North Shore Aeropark Limited v Auckland Council
[2023] NZHC 3296
•21 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2089
[2023] NZHC 3296
UNDER The Property Law Act 2007 IN THE MATTER OF
An application pursuant to the Companies Act 1993
BETWEEN
NORTH SHORE AEROPARK LIMITED
Applicant
AND
AUCKLAND COUNCIL
First Respondent
THE TREASURY
Second Respondent
Hearing: 16 November 2023 Appearances:
A J Woodhouse for Applicant
Judgment:
21 November 2023
JUDGMENT OF O’GORMAN J
This judgment was delivered by me on 21 November 2023 at 10 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors / Counsel: Woodhouse Law, Auckland
A W Johnson, Martelli McKegg, Auckland
NORTH SHORE AEROPARK LIMITED v AUCKLAND COUNCIL [2023] NZHC 3296 [21 November 2023]
Overview
[1] The proceeding concerns a 50-lot residential subdivision known as Northshore Aeropark Country Estate (Air Park). The applicant, North Shore Aeropark Ltd (NSAL), owns all of the common land at the Air Park. The common land includes roads and taxiways. The owners of all residential lots in the Air Park are required to be shareholders of NSAL and, pursuant to NSAL’s constitution, all of NSAL’s shareholders have certain rights, including the right to use the common property.
[2] This amended originating application seeks to deal with problems that arise with two registered instruments as they relate to Sunrise 9 Trustees Ltd (Sunrise 9), a previous owner of the common land. The amended application seeks orders that:
(a)encumbrances numbered 10157329.10 and 10157329.11 (both registered in favour of Sunrise 9) be discharged and removed from registration on the title to land owned by the applicant, namely record of title 862699 (North Auckland Registry);
(b)the right-of-way easements contained in those two encumbrances be extinguished;
(c)Sunrise 9 be restored to the New Zealand Companies Register; and
(d)leave be reserved to bring the applications back before the Court should any ancillary orders prove to be necessary.
[3] There is a need to address these issues because they currently constitute an impediment to the applicant’s obligations under a binding agreement with a neighbouring landowner, Horizon Heights Development Ltd (HHDL) to provide easements over the applicant’s land and facilitate HHDL’s development of its adjacent land. This obligation cannot currently be performed because Land Information New Zealand requires the applicant’s solicitors to certify that they have obtained Sunrise 9’s consent to the registration of the easements, or that the encumbrances in favour of Sunrise 9 have been discharged. Sunrise 9 cannot assist with either of these
options, because it has been both liquidated and removed from the New Zealand Companies Register. As such, it presently does not exist.
[4] The encumbrances in favour of Sunrise 9 were arguably intended to serve two functions:
(a)They purport to provide security for an annual rent charge. However, the applicant does not owe any amounts to Sunrise 9, nor will any amounts ever be owing for such a security to be relevant.
(b)The encumbrances also refer to the right to pass or repass with or without vehicles over the common land. However, to the extent that the encumbrances also purport to grant right-of-way entitlements, the rights are conferred in a defective way.
[5] In any event, the following instruments registered on titles to the Air Park already correctly provide for those purposes, and those registered instruments will remain:
(a)Easement instruments 10157329.8 and 10157329.9 registered on titles to lots 38–48 (and other residential lots in the Air Park) correctly provide for a rent charge in favour of the North Shore Aero Club and NSAL respectively.
(b)Easement instrument 10157329.13 registered on NSAL’s common property title correctly provides for easement rights for the dominant tenement Lot owners 38–48 over taxiways CP and CE.
[6] The applicant therefore takes the position that there are proper grounds to extinguish the encumbrances and any registered right-of-way or positive covenant entitlements recorded in those documents:
(a)pursuant to ss 316 and 317 of the Property Law Act on the grounds that it is just and equitable, will not substantially injure any person, and the easements and/or covenants currently impede the reasonable use of the
applicant’s land in a manner that could not have been foreseen by Sunrise 9 at the time of the creation; and/or
(b)pursuant to s 109 of the Property Law Act, because the person entitled to receive payment of the amount secured under an encumbrance is dead, cannot be found, or is out of the jurisdiction.
