Kaimai Properties Limited v Queen Elizabeth the Second National Trust
[2019] NZHC 1591
•10 July 2019
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2017-419-000223
[2019] NZHC 1591
BETWEEN KAIMAI PROPERTIES LIMITED
Plaintiff
AND
QUEEN ELIZABETH THE SECOND NATIONAL TRUST
Defendant
Hearing: 1-5 April 2019
(Joint memorandum received 7 May 2019)
Counsel:
A R Galbraith QC, K E Cornegé and M K Brady for the Plaintiff
R J B Fowler QC and F B Q Collins for the Defendant
Judgment:
10 July 2019
JUDGMENT OF EDWARDS J
This judgment was delivered by me on 10 July 2019 at 8.30 am/pm.
Registrar/Deputy Registrar
Counsel: A R Galbraith QC, Auckland
R J B Fowler QC, Wellington
Solicitors: Tompkins Wake, Hamilton
Gibson Sheat, Wellington
KAIMAI PROPERTIES LTD v QUEEN ELIZABETH THE SECOND NATIONAL TRUST [2019] NZHC 1591 [10 July 2019]
[1] In 2005, the owners of two blocks of land in the Kaimai Ranges granted two open space covenants (covenants) over large tracts of that land in favour of the defendant, the Queen Elizabeth the Second National Trust (Trust).
[2] The plaintiff, Kaimai Properties Ltd (Kaimai), is the current owner of both blocks of land. A related company operates an aggregate rock quarry on the land which has been there since 1956. Kaimai has consented to the expansion of the quarry into areas currently subject to the covenants. The Trust does not consent to that expansion and considers that any encroachment into the covenanted areas will be in breach of the terms of the covenants.
[3] Kaimai has brought this proceeding to clarify its rights. It says cl 4.1 of the covenants allows it, as landowner, to permit the activities of third parties (specifically, the quarry) in the covenanted areas without the consent of the Trust. Alternatively, it seeks rectification of the covenants to reflect what it says was the common intention of the parties at the time, which was to allow for the future expansion of the quarry into the covenanted areas.
[4] Further claims relating to the boundary of one of the covenanted areas have been resolved by agreement, and orders in relation to those claims are sought by consent.1
The land and its history
[5] The land at issue is located at Barton Road, Okauia, in the Kaimai Ranges. Ngāti Hinerangi is mana whenua of the land, and a maunga on the land, Te Weraiti, has spiritual significance for that iwi.
[6] The land at issue is in two titles. The larger of the two blocks comprises approximately 363 ha (Main Block). The smaller block adjoins the Main Block and is just under 67 ha (Smaller Block). The boundaries of both blocks are marked in blue on the aerial photograph attached to the judgment as Appendix A.
1 The Trust pleaded affirmative defences based on indefeasibility and no succession to a cause of action. Those affirmative defences were not pursued at trial.
[7] In the western corner of the Main Block is the crushing and stockpiling area for the quarry. The main excavation pit is the larger area towards the centre of the Main Block. To the east of the quarry, marked by a blue triangle on Appendix A, is Te Weraiti. A tributary of the Mangapiko stream runs across the southern boundary of the quarry, and the northern boundary of the covenant in this area. At the south-eastern boundary of the Main Block and marked by a star is an area where network utilities have erected communication towers. This is the highest point of the land and I am told that on a clear day you can see over to Tauranga and back to Matamata from this point.
[8] The quarry was established on the Main Block in 1956. The rock being quarried is andesite rock, a type of volcanic rock formed by a series of eruptive lava flows in the area. The existing quarry operation is for a high-grade material known as blue rock. This blue rock is used in roads, railways and high-rise construction and is sold to the local Matamata market and throughout New Zealand.
[9] From 1973 the quarry was operated by Barton’s Kaimai Farms Ltd (BKFL). In 1979, BKFL purchased the Main Block, making it both the owner of this block of land, and the quarry operator.
[10] The land is well known to Mr Ian Diprose who used to tramp and hunt deer on it in his youth. Mr Diprose and his wife used to own and farm the Smaller Block, which has been in Diprose family ownership since 1977. They also farmed another block of land adjacent to the Main Block. Mr Diprose and his family ran a dairy farm at that time, and also operated the Hiona Park Trust, a Christian place of rehabilitation for young people referred there by the Auckland District Court.
[11] Despite large tracts of the Main Block being unsuitable for farming, Mr Diprose nevertheless wanted to own it because, in his words, “he loved the land”. He envisaged grazing his young stock on those parts of the block that were suitable. In 1982, BKFL agreed to sell the Main Block to Mr Diprose, and Hiona Heights Ltd (Hiona), a company owned by Mr Diprose and his late wife, purchased the property.
[12] The purchase was for the entire Main Block. It was agreed, however, that BKFL would continue to operate the quarry. In 1982, Hiona and BKFL entered into an agreement whereby BKFL was granted the right to quarry in a defined area for a 40-year term commencing 21 December 1981 (1982 Agreement). There were no royalties payable during this 40-year term.
[13] Soon after that, in 1983, Hiona entered into a Land Improvement Agreement with the Hauraki Catchment Board (Land Improvement Agreement). Under the terms of that agreement, Hiona agreed that approximately 100 ha of the southern parts of the Main Block would be held as reserve and protected from stock grazing. In return, Hiona received assistance with the cost of fencing and planting in the area.
