Sidwell Developments Limited Partnership v Top Dream Developments Ltd
[2024] NZHC 899
•23 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-388
[2024] NZHC 899
UNDER ss 316 and 317 of the Property Law Act 2007 and Part 19 of the High Court Rules 2016 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 DEVELOPMENTS LTD
First Respondent
FULTON HOGAN LAND DEVELOPMENT LTD
Second Respondent
DEGUI YIN
Third RespondentSIMON LEO ANDREW, JODIE ANN MARGARET ANDREW AND NICHOLAS INDEPENDENT TRUSTEE CO LTD
Fourth Respondent
Hearing: 12 and 13 February 2024 Counsel:
A S Ross KC and Y Lee for Applicant
C T Walker KC and A J Thorn for Fourth Respondents
Judgment:
23 April 2024
JUDGMENT OF BREWER J
SIDWELL DEVELOPMENTS LIMITED PARTNERSHIP v TOP DREAM DEVELOPMENTS LTD [2024] NZHC 899 [23 April 2024]
This judgment was delivered by me on 23 April 2024 at 2.30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Introduction
[1] The applicant applies pursuant to ss 316 and 317 of the Property Law Act 2007 (the Act) to remove a restrictive covenant registered against the title to its property at 64 Sidwell Road, Wainui (Lot 6). The fourth respondents are the owners of land at Endsley Rise (Lot 3), which has the benefit and burden of the same restrictive covenant. For the purposes of this judgment, it is enough to say that the restrictive covenant prevents the subdivision of land to which it applies.
[2]There are two major issues for me to determine:
(a)whether the covenant should be extinguished; and, if so,
(b)whether, and to what extent, the fourth respondents should be compensated.
Background
[3] Lot 6 comprises 4.198 hectares. It was formed from the subdivision of approximately 73 hectares of land into six rural residential titles. Lot 3 is also one of them. The covenant was registered against the six titles in 1996. Clause 1 of the Second Schedule of the covenant prevents the use of the subject land for any purpose other than permitted or controlled activities under the relevant District Plan, as well as specified potentially offensive uses, such as pig farming.
[4] In 1996, the land comprising the six Lots was zoned “Rural 1 (Rural General)”. This zoning provided a limited range of “permitted activities” and “controlled activities”. These activities were reflective of the primary purpose of the zone which was to enable farming activities while providing for limited opportunities for other non-rural activities.
[5] In 2016, the proposed Auckland Unitary Plan recommended that the land and its surrounding area become the Wainui Precinct. The recommendations now form part of the Auckland Unitary Plan.
[6] The land is now zoned as a mixture of Residential — Mixed Housing Suburban, Residential — Mixed Housing Urban, Residential — Terrace Housing and Apartment Building, and Open Space — Conservation.
[7] Since 1996, the Northern Motorway has been constructed and the surrounding land has changed from a rural community to the urban residential neighbourhood of Milldale. Wainui Precinct is the name given to the area in the planning framework.
[8] On 28 October 2022, Auckland Council granted the applicant resource consents to develop and subdivide Lot 6 into 74 new residential dwellings, with the creation of two vacant super lots for future development on Lot 6. The proposed development is integrated with the surrounding Milldale development, including its existing road links.
[9] The first and second respondents, who own three of the six Lots affected by the covenant, consent to the application and have filed affidavits in support. There is evidence that the third respondent consents to removal of the covenant, although no affidavit in support has been filed.
Statutory framework
[10] Sections 316 and 317 of the Act give the Court the power to modify or extinguish an easement or covenant :
317 Court may modify or extinguish easement or covenant
(1)On an application (made and served in accordance with section 316) for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—
(a)the easement or covenant ought to be modified or extinguished (wholly or in part) because of a change since its creation in all or any of the following:
(i)the nature or extent of the use being made of the benefited land, the burdened land, or both:
(ii)the character of the neighbourhood:
(iii)any other circumstance the court considers relevant; or
(b)the continuation in force of the easement or covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen by the original parties to the easement or covenant at the time of its creation; or
(c)every person entitled who is of full age and capacity—
(i)has agreed that the easement or covenant should be modified or extinguished (wholly or in part); or
(ii)may reasonably be considered, by his or her or its acts or omissions, to have abandoned, or waived the right to, the easement or covenant, wholly or in part; or
(d)the proposed modification or extinguishment will not substantially injure any person entitled; or
(e)in the case of a covenant, the covenant is contrary to public policy or to any enactment or rule of law; or
(f)in the case of a covenant, for any other reason it is just and equitable to modify or extinguish the covenant, wholly or partly.
