Johns v Wu
[2017] NZHC 2831
•17 November 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-1781 [2017] NZHC 2831
BETWEEN LESLIE ROY JOHNS AND
LEONIE MARY JOHNS Plaintiffs
AND
YUN FENG WU AND XIAO WEI CHENG Defendants
Hearing: 17 November 2017 Appearances:
G Round for Plaintiffs
DCL Liu for DefendantsJudgment:
17 November 2017
ORAL JUDGMENT OF MUIR J
Counsel/Solicitors:
G Round, Law & Associates, Manukau City
DCL Liu, Yu Law, Auckland
JOHNS v WU [2017] NZHC 2831 [17 November 2017]
Introduction
[1] The plaintiffs, Mr and Mrs Johns, are the owners of a property at 35 Peretao Rise, The Gardens, Manurewa. In their statement of claim they seek a mandatory injunction against the first defendants for the removal of a secondary dwelling which the first defendants are currently constructing on their property at 26 Peretao Rise. Both properties are located at the end of a cul-de-sac and are in closer physical proximity than their respective addresses suggest, although they are not immediate neighbours.
[2] Two interlocutory matters are listed before me today. The first is an application for interim injunction by Mr and Mrs Johns to prevent further work on the dwelling. The second is a cross-application by the first defendants for summary judgment and/or to strike out the plaintiffs’ claim.
[3] At a telephone conference held with the parties on 14 November 2017, Mr Round for the plaintiffs indicated that, on the interim injunction application, his clients would not be seeking mandatory relief in the form of removal or demolition of the dwelling and this morning, after discussions between counsel and the bench, he further advises that the application for interim relief preventing completion of the works would similarly be withdrawn. That was in my view a sensible concession on the part of the plaintiffs. The dwelling in question is now substantially constructed. It is closed in with the joinery and roof now in place. Some interior works remain to be completed but it is clear that such works will not make the dwelling any more or less objectionable from the plaintiffs’ perspective than is currently the case. Indeed, completion of the works may allow for a more satisfactorily presented property.
[4] That said, Mr Round emphasises that the first defendants have been on notice since at least June of 2017 that, from the plaintiffs’ perspective, the secondary dwelling is non-compliant with the terms of a covenant central to the case and that by continuing with construction (and now finishing works) they do not advance their position in terms of the exercise of the Court’s discretion on ultimate determination of the plaintiffs’ application for mandatory relief.
The secondary dwelling
[5] At a time likely to have been the early 1990s, a brick and tile home was constructed on the first defendants’ property at 26 Peretao Rise. The first defendants purchased the property in 2014. Approximately two years later they say that they “decided that it would be a good idea to build a granny flat” at the back of the property. Mr Wu deposes that this was for the purposes of accommodating his mother who resided in China and who visited New Zealand regularly. An application for a building and resource consent was accordingly lodged with Auckland Council (the Council) as successor to Manukau City Council in about July
2016. Significantly in the context of the summary judgment application, the document identified the estimated total value of the work as $80,000.
[6] Subsequently, the defendants decided to purchase another property in West Harbour and in July 2016 moved there, retaining 26 Peretao Rise as an investment property.
[7] Mr Wu continues his chronology in para 6 of his affidavit where he says:
In or about March 2017, after we had obtained sufficient finance for the proposed build, we resumed our plan and approached different construction companies for quotes.
[8] Since the only “plan” which he previously describes was the construction of a granny flat for his mother which was now no longer intended, I do not regard that reference as satisfactory. As at March 2017 the plan was clearly to build additional accommodation so as to maximise the rental return and consequently the value of the property.
[9] The secondary dwelling in question is approximately 60 square metres. It is identified on the plans as having three bedrooms, although Mr Liu says in submissions that what is intended are two bedrooms and a study. It is of weatherboard construction with an iron roof and is of rectangular proportions. It could fairly be described as a modest structure. The photographs annexed to the affidavit of Mr Arumugam indicate a building which, although tidy, does not at least
in my view relate particularly well to the existing dwelling on the property or to surrounding houses.
