Queen Elizabeth the Second National Trust v Green Growth No.2 Ltd
[2012] NZHC 3524
•7 February 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-004592 [2012] NZHC 3524
BETWEEN QUEEN ELIZABETH THE SECOND NATIONAL TRUST
Plaintiff
ANDGREEN GROWTH NO.2 LIMITED Defendant
Hearing: 16 November 2012
Appearances: Mr W A McCartney for Defendant
Mr F B Collins and Mr P K Kirby for Plaintiff
Judgment: 7 February 2013
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
7.02.13 at 4.00 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Gibson Sheat, Private Bag 31-905, Lower Hutt – [email protected]
Mr W A McCartney, P O Box 1052, Auckland – [email protected]
QUEEN ELIZABETH THE SECOND NATIONAL TRUST V GREEN GROWTH NO.2 LIMITED HC AK CIV-2012-404-004592 [7 February 2013]
[1] This case is concerned with the enforceability of a covenant that is registered over a 404 hectare block of bushland situated on the Coromandel ranges north-west of Tairua. A land covenant pursuant to s 22 of the Queen Elizabeth the Second National Trust Act 1977 (“the Act”) was registered over the land with the consent of the previous owner, the late Mr H M Russell. The covenant was given in favour of the Queen Elizabeth II National Trust (“the trust”). Differences of opinion have arisen between the trust and the current owner about whether or not the covenant is enforceable.
Background
[2] A brief chronology of relevant events follows. In 1984 or 1985, Mr Russell allowed his land, which had been previously farmed as pasture, to revert to scrub and bush. In 1995, the local representative of the plaintiff spoke to Mr Russell about the possibility of his entering into an open space covenant with the plaintiff. In September of that year, Mr Russell went to live in a rest home. He never returned to the hut in which he lived on the property. He was in the rest home when the covenant in its final form was executed.
[3] In September 1995, the plaintiff was willing to proceed with a covenant and sent a letter to Mr Russell, enclosing a draft covenant for his consideration. He duly signified his acceptance by signing the documents sent to him. In April 1996, a covenant was sent to Mr Russell for execution. The covenant, as it was explained in an accompanying letter to Mr Russell, treated the land on the basis that it was divided into two distinct areas, which were described as the “management area” and the “protected area”. In due course, an aerial photograph, which marked the property off into Area B and Area A (the management area, and the smaller of the two), was drawn up.
[4] In 1996, there was a covenant signing ceremony. At some point in 1996, it came to the attention of the plaintiff that the Social Welfare Department was, as described in an internal trust memorandum, “putting pressure on Mr Russell to sell part of his property”. In November 1996, the plaintiff discovered that while the
original covenant was over what was assumed to be a unitary title of some 600 hectares, the land was in fact in two titles. Mr Russell was asked and agreed to sign a replacement covenant in April 1997, which related solely to the larger block of the two, being CT 43C/443. The extent of this land was 404.5 hectares. A document has been produced from the trust’s records, which is a communication from the file officer, Mr Parr, to the trust, dated 13 March 1997. The relevant part reads as follows:
You will be aware that the original proposal was assumed to be in one block and this clause was put in to allow some development and subdivision around the original subdivision area.
We then found that the property was in two titles and that the property was logically treated as two separate parcels.
The first block is to be considered a wilderness area with minimal change except round the old homestead.
The other block lends itself to be subdivided as conservation block and in doing so takes the pressure of the wilderness block.
I have therefore reduced the management area, removed the reference to subdivision, given an option to replant in natives or grass instead of pines and concentrated the clearing or replanting.
...
[5] This memorandum reflected the understanding that Mr Parr has given evidence about. That evidence was to the effect that the original covenant Mr Russell had signed had to be completely replaced, as it referred to “both titles”, that is CT 43C/443 and 43C/444, the latter being the title to the smaller block of land.
[6] Separate covenants were drawn for the two blocks. In regard to the larger block, the covenant would allow for one dwelling and ancillary buildings to be built in consultation with trust. The other smaller block would be dealt with differently so that subdivided lots would be permitted. The idea apparently was that this subdivision would release some funds, so as to allow Mr Russell to pay his rates and rest home care.
