North Holdings Development Ltd v WGB Investments Ltd
[2014] NZHC 670
•4 April 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-3622 [2014] NZHC 670
UNDER Sections 316 and 317 of the Property Law
Act 2007
IN THE MATTER
of an application for an order modifying or extinguishing a covenant
BETWEEN
NORTH HOLDINGS DEVELOPMENT LIMITED AND NORTH HOLDINGS INVESTMENT LIMITED, CATCHLAY INVESTMENTS LIMITED, OMAHANUI HOLDINGS LIMITED, GRD MARKETING LIMITED, PE GA INVESTMENTS LIMITED, SOOK JIN SUSAN LEE, RJA INDUSTRIAL LIMITED, KGH HOLDINGS LIMITED,
MARK JOHN PEVATS, NORMA JOYCE PYLE AND ROGER NOEL PYLE, MARK JOHN PEVATS, NORMA JEAN PYLE AND ROGER NOEL PYLE, DAVID GREGORY CARR AND LYNETTE MAREE DUNCAN, SIX SEVEN LIMITED, HSIU-YEN WANG AND GONG-LIANG JOU
Applicants
AND
WGB INVESTMENTS LIMITED Respondent
Hearing: 29 October 2013 Counsel:
A E Hansen for Applicants
K McDonald for RespondentJudgment:
4 April 2014
JUDGMENT OF KATZ J
This judgment was delivered by me on 4 April 2014 at 11:00 am Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Heimsath Alexander, Auckland
Kevin McDonald & Associates, Auckland
NORTH HOLDINGS DEVELOPMENT LIMITED & ANOR v WGB INVESTMENTS LIMITED [2014] NZHC 670 [4 April 2014]
Introduction
[1] The first applicant, North Holdings Development Limited (“North Holdings”) is the developer of an industrial/commercial park known as Northgate Park, near Marsden Point in the Whangarei District. The applicants together own all of the lots in Northgate Park other than two lots that are owned by the respondent, WGB Investments Ltd. The applicants seek orders either modifying a land covenant which was lodged by the North Holdings against the titles to the properties in the development or, in the alternative, extinguishing the covenant.
[2] The present issue arises as a result of a recent zoning change. Northgate Park was formerly zoned for heavy industrial purposes. It is now zoned for “mixed use” activities with a focus on commercial activities in the area where WGB Investments’ two sites are located. The covenant, however, reflects the previous zoning. It requires all buildings to “be constructed to a high standard and high quality in new building materials in a manner in keeping with a high quality industrial estate”. The primary amendment sought by the applicants is to change the words “industrial estate” to “mixed use development,” in order to bring the covenant into line with the new zoning.
[3] The applicants are unanimously of the view that amendment or removal of the covenant will enhance the value of the properties in the development (including the respondents’ two properties) and increase their resale potential. They would like to be able develop their sites for the broad range of purposes permitted under the now operative mixed use zoning, but are prevented from doing so by the terms of the covenant. They say that WGB Investments opposition is driven by ulterior motives, namely to force North Holdings to repurchase its lots.
[4] WGB Investments opposes the application. It says that its ability to develop its sites as industrial sites (or sell them as industrial development opportunities) will be compromised if the covenant is amended as proposed. It says that none of the statutory prerequisites (set out in s 317 of the Property Law Act 2007 (“PLA”)) for a court order modifying a covenant are met.
[5] Against this background, the issues I must determine are:
(a) Has there been a material change of circumstances since the covenant was created?
(b)Would continuation in force of the covenant impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen at the time of its creation?
(c) Would the proposed modification or extinguishment “substantially injure” WGB Investments?
(d)If there has been a material change of circumstances and/or the existing covenant will impede use of the land in an unforeseen way and/or WGB Investments will not be substantially injured, should the Court exercise its discretion to extinguish or modify the covenant?
(e) If modification or extinguishment is ordered, should North Holdings be required to pay compensation to WGB Investments?
Factual background
[6] Northgate Park was originally designed and marketed as a high quality industrial estate. It was converted from farm land over six development stages. Demand for the sites appears to have been relatively limited. Apart from the two lots owned by WGB Investments, only 16 other lots (out of a total of 123) have been sold, to 11 different owners. The balance of the sites remain in the ownership of the developer, North Holdings. No buildings have yet been constructed and the development still consists of vacant land, although infrastructure such as roading and utilities is in place.
[7] WGB Holding Limited (a company related to WGB Investments) entered into agreements to purchase five lots from North Holdings, in October 2006. When North Holdings called for settlement, WGB Holding sought to cancel its contracts on
the basis of alleged misrepresentations. Proceedings ensued and the matter was eventually settled on the basis that WGB Holding or its nominee would purchase two of the original five lots, for a total purchase price of $900,000.