[14] In 1986, BKFL was purchased by the Swap family interests. Kaimai is part of the Swap group of companies (referred to as Swaps in this judgment), a family owned group that has operated in Matamata for over 80 years. Following that sale, access to the quarry was improved and a second road for farming operations was developed. The quarry itself was extended over this time. Its gradual expansion from 1966 through to 2012 is shown in Appendix B.
[15] By the early 1990s, the land was becoming popular with trampers, hunters, sightseers, hang gliders and paragliders. Mr Diprose was concerned about the public sharing the road with quarry vehicles and wanted improvements to the roading. This led to an agreement between Hiona and BKFL (by then owned by Swaps) in 1993. Although the agreement was not signed until 1995, I shall refer to it as the 1993 Agreement.
[16] Under the 1993 Agreement, BKFL retained its entitlement to quarry in the quarry area until 2021 with no payment of royalties to Hiona. The quarry area is marked in yellow on Appendix B. Excavations were limited to the “quarry zone”, being the eastern most parcel of the yellow-bounded area unless otherwise agreed between the parties. Hiona retained the right to farm and graze in the parts of the quarry area not required as part of the quarrying operations. There was a right of renewal for a further 40 years at a royalty rate to be agreed.
[17] Clause 6 of the 1993 Agreement was an acknowledgement by both parties that “benching” had to take place, taking the quarry beyond the south eastern peg. The clause further provided:
6.… The Grantor and the Grantee agree that if further expansion out of the said area in the quarry zone is necessary, such expansion shall be [the] subject of further negotiations between the Grantor and Grantee. Those negotiations may well include the question of a royalty for any rock quarried from any area outside the quarry zone or the said area as defined. The parties acknowledge that the reason for the concession is shifting the peg referred to in this clause is because of the Health and Safety in Employment Act 1992 and the extension and expansion of the road that was necessary to comply with that Act and in recognition of the costs incurred by the Grantee in the extension and expansion of the road.
[18] Under clause 16 of the 1993 Agreement, BKFL was entitled to lodge a caveat to protect its interests. Clause 19 of the 1993 Agreement gave BKFL an option to purchase the whole farm or farms containing the quarry if the owner decided to sell.
[19] On 27 April 1998, the Matamata-Piako District Council granted a certificate of compliance to BKFL confirming the existing land use rights at the existing quarry operation. Those existing land use rights are marked by the blue broken line on the map at Appendix B. Those existing rights provided for expansion to the east, within the blue dotted line.
[20] In the early 2000s, as part of the District Plan review, the Matamata-Piako District Council proposed the establishment of a green belt (a Kaitiaki (Conservation) Zone) on the Kaimai ranges. Mr Diprose, and the Swaps, considered that such a proposal would pose serious restrictions on their farming and quarry operations. After an acrimonious and protracted dispute, the parties reached a settlement in April 2003 whereby the Council accepted that there were existing uses on various properties including the farming and quarry operations on the Main Block and Smaller Block.
[21] Part of that settlement included agreement on a Development Concept Plan prepared for the property. A copy of that Plan is annexed as Appendix C. Under the Development Concept Plan, “mining, quarrying and mineral processing & associated operations in accordance with any resource consents approved prior to September
2001 within the quarry area” were permitted. Conservation forestry and production forestry (including harvesting) within the quarry area were also permitted.
[22] The quarry area as shown on that Plan correlates with the orange marked area on Appendix B. As can be seen from Appendix B, the proposed expansion of the quarry at this time was out to the east. The Development Concept Plan also showed an area for the network utilities, and all other areas were designated Conservation areas. The parts of the Main Block to the south of the quarry correlate with the marked Conservation areas that eventually became subject to the covenant in this area. There is also a correlation between the covenanted areas of the Smaller Block, although part of the covenanted area extends into the proposed quarry expansion area to the north of the quarry.
[23] In November 2004, Mr Diprose began looking at ways of reducing his rates burden and getting some fencing assistance. He considered that certain parts of the Main Block and Smaller Block could not be used for farming purposes and there was original native bush on the Smaller Block that was too good to fell. The Waikato Regional Council suggested to him that he could place some areas of the land under an open space covenant.
[24] Mr Diprose was put in touch with Mr Hamish Dean from the Trust. There were several meetings between the two. Their evidence regarding what was discussed is considered in more detail later on in this judgment in the context of Kaimai’s claim for rectification. For present purposes it is enough to record that agreement was reached to covenant large tracts of the Main Block and Smaller Blocks.
[25] The covenants were executed on 18 September 2005. The survey map showing the boundaries of the covenanted areas were subsequently prepared in 2007, and the covenants were registered against the titles on 15 October 2007. The survey map annexed to the Main Block covenant is attached as Appendix D to this judgment. The boundaries of the covenanted areas can also be seen on Appendix A (marked in yellow), and Appendix B (marked in green).
[26] In 2009 the Diproses agreed to sell both blocks of land to Kaimai. The sale price was negotiated having regard to the value of the land for quarrying. During the sale and purchase negotiations, Swaps became aware of the covenants for the first time. After taking legal advice they decided to proceed with the sale. The sale and purchase agreement, dated 2 September 2009, addressed the covenants in the following clause:
24.0 The parties hereto acknowledge that there may be difficulties with the QEII National Trust in relation to the Open Space Covenant on the land. The director of the Vendor, Ian Bruce Diprose, will assist the Purchaser in resolving the difficulties with the Trust. The parties will review the situation in relation to the negotiations with the Trust on or before 24 September 2009. In the event that satisfactory progress has not been made the parties agree to revisit either the price or the settlement date. It is not anticipated that there will be a problem with the boundary adjustment with the QEII National Trust.