[10] The plaintiffs claim that this subsidiary dwelling has been constructed in breach of a covenant which binds the first defendants’ property and of which the plaintiffs’ property is among the beneficiaries. Such covenant, which is contained in a transfer, the operative parts of which are set out in full as an annexure to this judgment, can broadly be described as ensuring certain minimum building standards.
Standing of Mr and Mrs Johns
[11] The first defendants say that the plaintiffs have no standing to sue under the covenant.
[12] The transfer in question is dated 30 May 1990. It is in several respects poorly drafted. It is a transfer from the then Manukau City Council (the Transferor) to Fletcher Residential Limited (the Transferee) of four sites, three of which were on DP119342 and one of which was on DP119341. The plaintiffs’ property is Lot 177 on DP119342. The first defendants’ property is Lot 175 on DP119342. Both are among the four properties referred to in the transfer. The first defendants say that on its plain meaning the benefit of the restricted covenants in the transfer do not inure to each of the four properties identified in the transfer.
[13] Mr Liu’s argument is based primarily on the third recital on page 2 of the transfer. He says that on a natural reading of that paragraph, the term “the remaining land” excludes the properties that are transferred pursuant to the document. I agree that the plaintiffs’ property does not form part of the remaining land for the purposes of that definition.
[14] However, it is the following clause which introduces the substantive covenant. It is set out for convenience below.
DO HEREBY COVENANT AND AGREE with the Transferor for the benefit of the remaining land not heretofore transferred by the Transferor and also separately with each and every the registered proprietors of and for the benefit of the remaining land heretofore transferred to such proprietors by the Transferor that the Transferee will henceforth and faithfully observe
perform fulfil and keep all and singular the stipulations and restrictions
hereinafter set forth that is to say:…
(Emphasis added)
[15] The question is therefore whether the plaintiffs’ property is part of the
“remaining land heretofore transferred”.
[16] Mr Liu submits, based on the definition in the Shorter Oxford English Dictionary,1 that the proper meaning of the word “heretofore” is “before now” or “formerly”, with the result that sections created by previous (and subsequent) transfers would receive the benefit of the covenant but not those identified in the transfer itself.
[17] I accept the Shorter Oxford definition. However, to suggest that this means “prior to the entry into of this transfer” brings the fourth paragraph on page 2 of the document into direct conflict with the stated intentions in the second paragraph page 2 in terms that:
… it is the Transferor’s intention that all residential lots contained in the said Plan Nos 119341 + 119342 shall be subject to a general scheme applicable to and for the benefit of all the said residential lots and that the owner or occupier … of each … may be able to enforce the observance of such stipulations and restrictions by the owners and occupiers for the time being of any of the other said residential lots…
(Emphasis added)
[18] Nor would it make any obvious sense that formerly and subsequently transferred properties should receive the benefit of the covenant but not those transferred under the document itself. The seemingly aberrant result would be that owners of the plaintiffs and the first defendants’ properties, and the two others identified, could not enforce the covenants inter se but that every other person within the larger subdivision could do so. I consider that unlikely to have been the intention of the transferor, particularly in light of recital 2. Rather, I consider that the word
“heretofore” was likely used in circumstances intended to mean “hereby”.2
1 Lesley Brown (ed) The New Shorter Oxford English Dictionary (Volume 1: A-M) (Clarendon
Press, Oxford, 1993) at 1223.
2 Or to describe the transfer effected in the immediately preceding (and in that sense “former”)
paragraph of the document as well as pursuant to any prior transfer.
