and Mrs Mortimer and their children moved into the property under a tenancy agreement (ending at settlement). Mr Mortimer noticed the driveway was not where he had been told it would be by Mr Hart. It was not on the northern side of the boundary and was clearly visible. And, the driveway did not lead to X.
[16] Sometime later, Mr Mortimer saw Mr Hart putting pegs in an area to the east of X. Mr Mortimer approached Mr Hart. Mr Mortimer told Mr Hart he could not build there because of clause 21. Mr Hart said he was building “a shed”. As Mr Mortimer was walking away, Mr Hart said, “bend over”.3
2The fifth cause of action sought rectification of the agreement through the plan’s inclusion. When the trial began, the defendants accepted rectification was established.
3 Mr Hart acknowledged this sequence.
[17] Relations between the Mortimers and Harts deteriorated. Mr Hart later built an “ugly”, uneven corrugated iron fence along another boundary; he said, to stop the Mortimers’ horses eating plantings.
[18] On 12 October 2018, the defendants applied to Auckland Council to subdivide Lot 1. A month later, the defendants applied for building consent to build a home on Lot 1. The application contemplated a two-storey home, not a single level one. The application also contemplated the home would be built to the east of X, up and beyond the bowl.
[19] In December 2018, Mr Hart began earthworks on this different site. The earthworks were unauthorised by Auckland Council and contrary to the District Plan. They continued into the New Year.
[20] On 16 February 2019, the plaintiff filed this claim and one for interim relief. The latter was later resolved by agreement without prejudice to rights. The defendants agreed not to build a home other than a single level one at X pending further order of the Court. The plaintiff agreed the defendants would not be prevented from pursuing building or resource consent applications in respect of any developments on Lot 1. The defendants did not disclose they already had building consent for a second home on Lot 1 (granted 16 April 2019).
[21] Settlement occurred 18 April 2019. Peter Nolan was appointed by agreement to determine what “reasonable sum” might be withheld in the interim “having regard to all the circumstances”.4 He fixed that at $1.12 million. The money was placed in trust.
[22]On 5 September 2019, the plaintiff lodged a caveat against the title to Lot 1.
Trial
[23] Mr and Mrs Mortimer gave evidence for the plaintiff. So too Ms Cantell, the agent from Harcourts, albeit under subpoena. Mr and Mrs Hart gave evidence for the
4 The agreement, clause 8.4.
defendants. Each side called a registered valuer: the plaintiff, Ian Colcord; the defendants, Gary Cheyne.
Three, pre-agreement meetings
[24] The parties agree about much of what was said at the meetings on 17 February, 22 February and 28 March 2018. The Harts said they were going to build a single level home in the bowl on Lot 1. The Harts said the home at X would not have a significant impact on the view from Lot 2, and they would they would take steps to minimise its impact on that view. The Harts also said the home would be smaller than the (substantial) home for sale at Lot 2. And, Mr Hart said the driveway to the home on Lot 1 would be positioned on the northern side of the boundary, and, because of this, not visible from the home on Lot 2.5
[25] The Mortimers testified Mr and Mrs Hart said they could not subdivide Lot 1 at the 17 and 22 February meetings.6 The alleged representation animates the misleading or deceptive conduct cause of action. It also forms part of the context in relation to the primary cause of action, that clause 21 creates a restrictive covenant binding Lot 1.
[26] Mr Mortimer said on 17 February, he asked the Harts if there were any plans to subdivide Lot 1. Mr Mortimer said Mrs Hart replied, “No, we’re not able to”. Mrs Mortimer was not at the first February meeting. She said at the second, her husband asked Ms Cantell to confirm what had been said at the first about subdivision. Mrs Mortimer said Ms Cantell replied, “the vendors have told me they are not able to subdivide. I am not sure why they used those words, ‘not able to’, but that is what they have said”.
[27] Mr and Mrs Hart deny saying anything about subdivision. Mr Hart gave evidence Ms Cantell never asked him whether he intended to subdivide Lot 1. Mr Hart said the issue did not arise at any meeting. Mrs Hart said, essentially, the same.
5Ms Cantell said Mr Hart had also told her the driveway would be on the northern side of the boundary.