[8] As each stage of the development was released to the market, a restrictive covenant was registered over the lots in that stage. It requires the owners to submit their building plans to North Holdings for approval, for so long as North Holdings owns at least one lot in the development. The key provision for present purposes requires all buildings to “be constructed to a high standard and high quality in new building materials in a manner in keeping with a high quality industrial estate”. Further, buildings are required to be “integrated in design and appearance” with other buildings “on the Covenanting Lots”.
[9] WGB Investments is a party to the covenant contained in instrument
816002.16, which relates to the 48 lots released as stage 1 of the development. It was common ground that, as WGB Investments is not a party to the restrictive covenants issued as a result of stages 2, 3, 4, 5 and 6 of the development, its consent is not required to the proposed modification of those covenants. All the parties to those covenants agree to the proposed modification.
[10] In November 2009, prior to settlement of the sales to WGB Investments, the Whangarei District Council (“Council”) adopted a new Marsden Point/Ruakaka Structure Plan. The Structure Plan is a policy document, developed by the Council following public consultation. It seeks to guide future development in the area, with the intention that the zoning set out in the Structure Plan will be incorporated into the District Plan as and when required. Landowners or developers are able to apply for private plan changes to the District Plan, using the recommendations identified in a Structure Plan, if the Council does not already have such changes programmed.
[11] One of the zoning issues identified in the Marsden Point/Ruakaka Structure Plan was that heavy industrial land users would be best located closer to the Marsden Point port and oil refinery. It identified that land including Northgate, the adjoining Port Marsden industrial park, and an adjacent area of land should instead be zoned as “Primary Centre mixed-use”. The stated aim of any zoning changes in this area was
“to encourage the development of more service and light industrial activities as opposed to heavy industrial activities”, for the purpose of establishing “a more compatible and mixed land use pattern in relation to the Primary Centre’s core retail, commercial, institutional and residential functions”.
[12] The release of the Structure Plan prompted North Holdings to seek advice from its planning advisors, following which it decided to apply to change the zoning of Northgate to “mixed use”. North Holdings considered that formally changing the zoning to align with that envisaged in the Structure Plan would be positive for the Northgate development. In particular, it believed that there would be greater demand for lots zoned “mixed use” rather than “industrial use” and that this would benefit both the developer and the existing owners. Mr Oliver Scott, a director of North Holdings, summarised his views as follows:
[22] The primary advantage I saw was the potential for the re-zoned Northgate land to increase in value significantly as the re-zonings would provide a range of different end use options. This, based on the [Council’s] projections, could create an increase in demand for land in Northgate and a significant improvement in the overall environment. North Holdings believed that the proposed zoning changes could create an opportunity for the enhancement of both its investment and other owners’ investment in Northgate.
[13] In July 2010 North Holdings’ solicitors wrote to the existing site owners, including WGB Investments. It drew attention to the Council’s Structure Plan, noting that for any legal changes to be made, the areas District Plan must be changed, which would require public notification and submissions from members of the public. The letter advised that North Holdings’ position was that if the proposed zoning changes eventuated, that would be a positive change for the Marsden Point/Ruakaka district as a whole, for Northgate, and for the individual purchasers who had invested in Northgate. Re-zoning could create an increase in demand and an improvement in the overall environment. The letter concluded:
Please advise us immediately if your client has a particular reason for wishing to retain the “Business” 4 zoning which as stated is limited to heavy industrial use only. If your client wishes to retain the current zoning on the lot, and to take an active role in the zoning process in the future, it should settle the purchase immediately.
[14] WGB Investments did not respond to this letter.
[15] Two months later, on 8 September 2010, North Holdings lodged an application for a private plan change (“PPC83”) with the Council. It was publicly notified on 26 October 2010 and submissions were called for by 23 November 2010. The submissions received were summarised and notified on 30 November 2010. Further submissions in support or opposition to an original submission could be filed by 14 December 2010. WGB Investments did not object to PPC83 or otherwise participate in the process.
[16] Settlement of the two lots WGB Holding had agreed to purchase occurred on
29 January 2011, with WGB Investments as the nominee purchaser.
[17] David Serjeant, a planning consultant, gave evidence for WGB Investments that he was approached by Mr Warwick Gair (a director and 50 per cent shareholder of WGB Investments) in relation to the proposed plan change in March 2011. Mr Serjeant advised Mr Gair that he could obtain a certificate of compliance for any activity provided for as a permitted activity under the then operative zoning (heavy industrial) notwithstanding the existence of the proposed zoning change, as set out in PPC83.
[18] WGB Investments obtained a certificate of compliance for its two sites on 3
May 2011, for a period of five years. Mr Serjeant’s evidence was that the certificate of compliance is, in effect, a resource consent for the two development plans submitted to the Council by WGB Investments. One plan is for a single building over both lots, while the other is for a separate building on each lot. The certificate of compliance provides for “transport, storage and related activities”. Mr Serjeant’s evidence was that other permitted activities that utilised the proposed buildings would also be provided for by the certificate.