(2)An order under this section modifying or extinguishing the easement or covenant may require any person who made an application for the order to pay to any person specified in the order reasonable compensation as determined by the court.
[11]The applicant relies on the grounds in s 317(1)(a) and s 317(1)(b).
[12] The Supreme Court has mandated a two-stage approach to s 317 applications.1 First, the Court determines whether one or more of the grounds in s 317(1) are made out. If so, the second task is to determine whether the discretion to extinguish or modify the covenant should be exercised (and, if so, to determine whether compensation should be paid).
1 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [90].
The fourth respondents’ case
[13] Mr and Mrs Andrew (two of the fourth respondents) purchased Lot 3 in 2007. They did so intending to reside permanently on the land and to enjoy its rural amenities in reliance upon the covenant. They have built a large and comfortable home, as well as several outbuildings, and they have developed the land. They depose to their wish to leave the property to their future generations.
[14] Four of the Lots, including Lot 6, have been purchased by property developers. They purchased with knowledge of the covenant. Earthworks have already commenced on Lot 6, which the fourth respondents say is directly contrary to the covenant.
[15] In countering the applicant’s submission that the covenant should be removed, in part due to a change in the character of the neighbourhood since the creation of the covenant, the fourth respondents submit that there has been no relevant change in the character of the neighbourhood:2
a.The fact that the planning rules have changed for the subject lots is irrelevant, because planning rules are not the neighbourhood.
b.The housing development in the Wainui Precinct to the south of the
~60 acre block, on the other side of Waterloo Creek, and adjacent to the motorway, does not change the character of the neighbourhood so as to undo the covenant.
i.First, this development still leaves the covenanted lots in a semi-rural environment, in which the Andrews can and do want to continue living on their lifestyle block. The motorway was known about in 1996, so it and its associated development are irrelevant. The fact that other lot owners have begun developing their lots in breach of the covenant must be disregarded.
ii.Second, the relevant prohibitions in the covenant are not undone by the housing development to the south and east. The first Covenant 1 prohibition is against activities which are neither permitted nor controlled, rather than against, e.g., urbanisation. The Andrews can still sensibly insist that, whatever may have occurred to the south and east: only permitted and controlled activities under the District Plan can be undertaken on the servient lots; no commercial poultry farming, fitch farming, etc., can be carried on; only dwellings
2 Synopsis of submissions of fourth respondents, dated 12 February 2024, at [22].
of a certain value can be constructed; that they be constructed within 12 months; and that the Andrews not be forced to bear the cost of public roading for access. Those were the precise object of the covenant. It is not a case where, e.g., a covenant permits only forestry and forestry cannot be carried on because of changes in the neighbourhood.
[16] The fourth respondents also submit that the continuation of the covenant in its existing form does not impede the reasonable use of the land in a different way, or to a different extent, from that which could reasonably have been foreseen in 1996. The covenant should be interpreted as changing with the applicable District Plan, meaning that what is permitted or restricted by the applicable District Plan at the time is reflected in the covenant. Therefore, the fact that subdivision may be more intensive and lucrative for a developer/owner now does not change the nature or extent of the impediment. Activities which were not permitted or controlled were always going to be more or less attractive to the registered proprietors over time, but the covenantors prohibited them all the same.
[17]The fourth respondents submit further:
26. Further or alternatively, the Court should exercise its discretion against extinguishment. The Andrews have developed their land over 16 years, at significant expense and effort, in reliance on the covenant. They expect to live the rest of their lives on their land and to leave it to their children and grandchildren. If the ~60 acres are kept as per the covenant, the Andrews can do so happily and with considerable privacy and peace of mind. They should not be forced to accept intensive, low-cost housing on the neighbouring five lots when this is not permitted or controlled, to face construction without time limit, or to have to pay the cost of providing public roading to the servient lots. The interests of the established homeowner which has relied on the covenant should be favoured over those of the new developer taking a commercial chance that it can have the covenant extinguished.
[18] Mr and Mrs Andrew want to continue living on Lot 3 and they do not want the covenant lifted from Lot 6 because that would affect their lifestyle by bringing urbanisation one Lot closer to them. Further, and this is not opposed, they submit that if the covenant is extinguished from the title to Lot 6, it will inevitably be extinguished from the remaining four Lots. That would leave Lot 3 as an isolated piece of land in the middle of an urban area.