[19] I am not required to decide this issue finally at this stage of the proceedings (and do not). It is sufficient for the purposes of the defendants’ summary judgment application for me to conclude that it is seriously arguable that the plaintiffs do have standing. In that respect I adopt the approach of Tipping J in the decision of Hamilton v Canterbury Farmers Ltd,3 albeit that was in the context of an interim injunction application and in relation to the exercise of a statutory power of decision. In that case his Honour said:
At the very least it is highly arguable that the Plaintiffs have standing or perhaps, putting the matter more precisely, that they challenge a statutory power of decision made by the Defendant and affecting them in the relevant respects. The Plaintiffs thus in my judgment cross the preliminary threshold of standing, at least for the purposes of interim relief.
[20] In my view a similar test should apply on an application for defendant’s summary judgment such that if the plaintiffs can establish that there is a real question to be tried in terms of their having standing, summary judgment should not be entered against them.
[21] I am reinforced in that conclusion by the standard approach to the construction of easements and covenants identified in Laws of New Zealand where it is said that:4
134 Interpretation of easements and covenants
An easement is to be determined by reference to the instrument creating the easement, and weight is to be given to plain wording where possible. Where necessary, the circumstances of its creation, including contemporary documents indicating intention, and the factual matrix at the time of creation, may be taken into account; it is not the case that registration means extrinsic material must be ignored. Similarly, restrictive covenants have been interpreted by reference to the circumstances relating to the background of the relevant covenant. The purpose of a covenant will often be determinative of its meaning.
(Footnotes omitted)
[22] While a natural and ordinary meaning will rarely yield to an alternative meaning based on extrinsic evidence, this is a case where such extrinsic evidence
3 Hamilton v Canterbury Farmers Ltd HC Christchurch M293/88, 24 June 1988.
4 Laws of New Zealand Easements, Profits and Covenants (online ed) at [134].
may well prove useful in resolution of any uncertainty created by the use of the word
“heretofore”.
[23] This similarly militates against the entry of summary judgment based on the standing issue.
The balance of the first defendants’ arguments
[24] Mr Liu submits that summary judgment should be entered because:
1.On its proper construction, the prohibition in cl (c) of the restrictive covenant applies only to the first residential building that is constructed on the site and not to any subsequent residential building.
2.The terms of the covenant mandate that if Council’s consent is forthcoming no further inquiry can or should be entertained with the result that, if consent has been given it is decisive and in the event of any error in so doing the only remedy available to the plaintiff is a claim against the Council.
[25] Although Mr Liu’s written material goes on to submit that the requirements of cl (c) (and in particular cl (c)(ii)) have been satisfied, he responsibly acknowledges that, in light of the expert evidence filed by the plaintiffs, and in particular that of Mr Phillip White dated 16 October 2007, such issue cannot be determined in a summary judgment context. The context to that concession is that although the first defendants depose that the building contract entered into by them was for a sum of $255,000 (inclusive of GST) and annex a contract with the company Star Eco Ltd to that effect, Mr White says that, on an inflation-adjusted basis, the minimum building cost identified in cl (c)(ii) (“not less than a base figure of $85,000”) now equates to a cost of $287,946.00 plus GST.
[26] An added complication in this respect is the fact that the New Zealand Institute of Valuers’ Model referred to in cl (c)(ii) was discontinued in or about 1990. It has therefore been necessary for Mr White to consult various other models to arrive at an appropriate inflation-adjusted figure. He does so by taking the Valuers’
Modal Index which he says was set at $590.38 per square metre in 1986 and which now stands at $2,000.00 per square metre, representing an increase of 238.76 per cent over the relevant period.
[27] This analysis may be a matter of some contention in the context of the substantive trial. However, for the purposes of the summary judgment application I accept that there is a real question to be tried in terms of whether the cost of this ancillary dwelling complies with the requirements of cl (c)(ii). As indicated, Mr Liu does not contend otherwise.
[28] In response to Mr Liu’s primary arguments, Mr Round says that:
(1)the reference to a “residential building” is, within the context of the covenant, appropriately to be read as “any residential building” such that the covenant is not exhausted on construction of the first dwelling.