[19] Meanwhile, a public hearing in relation to PPC83 took place from 28 to 30
March 2011 and the Council approved the plan change on 19 July 2011. PPC83 became operative on 24 April 2012 and now forms part of the Whangarei District Plan.
[20] The two lots owned by WGB Investments now fall within the “Commercial Policy Area” of the proposed Marsden Primary centre (a new town or village centre on previously rural land). A range of activities is provided for in the Commercial Policy Area. Mr Serjeant’s evidence was that the activities provided for and controls are relatively permissive. However, activities that “involve the manufacture, fabrication, machining, processing, mechanical assembly or maintenance of goods, or the storage or warehousing of goods, as a principal activity on a site and/or occupying a GFA exceeding 50 square metres” require a resource consent as a discretionary activity. As a result, Mr Serjeant deposed, the new zoning provisions are a significant change from the Business 4 (heavy industrial) zoning that was operative when WGB Investments purchased its two lots.
[21] Once the change in zoning came into effect, there was a mismatch between the covenant and the new zoning, which focuses on “mixed uses” with commercial uses being identified as appropriate in that portion of the development that included WGB Investments’ two lots. As a consequence, for all owners other than WGB Investments (which has obtained a certificate of compliance for its plans) the covenant restricts their ability to use the land for the commercial purposes now provided by the plan change.
[22] As a result, in August 2012 North Holdings approached the owners of the various Northgate lots, seeking their consent to modify the covenant to make it consistent with the new zoning. Over a period of some months, all owners, with the exception of WGB Investments, consented to the proposed modification. WGB Investments advised, however, that that it was not prepared to agree to modification of the covenant as it considered the replacement covenant was of “no personal benefit” to it.
Modification or extinguishment of covenants – the law
[23] Section 317 of the Property Law Act 2007 (“PLA”) relates to modification or
extinguishment of covenants. It relevantly provides as follows:
317 Court may modify or extinguish easement or covenant
(1) On an application… for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—
(a) the easement or covenant ought to be modified or extinguished (wholly or in part) because of a change since its creation in all or any of the following:
(i) the nature or extent of the use being made of the benefited land, the burdened land, or both:
(ii) the character of the neighbourhood:
(iii) any other circumstance the court considers relevant;
or
(b) the continuation in force of the easement or covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen by the original parties to the easement or covenant at the time of its creation; or
….
(d) the proposed modification or extinguishment will not substantially injure any person entitled.
(2) An order under this section modifying or extinguishing the easement or covenant may require any person who made an application for the order to pay to any person specified in the order reasonable compensation as determined by the court.
[24] I have set out, at [5] above, the particular issues arising out of s 317 that must be determined in this case. I will address them in turn.
Has there been a material change of circumstances since the covenant was created?
[25] The Court can modify or extinguish the covenant if it is satisfied that it ought to be modified or extinguished because of a change since its creation in all or any of the following:
(a) the nature or extent of the use being made of the dominant or of the servient land, or both;
(b) the character of the neighbourhood; or
(c) any other circumstances the Court considers relevant.
[26] North Holdings relied on (b) and (c). In relation to (b) it submitted that the change from industrial zoning to mixed use zoning constitutes a change to the character of the neighbourhood “as a matter of common sense”. I have some doubts as to the correctness of this proposition. At the time the covenant was created no buildings had been constructed on the various lots within the development. That remained the position as at the date of the hearing before me. Rather, the development still consists of vacant land. Aside from utilities, roading and a shipping container (which has a sign on it advertising the development) no building work has yet been carried out.
[27] In such circumstances it would be somewhat artificial, in my view, to conclude that, since the covenant was created, there has been a change in the character of the neighbourhood. I prefer to consider the matter under the “any other circumstances the Court considers relevant” limb. The case law relating to the other two limbs does, however, provide some guidance.
[28] Dr D W McMorland, in McMorland on Easements, Covenants and Licences1 observes that, although it should not be regarded as a prerequisite to making an order, the most common justification for doing so would be evidence that the relative advantages and disadvantages flowing from the covenant have become totally disproportionate by reason of changes which have occurred since its creation.2 He notes that the basic concern is the effect of the easement or covenant if it were not to
be modified or extinguished; not the effect of the order sought.3
1 D W McMorland, McMorland on Easements, Covenants and Licences (2nd ed, LexisNexis,
2014) at 185.
2 Citing Manuka Enterprises Ltd v Eden Studios Ltd [1995] 3 NZLR 230 at 234, (1995)
3 NZConvC 192, 186 at 192,191 per Thorp J and Shand v Swales DC Auckland NP36/01,
29 August 2003.
3 Heaton v Loblay (1959) 77 WN (NSW) 140 at 141-142; Luxon v Hockey (2005) 5 NZCPR 125, (2004) 5 NZ ConvC 193,815 at [14]; McNeilly v Hoessley HC Whangarei M 33/01, 16 April
2003 at [68]-[82].
