Park Lane Builds Limited v Shiva Eco Homes Limited

[2022] NZHC 1438

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2022-485-156

[2022] NZHC 1438

BETWEEN

PARK LANE BUILDS LIMITED

Plaintiff

AND

SHIVA ECO HOMES LIMITED

Defendant

Hearing:

15 June 2022

Appearances:

C Matsis for the Plaintiff

J B Orpin-Dowell and O L Wilkinson for the Defendant

Judgment:

17 June 2022

JUDGMENT OF COOKE J

(Interim injunction)

[1]    The plaintiff is the developer of a residential subdivision in Crofton Downs, Wellington. The defendant is the purchaser of one of the sections in the development. It is seeking to on-sell the section after completing construction of a residential dwelling. The plaintiff applies for an injunction preventing the defendant from selling the property. It alleges that the defendant has failed to comply with restrictive covenants that apply to the newly created properties in the subdivision, including covenants in relation to the standard of the dwelling constructed, and that an injunction should be granted for this reason.

[2]    An interim injunction was initially sought without notice by application dated 31 March. On 1 April Gendall J granted the application until such time that an on- notice injunction application was heard by the Court, or further order. That is the application that has now been heard by me.

PARK LANE BUILDS LIMITED v SHIVA ECO HOMES LIMITED [2022] NZHC 1438 [17 June 2022]

[3]    The application is supported by an affidavit of Trent Cary, the General Manager of the plaintiff, Parklane Builds Ltd (PLB) and its sister company Parklane Infrastructure Ltd (PLI). Broadly speaking PLB is a building and property trading company, and PLI is the overall developer.

[4]    The defendant, Shiva Eco Homes Ltd (Shiva) is itself in the business of property development specialising in “green homes”. It opposes the application for an injunction. Its opposition is supported by an affidavit of a Director and Shareholder Kush Bhargava.

[5]    This judgment also deals with a cross-application by Shiva dated 22 April. This seeks to strike out the plaintiff’s claim under r 15.1 of the High Court Rules 2016 on the basis that the claim discloses no arguable cause of action.

[6]    At the conclusion of the hearing I made an order continuing the interim injunction ordered by Gendall J until release of this judgment.

The circumstances

[7]    PLI is completing a subdivision in Silverstream Road, Crofton Downs. Stages 1–5 of the subdivision have been completed and a number of houses have been built. Stages 6–9 are in the final planning stages and are about to be released.

[8]    The property purchased by Shiva was part of stage 2. It is not clear from the evidence how many properties are part of stage 2, but there were five properties, including Shiva’s property, who are parties to the covenants referred to below. It may be that these five properties comprise stage 2.

[9]    PLB and Shiva entered into an agreement for sale and purchase of Shiva’s land on 26 April 2019 (the Agreement). Settlement occurred on 15 May. By cl 25 of the Agreement Shiva acknowledged that it took title to the property subject to certain covenants. I will address the nature and effect of this clause below. The owners of the five properties were listed as the covenantors and covenantees in the covenants attached to the Agreement. They involved covenants of a kind not uncommon with this kind of subdivision. They are designed to maintain the standards of the overall

development, including in relation to the physical appearance of the residential dwellings so constructed.

Problems with the covenants

[10]   Mr Cary says that the covenants annexed to the Agreement “are consistent with the covenants contained in all other agreements for properties in this development”. But he also says that the covenants for stage 2 properties, including Shiva’s property were not registered on the titles as the plaintiff’s law firm at the time “failed to do that for us”. He says that each purchaser’s solicitor was contacted and that “land covenants are being registered in gross” where purchasers have engaged with the plaintiff’s new solicitors.1 He also says that caveats were registered on lots where the purchasers had not engaged with this process.

[11]   This evidence does not explain the full circumstances. PLI first registered such a caveat against one of the titles on 7 September 2018, several months before this Agreement was even entered. In Mr Cary’s affidavit in reply he accepts PLI was on notice that the covenants had not been registered against the titles of the properties when the contract between PLB and Shiva settled. PLB’s evidence also does not explain why covenants were not registered against the title of the properties when the lack of registration was first discovered.

