Pontifex Ii Limited v Hayhow

[2023] NZHC 1206

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2339

[2023] NZHC 1206

BETWEEN

PONTIFEX II LIMITED

Applicant

AND

NICOLE HAYHOW

First Respondent

AND

CALUM MAXWELL PENROSE AND CAROLE ANNE PENROSE

Second Respondents

AND

SIXIAN LIN AND JIANFENG LIN

Third Respondents

AND

JOHN RICHARD COLTMAN AND JUDITH ELIZABETH COLTMAN

Fourth Respondents

Cont:/

Hearing:	27 April 2023
Appearances:	A Holmes and Z Matti for Applicant E St John for Fourth Respondents
Judgment:	23 May 2023

JUDGMENT OF JOHNSTONE J

This judgment was delivered by me on 23 May 2023 at 4pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Greenwood Roche, Auckland Ewart & Ewart, Auckland

PONTIFEX II LTD v HAYHOW [2023] NZHC 1206 [23 May 2023]

AND

Cont:/

ANTHONY EDWARD BUTTIMORE
Fifth Respondent

AND

MINI C TRUSTEE LIMITED

Sixth Respondent

AND

BERNARD GRAHAM BOYCE AND PATRICIA GAIL BOYCE

Seventh Respondents

AND

GRAHAM NEIL BARNES AND SANDRA ESTELLE BARNES

Eighth Respondents

AND

PETER DENIS MITCHELL WILCOCK AND JANICE EVELYN WILCOCK

Ninth Respondents

AND

GRAEME LINDSAY CLEGG AND CHORTHIP CLEGG

Tenth Respondents

AND

GEORGE ARTHUR HILL, LYNDA MAREE HILL AND DAVID GWYN LEWIS

Eleventh Respondents

AND

DENISE GAY WILSON, GRANT

TIMOTHY WILSON AND LEICESTER JAC FORGES GOUWLAND

Twelfth Respondents

AND

RNJ FIRST INVESTMENT LIMITED

Thirteenth Respondent

AND

LAP HANG CHOW AND LAP LEE CHOW

Fourteenth Respondents

AND

AUCKLAND COUNCIL

Fifteenth Respondent

Introduction

[1]    Pontifex II Limited (Pontifex) is the registered owner of land at 234 Whangapouri Road, Karaka, being Lot 3 Deposited Plan 488481, comprised in record of title 700603 (the Pontifex Property). The Pontifex Property is the product of a series of  subdivisions,  and  amongst  others  is   subject   to   instrument   C247179.2   (Old Covenant).

[2]    Pontifex applies for an order under s 317 of the Property Law Act 2007 (the Act) that the Old Covenant be either:

(a)extinguished in part so that the Pontifex Property is no longer subject to the Old Covenant; or

(b)modified in part so that the Old Covenant does not restrict the construction of a dwelling on the Pontifex Property.

[3]    Pontifex’s application is unopposed. I am satisfied in terms of s 317 of the Act that the Old Covenant ought to be modified as outlined above at [2(b)].

[4]    The fourth respondents, John Coltman and Judith Coltman, have filed a notice of appearance for an ancillary purpose. Through their counsel, Mr St John, the Coltmans seek similar extinguishment or modification orders in relation to a similar covenant registered against their neighbouring land (the Coltman Property). Alternatively, the Coltmans seek that this proceeding be held open so that they may pursue their own application relying on the materials on file.

[5]    I decline to direct that this proceeding be held open. However, I grant the Coltmans leave to bring a similar application under s 317 to that brought by Pontifex by way of originating application.

[6]My reasons follow.

Background

[7]    The Old Covenant was created in 1991 as part of an initial subdivision of a 52-hectare section in Whangapouri Road, Karaka into seven new titles. The Old Covenant relevantly provides:

That the Transferees will not erect or permit to be erected or place or permit to be placed on the land first above described any building or erection other than a single new (not being an existing house removed from another locality)

dwellinghouse and such farm outbuildings or ancillary buildings as are usual and reasonable for the type of horticulture agriculture or pastoral use of the land in the subdivision and its general area of a nature design or style (including that of the garden or landscaping aspects and fencing of surrounding grounds) in keeping with each other such that the dwellinghouse and any additional buildings and the surrounding grounds thereof blend in with the rural nature of the surrounding area to ensure that a pleasing and aesthetically compatible appearance is maintained for the benefit of all the lots.

