Queenstown Central Ltd v March Construction Ltd
[2016] NZHC 1884
•15 August 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-105 [2016] NZHC 1884
BETWEEN QUEENSTOWN CENTRAL LTD
Plaintiff
AND
MARCH CONSTRUCTION LTD Defendant
Hearing: 30 November, 1, 2 and 3 December 2015 (closing submissions
received 16 December 2015)
Appearances:
MR Crotty and AJ Nelder for the Plaintiff
AN Riches for the DefendantJudgment:
15 August 2016
JUDGMENT OF NICHOLAS DAVIDSON J
QUEENSTOWN CENTRAL LTD v MARCH CONSTRUCTION LTD [2016] NZHC 1884 [15 August 2016]
INDEX
Para Heading [1]
Introduction
[1] Hendo’s Hole [4] The parties [7] Background [18]
Short chronology
[38]
Pleading
[47]
Is the Fill annexed to and/or part of the Land?
[48] March’s position [49] QCL’s position [50] The test in New Zealand [76] The test to be applied and its application in this case [77] The evidence of the physical form [92] Resource Management Act considerations [110] 2012 variation [115] Is the Fill annexed to and/or part of the Land? [126]
Is March liable in trespass?
[128] Did March purchase the Fill, or did it hold a security interest only? [130] Fill Ownership Agreement [136] Personal Property and Securities Register (PPSR) [138] Other assertions of ownership by March [153] Did March lose ownership of the Fill on transfer of title? [158] Do rights and obligations under the Fill Ownership Agreement survive
sale of the Land?
[171] Other dealings with the Fill and the Land [193] The effect of the sale of Fill to Gateway, QLDC, and Transit [196] The 2012 Resource Consent [197] Did QCL somehow get the benefit of the ‘value’ of the Fill when the
Land was sold?
[201] Was the sale to Collins Rd Developments Ltd a sham? If not, what
effect does that have on March’s obligations, if any?
[225] Is March liable in trespass even if the sale to Collins Rd is upheld? [229] Did March abandon the Fill so as to have no interest in it? [234] Were there dealings or representations between March and QCL
which estop March denying ownership of the Fill?
[236] An ‘engineered’ solution whereby the Fill remains on the Land? [240] Consent to remove the Fill [244] Ownership of the Fill, and trespass
[248] Mesne profits – the conceptual basis [258] No loss alleged by QCL [259] The period to which mesne profits should apply [262] The polarised position of the parties [263] Some core considerations [270] Mr Smithies’ valuation approach [286] Mr Smith’s valuation approach [297]
Discussion
[315]
Closing comment
[317]
Disposition
Introduction
Hendo’s Hole
[1] In 2006 a large volume of ground material (Fill) was excavated to leave a prominent landmark known as “Hendo’s Hole”, adjacent to the State Highway and Queenstown Airport at Frankton, the burgeoning development area near Queenstown.
[2] The Fill was carefully placed on the adjacent land (the Land). It was covered in topsoil and sown in grass. A resource consent was granted by the Queenstown Lakes District Council (the Council) for the Fill to be “stored” in this way for a five year term, on strict conditions. What became of the Fill would depend on its utility for development in the area, but for several years it was simply mown and grazed, just like other rural land.
[3] Hendo’s Hole lay dormant for many years. The name derives from a well known developer, David Henderson, whose company, Five Mile Holdings Ltd (later in receivership and liquidation) (Five Mile), owned both the Land from which the Fill was excavated, and the Land on which it was placed. Mr Henderson’s companies have since fallen on hard times.
The parties
[4] The plaintiff, Queenstown Central Ltd (QCL) is a development company which bought the Land in 2010.
[5] The defendant, March Construction Ltd (March) is a long-established and reputable civil and geotechnical engineering contractor which in 2006 excavated, then placed the Fill on the Land. Principals of March who gave evidence included Mr Edwin ‘Buzz’ March and his sons, Andrew and Guy.
[6] The essential issue for this judgment is who now owns the Fill and bears the responsibility for removing it so that commercial development can proceed. The Court has been advised that removal of the Fill is now imperative. The issue turns first on the status of the Fill at law, as to whether it has retained a separate identity as
a chattel or has become part of the Land by the legal constructs of affixation or annexation.
Background
[7] In 2007 March was owed money by companies associated with Mr Henderson, and wanted to strengthen its position. March and Five Mile, together with Gardez Investments Ltd (Gardez), (a wholly owned subsidiary of Five Mile and Property Ventures Ltd (PVL), Five Mile’s parent company), entered an agreement dated 17 July 2007 (the Fill Ownership Agreement) under which March purchased the Fill for $100,000 on favourable terms, which included a put option requiring the other parties to take back ownership.
[8] If the Fill Ownership Agreement was dispositive of the issue, then March became the owner of the Fill. However, March says that it did not “really” buy the Fill and it never “meant” that the Agreement should have that effect. Rather, it says the Agreement was merely a form of security to gain some leverage over Mr Henderson in his corporate guise.
[9] March adopted an inconsistent stance as to ownership of the Fill over several years. At various times after July 2007 it asserted ownership and tried to sell the Fill. It registered its ownership interest on the Personal Property Securities Register (PPSR). At other times, as now, it denies it is the owner and advances several reasons why not.
[10] In a letter dated 3 March 2009, ironically given the issue for this judgment, March by its solicitors Saunders & Co, rejected the proposition put to it by Hanover Finance Ltd (Hanover) that the Fill had become part of the Land. March said that it fell within the definition of “goods” under the Personal Property Securities Act 1999, and that once excavated from the adjacent land, it was no longer a fixture. That begged the question of whether the Fill, when subsequently placed, became part of the Land. Saunders & Co said that the Fill was temporarily placed on the Land pursuant to a resource consent for its storage and for that reason had not become a fixture. The argument for March is now a reversal of most of these and other propositions contained in that letter.
[11] QCL acquired the Land in 2010 at the tail end of transactions which involved the transfer of ownership between Hanover, 5M No. 2 Ltd (5M) and its subsidiary Queenstown Gateway Ltd (Gateway), and Allied Farmers Property Holdings Ltd (Allied Farmers). QCL was eventually nominated as purchaser of the Land and took title on 9 September 2010.
[12] QCL says it bought the Land believing the Fill was owned by March which had no long term right to store it, and therefore had to remove it on reasonable notice. After QCL bought the Land, March continued to assert ownership and tried to sell the Fill to QCL. QCL responded that if March was the owner then it should remove it. QCL had development prospects in sight, and the Fill would limit those prospects given the (anticipated) District Plan Rules and the scale and height of development permitted under such.
[13] March’s position changed when it realised that the Fill was neither an asset nor a valuable security, as it had thought, but a troublesome and expensive liability. No one has wanted the Fill for several years. To remove it will require some 12,000 truck loads to a fill site 29 km away, unless a better opportunity presents. It will require various consents and a traffic management plan. It will be a big and expensive job, but as things stand someone will have to do it, and someone will have to pay for it. QCL says March must do so and seeks judgment in the tort of trespass to that effect.
[14] There have been transactions with the Fill by both parties. Following a demand that the Fill be removed in October 2011, March purported to transfer ownership to an associated company, Collins Road Developments Ltd (Collins Rd). QCL says this was a futile attempt by March to avoid having to remove the Fill, and was a sham transaction which left March the owner. Otherwise, QCL says March remains liable to remove the Fill as it was given notice to do so at a time when it did assert ownership, and was the lawful owner.
