R B Road 391 Limited v Johnstone HC Auckland CIV 2009-404-7048
[2010] NZHC 1131
•6 July 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-007048
BETWEEN R B ROAD 391 LIMITED Plaintiffs
ANDM JOHNSTONE & ORS Defendants
CIV-2009-004-2126
AND BETWEEN M JOHNSTONE & ORS Plaintiff
ANDHESKETH HENRY Defendant
Hearing: 5 July 2010
Counsel: A Sherlock for Plaintiff
W A Endean for Defendants
Judgment: 6 July 2010 at 4 pm
JUDGMENT FOR ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on 6 July 2010 at 4 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Hesketh Henry, Private Bag 92093, Auckland Mail Centre
Dawsons, PO Box 38, Manukau
R B ROAD 391 LIMITED V M JOHNSTONE & ORS HC AK CIV-2009-404-007048 6 July 2010
[1] In this judgment R.B. Road 391 Ltd is described as the plaintiff and M Johnstone & Ors as the defendants.
[2] The plaintiffs’ application seeks an order for specific performance requiring the defendants to complete the purchase of the property at Lot 4, 391 Rosebank Road, Avondale (Lot 4). The defendants maintain they have validly cancelled the agreement, and that their defence is so strong as to be entitled to summary judgment for the return of the $60,000 deposit paid.
[3] The issue for determination, and upon which both applications turn, is whether the defendants are entitled to avoid the agreement on the basis that they were not satisfied with the terms of the subdivision resource consent for the property which issued following the agreement being entered into.
Chronology
[4] The party’s agreement for sale and purchase is dated 22 April 2008. Clause
15.1 of the provides:
This agreement is conditional upon the Vendor and Purchaser both acting reasonably and having taking (sic) into account as at the date of this agreement, the conditions of consent that the Auckland City Council is likely or could reasonably have been anticipated to impose in giving subdivision consent being satisfied with the terms and conditions attaching to the subdivision consent issued by the Auckland City Council subdivision referred to in clauses 16 and 17. The condition date for satisfaction of this condition is the date seven (7) days after the date that the purchaser received a copy of the subdivision consent.
[5] On 25 February 2009 the plaintiff sent the defendants a copy of the draft sub divisional resource consent conditions issued by the Auckland City Council (ACC). It contained draft consent conditions 7.11, 7.12 and 7.13. Those terms provided:
“7.11The consent holder shall ensure all materials excavated from the site are to be disposed of in a licensed facility and provide evidence of disposal to the Council following completion of the excavation.
7.12If the evidence of contamination is discovered during removal of paving and/or earthworks the consent holder shall immediately cease the works and notify the Resource Consents Monitoring Leader, Regulatory Services, and provide a site contamination report and a
remediation action plan to the satisfaction of the Resource Consent
Monitoring Leader, Regulatory Services, Auckland City Council.
7.13The subdivider shall cause to have registered against the Certificate of Title for Lot 4, a Consent Notice pursuant to Section 221 of the resource Management Act 1991, recording the following condition which is to be complied with on a continuing basis:
Geotechnical
This lot is subject to geotechnical constraints with limited building platform area. A Geotechnical Report has established that the lot can be developed. A chartered professional/registered engineer experienced in geotechnical engineering and familiar with the recommendations of the report by Tonkin & Taylor Ltd, dated 11th Dec 2008 to RB Road 391 Ltd; reference 25672 and their letter dated 5th February 2009 to RB Road Ltd 391 Ltd reference 25672 including Appendix A (Preliminary Design Calculations) and their letter of 13th February 2009 including Appendix A (Preliminary Design Calculations) and the letters from KGA Geotechnical to Auckland City Environments of 11th February, ref 5175-3 and their letter of 17th February, ref 5175-3 is to be engaged to design, supervise, and where necessary, certify any development and/or structures and/or earthworks within the site.”
[6] On 26 February 2009 the defendants requested the plaintiff to provide to them “all the reports, letters, etc” referred to in the draft consent conditions.
[7] On 16 March 2009 the plaintiff sent to the defendants a copy of the final issued resource consent conditions. In response on 17 March 2009 the defendants requested the plaintiff to provide a copy of the ACC internal memorandum entitled “Engineering Condition for Subdivision.”
[8] On 18 March 2009 the defendants requested an extension of 7 day period for satisfaction of clause 15.1. In response the plaintiff agreed to extend the condition fulfilment date to 25 March 2009.
[9] On 20 March 2009 the defendants emailed the plaintiff raising concerns about possible contamination issues. On 24 March 2009 the plaintiffs responded by advising the defendants could not withhold consent to the resource consent conditions on the basis of contamination issues.
