Norman Avenue Properties Ltd v Uhd Wairarapa Ltd HC Auckland CIV 2009-485-2591

[2010] NZHC 2085

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2009-485-2591

BETWEEN  NORMAN AVENUE PROPERTIES LIMITED

Plaintiff

ANDUHD WAIRARAPA LIMITED First Defendant

ANDGILLIES & MARK REAL ESTATE LIMITED

Second Defendant

Hearing:         31 May 2010

Counsel:         N W Hughes for Plaintiff

J C Corry for Defendants

Judgment:      11 November 2010 at 3.30 pm

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment Application)

This judgment was delivered by me on 11 November 2010 at 3.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Hughes Robertson Lawyers, PO Box 2513, Wellington

Brandons, PO Box 36, Wellington

NORMAN AVENUE PROPERTIES LIMITED V UHD WAIRARAPA LIMITED AND ANOR HC WN CIV-

2009-485-2591  11 November 2010

Introduction

[1]      The  plaintiff,  Norman  Avenue  Properties  Limited,  applies  for  summary judgment on its claim against the defendant, UHD Wairarapa Limited.  Its claim is for the refund of deposits paid under four agreements for sale and purchase, plus interest and costs.

[2]      The application is opposed.

Background

[3]      In November 2007 the plaintiff agreed to buy, and the defendant agreed to sell, lots 17 to 20 in a proposed subdivision of industrial land at Norman Avenue, Carterton.  The parties entered into four separate agreements for sale and purchase. Each contained identical general terms of sale, further terms of sale and special conditions of sale.  The plaintiff paid deposits totalling $15,000.

[4]      Clause  1.6  of  the  special  conditions  of  sale  required  that  the  defendant consult and then promptly notify the plaintiff or its solicitors in writing of any “easements, rights, restrictions or encumbrances to be registered against the title”. The plaintiff was then to have five working days in which to either accept or refuse the same.  If it refused, the agreement was to be at an end.  Any deposits paid were to be refunded in full.

[5]      Subdivision was to proceed in two stages.  Approval was granted for the first stage in September 2006 and the second stage in July 2008.  Approval for each stage was granted subject to a number of conditions.

[6]      The   Carterton   District   Council,   pursuant   to   s   221   of   the   Resource Management Act 1991, issued consent notices in respect of each stage.  The consent notices  specified  those  of  the  conditions  that  were  to  be  complied  with  on  a continuing basis by the subdividing and subsequent owners.  The notices requested that  the  District  Land  Registrar,  when  issuing  title,  register  the  consent  notices against the titles of the affected lots.

[7]      Titles for lots 17 to 20 were issued on 17 August 2009.  The consent notices were duly registered against them.

[8]      On 27 August 2009 the defendant’s solicitors advised that titles had been issued and that, in accordance with the agreements for sale and purchase, settlement was required on 27 October 2009.

[9]      It  is  not  in  dispute  that  the  defendant  had  not  consulted  or  notified  the plaintiff or its solicitors in writing of the consent notices.  Mr John Bunny, a director of the plaintiff, deposes that he and the other directors, on receipt of the titles, were immediately concerned by the registration of consent notices against them.   On obtaining the consent notices, he deposes, he and the other directors became “very alarmed”.  He deposes that had they been made aware of the consent notices they would have immediately cancelled the agreements pursuant to cl 1.6.

[10]     On  1  September  2009  the  plaintiff’s  solicitors  notified  the  defendant’s solicitors that the agreements for sale and purchase were at an end on the basis of the defendant’s breach of cl 1.6.  They requested the deposits be refunded.

[11]     The defendant declined to refund the deposits.  It does not accept it was in breach of the agreements for sale and purchase.  It opposes the plaintiff’s application for summary judgment on this ground.

Legal principles on summary judgment

[12]     The plaintiff applies for summary judgment under r 12.2 of the High Court

Rules. Rule 12.2 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

…

[13]     The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]:

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ

84 (CA).

Issues for determination

[14]     In order to succeed on its application for summary judgment, the plaintiff must satisfy the Court that the defendant has no defence to its claim.  The defendant opposes the plaintiff’s application on the ground that it has an arguable defence in that it did not breach the relevant clause.