[15] There was some mitigation of the problem in 2013 when 121,463m3 of the Fill was sold by QCL to Gateway, and removed. The sale proceeds of $333,488.40 were paid to QCL, which it says it holds in trust to pay March once the rest of the
Fill has been removed. In 2014 part of the Land, and some further Fill, was sold by QCL to the Crown and the Council, which removed a further 3,487m3. March says that QCL asserted its ownership of the Fill to make these sales and cannot now resile from that position. About 143,000m3 of Fill remains. It does not include the topsoil placed on top of the Fill, but it does include topsoil removed from the adjacent land, about 30,000m3, which at the date of trial was sitting in bands along the front and back of the property.
[16] QCL says that it is ironic that March, with its long and reputable track record denies the clearly stated effect of the Fill Ownership Agreement, and that March has ended up in this position because it adopted an “ill advised strategy” to buy the Fill to strengthen its credit position. March was happy to take the benefit of, and assert the Fill Ownership Agreement when it thought this was a sound strategy, but now, when what it thought was an asset has become a liability, it has tried to unwind that position.
[17] The parties are at a stalemate. While QCL wants the Fill and topsoil removed, it also seeks rent (mesne profits) for storage of the Fill from the time it became the landowner. March says it is not liable in trespass but if held liable then it opts to remove the Fill rather than meet the cost of another contractor doing so. It says any rent payable as mesne profits should be calculated on the basis of a licence to graze, terminable at will.
Short chronology
2006
[18] The Land on which the Fill was placed was owned by Five Mile. It comprised 23.365 hectares. Five Mile engaged March to excavate and move what became “the Fill”, to the Land. 265,150m3 or thereabouts was excavated, moved and placed by March, pursuant to a resource consent granted by the Council on
6 September 2006. The consent contemplated the condition (among others), that the
Fill would be removed within five years of commencement of work. The application and the consent were initially for “storage” of the Fill.1
2007
[19] March was concerned to strengthen its credit position with Five Mile and on
17 July 2007 entered the Fill Ownership Agreement.
2008
[20] Receivers were appointed to Five Mile by Hanover on 9 July 2008. On
10 July 2008 March registered a Financing Statement on the PPSR, recording that it owned the Fill.
2009
[21] March asserted ownership of the Fill on several occasions.
[22] Hanover as mortgagee transferred its power of sale to 5M, its wholly owned subsidiary, on 20 November 2009. 5M sold Gateway the adjacent land from which the Fill had been removed. 5M and Gateway entered into a Deed of Agreement and Option dated 19 November 2009 (the Option Deed), which provided that should 5M receive an offer to purchase the Land from a third party, it would offer it to Gateway on those terms.
2010
[23] Allied Farmers enquired about March’s interest in the Fill in March 2010. March, by its solicitors, said that it owned the Fill.
[24] 5M, by Allied Farmers, advised Gateway on 15 July 2010 that it had entered into an agreement dated 14 July 2010 for sale and purchase of the Land. Gateway
elected to purchase the Land.
1 The consent was amended in 2012 to allow the Fill to be stored on the Land indefinitely.
[25] On 29 July 2010, March advised Gateway that it would sell the Fill for
$1,250,000 including GST.
[26] QCL was nominated as purchaser of the Land by Gateway. The consideration for the purchase was $27,000,000. Clause 19.1 of the sale and purchase agreement stated:
The excess fill currently stored on the property is owned by March Construction Limited. The Vendor will indemnify the Purchaser to a maximum value of $250,000 for any direct costs incurred by the Purchaser in respect to the removal or litigation into the removal of the fill.
[27] The indemnity was deleted but otherwise QCL covenanted with 5M to perform the obligations of the purchaser and March’s ownership of the Fill remained a term of the agreement. On 9 September 2010 QCL took title.
[28] QCL says that it never acquired ownership of the Fill, and bought the Land on the understanding that March owned it.
2011
[29] On 7 October 2011 QCL required March to remove the Fill without further delay. March replied on 4 November 2011, denying ownership.
[30] On 25 October 2011 QCL applied for a resource consent to store the Fill indefinitely.
[31] On 15 November 2011 March purported to transfer ownership of the Fill to Collins Rd. March says this was a transfer of a “security interest” in the Fill, and denies that it was simply an attempt to avoid any obligation it might have to remove it from the Land. March says that the transfer to Collins Rd should not be regarded as a corporate façade or sham as QCL alleges. Rather, it says it was a legitimate transaction to “clear the books”, by transfer of a security interest for valuable consideration, to prepare the way for sale of a majority holding in March to Soletanche Freyssinet SA (Soletanche), an international engineering company.
2012
[32] On 1 February 2012, QCL was granted resource consent for the Fill to remain on the Land indefinitely. March says this consent meant the Fill became a fixture, and thus part of the Land, if it was not already, and ownership vested in QCL.
2013
[33] QCL says that March offered to sell the Fill to it in February 2013, which
March denies.
[34] On 24 March 2013 QCL again required March to remove the Fill. March, consistent with its position at trial, denied such obligation. March said that if anyone other than QCL owned the Fill, it was Collins Rd.
[35] On 12 July 2013, QCL advised Soletanche that it required the Fill to be removed. Soletanche was by then, and still is, the majority shareholder in March.
[36] On 3 October 2013, QCL wrote to March saying that it (March) had “abandoned” its ownership interest in the Fill, and that it intended to negotiate sale of part of the Fill to Gateway, and would seek a court order that March remove the balance. QCL sold part of the Fill to Gateway on 15 November 2013. By clause 7.1 of the sale and purchase agreement, QCL warranted that the Fill was its property, and that it was entitled to pass it free from any charge, encumbrance or other adverse interest. A small part of the Land was then sold to NZTA and the Council, and some Fill went with those sales.
2014 and 2015
[37] Throughout 2014 and 2015 QCL asked March to remove the Fill, which it refused to do.
Pleading
[38] QCL says that March is liable in trespass as it owns the remaining Fill, and permission to store it on the Land has long been revoked. QCL says that March
asserted that it owned the Fill, and pleads an estoppel against March’s denial of that. It says it relied on March’s representations of ownership when it considered buying the Land.
[39] March advances stepped defences. First, it says that whether or not it agreed to buy the Fill and did own it, at some point before or after the Fill Ownership Agreement, the Fill lost its separate identity, and became part of the Land under the legal test which applies in New Zealand.
[40] It therefore says that when the Land was transferred to 5M, the new landowner took the Fill with the Land under the principle of indefeasibility of title, and otherwise the rights and obligations created under the Fill Ownership Agreement did not survive the various transfers of interest in the Land, so that QCL has no enforceable rights against March.
[41] Further, and tit for tat, March says that QCL represented to third parties, including Gateway and the Council that it owned the Fill, and acted consistently with that on several occasions. QCL denies that and says that when it sold part of the Fill to Gateway, it made it plain that March was the owner.
[42] March says that if it owned the Fill, or held a security interest in it, any such rights and obligations have been transferred to Collins Rd. QCL says that March cannot simply abandon its ownership interest and obligations by sale to Collins Rd, pleading:
…the purported “sale” of the Fill to CRDL is a “corporate façade” or
“sham”, and should be ignored by this Court.
[43] March pleades two affirmative defences. The first involves an estoppel based on what it says was an enquiry made of it on behalf of QCL for a price to remove the Fill, which estimate was then used by QCL to negotiate a reduction in the purchase price of the Land. It therefore says QCL has received valuable consideration equal to or exceeding the cost of removing the Fill. A remedial constructive trust is pleaded to reflect this alleged advantage to QCL. This pleading seems to have fallen away but is addressed in this judgment.