[27] In 2012, Swaps undertook some expansion planning, and determined that the quarry will soon need to expand south. Any intended expansion into the south will affect approximately 40 ha of the large covenanted area to the south of the quarry. A new proposed access road is also planned for the covenanted area north of the quarry.
[28] As part of the expansion planning process Kaimai contacted the Trust to obtain information on the process for a variation of the covenanted area. The Trust suggested an application for variation be made under s 22 of the Queen Elizabeth the Second National Trust Act 1977 (QEII Act). Kaimai prepared two draft proposals but withdrew them both before they were considered by the Trust.
[29] In 2015, following a formal proposal by BKFL to expand the quarry, Kaimai wrote to the Trust advising it of the request. Kaimai’s position is that it is obliged to consult with the Trust, but the covenants do not give the Trust a right of veto over the quarry’s intended expansion. The Trust takes a different view, and, on 18 November 2015, its lawyers responded advising that the Trust did not consent to the expansion, and that it would take legal action if the expansion occurred. Kaimai issued these proceedings in 2017 seeking to clarify the scope of its rights under the covenants.
The covenants
[30] The Trust was constituted under s 3 of the QEII Act. The general functions of the Trust are to “encourage and promote, for the benefit and enjoyment of the present and future generations of the people of New Zealand, the provision, preservation and enhancement of open space”.2
[31] The Trust is authorised to enter into an open space covenant with private landowners to protect and maintain open space values.3 The covenant may have effect in perpetuity, or it may be for a specified term.4 The covenant runs with and binds the land to which it relates and is a deemed interest for the purposes of the Land Transfer Act 2017.5 On application by the Trust, the Registrar-General of Land must note the covenant on the register.6
[32] Each of the covenants in this case follow the same format. After the recitals, the covenants record that the parties have agreed to comply with the terms and conditions set out in the schedules which bind the land in perpetuity. The parties also agree that if any question arises in the management of the land, it shall be resolved in a manner that does not diminish the purpose and objectives or terms and conditions.7
[33] The agreed purpose and objectives are set out in Schedule 1 of the covenants. The agreed purposes are “to protect, maintain, and enhance the open space values of the land” and to achieve the particular objectives set out in four sub-paragraphs that follow. These include: the protection and enhancement of the natural character of the land; the maintenance and enhancement of the landscape value of the land; encouraging restoration of indigenous vegetation; and preventing subdivision of the land.
2 Queen Elizabeth the Second National Trust Act 1977, s 20(1).
3 Section 22(1).
4 Section 22(5).
5 Section 22(6).
6 Section 22(7).
7 Clause (c).
[34] The terms and conditions of the covenants are set out in Schedule 2. The operative clauses are found in clauses 2.1, 2.2, and 2.3 which provide:
2.1No act or thing shall be done or placed or permitted to be done or remain upon the Land which in the opinion of the Board materially alters the actual appearance or condition of the Land or is prejudicial to the Land as an area of open space as defined in the Act.
2.2In particular, on and in respect of the Land, except with the prior written consent of the Trust, or as outlined in Schedule 3, the Owner agrees not to:
(a)Fell, remove, burn or take any native trees, shrubs or plants of any kind.
(b)Plant, sow or scatter any trees, shrubs or plants or the seed of any trees, shrubs or plants other than local native flora.
(c)Introduce any substance injurious to plant life except in the control of pests.
(d)Mark, paint, deface, blast, move or remove any rock or stone or disturb the ground.
(e)Construct, erect or allow to be erected, any buildings or undertake exterior alterations to existing buildings.
(f)Erect, display or permit to be erected or displayed, any sign, notice, hoarding or advertising matter of any kind except for signs identifying the covenant or to indicate walking tracks that are or may be established on the Land.
(g)Carry out any prospecting or exploration for, or mining or quarrying of any minerals, petroleum, or other substance or deposit.
(h)Deposit any rubbish or other materials, except in the course of maintenance or approved construction, provided however that after the completion of any such work all rubbish and materials not wanted for the time being are removed and the Land left in a clean and tidy condition.
(i)Allow any livestock on the Land.
(j)Cause deterioration in the natural flow, supply, quantity or quality of any river, stream, lake, wetland, pond, marsh or any other water resource affecting the Land.
2.3In considering any request by the Owner for an approval in terms of Clause 2.2. hereof, the Board will not unreasonably withhold its consent if it is satisfied that the proposed work does not conflict with the purpose and objectives of this Deed as contained in Schedule 1.
[35] Clause 4 of the covenants is of central relevance to this claim. That clause provides:
4.1If notified by any authority, body or person of an intention to erect any structure or carry out any other work on the Land, the Owner agrees:
(a)to inform the authority, body or person of this Deed;
(b)to inform the Trust as soon as possible; and
(c)not to consent to the work being done without consulting the Trust.
[36] Schedule 3 sets out special conditions relating to the land. The first two clauses of Schedule 3 are the same for the Main Block and Smaller Block. They relate to the use and maintenance of existing farm tracks, and the taking of water from natural sources for domestic and stock purposes. There is a third clause in Schedule 3 for the Main Block that provides as follows:
3.Utility Services
3.1Communications and radar facilities may continue to be used, upgraded, and expanded on the Land in accordance with consent obtained from other responsible authorities.
[37] The aerial photograph, and an outline diagram, showing the boundaries of the covenants are annexed to the Deed. The annexure for the Main Block covenant is annexed as Schedule 4 and it is included in this judgment as Appendix D. As can be seen it identifies the quarry operation area.