[12]   When I raised this with Mr Matsis he suggested that one reason for a lack of registration might have been that the identity of the landowners in question had changed so that the agreements to register the covenants in the sale and purchase agreements for the five properties were not sufficient to allow for registration. But as Mr Orpin-Dowell said it is not until 3 July 2020 that there was any change in the ownership of any of the five properties in question. That is well after the issue of non- registration was identified. Mr Orpin-Dowell suggested that this meant that there must be some undisclosed failure to secure the agreement by purchasers to the covenants. If so that would be inconsistent with Mr Cary’s evidence that the covenants here were consistent with the covenants in all other agreements in the development.

1      Covenants “in gross” are covenants in favour of a named person rather than the owner of particular land – here PLI rather than the registered landowners.

[13]   Another possibility not mentioned at the hearing, or outlined in the evidence, is that following the 2018 amendments to the Property Law Act 2007,2 PLB and PLI sought to transition from covenants benefitting the neighbours to covenants in favour of PLI, but they have not persuaded the other property owners to do so. There may also be a difficulty in now registering the original covenants in favour of all property owners given the transition plan, the registration of one covenant in gross, and/or the change of ownership with one other title owner. What is clear is that a covenant has only been registered against one of the five titles, and this registration appears to be “in gross” — that is in favour of PLI rather than the owners of the other four titles as contemplated by the document attached to the Agreement.

[14]   For all these reasons the evidence in relation to this issue is incomplete, and potentially unsatisfactory. Neither do I have an explanation of how the properties were marketed and then sold to the relevant property owners, or any information of the attitude of the other four property owners to the existence of the covenants. I return to that issue below.

Compliance with covenants

[15]   Under cl 1.3 of the covenants Shiva was required to obtain approval of the building plans, and for the siting of the house, from PLI. When considering approval PLI was to take into account the appearance of the proposed dwelling, and the desire there should be a range of style, design and appearance of dwellings within the subdivision.

[16]   Shiva sought to comply with this requirement when it went about constructing a house on the section which it intended to sell. Between 2019 and 2021 there were exchanges between Mr Bhargava and Mr Cary about this. I refrain from making findings on the details of these exchanges, but it is fair to say that both sides can be criticised for the approach adopted. Mr Cary can be criticised for a failure to respond appropriately to communications from Mr Bhargava, and Mr Bhargava can be criticised for pressing on with construction of a house without having a clear

2      Property Law Act 2007, ss 307A and 307F; note that the Act was amended to allow for covenants in gross to be registered against the title, and to run with the land in the same way as other covenants.

communication from Mr Cary granting approval in accordance with cl 1.3. Both can be criticised for periods of delay.

[17]   Mr Bhargava’s initial communications to Mr Cary in June and July 2019 were not responded to appropriately by Mr Cary. He responded on three occasions with one line answers saying that any request for approval needed to be provided directly from a purchaser. Given Shiva was a purchaser these were most unsatisfactory responses. There was then a phone call. Mr Cary advised Mr Bhargava that a formal plan of the nature approved by the Council was required. In November 2019 Shiva then obtained the building consent from there Wellington City Council but it was not until January 2020 that the relevant plans were submitted to Mr Cary by Mr Bhargava. Mr Bhargava wrongly assumed that his architect had earlier done so.

[18]   Mr Bhargava says he then spoke to Mr Cary on the phone and that Mr Cary told him the plans were fine but he wanted some more information about landscaping. Mr Bhargava sent further plans with landscaping details on 24 January. Mr Cary did not then respond but in a subsequent phone call Mr Bhargava says Mr Cary then asked for fencing plans.

[19]   There were then various text messages between the two. When Mr Bhargava asked Mr Cary to confirm approval in February 2020 he was asked to resend the plans. Mr Bhargava then says he did not receive a response after he did so. But based on his previous communications with Mr Cary he understood that Mr Cary was “generally happy” and Mr Bhargava considered that he would be able to address any issues of detail later. He accordingly decided to press on with construction without obtaining the required approval. In fact, preliminary excavation work had begun in January 2020.

