Hodgkinson v Newcombe

[2018] NZHC 191

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2017-442-000070

[2018] NZHC 191

UNDER

Section 143 of the Land Transfer Act 1952

IN THE MATTER

of Caveat No. 10909117.1 on Certificate of Title CFR 464138 Lot 3 DP 416652

BETWEEN

MICHAEL JOHN HODGKINSON and

TYRONE BARRINGTON MUIR BROWN
Applicants

AND

MARK WILLIAM NEWCOMBE

Respondent

Hearing:	13 February 2018
Appearances:	J A McKay and T M B Richards for Applicants P J Bellamy and R Fitchett for Respondent
Judgment:	19 February 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]    Mr Hodgkinson and Mr Brown (the applicants) are the registered owners of the land comprised in Computer Freehold Register 464138, which is described as  Lot 3 DP 416652 (Lot 3). They apply for an order removing from this title Caveat 10909117.1 lodged by the respondent, Mr Newcombe.

[2]    Mr Hodgkinson and Mr Brown hold Lot 3 as members of a development group called the Riverina Syndicate. The syndicate developed a large area of rural land into smaller blocks. On 28 May 2009 the Riverina Syndicate sold Lots 4 and 8 in its development to the Dart River Trust and the  Farrah Trust  (the  2009 agreement).  Mr Newcombe was a trustee of the Dart River Trust.

HODGKINSON & BROWN v NEWCOMBE [2018] NZHC 191 [19 February 2018]

[3]Clause 15 of the 2009 agreement provides:

The Vendor and Purchaser will enter into a water supply arrangement whereby the parties take water to the extent permitted by any local or other authority having jurisdiction from the creek presently flowing through Lot 3 being the land comprised in Identifier 464138 presently owned by the Vendor. The Purchaser shall be entitled to one third of the permitted water and the Vendor two thirds.

A suitable easement shall embody the following essential provisions:

(a)The cost of establishing the water intake and reticulation serving the lands of the Vendor and the Purchaser shall be borne one-third by the Purchaser and two thirds by the Vendor;

(b)The cost of the reticulation serving exclusively the land of the Purchaser or the Vendor shall be met by that party;

(c)The legal and survey costs of establishing such easement shall be the sole responsibility of the Vendor provided that the Vendor shall not be required to meet the legal costs of the Purchaser or the costs of their mortgagee, if any.

The Vendor and Purchaser shall use their best endeavours to complete the creation of the easements within 6 months of the date of settlement.

[4]    Despite the last of these provisions an easement in favour of Lots 4 and 8 has not been created over Lot 3. However a water reticulation system has been established which in the view of the applicants complies with clause 15 of the 2009 agreement. An easement has been proposed which would accommodate this system, and which in the applicants’ view also complies with their obligations under the 2009 SPA. In October 2017 their solicitors made an open offer to Mr Newcombe’s solicitors. They forwarded an easement which they maintained was drafted pursuant to the 2009 SPA, indicated their client’s willingness to register it in order to satisfy Mr Newcombe’s claim, and asked for withdrawal of the caveat and authority to register the easement. No response was made to that offer, and this application ensued. The position of the applicants is that they cannot register the easement while a caveat remains on the title, and the caveat should be removed because the proposed easement provides for Mr Newcombe the easement to which he is entitled.

[5]    The purchaser of Lot 3 has filed an affidavit confirming that in the event it should become the registered proprietor of Lot 3 before registration of the easement proposed by the applicants, it will authorise registration of that easement. On that

basis the applicants say there is no prejudice to Mr Newcombe in the caveat being removed.

The principles to be applied

[6]    The application is made under s 143 of the Land Transfer Act 1952. This provides:

143    Procedure for removal of caveat

(1)Any such applicant or registered proprietor, or any other person having any registered estate or interest in the estate or interest protected by the caveat, may, if he thinks fit, apply to the High Court for an order that the caveat be removed.

(2)The court, upon proof that notice of the application has been served on the caveator or the person on whose behalf the caveat has been lodged, may make such order in the premises, either ex parte or otherwise, as to the court seems meet.

Although the application is not made by the caveator, it is for the caveator to show an arguable case entitling him to the protection of his interests by the caveat. As noted in Sims v Lowe:1

The caveator seeks to clog or fetter the proprietary interest of another. As a matter of principle it seems right that he must justify the continued existence of his caveat. He will do that when he can show he has a reasonably arguable case for the interest he claims.