[44] A second affirmative defence is pleaded under the Contributory Negligence Act 1947, that QCL allowed Gateway to take the Fill in a way which meant the Land beneath was affected so as to reduce its quality for building foundations and development.
[45] Whether March is liable in trespass involves two stages of analysis. The first is whether the Fill is a chattel, or is part of the Land. The second is whether March owns the Fill and/or is bound to remove it. If held liable, March elects to remove the Fill and do what is necessary to restore the site to its underlying condition.
[46] If March is liable in trespass then QCL says it is liable for mesne profits, or rent, for storage of the Fill.
Is the Fill annexed to and/or part of the Land?
[47] The law employs various terms to describe the legal effect of an object interacting with real property such that it loses its discrete quality, and becomes inextricably bound up with the land. The terms “fixture”, “affixation” and “annexation” are applied to circumstances in which an object becomes “part of the land”. These concepts are demonstrated by the formulation in Hulme v Brigham, where a fixture is described as “anything, once a chattel or personal property that has
become so attached to land as to form part of the land”.2 The word “fixture” is apt to
describe discrete objects such as a building. However, whether the Fill is contemplated as annexed to the Land, or as a fixture, it comes to the same thing, namely whether it is part of the Land.
March’s position
[48] March says that the Fill has lost its status as a chattel, if it ever held such, after it was placed on the Land because an objective observer looking at the Land would think, or would have thought, that the Fill was part of it. The timing of that observation is relevant as a large part of the Fill has been removed, and the Land does not present now as it did for several years after it was first placed. It would be
harder for the objective observer to assess the original status of the Fill, after so
2 Hulme v Brigham [1943] KB 152 at 154.
much has been removed by sale to Gateway, and part of the Land including the Fill was not returned to the state in which March carefully placed it in 2006.
QCL’s position
[49] March’s proposition is resisted by QCL on the basis that it is “the antithesis of the ‘commonsense approach’” recognised by the Court of Appeal to determine whether something is part of the land.3
The test in New Zealand
[50] QCL says that the history of the Fill and its placement, together with the “present reality”, means that the Fill and the ground on which it was placed were, and are, distinguishable, and accordingly the Fill is not part of the Land.
[51] That “present reality” is submitted to fit with the matrix of evidence that the Fill was treated as a chattel. The 2006 resource consent granted by the Council was for storage of the Fill. Counsel Mr Crotty for QCL submits that if March is correct, the resource consents (granted in 2006 and varied in 2012), would be redundant, as consented storage would have morphed into permanent placement of the Fill without any further resource management consent.
[52] QCL submits that whether an object becomes part of the Land or remains a chattel is determined by the degree of annexation, and the object or purpose of annexation. The authors of Land Law in New Zealand say:4
Although the degree of annexation still establishes a prima facie finding, places the burden of proof, and is relevant to the extent of that burden, the Courts now give greater weight than they once did to the purpose of the annexation which may support or be contrary to the prima facie finding based on the degree of annexation.
[53] The Court of Appeal, in deciding that a house was a fixture in
Bethell v Bethell, considered the work done to the house on the land,5 and agreed
3 Auckland City Council v Ports of Auckland Ltd [2000] 3 NZLR 614 (CA) at [72] – [76].
4 Hinde, McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at
[6.037], cited with approval in March Construction Ltd v Queenstown Carparking Ltd (2011)
12 NZCPR 75 (HC) at [23].
with the Court below that "each case will depend on its particular facts and a commonsense approach, consistent with the broad test, must be taken in considering the factors".6
[54] In March Construction Ltd v Queenstown Carparking Ltd,7 the Court concluded that the presumption that might otherwise have applied when sheet piles were annexed to land was conclusively rebutted by their clearly temporary purpose, which could be found (amongst other things) in the various agreements between the parties.8 In Marlborough District Council v Valuer General, the question was whether mussel farms were part of the seabed. Ronald Young J took into account the fact that mussel farm permits were for a finite term.9 In Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council, Dunningham J held that the contractual arrangements between the Council and the Trust were consistent with the Trust owning the stadium, the roof of which had collapsed during the term of the lease.10 In Somme Ltd v Central House Movers Ltd, the fact houses were marketed for sale led to the conclusion that "the houses on any objective view were intended to remain fixed on the land in that location".11 In Savoye Ltd v Spicers Ltd, Arkenhead J affirmed the importance of context, objectively established: 12
If the object or system in question was installed to enhance the value and utility of the premises to and in which it was annexed, that is a strong pointer to it forming part of the land…
[55] March submits that the objective consideration of annexure, and whether an object is part of the Land, is confined to visual appreciation and understanding, and other evidence is not relevant. Mr Crotty for QCL addressed the authorities in Halliday v Bank of New Zealand,13 and Lockwood Building Ltd v Trust Bank
Canterbury Ltd,14 on which March relies.
5 Bethell v Bethell [2014] NZCA 442, [2015] NZAR 1620 at [87].
6 Bethell v Bethell [2015] NZHC 1375 at [57].
7 March Construction Ltd v Queenstown Carparking Ltd (2011) 12 NZCPR 75 (HC).
8 March Construction Ltd v Queenstown Carparking Ltd, above n 7, at [28].
9 Marlborough District Council v Valuer General [2008] 1 NZLR 690 (HC) at [78] - [80].
10 Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council [2015]
NZHC 1983 at [104]-[108].
11 Somme Ltd v Central House Movers Ltd [2012] NZAR 295 (HC) at [58].
12 Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC), [2015] Bus LR 242 at [36(g)].
13 Halliday v Bank of New Zealand [2012] NZHC 3099, [2013] 1 NZLR 279.
14 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd [1995] 1 NZLR 22 (CA).
[56] Halliday is a case that was substantially decided by a definition under the Land Transfer Act 1952 and in my view is distinguishable. Tipping J in Lockwood, cited Canadian authority and placed emphasis on annexation and its object being “patent for all to see”.15
[57] Mr Crotty submits that the Canadian authority cited was not confined to a simple visual test, and that the circumstances to be considered are those which demonstrate the degree of annexation and the object of annexation which are “patent for all to see” (emphasis added). He submits Cooke P in Lockwood did not endorse a limited visual inquiry excluding consideration of the “subjective intention, of one or
more affected parties”.16 The judgment recognises that the question whether a
chattel has become part of the land is a question of law for the judge so that the decision in one case is no sure guide in another. Everything turns upon the circumstances, and mainly although not decisively upon the degree of annexation and the object of annexation.
[58] It is true that leaving aside an object’s status at law, parties may determine ownership of land and other interests between themselves. When the status of an object is more ambiguous, as is said to be the case here, Mr Crotty submits the conduct of the parties is a useful cross-check against reality, to go with visual examination of the Land. He submits that not to bring those other factors to account would be to ignore the way in which a chattel was treated by the parties and that is what March is trying to do in this case. In other words, QCL says March cannot decide to treat the Fill as a chattel or part of the Land as and when it suits.
[59] In Auckland City Council v Ports of Auckland Ltd, McGrath J referred to the test enunciated by Lord Lloyd in Elitestone v Morris:17
[72] Traditionally the test for whether a chattel has become part of the realty of the land it is situated on is expressed as being whether it is a “fixture”. In the recent House of Lords decision in Elitestone Ltd v Morris the House moved away from this formulation of the Test…
15 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd, above n 14 at 25.
16 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd, above n 14 at 25.