[10] On 25 March 2009 the defendants avoided the agreement on the basis they were not satisfied with the conditions of the resource consent.
The parties’ viewpoints
[11] The defendants maintain conditions 7.11 to 7.13 of the subdivision resource consent were not conditions of consent that the Auckland City Council was likely or could reasonably have been anticipated to impose in giving subdivision consent.
[12] Mr Endean submits the issue involves matters of factual dispute and is unsuitable for summary judgment.
[13] Mr Sherlock submits an objective test applies with the defendants carrying the evidential burden of satisfying the Court that they have acted fairly and reasonably. The defendant’s position is that clause 15.1 should be construed subjectively and therefore concerns only those terms that the defendants either knew or could reasonably have been expected to foresee were likely to be included in the resource consent conditions. The defendants maintain that they did not know and could not reasonably have foreseen the excavation and contamination issues and therefore remain available as a ground for dissatisfaction with the consent and for disapproval and therefore avoidance of the contract.
Background
[14] Mr Johnstone is a civil engineer. From 1990 he has been involved extensively in developing commercial premises especially in the West Auckland area. For the past 11 years he has been involved in the acquisition and development of commercial properties in Rosebank Rd area. He found paragraph 7.11 to 7.13 novel conditions. He had not come across them before in any development work in the area. He deposes he has never encountered contamination issues, either with respect to resource consents, or with the building consents in actually carrying out the work on those properties.
[15] During his negotiations with Mr Snelling of the plaintiff in March and April
2008, they walked over the landscaped reserve area in front of the plaintiff’s adjacent Copsey Place site. He described in detail how he planned to landscape in a similar manner, the reserve in front of Lot 4. He described the good working relationship he
had with Mr Leity of ACC and his satisfaction with the work he had done to date. He advised Mr Snelling he had found indiscriminate dumping of concrete, steel (including car bodies) and fishing nets in the reserve area. As part of his landscaping the foreshore reserve, he had removed and recycled part of this rubbish. He stressed to Mr Snelling the importance of using available topsoil from Lot 4 to fill and grade low areas of the foreshore reserve fronting Lot 4 in order to continue the enhancement of the foreshore areas. He advised he expected to find some dumping of material in the reserve area that he would have to deal with.
[16] On 28 April 2008 he sent an email to Mr Snelling in which he referred to this foreshore landscaping being important in the way in which the property was to be developed. He deposes:
“The beneficial result of our previous developments was economical site development for us as long term investors, and the beautification of the adjacent foreshore reserve, which had previously been an unsightly dumping ground full of noxious weeds. All of this was done with the cooperation of the Auckland City Council.”
[17] Mr Johnstone further deposes that on sighting condition 7.13 (in February
2009) he obtained the Tonkin & Taylor report referred in the consent notice conditions. He said the consent notice would have come down onto the title for Lot
4 after subdivision and contained conditions that they were not prepared to countenance in terms of the viable development of the lot. In particular he refers to clause 5.2 of the Tonkin & Taylor report which referred to the need to remove excavated soil from the site and to be disposed of at Greenmount Landfill as managed fill. He says neither he nor his developing partners had previously encountered such a requirement, which he found wholly unacceptable in the context of the economics of the project.
The plaintiff’s Case
[18] It contains three parts:
(a) The Lot 4 has no live contamination issue;
(b)The defendants had full and actual knowledge there were no live contamination issues affecting the site prior to their purported avoidance of the agreement on 25 March 2009; and
(c) The resource consent conditions impose no burden on the defendants.
No live contamination issue
[19] The plaintiff contends Lot 4 is not a contaminated site for on 20 April 2009 the ACC issued a certificate of compliance certifying that the level of contaminants within the site soils and other materials in the property fall within permitted activity contaminant levels, it earlier on 4 March 2009 having advised that the Consent Notice condition relating to contamination had been removed. Also ACC had confirmed that all the soil samples taken and referred to in the Tonkin & Taylor report are well below human health guidelines for residential and commercial use. Further, once a separate title and address was created for the property it would be removed from the Council’s contamination data base.
[20] The plaintiffs aver that the defendants proposed in the course of their development to dispose of 600 m3 of topsoil, some of it onto the fronting foreshore reserve. Landscaping and clearing consent in respect of Lot 4 was originally sought by application to the ACC on 25 February 2008. On 4 September 2009 the Council issued resource consent for vegetation removal and new landscaping. In order, as a matter of certainty, to have an established permission to use topsoil removed for the purpose of re-contouring the/landscaping the foreshore reserve, the plaintiff applied to vary the September 2009 consent so as to bring in that particular permission expressly.