[15]     The issues for determination are as follows:

a)       Whether the defendant was arguably not in breach of cl 1.6 of the special conditions of sale.  Counsel accept that this turns on whether the consent notices, and the conditions, compliance with which the consent notices secured, were, once registered, restrictions or encumbrances on the titles in terms of that clause.

b)If  so,  whether  the  breach  entitled  the  plaintiff  to  cancel  the agreements.

c)       If so, whether the appropriate relief is the refund of the deposits.

[16]     I address these issues in turn.

Were the consent notices restrictions or encumbrances in terms of cl 1.6?

[17]     If the consent notices were not restrictions or encumbrances in terms of cl 1.6 of the special conditions of sale, the defendant was under no obligation to notify the plaintiff of the same.  Counsel for the defendant submits the consent notices were not restrictions or encumbrances.  His submissions on this point are threefold:

a)       That a consent notice is incapable, as a matter of law, of being a restriction or encumbrance; or in the alternative

b)That a consent notice is incapable, as a matter of construction of the particular agreements for sale and purchase, of being a restriction or encumbrance; or in the alternative

c)       That the particular consent notices in question did not have the effect of restrictions or encumbrances.

Whether a consent notice is incapable as a matter of law of being a restriction or encumbrance

[18]     Consent notices specify conditions to be complied with on a continuing basis by subdividing and subsequent owners: s 221(1) of the Resource Management Act. They are deemed to create an interest in land and may be registered accordingly: s

221(4)(a).  On registration they are deemed to be a covenant running with the land and bind all subsequent owners: s 221(4)(b).

[19]     Consent notices, then, are intended, ordinarily at least, as restrictions on title. Parliament  has  made  it  “utterly clear”  that  they  are  to  be  treated  as  registered covenants: Barker v Queenstown Lakes District Council [2007] NZRMA 103 (HC) at [77].  The consent notice in issue in that case provided that no part of any building be constructed on part of a section, giving effect to a promise made by the subdividing owner to the previous owner.   Fogarty J observed at [46] that it was “immediately apparent that the same end could have been obtained by registering a

restrictive  covenant”  and  at  [48]  that  the  purchaser  “purchased  the  interests containing within them a restriction on use”.

[20]     The  submission  made  by counsel  for  the  defendant  that  consent  notices, while deemed interests in land and deemed on registration covenants, cannot as a matter of law be restrictions or encumbrances, must therefore fail.  Such, plainly, is, ordinarily at least, their very purpose.

Whether a consent notice is incapable as a matter of construction of the particular agreements for sale and purchase of being a restriction or encumbrance

[21]     Counsel for the plaintiff submits the terms restrictions and encumbrances, in the context of the parties’ agreements for sale and purchase, ought to be broadly defined.  He referred me to Apple Fields Ltd v Hodge (1998) 3 NZ ConvC 192,726 (CA) in which Doogue J states at 192,728:

The word “unencumbered” simply means freedom from any burden or hindrance.   The nature or extent of the burden or hindrance is irrelevant. The term “an unencumbered estate in fee simple” is thus unambiguous in the context of an agreement to transfer land.  “An unencumbered estate in fee simple”, in the context of land under the Land Transfer Act 1952, must mean a title which does not have registered against it memorials evidencing interests which derogate from the unrestricted enjoyment of ownership in fee simple.   If there is, as here, a memorial on a title evidencing an interest which derogates from the unrestricted enjoyment of ownership in fee simple, the title cannot be said to be “unencumbered”.  There is nothing about the term which required the Judge to look at secondary evidence to assist in its interpretation.

[22]     Counsel  submits,  therefore,  that  consent  notices  plainly are  capable  as  a matter of construction (as well as of law) of being restrictions or encumbrances in terms of cl 1.6.  They are memorials on the titles evidencing interests which derogate from the unrestricted enjoyment of ownership.