17 Auckland City Council v Ports of Auckland Ltd, above n 3.
Instead [Lord Lloyd] proposed a broader formulation namely whether the chattel could properly be said to have become part and parcel of the land. The two main indicators of this will be the degree of annexation and the object of annexation. (citations omitted)
[60] Mr Crotty says the submission for March that the Fill was compacted so as to become part of the Land did not recognise the fact that it was placed under the terms of the 2006 resource consent, and that nearly every step subsequently taken by March was consistent with the Fill being a chattel. This included the purported transfer of its interest to Collins Rd. Guy March accepted that March did not think it had a caveatable interest in the Land.
[61] Mr Riches for March says the Fill Ownership Agreement, by which March is said by QCL to have purchased the Fill, is irrelevant to its status. This is addressed in the next part of this judgment and in the context of transfer of ownership of the Land, but for present purposes, Mr Riches stresses that it is “the purpose which the object is serving which has to be regarded, not the purpose of the person who put it there”.18
[62] Mr Riches says that it is relevant that the registered proprietor’s estate is indefeasible against interests not notified on the Register.19 He submits, correctly, that the Resource Management Act 1991 did not alter the indefeasibility provisions of the Land Transfer Act 1952, or create a further “register” for purchasers or mortgagees to consider in order to establish the true nature of the real property they are purchasing. However, that submission is directed to the circumstances in which title passes without the impairment of an unregistered interest in title, not the existence and effect of a chattel being situated on land comprised within a title.
[63] Mr Riches also emphasised the operation of law prevailing over the intention of interested parties, and referred to Lord Berwick in Elitestone:20
If an express agreement cannot prevent a chattel from becoming part of the land, so long as it is fixed to the land, it is obvious that a common assumption cannot have that effect.
18 Elitestone Ltd v Morris [1997] 1 WLR 687 (HL) at 698.
19 Land Transfer Act 1952, s 62.
20 Elitestone Ltd v Morris, above n 18, at 690.
[64] Lord Berwick cited Lord Browne-Wilkinson in Melluish v BMI (No 2) Ltd, when he said:21
The terms expressly or implicitly agreed between the fixer of the chattel and the owner of the land cannot affect the determination of the question whether, in law, the chattel has become a fixture and therefore in law belongs to the owner of the soil ... The terms of such agreement will regulate the contractual rights to sever the chattel from the land as between the parties to that contract and, where an equitable right is conferred by the contract, as against certain third parties. But such agreement cannot prevent the chattel, once fixed, becoming in law part of the land and as such owned by the owner of the land so long as it remains fixed.
[65] March thus says that the Fill Ownership Agreement between itself and Five Mile enabled it to deal with the Fill as a chattel while Five Mile owned the Land, but otherwise, and against owners other than Five Mile, the Fill was part of the Land.
[66] The case for March is that its treatment of the Fill as a chattel was merely a response to its credit relationship with Five Mile as a form of security, and that the Fill Ownership Agreement should be characterised in this way. Mr Riches submits that the behaviour of the previous owner and occupier of the bungalow in Elitestone was brought to account, and that even though the freeholders may have believed and reminded the occupants that their right to remain could be terminated, this could not
affect the operation of law.22
[67] Mr Riches refers to “a wholly objective and purely visual approach” adverted to in the judgment of Meredith CJ in Stack v Eaton,23 and to a judgment of the Maori Land Court, where the issue was whether a milking plant bolted to a cowshed was a fixture.24 The Court in that case said that the fact of annexation meant that the onus lay on the tenant to prove that the plant was a chattel. Here the position is reversed: QCL wants the Fill to be held a chattel at law and that March, which QCL says held no more than a licence to occupy, must remove it.
[68] Mr Riches places understandable emphasis on the judgment of Tipping J in
Lockwood, as QCL anticipated it would. The parties to the contract to erect the
21 Melluish v BMI (No 2) Ltd [1996] AC 454 (HL) at 473.
22 Elitestone Ltd v Morris, above n 18, at 699.
23 Stack v Eaton (1902) 4 OLR 335 (Div C).
24 Maori Trustee v Lidgard (2014) 97 WAR 282 (MLC).
house in that case had agreed that placement was temporary, and the house was physically capable of being moved. Tipping J said:25
While the show home was on the site it bore almost all the characteristics and incidents and indeed the appearance of a permanent structure. The fact that it was capable of being removed is a feature which a number of modern and even older homes now have with recent developments in the methods and technology of moving houses. The owner’s probable intention ultimately to remove the house from the site could, I accept, be reasonably inferred from the nature of the house as a display or showhome. Equally, however, there could be no certainty in the mind of anyone viewing the house as to whether and if so when the house was destined to be removed. Indeed someone observing the whole set-up could well contemplate that in some circumstances the house would be sold with the land and remain there indefinitely. In short, no one simply on a visual examination could be sure how long the show house would be there.
… However, I do not consider, from the show home’s appearance and get up, that it would be obvious for all to see that it was there on a truly short-term basis.
… While the onlooker could well think that the showhome in this case might well not be there for the rest of its life, I am quite satisfied that no one could reasonably conclude that it had been affixed to the land for some purpose which clearly demonstrated an intention to preserve its status as a chattel.
[69] Tipping J cited Commissioner of Stamps (WA) v L Whiteman Ltd,26 and agreed with that judgment, saying:27
No one looking at the show home could reasonably have thought that the person affixing it to the land intended that its status was to remain a chattel. The apparent prospect that in due course the structure might be removed from the land cannot in the circumstances of this case lead to the conclusion that it remained throughout a chattel.
[70] Mr Riches says that the effect of Lockwood is that an article affixed to the Land, “even slightly”, is considered part of the Land, unless the circumstances are such as to show that it had been intended all along to retain its status as a chattel,
and if the Court concludes that the degree and object of annexation showed an
25 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd, above n 14, at 29-30.
26 Commissioner of Stamps (WA) v L Whiteman Ltd (1940) 64 CLR 407 (HCA).
27 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd, above n 14, at 31.
intention for it to become part of the realty, that conclusion could not be displaced by evidence of a wider kind, addressed to the object of annexation.
[71] To demonstrate this proposition, he referred to Commissioner of Stamps (WA) v L Whiteman Ltd, where a vendor and purchaser held the common intention that brick-making machinery be treated as a chattel and sold separately. There, the degree and object of the annexation evident was held to prevail.28 The Court recognised that it was not the intention of the vendor and purchaser that items of machinery should be sold as fixtures or as part of the soil, but rather that they
should be sold as chattels. However, the degree and object of the annexation had been manifested by the bolting of the machinery to the concrete bases and enclosure in sheds which would be demolished if the machinery was removed. The machinery was held to have been affixed to and to have become part of the land.
[72] Mr Riches referred to this passage from Lord Lloyd’s judgment in Elitestone
that:29
…it would have been clear to anybody that this was a structure that was not meant to be enjoyed as a chattel to be picked up and moved in due course but that it should be a long-term feature of the realty albeit that, because of its construction, it would plainly need more regular maintenance. …
[73] The structure could only be removed by demolition, and this was thought to be of great significance as it could only be enjoyed in situ and could not easily be removed in whole or in sections to another site. The inference was:30
…that the purpose of placing the structure on the original site was that it should form part of the realty at that site, and therefore cease to be a chattel.
