HSW Holdings Limited v Cathro
[2015] NZHC 2895
•20 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001184 [2015] NZHC 2895
BETWEEN HSW HOLDINGS LIMITED
Plaintiff
AND
ANTHONY MARK CATHRO AND BERENIECE CATHRO
Defendant
Hearing: 24 August 2015 Appearances:
R O Parmenter for the Applicant
C Orton for the RespondentsJudgment:
20 November 2015
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 20 November 2015 at 10.00 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors / Counsel:
Winston Wang & Associates, Auckland
Corban Revell, Auckland
R O Parmenter, Auckland
HSW HOLDINGS LIMITED v CATHRO & Anor [2015] NZHC 2895 [20 November 2015]
[1] HSW Holdings Ltd is a developer. It owns a large block of land at Don Buck Road, Massey, which adjoins land owned by Anthony and Bereniece Cathro. It has lodged a caveat against the title to the Cathros’ land and has applied under s 145A1 of the Land Transfer Act 1952 for an order that the caveat not lapse, in response to steps that the Cathros have taken to have the caveat removed.
[2] The Cathros oppose the application.
[3] The overarching issue for determination is whether HSW arguably has a beneficial interest in part of the Cathros’ land, pursuant to an agreement for sale and purchase.
Background
[4] The parties entered into an agreement for sale and purchase on or about
13 December 2011. Under the agreement the Cathros agreed to sell 1,300 square metres of their land to HSW for the purpose of providing access to HSW’s proposed subdivision of its neighbouring land.
[5] The land to be sold is identified on a plan attached to the agreement, and it is part of a much larger parcel of 5,590 square metres that the Cathros own, which is described as Lot 3, DP 459824 in Identifier 602466 (North Auckland Registry). The agreement states the land is land “to be vested as road reserve”, implying that it was to become a public road essentially owned by the consenting local authority, Auckland Council. The agreement is subject to the usual ADLS standard terms and conditions, and additionally contains specific further terms of sale. The further terms of sale provide:
15.0The purchaser at their cost will with all due expedition, subject to delays (if any) beyond its control, complete the subdivision of the land the subject of this agreement in accordance with the plan attached and to the requirements of the Auckland City Council.
1 The application states that it is made under s 145, but it is apparent that it has been made in response to an application to the Registrar-General of Land for the caveat to lapse. It is therefore appropriately dealt with as an application under s 145A.
16.0 The agreement is conditional upon the granting of consent by
Auckland City Council for the subdivision of the purchaser’s land at
58C Don Buck Road on the terms acceptable to the purchaser.
17.0Settlement date shall be 7 working days after the plan of subdivision of 58C Don Buck Road has been approved by Auckland City Council.
18.0The vendor and the purchaser shall pay its own costs including survey, issue of titles, legal costs and any costs charged by Auckland City Council.
19.0The vendor will sign any documents and do whatever may be necessary when called upon by the purchaser to do so for the purpose of completing the said subdivision.
[6] On or about 5 September 2012, some nine months after the parties entered into the agreement, they agreed that the land to be sold would be a jointly owned access lane instead of being vested as road reserve. This was apparently because of an indication from Auckland Council that it did not wish to take ownership of the land, with all the attendant obligations of maintaining the land as public road, and therefore would not agree to its being vested as road reserve.
[7] HSW proceeded to seek resource consent for its proposed subdivision on that basis. As agreed by the parties, the scheme plan of subdivision forming part of the application for consent showed the Cathros’ land as a jointly owned access lane (rather than road reserve), incorporated within the overall subdivision.
[8] The parties made no consequential change to further terms 15 to 19 of the agreement, and it is common ground that those terms stand unchanged.
[9] On 27 September 2013, Auckland Council granted resource consent for the subdivision. A number of conditions attach to the consent. Though the Cathros did not raise objection at that time, they have since taken strong exception to some conditions (specifically conditions 19 and 20). Those conditions state:
19. Prior to the construction of any dwellings on any of the sites, a limited liability company or Incorporated Society shall be formed to hold responsibility for the following:
a)Operation and maintenance of the stormwater management system required by these consents.
b) Inspection and flushing of the buttress drains in accordance with
Condition 64.
c)Entering into a contract with a reputable service delivery firm to provide refuse management services.