[19] Building on the submission that there has been no change in the character of the neighbourhood to warrant the extinguishment of the covenant, the fourth respondents submit that the neighbourhood of Lot 6 is not the Wainui Precinct:
85.The actual neighbourhood is the ~60 acres of covenanted land itself and its immediate surrounds, not only the housing area to its south. To the extent that you consider the broader locality, you should look at it in the round, i.e., as the Wainui area, rather than limit consideration to Fulton Hogan’s Wainui Precinct. The area outlined as the Wainui Precinct at pages 15, 27, 34, 36 and 38 of Mr Blomfield’s affidavit includes only a small area in the south east of the Wainui area.
86.Virtually all of Wainui, save for the Wainui Precinct itself, still comprises lifestyle blocks or farmland. It is generally rural or semi- rural. See the Geomaps and Google Maps images at paragraphs 33 and 34 above. You should ignore the motorway and the area to its east: the motorway was already planned at the time when the covenant was entered into in 1996, and the developed area to its east is not part of the neighbourhood of the covenanted lots. The area to the north is still essentially rural. The aspect of the Andrews’ Lot 3 remains semi-rural, all the more so if you ignore the covenantors’ actions in breach of the covenant. The housing development within the Wainui Precinct, to the south of the covenanted lots, is on the other side of Waterloo Creek, some distance away, and lower, so that the Lot 3 still retains substantial privacy and a semi-rural, lifestyle setting.
…
91.The fact that there is now housing development to the south, pursuant to rules which permit more intensive housing in a particular area on a restricted discretionary basis, is not a change in the character of the neighbourhood which could be relevant to a covenant that, whatever they might be, only permitted and controlled activities are allowed on the covenanted lots.
92.The housing development to the south in the Wainui Precinct is also not a change in the character of the neighbourhood such as would undo the covenants only to build a residential house of a certain minimum value, not to take more than 12 months in doing so, and not to put the registered proprietors of the dominant lots to the cost of providing public roading access to the servient lots.
[20] As to s 317(1)(b), the fourth respondents submit that the covenanting parties must be taken to have understood and expected that what was permitted or controlled would change from time to time as the District Plan changed:
96.The covenanting parties agreed that, whatever the activities which were not permitted or controlled in fact, and (implicitly) however reasonable those uses might be otherwise, they would not pursue them. Given such a covenant, the s 317(1)(b) requirement that the
impediment operate differently from what could reasonably have been foreseen cannot be satisfied.
[21] In summary, the fourth respondents submit that the extinguishment of the covenant would cause substantial injury to the owners of Lot 3, as they would have to endure the consequences of ongoing development of intensive housing on adjacent Lots which, they say, will cause a substantial loss of amenity and may lead them to sell their lifelong home. As such, the fourth respondents submit that, in looking to exercise its discretion, the Court should consider that the covenant has a clear and continuing purpose in protecting the fourth respondents from being exposed to intensive housing development activities for an indefinite period.
Compensation
[22] In the event that the Court decides to extinguish the covenant from Lot 6, the fourth respondents submit that they are entitled to compensation reflecting a diminution in the value of their land because urbanisation will creep closer. They further submit that they are also entitled to a share of the profit that the applicant stands to make from developing Lot 6.
[23] The fourth respondents briefed an experienced valuer, Mr Cheyne, to give evidence of the effect on the value of Lot 3 if the covenant over Lot 6 is removed. However, his instructions required him to make the valuations on the basis that the covenant would, and must in the future, remain registered against the title to Lot 3.
[24] Mr Cheyne’s evidence is that the reduction in value of Lot 3 resulting from the removal of the covenant over Lot 6 is $710,000 including GST.
[25] Mr Cheyne estimates that if the covenant is extinguished from Lot 6 then it will increase in value by $10.550 million including GST.
[26] The fourth respondents filed affidavits from Mr Aitken, an architect, Mr Gracey, a quantity surveyor, and from Mr Whitburn, an experienced property developer. The overall purpose of the evidence of these witnesses (which was not contradicted by the applicant) was to estimate the likely profit of the applicant’s
proposed development. That estimate, given by Mr Whitburn, is $12,698,840 excluding GST.
[27] The fourth respondents submit that, on the authority of Chand3 and Reynolds,4 the object of the Court’s assessment is to ascertain the amount that the applicant would pay pursuant to an agreement on a “willing seller, willing buyer” basis for the extinguishment or modification of the covenant. This is commonly taken to comprise the loss of value in the benefiting land plus a share (20–36%) of the increase in value of the servient land. Therefore, the Andrews’ claim:5
a.diminution in the value of Lot 3, in the amount of $710,000 (incl.
