Pure Crystal Holdings Limited v Canterbury Regional Council
[2017] NZHC 1885
•9 August 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2017-409-000327 [2017] NZHC 1885
UNDER the Land Transfer Act 1952 IN THE MATTER
of an application for an order that under section 145A that a caveat not lapse
BETWEEN
PURE CRYSTAL HOLDINGS LIMITED Plaintiff
AND
CANTERBURY REGIONAL COUNCIL Defendant
Hearing: 1 August 2017 Appearances:
S Munro and A Davidson for Plaintiff
J V Ormsby and S S R Meares for DefendantJudgment:
9 August 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
Introduction
[1] On 25 August 2011 Pure Crystal Holdings Limited (PCH) leased from the Canterbury Regional Council (also known as Environment Canterbury, ECan) for a term of 20 years from 1 September 2011 (plus three rights of renewal, each of the same period) an area of land described in the lease as Part Lot 1, DP 11676, including the right to use a well on the property defined as bore m35/8584. The area leased is shown on a plan attached to the lease. It is part of the land contained in identifier CB11A/1026.
[2] The lease was subject to PCH confirming it had carried out sufficient due diligence and investigations in relation to its intention to take water from the well, and obtaining sufficient advance orders to prove the viability of its proposed
operation on the site of a business of extracting and bottling water. This condition
PURE CRYSTAL HOLDINGS LTD v CANTERBURY REGIONAL COUNCIL [2017] NZHC 1885 [9 August
2017]
(40.3) was to be satisfied within six months of the commencement date. It is common ground that the deadline for confirmation of this condition was extended by six months and that on 31 August 2012 PCH confirmed the due diligence condition.
[3] The lease was also conditional on ECan constructing a subdivision road and access points to the property in accordance with plans attached to the lease. This condition (40.1) was to be satisfied within 12 months of the commencement date, and provides that it was “inserted for the benefit of both the lessor and lessee”. It provides for consultation with PCH in relation to the positioning of the subdivision road and location of easements in relation to a building which PCH proposed to build on the land. Again, it is common ground that the date for compliance with condition 40.1 was agreed to be 31 August 2013.
[4] The lease contemplated that the land leased to PCH would be subdivided from the title of which it formed part. Clause 41.1 provides that if subdivision consent were obtained by ECan on terms satisfactory to it, it would at its own cost lodge and deposit a plan of subdivision, a proposed version of which was attached to
the lease,1 and to do all things reasonably necessary to obtain a separate certificate of
title for the property leased to PCH. The lease envisaged that there may be changes to the proposed plan as a requirement of Land Information New Zealand. Once the due diligence condition, and the condition requiring ECan to construct the subdivision road had been satisfied, ECan’s resource consent for the taking of water was to be transferred to PCH for an agreed sum.
[5] Clause 35 of the lease provides that it is registrable against the title. It also provides that if PCH lodged a caveat against the title of the property it would immediately consent to any request by ECan to the registration of any documentation in respect of the property.
[6] ECan did not construct the subdivision road or access points as predicated by clause 40.1, nor did it otherwise proceed with the subdivision in order to obtain a
separate title for the part of its existing title which it had leased to PCH. On
1 The plan attached to the lease shows a subdivision of the land in the title in which the leased land is contained, and some adjacent land, into some 20 titles.
24 February 2017 ECan wrote to PCH cancelling the lease on the basis that the condition in clause 40.1 of the lease had not been satisfied. ECan indicated that it was happy to consider refunding rental payments which PCH had made. PCH rejected this cancellation and on 31 March 2017 lodged a caveat against the title claiming an estate or interest “by virtue of an undated lease granted by the registered proprietor (as lessor) in favour of the caveator (as lessee) over the land comprised in the Affected Computer Register”. The Affected Computer Register is described in the caveat as CB11A/1027.