[74] Lord Clyde addressed the nature of the parties’ intentions in the context of annexation:31
It is important to observe that intention in this context is to be assessed objectively and not subjectively. Indeed it may be that the use of the word intention is misleading. It is the purpose which the object is serving which has to be regarded, not the purpose of the person who put it there. The
28 Commissioner of Stamps (WA) v L Whiteman Ltd, above n 26.
29 Elitestone Ltd v Morris, above n 18, at 689.
30 Elitestone Ltd v Morris, above n 18, at 690.
31 Elitestone Ltd v Morris, above n 18, at 698 (emphasis added).
question is whether the object is designed for the use or enjoyment of the land or for the more complete or convenient use or enjoyment of the thing itself … the intention has to be shown from the circumstances.
…
Regard may not be paid to the actual intention of the person who has caused the annexation to be made. In In re De Falbe Vaughan Williams L.J. said that there was not to be an inquiry into the motive of the person who annexed the articles, "but a consideration of the object and purpose of the annexation as it is to be inferred from the circumstances of the case." As Lord Cockburn put it in Dixon v Fisher "no man can make his property real or personal by merely thinking it so." The matter has to be viewed objectively.
(citations omitted)
[75] In March Construction Ltd v Queenstown Carparking Ltd, mentioned above, the judgment of Associate Judge Abbott records: 32
[28] I am not persuaded that the sheet piles became part of the QIHL land. Although they were firmly fixed to the land (it is questionable that they were firmly anchored to it) this was in circumstances which show that the piles were brought onto and annexed to the land for a temporary purpose, namely to provide support during the excavation of QCL’s land and erection of its carpark building. They were capable of being removed and were in fact removed. The presumption which might otherwise have applied by reason of the manner of fixing to the land is conclusively rebutted, in my view, by the clearly temporary purpose. …
The test to be applied and its application in this case
[76] I consider the test in New Zealand involves an informed and objective observer. It is not confined to the impression gained by an uninformed observer relying on visual features. The visual appreciation is important but not absolute. There must be brought to account the degree of annexation, and the purpose which the object is serving, whether the object serves the land, or the land principally serves the object placed on it. Where the object is placed for the purpose of storage, then it is not just a question of the intent of the person placing the object on the land, but rather the broader test of whether the land did serve and still serves the purpose of the object being placed there, or whether the object is “lost” in the land so as to
form part of it. I consider the following evidential factors.
32 March Construction Ltd v Queenstown Carparking Ltd, above n 7.
The evidence of the physical form
[77] QCL recognises that the purely visual perspective of a third party, without knowledge either of dealings between the landowner and the chattel owner, or of the resource consent, would not necessarily identify the Fill as a chattel. However, it says that a purely visual test does not suffice in law.
[78] The purely visual observation of the Land, with the Fill placed, topsoiled and grassed, in my view would have led the uninformed observer to believe the Fill was part of the Land. The very act of placement with the care and result exhibited, supports what I consider the reliable evidence of Andrew March and corroborated by photographs, that this Fill looked like the Land itself. However, given my formulation of the applicable test, that is not the end of the matter.
[79] Andrew March said most of the bulk filling of the Land was completed by mid December 2006, whereas Guy March thought that by 17 January 2007 the job was about half completed. Given his hands-on role, I prefer the evidence of Andrew March. He is, I find, a highly experienced contractor with a strong practical bent learned at the front line of contract work. The same comment applies to his father, Buzz March. He says topsoil was removed in strips, one strip at a time, and set at the Land’s boundary. Fill was deposited in 30 metre wide strips running parallel to the Highway. Topsoil was placed on top of the Fill, and once the topsoil was spread and compacted, a sub-contractor sowed grass. These steps were properly taken under the conditions of the resource consent.
[80] There was evidential dispute as to the extent of compacting. Andrew March said driving dump trucks over the Fill was effective, and this met the 2006 conditions of the resource consent, which required that the site work be carried out pursuant to a plan prepared by Morgan Pollard & Associates. The “mechanical placing” was understood by Andrew March to be from a dump truck, or some other vehicle, and there would be some compaction by the use of machinery.
[81] Mr Faulkner was called by QCL to give evidence as to the observable difference between the Fill and the natural ground, and to him it was an easy enough exercise. He had seen the difference when employed by GeoSolve Ltd (GeoSolve)
which had dug three test pits in order to provide QCL with an analysis of the bearing capacity of the natural ground, the results being logged as a visual record. This is of course not the evidence of the uninformed observer, but of someone who knew that the Fill had been placed on the Land, and was considering its state for potential development.
[82] Mr Faulkner was engaged by Gateway to certify the compaction of backfill on the adjacent site, and a test pit was completed where the Fill was placed. He said that there is a well-defined surface layer of silt between one and three metres thick on the Frankton Flats, then stones and gravel which go down maybe 40 metres or more, right across this area, and observable on every side of the development. He describes the:
… very nice sedimentary structure in the gravel which immediately indicates that it’s a natural deposit. Whereas with the fill it’s just – it’s what you would call “chaotic” – it’s just all over, there’s no structure to it, it’s basically a very random appearance.
[83] He explained that when fill is deposited on land with the intention that it remain there permanently, and future development is contemplated, general practice is to do so consistent with the Standard NZS 4431:1989, being the Code of Practice for Earthfill for Residential Development. He explained that a geotechnical engineer would not certify that fill has been deposited in an engineered manner consistent with the Standard if it did not also comply with the Code of Practice. He says that is the state of affairs here. Mr Faulkner said the Fill is made up of topsoil, gravel, silt and a silt/gravel blend. He said that topsoil is unsuitable for use as engineered fill as it has high potential for compression, but gravel is good material. Silt is problematic as it is affected by moisture content and weather conditions and not used much as engineered fill in Queenstown. The blending of silt and gravel must be rigorously controlled.
[84] Mr Faulkner says that the methodical placing of the Fill and compacting with machinery may be effective in achieving compaction as Andrew March says, but without on-site testing, confirmation of moisture content, and an engineer’s review, its effectiveness cannot be assessed. He does not agree with Andrew March that with some geotechnical investigation the site could have been built on as it stood,
and Mr Faulkner says no data is available to confirm the compaction as acceptable. As indicated, the necessary confidence in the Fill for building works is simply not established in its current, unengineered state. The Fill would have to be removed and re-laid, consistent with the Code of Practice. I accept the evidence that this Fill is and was not engineered to a Standard which would support optimum, or indeed viable, commercial development of this land. This finding disposes of the contributory negligence pleading.
[85] The height of the Land and depth of the Fill following its placement was in issue. March says the Fill raised the height of the Land by approximately one uniform metre over the whole site. Its compaction and the sowing of grass gave it the appearance of a paddock.
[86] Whilst denying its relevance to the central issue, QCL rejects March’s evidence. It obtained survey plans prepared by Mr Hansen of Clark Fortune McDonald & Associates, and submits that the Land was raised by about two metres, and in some places more than that.
[87] Mr Faulkner referred to a survey of 19 June 2014 and said the Land had increased in height, higher than it was in 2007. Mr Riches reasonably questioned how this could be, and whether the testing carried out by Mr Faulkner might not be representative of the Fill when it was placed in December 2006.
[88] Mr Riches submits that the Fill would not look like it was placed for a temporary purpose to the objective observer, because it was compacted, covered in topsoil and grassed. It was mown and fitted in with the pastoral land around it. Andrew March gave evidence, which I accept, that the Land was slightly lower than the main highway, and the visual impression left was not of filled land.
[89] One formulation of the annexation test asks whether an object is attached to the Land by its own weight, or has been affixed to the Land, however slightly.33
Mr Riches says this was not Fill dumped loosely on top of the Land, but “buried” on
the Land so as to be indistinguishable to the outside observer from the Land itself.