The water reticulation system

[7]    The system which has been installed on Lot 3 provides for water to be piped from a weir in a creek on Lot 3 to a ram pump, then to a header tank from which it then feeds to Lot 4. The system delivers enough water to Lot 4 for domestic use and for stock watering but it will not deliver sufficient water for agricultural purposes including irrigation. It is common ground that no application has been made to the Local Authority, the Tasman District Council (the TDC), for a water permit for agricultural purposes. Limited use of water for domestic purposes and stock watering does not require a permit. At present, therefore, the extent of any limitation on the taking of water provided for in the opening sentence of clause 15 of the 2009

1      Sims v Lowe [1988] 1 NZLR 656 (CA) at 660 per Somers J.

agreement is not known. It is also common ground that whilst the ram pump is an economical means of pumping water uphill, a good deal of water is spilt and the system will not provide sufficient water for agricultural purposes even if a permit to take additional water is obtained from the TDC.

[8]    Mr Newcombe wishes to lay a pipe across part of Lot 3 which will bypass the ram pump and convey water by gravity to Lot 4 in sufficient quantities for agricultural purposes, if and when a permit for the taking of water is granted. The evidence is that the creek has a flow of water which well exceeds the amount presently being taken under the existing reticulation stream. This pipe would be laid on a course which is not provided for in the draft easement which the applicants propose.

The issue

[9]    The issue to be decided is whether Mr Newcombe has an arguable case for an entitlement to an easement to take water as he now intends, or whether his contractual entitlement is satisfied by the system in place and the easement which the applicants say would provide for it.2

Discussion

[10]   The starting-point is clause 15.3 It is clear that the parties intended to establish a water intake and reticulation system to serve both the land which was subject to the agreement (Lots 4 and 8) and other land of the applicants, as the cost of so doing is expressly provided for in paragraph (a). Likewise clause 15 provides for reticulation which will serve only the land being bought by Mr Newcombe’s interests, as the cost of so doing is to be borne by them (paragraph (b)).

[11]   I do not have any difficulty interpreting clause 15. It is not ambiguous or obscure. It is brief and clear. It requires the vendor and the purchaser to enter into a water supply agreement whereby they take water to the extent permitted by any local

2      It is common ground that the draft easement submitted to Mr Newcombe by the applicants would require minor amendment as at present a tank which would need to be within the easement area is just outside it.

3      At [2] above.

or other authority. As I have said the permitted quantity is not yet established but when it is, Mr Newcombe is entitled to one-third of the permitted water, and the applicants’ syndicate is entitled to two-thirds of it. In due course the Council will specify the maximum amount of water which may be taken. An easement over Lot 3 must provide for Mr Newcombe’s right to receive one-third of it, and must also provide for the specific cost-sharing arrangements set out in paragraphs (a), (b) and (c).

[12]   The water reticulation system which is presently installed on Lot 3 will not enable more water to be taken for Lots 4 and 8 than at present. The respondent argues, therefore, that the present water supply arrangement does not satisfy the contractual rights and obligations set out in paragraph 15, and as a consequence, that an easement which gives rights only over the land required for the present system is not sufficient to satisfy clause 15 either.

[13]   The applicants argue, however, that this is not the correct interpretation of clause 15. They argue that Mr Newcombe is entitled only to one-third of the amount that the presently installed water reticulation system takes from the creek, and he already has that supply. They accept that a permit may be granted in due course for a greater volume to be taken, and say that in clause 15 the phrase “permitted water” means the amount of water actually taken from the creek which will be limited by the Council. Clause 15 is not a warranty, though, that the amount the Council permits to be taken will in fact be available every day.

[14]   Mr Richards for the applicants argues that the meaning of clause 15 must be derived from  the  wider  context  at  the  time  that  the  agreement  was  entered.4  Mr Richards argues that at that time it is likely that the parties intended to install a ram pump system (as they have) because every survey prepared, and agreement reached, in subsequent years provided for a ram pump to be used. Another system could have been selected had it been intended that the reticulation system would have higher volumetric capacity once a Council permit were obtained. He argues that the installation of the present system is evidence of the intention of the parties at the time

4      BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1997) 180 CLR 266 at 271; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC) per Tipping J at [31].

the contract was entered, that a system of this kind would be used and that the easement to be granted would provide for that system.

[15]   In presenting this argument both Mr Richards and Mr McKay, presenting submissions in reply, emphasised what they saw as a new focus on acquiring water for agricultural purposes, Mr McKay going so far as to submit that the caveat is being used in an attempt to create a new easement not the one bargained for.