[21] Consent to that variation was granted on 4 March 2010.
[22] Regarding the three samples of surface hard fill with nickel concentrations referred to in Tonkin & Taylor report Mr Brown states, and it is not in dispute that those three samples were taken from a base layer of scoria put down as part of the
formation, a number of years ago, of a tar-sealed parking area which extended onto
Lot 4. These samples provided the only source of contaminants detected.
That the defendants had full prior knowledge there was no live contamination issues
[23] This, is so despite the letter from the defendant’s solicitor to the plaintiff’s solicitor dated 20 March 2009 which stated:
“We refer to the advised resource consent. Our clients, while aware of some challenging geotechnical conditions on the site, were at no stage until the release of information by your client aware of any contamination issues relating to the site. Responsibility for further development of the site, cast upon the purchaser following settlement, would involve the distinct possibility of having to manage and dispose of contaminated soils.”
[24] Later and by letter dated 25 March 2009 the defendant’s solicitors wrote:
“The Council conditions relating to remediation refer not in our clients view, to contamination through horticulture uses (of which our clients advise they have no knowledge anyway), but through landfill operations which have produced a different type of contamination which they are not prepared to accept.
Accordingly pursuant to clause 15.1 of the Agreement, out client is not satisfied with the conditions of consent and therefore the agreement is at an end.”
[25] Although the defendant’s solicitor’s letters allude to contamination issues the plaintiff’s state the defendants were by then well aware that reference to contamination issues would be removed from the consent conditions. Advice of this was provided by an email dated 4 March from an ACC officer, which was conveyed to the defendants.
[26] Further, the defendants were aware there were no live contamination issues because of a copy of an ACC engineers report sent to the defendants on 17 March
2009. It provided:
“Contamination
The site is identified on Council’s GIS as being subject to a contamination hazard due to it being a historical horticultural site. A soil investigation report was submitted by the applicant. The report was assessed by Rueben Naidoo, Environmental Health Specialist of this office who was satisfied with the findings of the report on ground contamination and concurred with
the conclusion that the site posses no potential risk to human health and is suitable for the proposed subdivision, without the need for any remedial action.”
[27] The evidence is that historically much of the surrounding area on which there has been commercial development, including, likely, land developed by the defendants, had previously been utilised for horticulture.
[28] The plaintiff concedes that in the early set of consent conditions there was reference to an arguable onerous condition requiring the provision of a contamination assessment report prior to any soil excavation or construction being undertaken. It argues however that with the removal of that condition, as notified by
4 March 2009, contamination concerns no longer applied.
Condition 7.11 and 7.12 impose no burden on the defendants
[29] The plaintiff avers to the defendants concern to use topsoil from Lot 4 to fill and grade the foreshore fronting the property. The defendants said the resource consent condition precluded this possibility and imposed a cost burden it would otherwise not have to bear. The plaintiff asserts that these arguments are not maintainable. It says the resource consent did not and could not have been expected to deal with the possibility of the defendants using available topsoil to fill and grade the foreshore reserve fronting the property. That possibility was the subject of a separate landscaping and clearing consent application. Further, the current position is that ACC has granted resource consent to move soil onto the foreshore reserve.
[30] Further, because of Mr Johnstone’s previous experience, his good working relationship with ACC and the defendant’s knowledge that the property had been cleared of any contamination issue, the defendants had no reason to expect that such landscaping would not be allowed.
[31] Mr Sherlock submits condition 7.11 imposed no additional burden that the defendants would otherwise not have had to bear. The defendants were always going to have to seek resource consent to carryout earthworks exceeding 5m3, or to remove material onto the foreshore reserve because the reserve was owned by the ACC.
[32] The defendants make issue regarding the prospective cost to dispose of excavated materials. Although Tonkin & Taylor had previously identified a need for the fill to be disposed of “at Greenmount as managed fill”, that was not carried through to the actual resource consent condition 7.11 which referred to a “licensed facility” and not a managed facility.” – a point the defendants would have been aware of. In short, other and cheaper options were available.
The defendant’s case
[33] It is whether conditions 7.11 to 7.13 of the subdivisional resource consent were conditions of consent that the ACC were likely or could reasonably have been anticipated to impose in giving subdivision consent. As Mr Endean notes the question for the Court is not whether the Council would impose such terms, but whether it was likely or anticipated that it would. The defendants submit it could not have been, based on their extensive land development and subdivision experience in the immediate vicinity.