[8]The seven titles that were new in 1991 have since been further subdivided.

[9]    For example, they included a Head Title in CT79D/819 further described as Lot 2 of DP 135482 (Head Title) which on 2 October 2015 was subdivided into three lots, creating the Pontifex Property and titles owned by the first respondent  (Hayhow Property) and the second respondents (Penrose Property).

[10]   The following image is taken from an exhibit produced by Pontifex to illustrate the entire, initial subdivision. The Head Title, inclusive of the three lots created in 2015, are bordered with a red dotted line. The Pontifex Property is shown coloured brown. Titles labelled “A” to “M” are held in the registered ownership of the first to fourteenth respondents, respectively.

[11]   Auckland Council had granted a resource consent for the October 2015 subdivision that divided the Head Title into three, noting in its reasons that:

Specified Building Areas on Lots 1 [the Hayhow Property, labelled “A” above] and 3 [the Pontifex Property] have been positioned to ensure that future development will result in effects that are less than minor on adjacent properties, due to separation distances between dwellings and established vegetative screening which will obscure future development from view.

[12]   Consent Notice 10252475.3 was lodged against the title to the Pontifex Property, prescribing amongst other things the location, size and materials of the contemplated dwelling. The white trapezoid area shown overlaid upon on the brown- coloured title of the Pontifex Property (above) is the “Specified Building Area” described in Consent Notice 102524775.3.

[13]   A similar consent notice was lodged against the other of the three lots on which no dwelling had yet been constructed.1 And a new covenant comprised in instrument 10252475.5 (New Covenant) was registered against all three new titles.

[14]   The New Covenant is in many respects similar to the Old Covenant. On the topic of erecting dwellings, it provides that the registered owner of (in this case) the Pontifex Property will not erect amongst other things:

3.1.1any residential dwelling with a floor area of less than 300 square metres (including garage, but excluding decking).

3.1.2any building that does not comply with the district plan side yard setback rules or any other Territorial Authority (sic);

[15]   Accordingly, the New Covenant appears to permit construction of (at least) a single large dwelling on each of the three lots created by subdivision of the Head Title.

[16]   However, the Old Covenant was not extinguished in the course of the October 2015 subdivision of the Head Title, and remains in effect, in relation to the Pontifex Property.

[17]   Pontifex purchased the Pontifex Property on 8 September 2016, intending to erect a dwelling, but without knowledge of the restrictions imposed by the Old Covenant. It accordingly seeks extinguishment or modification of the Old Covenant.

Evidence

[18]   Pontifex filed six affidavits in support of its application, four of which it describes as “key”:

(a)an affidavit of Anna Louise Hickmott, a solicitor who produced title documents, summarised the various subdivisions, and produced correspondence with affected, neighbouring owners;

1      Labelled “B” (the Penrose Property).

(b)an affidavit of Josephine Marie Michalakis, a planner who addressed the suitability of removal of the Old Covenant from a planning perspective;

(c)an affidavit of Angela Clara Brown, a landscape architect who addressed the visual impact of a hypothetical dwelling erected on the Specified Building Area; and

(d)an affidavit of Michael Travers Sprague, a valuer who addressed whether the property values of the four immediately neighbouring properties would be affected if the Old Covenant were removed and a dwelling erected on the Pontifex Property.

[19]I have drawn from Ms Hickmott’s evidence for the above background.

[20]   The opinion of Ms Michalakis is that construction of a residential dwelling on the Pontifex Property, within the Specified Building Area, is appropriate from a planning perspective. In particular, rural lifestyle land use is more appropriate than grazing or other rural productive use such as is permitted under both covenants, due to close proximity to other dwellings. A dwelling would be complementary to the rural lifestyle uses at those other properties. Further, the circumstances that led to the placement of the Old Covenant no longer exist. There are adequate protections afforded by the relevant planning documents established under the Resource Management Act 1991 that protect the amenity of the rural/coastal environment in this location.