GST); and
b.36% share in the increase in value of Lot 6, in the amount of (0.36 x
$15,500,000 =) $5,580,000 (excl. GST) (on Mr Taylor’s sales comparison figures);
c.alternatively to ‘b’, a 36% share in the increase in value of Lot 6, in the amount of (0.36 x $10,550,000 =) $3,780,000 (incl. GST) (on Mr Cheyne’s sales comparison figures).
Discussion — the application
[28] First, I have no hesitation in holding that the applicant has established that s 317(1)(a) and s 317(1)(b) of the Act apply.
[29] I reproduce two diagrams which are part of the market valuation report annexed to the affidavit of Mr Taylor, sworn 14 December 2023. The Lots in question are outlined in red, with Lot 6 being the Lot closest to the foot of the first diagram:
3 Chand v Auckland Council [2021] NZCA 282, [2022] NZRMA 34.
4 Reynolds v Parklands Properties Ltd [2021] NZCA 394, (2021) 22 NZCPR 516.
5 Synopsis of submissions of fourth respondents, above n 2, at [195].
[30]
The second diagram is a closer view:
[31] In my view, the neighbourhood of Lot 6 is not limited only to the Lots adjacent to it. The neighbourhood consists of the wider area in which Lot 6 and the other Lots are situated. Clearly, the land, including Lot 6, is no longer a predominantly farming area. That is reflected by the change in zoning. The present character of the neighbourhood is very different from the bucolic character which existed in 1996 when the covenant was created.
[32] Further, the continuation in force of the covenant in its existing form would clearly impede the reasonable use of the burdened land to a different extent from that which could reasonably have been foreseen by the original parties to the covenant at the time of its creation in 1996. In 1996, the land was rural. The purpose of the covenant was not to keep the land rural but to ensure that the reasonable use of each Lot would not unduly impinge on the quiet enjoyment of the owners of the other Lots.
[33] As the Supreme Court observed in Synlait, “reasonable use” is not static and, where reasonable use changes, that becomes relevant to the assessment of the nature and extent of the impediment.6
[34] The applicant’s resource consent to subdivide and develop Lot 6 demonstrates how the covenant impedes what is now the reasonable use of Lot 6. I note that the wording of the covenant is out of date. There are no longer “permitted” or “controlled” activities. Instead, the planning classification “restricted discretionary activity” requires a resource consent process to manage effects.
[35] The construction of the motorway was presaged at the time the covenant was created, but the intensive and rapid urbanisation which followed was not.
[36] I now turn to determine whether the discretion to extinguish the covenant should be exercised.
[37] Having found that s 317(1)(a) and s 317(1)(b) of the Act apply, the issue becomes whether there is good reason not to make the orders sought. I take into
6 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 1, at [161].
account that the fourth respondents are the only objectors and that other owners actively or tacitly support the application.
[38]I cannot see good reason to exercise my discretion against the applicant.
[39] I have every sympathy for Mr and Mrs Andrew. They bought Lot 3 with the expectation of developing it as their lifelong home within a rural environment. But events have modified the neighbourhood in which they live. That modification is going to continue. The land to the North of them has been designated for future urban development and they are otherwise surrounded by it. That is simply the reality. They can no more hold back the tide of “progress” than King Canute could hold back the tide of the sea.
[40]I will allow the application.
Discussion — compensation
[41] Section 317(2) of the Act gives the Court a discretion to order the applicant to pay the fourth respondents reasonable compensation.
[42]The Supreme Court held in Synlait:7
… the power to award compensation under s 317(2) is designed to deal with any damage or loss caused by the permanent extinguishment or modification of a covenant.
[43] As I will come to shortly, the measure of compensation is on a “willing seller, willing buyer” basis.
[44] In Cambray North Island Ltd v Minister for Land Information,8 Wylie J held that, in determining whether the award compensation, the Court must first identify whether there is “any actual detriment to the respondent if the [covenant is modified]” and then consider:
7 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 1, at [171](d).
8 Cambray North Island Ltd v Minister for Land Information (2011) 12 NZCPR 721, at [28].
… whether or not there are other factors of benefit or detriment to either side that would affect what one or other was willing to pay in hypothetical willing seller and willing buyer negotiations.
[45] I respectfully concur. It follows that if there is no actual detriment to a respondent in a covenant being modified or deleted then the second inquiry is not reached. There is nothing to compensate for.