6 At the latter, through Ms Cantell as their agent.
[28] I find the Harts twice represented to Mr and Mrs Mortimer they could not subdivide Lot 1; initially on 17 February, and directly; then again 22 February, through Ms Cantell. I find they did so in the terms alleged by Mr and Mrs Mortimer. In other words, I accept the Mortimers’ evidence on this point and reject the Harts’ contrary evidence. I do so for eight reasons.
[29] First, the evidence of Mr and Mrs Mortimer has some support in the evidence of Ms Cantell. As will be recalled, she testified under subpoena. Ms Cantell said she understood Mr and Mrs Hart could not create more than four lots from the land they had subdivided. Ms Cantell said Mr Hart was “the source” of her understanding. Ms Cantell was not challenged about this.
[30] Second, it is not obvious why Ms Cantell would have believed this unless Mr or Mrs Hart, or both, had said this to her.7
[31] Third, Lot 1’s possible subdivision was an obvious issue for a prudent purchaser, especially given the view overlooking Lot 1—and purchase price. Mr and Mrs Mortimer impressed as prudent purchasers. They knew the Harts developed land, and Mrs Mortimer wanted a home with an uninterrupted rural view. The combination meant Lot 1’s potential subdivision had significance. Relatedly, several prospective purchasers had asked Ms Cantell what was “planned for Lot 1”. Ms Cantell said she relayed this to Mr and Mrs Hart and sought a response.
[32] Fourth, although the Mortimers were challenged on this issue, that challenge was not searching.
[33] Fifth, Mrs Mortimer’s account on this topic was detailed. She was a careful witness.
[34] Sixth, Mr Hart’s credibility sustained injury during cross-examination. Mr Hart accepted relevant correspondence on his behalf and observations he made to others contained omissions, half-truths or worse. Three examples arise from a letter
7Ms Cantell said “I do not recall ever” discussing the issue of subdivision with the Mortimers. However, she did not say the issue was not discussed.
of 14 December 2018, when Mr Hart’s solicitors wrote to the solicitors for Mr and Mrs Mortimer. The letter asserted Mr Hart had not commenced developing an additional site even though Mr Hart had begun earthworks. The letter said Mr Hart had not made any representation about the location of the driveway on Lot 1 even though he had told Mr Mortimer the driveway would be on the northern boundary and invisible from Lot 2. The letter said Mr Hart had “only just started the process of preparing house plans for the additional site”. In fact, Mr Hart had submitted full house plans to Auckland Council on 12 November, 31 days earlier.
[35] Seventh, Mrs Hart said she did “not specifically recall the meeting on … 17 February”, and Mrs Hart offered no evidence about the 22 February meeting. Her testimony was more thematic than specific. Mrs Hart was also a little inconsistent. She said she did “not recall” Mr Mortimer asking whether they had plans to subdivide but also said, seemingly definitively, “subdivision was not discussed”.
[36] Finally, I record the obvious: the Mortimers’ evidence is consistent with the Confirmed Subdivsion Plan provided by Ms Cantell on behalf of the Harts during pre-contractual discussions (and later made part of the agreement through clause 21). The plan shows four lots, not five.
[37] On behalf of the defendants, Mr Barker QC submitted if subdivision had been discussed, clause 21 would have been framed to expressly prohibit it. Mr Barker noted the plaintiff had sought a covenant from the defendants in relation to Lot 3 during negotiations. Lot 3 is to the south-west of Lot 2 and, like Lot 1, still owned by the defendants. The proposed covenant, which was drafted by the plaintiff’s solicitor, would have required “the written approval of Lot 2 for any future development of Lot 3”. The defendants did not accept the condition.
[38] I disagree. There is no magic in the use of the word “covenant”, a proposition recognised by s 4 of the Property Law Act 2007. That provision defines a covenant as “a promise expressed or implied in an instrument”. And, as I shall explain shortly, clause 21 presupposes Lot 1 could not be subdivided. This is consistent with Mr and Mrs Hart’s representation they were unable to subdivide Lot 1. It also explains why clause 21 reads as it does.
[39]This leaves two contested representations:
(a)Mr Mortimer gave evidence that on 17 February, Mr and Mrs Hart said the home at X would not be visible from Lot 2. I find this was not said. In cross-examination, Mr Mortimer accepted he was not told this; rather, he assumed it from other things the Harts said. Moreover, clause 21 acknowledges the possibility of impairment of view because of the home at X. If the Harts had represented the home would be invisible, it is likely clause 21 would have been framed differently.