[7] Mr Parr says the two covenants were signed and witnessed by Mr Russell and
Mr Boyd respectively in April 1997.
[8] That was not the end of the process however; a further change was made to the covenant documents in or about June of 1997. It would seem that this came about because not all the consequential changes that the trust thought would be desirable — when it discovered that the property was in two separate titles — had been carried out, and it was considered that the document Mr Russell signed in April
1997 required still further amendment.
[9] The plaintiff drew up the final form of the covenant and sent it to Mr Russell under cover of a letter dated 23 June 1997. The letter enclosed read as follows:
After several discussions with [Mr Parr] regarding the first covenant documents you signed, we have decided to alter the Third Schedule in an attempt to meet your future needs.
The two documents are now enclosed. If you agree with the wording of the third schedule please initial each page for these two pages are replacing the originals ones you initialled which are also enclosed and can be destroyed.
We have title 43C/443 in our safekeeping, so as soon as these covenant documents are returned, we will proceed with the registration.
[10] The present proceeding is concerned with the covenant relating to the larger block.
[11] As with the other forms of the covenant, the first part comprised a standard template type form of document, with a “third schedule” attached. The third schedule set out what appears to have been the special conditions appropriate to the property in question. Unfortunately, notwithstanding the revisions that had taken place, the form of the document that was sent to Mr Russell for adoption by him on the last occasion had omissions on it.
[12] In the amended third schedule that was put forward, all references to a management area in which pine trees could be planted - the provision which had been included in one of the earlier iterations of the third schedule - were deleted, and a more concise schedule inserted, which read as follows:
1.The Owner may maintain and upgrade the existing access track on the land.
2.The Owner may construct one dwelling, ancillary buildings and amenities after consultation with the Trust as to siting, design and
materials in an area cleared of vegetation for light and views, a garden and orchard, provided such use does not detrimentally affect the rest of the native vegetation.
[13] For the purposes of the covenant, two concepts were defined in the main part of the document. These are now set out verbatim:
“the land” means the property or part thereof defined as subject to this covenant.
“Protected Area” means the area of native trees shown as area on an
illustrative aerial photo attached.
[14] No illustrative aerial photo was in fact attached. The “protected area” was
therefore not further defined.
[15] Paragraph 2 of the second schedule prohibited the doing of any act or thing that in the opinion of the Board materially alters the actual appearance or condition of the land or is prejudicial to the land as an area of open space as defined in the Queen Elizabeth the Second National Trust Act.
[16] To better understand the effect of this provision, it is necessary to briefly consider the definition of “open space” that will is contained in s 2 of that Act:
[O]pen space means any area of land or body of water that serves to preserve or to facilitate the preservation of any landscape of aesthetic, cultural, recreational, scenic, scientific, or social interest or value.
[17] Paragraph 2 of the second schedule further states:
In particular, on and in respect of the protected area, except with the prior written consent of the board, or as outlined in the Third Schedule, the Owner shall not:
(a) fell, remove, burn or take any native trees, shrubs or plants of any kind.
...
[18] The provisions of the Second Schedule go on to set out other types of restrictions in subparagraphs "(b )" to "(i)". This has given rise to the central problem that the plaintiff hopes to cure by bringing these proceedings. The “protected area” is not defined. Putting it shortly, the plaintiff wants to be in a position where it can enforce this series of restrictions on the use of the land that are contained in subparagraphs "(a)"-"(i)" of the second paragraph of the second schedule. While it would appear to be the case that the land generally is subject to
the general level of restriction which is set out in [15], it is at the very least arguable that the detailed restrictions contained in subparagraphs “(a)” to “(i)” which are applicable to the "protected area "do not attach in the circumstances of this case because there a relevant "protected area" has not been defined.
[19] The defendant resists any interpretation of the agreement which is to the effect that the detailed restrictions in "(b )" to "(i)" can somehow be made to apply.