[34] The defendant’s position is that clause 15.1 should be construed subjectively and therefore concerns only those terms that the purchasers knew or could reasonably have been expected to foresee were likely to be included in the resource consent conditions. The defendants maintain they did not know of and could not have reasonably foreseen the excavation and contamination conditions.
[35] Mr Johnstone deposes that as an experienced contractor he had not encountered condition 7.11 before. Also and although contained in the subdivision consent, he considers it would subsist for any other later consent in relation to earthworks on the subdivided land. The same applies, he considers, to condition
7.13 which refers to geotechnical constraints with a limited building platform area. The condition referred to the report by Tonkin & Taylor Ltd dated 11 December
2008. It is the defendants position that paragraph 5.2 of that report refers to contamination issues and the need to have excavated material to be deposited at the Greenmount Land Fill at a cost of $450 per truck and trailer. The defendants for economic and commercial reasons could not abide that condition as well.
[36] Mr Endean submitted that even if clause 15.1 is to be construed objectively the Court should still require to hear evidence from the parties and their experts to determine whether condition 7.11 to 7.13 could reasonably be expected or anticipated to be included in the subdivision resource consent. It is the defendant’s position that they have acted reasonably. They sought further information from the plaintiff as to the background to the consent conditions including the Tonkin & Taylor report.
[37] Because of his extensive experience in subdivision and development work and because Mr Johnstone had not encountered the likes of conditions 11-13 previously, he perceived they affected the economic viability of the proposed development.
[38] Mr Endean submits the plaintiff has made much, indeed too much of the fact that resource consent determinations made subsequent to the cancellation on 25
March 2009 were all “based on information created and made available to the defendants prior to the purported avoidance of the agreement.” Mr Endean disputes the plaintiff’s claim that the issue of contamination was resolved and notified to the defendants prior to their purported avoidance of the agreement. Notwithstanding the email of 4 March 2009 from ACC’s officer confirming the conditions relating to contamination had been removed, conditions 7.11 and 7.12 remained unchanged. Further, 7.13 refers to the Tonkin & Taylor report which addressed contamination issues among others.
[39] The defendants acknowledge they would have had to obtain further resource consent to develop the property. What they do say however is that in the past, such applications have never contained conditions requiring the removal of topsoil to a licensed fill site as opposed to their previous modus operandi of using excavated soil to develop the foreshore area: something expressly forbidden by condition 7.11.
[40] Mr Endean submits the defendants have not dismissed the conditions out of hand without first making enquiries for further information. It was on obtaining that further information that they have assessed it and made their decision accordingly.
Considerations
[41] Clause 15 requires the defendants to act reasonably having at the time of the agreement taken into account conditions of consent likely or which reasonably could be anticipated, in being satisfied with ACC’s resource consent terms and conditions.
[42] The defendants assert they did not expect the ACC’s resource consent conditions because they had not encountered them previously. The plaintiff says that if it can be shown the defendant could have expected those clauses then it matters not that they were onerous. But if the defendants could not have expected them then they cannot be excused from compliance if they are not onerous. Therefore the fact that they were not expected does not provide in itself a reason to refuse those conditions of consent. It is at this point i.e. concerning non-onerous conditions, that the reasonableness of the defendant’s actions is considered.
[43] At that point the test becomes an objective one, the Court bearing in mind as it must on a summary judgment application, whether there are significant issues concerning fact which ought to persuade the Court not to grant summary judgment.
[44] Mr Johnstone and Mr Snelling had discussed the defendant’s purchase plans. Excavations to provide a building platform would provide topsoil for the grading and shaping of the adjacent foreshore reserve. This is how the defendants had done it previously. Also, it provided economies for the development. The defendants were aware “of challenging geotechnical issues”. These obviously related to the provision of a building platform to provide for the defendant’s development proposal.
[45] Issues became clouded by the contents of the Tonkin & Taylor report. Three borehole drilling samples indicated a presence of nickel in excess of the Auckland Regional Council (but not the Auckland City Council) limits referred to under heading ‘Ground Contamination’ in that report. The report noted:
a) That ACC would not require an application for resource consent for a contaminated site;
b)The site did not meet ARC status in respect of nickel concentration in the hard fill used on the site, but noted that the detected contamination was minor and that ARC may not require a consent application;
c) That the natural soils would be suitable for disposal as clean fill but that because of ARC’s guidelines excavated material may require disposal through the Greenmount facility at a cost of approximately
$450 per truck and trailer.