The following must also be a part of any agreement between the owners and the company or incorporated society:
i. If a limited liability company is formed then at all times the shareholding in the company will be such that only the owner(s) of Lots 3-8, 11-21 and Lot 100 in the subdivision shall be shareholders.
ii. If an Incorporated Society is formed then at all times, membership shall be limited to the owners of Lots 3-8, 11-21 and Lot 100 in the subdivision.
iii. Access arrangements (including any easements if necessary) must be in place allowing the person(s) or body responsible to carry out their responsibilities.
If an incorporated society is formed then within 30 working days of being incorporated, the consent holder shall provide a copy of the certificate of title of incorporation from the Companies Office to the Manager, Resource Consents and Team Leader – Stormwater, Northern Regional Specialist Input NRSI.
20. A Covenant pursuant to Section 108 to the satisfaction of the Manager, Resource Consents and Team Leader – Stormwater, NRSI must be registered in favour of Auckland Council against the titles of Lots 3-8, 11-21 and Lot
100 recording the obligations of each lot owner to undertake the responsibilities set out in Condition 19 in accordance with the conditions of
this consent.
The Covenant shall also outline the following:
a)Auckland Council may at any time upon prior written notice by its officers, employees, agents or contractors enter the property:
· To inspect or test the stormwater management system and;
· To inspect the owner’s records in relation to the operation, monitoring and maintenance of the system;
· To inspect or test the buttress drains.
b)Auckland Council may, by notice in writing, instruct the owner to carry out any actions or works in relation to the operation, monitoring and maintenance of the detention system or the buttress drains. If the owner fails to carry out those actions or works within
7 working days of receiving Auckland Council’s Notice, Auckland Council may carry out said work itself and enter the property to execute the work. Council may recover all costs of carrying out said work from the owner.
[10] The Cathros contend that those conditions require them, as joint owners of the access way, to enter into an agreement for the purpose of meeting ongoing obligations indefinitely for the maintenance of the access lane, which they are unwilling to submit to. They also say that the conditions “catch” them as the owners of an adjoining piece of land that is quite separate from the land that they agreed to sell, and that did not form part of the land in the scheme. They say they do not understand how the Council can reasonably impose conditions on them as owners of a lot that was not part of the subdivision application. They say that they could not reasonably have anticipated the conditions, and that they are unreasonable. They do not wish to be burdened by responsibilities imposed by unreasonable conditions that they could not have reasonably anticipated.
[11] For some time after the resource consent was issued, HSW appears to have done very little to advance its subdivision (possibly in breach of further term 15), but at some point decided to spring into action. It says it cannot now take the subdivision any further because the Cathros are refusing to cooperate in enabling the fulfilment of the Council’s conditions. HSW says that such failure is a breach of the further terms of the agreement for sale and purchase. The Cathros disagree. They say that on the contrary there is an implied term of reasonableness which has been breached by the onerous conditions imposed by the Council (and accepted by HSW according to further term 16) which gives them a right to cancel the agreement, and that their solicitor sent a letter to HSW in April 2014 exercising that right to cancel.
[12] On 29 September 2014 HSW lodged the caveat against the Cathros’ land described in Identifier 602466 (North Auckland Registry) (Lot 3, DP459824). The caveat describes the interest claimed as follows:
Pursuant to an agreement for sale and purchase signed on 13 December 2011 in respect of the land contained in the above certificate of title and made between the registered proprietor, Anthony Mark Cathro and Bereneice Cathro, as vendor and the abovementioned caveator as purchaser.
[13] The Cathros responded with an application to the Registrar-General of Land for the caveat to lapse, which prompted HSW to make the application now before the Court. An interim order has been made on HSW’s application sustaining the caveat pending further order.
[14] At the hearing counsel for the Cathros advised that, though they raised a number of grounds of opposition in their notice of opposition, they rely on two grounds as follows:
(a) They can imply a term of reasonableness such that the agreement for sale and purchase is to be taken as saying that any conditions of subdivision consent that the counsel imposes must not be unreasonable, failing which the agreement for sale and purchase will be at an end.
(b) The subdivision consent conditions (particularly conditions 19 and
20) are, on their unchallenged evidence, plainly unreasonable.