[16]   As I find the meaning of clause 15 clear I do not need to go outside its wording to interpret it. But, in any event, doing so does not only assist the applicants’ case. Mr Newcombe’s evidence on this point is instructive. He says that when he and his wife bought Lots 4 and 8, there were negotiations about clause 15. He says that initially there was agreement that the easement would allow them to take all the water that the Council permitted to be taken from the creek. However during negotiations the vendors identified that Lots 1 and 2, which they retained, could also benefit from a water easement over Lot 3, and therefore agreement was reached that only a one- third share of the water would be available for Lots 4 and 8. The first draft of clause 15 provided that the water conveyed to Lots 4 and 8 over an easement to be created would only be used for domestic purposes and watering of stock. After taking legal advice, Mr Newcombe required clause 15 be changed to its present form. This was to allow the purchasers to use water from the creek for any purpose permitted by the local authority which would give them potential to use the land in more intensive ways.

[17]   At that stage the purchasers were considering buying Lots 1 and 2 as well but could not afford them. Between 2009 and 2016 the boundaries of Lots 1 and 2 changed, and Mr and Mrs Newcombe’s financial position improved. In 2016 they bought Lot 1. They were unable to negotiate a water easement over Lot 3 in favour of Lot 1.

[18]   The draft agreement for Lots 4 and 8 has not been produced in evidence so cannot be compared to clause 15. On the other hand, Mr Newcombe’s evidence was not challenged on this point by Mr Hodgkinson in his affidavit in reply. I therefore accept Mr Newcombe’s evidence that there was a deliberate change to the present

wording of clause 15 by removing a previous proposed limitation on the use of the water to domestic use and stock watering.

[19]   This evidence is to be weighed against Mr Richards’ submission that the fact that a reticulation system has been built, which is sufficient only for domestic purposes and stock watering, is evidence of an intention that this is what was intended by clause 15 at the time it was executed.

[20]   A further point also supports Mr Newcombe’s position in relation to clause 15. It contains the phrase “to the extent permitted by any local or other authority …”. The parties could have limited the right to receive water up to the amount which could be taken as of right, which is water for domestic use and stock only. Instead the phraseology is consistent with the extent of permitted volume being established at some future point and for uncircumscribed uses.

[21]   Whilst Mr Richards referred to the clause not specifying that agricultural use was permitted, equally it is not prohibited, and the reference to applying for permission from the Council to take water strongly suggests that there was no agreed limit on the use to which water could be put.

[22]   I therefore find that the respondent has established an arguable case that the easement the applicants propose, which provides only for the status quo, will not satisfy their contractual obligation and Mr Newcombe’s rights under the 2009 agreement. Those rights are protected by the caveat. I therefore consider, next, whether the caveat should be released nonetheless.

[23]   Although the purchaser of Lot 3 has made it clear that he will agree to registration of the easement proposed by the applicants, there is no indication that he will agree to a further or extended easement which would encompass an area of land sufficient to permit the installation and maintenance of a gravity feed pipe from the present reticulation system to Lot 4, as Mr Newcombe requires. Removal of the caveat would therefore result in the title to the land being transferred to the purchaser and Mr Newcombe being put in a position where he could not enforce his contractual right by way of specific performance.

[24]   The applicants argue that there must be an end to this issue, pointing out that the agreement was entered in 2009. They say it is only recently that a wish to have water for agricultural purposes has been expressed. However, the applicants as owners of Lot 3 could have moved forward with the creation of an easement at any point during that period. Until now Mr Newcombe has been content to have the installed reticulation system supplying Lot 4 to the extent that it is able to do so, but the exercise of part of his right to an easement does not extinguish his right to exercise the balance in the absence of some compelling reason why he should not do so.

[25]   The applicants do not suggest that he is estopped, or that he has waived his right. Their argument is expressly confined to interpretation of the contract. For that point alone they rely on Mr Newcombe’s subsequent conduct, and do not suggest that there was any reason why he should be estopped from asserting what he sees as his full contractual right. Mr McKay argues that a point has come when the Court must say that as Mr Newcombe has built the structure that is there now, and that is sufficient for the purposes which they understood Mr Newcombe required water for, the caveat should go. I am unable to agree with that submission. Mr Newcombe’s contractual right is not limited by the use to which he wishes to put the water. It is limited only by the amount of water which the Council will allow to be taken, as a maximum, and the consequent limit on Mr Newcombe’s right to one-third of that water.

[26]   Figures for volumes cannot be attributed to this right until application is made to, and decided by, the Council. The right to an easement, however, is predicated on a maximum volume being established by that means, and a water reticulation system then being installed which will allow the maximum Mr Newcombe may take to be conveyed to Lot 4. A correlative easement is then to be created.

[27]In my judgment the caveat must remain until such an easement is granted.

Outcome

[28]   The application is dismissed. Counsel agreed that costs will follow the event. There will be costs to the respondent on a 2B basis with disbursements fixed by the Registrar.

J G Matthews Associate Judge

Solicitors:

Chapman Tripp, Auckland Philip Bellamy, Nelson