Does cl 4.1 mean that the owner may permit third parties to carry out work on the land?
[38] The first issue concerns the interpretation of the covenants, and in particular cl 4.1. Kaimai argues that cl 4.1 of the covenants means that it, as owner, has the ability to decide whether to consent to any request by a third party to carry out work in the covenanted area, even if the work would have been prohibited if done by the owner under cl 2 of the covenants.
Legal principles
[39] The construction of instruments creating interests in land raises particular issues regarding the admissibility of extrinsic evidence. That issue arises because third parties rely on the terms of a covenant as registered. Extrinsic material particular to the parties who negotiated the terms of the covenant may not be available to those third parties. For these reasons, a majority of the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd said that the fact that “parties are aware that their contract might be relied upon by a third party may justify a more restrictive approach to the use of background in some instances”.8
[40] Construction and rectification of an open space covenant was considered by the Supreme Court in Green Growth No 2 v Queen Elizabeth the Second National Trust.9 A majority of Elias CJ, Glazebrook and France JJ did not find it necessary to resolve the issue of extrinsic material as an aid to interpretation to dispose of the appeal. That is because they considered the meaning of the covenant to be clear in its terms. France J noted, in addition, that the question of the use of extrinsic material in the construction of registered documents had not been the subject of argument.10
[41] The minority of William Young and O’Regan JJ addressed the issue directly. After reviewing relevant authorities from New Zealand,11 Australia12 and the United Kingdom,13 their Honours concluded as follows:14
[73] A very flexible approach to the admission of extrinsic evidence as bearing on the construction of registered documents will promote litigation and, as was recognised in Westfield, has the potential to undermine the policy of indefeasibility of title. On the other hand, if we were to adopt a rigid rule excluding such evidence, there will still be marginal cases which will have to be addressed and, in some instances, perverse outcomes, despite there being
8 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [62].
9 Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2018] NZSC 75, [2019] 1 NZLR 161.
10 At [161].
11 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432; Big River Paradise Ltd v Congreve [2008] NZCA 78, [2008] 2 NZLR 402; Escrow Holdings Forty-One Ltd v District Court at Auckland [2016] NZSC 167, [2017] 1 NZLR 374; Lakes International Golf Management Ltd v Vincent [2017] NZSC 99, [2017] 1 NZLR 935.
12 Westfield Management Ltd v Perpetual Trustee Co Ltd [2007] HCA 45, (2007) 233 CLR 528.
13 Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736, [2013] Ch 305.
14 Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2018] NZSC 75, [2019] 1 NZLR 16 at [73]–[74].
no good reason why, as between the parties to the dispute, the extrinsic evidence should be ignored.
[74]Against that background, we consider that:
(a)Generally, registered documents should be construed without regard to extrinsic evidence which is particular to the original parties and is not apparent on the face of the register.
(b)This does not limit rights to apply for rectification, a topic which we will address in the next section of these reasons.
(c)We would not exclude reference to facts which a reasonable future reader of the document could be expected to be aware of and would recognise as relevant and which they have access to, such as the configuration of land, any physical features to which the document relates or refers and any material referred to in the document.
[42] I have not found it necessary to address the question of admissibility of extrinsic evidence directly in this case. That is because, as explained further below, I consider the meaning of cl 4.1 is clear in its terms, and there is no need to admit extrinsic evidence to resolve the interpretation issue.
The plain and ordinary meaning of cl 4.1
[43] The starting point is the plain and ordinary meaning of the text of cl 4.1. I set it out again for ease of reference:
4.1If notified by any authority, body or person of an intention to erect any structure or carry out any other work on the Land, the Owner agrees:
(a)to inform the authority, body or person of this Deed;
(b)to inform the Trust as soon as possible; and
(c)not to consent to the work being done without consulting the Trust.
[44] It is immediately apparent that the clause does not contain an express power allowing the owner to agree to any request by the third party to either erect any structure or carry out any work. Rather, the clause obliges the owner to inform the third party of the Deed, inform the Trust as soon as possible, and not to consent to the work being done without consulting the Trust. The ordinary sense of the clause is that the owner must relay any request by a third party to do work on the covenanted land to the Trust who must be consulted about that proposed work.
[45] On the other hand, the clause does not provide the Trust with an express power of veto over any request received from a third party either. The obligation on the owner is to both inform and consult with the Trust regarding the request but the clause is silent as to who has the power to consent to the request by the third party. The question in this case is whether cl 4.1 may be interpreted as implicitly reserving that power to the owner.
[46] An interpretation that affords the owner a power to consent to works in the covenanted area would be inconsistent with cl 2.1 of the covenants. That clause provides that no act or thing shall be done or placed or “permitted” to be done on the land which “in the opinion of the Board” materially alters the actual appearance or condition of the land or is prejudicial to it as an area of open space as defined in the QEII Act.
[47] There are two points to be made about cl 2.1. The first is that it extends to activities that are “permitted” on the land. The focus is on the nature of the activity rather than the identity of the party undertaking the activity. It would, therefore, extend to activities by third parties. The second point is that it reserves decision-making power to the board of the Trust in relation to that activity (“in the opinion of the Board…”). In other words, the Trust retains control over the nature of the activity in the covenanted area. Construing cl 4.1 to allow the owner to permit activities to be carried out in the covenanted area would be at odds with the tenor of cl 2.1.