Applicable legal principles
[15] It is well established that the Court’s jurisdiction is subject to the same principles, whether in relation to applications under s 145 or applications s 145A of the Act. The relevant principles governing an application under s 145 were succinctly summarised by Master Faire (as he then was) in Ball v Fawcett:2
1. Section 145 of the Land Transfer Act 1952 gives no guidance as to the circumstances in which the Court may make an order that a caveat not lapse. Castle Hill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104, 106.
2. Extensions of caveat will be refused only where it is plain:
"that the caveator has no prospect of supporting the interest claimed."
Castle Hill Run Ltd v NZI Finance Ltd (supra) p 106.
3. The onus is on the caveator to show he has an arguable case in claiming an interest in land. Castle Hill Run Ltd v NZI Finance Ltd (supra) p 106.
4. The summary procedure for removal of a caveat against dealing is wholly unsuitable for the determination of disputed questions of fact. Accordingly it has been said:
". . . that an order for the removal of such a caveat will not be made under s 143 unless it is patently clear that the caveat cannot be maintained either because there was no valid ground for lodging it or that such valid ground as
2 [1997] 1 NZLR 743 at 746.
then existed no longer does so." Sims v Lowe [1988] 1 NZLR 656 at pp 659-
660.
The same principles apply in relation to an application under s 145:
Holt v Anchorage Management Ltd [1987] 1 NZLR 108.
5. Once the onus is satisfied the balance of convenience will in the normal course and in the absence of any special consideration be in favour of leaving the caveat in existence until the proceedings to enforce the interest claimed are tried. Castle Hill Run Ltd v NZI Finance Ltd (supra) p 106.
Discussion
[16] It is clear that the agreement for sale and purchase must be seen as one that prima facie affords HSW a beneficial interest in land. If the agreement stands it is clear that HSW will be able to maintain its caveat.
[17] The question, then, is whether (as the Cathros contend) the agreement for sale and purchase is at an end, and the interest created by that contract has plainly been extinguished, or whether as HSW contends, the contrary is arguably the case. The imposition of onerous terms on the contract is not said to reach the level of frustration of contract, and so I do not address that issue (in any case, I do not think that on the limited material presently before me it is clearly the case that the contract was frustrated).
[18] Rather, the Cathros say that the agreement for sale and purchase contains an implied term that the conditions of subdivision consent must not be unreasonable, and that such term stands regardless of the agreement that the land could become a jointly owned access lane. An unreasonable condition, they say, gives rise to a right to cancel the agreement. Further, they say that on the unchallenged evidence the conditions imposed here were unreasonable, so it is indisputable that there is a right to cancel, and they exercised that right via their solicitor’s letter.
[19] I am not willing to conclude, based on the Cathros’ unchallenged assertion, that the Council’s conditions of consent are inherently unreasonable. The parties have framed this as being a matter of reasonableness on the part of the Council; the issue (as framed) is really one of public law, and I have significant reservations as to whether it is appropriate for parties to agree or settle between themselves that a
public body has acted unreasonably in that sense, or therefore for me to conclude simply on the basis of uncontested evidence asserting that this must be so in this case as a matter of law.
[20] If there is an implied term founded on such conduct, which I doubt, I would not find that the Cathros have indisputably cancelled the agreement for sale and purchase.
[21] In any case, I think the issue here in terms of reasonableness may relate to the parties’ conduct as between themselves, as much as the conditions imposed by the Council. In making that suggestion, I note particularly that the consent had to be on “terms acceptable to the purchaser” (that is, the agreement prima facie gave HSW the power to accept conditions that imposed onerous obligations on the Cathros). Though he did not say so explicitly, I think counsel was driving at the idea in his submissions, that HSW’s conduct in accepting apparently unreasonable terms may have been unreasonable in and of itself.
[22] Based on the surrounding terms of the contract, there may be room to imply a term of reasonableness to the effect that HSW would only agree, according to further term 16, to a consent which did not impose unduly onerous obligations on the Cathros. That seems to me to be supported by the fact that the Cathros had relinquished the ability to accept or decline resource consent conditions on the basis of reasonableness or unreasonableness (perhaps an unwise decision on their part, but also entirely understandable considering the small size of their plot of land and their anticipated obligations compared to the scale of the development); and the fact that the further terms of sale appear to be aimed essentially at having the Cathros fulfil administrative requirements and meet administrative costs. These types of conditions are not unusual in contracts of this sort, and are generally aimed at removing the vendor’s ability to block progress based on technicalities, rather than imposing significant time and resource costs on vendors.
