Infinity Enterprises NZ Ltd v Kinara Trustee Ltd
[2020] NZCA 309
•27 July 2020 at 2.30 pm
For a court-ready version, please follow this link (fee required).
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA342/2019 [2020] NZCA 309 |
| BETWEEN | INFINITY ENTERPRISES NZ LIMITED |
| AND | KINARA TRUSTEE LIMITED |
| Hearing: | 27 November 2019 |
Court: | Cooper, Clifford and Stevens JJ |
Counsel: | C L Bryant and A C Eager for Appellant |
Judgment: | 27 July 2020 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed.
BThe cross-appeal is dismissed.
CThe question of costs is reserved pending further submissions from the parties, a timetable for which is set out at [131].
____________________________________________________________________
REASONS OF THE COURT
(Given by Clifford J)
Table of Contents
Introduction [1]
Context — Factual [6]
A preliminary comment [6]
1985–1986: The original subdivision [7]
1986–1987: The road widening subdivision [12]
1989–1991: The BP subdivision [18]
Subsequent events [24]726 Great South [25]
12 Lakewood [26]
8 Lakewood [28]
The Driveway [31]
Context — Legal [33]
Indefeasibility [33]
Fraud [37]
Claims in personam [40]
Our approach to this appeal [44]
Was the Judge correct to find Kinara had not established Infinity
took title with LTA fraud? [49]
Was an easement created by implied grant in 1989? [51]
Was the Judge correct to find Kinara was required to prove fraud
by each intermediate owner? [58]
Did Infinity take title with LTA fraud? [65]Kinara’s formulation of fraud [65]
The evidence of Infinity’s fraud [85]
Was the Judge correct to find Infinity was estopped from
denying Kinara its use of the Driveway? [98]
Estoppel by silence: the correct approach [98]
Constructive knowledge a bar to an estoppel — the law [105]
Did Kinara have constructive knowledge that no legal right of
way existed? [113]
If not precluded by LTA constructive knowledge, did the
circumstances give rise to the estoppel the Judge recognised? [119]
Result [130]
Introduction
This appeal concerns the legal status of part of a driveway (the Driveway) which provides one-way access from Redoubt Road in Manukau to three adjoining properties: first, to 12 Lakewood Court; then over 12 Lakewood to 8 Lakewood Court; and finally, over 8 Lakewood to 726 Great South Road. We refer to those three properties individually by their street address and collectively as “the Properties”.
12 Lakewood, 8 Lakewood and 726 Great South are owned respectively by the appellant, Infinity Enterprises NZ Ltd (Infinity); a non-party, Lakewood Plaza Ltd (Lakewood Plaza); and the respondent, Kinara Trustee Ltd (Kinara).
The Driveway has existed for a considerable period of time. 726 Great South has the benefit, pursuant to a registered easement, of a legal right of way entitling it to use the Driveway where it passes over 8 Lakewood. Neither 726 Great South nor 8 Lakewood have the benefit, however, of a legal right of way entitling them to use the part of the Driveway which passes over 12 Lakewood. That is, no such right of way is recorded on the title to 12 Lakewood. In 2017 a dispute arose when Infinity declined Kinara’s request to allow the registration of such a right of way.
In proceedings commenced by Kinara that year Duffy J determined that the doctrine of equitable estoppel meant it would be unconscionable for Infinity to deny Kinara use of the Driveway where it crossed 12 Lakewood.[1] The Judge ordered Infinity to register a legal right of way in favour of 726 Great South.[2] Infinity now appeals that finding.
[1]Kinara Trustee Ltd v Infinity Enterprises NZ Ltd [2019] NZHC 1526, (2019) 20 NZCPR 318 [Judgment under appeal] at [215]–[223].
[2]At [266(b)].
Kinara also argued it was entitled to a legal right of way based on the existence of an equitable right of way in favour of 726 Great South over 12 Lakewood at the time Infinity acquired that property and Land Transfer Act 1952 fraud (LTA fraud) by Infinity at that time or subsequently. The Judge dismissed that claim.[3] Kinara cross‑appeals that finding.
Context — Factual
A preliminary comment
[3]At [62]–[79].
These proceedings have their origins in events that date back some 35 years. Neither of the parties had any involvement in or familiarity with those events, having both acquired their Properties in 2007. Most of the documentary material on which the case was based came from Council records. Not surprisingly, those records do not cover all factual matters, whether disputed or not. As a result, there are instances where that lack of evidence prevents factual disputes being resolved and asserted inferences from being drawn.
1985–1986: The original subdivision
The northern boundary of each of the Properties adjoins Redoubt Road, between the Southern Motorway to the east and Great South Road to the west. The Properties were originally part of a larger parcel of land owned by Hawkins Properties Ltd. Manukau City Council (the Council) approved the subdivision of that land by Hawkins into 15 lots in December 1985 (the original subdivision).
The original subdivision was premised on there being no access from Redoubt Road. On 3 May 1985 Hawkins’ engineers advised the Council:
We do not intend that any site has direct access to either Great South Road or Redoubt Road — all lots are served from internal cul-de-sacs with the single entry and exit indicated on the plan.
The Council’s 1985 approval was conditioned accordingly:
No vehicle entry to or egress from Lots 1 and 4 will be permitted for the Redoubt Road frontage, and no vehicle entry to Lots 1, 2 & 15 will be permitted from the northbound side of Great South Road. The applicant is to provide an undertaking that all prospective purchasers of those lots will be advised accordingly. (This restriction will also be recorded on the Council’s property information register).
A schematic diagram of the subdivision plan, prepared on that basis and approved by the Council, appears below:[4]
[4]The original subdivision plan, and other relevant title and related documents, were provided to us in electronic form. Those images, when reproduced for the purposes of this judgment, were not particularly clear. We have prepared the various schematic diagrams based on those original documents to facilitate comprehension.
As can be seen, access to all lots was to be from Lakewood Court, off Great South Road. That plan was lodged, and titles for 726 Great South (Lot 1, CT 63B/324) and 12 Lakewood (Lot 4, CT 63B/327) issued on 23 December 1986.
1986–1987: The road widening subdivision
Notwithstanding the clear basis on which Hawkins had originally applied for subdivision consent, on 17 January 1986 Hawkins’ engineers wrote to the Council, objecting to the condition that there would be no access from Redoubt Road. The background to that objection would appear to be as follows.
There had, by the time the subdivision consent was granted, been discussions between the Council and Todd Motors, the then intending purchaser of 726 Great South, regarding the possibility of “access to the site on a left turn only basis from Redoubt Road”. The Council would not agree to such access, based on safety and traffic control concerns. However, its records note that the Council’s City Engineer considered it might be possible with careful design to achieve such access and that Hawkins was investigating the practicalities of such a design. The matter was to be the subject of a further report. Hawkins’ objection was, in effect, a placeholder for that possibility.
By December 1986, with Hawkins’ objection still pending, there had been a change of heart by the Council on the question of access from Redoubt Road. In the first half of 1986 the National Roads Board had formalised anticipated requirements for the widening of Redoubt Road, exposing the Council to significant costs. To facilitate the necessary work, and lower the cost to the Council, Hawkins proposed to the Council it would gift a narrow strip of 726 Great South and 12 Lakewood adjoining Redoubt Road in exchange for permission to create a single point of access off Redoubt Road across the footpath onto the subdivision at the boundary of 726 Great South and 12 Lakewood. After some hesitation, reflecting continued opposition from Council traffic planners and the National Roads Board, that offer was formally accepted by the Council on 8 December 1986.
The deposited plan for that further subdivision (the road widening subdivision), as approved by the Council, as reproduced schematically below, showed a “Proposed R.O.W” across the north‑western corner of 12 Lakewood:
The details of the proposed right of way were recorded on the plan in a Schedule of Proposed Easements. At that time, it was not possible for a person to register an easement over their own land, reflecting the position at common law.[5] Notwithstanding, the Local Government Act 1974 allowed for provision to be made for the future registration of easements following the sale of subdivided land.[6] The relevant process required the deposited plan to include a “Memorandum of Easements”, registration of which would be required by the District Land Registrar at the point where either tenement was alienated by their common owner. However, the plan deposited by Hawkins instead recorded the right of way in a “Schedule of Proposed Easement[s]”, indicating they were not mandatory, notwithstanding the fact the Council had required provision to be made for the right of way to be reserved. Expert evidence called by Kinara from a former Senior Land Registrar suggested that this was simply an oversight by Hawkins’ surveyor, which was in turn overlooked by the Council.
[5]The position was eventually altered with the enactment of the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002: see Land Transfer Act 1952 (LTA), s 90E(1).
[6]Local Government Act 1974, s 309 (repealed); as inserted by Local Government Amendment Act 1978, s 2.