[48] Such an interpretation would also be at odds with cl 2.2. Clause 2.2 follows on from cl 2.1 (as made explicit by the opening words, “in particular”, of the clause) and gives further meaning to the general prohibition in cl 2.1.15 Under the terms of that clause, the owner agrees not to carry out the specific activities in cl 2.2 (a) to (j) except with the written consent of the Trust, or as outlined in Schedule 3. That includes an agreement not to “carry out any prospecting or exploration for, or mining or quarrying of any minerals, petroleum, or other substance or deposit”.
15 This was the interpretation favoured by Elias CJ in Green Growth at [136].
[49] An interpretation of cl 4.1 that permits an owner to consent to a third party carrying on activities in the covenanted area that would normally require the prior written consent of the Trust would erode the true import of cl 2.2. It would allow an owner to circumvent the controls imposed under cl 2.1 and 2.2, by permitting third parties to undertake the very activities it has agreed it will not. Such a perverse result cannot have been intended by the drafters of cl 4.1.
[50] Kaimai’s interpretation would also be at odds with cl 2.3 which provides that the Board of the Trust will not unreasonably withhold its consent to any request by the owner for an approval in terms of cl 2.2. Quite clearly, therefore, the control over activities in the covenanted land rests with the Trust and the owner’s rights in relation to that land are severely curtailed.
[51] Kaimai’s suggested construction of cl 4.1 would also diminish the importance of Schedule 3 to the covenants. The activities listed in Schedule 3 are those that the parties have agreed may be undertaken in the covenanted land. They include activities by third parties on the Main Block. Those activities are carefully delineated carve- outs from the general prohibition on activities within the covenanted land. A general power allowing an owner to permit further activities on the covenanted land at its discretion would be contrary to the purpose and function of Schedule 3.
[52] Finally, at a high level, Kaimai’s favoured interpretation would be inconsistent with the objectives and purposes of the covenants, interpreted in light of the QEII Act. The key purpose of the covenants is to protect the environmental value of the land in perpetuity. That purpose is to be achieved by subjecting the land to a covenant that preserves the natural character and landscape value of the land by prohibiting activities that disturb or erode the land, subject to certain specified exceptions. Reserving a power to the owner to allow, at its discretion, an expansion of activities within the covenanted area that are contrary to those objectives, is fundamentally inconsistent with the purpose and scheme of the covenants and the Act.
[53] It follows that the meaning of cl 4.1 is clear from its terms and there is no need to admit extrinsic evidence to resolve any underlying ambiguity, or alternatively resort to the contra proferentem rule. In any respect, and for the reasons discussed further in
relation to rectification, this is not a case where admitting that evidence would lead to the interpretation contended for by Kaimai in any case.
[54] The answer to the question is “no”. Clause 4.1 does not allow the owner to permit third parties to carry out work on the land.
Should the covenants be rectified to allow for expansion of the quarry into the covenanted areas?
[55] As an alternative to its interpretation claim, Kaimai seeks rectification of Schedule 3 to both covenants so as to allow for expansion of the quarry into the covenanted areas. The new clauses sought by way of rectification are as follows:
Main Block:
4Quarry
4.1The quarry may continue to be operated, upgraded and expanded on the Land in accordance with consent obtained from other responsible authorities.
Smaller Block:
3Quarry
3.1The quarry on the adjoining land (SA30D/982) may continue to be operated, upgraded and expanded on the Land in accordance with consent obtained from other responsible authorities.
Legal Principles
[56] Rectification is an equitable remedy. It will be ordered where the parties have agreed on terms, but those terms do not accurately reflect the common intention of the parties as to what was to be reflected in those terms.16
[57] There is no dispute about the legal principles applying to rectification based on common intention. The party seeking rectification must show:17
16 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed Brookers, Wellington, 2009) at 29.1.
17 See summary of principles at Davey v Baker [2016] NZCA 313 at [37];Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2016] NZCA 308 at [48].
(a)that the parties had a common continuing intention, whether or not amounting to an agreement, in respect of the particular matter in the agreement sought to be rectified;
(b)the common continuing intention must be objectively apparent. This is sometimes described as an outward expression of accord;
(c)that intention must continue up to the time of execution of the agreement sought to be rectified; and
(d)that, by mistake, the agreement does not reflect the parties’ common continuing intention.
[58] Rectification may be ordered where one party has made a unilateral mistake and the other party had actual knowledge of that mistake.18 However, a mistake as to the interpretation of an agreement or of the legal consequences of entering into an agreement will not be sufficient to rectify an agreement.19 For completeness, I have considered whether, on the facts, Mr Diprose made a unilateral mistake, and whether Mr Dean was aware of that mistake. However, as will become apparent later in this judgment, I have not found it necessary to consider whether, as a matter of law, this is a sufficient basis upon which to base a claim for rectification.
Was there a common intention to allow for the expansion of the quarry into the covenanted areas?
[59] The assessment of common intention rests, at least in the first instance, on what was said during the discussions between Mr Diprose on behalf of the owners of both blocks, and Mr Dean on behalf of the Trust. Both witnesses gave their evidence honestly and candidly. However, understandably, given the passage of time, both witnesses had difficulty in recalling the detail of what was discussed over 12 years ago. The issue, therefore, is one of reliability rather than credibility of their accounts.
18 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington) at 29.2.6; David McLauchlan “The Drastic Remedy of Rectification for unilateral mistake” (2012) 2 Victoria University of Wellington Legal Research Papers 608.
19 Davey v Baker [2016] NZLR 776 at [40] citing Francis Dawson, “Rectification of Voluntary settlements” (2014) 130 LQR 356 at 359.