33 Lockwood Buildings Ltd v Trust Bank Canterbury Ltd, above n 14, at 25.
As indicated, there is a difference between witnesses as to the height of the Fill once topsoiled but it did raise the height of the Land by something over one metre and this would have been identified by a careful observation of the whole site if looked at carefully. It may also be that the Fill appears higher because of the nearby construction works in 2014 and 2015, whereby Grant Rd alongside has been lowered.
[90] In what might constitute a pointer to annexation, but for the terms of the resource consent, it is submitted for QCL that the Fill was excavated, laid and compacted “with a particular view to long term or indefinite storage of the Fill”. The presentation of topsoiled and grassed land is said to support an objective finding that the purpose was that the Fill become a part of the Land for an indefinite period. It was not “dumped” for short term storage and imminent removal. Hence, Mr Riches says the Fill formed part of the Land and became a fixture when the grassing was established as the last stage of its placement.
[91] The Fill has now been disturbed and moved into piles which Andrew March says are “uneven and uncompact”. But Mr Holloway for QCL says that based on survey evidence, the height is unequally raised only in one narrow strip, involving about five per cent of the remaining Fill. This is not a decisive difference. I conclude that the Land does not present as it did when the Fill was first placed. What is left of the Fill would look now more like a chattel as it is not uniformly on top of the ground.
Resource Management Act considerations
[92] Mr Crotty submits that the five year “storage” consent, later varied to storage for an indefinite term, must be a relevant element in addition to the visual appraisal as to whether the Fill is part of the Land. The manner of placing a chattel on land may indicate whether it is permanent or temporary, but that will not likely be determinative if the lawful purpose is directly to the contrary.
[93] Resource consent RM060657 was granted to Five Mile on 17 August 2006 and reissued on 6 September 2006. Because it is important to the conclusion reached as to whether the Fill became part of the Land, it bears a more detailed description.
[94] The application was for land use consent to deposit 251,900m3 fill over a six month period and it was treated as a restricted discretionary activity. It was addressed on a non-notified basis.
[95] The consent was granted subject to general conditions which included work being carried out in accordance with plans prepared by Morgan Pollard
& Associates. The plans were described as “Five Mile Sheet 3 Temporary
Storage…”.
[96] General Condition 4 provided that:
No fill other than that excavated from Lot 2 DP 25073 shall be permitted to be deposited on the subject site. This condition is an essential part of this consent.
[97] General Condition 6 provided that “All fill authorised by this consent shall be removed within 5 years of the commencement of works authorised by this consent.” There then followed a reasonably detailed description of the way the Fill was to be placed, topsoiled and sown.
[98] Under the heading “Survey Plan/Ground Level”, Condition 23 provided that to determine the height of future buildings or structures, “ground level shall be measured from the ground level shown on the survey plan…”. The ground level condition was explained as intended to ensure that the level was measured from the “existing ground level” before any works on the site. That meant that the placement of the Fill would have potential adverse effects on the height of buildings permissibly built on the site.
[99] The “Reasons for the Decision” referred to the intended spread of the Fill over the entire site, apart from a 50 metre landscape area, to a height of one metre.
[100] The Reasons record that:
The application also seeks to stock pile the material for a five year period. A five year period has been specified on the basis that it is likely the material will be used by the Queenstown Airport Corporation (QAC). However, the five year period has been identified to allow QAC time to finalise plans before the material is removed.
[101] The condition limiting the time the Fill could remain on the subject site was also explained as:
…largely due to the applicant’s desire for it to eventually go to the airport. However, it is noted that there is no guarantee of this and a resource consent application will be required to remove the fill at which point careful consideration of the adverse effects associated with transporting the earthworks will need to again be considered.
[102] The Assessment of Environmental Effects which was part of the application for resource consent said:
In anticipation of this, and with the option of storage on Lot 1 being available prior to its eventual development, the decision has been made to seek resource consent to store this material on Lot 1 for a period of up to five years. If the airport project is to go ahead, it would be inappropriate to remove the material to a more remote site in view of the close proximity of Lot 1 to the receiving site. Transfer would be possible without the use of the State Highway. The five year period should enable the Queenstown Airport Corporation to finalise its plans and to take advantage of the fill material. If the QAC plans do not materialise, the five year period will enable the applicant to explore further disposal options.
[103] Mr Riches says the 2006 resource consent authorised the deposition of Fill as opposed to mere storage, citing the following wording “Application for land use consent under s 88 of the Resource Management Act 1991 to deposit 251,900m3 fill over a six month period.”
[104] He says that “storage” relates only to the topsoil, the consent was granted on the basis that the Fill “shall be removed within 5 years”. It did not say that the Fill “must” be removed. Mr Riches says that the reference to “shall” is no more than a statement of intent, and not a term of the resource consent. He submits that the term of five years was simply a warning to a potential purchaser that removal required an additional resource consent, because that would constitute another activity.
[105] March therefore submits that the consent anticipated permanent placement of the Fill. This flies in the face of the terms of the application and the consent granted. March also says the conditions attaching to the resource consent, to address effects of the temporary storage, meant that the Fill was “part of the land”, when in fact they were standard planning practice, as Mr Lala deposed, when called for QCL as an expert resource management consultant. The removal of topsoil is a standard
approach to placing temporary Fill for grass to be established, so earth-worked soil does not blow away. Mr Lala says that the Fill was not allowed to simply be deposited or dumped on the site, but was to be integrated with the Land itself by the conditions imposed. His reference is to a physical rather than legal consequence.
[106] Mr Lala confirms that the resource consent provided for excavation then temporary storage for a term between six months and five years. He also refers to the other elements of the consenting process including the Council engineering report for the 2006 consent which referred to “consent to place uncertified fill”, and Condition 1 of the original consent which referred to “temporary storage” under a plan entitled “temporary stockpiling”.
[107] He says that it is standard planning practice to condition a consent to ensure environmental amenity is preserved. A rationale for the conditions of consent included topsoiling and grassing to maintain the rural appearance. He says that the Fill was not designed, or consented, to become “land”. The assessment of environmental effects with the application to remove the limited term of consent recorded that more time was needed to find a more suitable use for the Fill. The Council has never received an application for permanent placement of the Fill on the site. Mr Lala says that the consent contemplates the eventual removal of the uncertified Fill from the site and that nothing in the resource consent process would indicate that it is to be permanently “part of the land”. The conditions of the consent first granted contemplate that if the Fill was to remain on site permanently it would need another consent, because the activity consented was for temporary storage only.
[108] Mr Lala went on to address matters that would have been considered if the depositing of the Fill was intended to be permanent, including infrastructural services, geotechnical analysis for compaction purposes, and planning controls relating to building height and coverage. He says that none of these issues, amongst others, have been adequately addressed. The Rural General Zone provisions at the time would have required permanent placement to be addressed as a discretionary non-complying activity under the FMA.
[109] Environmental conditions were imposed to preserve the amenity, and when the five year term of storage was removed by the 2012 variation, the conditions of consent remained the same. Mr Lala gave evidence that if development of the site was sought, then the consent authority would address the use of the Fill, in effect saying neither the applicant nor the Council would be bound to perpetuate the condition that the Fill was stored on the Land. In those circumstances the Fill would, or at least might be, be treated as part of the Land.
2012 variation
[110] In February 2012 a variation to the 2006 consent was obtained by QCL to ensure that it was not in breach of the five year time limit. Mr Prain of Five Mile had told March by email of 10 March 2010 that the Council could only demand the Fill be removed in accordance with the consent, but it could be removed by the Council and the cost charged against the landowner. He said an application to extend the term of the consent could be made and would probably be granted. Relevant to this litigation, Mr Prain concluded “but while it’s there, the land can’t be developed”. The landowner would prima facie carry responsibility for the storage activity on its land but that might be displaced by another party being responsible at law.