[7] ECan applied to the District Land Registrar to lapse the caveat, and PCH responded by filing this application for an order under s 145A of the Land Transfer Act 1952 that the caveat not lapse. PCH says that ECan’s purported cancellation of the lease was not valid and the lease remains binding. ECan says the cancellation is valid and the lease is at an end. Its first submission, however, is that the caveat has been lodged against the whole of the land in Certificate of Title CB11A/1027, but the lease applies to part only of the land in that title and for that reason, too, the caveat cannot be sustained.
[8] A caveat against a dealing must comply with s 137 of the Land Transfer Act.2
For an order to be made as sought by PCH it must show that it has a reasonably arguable case for the interest it claims.3
[9] The first issue in this case is whether the caveat lodged by PCH complies with s 137. The second issue is whether PCH has an arguable case that it has an interest in the land over which the caveat has been lodged.
First issue: Does the caveat lodged by PCH comply with s 137?
[10] Section 137(1) and (2) of the Land Transfer Act provide:
137 Caveat against dealings with land under Act
(1) Any person may lodge with the Registrar a caveat in the prescribed form against dealings in any land or estate or interest under this Act if the person –--
2 As substituted by the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002.
3 Sims v Lowe [1988] 1 NZLR 656 (CA).
(a) claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission, or of any trust expressed or implied, or otherwise;
or
(b) is transferring the land or estate or interest to any other person to be held in trust.
(2) A caveat under this section must contain the following information: (a) the name of the caveator; and
(b) the nature of the land or estate or interest claimed by the caveator, which must be stated with sufficient certainty; and
(c) how the land or estate or interest claimed is derived from the registered proprietor; and
(d) whether or not it is intended to forbid the making of all entries that would be prevented by section 141 or a specified subset of them; and
(e) the land subject to the claim, which must be stated with sufficient certainty; and
(f) an address for service for the caveator.
[11] The essence of the argument for ECan on this issue is that in the caveat PCH claims an interest in the whole of the land in identifier CB11A/1027 by virtue of the lease granted by ECan, whereas the lease applies only to part of the land contained in the identifier. ECan relies on the following passage from Taylor v Couchman:4
… a person claiming to be entitled to an interest in part of the land in a certificate of title, is entitled to lodge a caveat to protect that interest only in respect of that part of the land to which that interest attaches. That part should be identified either by description or by a plan. The caveator is not entitled, because he or she claims an interest in part of the land, to lodge a caveat against the whole of it, thereby preventing the registered proprietor from dealing in any of the balance. The caveator’s caveatable interest is limited to that part of the land in which an interest can properly be claimed.
Failure to specify which part of an area of land was said to be the subject of an interest of a caveator was also fatal to the caveat in Mortimer v Baylis.5
[12] To place this submission in context it is necessary to describe the land in identifier CB 11A/1026 in more detail. The land is generally L-shaped but with the
short stroke of the L to the left, not the right, of the long stroke. The long stroke of
4 Taylor v Couchman [1995] 3 NZLR 336 (HC) at 341.
5 Mortimer v Baylis (1991) 1 NZ ConvC 190, 846 (HC) per Master Hansen.
the L lies roughly north-east to south-west. The shorter stroke of the L is trapezoid in shape. It is this portion which is the subject of the 20 year lease to PCH. A plan attached to the lease delineates this area in green. No part of this area, or of the remainder of the title, is contiguous to any legal roadway. The north-eastern end of the long stroke of the L is contiguous to another piece of land which I understand is also owned by ECan, which has access from Link Road, which runs off the Main North Road, north of Christchurch. Thus, any access from Link Road to the leased area of the land in the identifier must pass in part over other land and in part over the balance of the land in the identifier which is not the subject of the 20 year lease. The plan shows a new road to be formed from Link Road which would give access once built. This is the road described in clause 40.1 as a subdivision road.
[13] To provide PCH with access to the leased area before this occurs, clause 40.2 of the lease provides that if the due diligence clause (clause 40.3) is confirmed and a deposit of $40,000 plus GST is paid:
… the Lessor will allow the Lessee, at its own cost, to construct a temporary access route to the property to allow the Lessee to obtain access to the Property satisfactory to obtain a building consent, commence site works and obtain a code of (sic) compliance certificate so that the Lessee can commence operations by utilising such temporary access. The Lessee shall remove all roading material and sow the area in grass within six months of completion by the Lessor of the subdivision road in accordance with clause
40.1.