[60] It is common ground that there were several meetings in 2005 between Mr Diprose and Mr Dean on the site of the property. The first meeting likely occurred on site on 21 February 2005. Mr Weteringh, on behalf of the Council, also attended that meeting.
[61] Mr Diprose recalls driving Mr Dean around the property, pointing out the bush areas that needed to be fenced off, and the quarry area. Although he cannot remember the details of what was discussed, Mr Diprose believes that he explained that the quarry was operated under an agreement with him, and he pointed out the land which he could not use for farming. He is sure he explained the importance of the income from the utility operators, which, at that time, was more than his income from farming. Mr Diprose also believes he explained that he would receive a royalty from any expansion of the quarry.
[62] In material respects, Mr Diprose’s evidence is consistent with Mr Dean’s recollection of what was discussed. Mr Dean recalls Mr Diprose discussing the history of the quarry and network utilities area. He also recalls Mr Diprose telling him of the “unusual set up” with the Swaps having a licence to quarry.
[63] On the basis of this evidence, I am satisfied that expansion of the quarry may have been contemplated and perhaps even discussed between the two men at the time. However, I am not persuaded that either Mr Diprose or Mr Dean intended to provide a right in the covenants to allow the quarry to expand into the covenanted areas in the future. I say that for three main reasons.
(a)Expansion to the east
[64] First, as at 2005, the contemplated expansion of the quarry was generally to the east, rather than into any of the covenanted areas. That is reflected in the various agreements and reports relating to the quarry. Under the 1982 Agreement, the area in which the quarry was entitled to operate included an expected area of expansion to the east, and to the south, but not beyond the stream on the southern boundary of the quarry. The quarry area, and its contemplated expansion, is marked in yellow on the map at Appendix B.
[65] The reasons for an eastern expansion were explained in a report filed in support of Swaps’ application to renew its resource consent for the quarry in 1984:
The general topographical and geological plan shows the several obvious limitations to the final extension of this quarry operation.
The area is bordered to the north and to the south by streams which drain quite large and steep sections of the Ka[i]mai ranges above the quarry, these streams tend to converge slightly towards the upper eastern slopes. Any attempt to redirect these streams or to quarry through them would require major expense and it is not deemed feasible in any way whatsoever. The deposition of even small quantities of overburden in their valleys can have dire consequences on the eventual quality of the water. Even if quarrying approaches close to these streams the natural waterway must not be altered or restricted in any way.
The Western limits of quarrying have been largely determined by previous quarrying apparently to the andesite floor (although this is questionable). The deposition of much overburden in worked out areas has severely limited any further downward extraction even if rock does exist.
To the north-east is the thick layer of ignimbrite which, if it continues at its present thickness, will tend to be a deterrent to quarrying in this direction because of the high overburden ratio.
The future quarry area is thus confined to the east by this ignimbrite and the upper reaches of the southern stream. A small plateau exists in this area above which the slope of the hill rises very steeply. The edge of this plateau has been taken as the likely limit of quarrying.
[66] The report goes on to note that the plan “should not be taken as showing the definite ending of quarry operations in this area” as that would depend on future geological investigations, future sales and economics. It also states that “reserves of rock above the present quarry or to the south of the stream have not as yet been considered. These may in the future be found to be viable”. Nevertheless, read in context, this report demonstrates that while expansion in a northerly and southerly direction had not been ruled out, the anticipated expansion was to the east.
[67] That expectation is consistent with Hiona’s intentions with respect to the southern parts of the Main Block as reflected in the Land Improvement Agreement with the Hauraki Catchment Board signed in 1983. Under that Agreement, approximately 100 ha of the southern parts of the Main Block were held as reserve and protected from stock grazing. It was not contemplated, at least at this time, that the quarry would expand into these areas sometime in the future.
[68] Ten years later, when the 1993 Agreement was agreed, the contemplated quarry expansion was still to the east. The boundaries of the quarry area under the 1993 Agreement remained the same as those under the 1982 Agreement. Although the parties agreed on a mechanism by which further expansion beyond these boundaries could be negotiated, there was no indication that the direction of any possible expansion was anything other than east at the time.
[69] Another five years on and the plan was still to expand to the east. In 1998 the Matamata-Piako District Council granted a certificate of compliance for the quarry’s existing land use rights at the time. Those existing land use rights are marked by the broken blue line on Appendix B. As can be seen, those rights extended even further to the east than the quarry rights under the 1982 and 1993 Agreements, but they did not extend into those areas now protected by the covenants.
[70] The plan five years later was to expand the quarry even further than these boundaries, but it was nevertheless still to the east. That is depicted in the Development Concept Plan agreed in 2003 and annexed as Appendix C. The boundaries of the quarry area in that Development Concept Plan are marked in a broken orange line on Appendix B.
[71] The Development Concept Plan is significant in my view. It was agreed as part of a settlement of a dispute with Council over the proposal to establish the Kaitiaki green-belt on the Kaimai ranges. The settlement was not just with Mr Diprose, but involved the Swaps too as their quarry operations were affected by what was being proposed. In fact, the Development Concept Plan evolved out of a diagram that Mr Lewis Swap of Swaps had prepared. As the Development Concept Plan had been agreed just two years before the conversations between Mr Diprose and Mr Dean were taking place, it provides the best evidence of what was likely contemplated in terms of quarry expansion at the time. Significantly, Mr Dean had a copy of this Development Concept Plan and appended it to his report to the Trust on the proposed covenants.