That plan was lodged and new titles issued on 3 July 1987. The title to 726 Great South (CT 66B/243) carried no memorial as to any appurtenant right of way, as it could not. Nor did the title for 12 Lakewood (CT 66B/244), as similarly it could not. However, both certificates of title attached the deposited plan showing the proposed right of way over a small triangular portion of the north-western corner of 12 Lakewood at its boundary with 726 Great South. In November 1987 both 726 Great South and 12 Lakewood were transferred to Fletcher Merchants Ltd.
1989–1991: The BP subdivision
In August 1989 Fletcher Merchants transferred 726 Great South to a Mr Robert Niven. The two properties were, for the first time, in separate ownership. A legal easement could at that point have been registered over 12 Lakewood in favour of 726 Great South. It was not. Nor was it before Fletcher Merchants transferred 12 Lakewood to a third company, Beijing Restaurant Co Ltd, in February 1990.
The August 1989 sale of 726 Great South to Mr Niven appears to have been in contemplation of the subsequent development by BP Oil NZ Ltd of a service station on the site, as by December 1988 BP had already made an application for town planning consent for that development. It did so on the basis that access was available from Redoubt Road, as previously agreed by the Council. That advice pointed out, however, that access continued to face opposition from the National Roads Board.
Plans subsequently prepared for BP, when preparing to apply for consent to subdivide 726 Great South in November 1989, show a right of way over 12 Lakewood in favour of 726 Great South as having already been registered. The Redoubt Road access proposal continued to face opposition from the National Roads Board (now restructured as Transit NZ), which asserted it had not been properly consulted when the Council agreed that access from Redoubt Road in 1986. On 5 March 1990 BP’s solicitors wrote to the Council, expressing the view that, given the terms of the road widening subdivision consent, neither the Council nor the Board could maintain an objection to access to the service station from Redoubt Road. On 3 April 1990 the Council wrote to BP’s engineers, confirming its approval for the subdivision on the basis that the existing access to 726 Great South from Redoubt Road over the Driveway would continue on an “in access” basis only.
In May 1990 Mr Niven transferred 726 Great South to BP; in March 1991 BP subdivided 726 Great South, creating 8 Lakewood; and in August 1991 BP transferred 8 Lakewood back to Mr Niven.
The deposited plan, schematically reproduced below, shows BP having reserved two rights of way over 8 Lakewood in favour of 726 Great South. As can be seen, the bottom right of way provided access over 8 Lakewood to Lakewood Court, while the top (highlighted) right of way followed the path of the Driveway:
That plan does not refer to a proposed or an actual right of way over 12 Lakewood (Lot 4) in favour of either of 726 Great South (Lot 1) or 8 Lakewood (Lot 2).
Subsequent events
The relevant subsequent history of the Properties can be summarised fairly briefly.
726 Great South
BP operated the service station at 726 Great South, until it was decommissioned, and the cleared site sold to Kinara in August 2007. A car yard then operated on the site for some time. In April 2010, Kinara obtained Council consent for the construction of a mixed commercial development. Kinara completed construction of that development in 2011.
12 Lakewood
A restaurant operated on 12 Lakewood for some time after the sale of that property by Fletcher Merchants in 1990. In 1997 the site was redeveloped as a motel. That motel was still in operation when Infinity acquired the site in November 2007.
In April 2016 Infinity commenced the process to obtain resource consent to construct a 16 storey, principally residential, building at 12 Lakewood. Kinara brought these proceedings in late 2017. Infinity obtained its resource consent in September 2018.
8 Lakewood
Mr Niven sold 8 Lakewood in October 1991 and the new owner erected a Valentine’s restaurant on the site. In January 2013 Preet and Edge Ltd acquired 8 Lakewood, seemingly intending to redevelop the site. On 1 July that year the lawyers for Preet and Edge wrote to Infinity’s lawyers, drawing attention to the fact 8 Lakewood had no legal right of way over 12 Lakewood:
It has come to our client’s attention that there is no mention of the Right of Way in our respective clients’ titles … which has been marked as “(A) — Proposed R.O.W” in the plan attached to your client’s title.
…
It appears that when the properties were subdivided the proposed easement “A” fell off the radar, was not picked up by anyone and did not get registered.
Infinity’s lawyers were asked to confirm that it would agree to that omission being rectified, and the right of way registered on both titles. On 31 July 2013 Infinity declined to do so.
Preet and Edge nonetheless commenced the process to obtain resource consent for the redevelopment of 8 Lakewood, and in March 2014 consent was granted for the construction of a multi-storey apartment building. The consent contained the following advice:
The consent holder is advised that No 8 Lakewood Court has no rights of way over the vehicle entrance from Redoubt Road across part of No 12 Lakewood Court. This vehicle access could therefore be blocked or obstructed at any time. It is recommended that the consent holder should take appropriate legal advice on the implications of this situation.
Lakewood Plaza acquired 8 Lakewood, with the benefit of that consent, in December 2014. In June 2017 Lakewood Plaza commenced the construction of the consented apartment block at 8 Lakewood. About that time, with Infinity’s knowledge, it denied Kinara the use of the Driveway, and dug the Driveway up where it crossed 8 Lakewood. Kinara successfully challenged that denial in arbitral proceedings. Lakewood Plaza reinstated the Driveway on 8 Lakewood.
The Driveway
Thus, throughout that time, interrupted only by Lakewood Plaza’s actions in 2017, the Driveway has provided access to the Properties. That is, notwithstanding this dispute, Infinity has allowed continued use of the Driveway for access to 726 Great South. That remains the case today. By the same token, the right of way proposed at the time of the road widening subdivision was never registered over 12 Lakewood, as the servient tenement, or memorialised on the titles of either 726 Great South or 8 Lakewood as the dominant tenements.
We return to those events as they involve Infinity and Kinara when we consider the legal issues raised by this appeal.
Context — Legal
Indefeasibility
Central to New Zealand’s system of land ownership is the protection the Land Transfer Acts have provided to a registered proprietor (here Infinity) against claims based on unregistered interests (here Kinara’s claimed right of way). That protection is generally described, using a term not defined in the legislation, as indefeasibility of title.
The Land Transfer Act 1952 (the LTA) is the statute relevant to the present case.[7] The protection of indefeasibility is established in large part by ss 62 and 182 of the LTA which (as relevant) provide:
62 Estate of registered proprietor paramount
Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963, the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever …[[8]]
…
182 Purchaser from registered proprietor not affected by notice
Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
[7]Subsequent to the events at issue in this appeal and the commencement of litigation, the Land Transfer Act 1952 was replaced by the Land Transfer Act 2017. Because the 1952 Act applies to these proceedings, we adopt the terminology used by that Act.
[8]It was accepted by all involved that the statutory exceptions found in subs (a), (b) and (c) were not relevant as between Kinara and Infinity. The reference in subs (b) to omitted easements does not apply to equitable easements said to be created after land is brought under the LTA: Sutton v O’Kane [1973] 2 NZLR 304 (CA) at 315 per Wild CJ, 320 per Turner P and 350 per Richmond J.
McMullin J explained the combined effect of ss 62 and 182 in Bunt v Hallinan:[9]
These two sections are the cornerstone of the Land Transfer system of land registration. On them rests the proposition that the title of the registered proprietor of any interest under the Land Transfer Act is paramount. They have appeared in the legislation since the Land Transfer Act 1870. …
One of the main purposes of the land transfer legislation was to abolish the need, a feature of the old deeds system of registration, to investigate the chain of title. With the exception of fraud the legislation makes the registered title of a bona fide purchaser for value immune from attack at the instance of persons claiming to have prior unregistered interests. A purchaser acquiring land under the Act need be concerned only with such interests as appear in the Register, and he can ignore all other interests without risk to his title provided that his acquisition of ownership is not affected by fraud.
[9]Bunt v Hallinan [1985] 1 NZLR 450 (CA) at 457–458 (citation omitted).
The protection provided by indefeasibility has, however, never been absolute. Kinara relies on two of the most significant exceptions to the protection of indefeasibility: fraud and claims in personam.
Fraud
The first of those two exceptions, fraud, is based on the words “except in the case of fraud” found in each of ss 62 and 182. LTA fraud has a particular meaning, the terms of which resist precise definition. In Bunt v Hallinan McMullin J continued:[10]
But ss 62 and 182 do not define the fraud which is not to be allowed to operate to defeat the claim of a person setting up an unregistered interest. Fraud has a wide meaning. “No definition of fraud can be attempted, so various are its forms and methods”, per Starke J in Stuart v Kingston.[11] But while fraud as a juristic concept includes constructive fraud in equity, it has long since been settled that fraud under the Torrens system of land registration is different from fraud as a concept of equity.
[10]At 458.
[11]Stuart v Kingston (1923) 32 CLR 309 at 359.
In his subsequent review of the authorities, McMullin J cited the following passage from the Privy Council’s decision in Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd, as to the meaning of LTA fraud:[12]
If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent, and so also fraud may be established by a deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear. It is not, however, necessary or wise to give abstract illustrations of what may constitute fraud in hypothetical conditions, for each case must depend upon its own circumstances. The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest.