[29] The “other circumstances” relied on by the applicants are the zoning changes arising from PPC83. Due to the zoning changes there is now a direct conflict between the covenant and the development’s zoning under the District Plan. The mismatch between the new zoning and the existing covenant has the potential to severely restrict the ability of all owners other than WGB Investments (which has the protection of its certificate of compliance) to develop their lots. The difficulty arises because the covenant provides for the appearance of the buildings in Northgate Park to be consistent with a “high quality industrial estate”, but industrial activity within that part of the development where WGB Investments’ lots are located is now discretionary. That land is zoned for mixed use, primarily of a commercial nature.
[30] In my view the zoning changes are changes that are appropriately taken into
account in the “any other circumstances the court considers relevant” category in s
317(a)(iii). Whether the covenant ought to be modified as a consequence of these changes is considered further at [55]-[64] below, in the context of whether the Court should exercise its discretion in all the circumstances of this case.
Would continuation in force of the covenant impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen at the time of its creation?
[31] This limb of the s 317 test raises three issues:
(a) What “reasonable use” can the land currently be put to?
(b) What was the previous “reasonable use” of the land?
(c) Has the reasonable use of the burdened land has become different from that which could reasonably have been foreseen by the original parties to the covenant at the time of its creation?
[32] The current reasonable use of the land, with reference to its zoning, is as a “mixed use” development of a primarily commercial nature (with industrial uses as a discretionary activity). The previous reasonable use of the land, under its former industrial zoning, was as an industrial estate.
[33] Accordingly, following the zoning change, the covenant impedes the reasonable use of the burdened land in a different way, or to a different extent, than at the time the covenant was created. If the current covenant continues in force, other owners may well be prevented from using their land for mixed use purposes (of a primarily commercial nature), due to the requirements of the covenant that any buildings erected be in keeping with a high quality industrial estate. On the other hand, if they seek to use their land for industrial purposes, consistently with the covenant, they will not be able to do so as of right, but will need to obtain a resource consent.
[34] WGB Investments submitted that it was reasonably foreseeable that the zoning of the land could be changed to mixed use at the time the covenant was created. If so, this limb of the s 317 test will not be met.
[35] The evidence does not, however, support that submission. The covenant was created in October 2009. There is no evidence that North Holdings (or any other party) foresaw the possible zoning change at that time. If they had, it would be reasonable to expect that the covenant would have taken a somewhat different form. Developing Northgate Park site for higher value commercial uses would no doubt have been seen as an attractive option from a developer’s perspective.
[36] The Structure Plan was adopted by the Council shortly after the covenant was entered into and came to North Holdings’ attention some time after that. It was not until July 2010, after North Holdings had taken advice on the implications of the plan, that it wrote to purchasers expressing its support for a zoning change.
[37] I therefore conclude that the continuation in force of the covenant would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen at the time of its creation.
Will the proposed modification or extinguishment of the covenant substantially injure WGB Investments?
[38] Section 317(d) provides that a court may modify or extinguish a covenant if satisfied that the proposed modification or extinguishment will not substantially injure any person entitled to the benefit of it.
[39] In a New South Wales case, Re Mason and the Conveyancing Act,4 Jacobs J discussed the meaning of “substantial” in respect of the equivalent New South Wales legislation:
I consider in its context it does not mean large or considerable but it means an injury which has present substance; that it is to say, not a theoretical injury but something which is real and which has a present substance.
[40] In Plato v Ashton,5 the word “substantially” was said to mean “real”, considerable, significant, as against insignificant, unreal or trifling”. When assessing whether an injury is substantial or not the Court is not only to have regard to individual circumstances but also to the effect of those individual circumstances cumulatively.6 An injury may be substantial even though the value of the land in question is not affected.7
Submissions
[41] WGB Investments submitted that it (and/or WGB Holdings)8 purchased lots in what was marketed as a “high quality industrial estate,” with the intention of building high quality industrial building(s) on its land. WGB Investments is now being asked to accept a completely different proposition. The new “concept plans” prepared by North Holdings show that WGB Investments lots are now in an area visualised as “large format retail”. However, WGB Investments wishes to sell its sites together with the consented plans it has obtained for industrial warehouses on
the land. Mr Gair deposed that:
4 Re Mason and the Conveyancing Act (1960) 78 WN (NSW) 925, at 928.
5 Plato v Ashton (1984) 2 NZCPR 191 (CA).
6 Potter v Petersen [1993] DCR 1021 at 1030.
7 Mogensen v Porfland Developments Pty Ltd (1983) NSW Conv R 55,116 at 56,856.
8 Mr Gair did not distinguish in his evidence between WGB Holdings (the initial contracting party) and WGB Investments (its nominee as purchaser) referring to them interchangeably as “the Company”.