[14] As I have said, the due diligence clause 40.3 was confirmed, and I understand the deposit was paid. The temporary access route was not, however, formed by PCH.
[15] As can be seen, clause 40.3 refers to clause 40.1. This clause provides:
This lease is conditional upon the Lessor constructing a subdivision road and access points to the Property as per the attached proposed plans. The date for satisfaction of this condition shall be 12 months from the Commencement Date of this lease. This condition is inserted for the benefit of both the Lessor and Lessee. The Lessor undertakes to consult with the Lessee at the earliest practical date for the purposes of positioning of the subdivision road and location of easements in relation to the Lessee’s proposed building.
[16] This proposed subdivision road is marked in yellow on the plan. It runs from the end of Link Road in a south-easterly direction across another title, to a T intersection from which one branch leads in a south-westerly direction to the north- east corner of the leased block of land.
[17] The scheme of the contract is that once PCH had confirmed due diligence and paid the required deposit, ECan would create this road in a period of 12 months, but in the meantime PCH would have access over the rest of the land in the identifier and adjacent land owned by ECan for the purposes of starting work on the leased land and setting up and running its business. The accessway formed for this purpose would be removed on completion of the subdivision road and the area it covered would be re-grassed. Thus PCH could have the benefit of the lease, under which it was by then paying rent, once it confirmed it was proceeding, but before ECan was obliged to construct or had constructed, the subdivision road. Ultimately the intention was that ECan would subdivide this and other contiguous land that it owned, creating a new title for the land leased to PCH as well as approximately 19 others.
[18] These facts are relevant to the second issue, because ECan did not create the subdivision road, and cancelled the lease for that reason. They are also relevant to the first issue, however, as PCH argues that although it only leased for the lease term of 20 years part of the land in the identifier, it had a further right under the lease over the balance of the land in the identifier, which could not be more specifically described, on a temporary basis pending completion of the subdivision road. Thus, it argues, the caveat adequately describes the land in which it has an interest, when it refers to all the land in the identifier.
[19] Mr Ormsby says that clause 40.2 gives PCH a contractual right of access over the balance of the title and adjacent land, but does not create an interest in the balance of the land in the identifier which is not the subject of the 20 year lease. He says that if the argument for PCH were correct clause 40.2 would also create an interest in the land in the other title that lies between the north-east boundary of the land in the identifier, and Link Road. He also says that no route is specified for the temporary access and it could be, therefore, that ECan would require PCH to form an
accessway over other land it owned rather than through the balance of the land in the identifier.
[20] Mr Munro says that PCH would have had no option but to build a temporary road to use its right of way across the balance of the title, even though at its north- west end it would have had to cross another title as well, because all of the eastern boundary and half of the northern boundary of the leased area are contiguous to the balance of the land in the title. He says that the right given by clause 40.1 is in the nature of a temporary lease of an unspecified part of the balance of the land, or an easement, and either way is a right to an interest in land arising under the lease agreement.
[21] In my opinion, the right given by clause 40.2 is sufficiently described as an interest in the land by virtue of the undated lease, and is thus within the terms of the caveat. First, it is an interest by way of an equitable easement, and an equitable easement is an interest in land. It is created by a written agreement. There is a dominant tenement and a servient tenement which are in separate ownership, and the right granted to PCH is not to the exclusion of other rights, nor it is a right to exclusive occupation. An equitable easement creates an interest in land capable of supporting a caveat.