[12]Bunt v Hallinan, above n 9, at 460–461; quoting Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1926] AC 101 (PC) [Waimiha (PC)] at 106–107.
Kinara pleaded that Infinity’s fraud was evidenced by what Infinity knew of the legal basis of the Driveway and its use when it acquired 12 Lakewood in 2007 and by what it did afterwards, in particular allowing Kinara to continue using the Driveway and to redevelop 726 Great South on the basis of its claimed entitlement to that ongoing use.
Claims in personam
The second exception, not reflected in any specific provision of the LTA but recognised by the courts, is that of claims in personam against the registered proprietor: that is claims against the registered proprietor on account of her own conduct. As the Privy Council confirmed in Frazer v Walker, indefeasibility:[13]
… in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a Court acting in personam may grant.
[13]Frazer v Walker [1967] NZLR 1069 (PC) at 1078.
In Regal Castings Ltd v Lightbody, Tipping J explained:[14]
[148] An in personam claim against a registered proprietor looks to the state of the registered proprietor’s conscience and denies him the right to rely on the fact he has an indefeasible title if he has so conducted himself that it would be unconscionable for him to rely on the register. Such a claim is concerned with the personal obligations of the registered proprietor rather than with the sanctity of their title. A successful in personam claim indirectly affects the registered proprietor’s title, such as when a decree of specific performance is made; but the claim is not a claim to the land as such. It is a claim that the registered proprietor perform the contract of sale.
[14]Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 (footnotes omitted).
As Tipping J went on to explain, an in personam claim must have three characteristics: [15]
(a)It must be a recognised cause of action.
(b)It must involve unconscionable conduct on the part of the current registered proprietor.
(c)It must not be inconsistent with the objects of the Torrens system.
[15]At [157]–[160].
Kinara, in its in personam claim, pleaded that Infinity effectively represented to it, after it acquired title to 12 Lakewood, that Kinara was entitled to its use of the Driveway. Kinara acted on that representation, including in the way it redeveloped 726 Great South. Accordingly, it would be unconscionable for Infinity to refuse to recognise that entitlement, and it was estopped from doing so. The appropriate relief was to require Infinity to register a legal right of way in favour of 726 Great South.
Our approach to this appeal
At trial Kinara relied principally on the proposition that Infinity had acted fraudulently. In doing so, and as explained, Kinara pointed to a range of circumstances, both at the time Infinity took title and subsequently.[16]
[16]In our view, the better approach is to regard the fraud exception as being based on conduct which precedes the registration on the relevant title of the allegedly fraudulent proprietor. As Peter Blanchard (writing extrajudicially) has explained, conduct of the registered proprietor after registration is better treated as part of an in personam claim: Peter Blanchard “Indefeasibility under the Torrens System in New Zealand” in David Grinlinton (ed) Torrens in the Twenty‑first Century (LexisNexis, Wellington, 2003) 29 at 46–47. We recognise, however, that is a contested point of view.
The Judge determined Kinara’s fraud claim on the basis Kinara was unable to prove the equitable easement it relied on still existed in 2007.[17] On that basis, she did not consider whether Infinity had acted fraudulently. Rather, the Judge concluded Infinity was estopped because of the same conduct Kinara had pleaded as constituting fraud: that is, conduct at the time of its acquisition of 12 Lakewood and subsequently.[18]
[17]Judgment under appeal, above n 1, at [62]–[71].
[18]At [208]–[223].
The in personam exception, pursuant to which Kinara brought its estoppel claim, is founded generally — but we acknowledge not exclusively — on conduct of a registered proprietor after going on a title. That is how Kinara pleaded its estoppel cause of action, by reference to a post-acquisition sub-set of the conduct said to evidence Infinity’s fraud.
The parties approached this appeal on the basis that it was only if Infinity succeeded on its challenge to the Judge’s finding of an estoppel that it would be necessary to consider whether Infinity had acted fraudulently. The difficulty with that approach, given the way the Judge reasoned, is that it effectively rolls up into one claim Kinara’s separate claims for LTA fraud and, in personam, of estoppel. That, we have found, tends to confuse the issues involved.
To avoid that difficulty, we consider the issues raised by this appeal on the following basis:
(a)First, whether Infinity’s claim to the protection of indefeasibility is defeated by LTA fraud at the time it took title to 12 Lakewood. We conclude that it is not.
(b)We then consider the Judge’s finding of estoppel under the in personam exception. We do not agree with that finding for a variety of reasons.
Was the Judge correct to find Kinara had not established Infinity took title with LTA fraud?
Kinara’s claim that Infinity’s indefeasible title is defeated, as regards the proposed right of way over 12 Lakewood, is based on the proposition that the right of way was created by implied grant when Fletcher Merchants sold to Mr Niven, and Infinity took title with knowledge and dishonestly. In analysing that claim the Judge found the easement had been created by implied grant but that Kinara had failed to prove it was still in existence when Infinity took title. On that basis, she did not address the question of whether Infinity had, as a matter of law, acted fraudulently.
We disagree with the Judge that the criteria for the creation of an easement by implied grant, in terms of the law prior to the LTA, were satisfied. Furthermore, as we go on to explain, the provisions of the LTA create real doubt that even if an easement by implied grant had been created, any claim for its recognition had survived by the time Infinity purchased 12 Lakewood. Even if that were a possibility, we do not think the requirements for knowledge and dishonest intention required for LTA fraud could be established against Infinity at that time.
Was an easement created by implied grant in 1989?
Wheeldon v Burrows is, as the Judge recognised, authority for the proposition that — at equity as opposed to under the LTA — an easement can arise by implied grant when a parcel of land is subdivided, and one part passes into separate ownership either at the time of subdivision, or subsequently.[19] An easement will be recognised as having been so created:[20]
(a)where, before subdivision or subsequent transfer, the common owner uses their land in such a way as would require an easement if the relevant parts of the land were in separate ownership;
(b)the enjoyment of that easement is continuous and apparent or reasonably necessary for the reasonable enjoyment of the dominant tenement; and
(c)the common owner transfers the dominant tenement and retains the servient tenement.
[19]At [48]–[49]; referring to Wheeldon v Burrows (1879) 12 Ch D 31 (CA).
[20]DW McMorland and others Hinde, McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [16.036].
The relevant point in time for that assessment is, on the face of things, 15 August 1989 when Fletcher Merchants transferred 726 Great South to Mr Niven. There was little, if any, direct evidence as to the use at that time of the proposed right of way over the north west corner of 12 Lakewood for access to 726 Great South. Both Properties were, at that time, bare land.
An aerial photograph, taken on 4 February 1987, appears to show some form of access from Redoubt Road to that boundary point but — other than earthworks on 726 Great South — little else in terms of an accessway. Beyond that, the documentary record is bare. The Council’s records establish Hawkins’ engineers wrote to the Council on 29 September 1986, enclosing plans for the road widening subdivision. The covering letter noted those plans showed the proposed easement “to cover the single crossing point to Redoubt Road”. The engineers proposed the crossing only be constructed as far as the Redoubt Road boundary at that time, and that it not be a condition of approval that it be constructed over the rest of its length: that is, over what would become 8 Lakewood for the benefit of the subdivided 726 Great South. The Council agreed. Therefore, when Hawkins’ engineers wrote to the Council in August 1987, confirming the right of way had been constructed to an acceptable standard, the inference is that what had been constructed was only the crossing off Redoubt Road, to the boundary of 726 Great South and 12 Lakewood but no further.
Plans for the construction of the Driveway as it currently exists were prepared as part of the BP subdivision. In fact, BP’s engineers advised the Council on 31 January 1991 that the Driveway had been constructed. But that is not evidence as to the position in August 1989. There is simply no evidence, in terms of use or necessity, as to access from Redoubt Road across 12 Lakewood to 726 Great South at that time.
Furthermore, BP knew from the advice it received that access from Redoubt Road faced continuing opposition from the National Roads Board. It called on the assistance of its solicitor in March 1990, some time after its August 1989 acquisition, to overcome the Council’s own reluctance to confirm that access. It was not until April 1990 that the Council finally confirmed the position to BP’s satisfaction.
Those considerations also count against the Judge’s conclusion as to continuous use and necessity.
We are therefore unable to agree with the Judge’s conclusion that the position in August 1989 was sufficient to satisfy the Wheeldon v Burrows criteria of continuous use and necessity, particularly as regards that part of the land where, following that subdivision, the BP service station was built.
Was the Judge correct to find Kinara was required to prove fraud by each intermediate owner?
Hinde, McMorland and Sim describe the significance under the LTA of the doctrine of creation of an easement by implied grant as follows:[21]
If the easement was allegedly created by implied grant or reservation after the burdened land was brought under the Land Transfer Act, it is clear there cannot be a legal easement, but the transaction may be construed as a contract to create an easement, which takes effect as an equitable interest. As such it is enforceable between the parties to the original transaction under the in personam exception to indefeasibility, and could perhaps be converted into a registered easement by means of specific performance of the contract. But it would cease to be enforceable against a third party taking a registered interest in the burdened land without fraud.