The Company has reached the point where all necessary approvals have been obtained from the Council. Essentially, the Company can sell its land, together with its plans as a development that is ready to proceed. At the present time, the demand for the type of buildings envisaged by the Company is low. However, in time, the market will pick up, and the Company will be able to sell its land and its development for a significant profit. The proposed changes to the restrictive covenants by the applicants have the effect of preventing the Company from executing its plan for its land.
[42] In summary, WGB Investments argued that it will be substantially injured by the proposed modification to the covenant for two key reasons:
(a) If the covenant is modified, North Holdings could withhold approval of the plans for industrial buildings WGB Investments has developed for its sites, on the basis that they fail to meet the criteria set out in the modified covenant because they are not seen to be in keeping with a high quality mixed use (as opposed to industrial) development.
(b)The effect of modification of the covenant would be that other buildings in the vicinity of buildings on WGB Investments’ lots might be different in nature to its own buildings, rather than “in keeping with a high quality industrial estate”.
[43] The applicants, on the other hand, expressed considerable scepticism at Mr Gair’s evidence that WGB Holdings and/or WGB Investments had purchased its lots with the specific intention of building high quality industrial buildings on them. They noted that in the earlier proceedings between North Holdings and WGB Holding, Mr Gair had stated in his witness brief that:
Theresa [Mr Gair’s wife] and I discussed the development at length and what we may prefer to buy. The reason that we thought these five sites were so attractive was because they made up a large corner site, that had road frontage offering high visibility. Most of the other sites in the development would not have any visibility from the main road due to the terrain. You would have to drive off the main road to look for the other businesses. If you had a large corner site like the one we were looking at, people would know where it was. We thought that a site like that would suit a large commercial entity like a Placemakers, a Mitre 10 and so on.
[44] Mr Scott’s evidence, for the applicants, was that a Placemakers or Mitre 10 would not have been compatible with the previous heavy industrial zoning. However, they would be compatible uses under the new zoning.
[45] The applicants submitted that WGB Investments’ opposition is contrived, as illustrated by its shifting evidence. They say that its opposition to modification of the covenant is not because it will be “substantially injured” by it, but simply because it is seeking to secure negotiating leverage to force North Holdings to repurchase its two lots. The following additional matters were advanced by the applicants in support of this submission:
(a) WGB Investments only developed plans for industrial type buildings on its lots in March 2011. This was after:
(i)North Holdings letter of July 2010 drawing attention to the Council’s new structure plan and the perceived advantages of the foreshadowed zoning changes. That letter requested WGB Investments to contact North Holdings immediately if it had a particular reason for wishing to retain the “Business” 4 zoning. (No response was received from WGB).
(ii)PPC83 being publicly notified on 26 October 2010. (WGB Investments did not object or otherwise participate in that process).
(b)WGB Investments took advice from a planning expert (Mr Serjeant) on the proposed plan change, prior to developing its plans for the sites.
(c) It is in the best commercial interests of all land owners, including WGB Investments, to modify the covenant to facilitate commercial uses of the land because:
(i)there is very limited demand for industrial land in the present market, as acknowledged by WGB Investments and confirmed by uncontested expert evidence from Mr Peter Jennings of Ray White.
(ii)the demand for commercial and retail space is significantly greater.
(iii) commercial land is more valuable than industrial land.
(d)WGB Investments has declined an offer to “swap” its current lots with other similar lots in an area of Northgate that has retained its industrial zoning.
(e) WGB Investments’ assertion that it wants to sell its lots as industrial lots rests uneasily with the new mixed use zoning, the fact that it has no purchaser, that it appears to have no intention of building the structures itself, and that there is little demand for heavy industrial land in the present market.
(f) WGB Investments has made it clear it will only co-operate in modifying or extinguishing the covenant if its lots are purchased by North Holdings (at a cost of approximately $900,000).
Discussion
[46] It is not, in my view, necessary to formally determine whether WGB Investments’ opposition to modification of the covenant is for ulterior purposes, as alleged by the applicants. I would be reluctant to make such a finding in circumstances where none of the relevant witnesses were cross-examined. I do observe, however, that it was not in dispute that WGB Investments is anxious to exit the development and has offered to resolve the current impasse by selling its two lots to North Holdings at cost. Counsel for WGB Investments stated that the reason for this was that that little or no development is currently taking place and that Mr Gair was “not optimistic” that anything is going to happen. Mr Gair’s view was said to be
that the “whole development is a white elephant” and that he is “paying the price for a commercial decision he has made that hasn’t turned out well”. For this reason North Holdings had been “invited to take my client out of the equation”.
[47] The key issue under this head, regardless of WGB Investments’ motives for opposing the modification, is whether modification (or extinguishment) of the covenant would substantially injure it.