(2)the requirements identified in cls (c)(i), (c)(ii) and (c)(iii) are, on a proper construction of the clause, cumulative on the requirement to obtain approval of the plans and specifications by the Council. In the result he says that if the defendants are to satisfy the Court that the covenant has been complied with, they must in turn establish that the building had a base cost exceeding $85,000 (inflation adjusted). That he says the defendants are unable to do, at least on the current state of the evidence.
(3)whatever the proper construction of cl (c), the defendants breached the covenant by commencing construction before they had an approval in terms of the clause and, irrespective of any subsequent approval they may have obtained, they are therefore exposed to an application for mandatory relief.
[29] Some further discussion of the facts is necessary at this point.
[30] Construction of the dwelling commenced on or about 19 April 2017 following the signing of a building contract on 20 March 2017.
[31] At the time of commencement of construction the first defendants had not obtained an approval from the Council5 in its capacity as vendor under the transfer and in terms of the covenant. The only consents they had were the building and resource consents issued by the Council in its capacity as territorial authority. However, on 30 June 2017 after construction had commenced the first defendants obtained an approval in the following terms:
Auckland Council as successor to Manukau City Council (in its capacity as vendor land owner) approves the design of the building on Lot 175
DP119342 provided that it conforms to all standards and conditions set out in covenant 151578.2T and that it conforms to the standards and conditions
in the building consent granted by the local authority.
[32] In my view it is seriously arguable whether such a highly qualified approval can properly be considered an approval for the purposes of cl (c) of the restrictive covenant. Possibly because they recognised their vulnerability in this respect and facing pressure from the plaintiffs’ claims, the first defendants sought an unconditional approval from the Council. Such was forthcoming on 5 September
2017 after the Council had obtained a certificate from an architect nominated by it. Such certificate recorded that there were no criteria stated in the covenant to guide the process of approval and because there was “nothing out of the ordinary” about the proposed building there was “no basis for rejection of the exterior design”.
[33] For present purposes, however, the significant point is that “commencement of the erection” of the dwelling appears to have occurred without an approval under cl (c) of the covenant and continued for some considerable time until such an approval was first ostensibly and then latterly substantively forthcoming.
[34] I am satisfied on this ground alone that the first defendants cannot rely on the unconditional approval issued on 5 September 2017 as a basis for summary judgment. It is possible that in the context of a full discovery and after hearing the
witnesses a court might conclude, based on the facts I have summarised, that a
5 As successor in all respects to Manukau Council.
remedy was available to the plaintiffs despite the fact that an unconditional consent was in its terms ultimately provided. I note in that respect the remedy sought is discretionary, placing particular emphasis on the Court’s assessment of the first defendants’ conduct.6
[35] Mr Round’s alternative argument in respect of the Council approval assumes that the words “in respect of which the following conditions shall apply” (which occur immediately prior to the identified criteria in (c)(i), (ii) and (iii)) refer to the “commencement of the erection of a residential dwelling” and not to the approval of the Council otherwise identified as necessary in the clause. In my view, there is a serious question in this respect. Although a natural reading of the clause may suggest that the three criteria relate to local authority approval, a purposive construction may point to an alternative conclusion with the result that such approval would not preclude interrogation of the underlying position and enforcement of the
minimum cost requirements against the owner of the land concerned.7
[36] Again, proper interpretation may be assisted by reference to surrounding circumstances. If that is the case then an opportunity should be given to the plaintiffs to lead evidence accordingly.
[37] Similarly, I consider it reasonably arguable that the reference to “a residential building” in the covenant was not intended effectively to extinguish the covenant’s operation after construction of the first dwelling on the site (i.e. it is reasonably arguable that it was not intended to identify certain minimum standards of construction and expense in respect of a first home but to exonerate any subsequent developer of the site from compliance). Were the defendants’ arguments correct
then, for example, a monolithically clad8 and demonstrably substandard subsidiary
dwelling of minimal cost could be constructed in what is otherwise an established residential area of good quality dwellings. In my view that is an unlikely
6 At this stage the plaintiffs challenge the bona fides of the $255,000 building contract on the basis that it significantly exceeds their quantity surveyor’s assessment of building value and that no invoices have yet been produced.