[23]     Counsel for the defendant disagrees.  He points to the context of the terms as they appear in cl 1.6, which reads:

The  Vendor  reserves  the  right  to  grant  or  receive  the  benefit  of  any easements, building line, restrictions or other encumbrances, consent notices or  rights  which  may  be  required  in  order  to  satisfy  any  conditions  of approval of the plan and the Purchaser subject to the provisions contained at

the end of this clause, agrees to take title subject to or with the benefit of any such easements, building line restrictions, encumbrances, consent notices or rights and further agrees to execute all documents considered reasonable and desirable by the Solicitors for the Vendor and to do such acts and things as may be required to obtain the deposit of the plan and/or registration of easements, restrictions, encumbrances, consent notices or other rights, PROVIDED HOWEVER that the vendor acknowledges that he will consult and then promptly notify the purchaser or the purchasers solicitor in writing of  any  easements,  rights,  restrictions  or  encumbrances  to  be  registered against the title.  The purchaser shall then have five (5) working days after receiving such notice in which to either accept or refuse the easements, rights, restrictions or encumbrances.  If the purchaser refuses to accept the easements, rights restrictions or encumbrances the agreement shall be at an end and all moneys paid by the purchaser will be refunded in full and neither party shall have any claim against the other at law or equity.  …

[24]     Counsel submits the clause contains an operative part and a proviso.   The operative part provides that the purchaser is to take title subject to or with the benefit of easements, building line restrictions, encumbrances, consent notices or rights. The proviso provides that the purchaser has a limited right of refusal in respect of only easements, rights, restrictions or encumbrances to be registered against the title. Counsel submits the right of refusal, on the plain reading of the clause, does not extend to consent notices.   Such reading, he submits, gives proper effect to the purpose of the proviso which was “to deny the purchaser the right to object either to a consent notice or a building line restriction, which may be regarded for some purposes as a special type of thing on a title, distinct from an encumbrance”.

[25]     This argument is not without some apparent force and I have considered it carefully.  I accept it would have been open to the defendant to afford the plaintiff an express right of refusal in respect of consent notices.   I accept, further, that the repeated omission of consent notices in the proviso, where consent notices are provided for in the operative part, might at first glance tend to suggest the terms restrictions and encumbrances were not intended to encompass, at least not by definition, consent notices.

[26]     I conclude, however, that a consent notice is not incapable, as a matter of construction, of being a restriction or encumbrance.  My brief reasons follow:

a)        The clause is poorly drafted.  An overly technical analysis of a poorly drafted clause will be an inherently fraught exercise.

b)On examination, the submission as to the purpose of the proviso is rather  hollow.    The  purposes  for  which  a  consent  notice  may be regarded as a “special type of thing” on a title, distinct from an encumbrance, are not specified.   Nor are they readily apparent.   I accept that matters of limited consequence may (and sometimes do) appear on consent notices.  An example is a consent notice that, rather than specifying a condition to be complied with on a continuing basis, serves  as  nothing more  than  an  advice  note,  for example  as  to  a remote flooding risk.   But ordinarily, and if properly used, consent notices contain matters of considerable consequence.   In short, a consent notice is ordinarily a memorial on the title evidencing an interest   which   derogates   from   the   unrestricted   enjoyment   of ownership.   It restricts, or encumbers.   Purposes for which consent notices are not a special type of thing, distinct from an encumbrance, are therefore not only quite conceivable (for example that in Barker v Queenstown Lakes District Council) but usual.

c)       It makes no sense to attribute to the parties an intention to deny a right of  refusal  in  respect  of  a  consent  notice  having  the  effect  of  a restriction or encumbrance but afford a right of refusal in respect of a restriction or encumbrance not having the form of a consent notice.

[27]     Counsel for the plaintiff submits the term encumbrance encompasses consent notices, consistent with s 122(4) of the Resource Management Act and Apple Fields Ltd v Hodge.  I do not consider it necessary on this application to go that far.  I am content to proceed on the basis that the omission operates to limit the right of refusal in respect of consent notices to consent notices having the effect of restrictions or encumbrances.   I turn, accordingly, to counsel for the defendant’s submission that the particular consent notices in question lack this effect.

Did the consent notices have the effect of restrictions or encumbrances?

[28]     Counsel for the defendant submits that the consent notices in question “do not bite”.  That is, that they do not operate as restrictions or encumbrances.

[29]     Much time was dedicated at the hearing to an exhaustive examination of the two consent notices and the conditions in issue in each.  For present purposes, it is only necessary to refer to one condition.   This is condition 25.   It appears in the second consent notice and applies to each of lots 17 to 20.

[30]     Condition 25 provides:

No owner or occupier of the land or any part of the land shall permit any goods and/or people to be transported to and/or from any part of the consent site by any of the site [sic] by any heavy motor vehicle unless contractual arrangements are in place which require the operator of any such heavy motor vehicle not to use the intersection of State Highway 2 and Norman Avenue when transporting goods and/or people to the consent site.  For the purposes  of  this  condition,  heavy  motor  vehicle  means  a  motor  vehicle (other than a motor car that is not used, kept or available for the carriage of passengers for hire or reward) having a gross laden weight exceeding 3500 kg.  This is to be registered on the certificate of title of all lots by way of a consent notice pursuant to Section 221 of the Resource Management Act.