[22] Secondly, in my view it is arguable that the intended route of the temporary access was across the balance of the title, as that is the shortest and most logical route for a temporary road from a formed road to the leased area. I do not see it as relevant that clause 40.2 may also have created an interest in the contiguous title that lies between Link Road and the north boundary of the leased area – that does not detract from it also creating an interest in the balance of the title. I accept that ECan may have specified that the temporary accessway not follow a course through this piece of land, as this possibility cannot be excluded on the evidence before the Court, but there is no evidence it did so. It is at least arguable that the line of the short term accessway would have been the most direct route through the balance of the title and adjacent land. There is force in Mr Munro’s submission that any third party considering taking an interest in the land within the title but outside the leased area should have notice of the interest of PCH, and PCH should have protection from
the creation of any interest over that area which may adversely affect its right to access, because access from a road to the leased area is not otherwise available. Access is essential to the enjoyment of the lessee’s rights under the lease until the subdivision road is built.
[23] I am therefore satisfied that PCH had an interest in the balance of the title as well as in the area leased for 20 years, which is adequately described in the caveat in accordance with the requirements of s 137.
[24] Counsel presented detailed argument on whether the caveat is invalid for claiming an interest in all the land in the title when the area leased to PCH is a lesser area, defined in green on the plan attached to the lease. This issue does not need to be decided given the decision recorded in the previous paragraph.
Second issue: Does PCH have an arguable case that it has an interest in the land over which the caveat has been lodged?
[25] For PCH to obtain an order sustaining the caveat it must show that it has an arguable interest in the land to which the caveat relates. This in turn requires it to show that it is arguable that the interest it has in the land subsists, because the cancellation of the lease by ECan is invalid.
[26] The purported cancellation of the lease by ECan was based on the condition in clause 40.1 of the lease not having been satisfied. It is common ground that ECan did not create the subdivision road and access point shown on the plan attached to the lease within the required period, that is, before 31 August 2013. ECan says, however, that the condition was inserted for its benefit as well as that of PCH and it was therefore entitled to cancel the lease.
[27] Mr McConway, the director of Finance and Corporate Services with ECan, says that it commenced the investigations required for the proposed subdivision of the land shortly after the lease was executed in late 2011. This involved “progressing discussions internally” as well as with consultants. It contacted the Christchurch City Council, which is the local authority with jurisdiction in relation to subdivisions in the area, about its subdivision requirements. Mr McConway says
that “around early 2013” it discovered that the costs and requirements to complete the “subdivision clause” (which is clause 40.1) was substantially greater than originally contemplated. On 15 April that year it wrote to PCH noting its obligation under clause 40.1. It said in that letter that it had not yet built the road, because PCH extended the due diligence stage and had not yet confirmed the development timetable. Whilst it is correct that the due diligence date had been extended by agreement to 31 August 2013, and due diligence was confirmed, it is not clear why any delay in building the road is attributed in this letter to PCH not having confirmed a development timetable. Other evidence points to the cause being the cost of subdividing the land.
[28] Mr McConway says in his affidavit that as the road was not built by
31 August 2013 the lease was effectively at an end, and was able to be cancelled by either party, because clause 40.1 had not been satisfied. Mr McConway says that negotiations then proceeded over a number of years about how matters should progress but a mutually acceptable outcome was not reached.
[29] In the same letter Mr McConway accepts that ECan is obliged to construct access to the leased property but says it no longer intends to subdivide as initially intended. He says, though, the lease created a subdivision under the Resource Management Act 1991 (RMA) and therefore required a resource consent application. He says that fulfilling the conditions on the consent would cost significantly more than the original budget for constructing the access. Therefore the conditions on a subdivision would not be satisfactory to ECan, and as a result clause 40.1 would need to be applied to bring the lease to an end.
[30] The position of ECan, therefore, was that although it intended to subdivide its land when the lease was entered, and therefore committed to building the road for that subdivision in the lease, it transpired that the lease itself had created a subdivision under the RMA which necessitated a formal application to be made for subdivision consent. Although no such application was made, inquiries of the Council and consultants revealed that the cost of the proposed subdivision would exceed the sum which had been budgeted and therefore ECan did not wish to
proceed. The only way this could occur was by cancelling the lease, which would have the effect of cancelling the deemed subdivision under the RMA.