[21]At [16.036] (footnotes omitted). Although the commentary now refers to the 2017 Act, the same principles were applicable to the 1952 Act: compare DW McMorland McMorland on Easements, Covenants and Licences (3rd ed, LexisNexis NZ, Wellington, 2015) at [16.036].
On that basis, the Judge determined that for the equitable easement created by implied grant to be in existence when Infinity acquired 12 Lakewood, Kinara needed to prove that it had not been extinguished earlier by the occurrence of a purchase for value without fraud. As Mallon J explained in Rarere v Phildagap Ltd, that is because an equitable interest in land does not bind a subsequent registered proprietor.[22] It is only when a legal easement has been created that the right “permanently binds the land over which it is exercisable and permanently subsists for the advantage of the land for the benefit of which, or the person for whose benefit, it was created”.[23] An equitable easement, however created, is not a registrable interest. It is only when that interest is recorded in an instrument in the necessary form required by the LTA that it can be registered. Until then the caveat procedure is the manner by which some measure of protection is obtained for equitable interests.[24]
[22]Rarere v Phildagap Ltd (2011) 14 NZCPR 133 (HC) at [31].
[23]McMorland and others, above n 20, at [16.001].
[24]At [10.005].
Kinara argued, however, that all it needed to prove was that the intermediate owners between Fletcher Merchants and Infinity knew of and recognised the adverse interest, as none of them had ever asserted indefeasibility of title. Considering use of the Driveway had been permitted since 1989, this was a burden Kinara had satisfied.
This was, Kinara argued, the usual approach when the Court was required to consider an equitable interest that had passed through successive owners. It was, moreover, the logical outcome: it simply did not make sense to require Kinara to prove each intermediate owner took title with a dishonest intent to defeat the unregistered interest. The available evidence (though scant) suggested they had all done the opposite, and recognised the interest inasmuch as they had allowed the owner of 726 Great South to use the accessway.
Kinara relied upon a number of decisions in support of its approach, including McCrae v Wheeler, Merrie v McKay, Sutton v O’Kane and Bunt v Hallinan.[25] Each of those cases involved a disputed claim for recognition or registration of an unregistered, equitable, interest. In Bunt v Hallinan, and as already noted, the interest was claimed on the basis of an unregistered lease. The other three cases all involved claims for the recognition of a legal right of way based on an unregistered equitable interest. In those cases, the Court did not approach the claim asking for proof of the existence of the equitable easement as Duffy J did.
[25]McCrae v Wheeler [1969] NZLR 333 (SC); Merrie v McKay (1897) 16 NZLR 124 (SC); Sutton v O’Kane, above n 8; and Bunt v Hallinan, above n 9.
We are therefore not necessarily persuaded those cases support Kinara’s position. Having said that, the final sentence in the passage cited above at [58] from Hinde, McMorland and Sim can, perhaps, be read two ways. The first is to read it as the Judge obviously did. The second is to read it as Kinara does: that is, the potential enforceability under the in personam exception survives intermediate transfer and only ceases to be enforceable — here — if Infinity can prove it took title to 12 Lakewood without fraud.
Hinde, McMorland and Sim’s reference to, and reliance on, the in personam exception as regards the ability to procure recognition of an easement created by implied grant, in our view, strongly suggests the Judge’s approach was correct. The conclusion we have reached on the first step in Kinara’s claim, namely that we are not satisfied even under the old law an easement would have arisen by implied grant, and the conclusion we reach below that Kinara did not establish Infinity acted with fraud, mean that we need take that difficult point no further.
Did Infinity take title with LTA fraud?
Kinara’s formulation of fraud
If Kinara’s approach to the creation and continued existence of its asserted, equitable, right over 12 Lakewood is correct, then to defeat Infinity’s reliance on ss 62 and 182 indefeasibility it would have to prove Infinity took its title fraudulently. As noted, McMullin J explained in Bunt v Hallinan that no definition can be attempted.[26] A number of general explanations of LTA fraud have been provided by the courts over time not all of which, unfortunately, can easily be reconciled with each other. Kinara relied in particular on Salmond J’s discussion of the LTA fraud in Waimiha Sawmilling v Waione Timber for the proposition that registration with actual knowledge of an existing adverse unregistered interest will generally amount to fraud.[27]
[26]Bunt v Hallinan, above n 9, at 458; quoting Stuart v Kingston, above n 11, at 359.
[27]Waimiha Sawmilling Co Ltd (in liq) v Waione Timber Co Ltd [1923] NZLR 1137 (CA) [Waimiha (CA)].
In that case the land in question was the subject of a dispute relating to an agreement for sale and purchase of millable timber on the land. The owner purported to determine that agreement and had resumed possession of the land. Proceedings were commenced challenging that action. At first instance the owner’s action of determination and resumption of possession was upheld. In the meantime, the owner had entered into an agreement to sell the land to Waione Timber, the respondent in the Court of Appeal.[28] When, sometime later, the Court of Appeal reversed the Supreme Court decision, and found that the owner (and vendor to Waione) had acted unlawfully,[29] the purchaser of the millable timber, Waimiha, sued Waione to enforce its rights, alleging fraud.
[28]At 1166–1167.
[29]Waimiha Sawmilling Co Ltd (in liq) v Howe [1920] NZLR 681 (SC and CA).
The case turned on the circumstances in which a caveat registered by Waimiha to protect its interests in the millable timber pending determination of the appeal was, at its application, ordered to be removed enabling the transfer to Waione to be registered.
Waione’s agreement was to purchase the unencumbered title, together with all standing timber. At the same time, the vendor provided Waione with an indemnity against Waimiha’s claim to the trees.[30]
[30]Waimiha (CA), above n 27, at 1170.
In the Court of Appeal Waimiha based its claim against Waione on three propositions: that Waione had acquired the land subject to its interests in the contract; that Waione acquired the land subject to its pending litigation interest; and that Waione acquired title fraudulently; that is, and as Salmond J put it:[31]
… with notice of the timber agreement and of pending litigation relative thereto, and with intent to destroy the plaintiff company’s rights under that agreement if they were established by that litigation …
[31]At 1172.
Salmond J summarised the issue the Court of Appeal faced in the following passage:[32]
Now, in the present case it cannot, of course, be contended that the defendant company, when it purchased the land, had actual knowledge that the plaintiff company possessed any rights which would be destroyed by the purchase. The Supreme Court had declared that no such rights existed. The defendant company knew, however, that such rights were claimed, and that an appeal was pending from the judgment of the Supreme Court. The defendant company may have believed in good faith that the judgment of the Supreme Court was correct, and that the appeal would be unsuccessful. But it knew also that the appeal might be successful, and it intended to acquire and hold an unencumbered freehold, and to destroy by means of this purchase pendente lite any rights which the plaintiff might succeed in establishing on appeal. The defendant company did not know that the plaintiff company’s rights existed, but it knew that such rights were claimed and might exist, and it intended to destroy them if they did exist. The question for determination is whether such action on the part of the defendant company amounted to honesty or to dishonesty — fraud or bona fides — within the meaning of the Land Transfer Act.
[32]At 1173–1174 (emphasis added).
Immediately after that passage, the Judge summarised the position in the following words, on which Kinara placed considerable weight:[33]
Where a purchaser actually knows for certain of the existence of an adverse right which will be destroyed by his purchase he is, as already indicated, guilty of fraud. Where, on the contrary, he has no knowledge that such a right exists or is even claimed he is a purchaser in good faith.
[33]At 1174.
Before us, Mr Barker QC for Kinara contended that this statement was good authority for the proposition that registration with actual knowledge of the adverse interest generally amounts to fraud. However, as the context makes clear, the “adverse right” referred in that passage is the adverse right which would have existed if at that time the Supreme Court had upheld Waimiha’s original challenge to the determination of the timber milling contract. That is, if Waione had purchased knowing for certain of that right, and intending to destroy it by registration, it would have acted fraudulently. Salmond J made that clear when he continued:[34]
In between these two extremes there lie those intermediate cases in which, although there is no certain knowledge of the existence of an adverse right, there is knowledge of a claim and of the possibility of that claim being well founded. The purchaser does not actually know that the right exists, but he knows that it may exist, or fears or suspects that it exists, or doubts whether it exists or not. If in such circumstances and in such a state of mind he acquires the property intending to hold it for an unencumbered title and to destroy the right in question if it does exist, is the case one of fraud or one of bona fides within the meaning of Act? An extreme view, which cannot be supported, would place all cases of this kind within the sphere of fraud. According to this view, knowledge of the existence of an adverse claim, coupled with an intent to defeat that claim by a purchase of the property, is always inconsistent with good faith, even though the claim is not known or believed to be well founded. This view, however, is not in conformity either with the spirit and purpose of the Land Transfer Act or with any reasonable standard of good faith and honest dealing.