[31]     Condition 25 plainly restricts the use of lots 17 to 20.  While there is a similar condition registered by way of a consent notice on the original head title, it applies only to vehicles having a gross laden weight exceeding 4,500 kg.  Condition 25 is an interest derogating from unrestricted ownership of the lots.  It is not, as are, arguably, some of the other conditions, lacking in restrictive effect.   Condition 25 of the second consent notice was a new restriction to be registered against the title.  The plaintiff or its solicitors should have been consulted and notified in writing of the same.  In breach of cl 1.6 of the special conditions of sale, neither was.  The plaintiff was thereby denied its contractual right of refusal in respect of the same.

Did the breach entitle the plaintiff to cancel the agreements?

[32]     Whether a breach of contract entitles a party to cancel is to be determined under the Contractual Remedies Act 1979.  The relevant provisions are as follows:

5 Remedy provided in contract

If a contract expressly provides for a remedy in respect of misrepresentation or repudiation or breach of contract or makes express provision for any of the other matters to which sections 6 to 10 of this Act relate, those sections shall have effect subject to that provision.

7 Cancellation of contract

…

(3) Subject to this Act, but without prejudice to subsection (2) of this section, a party to a contract may cancel it if—

…

(b) A term in the contract is broken by another party to that contract;

or

…

(4) Where subsection (3)(a) or subsection (3)(b) or subsection (3)(c) of this section applies, a party may exercise the right to cancel if, and only if,—

…

(b) The effect of the misrepresentation or breach is, or, in the case of an anticipated breach, will be,—

(i) Substantially to reduce the benefit of the contract to the cancelling party; or

(ii) Substantially to increase the burden of the cancelling party under the contract; or

(iii) In relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.

[33]     Counsel for the plaintiff relied on s 5.  Counsel submits that the agreements for sale and purchase expressly provided for a remedy in respect of a breach of cl 1.6 of the special conditions of sale, namely that the agreements would be at an end and any deposits refunded in full.   I am unable to accept this submission.   Clause 1.6 affords a right of cancellation where the requisite notice is given, not where it is not.

[34]     The  distinction,  however,  is  of  little  consequence.    This  is  because  the defendant breached cl 1.6 of the special conditions of sale and the effect of that breach was substantially to reduce the benefit of the agreement to the plaintiff.  The plaintiff was therefore entitled to cancel under s 7.

[35]     I am satisfied that the effect of the failure to give the requisite notice was substantially to reduce the benefit of the agreement to the plaintiff.  The plaintiff was deprived of its right of refusal.  That right was absolute and unqualified.  It was not

concerned with the nature or extent of any restriction or encumbrance.  The effect of the deprivation of that right was substantially to reduce the benefit of the agreement to the plaintiff, notwithstanding that the conditions imposed may not of themselves have met that threshold.

Is the appropriate relief the refund of the deposits?

[36]     Section  9  of  the  Contractual  Remedies  Act  affords  the  Court  a  wide discretion to make an order granting relief when a contract is cancelled.   In considering whether to make an order, and the terms of any order it proposes to make, the Court must have regard to, inter alia, the terms of the contract.

[37]     Clause 1.6 of the special conditions contemplates the refund of the deposits if the purchaser refuses to accept the restrictions or encumbrances.  Such is plainly the appropriate relief in the present case.

Result

[38]     The plaintiff’s application for summary judgment is granted. [39]     I order:

a)       That the defendants refund the plaintiff the sum of $15,000 being the total of the deposits paid under the four agreements for sale and purchase; and

b)That the defendants pay interest on that sum from 1 September 2009 to the date of judgment under the Judicature Act 1908.

Costs

[40]     Costs should follow the event.   The plaintiff is therefore entitled to costs against the defendants on a 2B basis with disbursements as fixed by the Registrar.

Leave

[41]     Leave is reserved in the event that further submissions are required with respect to interest or further ancillary orders.  A memorandum should be filed and

served not later than 18 November 2010for that purpose.

Associate Judge Sargisson