[21]   Ms Brown’s evidence was that a dwelling erected on the Specified Building Area of the Pontifex Property would be visible from the properties marked “A”, “B” and “C” on the above map, somewhat visible from the property marked “D”, and not visible from the properties marked “E” to “M”. Ms Brown’s evidence included photographic simulations of the various visual impacts outlined.

[22]   Mr Sprague’s opinion is that removal of the Old Covenant would have no deleterious effect in terms of value and enjoyment/use of the land on immediate neighbours marked “A” to “D” inclusive.

Legal principles

[23]Section 317 of the Act 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.

(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]   The Supreme Court has comprehensively reviewed the approach that should be adopted under s 317 in Synlait Milk Ltd. The Court said:2

[90] To conclude on this point, s 317 requires a two-stage approach. The court’s first task is  to determine whether one or more of the grounds in        s 317(1) is made out. If so, the second task is to determine whether the discretion to extinguish or modify the easement or covenant at issue should be exercised (and, if so, to determine whether compensation should be payable). The exercise of the discretion to modify or extinguish the easement or covenant requires consideration of all relevant factors (including the power to award compensation). We do not see any intent that any one factor should be disqualifying.

[25]   Later in its judgment, the Court referred to the observation of the Court of Appeal of England and Wales in Re University of Westminster in relation to the equivalent United Kingdom provision, that “[a] finding of fact that one or more of the statutory grounds exists is likely, of itself and without more, to provide a good reason or reasons for making an order”,3 and added “[t]hat appears to reflect the approach to cases under s 317 and its predecessors”.4

No ‘substantial injury’ ground

[26]In relation to s 317(1)(d), the Supreme Court observed:5

[103]    The inquiry under s 317(1)(d) focuses on whether the extinguishment or modification of the covenant will “substantially injure” the owner or owners of benefited land. …

[104]    Section 317(1)(d) contemplates that the benefited owner may be injured by removal of the covenant so long as that injury is not substantial. It was common ground that for the injury to be “substantial”, it must be “real, considerable, significant, as against insignificant, unreal or trifling”. Australian cases express this in slightly different language, but the substance is the same: the injury must be real and have present substance, rather than merely being theoretical or fanciful.

2      Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 (footnotes omitted).

3      At [168], citing to Re University of Westminster [1998] 3 All ER 1014 at 1024 per Chadwick LJ.

4 At [168].

5      (Footnotes omitted).

[105]    The injury may be of an economic kind (for example, a reduction in the value of the benefited land), physical kind (for example, being subjected to noise or traffic), or intangible kind (such as impairment of a view, intrusion upon privacy, unsightliness or an alteration to the character or ambience of the neighbourhood).

[106]    Assessment of substantial injury requires the court to compare the position of the owner of the benefited land with the covenant in place with the position if the covenant is modified or extinguished.

Analysis — Pontifex Property

No ‘substantial injury’ – s 371(1)(d)

[27]   Pontifex refers to the ground set out at s 317(1)(d), and submits that the owners of the Hayhow and Penrose Properties (titles labelled “A” and “B” above) are not “persons entitled.” It bases this submission on the proposition that the recitals to the Old Covenant refer to an intention to bind the Head Title for the benefit of the remaining lots comprising the original 52-hectare subdivision. Since titles “A” and “B” stem from the Head Title, it is said that they were not remaining lots and therefore do not enjoy the benefit of the Old Covenant.

[28]   I agree. The result is that only the owners of titles labelled “C” to “M” inclusive are entitled to the benefit of the Old Covenant registered against the title to the Pontifex Property. But in any event, if I am wrong in that assessment, not only is there no substantial injury arising in respect of titles “C” to “M”, there is also in my view no such injury arising in respect of titles “A” and “B”.

[29]   In light of the restrictions imposed under the New Covenant, there is no realistic prospect of economic or physical injury, with land value unaffected and noise and traffic relating to construction as permitted under that covenant (and in the absence of the Old Covenant) of a single dwelling on the Pontifex Property (other than potentially on a transitional basis during construction) being insignificant. Further, the prospect of the owners of titles “A” to “D” being able to see a new dwelling on the Pontifex Property, in light of the images produced in Ms Brown’s evidence, is not such as to have a substantial impact on views, privacy, unsightliness or alteration to the character or ambience of the neighbourhood.