[31] From this position Mr Ormsby argues that the obligation to create a roadway set out in clause 40.1 is tied to and is an integral part of the overall intention ECan had at the time the lease was entered of subdividing the land. It refers to clause 41.1 which provides:
If consent is obtained by the Lessor to complete the plan of subdivision in accordance with clause 40.1 on terms satisfactory to the Lessor, then the Lessor agrees at its costs to lodge and deposit the plan of subdivision and do all things reasonably necessary to obtain a separate certificate of title for the Property.
[32] Mr Ormsby also notes that in schedule 1, Clause A provides that if the lease is terminated under clause 40.1, fair and reasonable costs will be deducted from the deposit paid by PCH including, but not limited to, all costs incurred by the lessor in relation to investigations and costs involved with the potential subdivision of the property, including certain specified expenses, with the balance of the deposit refunded to PCH.
[33] From these provisions Mr Ormsby submits that it was contemplated that the lease could be terminated for non compliance with clause 40.1. This, he says, is also consistent with clause 39.1 which provides that the lease will continue until it is ended by certain events, one of which is the failure of either party to satisfy the special conditions in clause 40.1 or 40.3.
[34] PCH says, however, that it is arguable that ECan was not entitled to cancel the lease because by doing so it was taking advantage of its own failure to fulfil a contractual obligation, building the subdivision road. It says the circumstances in which that failure occurred must be examined in order to determine whether ECan was actually entitled to cancel the lease.
[35] Mr Munro submits that the lease is not conditional on ECan obtaining consent to subdivide its land. It is conditional only on ECan constructing a subdivision road and access points in accordance with the plan attached to the lease (clause 40.1). Reference to ECan completing a subdivision is in clause 41.1 by
which ECan agrees to subdivide and obtain a separate title for the property leased to PCH if it obtains consent to complete the plan of subdivision annexed to the lease. In other words if consent is obtained to subdivide as then intended, ECan is obliged to do so. This obligation in clause 41.1 is in a set of clauses with the subheading “Subdivision”, within clause 41 of the lease. Therefore Mr Munro says that the condition in clause 40.1 must be considered on its own, and ECan could not walk away from its obligation to create the subdivision road, an obligation which it repeatedly acknowledged in correspondence produced to the Court, on the ground of cost when the creation of the road was plainly essential to PCH to carry out its intended business on the site. Mr Munro notes that the additional costs which ECan maintains it faced in carrying out the intended subdivision did not only relate to the costs of constructing the road and access points, but included other costs associated with the subdivision, including the cost of temporary services and contributions. Mr Munro notes that there is no evidence from ECan that it took steps to satisfy special condition 40.1 by assessing the cost of just constructing the road giving access to the leased area. Rather, the evidence shows that ECan’s investigations were directed at the requirements for obtaining consent to a subdivision which was anticipated by the terms of the lease but was not a condition of the lease.
[36] Against that background Mr Munro submits that there was an implied term that ECan must take all reasonable steps to construct the road and access points in accordance with clause 40.1. He says there is no evidence of ECan taking any steps to obtain quotes from contractors just to construct the road, nor to engage a contractor to do so, nor that constructing the road in the 12 month period allowed was impossible. Thus, he says, ECan has failed to take all necessary and reasonable steps to comply with special condition 40.1.
[37] In WR Clough & Sons Ltd v Martyn the Court of Appeal found that the contract then before the Court contained an obligation on the vendors of a property to take all reasonable steps to fulfil a condition in that contract.6
[38] In Steele v Serepisos the Supreme Court considered an obligation on a vendor to carry out a subdivision and obtain a separate title for a property the vendor had
6 W R Clough & Sons Limited v Martyn [1978] 1 NZLR 313 (CA)
sold. The contract had not contemplated that proceeding with the subdivision would result in the vendor having to accept drainage through the balance of its land, a situation quite different from that which had been contemplated under the contract.7
[39] The judgment of Anderson J contains the following passage:
[133] The appellants had a duty to take all reasonable steps towards achieving the fulfilment of the condition. Breach of such a duty would allow a purchaser to rescind and to sue for damages, or to treat the contract as extant and sue for specific performance, including the carrying out of the necessary reasonable steps. A vendor could not assert that the contract was at an end for failure of a condition if such failure was occasioned by the vendor’s own default, for it is an ancient and fundamental principle of law that no one may take advantage of his own wrong.