[20]   Later in August 2020 Mr Bhargava resent the plans to obtain formal approval but he says he again received no response. He then says he followed up with Mr Cary, yet again without a response.

[21]   On 18 September 2020 Shiva then entered a sale and purchase agreement to take effect when the house was completed.

[22]   Mr Bhargava outlines various further attempts he made to try and get hold of Mr Cary. It was not until 15 March 2021 that Mr Cary provided a response. This was in a one-line email stating “This design is a bit too basic for our liking please call to discuss.” In his affidavit responding to Mr Bhargava’s affidavit Mr Cary says that earlier information from Mr Bhargava had only “trickled through” and that the first time that approval specifications with photos came through was February 2021, and that he did not realise until March that the house was already being built.

[23]   Communications following that time involved greater details about the building. The short point is that no formal approval has been given.

[24]   At the present stage the house is substantially complete. A concrete driveway is still to be constructed, however. Mr Orpin-Dowell indicated at the hearing that it was estimated that three weeks would be required for the remaining construction, and it was expected that a code of compliance certificate would then issue.

The applicable principles

[25]   The principles to be applied in relation to the grant of an interim injunction under r 7.53 of the High Court Rules 2016, and for striking out proceedings under r 15 are well established. For interim injunctions they involve the following factors:3

(a)Whether there is a serious question to be tried.

(b)Where the balance of convenience lies.

(c)Where the overall justice lies.

[26]   The principles relevant to striking out a proceeding under r 15.1 involves the following approach:4

3      Intellihub v Genesis Energy Ltd [2020] NZCA 344, [2020] NZCCLR 29 at [23]–[23]; Harvest Bakers Ltd v Klissers Farmhouse Bakers Ltd [1985] 2 NZLR 129 (CA) at 142.

4      Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 269.

(a)The application proceeds on the assumption that the facts pleaded in the statement of claim are true.

(b)Before the Court may strike out a claim the cause of action must be so clearly untenable that they cannot possibly succeed.

(c)The jurisdiction is to exercise sparingly and only in a clear case where the Court is satisfied it has the requisite material.

(d)The fact that the application raises difficult questions of law and may require extensive argument does not exclude the strike out jurisdiction.

[27]   In addition where a pleading disclosing no reasonable cause of action can be cured by amendment the Court will likely permit amendment rather than striking out the pleading. As Tipping J said in Marshall Futures Ltd v Marshall there is a difference between a claim “which is a total write off and one which is deficient but is capable of effective repair”.5

The plaintiff’s case

[28]   Under both applications the strength, or otherwise, of the plaintiff’s case must be addressed.

[29]   The plaintiff’s case as presently formulated is based upon an allegation that the obligations of Shiva under the covenants are enforceable by PLB, and that PLB may bring a claim in contract against Shiva for breach of the covenants, and may obtain an award of damages and an injunction.

[30]   I accept Mr Orpin-Dowell’s submission that these allegations are misconceived, and that Shiva cannot be liable in contract to PLB for failure to comply with the covenants. But I also accept Mr Matsis’ submission that there is a potential claim that can be bought against Shiva for breach of contract, and that I should allow the plaintiff an opportunity to re-plead that claim rather than striking it out.

5      Marshall Futures Ltd (in liquidation) v Marshall [1992] 1 NZLR 316 (HC).

[31]   PLB has no rights at all under the covenants. It is not a covenantee. The only named covenantees are Shiva and the other four property owners. PLB is not one of the property owners. Its sister company, SIL, is named in the covenants as the entity from whom consent must be obtained, but it is not itself a covenantee. The covenants only create legally binding obligations as between the specified neighbouring property owners in the subdivision.

[32]PLB relies on cl 25 of the Agreement to advance its claim. It provides:

25.Land Covenants

25.1The Purchaser acknowledges that the property will be transferred to the Purchaser subject to various land covenants to ensure a high standard of subdivision is maintained. A copy of the land covenants are attached and the Purchaser acknowledges that it will take title to the property subject to such covenants. If the vendor is not in a position to register these covenants prior to settlement the purchaser undertakes to provide the Vendor on settlement the necessary documentation to allow the vendor's Solicitor to attend to registration following settlement.