[111] There was sensible consideration as to whether cancelling the five year sunset condition was better than extending the time period for removal of the Fill, as the former would avoid the need for QCL to make another application in the future. These discussions were obviously never based on an intent by QCL that the Fill remain on the site permanently. An application to cancel the condition imposing a five year term was supported by QCL asking for more time to find a suitable use for the Fill. The previous landowner had sought the consent for a purpose that had fallen away, and QCL wanted the Fill to remain lawfully on site until a suitable purpose was found for it, or until the Land was otherwise developed for urban purposes. March says that the application to cancel the five year sunset condition reflected permanent placement so that the Fill became part of the Land for that reason.
[112] I accept the evidence that neither the 2006 nor the 2012 consents were intended to allow the Fill to become permanently “part of the land”, but allowed for five years and indefinite storage respectively. An application might have been made to treat the Fill as being part of the Land, perhaps associated with development of the site, but that would have required something to ensure certification, and works to ensure that the Fill was properly integrated into the Land for development purposes. That did not occur.
[113] March submits that annexation is an objective test and the resource consent(s) do not bear on that. It submits that the 2006 consent is relevant only as far as the consent can be utilised as evidence of the intended physical state of the Fill on the Land, given that the Fill now has been substantially moved from the site.
[114] March says there are “significant obstacles” to obtain resource consent for removal of the Fill. A consent obtained in 2013, for removal of Fill following sale to Gateway, provided for the eventual removal of all the Fill from the site. In particular, it provided that a temporary traffic management plan could be submitted to use the State Highway to transport the Fill. It gave some indication that the local roading network may be used for such purposes. Mr Lala considers the Council and NZTA would readily approve such a traffic management plan.
Is the Fill annexed to and/or part of the Land?
[115] In the end, judgment as to whether the Fill retains its original character as a chattel (when it was first placed on the Land), requires findings of fact and a conclusion as to the purposes served by the underlying Land and the Fill.
[116] The blended silt and gravels were, I accept, systematically placed in strips and compacted by vehicle movement. Andrew March says the Fill was a fine gravel, like a “pre-mix” of the kind used for ready mix concrete. The Fill was relatively consistent, with an occasionally high silt content which required that extra gravel be added.
[289] Mr Smith says the traditional approach is not supported by any market evidence, and is contradicted by the adjoining lease of similar land, also marked for development of some kind. The application of Mr Smithies’ proposed rental rate is said by Mr Smith to be unrealistic and to produce a non-affordable rent. As something of a reality check, Mr Smith said the maximum value of the Fill might be
$768,500 plus GST, based on a value given as an estimate in evidence of $2.90m3.
Mr Smithies’ assessed annual rental for 2010 reflects some 163 per cent of the gross sales revenue of the Fill, and the idea of an annual rental exceeding gross sales revenue is said by Mr Smith to be untenable.
[290] Mr Smith considers that until re-zoning of the Land in 2014, it could not be developed for industrial storage or manufacturing and could only realistically be used for low-intensity rural-based activities, other than storage under the resource consent.
[291] However, any occupation of the Land would be subject to QCL’s dictate that the Land was ultimately for development. In the period 2010 – 2015 most of the Frankton Flats land was used for pastoral purposes, then once re-zoning was in place, commercial and industrial projects began to take shape.
[292] Mr Smith brings to account a benchmark stock farm analysis which indicates farm returns are in the order of 0.5 per cent to 3.0 per cent with market rents ranging from $100 - $400 per hectare. A benchmark farm return/rental should not be applied to the market rental of a small area of land marked for redevelopment. Mr Smith’s valuation records that it is unlikely that a prudent person would intensively develop the rural land or construct improvements to support a temporary rural use, and realistically occupation would only be for rural-based activities with minimal capital input. I agree with his evidence in this regard.
[293] Mr Smith also brings to account that the soil structure has been significantly modified and it cannot easily be used by a tenant for pastoral farming or viticulture, cannot or would not be developed for industrial storage and manufacturing, and does not have consent to be used for aggregate processing or sales and manufacturing activities.
[294] The challenged use for storage and any pastoral-based activity between September 2010 and September 2014 found Mr Smith’s evidence that a pastoral rental should be applied, and post-September 2014 the inevitable development of this Land should not be reflected in a rent that someone would pay in this undeveloped state, for such precarious tenure.
[295] He advances what he described as his Construct 1 of the storage of
265,000m3 Fill on a monthly basis from 9 September 2010 to 19 June 2014, and after the sale of Fill to Gateway, Construct 2 of 147,000m3 over 15 hectares of the site from 19 June 2014 to 30 November 2015, and beyond that date.
[296] I set out formal parts of his valuation as follows:
Construct I - Assess the market rent to store 265,000m3 of fill on the
23.3650 hectare site owned by Queenstown Central Ltd
(QCL), at Frankton – Ladies Mile Highway, Queenstown on a monthly basis over the period 9 September 2010 to
19 June 2014.
Construct II - Assess the market rent to storing 147,000m3 of fill on approximately 15.0000 hectares of the site owned by QCL at Frankton – Ladies Mile Highway, Queenstown on a monthly basis over the period 19 June 2014 to 30 November 2015.
…
Land Use Activity Market Rental Range
($ Per Annum)
Aggregate Storage Processing & Sales $2,660 - $6,918 / ha Pastoral Farming (Economic Activities) $100 - $500 / ha Viticulture (Land & Structures) $7,000 - $10,000 / ha Zoned Industrial Land $23 - $30 / m2
…
ÑIn summary these land use activities and ground lease evidence are not comparable to the subject property, in that they generally allow for economic activities to be undertaken on suitably zoned land.
Ñ Comparatively as at September 2010 the subject land:
· Has had its soil structure significantly modified.
· Cannot easily be utilised for pastoral farming or viticulture activities.
· Cannot be developed for industrial storage and manufacturing.
· Does not have the necessary consents / approvals to be used for aggregate processing, sales or manufacturing activities.
Ñ As evidenced from aerial photographs and confirmed in discussions with adjoining land owners, pending active construction the majority of the Frankton Flats / Plan Change 19 development land is utilised for extensive pastoral farming activities.
…
111. On the basis of the available information and pending physical development on the parent property, we consider that a fair market rental for the subject land under both constructs from 9 September
2010 should be based on a quasi low intensity pastoral use. Say
$200 / ha per annum.
112. In undertaking these desktop market value assessments we have taken into account the property’s location, hypothetical lease, and local authority zoning relative to the comparable property market evidence.
113. Our rental valuation is summarised as follows:
Table 13. Rental Valuation – QCL Frankton Flats Development
Land
Valuation Method Value Estimate $ Market Rental
$ / pa
Market Rental
$ / Mth
Construct I $200 / ha x 23.3650ha = $4,673.00 $389.42
Construct II $200 / ha x 15.0000ha = $3,000.00 $250.00
…
Discussion
[297] I have mentioned some core considerations which influence this judgment.
[298] The stark difference in approach is reflected in Mr Smithies’ use of the “traditional” method of applying a rate of return on land value, and his criticism of Mr Smith’s evidence when he adopts a rental of approximately $4,673 per annum based on a pastoral market rental of $200 per hectare per annum, but has not brought to account that the highest and best use from September 2014 (in fact December 2014), was for industrial development.