[48] When WGB Investments was first requested, through its solicitors, to consent to the modification of the covenant its response was that it was not prepared to agree as it considered the replacement covenants were of “no personal benefit” to it. It did not, at that stage, assert that it would be harmed or injured by the proposed modification in any particular way.
[49] Subsequently, WGB Investments advised that it was opposed to modification on the basis that the modified covenant would enable North Holdings to withhold approval of its plans for its lots because they are not in keeping with a high quality mixed use (as opposed to industrial) development. Mr Gair expressed this concern in fairly strong terms in his affidavit. WGB Investments’ expert planning witness, Mr David Serjeant, also raised this as the primary concern, concluding as follows:
Based on my understanding of other “mixed use” urban areas, WGBI’s proposed buildings and development for transport, storage and related activities would not comfortably fit within such an environment where a higher amenity urban design requirements are typical. I consider that North Holdings Development Limited would be likely to refuse consent for the WGBI proposal.
In conclusion, I consider that the signing of the covenant by WGBI will restrict likely development opportunities lawfully provided for by the Certificate of Compliance.
[50] The practical reality, however, is that North Holdings has undertaken to approve WGB Investments’ current plans, pursuant to the existing or modified covenant. Alternatively, North Holdings is happy for the covenant to be extinguished altogether. The consequence of that would be that North Holdings would no longer have any right of approval in respect of the building plans of any of the lot owners. Accordingly there is no substance to the argument that WGB
Investments would be substantially injured by modification of the covenant because North Holdings could then withhold approval of the plans it has developed for the sites.
[51] WGB Investments’ alternative argument was that it is entitled to expect that the buildings within the immediate vicinity of its sites will also be high quality industrial buildings, pursuant to the existing covenant. It will be substantially injured if it has the only industrial warehouse type buildings in an area that is otherwise predominantly commercial or large format retail. WGB Investments did not elaborate on exactly how this would cause harm to it, other than to say that its buildings could become “white elephants”.
[52] In this context I note that on 23 August 2013 WGB Investments filed a memorandum in Court advising that it was trying to get an expert valuer to provide valuation evidence showing how the proposed modification to the restrictive covenant would affect the value of the two lots WGB Investments owns in the development. That evidence was said to be “crucial” to WGB Investments’ opposition to the application. No such evidence was ever filed.
[53] Mr Peter Jennings of Ray White Real Estate gave unchallenged evidence for the applicants, based on his knowledge and experience of commercial and industrial real estate in the Marsden Point, One Tree Point and Ruakaka areas, that there is little or no demand for heavy industrial zoned land in that area. Land with that zoning was said to be very difficult to sell in the current market. Mr Jennings did not see a likely change in market conditions for the foreseeable future. The over abundant supply of industrial land already creates formidable competition. On the other hand, he deposed that there is quite strong inquiry for retail, commercial, lighter service industries and also residential land in this area. His evidence was that the new Primary Centre – Mixed Use zoning has “definitely rekindled interest in the entire location”. Based on Mr Jennings evidence there is considerable force in the applicants’ submission that, rather than harming WGB Investments, the proposed modification will significantly benefit it (along with all other lot owners).
[54] In some cases “injury” to a respondent will be so obvious that expert evidence is not required. This is not such a case. The evidence before the Court all tends to suggest that, rather than substantially injuring WGB Investments, the proposed modification will be to its benefit. I therefore conclude that this limb of s
317 is also met.
If one or more of the criteria set out in s 317(1) of the PLA are made out, should the Court exercise its discretion to extinguish or modify the covenant?
[55] It is only necessary for one of the s 317(1) criteria to be established in order to found jurisdiction to extinguish or modify a covenant. I have found that all three criteria relied on by the applicants exist. It does not automatically follow, however, that the orders sought by the applicants should be granted. Ultimately the Court
must still consider whether it is an appropriate case to exercise its discretion.9
[56] In Harden v Collins10 the Court observed that while s 317 PLA is a remedial provision, the Courts will adopt a degree of caution when invoking the section as it has the potential to impact adversely on existing property rights and represents a statutory interference with the sanctity of contract. On the other hand, the power to modify should not be so restrictively applied so that the section ceases to have the remedial effect intended.
[57] WGB Investments submitted that, even if jurisdiction to modify the covenant existed, this Court should exercise its discretion to decline to make the order sought. It submitted that, as a matter of principle, purchasers should be able to rely on covenants. This is particularly so in cases involving commercial developments where purchasers spend significant amounts of money to purchase land. Further, in this case the parties seeking the modification/extinguishment of the restrictive covenant are original covenantors who acquired the land with actual knowledge of the covenant. When an application for relief has been brought by the party which agreed to the covenant in the first place, the Court should be reluctant to consider any modification or extinguishment of the covenant, particularly when the party for
whose benefit the covenant was created, in this case WGB Investments, is still in
9 Potter v Peterson above n7 at 1030.
10 Harden v Collins [2010] 2 NZLR 273 at [24], [44] and [45].
occupation of the land.11 It should be assumed that all other owners purchased with full knowledge and the benefit of legal advice.