[34]At 1174 (emphasis added).
Moreover, the passage Mr Barker relied on must be viewed in the context of the statement earlier in the judgment that fraud “means dishonesty — a wilful and conscious disregard and violation of the right of other persons”.[35]
[35]At 1173. See Potts v Anderson (No 1) HC Wanganui CIV-2003-483-304, 5 April 2005 at [76]–[77].
It is also to be remembered the case went on to the Privy Council. Their Lordships were little troubled in upholding the Court of Appeal’s conclusion that Waione had not acted fraudulently. “Fraud” required actual fraud, dishonesty of some sort. Thus:[36]
If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent, and so also fraud may be established by a deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear. It is not, however, necessary or wise to give abstract illustrations of what may constitute fraud in hypothetical conditions, for each case must depend upon its own circumstances. The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest.
[36]Waimiha (PC), above n 12, at 106–107.
What exactly is required in addition to actual notice is debatable, and courts have generally avoided fashioning general statements of wide application. It is clear, however, that actual notice of the interest alone, or actual notice with mere acquiescence in a use consistent with that interest, is insufficient. In that context the decisions of this Court in Sutton v O’Kane and Bunt v Hallinan make significant statements as to the nature of LTA fraud.[37]
[37]Sutton v O’Kane, above n 8; and Bunt v Hallinan, above n 9.
The facts in Sutton v O’Kane are not dissimilar to those here. A builder purchased and subdivided a plot of land, intending to build a house on each new lot. A right of way over one of the lots in favour of the other was shown on the approved subdivision plan which was endorsed with the consent of the local council. That consent referred to the formation of a private way which could have been recorded as a compulsory future grant by the local Council under a similar process to that which Kinara says should have been followed in this case.[38] However, no such condition was imposed by the local Council and the right of way shown on the subdivision plan was never registered. The builder erected a house on each of the lots, with access to one via a formed driveway over the other. In due course he sold both properties. The servient tenement was sold to a Mr and Mrs Dalton. Their agreement for sale and purchase referred to the existence of the right of way: the right of way had still, however, not been registered on the title. As the report of the judgment notes:[39]
The land was therefore correctly described in the agreement for the sale of lot 2 to Mr and Mrs Dalton but the fact that the conditions of consent were noted on the title in no way carried with it any legal implication that a right of way had in fact been created or reserved.
[38]See above at [16].
[39]Sutton v O’Kane, above n 8, at 308.
The dominant tenement was sold to Mr O’Kane. While the Daltons owned the servient tenement, use of the right of way occurred without difficulty. The position changed when the Daltons sold the servient tenement to the Suttons.
The Suttons knew of Mr O’Kane’s use of the driveway before their purchase. They did not know no legal right of way existed. The Suttons allowed use of the driveway to continue after their purchase. When later troubled by the way Mr O’Kane was then using the driveway and by the prospect of him selling the property to a person they did not welcome as a neighbour, they discovered the true legal position. They subsequently instructed their lawyers to require the O’Kanes to cease use of the unregistered right of way, and fenced it off.
Mr O’Kane brought an action against the Suttons for an injunction restraining them from denying him use of the right of way.
In the Supreme Court, White J had found that Mr Sutton was not guilty of fraud up to the point in time when he became registered proprietor. That conclusion was not challenged on appeal.[40] Rather, the contention was that so‑called supervening fraud had occurred subsequently when, almost a year later, the Suttons denied Mr O’Kane the use of the right of way and fenced off the boundary. Turner P, in the minority, considered fraud had been established.[41] Neither of the majority, Wild CJ and Richmond J, agreed.
[40]At 313.
[41]At 334.
Wild CJ said:[42]
There is no doubt that the Suttons took advantage of the discovery of a mistake, but it was a mistake which had misled all concerned in equal degree and it was certainly not of their making. Their action could certainly be regarded as unneighbourly but I cannot see that it was fraudulent. For a person who has accepted a situation upon an erroneous belief to stand on his rights when he discovers their true nature might well be less than generous but in my view it is not dishonest. Mr O’Kane pleading was that the Suttons “repudiated their obligations” with fraudulent intent. I do not think it is fraudulent repudiation simply to disavow obligations that are found not to exist.
[42]At 314.
Richmond J agreed. Speaking of the point in time when the Suttons required the use to cease, he wrote:[43]
There is nothing in the evidence to suggest that at that stage the Suttons did not honestly believe that Mr O’Kane had no legal right whatsoever to use the right of way. Likewise I can find no evidence which would support the view that at any time up to and including the trial of the action they must have altered that belief. In these circumstances, I personally find it impossible to describe their conduct as dishonest. It could well be described as inconsiderate to an extreme degree and highly unreasonable and selfish, but that is all.
[43]At 347.
Bunt v Hallinan concerned a claim against a registered proprietor for recognition of an unregistered lease. The registered proprietor, Mr Hallinan, was the third successor in title to the original grantor of the lease. Mr Hallinan knew full well of the unregistered lease, and the Bunts’ use of the land pursuant to it. But the majority found:[44]
In acting in a way that would have left the appellants to enjoy their rights under the lease had he been advised that they held rights as lessees which he could not defeat, we cannot see that the respondent acted dishonestly, even though after settlement he acted in a highhanded manner. The fact that he did not want tenants who paid less than two cents per week, and would rather have abandoned the transaction than have them, is no indication to the contrary. He did not acquire title with a view to depriving the appellants of their rights; on the contrary, he had been advised that they had none.
[44]At 462.
As the Supreme Court recently remarked (albeit in the context of a right to rectification) the policy underlying s 182 strongly discourages the Court from creating enforceable rights based on mere notice:[45]
[101] By reason of s 182, taking title with notice of a right to rectification does not amount to fraud. This is because consistency with the policy of s 182 requires the court to refrain from recognising or creating in personam rights which are based simply on notice. If, by mistake, the open space covenant had not been notified on the title and Green Growth had taken title with notice of that mistake, it would, nonetheless, have taken title free of the covenant.
The evidence of Infinity’s fraud
[45]Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2018] NZSC 75, [2019] 1 NZLR 161.
Against that background, we turn to the evidence Kinara pointed to on appeal when asserting Infinity acted with knowledge and with a dishonest intention in 2007 — an assertion the Judge found she did not need to determine.
In doing so, Kinara drew on the trial Judge’s findings of fact as relevant to its successful claim of equitable estoppel. In terms of events at the time of Infinity’s purchase, and based directly on the factual evidence, the Judge first found:
(a)It was a mistake the proposed right of way noted on the deposited plan was never registered. If the correct process had been followed in 1989 that mistake would not have happened.[46]
(b)No-one became alert to the problem until July 2013 when the owners of 8 Lakewood approached Infinity.[47]
(c)At the time Kinara and Infinity purchased the Properties in 2007, the Driveway would have appeared to be one seamless and properly constructed roadway that ran for its entirety from the slip road leading off Redoubt Road, across the topmost parts of 12 and 8 Lakewood, through to 726 Great South. It would have been clearly visible to anyone looking at 8 or 12 Lakewood from Redoubt Road.[48]
(d)The materials used in the construction of the Driveway and the courtyard areas of the three properties were very similar, so much so that an onlooker “would have been unable to tell whether the boundary of 12 Lakewood Court went under or abutted” the proposed right of way.[49]
[46]Judgment under appeal, above n 1, at [39].
[47]At [40].
[48]At [84].
[49]At [84] (emphasis added).
The Judge then went on to infer several findings of fact concerning advice Infinity was more likely than not to have received from its lawyer Mr Kashyap. She based her assessment primarily on expert conveyancing evidence Kinara called outlining what normal conveyancing practice for a purchase of the kind would have involved.[50] That is, given the presence on the deposited plan attached to the title for 12 Lakewood of the reference to the proposed right of way a lawyer in Mr Kashyap’s position would have made “full enquiries to see if there were any problems” with the property’s legal character.[51]
[50]At [138]–[140].
[51]At [138].
The Judge also relied upon negative inferences she drew from Infinity’s action in not calling two witnesses. The first of these was Mr Kashyap. The second was Mr Giri Gupta, one of the directors of Infinity, and father of the other two directors, Mr Anuj and Ms Sheil Gupta. Only Mr Anuj Gupta gave evidence for Infinity at trial, and Duffy J concluded that given Mr Giri Gupta’s senior role in the family decision‑making process, he would have had relevant evidence to give which could have been expected to support the evidence given by Mr Anuj Gupta. Accordingly, the fact that neither Mr Kashyap nor Mr Giri Gupta were called to give evidence allowed adverse inferences to be drawn against Infinity.[52]
[52]At [158]–[177].
