Sidwell Developments Limited Partnership v Top Dream Development Ltd

[2024] NZHC 1928

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-388

[2024] NZHC 1928

UNDER

ss 316 and 317 Property Law Act 2007

IN THE MATTER

of an application for an order that covenant D045783.3 be modified under s 317 of the Property Law Act 2007

BETWEEN

SIDWELL DEVELOPMENTS LIMITED PARTNERSHIP

Applicant

AND

TOP DREAM DEVLEOPMENT LTD

First Respondent

FULTON HOGAN LAND DEVELOPMENT LTD
Second Respondent

SIMON LEO ANDREW, JODIE ANN MARGARET ANDREW and NICHOLAS INDEPENDENT TRUSTEE CO LTD

Fourth Respondent

Judgment:

(On the papers)

15 July 2024

JUDGMENT OF BREWER J

(Costs)

This judgment was delivered by me on 15 July 2024 at 10.30 am pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Greenwood Roche (Auckland) for Applicant

Thorn Law Ltd (Auckland) for Fourth Respondents

SIDWELL DEVELOPMENTS LIMITED PARTNERSHIP v TOP DREAM DEVLEOPMENT LTD [2024] NZHC 1928 [15 July 2024]

Introduction

[1]    On 23 April 2024 I gave judgment in favour of the applicant, Sidwell Developments Limited Partnership (Sidwell)1 and granted its application under ss 316 and 317 of the Property Law Act 2007 (PLA) to remove a restrictive covenant. The covenant Sidwell sought to extinguish was registered against six titles. The fourth respondents (the respondents, the owner of Lot 3) opposed the application, which was directed to Lot 6.

[2]    The two major issues I determined in favour of Sidwell were that the covenant was to be extinguished and the respondents were not entitled to compensation.

[3]In the judgment I said:

[69] There are issues as to costs. The fourth respondents submit that if they are unsuccessful they should nevertheless not be liable for costs. The applicant is to file its memorandum no later than 30 working days from the date of this Judgment. The fourth respondents are to file their memorandum no later than 20 working days after receipt of the applicant’s memorandum.

[4]This judgment determines costs.

Costs

[5]    The general principle that costs in civil litigation follow the event does not apply in proceedings brought under s 317 of the PLA where the unsuccessful party opposed extinguishment or modification.2 In the High Court, Katz J observed:

[11] … a party who opposes extinguishment or modification of a covenant starts from the position of being “in the right”. In opposing the application they are seeking to protect their existing legal rights. For that reason the normal rule that costs follow the event does not apply. A respondent who unsuccessfully opposes an application to extinguish or modify a covenant should generally not have to pay the applicant’s costs, unless he or she has acted unreasonably.

[6]The Supreme Court in Synlait Milk Ltd v New Zealand Industrial Park Ltd

endorsed Katz J’s observations.3 The Supreme Court considered that the respondent

1     Sidwell Developments Limited Partnership v Top Dream Developments Ltd [2024] NZHC 899.

2      North Holdings Development Ltd v WGB Investments Ltd [2014] NZHC 1175 at [11].

3      Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657.

in the appeal had not acted unreasonably in opposing the application because it was not a “clear-cut case” and it was reasonable to seek to maintain the covenants.4

[7]    Therefore, I have to answer a simple question: did the respondents act reasonably in opposing the application to extinguish the covenant over Lot6?

Sidwell’s submissions

[8]    Sidwell seeks increased costs, i.e. a 50 per cent uplift on 2B scale costs. Two reasons for increased costs are given: first, that the respondents contributed unnecessarily to the time and expense of the proceeding by acting unreasonably in pursuing an argument that lacked merit; and, second, by failing, without reasonable justification, to accept an offer of settlement.

[9]    Sidwell maintains the application was straightforward. It was clear that the grounds for extinguishment of the covenant were met. The visible change in the character of the neighbourhood, together with zoning changes and new planning rules meant the covenant was obviously outdated. The respondents’ arguments lacked merit and applied a static approach to what constituted “reasonable use”. In summary, the legal arguments advanced by the respondents did not reflect the clear evidence that irreversible changes had taken place in the character of the neighbourhood.

[10]   On that basis, Sidwell submits it was unreasonable to oppose the application. The outcome was unsurprising. And notably, it was the same outcome this Court reached when the application was heard unopposed almost a year earlier.

[11]   Second, the respondents added to the time and expense of the proceeding by pursuing an argument for compensation. The argument was advanced at a late stage. Three days prior to the scheduled hearing on 18 October 2023, the respondents filed an amended notice of opposition that raised the issue for the first time. This led to an adjournment. The respondents, Sidwell contends, unreasonably rejected Sidwell’s suggestion to proceed with the removal application first and the compensation issue at a later date.

4      At [205]-[207].

[12]   As a result of the adjournment and opposition to the application, by the time the hearing occurred, the application for removal had been afoot for almost a year. Sidwell maintains that the respondents’ conduct had a significant financial consequence for them.