[33]   But as Mr Orpin-Dowell submitted this clause does not make the covenants terms of the Agreement between the plaintiff and defendant. The first part of the clause involves Shiva acknowledging that the title it is receiving from the plaintiff is encumbered. The second part of the clause involves a mechanism to ensure that the encumbrance is registered against Shiva’s title by PLB, with Shiva obliged by its undertaking to provide the necessary documentation to allow registration. In the present case that is exactly what Shiva did. It has performed its only obligation under cl 25.

[34]   Mr Matsis sought to argue, either through the approach to interpretation of contracts or the principles in relation to implied terms, that there was an obligation on Shiva to PLB to honour the covenants, although the point was not pressed in oral argument. I see no substance to this argument. Clause 25 is clear, and it has specific machinery. There is no room to extend its operation by the techniques of interpretation or implication.

[35]   I note that this analysis does not depend on the fact that the covenants have not been registered against the titles. Even if they had been registered PLB would have

no rights under the covenants so registered. The fact that they have not been registered raises an interesting point on the enforceability of the covenants by the covenantees, although that may arise as an exception to the privity of contract as contemplated by s 12 of the Contract and Commercial Law Act 2017. But that is not an issue for today.

[36]   Were this the only relevant clause of the Agreement I would accept that the plaintiff’s case was doomed and should be struck out under r 15.1. But that is not the only relevant clause. Clause 38 of the Agreement provides:

38Consent to Vendor to on-sell or re-sale

38.1The Purchaser shall not, without the prior written consent of the Vendor, enter into any agreement to on-sell, or assign, transfer, charge, encumber or otherwise deal with the Purchaser’s interest under this Agreement or re-sell the Property before the construction of the dwelling is complete. Subject to the Purchaser granting the Vendor, or their nominated real estate agent, first right of refusal to market and sell the property on their behalf on standard market agency terms the vendor’s consent will not be unreasonably withheld. The Vendor’s reasonable legal costs in respect to consent are costs of the Purchaser.

38.2In the event that the Purchaser fails to obtain written consent, the Vendor may cancel the Agreement and the Purchaser’s forfeit any deposit paid as liquidated damages.

[37]   It is apparent that Shiva has entered an agreement to sell the property without obtaining PLB’s consent under this clause. It is also apparent, on Shiva’s own evidence, that the construction of the dwelling is not complete. For that reason the plaintiff has a contractual right to bring a claim in contract, and to seek an injunction preventing the sale on the basis that Shiva has failed to comply with cl 38.1.

[38]   There is also an argument that the words “before the construction of the dwelling is complete” in cl 38.1 are not referring simply to the completion of construction in a physical sense. Construction here is likely to be physically complete, and a code of compliance certificate issued, within a period of weeks. But it is at least arguable that the construction must meet the building standards contemplated by the contract, and therefore the covenants. If so a physically complete building that is not in conformity with the standards set by the covenants would not be completed for the purposes of cl 38.1.

[39]   In any event, even if consent were sought of PLB under cl 38.1 I accept it may be reasonably open for it to decline consent on the basis that the incomplete building works were not conformity with the requirements of the covenants if that is the case.

[40]   It may become of significant, therefore, to assess whether the building works are consistent with the standards contemplated by the covenants, particularly if it comes to the point where PLB must rely on the interpretation of cl 38 referred to in

[38] above.

[41]   On that question two main issues were relied upon by PLB.   First under      cl 1.1.18 of the covenants, the exterior cladding of the building is required to comprise one of the particular cladding materials specified. It is said that Shiva’s building uses an unapproved cladding. Mr Cary explains in his affidavit that the cladding material used is a sandwich panel — involving metal on polystyrene on metal — which does not always have to be then attached to timber framing. He believes that it is freestanding here. The only relevant permitted cladding material that has some similarity to this under cl 1.1.18 is “metal laminate on solid timber”. In his reply affidavit Mr Cary says he is also concerned about the aesthetic appearance of this cladding. He says it looks “cheap” and “like the cladding commonly used in Portacom-type buildings and in commercial cool store buildings” and he does not think “other property owners in the development would be happy with that cladding product being used”. Whether they are or not is relevant to their position generally. I address their position later below.