[23] If such an implied term is part of the contract, then HSW may well have acted unreasonably in accepting and attempting to act on the consent without some type of
compensation to the Cathros. But is the term so clear that HSW cannot realistically argue it is not part of the contract?
[24] New Zealand authority identifies certain categories of implied term, of which this could fall into the following:3
(a) Terms deduced by implication or interpretation from the express terms
of the contract (“logically implied terms”);
(b) Terms implied in order to give business efficacy to the contract.
[25] A five-part test for implication of contractual terms was established in BP Oil Refinery and approved in New Zealand in Nielsen v Dysart Timbers,4 among others. Implied terms must:5
(a) be reasonable and equitable;
(b)be necessary for the contract to have business efficacy; merely improving the contract is not enough. This is the “officious bystander” test, i.e. that if an officious bystander were to propose the implied term, both parties would say that “of course” they intended that term to be a part of the contract;6
(c) be so obvious that it goes without saying. The details of the term must also be clear;
(d) be capable of clear expression; and
(e) not contradict an express term.
[26] There has been some later discussion which suggests that all these are elements of a single test; different ways of stating the same requirement, rather than
individual elements.7
3 See Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Brookers) at [1A.6].
4 Nielsen v Dysart Timbers [2009] NZSC 43.
5 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC Aus) at 283.
6 The Moorcock (1889) 14 PD 64.
7 See for example Nielsen, above n 4.
[27] The test for implication of terms has alternatively been expressed thus:8
There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
[28] On any reading of the test, the precise meaning of the term must be apparent. Like an express term, an implied term must be sufficiently certain; the Court needs to be able to know exactly what it will say. That is where difficulties arise in this case.
[29] If the Cathros have an arguable case that a term was implied, I am not persuaded it is the term that they suggested. I do not think the term they have suggested is obvious enough, considering the arguments I heard, to plainly rebut HSW’s claimed interest under the agreement for sale and purchase. Though I do not rule out the possibility that a term restricting HSW’s ability to accept subdivision conditions that impose onerous obligations on the Cathros might be implied, I agree with counsel for HSW that I should be slow to accept the existence of such a condition on the limited evidence and arguments I have heard. Unexplained questions remain. I am not sure what the purported term would have identified as onerous as that is left unsaid by the Cathros. Because it is not clear exactly what the purported term would have said, I must conclude that it is not sufficiently obvious to be implied on the evidence and arguments I have heard upon this application.
[30] Unless the Cathros have a clear cut incontrovertible case that there was an obvious implied term resulting in breach and cancellation of the contract, HSW has discharged the onus of showing that it still has an arguable caveatable interest in the land, and therefore met the test for an order that the caveat not lapse. The Cathros have no such case.
[31] For these reasons, I am not satisfied that it is beyond argument that the contract is at an end, or that the interest created by the contract has been extinguished. If there is an implied term, it is at least arguably not the same implied term that the Cathros claim to invoke as the purported basis for cancellation.
Considering their purported implied term, I simply cannot conclude on material
8 Attorney-General of Belize v Belize Telecom [2009] UKPC 10 at [21].
presently before me that it meets the test of obviousness. Consequently HSW has established that it has an arguable interest in the Cathros’ land pursuant to the agreement for sale and purchase.
Result
[32] The application to sustain the caveat is granted on condition that HSW proceed with the diligent prosecution of the proceeding it has commenced in the District Court for specific performance of the agreement for sale and purchase. Leave is reserved to the Cathros to seek an order that the caveat lapse if there is any failure on the part of HSW to pursue the proceeding diligently or to comply with the District Court’s timetable. For that purpose a memorandum may be filed on
5 working days’ notice.
Costs
[33] As costs follow the event, the Cathros are ordered to pay to HSW costs on a
2B basis together with disbursements as fixed by the Registrar.
Associate Judge Sargisson
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