7 This is particularly so if for any reason the relief now sought against the Council in the plaintiffs’
amended statement of claim was unavailable.
8 Such cladding is precluded by cl (c)(iii) of the covenant except in special design situations approved by the Council.
interpretation of the document and the protections it was intended to enshrine. For present purposes, however, I find that there is a real question in terms that a “residential building” as the expression occurs in cl (c) means “any residential building”.
[38] An unrelated submission by the defendants is that these proceedings are being conducted for what Mr Liu calls a collateral purpose and that this is relevant to the application before me. Mr Liu points to a “flyer” distributed by or at the behest of Mr Johns which overstates the minimum inflation-adjusted construction cost required under the covenant. He says that the plaintiffs are pursuing a strategy of harassment, including by placing a notice in an adjacent park seeking support for their position.
[39] I regard none of this as exceptional in the context of a dispute such as this. The plaintiffs obviously consider that the amenity of their neighbourhood is being compromised by what they believe to be a substandard building that fails to comply with the terms of the covenant. For their part the defendants, equally understandably, consider they are entitled to extract the maximum economic value from their property. Tensions will inevitably run high in such a case. I do not see anything necessarily inconsistent between Mr and Mrs Johns seeking relief from this Court and endeavouring to engender support for their cause among other local residents. Obviously, however, the parties are urged to adopt a mutually respectful position pending final determination of their dispute.
Result
[40] It follows from what I have said that I am not satisfied there is an absence of any real question to be tried in these proceedings and accordingly I am not satisfied that the defendants’ application for summary judgment is appropriately granted.
[41] For the same reasons I decline the defendants’ application to strike out the plaintiffs’ statement of claim. Necessarily therefore the matter will proceed to a hearing on the merits.
Further steps
[42] I would have been prepared to allocate a prompt trial date today and make necessary pre-trial directions. However, the position is complicated by the fact that the plaintiffs have today filed an amended statement of claim in which they seek to add Auckland Council as a party to the proceedings on a claim to quash its decision to grant approval of the works. That amended statement of claim has not yet been served. I direct that it be served no later than Monday 20 November 2017.
[43] I further direct that a first case management conference be set down after 1
February 2018 which will allow the Council adequate time to file any defence or other applications.
[44] I encourage the plaintiffs and first defendants to now turn their minds to the ambit and collation of discovery so as to facilitate an early trial date. At this stage my expectation is that the matter can be disposed of in a maximum of two days. However, those issues can be more fully addressed at the first case management conference.
Costs
[45] I order that the costs in relation to the defendants’ summary judgment
application be costs in the cause.
[46] In respect of costs on the discontinued interim injunction application, the parties are agreed that they are to lie where they fall.
Muir J
ANNEXURE
Approved by the Registrar-General of Land, Wellington, No, 367635.80
Under the Land Transfer Act 1952
Memorandum of Transfer
WHEREAS THE MANUKAU CITY COUNCIL (hereinafter called "the Transferor")
of an estate in fee simple
being registered as proprietor
subject however to such encumbrances, liens and interests as are notified by memoranda underwritten or endorsed hereon in all those pieces of land situated in the Land District of NORTH AUCKLAND
containing FIRST 794m² Lot 175 Deposited Plan 119342 Certificate of Title 68C/523
SECONDLY 751m² Lot 176 Deposited Plan 119342 Certificate of Title 68C/524
HIRDLY 752m² Lot 177 Deposited Plan 119342 Certificate of Title 68C/525
T
FOURTHLY 751m² Lot 192 Deposited Plan 119341 Certificate of Title 68C/518
AND WHEREAS the Transferor when registered proprietor of all the land contained in the plans deposited in the Land Transfer Office at Auckland under Numbers 119341 + 110342 subdivided that land into residential lots roads and accessways in the manner shown and defined on the said Plan for the purpose of the sale of the said land in residential lots as a building estate.