Other factors — exercise of discretion

[30]   As noted above, the Supreme Court have endorsed the view that the engagement of one or more of the threshold grounds will be sufficient to warrant the exercise of discretion.

[31]   In this case, Mr Holmes submitted that several of the threshold grounds were met. However, having found that the ‘no substantial injury’ ground is met, I elect to review the other threshold aspects of s 317(1) as part and parcel of considering whether to exercise my discretion to modify or extinguish the Old Covenant.

Change in use, character or other circumstance – s 317(1)(a)

[32]   Mr Holmes submitted that burdened and benefited properties have undergone significant changes since the original subdivision.6 The most pertinent and obvious change has been to the character of the neighbourhood. Ms Michalakis has described the neighbourhood as:

The character of the immediate neighbourhood (i.e. within 500m) is currently considered to be rural residential. This is evidenced by larger dwellings with accessory buildings, swimming pools, tennis courts, with curtilage and accessways demarcated by post and rail fences and planting on a variety of lot sizes (sized between 4,000m2 and 80,000m2) with the vast majority being in the order of 40,000m2…

[33]   Her opinion is that the neighbourhood has undergone a change since 1990, for example she deposes:

The circumstances that led to the placement of The Covenant no longer exist. The Property, the Hayhow Property, and the Penrose Property were a single lot, created in 1990, with the intention of being used for grazing and/or horticulture with limited domestic development and buildings. The Covenant was placed on the land in that context. The actual development that has occurred in the Arana Subdivision including the more recent subdivisions described in paragraph 50 is more akin to rural lifestyle and there is limited grazing or horticultural activities occurring, nor is it suitable for them to occur with any scale, given the prevalence of domestic activities and likely reverse sensitivity effects that may arise.

6      Section 317(1)(a).

[34]   I consider this evidence persuasive. I agree that the area has undergone a transition from a character of substantially rural production to one of rural lifestyle or rural residential. As Ms Michalakis contends, it is:

… good practice to separate rural production and rural lifestyle activities. It is also my opinion that a rural lifestyle land use is more appropriate on the Property than grazing or other rural productive use due to the close proximity to other dwellings at 198 and the Penrose Property

[35]   For these reasons I consider that the change in character favours granting the modification.

Impeding reasonable use beyond that reasonably foreseen – s 317(1)(b)

[36]   Mr Holmes also submitted the Old Covenant is now impeding the reasonable use of the land. I do not agree with this submission. Reasonable use must be assessed by reference to what could reasonably be foreseen when the covenant was originally created.7 While I accept there has been a shift in the use of the land and its character, I do not consider that the changes go beyond what was contemplated. For example, the Old Covenant considers and provides for further subdivision. Clearly the drafters envisioned that the land may be further subdivided and developed in the present manner.

Agreement of persons entitled – s 317(1)(c)

[37]   Another consideration in favour of granting the modification is the lack of opposition from affected parties. Justice Campbell directed service to be effected by sending a service letter to each of the respondents detailing the relevant material and allowing each respondent have access to an internet based document storage system as provided by the applicant. The effect of these comprehensive service orders is that the respondents have been fully informed and their lack of any formal objection can be taken as tacit consent to the changes.

7      Johns Road Horticultural Ltd v Powellfirst [2023] NZHC 511 at [32], citing North Holdings Development Ltd v WGB Investments Ltd [2014] NZHC 670 at [31].

Public policy – s 317(1)(e)

[38]I consider that public policy is a neutral factor in the present application.

Modification or extinguishment ‘just and equitable’ – s 317(1)(f)

[39]   The final consideration is whether modification or extinguishment would be just and equitable. Here, it should be noted that there is an element of inequity in the present circumstances, in that properties “A” and “B” formed part of the Head Title created by subdivision in 1991, but as a consequence of the 2015 subdivision of the Head Title are not bound by the Old Covenant as servient tenements. The Pontifex Property derives from the Head Title, and for that reason remains subject to the Old Covenant.