On that basis the Judge reasoned:
(a)Mr Kashyap’s search of the title to 12 Lakewood would have revealed the reference on the attached deposited plan to a proposed right of way.[53]
(b)Mr Kashyap would then have asked Infinity whether there was an accessway in use in the area of that proposed right of way. Mr Gupta would have relayed to Mr Kashyap what he had seen from visiting the site: as the Judge put it a “seamless well‑constructed and well‑established roadway running off Redoubt Road and along the northern front of Lot 4/12 Lakewood Court, 8 Lakewood Court and 726 Great South Road”.[54]
(c)With that knowledge of the physical circumstances on the site, Mr Kashyap would have realised there was an established right of way in use across 12 Lakewood. That would have been enough to trigger Mr Kashyap obtaining copies of the titles and deposited plans for 8 Lakewood and 726 Great South.[55]
(d)From those documents he would have become aware of the unregistered right of way across 8 Lakewood in favour of 726 Great South. Mr Kashyap would in turn have realised “the probability that the owners of the neighbouring land had an expectation of this use continuing”.[56]
(e)Mr Kashyap would then have advised Infinity of the existence of that unregistered right of way, and of its (unenforceable) legal status.[57]
[53]At [145].
[54]At [145].
[55]At [146].
[56]At [147].
[57]At [149].
Thus the Judge concluded:[58]
In such circumstances I find it more probable than not that Mr Kashyap advised Infinity at the time of the purchase that, whatever use was being made of [the proposed right of way], it was not a legal easement and, so, it was unenforceable against Infinity. I cannot accept that Mr Kashyap would have known all that I am satisfied he knew, and yet take no steps to advise Infinity there was an unregistered right of way in use, and what this might mean legally. Matters such as the legal effect of an unregistered right of way on the title of Lot 4/12 Lakewood were the very reason Mr Kashyap was instructed to conduct a pre-purchase inspection.
[58]At [149].
On that basis, the Judge rejected Mr Anuj Gupta’s evidence, given in cross‑examination, that he did not know of the adverse interest constituted by the unregistered right of way.[59]
[59]At [150].
Before us, Mr Barker was forced to caution against the final inference, that is, point (e). That was not surprising. Given the finding in Bunt v Hallinan, it would be difficult to accuse Infinity of dishonesty if it was following its lawyer’s advice that the Driveway was not enforceable against it.
Putting that slight problem to one side, Mr Barker relied in particular upon the following passage of Mr Anuj Gupta’s cross‑examination as evidence of fraud:
Q.If the right of way did exist or was in place at that time, would you have had any particular objection to recognising it after you purchased the property?
A.Well we were relying more on a legal opinion about the title, to be honest. My position is still the same, like, if the lawyer says it’s okay, there’s no adverse things with the property, that’s where the buck stops.
Q.So is reference to the idea of it having a — you thought you had a “clean title”?
A.Yes.
Q.And by clean you mean nothing was noted on that title?
A.No adverse — no adverse items were noted on the title which affect our purchase. That’s what I mean by it.
Q.And so you thought that if it had a clean title, you wouldn’t have to recognise that adverse interest at all?
A.I didn’t know about any adverse interests, so why should I be worried about [one]?
Q.Well, just that the question I asked that if the property had — did you understand that the property — well, was your intention at the time you purchased that if you had a clean title, you would not have to recognise any adverse interest at all?
A.That is what I would assume.
(Emphasis added.)
Mr Barker suggested the italicised exchange “at its core” amounted to evidence of a dishonest intention to defeat any contrary interest Kinara asserted. With respect, we think that misreads the background to the passage. As his penultimate answer shows, Mr Anuj Gupta’s position was that Infinity enjoyed clean title because Mr Kashyap told him there was no adverse interest, rather than Infinity cleared an adverse interest by purchasing with clean title.
Nor do we think the failure to call Mr Giri Gupta or Mr Kashyap provides a sufficient basis for the Court to infer that a dishonest intention existed. Mr Barker endorsed the Judge’s finding that Mr Kashyap concluded that an unregistered accessway ran across Lot 4. But, as noted, Mr Barker contended it was not necessary for the Judge to reach her further conclusion, namely that Mr Kashyap advised Infinity of that fact and that the accessway was not enforceable against Infinity. It is difficult to see how Kinara can have it both ways. In our view, its attempt to distance itself from the Judge’s final inferences supports our conclusion that those inferences as a whole went too far. Moreover, if Mr Barker’s proposition is accepted, that leaves Mr Anuj Gupta aware of the existence and use of the Driveway, but of the belief, as the Judge found to be the case, there were no interests adverse to Infinity in existence.
That is not, on the authorities, knowledge evidencing LTA fraud. Therefore, even if an equitable easement was created in 1989 and survived until Infinity took title, we are satisfied that the protection of indefeasibility means it cannot be enforced by Kinara.
We turn now to Infinity’s appeal against the Judge’s finding of estoppel.
Was the Judge correct to find Infinity was estopped from denying Kinara its use of the Driveway?
Estoppel by silence: the correct approach
The Judge analysed Kinara’s claim for an estoppel by reference to the unified doctrine of equitable estoppel recognised in New Zealand from Gold Star Insurance Co onwards.[60] The Judge adopted the expression of that doctrine found in Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd.[61] In doing so, the Judge noted the modern confirmation, and the context of that expression, of the doctrine of estoppel by acquiescence and, more particularly, by silence. The Judge also considered that claim on the basis of the formulation of the doctrine of estoppel by acquiescence found in Willmott v Barber and the five probanda set out by Fry J.[62] The Judge did so because, she reasoned, Wilson Parking had involved express representations rather than an alleged implied representation by acquiescence, as she characterised the claim here.[63] As we explained, that is not the basis of estoppel by silence. We note, in particular, the focus in the first, third and fourth probanda on mistake by the plaintiff and knowledge by the defendant both of that mistake and of their own “inconsistent” legal right.
[60]Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA). See generally James Every-Palmer “Equitable Estoppel” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 601 at 608.
[61]Judgment under appeal, above n 1, at [178]; referring to Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].
[62]Willmott v Barber (1880) 15 Ch D 96 (Ch). Those five probanda were expressed to be (i) a mistake by the plaintiff as to their legal rights; (ii) money or effort expended by the plaintiff as a result; (iii) knowledge by the defendant of their own, inconsistent legal right; (iv) knowledge by the defendant of the plaintiff’s error; and (v) encouragement by the defendant of the plaintiff’s effort or expenditure: at 105–106.
[63]Judgment under appeal, above n 1, at [180].
As the authors of Equity and Trusts in New Zealand explain, estoppel by acquiescence traditionally protected a party who relied on a belief or expectation fostered by the silence of another in circumstances rendering it unconscionable for the silent party to resile from that fostered belief or expectation.[64] Whilst the law is, in general, reluctant to impose liability in cases of silent acquiescence, it recognises that in certain circumstances silence may give rise to an estoppel either by amounting to a genuine representation, or because the silent party was under a duty to speak. Silence and acquiescence rarely amount to a genuine representation because they are of their nature equivocal, and will generally not actively create a belief or expectation. Rather, the authors go on, silence is generally relied on in the sense that the mistaken party would have acted differently if the other party had spoken up.[65] Although no evidence was given on that issue the Judge did draw inferences on the point with which, as we explain below, we do not agree. The crucial issue therefore becomes whether the silent party, here Infinity, had a duty to warn the mistaken party, Kinara, it was relying on a mistaken assumption.
[64]Every-Palmer, above n 60, at 631.
[65]At 631.
As Equity and Trusts in New Zealand goes on to explain:[66]
New Zealand courts have analysed cases of estoppel by silence by asking whether the silent party was under a legal, as opposed to a mere moral or social duty to speak. However, very little guidance has been given on how to establish such a duty. The jurisprudence of the English courts is more developed and utilises a test based on the reasonable expectations of the silent party. In The Lutetian Bingham J held that:[67]
[T]he duty necessary to found an estoppel by silence or acquiescence arises where a reasonable man would expect the person against whom the estoppel is raised, acting honestly and reasonably to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations.
The reasonable expectations analysis has also been regarded as appropriate in Australia where Wilcox J used it in Kimberley NZI Finance Ltd v Torero Pty Ltd to determine when silence will amount to misleading or deceptive conduct under s 52 Trade Practices Act 1974 (Australia). His Honour said that:[68]
The cases in which silence may be … characterised [as misleading] are no doubt many and various and it would be dangerous to essay any principle by which they might be exhaustively defined. However, unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists in would be disclosed, it is difficult to see how mere silence could support the inference that that fact does not exist.
The adoption of this test in New Zealand with respect to s 9 Fair Trading Act 1986 … was supported by Kerr J in Hieber v Barfoot & Thompson Ltd.[69] It is likely that a similar test will be adopted for estoppel by silence.
[66]At 632 (footnotes abridged).
[67]Taradax Export SA v Dorada Compania Naviera SA [1982] 2 Lloyd’s Rep 140 (QB) [The Lutetian].