(b)Mr and Mrs Mortimer testified the Harts said the Lot 1 home would be their home; “a family home”. Mr and Mrs Hart gave evidence they did not say this. They said they referred to “a spec home” in these meetings. I make no finding. This conflict is unimportant. No one suggested otherwise.
The first and primary cause of action—a restrictive covenant?
[40] The plaintiff seeks a declaration clause 21 is a restrictive covenant creating an equitable interest in Lot 1; sufficient to sustain a caveat against that lot; and ultimately registrable as a restrictive covenant against title to Lot 1.
[41] A restrictive covenant is a promise by the owner (A) of the burdened land to the owner of the benefitted land that A will refrain from some action in relation to the burdened land that A might otherwise do. The promise—or “covenant”—must be negative in nature; benefit the benefitted land; and be accompanied by a common intention the burden run with the land of the person making the promise.8 If these criteria are met, the promise goes beyond the personal to a property law obligation, thereby binding future owners of the burdened land. Sections 302 and 303 of the Property Law Act 2007 recognise these criteria. Unless a contrary intention appears in the instrument granting a restrictive covenant, the promise binds the successors in title to the owner who made it.
8GW Hinde and others Principles of Real Property Law (2nd ed, Wellington, LexisNexis, 2014) at [16.009].
[42] This leads to the central dispute: what does clause 21 mean? The parties agree the clause must be interpreted objectively. So, identification of the meaning conveyed to a reasonable person with all the background knowledge reasonably available to the parties at the time of the agreement.9
[43] The plaintiff contends objectively, clause 21 means only one home may be built on Lot 1; that home must be built within X; and must have certain characteristics.
[44] The defendants acknowledge clause 21 requires any home at X have certain characteristics, for example, it must be single level. However, the defendants contend clause 21 is silent on the number of homes that may be built on Lot 1. Objectively, clause 21 does not preclude Lot 1’s subdivision, hence the construction of homes other than at X. Mr Barker stresses the breadth of the term “any” in the phrase, “any future dwelling”. He submits in context, the clause anticipates the possibility of more than one home. Mr Barker emphasises what the clause does not say explicitly:
The clause does not say that only one house could be built on Lot 1. The clause does not use words to the effect that: “only one house can be built on Lot 1 and it must be in location X”. If that was what was intended, it would have been easy to say so. The clause is structured on the basis that it is not known what house(s) may be built, but that any house built on location “X” must be only single level and positioned appropriately on the land.
To similar effect, the clause does not say that Lot 1 cannot be developed in the future, including subdivision. If that is what the parties intended, they could easily have said so (as the Mortimers tried to do with the draft covenant containing a right to veto development on Lot 3, and which was not agreed to by the Harts).
[45] I consider clause 21’s meaning self-evident, especially with context. The clause requires “any” home on Lot 1 be:
(a)Built at X. The plan identifies X as a 400 square metre area within the natural bowl on Lot 1.
(b)Single level “only”.
9 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
(c)Positioned to minimise any impairment to the view from the home on Lot 2.
[46] These requirements are mutually consistent, and mutually reinforcing. They recognise Lot 2’s proximity, Lot 1’s topography, and the potential to build a (single level) home within X “so as to minimise any impairment” to the view from the home on Lot 2. More particularly, these requirements recognise the value of Lot 2’s north-facing rural outlook, and the potential diminution of that value from construction of a home on Lot 1 beyond a single level one at X, positioned to “minimise any impairment”.
[47] Clause 21 assumes only one dwelling on Lot 1, and at X. Lot 1’s subdivision is not expressly prohibited. But, this is because clause 21 presupposes it impossible. Mr and Mrs Hart twice represented to the Mortimers they could not subdivide Lot 1. Ms Cantell understood from Mr Hart Lot 1 could not be subdivided. Ms Cantell gave the plan to the Mortimers, with X already marked. She described it as the “Confirmed Subdivision Plan”.10 The plan shows only four lots. The home on Lot 2 looks north and overlooks Lot 1. The Mortimers were conscious of both. They wanted to know what was happening with Lot 1. They accepted the Harts’ representation further subdivision could not occur. They then sought protection in relation to the only home they believed could be built on Lot 1, which, but for the natural bowl comprising X, would be directly in view.