AND WHEREAS it is the Transferor’s intention that all residential lots contained in the said Plan Nos 119341 + 119342 shall be subject to a general scheme applicable to and for the benefit of all the said residential lots and that the owner or occupier for the time being of each of the said residential lots should be bound by the stipulations and restrictions set out hereunder and that the respective owners and occupiers for the time being of any of the said residential lots may be able to enforce the observance of such stipulations and restrictions by the owners and occupiers for the time being of any of the other said residential lots in equity or otherwise howsoever:
AND WHEREAS by Agreements in writing dated the 11th day of November 1988 the Transferor agreed to sell the above described land to FLETCHER RESIDENTIAL LIMITED at auckland (hereinafter referred to as “the Transferee”: AND IN CONSIDERATION of the sum of $287,500 paid to the Transferor by the Transferee (the receipt of which sum is hereby acknowledged) the Transferor DOTH HEREBY TRANSFER to the Transferee all its estate and interest in the said piece of land above described: AND IN PURSUANCE of the premises and for the consideration aforesaid the Transferees so as to bind the said land above described and for the benefit of the remaining residential lots on Deposited Plans 119341 + 119342 and further residential lots at present or to be subdivided from the said Deposited Plans 119341 + 119342 (hereinafter referred to as “the remaining land”).
DO HEREBY COVENANT AND AGREE with the Transferor for the benefit of the remaining land not heretofore transferred by the Transferor and also separately with each and every the registered proprietors of and for the benefit of the remaining land heretofore transferred to such proprietors by the Transferor that the Transferee will henceforth and faithfully observe perform fulfil and keep all and singular the stipulations and restrictions hereinafter set forth that is to say:
(a) That they will not use the land hereby sold or permit the same to be used for any trading or commercial purpose;
(b) That they will not erect or permit to be erected or placed on the land any glasshouse exceeding 200 square feet in area or any building which has previously been erected on another site or any caravan, hut or shed to be used as a dwelling or temporary dwelling on the land;
(c) That they will not commence or allow the commencement of the erection of a residential building on the land without having first obtained the approval to the plans and specifications thereof by the Transferor in its capacity as Vendor and not as the local authority issuing the building or other permit and in respect of which the following provisions shall apply:
(i) The exterior design of the building shall be approved by an architect
nominated by the Transferor, provided that such approval shall not be required if the building has been designed specifically for the land by a registered architect.
(ii) The cost of such building shall at the time of approval of the plans have a value of not less than a base figure of $85,000 adjusted by the movement of the New Zealand Institute of Valuers Model Housing Cost Index from 1st December 1986 to the date of erection. (A certificate by a registered architect or registered valuer as to such value shall be accepted by the Transferor.)
(iii) That no cellulose fibre reinforced cement sheeting shall be used for the exterior walls of the building except in special design situations approved by the vendor and the use of similar products in other forms shall be subject to the vendor’s approval with each case being considered on its merits.
(d) That they will not erect or permit to be erected any such building except in accordance with the approved plans.
(e) That they will at all times keep the weeds and grass on the land under control by not allowing them to exceed 12 inches in height.
TO THE END AND INTENT that each of the said stipulations and restrictions shall enure for the benefit of all the remaining land and every part thereof PROVIDED ALWAYS that the Transferor shall not be liable for any breach of the aforesaid covenants in respect of any part of the remaining land in respect of which the Transferor shall have executed a Transfer in favour of any purchaser thereof whether or not such Transfer shall have been registered AND PROVIDED FURTHER that the Transferor shall not be liable or called upon to contribute towards the cost of the erection or maintenance of any boundary or dividing fence between the land hereby transferred and any adjoining land the property of the Transferor but this proviso shall not enure to the benefit of any purchaser of such adjoining land.
IN WITNESS WHEREOF these present have been executed this 30th day of May 1990.
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