[68]Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46-054 (FCA) at 53,195 (emphasis added).
[69]Hieber v Barfoot & Thompson Ltd (1996) 7 TCLR 301 (HC) at 312.
A very similar formulation to that found in The Lutetian was provided in a passage of Ted Baker plc v AXA Insurance UK plc which Duffy J placed particular reliance on, in which Sir Christopher Clarke traced a series of earlier authorities:[70]
75. The reference to “acting honestly” did not … mean that the party against whom the estoppel was asserted had to be guilty of actual dishonesty in the sense of acting fraudulently. … [A]bsent a relationship of good faith or partnership or something akin to a joint enterprise the courts would not impose a duty to speak in the absence of impropriety of some description by the person alleged to be estopped. That impropriety might, however, come from the act of staying silent itself, as where a reasonable person would expect the person who is alleged to be estopped, acting honestly and responsibly, to bring the true facts to the attention of the other party known to him to be under a mistake as to their respective rights and obligations.
[70]Ted Baker plc v Axa Insurance UK plc [2017] EWCA Civ 4097, [2017] Lloyd’s Rep IR 682.
The “reasonable person”, as those explanations make clear, is a reasonable third party. It is the expectations of that person, as ever the Court’s proxy, from whose standpoint the Court determines whether the expectation that a reasonable and honest person would speak out to correct an error known to her arises. Thus, when Equity and Trusts in New Zealand refer to the reasonable expectations of the silent party, they refer to the expectations that reasonable third party would have of the silent party.
Various factors are relevant in determining whether a reasonable person would expect the silent party to speak out. Duties to warn mistaken parties are not owed to the world at large and will be rare between commercial parties dealing at arm’s length. Speaking of the various relationship-based factors which may support the existence of a duty to speak out, Equity and Trusts in New Zealand refers to situations where:[71]
(a)the silent party has invited the other to repose trust and confidence in them;
(b)prior communications between the parties give rise to the duty; and
(c)past dealing between the parties which support reasonable (but erroneous) assumptions.
[71]Every-Palmer, above n 60, at 633.
More specifically the authors refer to the situation where the silent party may have been aware that the other party was acting in reliance on a mistaken assumption as to his or her rights over property owned by the silent party, as reflected in the early decision of Ramsden v Dyson.[72] In that case, the House of Lords endorsed the general principle that equity could, in certain circumstances, impose a duty on a proprietor to speak out and assert their adverse title if they know another person to be mistakenly building on their property.[73] Thus, Ramsden v Dyson would appear to be an early recognition of the type of claim Kinara advances.
Constructive knowledge a bar to an estoppel — the law
[72]Ramsden v Dyson (1866) LR 1 HL 129.
[73]At 141.
As explained, the Judge applied the five Willmott v Barber probanda to determine whether an equitable estoppel arose, the first of which required that Kinara must have made a mistake as to its legal rights.[74] In challenging the Judge’s finding of an estoppel, Infinity placed particular reliance on the proposition that Kinara could not satisfy that requirement as it had constructive knowledge of the true position. Hence for that reason, if no other, it could not succeed. That is, Kinara could not establish a qualifying mistake as it had constructive notice that there was no legal right of way over 12 Lakewood because no right of way over 12 Lakewood was registered against its title or recorded on the title of 726 Great South.
[74]Judgment under appeal, above n 1, at [181(a)]. See also above n 62.
Kinara responded that Infinity’s argument was, in effect, too wide and would undercut any claim of estoppel, or indeed any claim in personam at all. In its written submissions it said:
If this proposition were correct, it would mean that there would be no in personam jurisdiction at all, at least in respect of easements, as the benefit of the easement could always have been recorded on the plaintiff’s title. Nevertheless, there are many cases where unregistered easements have been recognised in an in personam claim.
We accept the general proposition that constructive notice of the contents of the register will not necessarily defeat an in personam claim. The conceptual foundation of the in personam exception is conduct of the registered proprietor which makes it unconscionable for her to deny the use claimed under the unregistered instrument. That unconscionability need not involve mistake by the owner of the dominant tenement as to their legal rights. What is required is a belief or expectation on the part of the owner of the dominant tenement created or encouraged by the owner of the servient tenement. As shown in the fraud context in McCrae v Wheeler and Merrie v McKay, the owner of the dominant tenement may understand the limitation of their rights, based as they were on an unregistered instrument, but be entitled to rely on conduct of the owner of the servient tenement indicating that, notwithstanding, their use could continue.[75] The same situation can be found in an in personam claim.
[75]McCrae v Wheeler, above n 25; and Merrie v McKay, above n 25.
But that argument does not defeat Infinity’s submission as to the significance of knowledge where, as here, an estoppel by silence is relied on.
As regards that point, the authors of Spencer Bower: Reliance-Based Estoppel, are clear.[76] They write:[77]
A’s claim to have been induced to act on the faith of a misrepresentation or of a breach of duty to speak will fail not only if he has actual knowledge (which includes Nelsonian knowledge), but also if he has constructive knowledge, of the representation’s falsity or the uncommunicated facts. He will be held to have such constructive knowledge in the following circumstances:
…
(2)Where the law deems A to have notice of a fact as a matter of policy, placing the responsibility on A to acquire such knowledge, as where constructive notice of a company’s public documents was held to defeat an estoppel; publication of a partnership’s dissolution also gives constructive notice thereof to all who have not previously dealt with the firm.
[76]Piers Feltham and others Spencer Bower: Reliance-Based Estoppel (5th ed, Bloomsbury Professional, Haywards Heath, 2017).
[77]At [5.11] (footnotes omitted).
The rationale for that approach, in the context of imposing a duty to speak out, is readily apparent. That is, if the person claiming such a duty has arisen had constructive knowledge of the true position, there is — as a matter of the underlying policy which gives rise to that constructive notice — no mistake to correct. Moreover, to say — notwithstanding that constructive notice — that a person did have a duty to speak up would deprive that person of the very benefit the system of registered titles, and the associated constructive knowledge of their contents, seeks to create: that is the benefit of the core principle of indefeasibility.
On that basis we accept Infinity’s submission that, were it established, constructive knowledge on Kinara’s part of the absence of a legal right of way would be fatal to the estoppel by silence Kinara claims.
In our view Kinara exaggerated the significance of our upholding Infinity’s contention, when it said to do so would mean there would be “no in personam jurisdiction at all, at least in respect of easements, as the benefit of the easement could always have been recorded on the plaintiff’s title”.[78] The in personam exception responds to circumstances that arise where the interest claimed is unregistered. It is fundamental that such a claim would be unnecessary were the instrument registered. Estoppel is but one cause of action on which an in personam claim may be based. Estoppel by silence is but one category of estoppel recognised under the modern unified doctrine and, moreover, one which is relatively difficult to establish. The fact that constructive knowledge as a feature of the LTA may prevent a duty to speak out arising, and hence preclude findings of estoppel by silence, does not have the effect on the in personam jurisdiction suggested by Kinara.
Did Kinara have constructive knowledge that no legal right of way existed?
[78]See above at [106].
The question is whether, as Infinity argued, Kinara had constructive knowledge that it had no legal right of way over 12 Lakewood. Kinara did not respond in any great detail on that issue and Infinity relied on the general rule that entries to the register are “notice to the world” of their contents and are “constructively placed before [the] eyes” of those dealing with the land.[79]
[79]Melville-Smith v Attorney-General [1996] 1 NZLR 596 (CA) at 603; and Re Goldstone’s Mortgage [1916] NZLR 489 (CA) at 506.
The combined effect of ss 62 and 182 of the LTA is to protect a registered proprietor who, under the general law, would have been vulnerable to interests which equity in particular could have found she had sufficient notice of, actual or constructive, to be bound by. At the same time, and as Hinde, McMorland and Sim explains:[80]
Any person may search the register and the registered instruments embodied in it. Reflecting this, the register is “notice to the world of the facts it contains”. More specifically, it is “notice to all persons dealing with the land of that which would be discovered by a search”. A person searching the register is entitled to rely upon the information found there, but must bear in mind that the register does not include rights that do not require registration. Anyone proposing to deal with land should search the register at the earliest possible moment.
The depth of any search is a matter for judgment, but it is essential to search not only the record of title, but also the instruments to which it refers. This is due to the fact that upon registration, every instrument and memorandum become constructively embodied in the register. The instrument “must therefore be treated as if written out on the face of the register, and it would be the business of any one proposing to deal with the land to examine the documents thus constructively placed before his eyes.
[80]McMorland and others, above n 20, at [8.022] (footnotes omitted).
The authors offer the following relevant example of what such a search should involve:[81]
When searching the title to land to which an easement or other right is appurtenant it is necessary to search the record of title to the servient land to make sure that the easement or other right has been registered against that title.
[81]At [8.022].