[40] Further, his Honour said:
[136] In respect of the first issue I do not accept the argument on behalf of the respondent to the effect that the appellants were required to comply with any condition the local authority reasonably imposed as a condition of approval of a subdivision. Whether or not a particular requirement may reasonably be imposed by a local authority requires examination of that authority’s public functions and responsibilities, and invokes public law considerations. Whether satisfying the condition would require more of the subdivider than taking all reasonable steps is a question requiring examination of the nature and circumstances of the contract. They are different questions with different contexts.
[41] There is a further observation in the judgment of Tipping J to similar effect:
[29] The observation in Clough that the vendors in that case would have to submit to reasonable conditions notwithstanding “they involved much expense and affected other land of the vendors” must not be taken out of context. In Clough’s case there was no suggestion that the parties envisaged any particular method of fulfilling the necessary sewage requirements, that being one of the conditions to which the Court was referring. Here they did. It is the ability to compare the alternative method with the method envisaged by both parties that the distinguishes this case from Clough. The present case goes beyond simply a consideration of the amount of the necessary expense and any effect on other land. The existence of a comparator assists in measuring the reasonableness between the parties of the steps necessary to fulfil the alternative method.
7 Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1.
[42] The relevance of these passages to the present application is that they underscore the need for the assessment of whether ECan was entitled to cancel the contract to be undertaken after consideration of all relevant evidence, at trial. The cases establish that when one party cancels a contract because it maintains it should not be required to undertake the work needed to fulfil a condition, that contention is subject to review on whether that is a reasonable position for that party to have taken. Applied to the present case this means that PCH may challenge the reasonableness of ECan’s conduct in relation to fulfilling condition 40.1. In my view PCH has laid a foundation in evidence sufficient to show an arguable position that ECan’s decision not to build the road was not reasonable. ECan’s complaint about costs is directed at the costs of completing the subdivision, of which the road is but one element. The condition in the contract arguably only relates to the building of the road. Whilst it is plain enough from the contract, including the description of the road as a subdivision road, that it was the intention that this road be a part of a subdivision which, if approved, would result in a separate title being issued for the leased land, condition 40.1 referred only to the building of a road and arguably it was open to ECan to fulfil that condition by doing just that. Indeed ECan made it clear on 17 January 2014 that it was obliged to construct access to the leased land.
[43] The real difficulty which faced ECan was that by agreeing to lease its land for more than 35 years it had as a matter of law subdivided it, and that meant that it needed to obtain and put into effect a subdivision consent to create an additional lot. The cost of the subdivision it initially intended to undertake (20 lots) posed a problem for ECan, but the deemed subdivision related only to the creation of one additional lot, for the leased land, and did not relate to the multi-allotment subdivision which is shown on the plan attached to the lease. There is no evidence before the Court of what that single allotment subdivision might have cost or even whether ECan investigated how to do it and what it may cost. The experience of the Court, though, is that for a single allotment subdivision, a road of such dimension or structure may not have been required. There may not have been a need for such extensive services, and any levies or contributions assessed on a per lot basis would have been less. Arguably, therefore, the deemed subdivision would not have
justisfied ECan’s decision to terminate the lease in order to avoid it. This is an issue for determination at trial.
[44] In January 2014 ECan invited discussions on how to move forward, given it would not be proceeding with the multi-lot subdivision initially envisaged. This proved fruitless, but arguably ECan’s obligation to build the road continued.
[45] For these reasons it is arguable that the cancellation of the lease is invalid and as a consequence it is arguable that PCH has the interest in the leased land that it claims in the caveat.
Outcome
[46] I make the following orders:
1. Caveat 10748076.1 will not lapse until further order of the Court.
2. ECan will pay costs to PCH on a 2B basis together with disbursements fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Anderson Lloyd, Christchurch
Wynn Williams, Christchurch