[42]   Given that the building is now essentially complete with this cladding, I understand PLB’s stance is that the building will either need to be re-clad, or that there will need to be new cladding put on top of the existing cladding. It might be said that this is an unreasonable requirement, or more directly that PLB’s consent would be unreasonably withheld if it was based on this requirement, depending on the significance, if any, of the non-compliance.

[43]   It may be that the cladding is not in conformity with the strict requirements. But it may have been if fixed to wooden framing. In terms of its appearance, the other permitted forms of cladding, including stucco finish fibre sheet or polystyrene, and

metal laminate on solid timber might be thought to be similar to Shiva’s cladding. I make no finding on these questions, however.

[44]   A point was also taken by Mr Cary, but not relied upon by Mr Matsis in oral argument, that there may also be an issue as to whether the roof materials are too heavy for this form of cladding. I accept this might be an issue of significance, although the Wellington City Council will need to sign off on the building’s integrity and the cladding when issuing a Code of Compliance Certificate.

[45]   The second main alleged breach of covenant is that PLI’s consent was not obtained under cl 1.3 in a way that would allow PLI to “take into account both the appearance of the proposed dwelling and the appearance of other dwellings in close vicinity to the said dwelling house with the intent there should be a range of style, design and appearance of dwellings within the subdivision”.

[46]   On this issue much may depend on the earlier exchanges between Mr Bhargava and Mr Cary. It appears that Mr Bhargava sent Mr Cary plans, including before a building consent was applied for. It also appears that Mr Cary did not raise any issues about the plans, and may have said that they looked fine, but asked for more detail on landscaping and fencing. If that is the case it may be unreasonable for PLB to withhold consent under cl 38 if the dwelling is consistent with those plans. I note that it is suggested the form of cladding of the property is said to be evident from the materials so sent through.

[47]   Other matters are raised by PLB, including that the construction period took longer than 12 months and that this is inconsistent with the covenants. But I doubt that this could now have relevance to consent under cl 38.

Conclusion on strength of claim

[48]   I accept that PLB has an arguable case on the basis that consent under cl 38 was not sought for a sale before completion. If such consent were sought and declined, PLB might still have an arguable case that withholding consent was reasonable, although this is unlikely to be as strong.

[49]   What may be more significant is whether Shiva’s purchaser would agree to the covenants being registered against the title. The covenants have been formulated to have ongoing operation for all the relevant landowners. The evidence discloses that Shiva has agreed that the covenants can be registered in gross against the title, but only on a without prejudice basis (that is on the basis that the plaintiff’s claims for damages would otherwise not be pursued). That has not been offered on an unconditional basis as part of seeking consent under cl 38.

[50]   This is related to the final factor which I regard as decisive for the outcome of the application for an interim injunction.

Balance of convenience and ultimate justice — position of other property owners

[51]   The above analysis means that PLB has an arguable case, and a basis to obtain an injunction, at least until construction of the Shiva’s property is physically complete. It may also have an arguable case even after that point depending on the meaning to be given to the concept of completion in cl 38.

[52]   But in considering whether an injunction should be granted there is one overriding consideration of importance. That is that the Court has not heard from the other four interested property owners. It is beyond argument that the covenants attached to the Agreement purported to create obligations as between all five owners. Whilst PLB is seeking to enforce these covenants, the main beneficiaries are specified to be these other landowners.

[53]   As indicated the evidence is unsatisfactory as it has not provided information on the position of these owners. None of them have the covenants in the form scheduled to the Agreement registered against their titles. One of them has covenants registered against their title, but only for the benefit of PLI, and not the other four titles.