[46] The fourth respondents rely on two cases, Chand9 and Reynolds,10 in support of their claim to a percentage of the applicant’s assessed profit as part of the reasonable compensation to which, they submit, they are entitled.
[47] Chand concerned an application to modify a covenant affecting eight lots in a residential subdivision to permit the applicants to further subdivide their lot. They put forward a proposal to subdivide into five lots. The applicant relied on s 317(1)(d), contending that the proposed modification would not substantially injure any person entitled.
[48] The Court of Appeal11 agreed with the Judge below that “the evidence sufficiently establishes the respondents will experience enduring injury, in the form of loss of view, loss of privacy and intrusion of traffic and noise, if the proposed development proceeds”.
[49] The Court of Appeal accepted also that if the covenant was modified the respondents would likely also experience loss of property values.
[50] The Court went on to hold that loss of proprietary rights is compensable injury under s 317, but clarified:12
That said, any price that reasonable parties would negotiate on a willing seller, willing buyer basis, with no question of compulsion on either side, must influence a court’s assessment of reasonable compensation. The legislative history to which we have referred above indicates that compensation is intended to ameliorate the impact of an order on property rights, so facilitating exercise of a remedial jurisdiction. By its act the court deprives the owner of
9 Chand v Auckland Council, above n 3.
10 Reynolds v Parklands Properties Ltd, above n 4.
11 Chand v Auckland Council, above n 3, at [22].
12 At [48].
control of an asset, and possibly of the asset itself. Following Synlait, this forms part of the injury done by modification. It follows that the value of the lost asset may be reflected, to the extent the court finds appropriate in the particular circumstances, in the compensation awarded.
[51]As to the kinds of injuries which may be taken into account:13
We begin by adopting what was said about the kinds of injuries that may be taken into account in Mogensen v Portland Developments Pty Ltd:14
The injury may be of an economic kind, eg reduction in the value of the land benefited, or of a physical kind, eg subjection to noise or traffic, or of an intangible kind, eg impairment of views, intrusion upon privacy, unsightliness, or alteration to the character or ambience of the neighbourhood. … the subjective tastes, preferences or beliefs of particular individuals may, within limits of reasonableness, give rise to injury in the relevant sense to those individuals …
[52] Because of the finding that modification of the covenant would cause the respondents substantial injury, the first step of the Synlait test was not met and there was no need to address the quantum of compensation. The appeal was dismissed.
[53] In the present case, the applicant does not rely on s 317(1)(d). The applicant has crossed the s 317(1) threshold in other respects and if the discretion to award reasonable compensation is to be exercised it must be directed at ameliorating the impact of the order on the fourth respondents’ property rights. If there is no loss in need of amelioration, there will be no award of compensation.
[54] In Reynolds, the applicant sought to extinguish easements created in four documents, one in 1999 and three in 2007. One easement was relied on by the respondents to access their home (the applicant pointed out that alternative access was available). The applicant’s motive was to take advantage of a resource consent to subdivide its own land with the expectation of substantial commercial gains.
13 At [51].
14 Mogensen v Portland Developments Pty Ltd (1983) NSW ConvR 56,855 at 56,856. In that case, an application was made to modify a restriction under the Conveyancing Act 1919 (NSW), s 89(1)(c), which allowed a restriction to be modified where the court is satisfied that the “proposed modification … will not substantially injure the persons entitled … to the benefit of the restriction”.
[55] The majority held that, on the evidence, the applicant had not satisfied the first step of the Synlait test.15 This was contrary to the finding of the Judge at first instance and sufficient for the respondents’ appeal to succeed.
[56] However, the majority also discussed how compensation should have been calculated if the appeal had been unsuccessful:
[155] We consider that when assessing compensation under s 317(2) the objective ought to be to identify the amount of compensation that would have been agreed by the parties, acting reasonably, if they had reached an agreement for the extinguishment of the easement. Any factor that reasonable parties would take into account in negotiating compensation for extinguishment of the easement is relevant to the assessment by a court of compensation to be paid under s 317(2).
[156] The owner of the benefited land could not reasonably be expected to surrender the easement without receiving compensation for all loss that they would suffer as a result. We do not consider that it is necessary to assess whether any advantage lost as a result of surrender of the easement would come within the purposes for which the easement was granted, or would be “collateral” to those purposes. A reasonable owner of the benefited land could not be expected to forego any current benefit associated with the easements, whether or not that benefit was envisaged at the time the easements were created, without being compensated for that loss. An estimate of the amount of any such loss sets a floor for the reasonable compensation to be awarded by the court.