Evidence and position of affected parties
[7] The evidence in support of the substantive originating application is contained in the affidavit of Paul Hopper, a director of the applicant. Mr Hopper was involved in the design concept of the Air Park from about 2003, through a previous company controlled by him. From the outset, the concept was that once the Air Park was completed, the common property would be transferred from the developer’s ownership (initially this was to be a company called Pauanui Developments Ltd) to NSAL (a company established to operate and manage the common property including roads and taxiways associated with the residential subdivision now known as North Shore Aeropark Country Estate). It has all along been a requirement for any person purchasing a residential lot in the Air Park to own one share in NSAL. Being a shareholder entitles the lot owners to certain benefits and binds them to obligations specified in the constitution. The terms of the constitution provide (among other things) that:
(a)NSAL owns and manages all common property associated with the Air Park (cl 3.1.1);
(b)NSAL raises levies from its members to cover maintenance and management of the common property (cls 3.1.3 and 4.2.5);
(c)all its members agree to comply with NSAL’s constitution, or rules promulgated by NSAL including rules for the use of the airfield operated by the North Shore Aero Club and any covenants registered on the member’s property titles (cls 4.3.5, 16.2 and definitions); and
(d)pursuant to cl 5.1 and subject to continued compliance with the rules, all members are entitled to use all the common property owned by NSAL.
[8] In 2013 the development was sold to Sunrise 9. After the sale, Sunrise 9 became the owner of the common property and the (then) unsubdivided and/or unsold lots in the staged development. Sunrise 9 agreed to hold the common property on trust for NSAL and transfer it to NSAL at the completion of the development.
[9] By the early to mid-2020s, Sunrise 9 had sold all 50 lots to private owners. However, before transferring the common property to NSAL, on 11 September 2020 Sunrise 9 was placed into liquidation. This occurred without prior notice to NSAL or the lot owners. When they learnt about the liquidation, they realised that Sunrise 9 had failed to transfer the common property to NSAL as it was obliged to do. That transfer was ultimately completed by the liquidator of Sunrise 9, so the common property is now owned by NSAL.
[10] There was another “optional stage” in the Air Park development. Sunrise 9 did not complete the stage 3B development itself, but instead sold that land to an unrelated entity HHDL. HHDL approached NSAL for access to the 20-hectare lot via Aeropark Drive. Following negotiations between HSDL and NSAL, both parties entered into an agreement under which NSAL is obliged to grant a right-of-way easement to HHDL and HHDL’s successors, so they are entitled to use Aeropark Drive for their access requirements. However, the attempts by NSAL and HHDL to register the easement led to discovery of the issues described above, and the necessity for this originating application.
[11] NSAL has obtained legal advice that removal of the encumbrances from the title 862699 will not adversely affect the North Shore Aeroclub Inc, or any of the other lot owners. North Shore Aero Club Inc was served and has confirmed that it does not oppose the application. All lot owners were notified of this proceeding, and no objections have been raised.
Nature of instruments
[12] Section 4 of the Property Law Act defines encumbrance to include “a mortgage, a trust securing the payment of money, or a lien”.
[13] Section 100 of the Land Transfer Act 2017 requires an encumbrance to be registered in the required form and contain the prescribed information. Those information requirements are set out in sch 2 of the Land Transfer Regulations 2018, including the nature of any rent charge security.
[14] Instruments 10157329.10 and 10157329.11 are termed “encumbrances”, with Sunrise 9 listed as both the Encumbrancer (as proprietor of all the land) and the Encumbrancee. The affected land is listed in sch 3 of each instrument. Although they are termed “encumbrances” and the prescribed form for an encumbrance is used, they refer to different types of rights, more in the nature of easements or positive covenants.
[15]Clause 3 of the introduction provides that:
The Encumbrancer has agreed to grant the registered proprietors of the land the right to pass or repass with or without vehicles (including aircraft) or upon foot provided they observe any rules that may be imposed by the North Shore Aero Park Limited (“Company”) …
[16] Covenant 1 in the instrument refers to security of an “annual rent charge”. However, the wording suggests that the rent charge is only triggered if a lot owner fails to comply with its easement obligations as a shareholder. In particular, cl 3 of the (operative) covenant 3 provides that:
Notwithstanding anything contained in clause 1 of this Encumbrance, for as long as the registered proprietor of a Lot fully complies with the obligations of a Member pursuant to the Constitution and the rules regarding the right to enjoy the Area the rent charge reserved by this Encumbrance shall not be payable or apply to that Lot.