On the basis of that authority, Kinara did have constructive knowledge as to the absence of a legal right from the title to 726 Great South, as no right of way over 12 Lakewood was registered as an appurtenance. Moreover, if it had searched the title to 12 Lakewood, it would have found that no easement was registered in favour of 726 Great South: all it would have found was the reference, dating back many years, to a “proposed right of way” that had never been registered.
That constructive knowledge precludes Kinara’s claim for an estoppel by silence.
We therefore allow Infinity’s appeal on that basis. However, in case we are wrong, we go on to consider whether the Judge was right to conclude that, in other respects, estoppel by silence had been established.
If not precluded by LTA constructive knowledge, did the circumstances give rise to the estoppel the Judge recognised?
In evidence, Mr Anuj Gupta acknowledged Mr Kashyap would have seen the title to 12 Lakewood prior to settlement and hence would have seen the reference to the “proposed right of way”. Mr Anuj Gupta said he could not recall, however, whether he had seen the plan attached to the title, or had simply relied on Mr Kashyap. Beyond that, his evidence in chief was that whilst Infinity had been aware of the use of the Driveway to access 726 Great South, it had no dealings with Kinara about the easement. It had never represented Kinara was entitled to use, or to go on using, the Driveway.
In cross-examination Mr Anuj Gupta accepted his father had had, after discussion amongst the family, the final say on the decision to purchase the motel business at 12 Lakewood. But he denied all the family’s equity had come from his father personally. Rather it had come from a range of family investments. Questioned about the Driveway he accepted he had lived in the area for quite some time before Infinity’s purchase, but said he himself had little awareness of the Driveway. It was not readily apparent to him from driving up and down Redoubt Road. He had never used the service station, or gone to the restaurant on 8 Lakewood.
As to pre-purchase inquiries, although it was of some significance for them in terms of the property’s development potential the Driveway had not been a particularly significant feature of 12 Lakewood. He accessed 12 Lakewood from Lakewood Court. His particular focus had been on the financial affairs of the motel business and its associated restaurant. He would have seen the Driveway and how it provided access to the adjoining Properties. He was not familiar with the boundaries of the Property and did not know about the existence of the equitable easement at the time of purchase.
The Judge accepted Mr Anuj Gupta believed Infinity had obtained a clear title, free of any adverse interests.[82] Importantly, however, she did not believe him when he said he had not been aware of the existence of the equitable easement.[83]
[82]Judgment under appeal, above n 1, at [148].
[83]At [150].
As is clear, we agree with the Judge that an in personam claim can be based on relevant pre-acquisition conduct by a registered proprietor, as well as such conduct post-acquisition. We have already considered the former when assessing Kinara’s fraud claim: there was no such conduct. As to post-acquisition conduct, the Judge concluded:
(a)For nearly 10 years Infinity had stayed silent and had taken no steps to stop Kinara and those wanting to visit its property from using the Driveway. To that extent, therefore, Infinity’s silence and inaction had affirmed and compounded Kinara’s mistaken belief in its right to use the Driveway.[84]
(b)Relying on that mistakenly assumed right, Kinara had proceeded with the redevelopment of 726 Great South in a way that relied significantly on ingress from Redoubt Road. No direct evidence to that effect was given by Kinara. Nevertheless, the Judge considered that the layout of the building, and her assessment — based on a site visit — of the relative ease of access to the parking level from the Driveway as opposed to the Lakewood Court or Great South Road entry points, provided a sound basis for that inference.[85] The loss of that access would be a major impediment to using the upper level carpark.[86] Accordingly, the Judge concluded, it was most unlikely Kinara would have adopted that configuration if it knew it could not use the Driveway for access from Redoubt Road.
(c)Infinity knew of Kinara’s mistaken assumption.[87]
(d)Infinity had nonetheless abstained from asserting its right as legal owner to stop use of the Driveway.[88]
[84]At [209].
[85]At [209].
[86]At [210].
[87]At [212].
[88]At [214].
That analysis reflects the Judge’s use of the five criteria from Willmott v Barber.[89] The Judge was satisfied, moreover, that Infinity’s conduct as so analysed satisfied the essential elements to establish its duty to speak out. Thus, the Judge concluded, in the face of Infinity’s failure to speak out, Kinara could reasonably assume that Infinity claimed no such title.[90]
[89]See above n 62.
[90]Judgment under appeal, above n 1, at [218].
As explained, the duty to speak out is not based on the reasonableness of the assumption of the party seeking the estoppel. Rather it depends on the existence, objectively assessed, of a duty to speak out and the unconscionability of, and hence estoppel preventing, later denial of a legal entitlement where that duty had not been discharged.
Again, we consider that the extent of the inferences the Judge was prepared to draw went beyond those which could be reasonably based on the facts before her, notwithstanding only Mr Anuj Gupta gave evidence for Infinity. As we see it, those facts are essentially as follows:
(a)Kinara purchased 726 Great South before Infinity purchased 12 Lakewood. Infinity could have no legal responsibility for whatever basis Kinara made its decision on.
(b)Kinara acquired 726 Great South at auction without legal advice. However that is not, in our view, an answer to the constructive notice it had, and has had thereafter at all times, of the implications of the title it acquired as disclosed by the register. It is true that, as Kinara argued, at auction the purchaser acquires the title it acquires. But that is the same under an agreement for sale and purchase. It can be said that, when buying at auction and with the limited engagement with the vendor normal in that context, the need for a comprehensive search of the title, based on the public register and hence accessible without assistance from the vendor, becomes even more important.
(c)As the Judge found, in 2007 the relationship between the boundaries of the Driveway and the Properties were not clear.[91] Assessed objectively, our assessment is that the owners of each of the Properties knew of the existence, and used, the Driveway without any great attention being paid to its legal status.
(d)Lakewood Plaza’s willingness to commit to the redevelopment of its Property, without access from Redoubt Road, tends to suggest that Kinara’s assertion of the significance of that access for 726 Great South is, as matters now stand, greatly exaggerated.
[91]At [84].
The Judge also relied, as going to unconscionability based on the failure to speak out, on a number of other factors:
(a)The first was her conclusion, based on the evidence of the expert witness Mr Green, that it was a condition of the Original Subdivision, imposed by Council, that a right of way be created to provide access from Redoubt Road.[92] We do not think that conclusion was consistent with Mr Green’s evidence, properly understood, or with the documentary record, as we have already demonstrated. The Original Subdivision was premised on there being no such access, and that premise only changed when road widening incentivised the Council to change its position. That access remained controversial during BP’s planning and consenting process. In other words, it was a reluctant concession by the Council to allow the right of way, not a requirement it imposed for its own reasons. The condition imposed was, in effect, the method by which it acceded to Hawkins’ request.
(b)The Judge reasoned that Kinara had redeveloped 726 Great South with specific reliance, in terms of design and layout, of access from Redoubt Road.[93] Moreover, it was apparent from the evidence that the principal access — two-way in both cases — was from Lakewood Court and Great South Road. As the Judge herself recorded in drawing that inference, Kinara gave no evidence to that effect. We are not persuaded by the submission that, notwithstanding, that must have been the case.
(c)The Judge also relied on her own assessment, again not supported by expert or other evidence, that for all practical purposes access to the parking area on level one of the redeveloped 726 Great South depended on motorists being able to use the accessway from Redoubt Road. The Judge based that assessment on her inspection of the Properties at the view the parties organised.
[92]At [35]. The summary from Mr Green’s evidence which the Judge quoted simplified the narrative slightly. Mr Green did recognise elsewhere that the condition was imposed by the Council as part of the road widening agreement and had not been imposed by the Council from the start.
[93]At [212].
We considered it appropriate that we should do likewise. Counsel agreed and a view was also organised for us. Based on that view, given the Judge’s reliance on her own inspection, and given the absence of expert evidence, we do not share the conclusion the Judge reached. In fact, our assessment is that access from Great South Road or Lakewood Court provided a considerably more convenient route to the rooftop parking. The final right‑hand turn onto the rampway when entering 726 from Great South or Lakewood Court was less acute, and had the benefit of greater visibility for the arriving motorist, than was the case with the sharp, initially blind, left‑hand turn required to gain access to the rampway from the Driveway.
In those circumstances, we do not consider that a reasonable person would expect Infinity, acting honestly and reasonably, to bring the fact that the proposed right of way had never been registered to Kinara’s attention. We are therefore satisfied that Infinity was not under a duty to speak out so that its failure to do so would provide the basis for an estoppel as sought by Kinara.
Result
We therefore allow Infinity’s appeal and dismiss Kinara’s cross-appeal.
The appellant would in the normal course be entitled to costs. Counsel invited us to reserve the question of costs pending further submissions, which we do. The appellant is to file submissions of no more than four pages within five working days. The respondent will then have five working days to reply, again in no more than four pages.
Solicitors:
Hesketh Henry, Auckland for Appellant
Murdoch Price, Manukau for Respondent
19
5
0