[20] There was discussion in the submissions at the hearing before me about the execution of the third schedule, and whether it had been correctly carried out. It is not necessary for the purposes of this judgment to say anything further on that subject.
[21] The trust accepts that a mistake was made on the drafting of the covenant over the title that is the subject of these proceedings. While the issues will be discussed in more detail subsequently, one of the questions argued before me is whether the covenant discloses a sufficiently clear meaning to be enforceable, or whether the trust will require an order rectifying the covenant before enforcement could take place.
The issues stated in the pleadings, applications, and the notice of opposition
[22] The trust now seeks a summary judgment order granting certain declarations relating to the covenant.
[23] The defendant opposes the making of such orders, and itself counterclaims for declaratory relief, having brought a summary judgment application for that purpose. The plaintiff seeks a number of declarations to establish that the restrictions contained in the second paragraph of the second schedule apply to the land as a whole, notwithstanding that they are said in the agreement to apply only to the “protected area” and that no such area has been defined in the covenant. Alternatively it seeks rectification of the open space covenant so that the agreement is amended in order to have the effect just described.
[24] The defendant also applies for summary judgment on the counterclaim that it has brought. It seeks an order for the covenant to be cancelled and that notification of the covenant be removed from the title. Specifically, it opposes the grant of rectification on grounds including that there was no common intention between the parties as to what the agreement was to provide. The various grounds which the defendant relies upon are as follows:
a) A reference in the draft covenant to creating a covenant over a “wilderness area” meant that the plaintiff was attempting to impose a classification on the land which was unknown to and not part of the statutory interests which the enactment provided for;
b) That rectification was not available because:
i)there was no common intention underlying the agreement, as required by cases such as Westland Savings Bank Ltd v Hancock;[1]
[1] Westland Savings Bank Ltd v Hancock [1987] 2 NZLR 21.
ii)the fact that Mr Russell is now deceased means that it is too late to rectify the agreement, and
iii)Dundee Farm Ltd v Bambury Holdings Ltd establishes that rectification is not to be granted if the covenant records the agreement, even if the agreement itself was a mistake.[2]
[2] Dundee Farm Ltd v Bambury Holdings Ltd [1978] 1 NZLR 647.
c) If rectification is not available, the defendant seeks to have the instrument removed either pursuant to s 85 of the Land Transfer Act
1952 or by other means;
d)Mr Russell lacked contractual capacity when he entered into the covenant;
e) The defendant pleads non est factum, in that the agreement, and in particular the third schedule, are not what Mr Russell agreed to;
f) The contract should be construed contra proferentem, and Mr Russell’s mental and physical state ought to be considered. Ambiguous terms in the covenant and the third schedule should therefore be construed against the plaintiff as the party who “imposed” their inclusion in the contract;
g) The defendant will be seeking the following declarations:
i)That the covenant was required to be in the form of the deed but was not executed in accordance with the formalities required for a deed;
ii)That the instrument presented for registration is not that which was signed by Mr Russell and witnessed by Mr Boyd 9 April
1997 as it purports to be;
iii)The instrument presented for registration is not the same one as was certified correct for the purposes of the Land Transfer Act, nor did it comply with relevant Land Transfer Regulations, and
iv) That the instrument was wrongly registered.
[25] A further important issue that arises in the proceedings is whether the covenant, which is registered over the title, attracts protection according to the principle of indefeasibility of title.
[26] The first possible outcome of the dispute between the parties is that the Court is able to interpret the covenant as it stands in its present form as extending the restrictions contained in the second paragraph of schedule 2 to the land as a whole.
[27] The second possibility is that while the Court is unable to construe the agreement in its present form as having that effect, it is nonetheless possible to rectify the agreement to bring it into accordance with the prior common intention of Mr Russell and the trust, so that the extended restrictions apply.
[28] The third possibility is that the plaintiff will not be able to establish that the extended restrictions apply, but that it can rely upon the general restrictive covenant which is set out at paragraph [15] above.
[29] The fourth possibility is that the defendant will succeed in its contention that the covenant as a whole ought to be struck down and removed from the title to the defendant's property.