[17] Although it was probably intended that the “Encumbrancee” was to be the successors in title of the lots referred to in sch 3, the instruments only bound the Encumbrancer’s “successors in title” (covenant 2). The Encumbrancee is still Sunrise 9, the struck-off company. Of course, it makes no sense for the rights to benefit a company that no longer exists, nor has any association with the Air Park.
[18] If the instruments are in fact (or predominantly) easements, rather than encumbrances, then the provisions of ss 316 and 317 of the Property Law Act are applicable to determine whether it is appropriate to extinguish them.
Legal principles
[19] Pursuant to ss 316 and 317 of the Property Law Act, the Court may make an order to extinguish an easement or covenant if it is satisfied as to any of the grounds in s 317(1).
[20]Section 317(1) provides:
317 Court may modify or extinguish easement or covenant
(1)On an application (made and served in accordance with section 316) 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
(c)every person entitled who is of full age and capacity—
(i)has agreed that the easement or covenant should be modified or extinguished (wholly or in part); or
(ii)may reasonably be considered, by his or her or its acts or omissions, to have abandoned, or waived the right to, the easement or covenant, wholly or in part; or
(d)the proposed modification or extinguishment will not substantially injure any person entitled; or
(e)in the case of a covenant, the covenant is contrary to public policy or to any enactment or rule of law; or
(f)in the case of a covenant, for any other reason it is just and equitable to modify or extinguish the covenant, wholly or partly.
…
[21]The Court’s power to discharge an encumbrance is set out in s 109:
109 Redemption when mortgagee cannot be found, etc
(1)A mortgage over property may be discharged by a court under sections 110 and 111 or by Public Trust under section 112 if—
(a)a person who is entitled to receive, or has received, payment of the amounts secured by the mortgage is out of the jurisdiction, cannot be found, or is dead;
…
[22] In Re Hardiman,1 Grice J held in an analogous situation that a liquidation provided proper grounds to make an order under s 109:
[7] Under s 109 of the Property Law Act 2007, the Court may make an order discharging a mortgage if a person who is entitled to receive, or has received payment of the amount secured by the mortgage is dead, cannot be found, or is out of the jurisdiction.
[8] In my view the liquidation and winding up of the credit union means that the mortgagor cannot be found. The company no longer exists and on that basis an order for removal of the mortgage is able to be made.
[23] In situations where there are multiple legal avenues to the same result, it is possible to take a more global approach. In the case of Re Ryan,2 Dunningham J considered that the mortgage could be discharged either through s 105 of the Land Transfer Act or alternatively under s 109 of the Property Law Act.
1 Re Hardiman [2021] NZHC 1491.
2 Re Ryan [2023] NZHC 1641.
Application to current circumstances
[24] Given the facts described above, I am satisfied that a number of the grounds in s 317(1) of the Property Law Act apply to justify extinguishment of instruments numbered 10157329.10 and 10157329.11, and any right-of-way easements contained in those instruments. Discharge of the instruments under s 109 of the Property Law Act is also justified, to the extent they constitute encumbrances.
[25] As explained above, the wording of the instruments is defective for achieving the original purposes. The encumbrancee is a company that has been struck off and no longer exists. None of this was envisaged or intended at the time the instruments were registered. Importantly, the two functions apparently sought to be achieved by the instruments are correctly provided for by other registered instruments that will be unaffected by these orders.
[26] All interested parties have been notified of this application and afforded an opportunity to consider whether the orders adversely affect them. The application is entirely unopposed.
[27] The orders are necessary so that the applicant can satisfy its obligations to HHDL. At present, the instruments provide an impediment to the reasonable use of the applicant’s land, without any corresponding benefit.
Result
[28] I am satisfied that it is appropriate to make the order set out in para 1.1 of the amended application, detailed above at [2(a)–(b) and (d)]. I make orders in terms of the draft provided by the applicant.
Restoration
[29] This judgment does not address the application for restoration of Sunrise 9 to the New Zealand Companies Register, summarised above at [2(c)]. At the hearing, the applicant explained that this step is regarded as necessary and appropriate, so the various lot owners can address the problem of instruments identical to 10157329.10
and 10157329.11 registered over their own separate titles (for 43 of the 50 lots), thereby causing similar impediments to future dealings without any good reason. It would be easier to facilitate removal of those instruments if the company is restored to the Register and able to consent to those changes. I adjourn this aspect of the amended application to be dealt with separately.
O’Gorman J
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