[48] Mr and Mrs Hart testified they would never have relinquished the possibility of further subdivision, which explains why clause 21 does not explicitly preclude it. I do not accept their evidence or the associated argument.11 I find at the time of the agreement, the Harts believed they could not further subdivide, which explains why they were content with clause 21. To their minds, it involved no concession; they believed they had extracted all the lots they could from the development.
10 Emphasis added.
11 Nor do I accept the defendants’ rejection of a covenant in relation to Lot 3 as informative. As discussed at [38], there is no magic in the word “covenant”. The promise sought of the defendants in relation to Lot 3 was also problematical. The plaintiff wanted, essentially, a right of veto over anything built on Lot 3. Doubt attaches to whether a prudent vendor would agree to such an open-ended bargain.
[49] As will be recalled, Ms Cantell said she understood from Mr Hart a four-lot subdivision was the most that could be achieved. In evidence-in-chief, Mr Hart said he believed this was “the optimal number of sites” available. In cross-examination, Mr Hart went further. Mr Hart acknowledged a belief four lots constituted the maximum then available:
QNow, you told the agents Matty and Jacqui, or no, was it Jacqui, that the proposed subdivision … reflected all of the sites that you could get out of that land, agreed?
A That’s what we thought at the time, yes, correct.
Mr Hart also accepted the defendants had maximised the value of Lot 2 by approaching matters this way. And, as observed, Mr Hart and Mrs Hart represented (through Ms Cantell) they were not able to subdivide Lot 1.
[50] Other potentially relevant evidence is this: when dividing the land into four lots, Mr Hart changed the sizes of Lots 1 and 2 by increasing the size of Lot 1 at Lot 2’s expense. Mr Bigio QC contends this was done to allow for the possibility of Lot 1’s later subdivision. In cross-examination, Mr Hart said that was not his intention, and he believed four lots was the maximum he could develop (see above). However, Mr Hart acknowledged planning rules can change, and he knew this when he developed the land.
[51] Knowledge of the possibility of a law change permitting subdivision is not the same thing as active exploration of that possibility. Moreover, Mr Hart said he began exploring Lot 1’s subdivision in May 2018, meaning, a month or so after the defendants entered the agreement. I consider this evidence plausible. Nothing directly or unequivocally contradicts it.
[52] This mix explains the parties’ common intention to preclude the possibility of further subdivision (of Lot 1), and for this promise to “run with the land” in a property law sense. The defendants believed they had developed the land as much as they could, and relatedly, maximised Lot’s 2 potential value. Mr and Mrs Mortimer believed they had protected the value of Lot 2, hence their investment, by insisting on
a promise that would bind anyone who owned the land to the north, over which their-to-be home directly looked.
[53] This mix also explains the handsome price. Mr Colcord, the plaintiff’s valuer, said the $5.6 million figure “is within the upper tier of the Coatesville market”. Placement within the tier “requires a combination of a large quality home, unobstructed rural … views and privacy to living areas”.
[54] So, clause 21 constitutes a restrictive covenant. The clause permits only one home on Lot 1, with the other conditions at [45]. These are negative in nature; benefit Lot 2; and were accompanied by a common intention at the time of the agreement the burden should run with Lot 1. No contrary intention appears in clause 21—or elsewhere.
[55]The cause of action is proved.
Second cause of action: breach of contract and a permanent injunction
[56] The plaintiff contends the defendants engaged in conduct that would have ultimately breached clause 21 by subdividing Lot 1 and building a large home to the east of X. It seeks a permanent injunction restraining the defendants from:
(a)carrying out any works for, or relating to, the building of a two-level dwelling anywhere on Lot 1;
(b)carrying out any works for, or relating to, the building of any dwelling on any site that is other than on the building platform identified with an “X” in the attached Plan;
(c)carrying out any works for, or relating to, the building of more than one dwelling on Lot 1; or
(d)carrying out any works for, or relating to, the building of any dwelling on Lot 1 other than a single level dwelling on the building platform identified with an “X” in the attached Plan.
[57] The defendants implicitly acknowledge this cause of action is coterminous with the (established) primary cause of action. However, the defendants contend a permanent injunction is unnecessary because they have desisted from the earthworks
and do not intend to build a home on Lot 1. Rather, they are building a home on Lot 4, which they own too.