The covenant
[30] The rights conferred under the covenant prevent the person in possession of the property carrying out certain activities on the land. It is conceivable that notwithstanding registration of a covenant, it could be unenforceable for the reason that it contains an incomprehensible statement of what is permissible and what is not. That is to say, it might be unenforceable because of uncertainty inherent in the terms in which it is expressed.
[31] One of the issues that now falls to be considered is whether that omission means that the meaning of the covenant overall is so uncertain that it cannot be enforced.
[32] I would propose to approach the matter by asking how a reasonable reader of the covenant understood them bearing in mind their context.[3]
[3] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 1 AC 749 at 767.
[33] The first schedule to the covenant expresses the covenant to be for the purpose of protecting and maintaining open space values of the land and protecting
native flora and fauna on the land.
[34] The question of what activities would be prejudicial to the land as “open space” would no doubt be informed by reference to other sections of the Act, including the preamble, which referred to the formation of a national trust:
An Act to commemorate the Silver Jubilee of Her Majesty Queen Elizabeth the Second by establishing a national trust to encourage and promote the provision, protection, and enhancement of open space for the benefit and enjoyment of the people of New Zealand.
[35] If the covenant said nothing else at this point, an objective reading of the document would establish that the restriction was imposed against activities that in the opinion of the Board materially alters the actual appearance or condition of the land or is prejudicial to the land as an area of open space is defined in the Act: that is the restriction referred to in paragraph [15] above.
[36] However, the more stringent protections that at one stage were apparently intended for the protected area were not effectively imposed because of the failure to define the protected area.
[37] The task of interpreting the covenant involves determining the meaning that the document would convey to a reasonable person, having all the background knowledge that would reasonably have been available to the parties in the situation in which they were at the time of the contract.[4]
[4] Investors Compensation Scheme Ld v West Brunswick Building Society [1998] 1 WLR 896 at 912-913.
[38] To be fully informed the Court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties’ minds.[5]
[5] Vector Gas Ltd v Bay Of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].
[39] The question is whether by having regard to such factors the Court can resolve doubts about what the parties’ contractual intentions were. Did the parties intend “protected area” to cover the entire property? It is not immediately apparent why “protected area” should be defined thus, given that the entire property had
earlier been contractually defined as “the land”.
[40] Alternatively, the covenant could be interpreted to the effect that the protection contained in the second paragraph of the second schedule was not applicable to any part of the land at all. And considering that question the Court would ask, amongst other things, is whether the deed would give any meaningful protection if subparagraphs "(a)"-"(i)" of the second paragraph of the second schedule were read as being otiose. That is to say, in deciding whether to accept the meaning of the contract put forward by the plaintiff, one has to determine whether there is an alternative viable meaning. If there is not, then it would strengthen the view that the parties must have intended the meaning that the plaintiff contends for, but were frustrated by inapt language.
[41] Another possibility is that the plaintiff is right about what the objective intention of the parties was, and that the explanation for using what the plaintiff would characterise as the wrong terminology came about because the template agreement adopted by the plaintiff was rendered inappropriate to the circumstances, as the necessary aerial photograph that should have been appended to the covenant had not been obtained.
[42] Construing an agreement against all the facts and circumstances known to and likely to be operating on the parties’ minds is not uncommonly attempted at summary judgment stage. However, in the circumstances of this case, it would not be a safe approach to take. Whether or not any advantage would accrue to the parties in circumstances where the only protection was that referred to in the first schedule is a matter that is wholly unknown on the basis of the factual material before the Court.
[43] I do not consider that a declaration in the form that the plaintiff seeks ought to issue at this point in the proceedings.
Rectification
[44] If the deed in its present form cannot be interpreted in the way that the plaintiff submits it should, then in the alternative the plaintiff seeks rectification of the deed. The plaintiff seeks that the more exacting restrictions attached to the “protected area” extends across the property as a whole.
[45] Where parties have genuinely consented to all the terms of some contractual arrangement, but the terms recorded do not accurately represent the mutual intention of the parties, the Courts may order that the written document be rectified — that is, the writing recording the alleged agreement be corrected so that it reflects the true intentions of the two parties, allowing the Court to then give effect to the modified
document.[6]
[6] Burrows Finn & Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington 2009) at [10.6.1].