[58] WGB Investments also noted that the covenant was only created recently. This is not the case of a historic covenant that has become obsolete due to the effluxion of time. In addition, the change sought is a significant one. The Court should take into account that it is sought for “commercial” reasons.12 Section 317 is not intended to permit owners to get a benefit by being freed from a covenant simply because it will make it more convenient for him/her.13
[59] The applicants submit that it is necessary to either amend the covenant or remove it entirely to give effect to the plan change. They say that if the covenant is not modified, they will be prevented from using their land for the various purposes now provided by PPC83.
[60] In my view, there are strong grounds favouring modification or extinguishment of the covenant in the somewhat unusual circumstances of this case. Given WGB Investments’ certificate of compliance there is little or no detriment to that company in the covenant being modified or extinguished. Conversely, there is clear detriment to the applicants in the covenant remaining in its current form. Due to the mismatch between the covenant and the current zoning of their sites, they have no automatic entitlement to develop them. To develop them in a manner consistent with the covenants (a high quality industrial estate) they will likely need to seek resource consent, as industrial activity is discretionary under the new zoning. On the other hand, if they wish to develop their sites in a manner consistent with the District Plan, they are likely to fall afoul of the restrictive covenant. The owners other than WGB Investments are therefore in an unenviable position.
[61] The District Plan identifies Marsden Point – Ruakaka as one of the identified growth areas in the District, and it is projected to have a significant population and employment increase over the next few decades. The Marsden Primary Centre is
already extensively provided with infrastructure services, with all roading and
11 Worldwide Leisure Ltd v Harland-Baker HC Rotorua M21/91, 18 April 1991.
12 At [46].
13 ANZCO Foods Waitara Ltd v AFFCO New Zealand Ltd [2006] 3 NZLR 351 (CA).
ground services in place. Retaining the current form of the covenant would effectively prevent all other owners in the development from taking advantage of the plan change. It would frustrate the development of the Marsden Primary Centre, which has been through a full public planning process and approved by the Council to give effect to the Marsden Point Ruakaka Structure Plan. It is accordingly in both the interests of the other lot owners, and the public interest more generally, that the covenant be brought into line with the zoning provisions of the current District Plan.
[62] The one issue that did give me cause for some concern is that it was North Holdings itself which sought the plan change. I have concluded, however, that that should not weigh against the granting of relief. To some extent the issue is one of timing, in that North Holdings application for PPC83 brought forward a plan change which the Council had already foreshadowed in the Structure Plan. If there was to be a possible future zoning change it made sense, given that construction work has not yet started in the development, that the issue be addressed sooner rather than later. Further, although PPC83 is clearly in North Holdings “commercial interests” it is also in the best commercial interests of all other owners in the development, many of whom have filed affidavits to that effect.
[63] I also note that North Holdings brought the Structure Plan to the attention of all lot owners and asked them to advise if they had a particular reason for wishing to retain the existing heavy industrial zoning. WGB Investments did not respond. Nor did it participate in the public consultation process regarding PPC83.
[64] Taking into account all of these factors, I have concluded that it is appropriate for the Court to exercise its discretion to modify or extinguish the covenant.
Is modification or extinguishment the appropriate course?
[65] The applicants’ preferred option was an order modifying the covenant. In the alternative, however, they seek an order extinguishing it altogether. In that event both the applicants and the respondent will be able to develop their land in accordance with the District Plan, with no additional requirements regarding the appearance of buildings within the development. WGB Investments would also be
able to develop its land in accordance with its own plans to develop it as an industrial site, due to its certificate of compliance.
[66] North Holdings has undertaken that if the covenant is modified it will not withhold approval to WGB Investments’ consented plans on the basis that its proposed buildings do not meet the requirement that they “be constructed to a high standard and high quality in new building materials in a manner in keeping with a high quality mixed use estate”.
[67] In such circumstances the appropriate course, in my view, is to modify the covenant rather than extinguish it altogether. The development is a new one and no building work has yet been undertaken. The owners of land within the development clearly see some value in having a covenant that protects the “high quality” nature of the development, rather than simply relying on the District Plan. Extinguishing the covenant altogether would be a disproportionate response to the situation before the Court. I emphasise, however, that I have reached this view on the basis of North Holdings’ undertaking not to, in effect, rely on the modification as a basis for withholding consent to the plans WGB Investments has developed and obtained a certificate of compliance for.
[68] I note, for completeness, that the proposed modification also includes a new clause 3.6, which essentially provides that the covenant will automatically expire as to any allotments that vest as road or reserve in the future. Given that the roads in stage 1 have already vested in the Council, WGB Investments withdrew any opposition to that particular amendment during the course of the hearing.