[72] The Development Concept Plan marks out the boundaries of conservation areas on the Main Block. The conservation area marked to the south of the quarry
corresponds with Area C of that covenant. There is no evidence of any intention to expand the quarry south into this conservation area at that time.
[73] The conservation area to the north of the quarry also generally corresponds with the covenant in this area. However, there is an area of proposed quarry expansion that overlaps with Area A of the covenant, as can be seen on Appendix B. Kaimai points to this overlap as evidence that the parties must have agreed to allow for expansion of the quarry into the covenanted areas. But that does not necessarily follow. The “quarry area” is within the “farming area” marked on the Development Concept Plan. Conservation forestry is a permitted activity within the farming area, and therefore also within the quarry area. An email dated 31 August 2007 from Mr Taris, the surveyor engaged to mark out the covenant boundaries, records young pines being planted in this area. This evidence suggests that while the quarry area could expand north under the Development Concept Plan, by the time of discussions in 2005, the plan was to protect this area with a covenant.
[74] The final point to make under this head is that while a southern expansion may have been contemplated, the planned change from an eastern to a southern expansion appears to have occurred some seven years after discussions regarding the covenant. In 2012, Swaps were applying for new resource consents for the quarry operations. As part of that process, Swaps consulted with Ngāti Hinerangi and gained an improved understanding of the significance of Te Weraiti and the Mangapiko stream for that iwi. Consequently, Swaps undertook to explore new expansion options, including to the south. This strengthens the conclusion that at the time of discussions between Mr Diprose and Mr Dean the contemplated quarry expansion was likely to the east, and not within the areas now covered by covenants.
(b)Fixing the covenant boundaries
[75] The second reason for concluding that there was no intention to provide for expansion into the covenanted areas is based on the discussions at the time the covenant boundaries were being surveyed. Those discussions suggest that the expansion of the quarry was to be accommodated by fixing the boundaries of the
covenants, rather than providing the owner with a right to consent to future expansion within the terms of the covenants.
[76] The survey of the property took place approximately two years after the covenants were signed. Mr Diprose drove the surveyor, Mr Taris, around the property and says he made several changes to the boundaries during the survey process. An email from Mr Taris dated 31 August 2007 records points that needed addressing. In relation to Area C, Mr Taris records Mr Diprose as saying that “the quarry operations are not allowed to extend past or disrupt the stream”. I consider that statement to be inconsistent with an expectation that, as at 2005, the quarry would, in the future, do just that.
[77] Further, one of the changes Mr Diprose made was to the Main Block covenant boundary to allow for overburden to be deposited in the area. Mr Diprose recalls discussing this change with Mr Dean, who said something like “its better to change now as it will be difficult to change later”. This statement only confirms that had there been a wider discussion about the quarry expanding into the covenanted area it would have been addressed as an issue up front. There would have been no need to adjust the boundaries to provide for the overburden in the covenanted area if both parties understood that the covenant allowed Mr Diprose to consent to that in any respect.
(c)No outward expression of accord
[78] Despite what Mr Diprose now recalls to be his intention at the time, the documentary evidence and discussions concerning the covenant boundaries suggests that, in 2005, he did not actually contemplate the quarry extending into the covenanted areas. Nevertheless, even if Mr Diprose did intend to provide for expansion of the quarry into the covenanted areas, there is no evidence of any outward accord on this issue. This is the third and final reason for concluding that there was not the requisite common intention between the parties.
[79] Notably, although Mr Diprose said in his evidence that the obvious extension of the quarry was to the south, he stopped short of saying that he told Mr Dean that the covenant would have to provide for the future expansion of the quarry into the covenanted areas. Mr Diprose candidly admitted that he could not recall everything
that was discussed back in 2005 and admitted that he might not have discussed quarry expansion with Mr Dean in direct terms.
[80] Mr Dean could not recall Mr Diprose saying anything about expansion of the quarry into covenanted areas either. Mr Dean said that quarrying in a covenanted area was not something that could be done, and he regarded it as against the core purpose of covenanting. I accept Mr Dean’s evidence that he would not have forgotten a conversation like that.
[81] Corroborating Mr Dean’s recollections is the fact that there was no record of any discussion about expansion of the quarry in Mr Dean’s report taken soon after the site visit. That report sets out a description of the ecological significance of the proposed covenanted area. It includes a proposal for three special conditions – all of which were ultimately recorded in Schedule 3 to the Main Block covenant. The first two (regarding continued farm access and water rights) are standard conditions, but the third condition regarding communication and radar facilities, is particular to the land. If there had been discussion about expansion of the quarry in future years, it is reasonable to assume that it would have been noted in the report on the same basis that expansion of the aerials was recorded. The fact that it was not recorded is a good indication that it was never discussed.
[82] To recap, I am not persuaded that there was a common intention that the covenants would provide for the future expansion of the quarry into the covenanted areas. As at 2005, it was not contemplated that the quarry would expand into the covenanted areas. Rather, the contemplated expansion was to the east. The possibility of a southern expansion only arose in 2012 when iwi interests in eastern areas of the land forced Swaps to consider other expansion plans to the south. Any future expansion of the quarry was accommodated by fixing the boundaries of the covenanted area to allow for that expansion, including adjustments made to provide for overburden in what was originally earmarked as covenanted areas. Finally, even if Mr Diprose intended to provide for the possibility that the quarry might extend into the covenanted areas, there is no evidence that this was expressed out loud or discussed with Mr Dean. In other words, there is no outward expression of accord, and no objectively ascertainable common intention.