[46] In Westland Savings Bank v Hancock, Tipping J stated that the following elements must be established before the Court can order rectification: [7]
[7] Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 30.
Having considered these discussions and the cases I am of the view that some outward expression of accord is not necessary but that before rectification
can be ordered the Court must be satisfied that the following points are established:—
(1)That, whether there is an antecedent agreement or not, the parties formed and continued to hold a single corresponding intention on the point in question.
(2)That such intention continued to exist in the minds of both or all parties right up to the moment of execution of the formal instrument of which rectification is sought.
(3)That while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.
(4)That the document sought to be rectified does not reflect that matching intention but would do so if rectified in the manner requested.
[47] In the circumstances of this case it is particularly important to have regard to the third element.
[48] I do not consider that the Court would be justified in making such an order, at least at this stage of the proceedings. Very little is known about what, if any, intention Mr Russell had with regard to the agreement. Mr Parr has set out his
understanding of the position, which in effect is his understanding of what Mr
Russell intended. That evidence is necessarily restricted to evidence from the
plaintiff’s former field officer, Mr Parr.
[49] There are difficulties in forming a clear view as to the facts. This has probably been contributed to by the fact that that there was a triangle of actors taking part in the formation of the covenant. Mr Russell lived near Tairua, Mr Parr who is apparently based at Tauranga, and the trust itself, which had its offices in Wellington. Communications between these three parties do not seem to have been straightforward. There seems to have been some confusion present during the process of attempting to draft the covenant.
[50] The defendant has also given evidence, much of which is of doubtful admissibility. A good deal of it seems to be no more than submissions in the guise of evidence. However, there is no evidential onus on the defendant at summary judgment stage, and even though that evidence is of little assistance, the plaintiff’s own evidence is not sufficient. For those reasons, I do not accept that orders for rectification should be made.
[51] Considering all of those factors, for the purposes of summary judgment, the Court must be left with real doubts as to whether a clear concluded agreement was ever reached with Mr Russell about what exactly was intended. It may be that the plaintiff will be able to persuade the Court to the required level of certainty at trial on this issue, but in my opinion, that stage is not been reached so far.
[52] It is not possible to come to a satisfactory conclusion concerning the common agreement that the parties had at the summary judgment stage.
[53] There is a further difficulty, because it could be said that were the Court to make the orders sought, a more onerous covenant would be imposed on the defendant. It must be questionable whether the legislature would have intended such an outcome. While undoubtedly the objectives of the Act are very important, avoidance of unfairness to a party in the position of the defendant is also important. The defendant was not, of course, party to the original agreement between the trust and Mr Russell. The defendant would have entered into the agreement to acquire the
property on the understanding that the restrictions contained in the covenant were those expressed in the covenant registered against the title, and not some other arguably more restrictive set of conditions that might be retrospectively attached to the land following transfer of the estate in fee simple to the defendant.
[54] The provisions contained in s 22A of the Queen Elizabeth the Second National Trust Act may throw some light on this issue. That section permits the variation of open space covenants. Such a variation is possible on the defendant and the covenantor executing a memorandum of variation. The definition of “covenantor” in the Act means the owner or lessee for the time being of the land. In other words, it is open to the parties to the original covenant to agree to its variation, providing the covenantor remains the owner (or lessee) of the land. A variation under s 22A, however, is a different thing from the imposition of more onerous terms on a landholder who was not the original covenantor.
[55] The statutory provisions of the Queen Elizabeth the Second National Trust Act can be compared with those that apply in the case of amendments to easements. In relation to covenants under this Act, no provision appears to have been made for a detailed mechanism for variation of easements, which is to be found in s 90C of the Land Transfer Act or s 317 of the Property Law Act 2007.
[56] For the foregoing reasons I do not consider that it would be safe to make any orders rectifying the covenant on a summary judgment basis.