[58] Mr Barker argues “there is no realistic probability of an infringement” because a determination clause 21 creates a restrictive covenant on Lot 1 would unequivocally inform the defendants what they may not do. Put another way, an injunction would add nothing. Mr Barker also argues an injunction would be that of the quia timet variety, a Latin tag meaning “because he fears”, which involves real uncertainty about the likelihood of unlawful conduct on the defendant’s part. Or, as the learned authors of Civil Remedies in New Zealand explain:12
... courts are usually cautious in granting an injunction in these situations and have generally applied a high standard for the exercise of their discretion. The content of that standard has been somewhat unclear in New Zealand. A number of older authorities have adopted the long established rule that a plaintiff must show both an imminent danger of an infringement and a risk of substantial damage. However, more recent authority has suggested that these two requirements are not to be treated as an “indispensable rule” but are, rather, particular factors to be balanced against the overriding question of whether, in the exercise of its discretion, the court will grant an injunction. On this approach, the importance of these two requirements is determined not only by reference to other discretionary factors relevant to the grant of an injunction but also by a balance struck between the two. Therefore, where the infringement is likely to be severe, a lesser degree of probability of that infringement may be tolerated and, by contrast, where it is likely to be less severe, a far greater probability of it occurring is necessary.
So, on the defendants’ case, an injunction is premature and superfluous.
[59] I disagree. Having heard the evidence at trial, I have serious reservations Mr Hart would comply with clause 21 unless a Court order specifically requires such compliance:
(a)In December 2018, Mr Hart commenced earthworks on Lot 1. These were unauthorised. In cross-examination, Mr Hart accepted the earthworks contravened the District Plan. The earthworks continued into 2019.
12Peter Blanchard Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at 237 (footnotes omitted).
(b)Mr Hart moved a lot of soil; I saw the spoil during my scene visit. Mr Hart has not remedied this. The spoil remains visible from the plaintiff’s home.
(c)Mr Hart testified he conducted these earthworks “to form a building platform” for a shed. Mr Hart said he changed his mind about what he was building only after he realised he could subdivide Lot 1. I reject this. I find Mr Hart was moving earth to build a home:
(i)The site is toward the eastern end of Lot 1, and well away from the common driveway. It would be easier and cheaper to build a shed closer to the common driveway (a shed requires amenities like electricity, and the driveway would be shorter). Sheds are not typically constructed on the northern, elevated part of a site. Homes are.
(ii)By December 2018, Mr Hart had engaged four different experts to investigate the possibility of, and prepare for, construction of a large home in this area. And, on 12 November 2018, Mr Hart submitted full plans to Auckland Council for a home on the site. It cannot be a coincidence he began moving a lot of earth less than a month later.
(d)While the terms of interim relief were agreed between the parties, the defendants did not disclose they already had building consent for a second home on Lot 1.
(e)Mr Hart did not explain his remark to Mr Mortimer at [16], which suggests contempt for Mr Mortimer’s rights. Mr Barker submitted the Mortimers had been less than pleasant to Mr and Mrs Hart, but the Harts had chosen to focus on the legal issues in the case, hence not dwelt on, as they might have, this behaviour. I acknowledge the possibility of tit-for-tat when neighbours disagree, but I must decide the case on the evidence. This sequence occurred while Mr Mortimer was protesting
the very thing in issue: that Mr Hart could not build a home other than at X.
(f)Mr Hart’s resource consent application to build two homes included a 1608 square metre building area at X. X creates a building area of 400 square metres. So, Mr Hart not only contemplated building two homes, but one at X much larger than that allowed. This also suggests contempt for the Mortimers’ rights.
(g)Mr Hart’s (solicitors’) letter of 14 December 2018 is replete with inaccuracy about the construction of a second home, and Mr Hart’s progression of that objective.
[60] All this must be assessed against the backdrop of an agreement that clearly precludes a second home (and a home larger than 400 square metres at X). I accept Mr Bigio’s submission Mr Hart was “hoping to put facts on the ground” by building quickly, thereby ameliorating the likelihood of interim restraint.
[61]This cause of action is established.
[62] The plaintiff seeks damages in the alternative. Mr Colcord said if two homes were built on Lot 1 (including one at X larger than that permitted), Lot 2’s value would diminish by $1,680,000. Mr Cheyne disagreed. He said Lot 2’s value would suffer by $200,000.