[46] The defendants have clung to the notion that the resource consent conditions are tied to contamination issues. I think that notion is misplaced. I accept the submission contamination issues had been eliminated prior to the issue of the resource consent conditions in their final form. The Tonkin & Taylor report identified everything to be known about Lot 4 including its topsoil and fill content. Nothing since the issue of that report in November 2008 later emerged. Moreover the identification of contamination issues by that report was also effectively eliminated by it. As notified to the defendants by an ACC email letter before March
2009 the Consent Notice condition relating to contamination had been removed.
[47] Therefore the issues in this case really focus upon conditions 7.11 and 7.12. Further, because of the clearance of the contamination issue the defendants could have no reason to think that topsoil clearance from Lot 4 could not be put upon the adjacent reserve. Certainly, resource consent would be needed for that. The land was owned by the ACC and its permission would be required. But, that was always the case and must have been in the contemplation of the defendants for their development plans.
[48] Clauses 7.11 and 7.12 do not refer to the existence of contamination. Nor do they impose any remedial obligations. The defendants had no reason to believe that ACC would refuse permission to allow topsoil to be removed to the foreshore as indeed the defendants had been allowed do with their adjacent development property. Also the acceptable evidence is that a relatively small portion only of the excavated material from Lot 4 would be used for foreshore enhancement. The rest of the excavated material would have to be carted for disposal at a facility. Tonkin
& Taylor’s report identified that this might have to occur at a managed landfill facility: i.e. one able to receive contaminated soils; a facility where it would be more costly to dispose of landfill. But, that indication from Tonkin & Taylor was not adopted by the ACC resource consent conditions. Clause 7.11 refers to disposal of excavated material to a ‘licensed facility’. Such facilities are authorised to receive clean materials. It must always have been in the defendant’s contemplation that the excess excavated materials from Lot 4 would have to be taken for disposal at a licensed facility. Clause 7.12 deals with the discovery of evidence of contamination in the course of earthworks. But, and I accept Mr Sherlock’s submission on the point that clause 7.12 provides no more or less than is adopted by the backup position provided by the Resource Management Act 1991 to outline a process to deal with an unanticipated event.
[49] Mr Endean has criticised the evidence for the plaintiff showing the course of events concerning resource consents obtained after that date the defendants acted to avoid the contract. Mr Endean submission that that evidence is irrelevant is, I think, correct. However, I am content with Mr Sherlock’s explanation that the plaintiffs are not relying on post 25 March 2009 events as evidence of what might have been. Rather it does demonstrate the ordinary workings of what is involved in a sometimes time consuming and drawn out process.
[50] The defendants bear the evidential onus to satisfy the Court that they could not reasonably have expected those clauses in those terms. The Court should for present purposes accept Mr Johnstone’s statements that he has not encountered the like previously. But that does not of itself create a dispute of fact for trial determination. Rather, I prefer the submission of Mr Sherlock that it is still incumbent upon the defendants to show those conditions provided undue or onerous obligations upon them because if in the actual circumstances of the case the conditions added no burden then it is not open to the defendants to say that they are reasonably dissatisfied with the conditions.
[51] In summary, contamination issues were cleared well in advance of the defendant’s purported avoidance of contract. Clauses 7.11 and 7.12 do not impose any additional obligations or burdens, that could have been reasonably unexpected.
Result
[52] The Court is satisfied the plaintiff has discharged its obligations to show that the defendants do not have an arguable defence to its claim for judgment.
Judgment
[53] There is an order requiring the defendants to specifically perform their contract for purchase with the plaintiff.
[54] Costs are awarded to the plaintiff on a 2B basis together with disbursements to be approved by the Registrar.
Associate Judge Christiansen
ADDENDUM
[55] At 2.15 pm today I completed and signed off my judgment in this matter. It is due for issue at 4 pm this afternoon.
[56] At 2.18 pm today the Court received an emailed memorandum of counsel for the plaintiff advising that at 1.30 pm today the plaintiff signed an agreement for the sale of Lot 4 to another. The memorandum notes that the effect of the plaintiff’s entry into the new agreement is that the agreement between the plaintiff and the defendant is cancelled. The plaintiff’s position is now that it has accepted a wrongful repudiation by the defendants and the plaintiff will amend its statement of claim to seek damages in place of specific performance.
[57] It follows in the outcome of my judgment:
a) The defendants have not validly avoided the agreement on the basis claimed by them;
b)The order for specific performance referred to in para [53] of my judgment is cancelled;
c) The Court awaits details of the plaintiff’s amended claim.
Associate Judge Christiansen
0
0
1