[299] There is an unbridgeable chasm in the two approaches to valuation. This is not an exercise in reconciliation of parts of two valuations where there is some disagreement. There must also be an element of reality in the approach to be adopted, to reflect the approach which New Zealand courts have endorsed.
[300] There is, in my view, no relevant evidence of any use other than low intensity pastoral use, and storage. The pastoral rent is able to be assessed. The value of storage is a different proposition.
[301] As set out above, Mr Smith undertook a “benchmark stock farm analysis”
and considered a fair market rental was for a “quasi low intensity pastoral use”.
He said the highest and best use of the Land, given the very limited tenure, was pastoral, rejecting a notion that it had any other use to the hypothetical tenant.
[302] He does not however address the advantage to March of storage. Mr Smithies does, and his valuation reflects what he says March should be prepared to pay. Mr Smithies and Mr Crotty make a telling point with their observations that a pastoral rental assessed relative to pastoral use of neighbouring land is not the equivalent of storage, but simply the use of the Land for that rural purpose.
[303] March has been able to store its Fill on QCL’s Land for some six years and earlier, while there were other owners. The rent it should have been prepared to pay, and QCL to accept, should be based on the factual matrix discussed above, addressed as a matter of principle, and in a way that meets the justice of the case.
[304] The Fill and the Land combined in a convenient way for what was obviously hoped to be some commercial advantage when a use for the Fill was found but it was essentially placed in order to create Hendo’s Hole. It then served another purpose when March sought to secure its position, and the Fill Ownership Agreement was entered into in 2007. March was the owner and had the potential advantage of the Fill if a commercial purpose could be found for it. In any case, the Fill was leverage against Mr Henderson’s companies.
[305] The landowner, QCL, could simply bide its time throughout the “term” of storage until its development plans reached a stage where March’s occupation began to prejudice its commercial position. However, it anticipated that, so it required March to remove the Fill, now for some six years. So far it has not on the evidence been prejudiced by the Fill on site, yet it has made it clear that the Fill should be removed, now with urgency.
[306] The overall “rental” setting is thus of a landlord simply wanting to get the Fill removed to pave the way for its future development prospects, when Plan Change 19 became operative, and not to impede its commercial arrangements.
[307] In my view, the storage of fill of this volume should not be recognised as the “highest and best use” of the Land, given the sheer uncertainty of any right to occupy the Land, except at the will of the owner. There is a principled basis on which to reject a rent being fixed on a much higher basis, as the significant costs of moving the Fill to the Land, then removing it on reasonable notice would reflect a most injudicious storage option to a party such as March. When Mr Crotty asked how a prudent lessor could reasonably be expected to rent out its land for the sum put forward by Mr Smith, Mr Smith’s response was essentially that. Storage was pursuant to the precarious occupation of a large area of Land by a large amount of Fill. Mr Smith reverses QCL’s proposition and asks how a prudent lessee could agree to a higher rental, given the unstable setting for storage.
[308] With a qualification I conclude that the highest and best use of the Land in these circumstances was for pastoral purposes, as Mr Smith says. The Land could only have been let for very limited pastoral purposes. The landowner wanted the Fill so it could develop the Land. I consider Mr Smith is right, that in the context of this arrangement, the Land would be used only for the storage of Fill, and the pastoral use which has overlaid it. I reject that at any point Mr Smith’s assessment should have morphed to recognise a rental factor for commercial or industrial land. None of the evidence of the use of other industrial land matches the very limited “rights” March had in these circumstances, nor is there an apposite market for reference. The notion QCL should be entitled to a rent for storage based on a return on land value when it had no other use available, and offered no rights of occupancy is not credible.
[309] However, at this point I am left with this qualification. The authorities point to the need to attribute the “value” of storage to March and a pastoral rent does not do so. There was value to March as it left the Fill there despite the demand that it be removed. It was able to “park” outcomes of potential sale of the Fill, or as now a significant liability to remove the Fill. While there was a market for the Fill, storage allowed for possible sale. That utility and value then ebbed when no likely buyers were identified. The Fill had value again in the sale to Gateway before it seems to have fallen away, to the point where this once-presumed asset became a real and present liability. Fortune may yet favour the stubborn refusal of March to remove the
Fill to this point, if it regained value, or other and cheaper fill sites become available, perhaps closer at hand than Gibbston, which is a potential site for the Fill.
[310] In short, if March had not had occupation of the Land, it would have had to store the Fill elsewhere, or dump it. There is no evidence that allows me to attribute a value to this and it may well have cost March by delaying the inevitable. On the evidence, March now will have to move the Fill some 29 kilometres, but that may not have been the case from the time March was first requested to remove it. The opportunity to leave the Fill on the Land up until today has simply deferred the cost to March of it being moved, although the prospect of mitigating those costs, or making a profit, seems to have gone by.
[311] March should pay something for simply leaving the Fill there. It is not a question of damages, but something to reflect the holding pattern which March has “enjoyed”. This would fit within the concept of “reasonable” rent.
[312] In short, March’s hold on the site was precarious, always subject to the dictate of the owner and the winds of fortune which blew to the commercial advantage or disadvantage of March. The uncertainty of March’s use of the Land fixes what rent March might reasonably be required to pay. Some allowance for this “opportunity value” is appropriate and I consider March should pay a pastoral rental on Mr Smith’s evidence and the rates for the period since QCL became the owner, on expiry of a notional nine months notice.
[313] Otherwise, I conclude that the evidence for Mr Smith reflects the rent to be paid under the very limited licence to occupy, terminated by notice to March. There was no loss to QCL while it formulated and then secured the commercial development afforded by Plan Change 19. It would not have obtained rent on a commercial or industrial basis. No one would take such a limited tenure for such purposes.
[314] I do not formalise quantum because occupancy is not yet concluded, and further rent and rates will be paid by QCL depending on the period the Fill remains on-site. The judgment that rates be paid is based on those rates advised to the Court.
If those rates change in a material way beyond the figures given in evidence then
I reserve that for further argument.
Closing comment
[315] This judgment has found against March on the primary issue of trespass. This has been hard fought in its history and in this litigation. March has employed many arguments to resist liability and it put up strong contest. It has been mentioned in this judgment but given the commercial reputations involved, it is appropriate to record again the frank evidence given by members of the March family. That frankness has assisted the Court in reaching judgment on several issues.
[316] Secondly, QCL’s claim to mesne profits has posed a real commercial risk to March in itself. It has been rejected by this judgment but its adoption was the product of the paucity of any comparable evidence which inherently complicated the valuation. So too did the fact that there was no assured term of occupancy available to March, indeed quite the opposite. The fact that Mr Smithies’ evidence was not accepted does not mean that it was anything other than principled and thorough in its presentation.
Disposition
[317] I conclude that March owns the remaining Fill on the Land and must remove it as it is a trespasser on QCL’s Land. If an order is required to this effect, such will be made. I expect the parties to make commercial arrangements in this regard.
[318] Rent (mesne profits) should be paid under Mr Smith’s Construct 1 and Construct 2, with Construct 2 applying for the period up to and beyond the hearing concluded on 2 December 2015. Construct 1 should apply from the expiry of the nine months notice period from that first given by QCL.
[319] March is to pay the rates applicable to the Land for the same periods.
[320] Leave is reserved for any further orders or directions which either party may require for execution of this judgment, or to address any ancillary issue. The Registrar will arrange a teleconference to address any residual issues.
[321] Costs are reserved.
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Nicholas Davidson J
Solicitors:
Russell McVeagh, Auckland
Saunders & Co (Christchurch
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