[63] It is not necessary to resolve this disagreement. No home has been built on Lot 1; Mr and Mrs Mortimer have not (yet) suffered damage. I would not award damages for this reason.
Cause of action based on the Fair Trading Act 1986
[64] Section 9 of the Fair Trading Act prohibits misleading or deceptive conduct in trade:
Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[65] The plaintiff advances an alternative cause of action based on this section.13 It contends the defendants were in trade and engaged in misleading or deceptive conduct by representing, among other things, Lot 1 would not be subdivided.14 The plaintiff contends the defendants made the representations having decided to subdivide Lot 1, or while “actively investigating the potential to subdivide Lot 1”. In other words, the plaintiff alleges the defendant entered the agreement to sell Lot 2 while investigating Lot 1’s subdivision or having already decided to subdivide the lot. The plaintiff seeks an injunction or damages under the Act.
[66] I jump ahead. This cause of action could not generate relief even if established. As observed, the plaintiffs have not suffered loss. Statutory damages are thus unavailable. Statutory injunctive relief is available to restrain a person “from engaging in conduct that constitutes or would constitute” a contravention of s 9.15 So, to prevent or end misleading or deceptive conduct. But, even on the plaintiff’s case, this conduct ended March 2018.
[67] Mr Bigio submits an injunction should be made under the Act to prevent the defendants “obtaining the fruit of their breach”. However, and again, relief in this context is clearly directed at preventing or ending conduct that contravenes the statute; in this case, making misleading or deceptive representations.
13 The plaintiff abandoned an analogous misrepresentation cause of action at the end of the trial.
14 The representations are:
“(a) Only a single level dwelling would be built on Lot 1.
(b) The dwelling would be built in a natural dip in the land immediately to the north of the existing dwelling on the Property, as shown in a confirmed subdivision plan image provided to the plaintiff by the defendants’ agent and which depicted a single building site on Lot 1 at the same location to the north of the Property that the defendants had described to the plaintiff (see the building platform identified with an X in the attached plan Marked “A” (the Plan)).
(c) The proposed dwelling on Lot 1 would not be visible from the existing dwelling on Lot 2.
(d) Lot 1 would not be subdivided, which implied that only one dwelling would be built on the Lot.
(e) Driveway access to Lot 1 would be positioned on the northern boundary of Lot 1 so it would not be visible from the Property.”
I have already found these established, except (c). Mr Mortimer accepted (c) constituted an assumption. The Harts’ representation they could not subdivide (d) implied they would not.
15 Fair Trading Act 1986, s 41(1).
[68] Working backwards, the cause of action would also fail on the facts, even assuming the defendants were in trade. The burden of proof is on the plaintiff. There is inadequate evidence the defendants entered the agreement having decided to subdivide, or while “actively investigating” that possibility. Indeed, I have already concluded it is likely Mr Hart changed his mind about subdivision in May 2018, a month or so after entering the agreement. The plaintiff observes Mr Hart sent an email to a solar energy company (Harrisons) on 28 March, the day before the defendants entered the agreement. Mr Hart asked about solar panels for a two-storey, seven-bedroom home. The email does not identify the home’s location. Mr Hart testified he and his wife were then contemplating building on Lot 4, and the email concerned a home on that lot.
[69] This evidence is plausible. It accords with the fluidity of intention that often accompanies the sale of a home. Mr Bigio observes Lot 4 was then on the market too. My point remains.
[70] It follows the plaintiff does not establish its case of an antecedent decision to subdivide Lot 1, nor “active exploration” of that possibility on or about 29 March 2018.
[71] In any event, conceptual doubt attaches to this cause of action. The defendants’ representations are reflected in clause 21—and binding.16 The Fair Trading Act pleading adds little to these facts, save for the rejected contention of an earlier decision to subdivide (or, earlier exploration of that possibility). And, the real complaint remains the defendants must abide clause 21 of the agreement, which runs with the land. Approached another way, Mr Hart’s efforts to breach clause 21 are no less audacious because he changed his mind about subdivision after entering the agreement.
[72]The Fair Trading Act cause of action fails.