Should the applicants pay compensation to WGB Investments?
[69] Section 317(2) provides that an order under the section may require any person who has made the application to pay to any person specified in the order reasonable compensation as determined by the Court. No formula or direction is given as to how the Court may assess whether compensation is appropriate, or how quantum is to be calculated.
[70] There is relatively little authority dealing with the award of compensation under s 317(2), and counsel were not aware of any cases specifically addressing compensation for modification of a covenant, as opposed to an easement.
[71] In Mikitasov v International Recruitment Partners Limited it was noted that the Court must have regard not just to the value of the land affected by the easement, but the effect of the transaction on the market value of the servient and dominant properties as a whole.14 In Cambray North Island v Elan Developments Limited & Anor15 Wylie J suggested that the correct approach it to first identify if there is any
actual detriment to the respondent if the easement is extinguished. In that case the respondent would have to put in place a new vehicle crossing and his Honour held he should be compensated for the costs of that. The Court next considered whether or not there were other factors of benefit or detriment to either side that would affect what one or other was willing to pay in hypothetical willing seller and willing buyer negotiations.
[72] WGB Investments’ primary submission was that its losses could not be compensated in monetary terms, and accordingly the Court should decline to allow the modification sought. In the event that this argument was unsuccessful, no valuation evidence was provided to support a claim for compensation. In any event, it follows from my finding that WGB Investments would not be substantially injured by the proposed modification that the quantum of any compensation would likely be minimal.
[73] The only specific head of compensation claimed by WGB Investments was for reimbursement of its expenditure of $18,989.00 in relation to preparing plans for the development of its lots for industrial purposes (although only $5,000 or so of that appears to directly relate to the preparation of plans).
[74] This appears to me to be WGB Investments’ strongest claim for compensation. I have given careful consideration as to whether the applicants generally (or North Holdings in particular) should be required to reimburse this sum.
I have concluded, however, that they should not. Such costs will not be “wasted” as
14 Mikitasov v International Recruitment Partners Limited [2011] DCR 623 at [68].
15 Cambray North Island Ltd v Minister for Land Information (2011) 12 NZCPR 721 (HC).
a result of the modification of the covenant. Due to the certificate of compliance it has obtained, and North Holdings’ undertaking, WGB Investments will still be able to develop its site in accordance with the plans it has commissioned, or sell its sites together with those consented plans.
Summary and conclusion
[75] I have found that:
(a) There has been a material change of circumstances since the covenant was created, namely the zoning change from heavy industrial to mixed use.
(b)Continuation in force of the covenant would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen at the time of its creation.
(c) The proposed modification or extinguishment would not
“substantially injure” WGB Investments.
[76] Further, I have concluded that there are strong grounds favouring the Court exercising its discretion to modify the covenant in the somewhat unusual circumstances of this case. In particular, there will be little or no detriment to WGB Investments in the covenant being modified, as it has secured a certificate of compliance for its current (industrial) plans. Conversely, there would be clear detriment to the applicants in the covenant remaining in its current form.
[77] Other than North Holdings, the remaining owners did not initiate the zone change. Nevertheless they are unanimously of the view that it is an improvement and provides more flexibility than the previous Business 4 zoning, which provided for heavy industrial use.
[78] The District Plan identifies Marsden Point-Ruakaka as one of the identified growth areas in the District, and it is projected to have a significant population and
employment increase over the next few decades. The Marsden Primary Centre is already extensively provided with infrastructure services, with all roading and ground services in place. Retaining the current form of the covenant would effectively prevent all other owners in the development from taking advantage of the plan change. It would frustrate the development of the Marsden Primary Centre, which has been through a full public planning process and approved by the Council to give effect to the Marsden Point-Ruakaka Structure Plan.
[79] Finally, I concluded that the modification to the covenant will not cause loss to the respondent and that no award of compensation is therefore justified.
[80] In terms of costs, my preliminary view is that costs should lie where they fall. The usual principle that “costs follow the event” would appear to be of limited application in circumstances where the applicants effectively sought an indulgence from the Court that would alter the existing legal status quo. The respondent was seeking to maintain the existing legal position. As the issue of costs was not argued, however, I reserve leave to file memoranda, in the event that the parties take a different view to the preliminary view I have expressed.
Result
[81] I order that:
(a) The covenant lodged against the titles set out in the schedule to the Originating Application dated 30 July 2013 is to be modified as set out in the document headed “form of amended covenant” in Exhibit ONS23 to the affidavit of Oliver Nigel Scott, sworn 30 July 2013.
(b)Costs are reserved. If the applicants wish to seek costs their memorandum is to be filed by 18 April 2014, with any reply by the
respondent to be filed by 2 May 2014.
Katz J
12
0
1