Indefeasibility
[57] The concept of indefeasibility is relevant in this case to the claim, the defendant’s notice of opposition to the summary judgment application and to the defendant’s counterclaim. Were it not for the counterclaim, it would not be necessary to consider the issue of indefeasibility because I have determined on other grounds that the plaintiff’s summary judgment application cannot succeed.
[58] However, the defendant is of the view that it is open to attack the covenant registered against the title by way of a cross-application for summary judgment.
[59] The plaintiff on the other hand takes the position that the covenant over the land binds the defendant and that it is not open to the defendant to enquire into the circumstances in which the plaintiff entered into the covenant with Mr Russell. It relies on the indefeasibility provisions of the Land Transfer Act, and in particular s
62.
[60] It is necessary to briefly consider these issues in order to deal with the defendant’s application for summary judgment. Because the defendant applied for summary judgment outside the time limits within which it could do so as a matter of right, it is necessary for it to first obtain leave to bring the summary judgment application. I will reserve that issue until after consideration of the apparent merits of the defendant’s application for summary judgment.
[61] Both counsel made helpful submissions on the question of indefeasibility as it related to the present proceeding.
[62] I have earlier noted that the defendant claims that there are a number of grounds upon which the validity of the covenant can be attacked. As noted, these grounds included non est factum. The position that the plaintiff took was that the various grounds for attempting to impeach the covenant were not open due to the principle of indefeasibility.
[63] Indefeasibility could potentially affect the plaintiff’s position. If the covenant is an interest in land, which is protected through registration and the indefeasibility provisions of the Land Transfer Act, then subsequent registered proprietors of the fee simple will acquire their interest subject to that interest. If this is correct, the defendant would not be able to contend that it acquired its estate in the land free of the covenant.
[64] The first issue then is whether the interest that the trust claims over the land is one that attracts the protection of indefeasibility. In my view, the answer to that question is that it does because of the combined effect of the following enactments.
[65] Section 22(6) of the Queen Elizabeth the Second National Trust Act is to the following affect:
……..
(6) Notwithstanding any rule of law or equity to the contrary, every open space covenant shall run with and bind the land that is subject to the burden of the covenant, and shall be deemed to be an interest in the land for the purposes of the Land Transfer Act 1952.
[66] Section 62 of the Land Transfer Act provides as follows
Estate of registered proprietor paramount
Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority, [but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963], the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever,—
….
The effect of notification on the land register of an interest
[67] Mr McCartney suggested that it is significant that under the Queen Elizabeth the Second National Trust Act, the District Land Registrar shall, on the application of the Board, under s 22(7) of that Act:
... [E]nter in the appropriate folium of the register relating to the land that are subject to the burden of the covenant, a notification of the covenant.
[68] It was suggested that this meant that different consequences should flow from the mere noting the interest, as opposed to registration of an interest.
[69] As a matter of statutory intention, it seems to me that it was intended that a covenant, once entered into, should bind not just the immediate parties, but successive owners. Open space covenants under the Act can, as was the case with Mr Russell’s land, be perpetual in their effect (s 22(5)). It cannot have been contended that successive owners of the land ought to be able to advance claims that they did not acquire their estate in the land subject to the covenant. While there is no
authority directly on point, in my view, the effect of the two statutory provisions when read together lead to the view that a covenant registered under the Queen Elizabeth the Second National Trust Act attracts the protection of indefeasibility. The result is that a proprietor of the land who has acquired title after the point at which the covenant is placed on the title acquires the interest in the land subject to the covenant, unless a recognised exception to indefeasibility principle applies.
[70] In any case, that the Act creates an interest in land is made clear by s 22(6). Interests in land are protected by s 62 of the Land Transfer Act. The situation is therefore different from that described in Land Law in New Zealand,[8]where examples are given of interests that are noted on the register for the purpose of giving notice of the existence of those interests to any person dealing with the land affected by them. These notations do not confer the quality of indefeasibility to which they relate.
[8] Hinde, McMorland & Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at [9.007].
Grounds for avoiding indefeasibility
[71] The next issue is whether, notwithstanding the protection of indefeasibility, the defendant is able to attack the covenant on the grounds of fraud.