16 Save for the alleged representation the home at X would not be visible.
The defendants’ counterclaim
[73] The plaintiff withheld $1.68 million on the basis two homes on Lot 1 (with characteristics) would cause it that loss. The defendants argued no money should be withheld. Peter Nolan was appointed to determine what “reasonable sum” should be withheld “having regard to all the circumstances”.17 He fixed $1.12 million. The defendants seek interest on this amount under clause 3.12 of the agreement. It requires the plaintiff pay interest at 14 percent on any amount unpaid at settlement. Mr Barker relies on two extracts from the Sale of Land:18
Where settlement is delayed because of a dispute between the parties over the sum to be set aside in trust to await the quantification of a compensation claim to satisfy the requirements of the Court of Appeal in Lingens v Martin, or an equitable set-off, it would seem that, for the purposes of the late settlement provisions, it should be the party who ultimately proves to have been acting unreasonably, and thus unwilling to settle in accordance with the contract, who ought to be in default causing late settlement.
...
The penalty interest provisions are compensatory and only incidentally a sanction for enforcement. They are not a remedy for default. Thus, where the parties agree to postpone the purchaser’s obligation to settle while a dispute as to the purchaser’s obligation to complete under the contract is resolved, the arrangement may well be construed merely as a suspension of the remedies for default, and not as releasing the purchaser from the obligation to pay interest if it is eventually found that the purchaser must complete. To find otherwise would be to transfer the financial risk of the purchaser’s default, as it was found to be, to the vendor.
[74] Mr Barker emphasises that by settlement, the defendants had undertaken not to build any home on Lot 1 pending trial. Consequently, the plaintiff was wrong not to pay then, and in full.
[75] Mr Bigio acknowledges the principles identified by Mr Barker but argues the plaintiff should not be liable for interest as the defendants, particularly Mr Hart, acted unreasonably. Fault on this analysis lies with the defendants, not the plaintiff.
[76] I agree with Mr Bigio. The plaintiff reasonably apprehended Mr Hart was intending to subdivide Lot 1 even though clause 21 prevented that. Indeed, despite
17 The agreement, clause 8.4.
18DW McMorland Sale of Land (Cathcart Trust, Auckland, 2011) at [11.17(b)] and [11.19(a)] (footnotes omitted).
the clause, Mr Hart had been planning to do just that. The plaintiff settled on time while identifying possible loss if two homes were constructed. The plaintiff was not required to make an election between injunctive relief and damages. Expressed positively, the plaintiff was entitled to reserve its position on remedy. Mr Nolan considered a large sum should be withheld given totality of circumstance. The mix vindicates the plaintiff.19
[77]The counterclaim is dismissed.
Orders
[78]I declare clause 21 a restrictive covenant.
[79]The caveat is sustained and to remain until further order of the Court.
[80]The defendants are restrained from:
(a)Carrying out any works for, or relating to, the building of a two-level home anywhere on Lot 1.
(b)Carrying out any works for, or relating to, the building of any home on any site that is other than on the building platform identified as X.
(c)Carrying out any works for, or relating to, the building of more than one home on Lot 1.
(d)Carrying out any works for, or relating to, the building of any home on Lot 1 other than a single-level home on the building platform identified as X.
19 There is no tension between this conclusion and my earlier conclusions about damages. Mr Hart had, as observed, sought to make facts on the ground. And, the plaintiff could not then know it would be granted a permanent injunction.
Other matters
[81] The parties said they would attempt to resolve the wording of the restrictive covenant (for registration against the title). If they cannot, they may seek directions or a further hearing before me.
[82] I can think of no reason why the plaintiff should not have costs. If the parties disagree, they may file memoranda of not more than five pages each:
(a)The plaintiff by 27 March 2020.
(b)The defendants by 14 April 2020.
[83]This timetable envisages discussion—and potential agreement.
Addendum
[84] The Registry released the judgment at 1 pm today. Mr Barker promptly filed a memorandum inviting my attention to an issue I had overlooked: release of the
$1.12 million to the defendants. I heard a telephone conference at 3 pm. Mr Bigio contended the money should not be released until the restrictive covenant had been registered. Mr Bigio also expressed concern about a possible appeal by the defendants. I see no reason why the money should not be released. The plaintiff has been successful. It has obtained a declaration clause 21 is a restrictive covenant. It has also obtained a permanent injunction. It is possible the defendants may appeal. It is also possible they may seek a stay. However, these possibilities do not justify retention of the balance of the purchase price, particularly when the plaintiff has not suffered damages. So, I make this additional order:
(a)The $1.12 million held on trust is to be released to the defendants.
……………………………..
Downs J
Appendix I
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