[54]   Whether the other property owners wish to say that Shiva’s dwelling is a problem for them because of a failure to comply with the covenants is something the Court needs to be appraised of if an injunction is to be granted until a trial. The Court

does not know the attitude of these owners. There may be differences of view. Perhaps they do not even want the covenants to continue. Three have no covenants registered.

[55]   In the circumstances the appropriate course is to direct the plaintiff to serve each of the other four title holders as a condition of an interim order. The service should include a copy of this judgment, and the letter accompanying service should draw the owners attention to this judgment to assist them in understanding the current circumstances. The property owners then have a right to apply, and a right to be heard in these proceedings. If any property owner served wishes to instruct solicitors in order to do so they have that right. If they do not wish to instruct solicitors but simply want to advise the Court and the parties on their stance they should do so by writing a letter or email to the plaintiff and defendant’s solicitors. The letter of service should provide the contact details for that purpose.

[56]   As discussed at the hearing, it also seems to me that Shiva’s purchaser should also be served in the same way. The reason why their views may be important is that the sale to them involves them becoming part of the interrelated group of properties who were to have the benefit (and the burden) of the covenants in the form attached to the Agreement. They should be heard on whether they agree, or don’t agree, to the covenants. I direct the defendant to serve the purchaser on the same basis — that they have the right to apply and to be heard, that they may do so through a solicitor, or may do so by advising their position in communication addressed to both solicitors.

[57]   In terms of the other factors raised in relation to the balance of convenience, none seem to me to have particular significance, especially given that I do not intend to grant the injunction through until trial, but only until further order with leave to apply. An injunction might put the defendant’s potential sale at jeopardy, but I think that unlikely, and the defendant would still retain the property for sale in any event. Its position would also be protected by the undertaking as to damages.

[58]   Although I do not see the other matters raised by the parties in relation to the balance of convenience as of particular moment there is one exception. An issue was taken with PLB’s undertaking as to damages in support of the injunction. In response PLI also provided an undertaking, and Mr Cary provided a further affidavit saying that

PLI is a company of substance which could meet the undertaking. On the face of it that may well be so, but that affidavit has not been accompanied by appropriate financial information. In particular, I would expect information in the nature of the most recent annual accounts to be provided. If PLB wishes to continue the benefit of the injunction that I refer to below it will be necessary for it to provide more detailed financial information in relation to the position of PLI. If necessary that can be provided to counsel for the defendant on a confidential basis.

Outcome

[59]   For these reasons the appropriate course is to grant an injunction preventing the defendant from selling, or otherwise dealing with the relevant land until further order of the Court on the conditions referred to below.

[60]In addition there will be the following further orders and directions:

(a)The defendant’s application to strike out the plaintiff’s proceedings under r 15.1 is dismissed on the basis that the plaintiff is to file and serve an amended statement of claim in accordance with (b) below.

(b)The plaintiff is to file and serve an amended statement of claim within five working days which repleads its allegation in accordance with the arguable claims identified in this judgment. It is also to provide more detailed financial information supporting PLI’s undertaking at that time.

(c)Within five working days after service of the amended statement of claim the plaintiff is to serve the other four landowners with these proceedings (including the amended statement of claim, and this judgment) including a letter of service in the terms I have directed. In addition the defendant is to serve its intended purchaser on the same basis within that time.

(d)Within 10 working days of being served the parties so served have leave to either make application to the Court to participate in this proceeding

in some way, or to advise the solicitors for the plaintiffs and defendants of their position as directed in paragraphs [55] and [56] above.

(e)Without limiting order (d) above, both the defendant and all parties served have leave to apply to discharge the injunction, particularly in light of the further information contemplated by these directions coming to light. If such application is made I direct the Registrar to refer it to me in the first instance.

[61]   As to costs, whilst the plaintiff has been partially successful in maintaining an injunction, and in dismissing the application for strike out, this has only been on a limited basis. Whether an order of costs is appropriate, and who it may be appropriately awarded to, may become clearer once further information comes to light. In these circumstances the question of costs is reserved for later consideration.

Cooke J

Solicitors:

Gault Mitchell, Wellington for the Plaintiff

Mortlock McCormack, Christchurch for the Defendant