…
[158] A reasonable owner of the benefited land could also be expected to negotiate for a share of the benefit to the owner of the burdened land from release of the easement. At the risk of stating the obvious, the maximum that the owner of the burdened land might be willing to pay for release of the easement would be the increase in the value of that land to them as a result of the release.
[159] The amount by which the gain to the owner of the burdened land exceeds the loss to the owner of the benefited land represents the “gains from trade”: the amount by which the parties collectively would be better off as a result of agreeing to release the easements. How those gains would be shared is a matter for negotiation between the parties.
(footnotes omitted)
15 The applicant relied on s 317(1)(a)(i), (ii) and (iii) — i.e. changes in the nature or extent of the use of the land, the character of the neighbourhood, and the existence of other relevant circumstances.
[57] The majority had the view that the applicant’s “gains from trade” would be about $12.56 million and that compensation of $4.6 million, or about 33 per cent of the applicant’s gains, would have been appropriate.16
[58] In considering the discretion to award reasonable compensation in the present case, the first issue is to identify any loss to the fourth respondents resulting from the extinguishment of the covenant.
[59] I do not accept Mr Cheyne’s assessment that the extinguishment of the covenant over Lot 6 diminishes the value of Lot 3. Mr Cheyne’s opinion was based on the hypothetical assumption that Lot 3 could only be sold as a block of land which could never be subdivided because the covenant would always prevent it. That is simply not realistic.
[60] The owners of all the other five Lots have already registered partial revocations of the covenant against the titles of their Lots. They have also entered into a deed which provides for the complete extinguishment of all of the covenants, including the covenant in respect of Lot 3, if Mr and Mrs Andrew become a party to the deed. There is simply no question that the value of Lot 3 is not as a piece of land incapable of subdivision but as a piece of land which can be subdivided in accordance with its zoning.
[61] There is no appreciable loss of amenity either. Lot 6 is separated from Lot 3 by Lots 5 and 4. All that will happen is that the urbanisation of the neighbourhood will be a single lot closer to Lot 3. If there are further applications by the owners of nearer Lots then this inquiry will have to be made afresh.
[62] I do not find any loss or damage to the fourth respondents if the covenant is extinguished which should be compensated.
[63] If I am wrong, then I consider that this is a case where there should be no share of profit awarded to the fourth respondents. As Mr Ross KC submits, this is not a case
16 The majority approved the analysis of authorities carried out by Mallon J in Dooley v Sturgess Consulting Ltd [2016] NZHC 1905, (2016) 18 NZCPR 400 in which compensation in the 20 to 36 per cent range of identified gain was indicated.
of a winner and a loser. The increase in property values because of the change of zoning applies equally to all of the owners of the Lots. As such, this case is factually distinct from Reynolds. It would be unreasonable to give the fourth respondents a share of the applicant’s profit — a precedent which would apply to the applications which will inevitably be made by the other owners — when their own property has the same increase in value.
[64] In my view, this conclusion is supported by the “willing seller, willing buyer” analysis. Here, there is no need to be hypothetical. The owners of the other Lots have agreed that extinguishing the covenant is to the equal benefit of all and the terms of their agreement do not include any payment by the owners of any one Lot to the owners of any other Lot.
[65] Section 317(2) prescribes that any compensation must be reasonable. The concept of reasonableness runs through the cases in this area, including Jacobsen Holdings Ltd v Drexel,17 which was foundational to the development of the “willing seller, willing buyer” concept in this area. In that case the Court said:18
… the hypothesis is a willing seller and a willing buyer. Compulsion on either side is to be disregarded: the seller is not to be treated as one forced by circumstances to sell his potentiality for anything he can get, the buyer is not to be treated as one driven to buy. It is the price that willing parties would arrive at in friendly negotiation that has to be found, on such materials as are available.
…
But the hypothesis also includes a reasonable seller so that no case of “blackmail”, of a price forced to unreasonable heights by necessity, can arise.
[66] The fourth respondents cannot use their position as owners of Lot 3 to force an unreasonable result on the applicant.
Decision
[67] The application is granted. The covenant against Lot 6 is extinguished in total. For the avoidance of doubt, that means the dominant and servient tenement aspects.
17 Jacobsen Holdings Ltd v Drexel [1986] 1 NZLR 324.
18 At 328–329 per Cooke P and 334 per Somers J.
[68]I decline to award compensation.
[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.
Brewer J
Solicitors:
Greenwood Roche (Auckland) for Applicant
Thorn Law Ltd (Auckland) for Fourth Respondents
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