Overall assessment

[40]   After standing back, and taking into consideration all relevant factors, it is my view that extinguishment or modification needs to be ordered. I intend to exercise my discretion accordingly.

Order for compensation

[41]In Synlait, the Supreme Court held:8

It is, of course, true that once the covenants have been extinguished or modified, they cannot be replaced. But the basis of this Court’s finding that the jurisdiction under s 317(1)(d) is engaged proceeds on the basis that any harm to NZIPL will be insubstantial.… And the power to award compensation under s 317(2) is designed to deal with any damage or loss caused by the permanent extinguishment or modification of a covenant.

[42]   In cases where no substantial injury is the threshold ground, the compensation will at most be modest and is only required to reflect the permanence of the order.

[43]   Here, I do not consider it appropriate to require payment of any compensation, particularly in light of my conclusion below regarding the choice of modification or extinguishment.

8      Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [171(b)].

Extinguishment or modification

[44]   I consider that modification is the correct course. The reason for my view relates to enforceability. The New Covenant is enforceable at the suit of the registered owners of properties labelled “A” and “B”. If the Old Covenant were simply extinguished, the registered owners of properties labelled “C” to “M” would lose standing. The solution in my view is to modify the Old Covenant to reflect the terms of the New Covenant.

Analysis — Coltman Property

[45]   The Coltman Property, labelled “D” on the above map and title NA79D/820, Lot 3 Deposited Plan 135482, is subject to a similar covenant to the Old Covenant registered against the Pontifex Property. The Coltmans seek similar orders to those I intend to make in respect of the Pontifex Property.

[46]I decline to make such orders.

[47]    While the evidence provided by Pontifex is very helpful in providing an overview of the surrounding area and the affected titles, the Coltmans have not filed evidence tailored specifically to their title. For example, there is no evidence on whether the Coltman Property is subject to any covenant that may restrict further construction. The Pontifex Property is of course subject to the New Covenant. Further, there is no evidence about the planning, valuation, or visual or other impacts that extinguishing their covenant might have. As noted above, Campbell J directed Pontifex to meet extensive service requirements designed to ensure affected parties were fully informed. It is not clear that parties affected by the Coltmans’ application were aware it was being made.

[48]   Mr St John suggested that if I do not grant extinguishment, I might order the proceeding to remain open so the Coltmans may rely on the evidence on file. I have decided not to do so. Allowing the proceeding to remain open might impact negatively on Pontifex’s position.

[49]   Nevertheless, I do intend in the interests of efficiency and consistency to grant the Coltmans leave to pursue any separate application for extinguishment or modification of the covenants affecting their property by way of originating application. They will be required to serve all affected parties and to that end may choose to apply for directions for service.

Result

[50]   I grant the application by Pontifex, ordering that the Old Covenant is modified in part as it applies to Lot 3 Deposit Plan 488481, so that that covenant does not restrict the construction of a dwelling on Lot 3.

[51]   To that end, the Old Covenant is modified by the inclusion of the following further clause:

In this Covenant, the “land first above described” refers to the land Lot 2 of DP 135482 being that described in CT 79D/819 (the Head Title). In 2015, the Head Title was subdivided into three lots, with the Covenant being registered against each new title. The new lots were

(i)Lot 1 Deposit Plan 488481, being the land contained in Record of Title 700601 (Lot 1),

(ii)Lot 2 Deposit Plan 488481, being the land contained in Record of Title 700601 (Lot 2)

(iii)Lot 3 Deposit Plan 488481, being the land contained in Record of Title 700603 (Lot 3)

Pursuant to orders made by the High Court on 17 May 2023, the Covenant is modified as it applies to Lot 2 so that as against Lot 3, the words “the land first above described” is to be read as a reference to Lot 3 rather than to the Head Title, and the owners of Lot 3 are not prevented by the Covenant from building a single dwelling, otherwise set out in the Covenant.

[52]   The Coltmans have leave to commence an originating application for orders to similar effect in respect of their property, Lot 3 Deposited Plan 135482.

[53]There is no order as to costs.

Johnstone J