[83]The rectification claim based on common intention cannot succeed.
Did Mr Diprose make a unilateral mistake and did Mr Dean know that?
[84] Mr Diprose said throughout his evidence that he thought that cl 4 allowed him to agree to the quarry expanding into the covenanted areas. For the reasons explained above, that is a mistaken view of cl 4. I have therefore considered whether rectification based on a unilateral mistake as to the meaning of the terms of the covenants is available on the facts of this case.
[85] The first question is whether Mr Diprose was in fact mistaken as to his interpretation of cl 4 back in 2005. Mr Diprose’s evidence is corroborated to some extent by Mr Taris’ evidence, who said that during the survey he asked Mr Diprose about the movement of the quarry boundary. Mr Diprose replied that he had talked to Mr Dean about it and it was covered off in the covenant.
[86] I have no doubt that the recollections of Mr Diprose and Mr Taris are honestly held. However, the conversations at issue took place approximately 12 years ago. Untangling recollections about what was thought at the time, from what has since been learned, is a difficult exercise. For the reasons already canvassed in relation to common intention, I am not persuaded that expansion of the quarry into the covenanted areas was something intended by Mr Diprose at the time. And, if that was not contemplated in 2005, there would have been no need to ensure that the covenant clauses provided for that eventuality. In other words, I doubt whether Mr Diprose actually was mistaken in 2005 as to the meaning of cl 4.
[87] Nevertheless, the bigger point is that even if Mr Diprose was mistaken about cl 4, there is no evidence to suggest that Mr Dean knew of this mistake. There was no direct evidence of any discussions between Mr Diprose and Mr Dean regarding the clauses of the covenants. Contrary to what Mr Diprose now says, cl 4 was not a specially designed clause unique to the covenants at issue in this case. Rather, it was a boiler plate clause included in many other open space covenants. From Mr Dean’s viewpoint there was no indication that Mr Diprose might have misinterpreted this clause.
[88] Kaimai argued that Mr Diprose had been discouraged from taking legal advice on the covenants. That submission rested on a letter from the Trust dated 20 June 2005 providing confirmation of the conditions on which the covenants had been approved. One of the paragraphs of that letter provided:
If you elect to seek independent legal advice about the covenant or the documentation associated with it, the costs of seeking such advice will be your personal responsibility.
[89] I accept that Mr Diprose may have decided not to seek legal advice on the covenants due to the cost, but responsibility for that decision cannot be laid at the feet of the Trust. Mr Diprose had a lawyer who he consulted from time to time, and the decision not to do so on this occasion was one made of his own free will.
[90] In any respect, the question of legal advice is a side issue insofar as the rectification claim is concerned. There is nothing in this letter, or clarification around who is to pay for independent legal advice, that suggests that the Trust was aware of any unilateral mistake made by Mr Diprose about the terms of the covenants. In those circumstances, Kaimai cannot establish a claim for rectification for unilateral mistake (assuming such a claim could give rise to this form of equitable relief in this instance) and this cause of action must be dismissed.
Should consent orders regarding the northern boundary of the Main Block covenant be made?
[91] The parties have reached agreement on the fourth and fifth causes of action which relate to the northern boundary of the Main Block covenant. It is agreed that the surveyor made a mistake in marking that boundary as a straight line, when it was always intended that the boundary of this covenant would follow the stream at the southern end of the quarry area. Consent orders are sought to remedy this error.
[92] I am satisfied that orders declaring that there was an error and directing a re- survey of the boundary are appropriate. Orders in those terms are set out below. However, I consider it preferable that the terms of the order directing the Registrar- General to register the changes to Schedule 4 of the Main Block covenant and to change Area C of the covenant accordingly should only be made when the re-survey
is complete. That will allow the order to be crafted with precision so there is no doubt about what the Register-General is being asked to do. Orders on that basis are set out below.
Result
[93] The fourth and fifth causes of action are resolved by agreement. I make the following orders:
(a)It is declared that the defendant’s surveyor made an error when he plotted the northern boundary line of area C of the Main Block covenant by drawing a straight line between the two northern boundary corners of area C of the covenant, rather than following the nearby stream.
(b)The northern boundary of area C of the Main Block covenant shall be resurveyed by way of written joint instruction and at the defendant’s cost to a minimum of a Class 3 Survey Standard so that it generally follows the stream located at the southern boundary of the quarry zone depicted on the plain annexed to the Quarrying Rights Agreement dated 21 September 1995.
(c)Leave is reserved to the parties:
(i)to file a joint memorandum seeking an order directing the Register-General to amend the covenant so that it reflects the re-surveyed boundary as set out in (b) above once that re-survey has been completed; and
(ii)to seek further direction from the Court as required.
Kaimai’s claim is otherwise dismissed.
[95] If costs cannot be agreed, the Trust shall file and serve a memorandum as to costs within 15 working days of this judgment. Kaimai shall file and serve a
memorandum in reply within 10 working days thereafter. The memoranda filed shall be no longer than five pages in length. Costs shall be determined on the papers.
[96] Finally, I direct that this judgment be initially released to the parties and their counsel only so that any commercially sensitive information may be identified and redacted in the public copy of the judgment. Counsel for the plaintiff shall file a memorandum by 4.00 pm, Friday, 12 July 2019 identifying any commercially sensitive parts of the judgment to be redacted. If a memorandum is not received by that date, the judgment shall be released to the public in its current form.
Edwards J
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
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