[72] The second aspect of indefeasibility that ought to be mentioned is that it is doubtful that the defendant would be able to invoke the allegedly fraudulent aspects of the dealings between Mr Russell and the trust as a basis for having the trust’s interest removed from the title. The authors of Land Law in New Zealand state,
commenting on s 63 of the Land Transfer Act:[9]
[9] Ibid, at [9.010] (footnotes omitted).
... A title acquired by fraud is not indefeasible, and s 63(1)(c) makes it plain that a proceeding for possession may be brought by a person who has been deprived of any land by fraud provided that a bona fide transferee for value has not become the registered proprietor.
[73] There must be real difficulties in the way of the claim that the defendant brings, the effect of which must be to assert that the defendant can rely upon the
plaintiff’s fraud on the party from which it received its grant (Mr Russell).
[74] Another obstacle in the path of the defendant when it comes to the counterclaim is that it falls a long way short of being able to establish on the balance of probabilities that the plaintiff was guilty of actual fraud, as opposed to constructive or equitable fraud (which does not suffice).[10] In fact, the defendant does not plead actual fraud on the part of the plaintiff. The prospects of obtaining correction of the land transfer register in such circumstances are minimal. As part of
[10] Assets Co Ltd v Mere Roihi [1905] AC 176 at 210.
the disposition of the present case though, the order that I make is that the
defendant’s application for leave to bring a summary judgment is declined.
The attack on the covenant based on unconscionable bargain, lack of consideration and other grounds
[75] While I have already concluded that a covenant under the Act attracts the protection of s 62 of the LTA, and for that reason, the defendant’s application for summary judgment must fail, it might be helpful to consider the other grounds of opposition in the notice of opposition the defendant filed, and which are substantially the same as the grounds set out in the counterclaim. The common strand in these arguments is that Mr Russell would have been able to defeat the agreement because it was not supported by consideration, because the formalities required for an effective deed were not present, and other grounds.
[76] While it might have been competent for Mr Russell or his personal representatives to raise such matters, no ground was suggested upon which the Court could conclude at trial that the defendant had somehow succeeded to rights of action that purportedly arose in Mr Russell’s favour pursuant with which he could attack
the transaction himself during his lifetime.
Summary
[77] I conclude that on the basis of the evidential material before the Court at the present time that it is not possible to construe the terms of the covenant so that the restrictions stated in the second part of the second paragraph of the second schedule
are applicable to the land. Consistently with that view, I would not be prepared at
the summary judgment stage to adopt an interpretation that in effect treats the
paragraph defining the “protected area” in the second schedule as redundant.
[78] Furthermore, it has not been proven to the necessary standard that the plaintiff and Mr Russell had agreed as to what the effect of the covenant would be, and therefore, that the covenant should be rectified in accordance with the plaintiff's claim.
[79] I conclude that the registration of the covenant is an interest in land that is covered by s 62 of the Land Transfer Act, and therefore attracts the protection of the indefeasibility of title doctrine.
[80] The Court ought not to grant the relief sought by the defendant in its counterclaim because the covenant is protected by the principle of indefeasibility. There is no basis upon which the defendant is able to persuade the Court to grant summary judgment on the counterclaim extinguishing the covenant. The grounds
put forward do not establish fraud on the balance of probabilities. The other grounds (such as unconscionable bargain, mistake, and so on) are insufficient to avoid operation of the doctrine of indefeasibility. Further, such other possible grounds for the defeat of the contract can only be raised by Mr Russell or his legal successors. It is not competent to the defendant to rely on such matters.
Conclusion
[81] The plaintiff’s summary judgment application is dismissed. I decline to grant leave to the defendant to bring an application for summary judgment. Costs are reserved. The parties should confer on the question of discovery with a view to settling the terms of a consent order having regard to the provisions of r 8.11.
[82] I also invite them to confer on the terms of other interlocutory orders that are required in order to progress the proceeding. The Registrar is to allocate a case management conference at the earliest convenient date for further steps to be ordered.
J.P. Doogue
Associate Judge
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