[13]   As regards the merits of the argument for compensation, Sidwell maintains it too was flawed and based purely on hypothetical assumptions that were simply not realistic.5 The argument was inherently unlikely to succeed, particularly when the respondents relied on a decision which bore little resemblance to their own position.6

[14]   Finally, Sidwell maintains that the respondents acted unreasonably in rejecting their offer to settle. On 8 December 2023, Sidwell offered a payment of $300,000, a quantum it describes as generous. Sidwell maintains that after rejecting the offer, the respondents refused to meaningfully engage with them despite further attempts to resolve the matter by settlement.

[15]   In the event the Court does not award increased costs, Sidwell seeks scale costs on a 2B basis in the sum of $39,853.25.

The respondents’ submissions

[16]   In response to Sidwell’s submissions, the respondents maintain, first, that the covenant still served a significant purpose. They had developed their lot and built a “forever” home in reliance on the covenant. It was entirely justifiable for them to challenge the application. Second, the respondents maintain that the covenant was unique and had the unusual feature of being mutual and thus binding six lots. It also changed with District Plan changes and, therefore, was arguably not undone by the change in circumstances relied on by Sidwell. Third, due to the covenant maintaining a six-lot enclave of properties, the respondents were entitled to rely on the covenant. Fourth, it was reasonable for the respondents to ask the Court to modify the covenant. Finally, in any case, s 317 of the PLA is a discretionary power and a covenantee would generally be entitled to ask a court to exercise the discretion in its favour.

5      In support of this contention the applicants refer to [59] in Sidwell, above n 1, where I used those words.

6      Reynolds v Parklands Properties Ltd [2021] NZCA 394, (2021) 22 NZCPR 516.

[17]   The respondents maintain that compensation was always a live issue in the application because it is one of the matters which a court must take into account in deciding whether or not to exercise its discretion in favour of the applicant under     s 317(2) of the PLA.

[18]   The respondents submit their refusal to accept the settlement offer does not undo the presumption expressed by Katz J in North Holdings. Counsel submits:

If the respondent is entitled to insist on its existing covenant rights by opposing a s 317 application, it must also be entitled not to accept an offer whereby it surrenders its existing rights in return for a payment.

[19]   The respondents further note that an earlier Court minute records their agreement to attend mediation and they point to “extensive communications” between the parties’ respective solicitors in response to the submission of Sidwell that they failed to “meaningfully engage”.

Discussion

[20]   The policy justification for an exception to the ordinary application of the principles of costs in civil proceedings is understandable. Applications to extinguish covenants under the PLA are often brought by the well-resourced. In Australia an unsuccessful but reasonable objector will have their costs met by the successful applicant.7 Although the Supreme Court did not adopt this position in New Zealand, it did accept the policy’s underlying rationale and held that there must be some unreasonableness on the part of the respondent to justify an adverse award.

[21]   Although the case, as per my Judgment,8 was reasonably straightforward, that does not justify an award of costs against the respondents.

[22]   First, the respondents were entitled to defend their existing legal rights. Property rights are fundamental to the operation of a free society. The ability of an individual to enforce such rights is equally important. The old legal adage attributed to Sir Edward Coke that “a man’s home is his castle” finds some modern legal meaning

7      Synlait, above n 3, at [204].

8      Which is under appeal and might not survive.

in the presumption against the awarding of costs in this context. The requirement to act reasonably, as established in the Supreme Court, does not favour only those who pursued a strong case. To act reasonably a party must act in good faith, and pursue genuine legal arguments.

[23]   In this case, the respondents’ arguments were real ones and tested the boundaries of the law. Counsel did not refer the Court to precedent that was wholly consistent with the facts of this case. There were unique features to the covenant. There was a degree of uncertainty. It was not unreasonable for the respondents to assert that their legal rights should be protected. It is appropriate that a degree of latitude should be afforded when considering whether or not a respondent acted reasonably in opposing the extinguishment of a covenant.9 To find otherwise would risk potentially chilling consequences for those looking to oppose applications under ss 316 and 317 by asserting an existing legal right.

[24]   Further, I am satisfied that the respondents did not act unreasonably in rejecting Sidwell’s offer to settle and in seeking compensation. I accept the submission that the respondents were motivated by their wish to keep their forever home in the six lot rural enclave that was protected by the covenant. To maintain that lifestyle, they were entitled to reject a settlement offer which, in the overall picture, was not a high one.

[25]   The respondents are not property developers. Sidwell is. There is support in the caselaw for the proposition that those who seek to remove property rights from their neighbours should compensate their neighbours for their loss. In this case I found there was no loss, but it was not unreasonable for the respondents to seek compensation.

Decision

[26]Costs are to lie where they fall.

Brewer J

9      A different approach should apply on appeal.