Taurikura Holdings Ltd v Tauranga City Council

[2022] NZHC 994

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2021-470-139

[2022] NZHC 994

IN THE MATTER

of an application under s 317 of the Property Law Act 2007 to modify Covenant 8496522.1 and 8496602.5

BETWEEN

TAURIKURA HOLDINGS LIMITED

Applicant

AND

TAURANGA CITY COUNCIL

First Respondent

Hearing:

12 April 2022

Appearances:

T Conder and S Hartley for the Applicant

No appearance by or for the First Respondent (abiding the decision of the Court)

Judgment:

11 May 2022

JUDGMENT OF GAULT J

This judgment was delivered by me on 11 May 2022 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors:

Mr T Conder, Mr D Fraundorfer and Mr S Hartley, Holland Beckett, Tauranga Ms M Battersby, Tauranga City Council, Tauranga

Copy to:

Mr E S Scorgie and Mr W M Cheyne (for Winstone Wallboards Ltd), Chapman Tripp, Auckland Mr C B Russell (for Classic Investments Lot 500 Tauriko Ltd), Solicitor, Tauranga

TAURIKURA HOLDINGS LTD v TAURANGA CITY COUNCIL [2022] NZHC 994 [11 May 2022]

[1]    Taurikura Holdings Ltd (THL) seeks to modify two covenants affecting a large number of titles in a growing industrial estate on the boundary of Tauranga  under   ss 316 and 317 of the Property Law Act 2007 (PLA).

[2]THL also seeks permission to proceed by way of originating application.1

[3]    Some of the affected landowners have consented to the application. All others have been served and none has taken any steps to oppose the application. Accordingly, the matter proceeded by way of formal proof hearing.

[4]    THL says the covenants were originally put in place to ensure that there could be no objection to building work on part of the burdened land. That work is now underway. However, the covenants are now preventing the vesting of a road necessary for the continued growth of the area. The proposed change is a narrow one to facilitate roading without changing the substance of the covenants.

Factual background

[5]    The background and reasons for the application are set out in Mr Donne’s affidavit, and may be summarised as follows.

[6]    Development of the Tauriko Business Estate (the Estate) near Tauranga has been a long term project that began in the early 2000s, and has gradually extended towards the area occupied by the land to which the covenants relate. The Estate now covers a total area of around 300 hectares with some 440 businesses. Work continues on extending the Estate and is likely to continue for at least another 10 years.

[7]    During an early stage of the development, a related party to THL entered into a sale and purchase agreement to purchase a property located in Wintrebre Lane (the Winterbre property),2 which was operated as a dairy farm.

1      High Court Rules 2016, r 19.5.

2      CT 226663.

[8]    The purchaser sought a private plan change to rezone the Winterbre property from rural to industrial.  As  part  of  a  compromise  to  allow  that  to  take  place, an 80 metre building setback (the setback) was granted in the Plan for the benefit of two kiwifruit orchard properties adjacent to it, at 127 and 137 Belk Road.

[9]    Subsequently, a related party to THL had the opportunity to purchase the two orchard properties. However, due to the Global Financial Crisis, 127 Belk Road was on-sold to the New Zealand Transport Agency (NZTA). This enabled NZTA to protect the corridor for a bypass.

[10]   On 2 June 2010, in anticipation of the purchase and on-sale, covenants in identical terms were registered over each of the two orchard properties to ensure that the setback would not prevent development in that area.3

[11]   In summary, the covenants provide that the owners of the burdened land must provide whatever consent is necessary to allow development on the area that is the subject of the setback.

[12]   127 Belk Road remains unchanged. 137 Belk Road has now been included in an amalgamated title.

[13]   The covenants were originally for the benefit of a single property, the Winterbre property. However, the Winterbre property has since been subdivided with the effect that there are now 114 titles or unit titles that are technically benefitted by the covenants. In practice, the setback itself is only on two of those titles – one held by Classic Investments Lot 500 Tauriko Ltd4 and one held by Winstone Wallboards Ltd.5 On 10 December 2019, Winstone Wallboards Ltd received resource consent to build in the setback area.

[14]   NZTA determined that it no longer needed 127 Belk Road. THL purchased 127 Belk Road through a Public Works Act disposal.

3      Covenant 8496522.1 over CT 226664 and covenant 8496602.5 over CT SA66C/238.

4      ROT 949745.

5      ROT 930718.

[15]   THL is now further subdividing the burdened land and intends to vest part of it as a road to widen what is currently Belk Road. In order for that land to vest as a road, the covenants must either be removed, or THL must have the consent of every benefitted title.

[16]   THL therefore seeks to have the covenants modified to include a more modern term that allows the covenants to be removed by operation of law as part of the vesting process, obviating the need for consent.

Proceeding by way of originating application

[17]   Applications under s 316 of the PLA are not automatically to be made by originating application under r 19.2 of the High Court Rules 2016, but under r 19.5 the Court may, in the interests of justice, permit other proceedings to be commenced by originating application. The test when considering an application for leave to proceed by way of originating application is whether it is in the interests of justice. As the Court of Appeal said in Jones v O’Keeffe, the originating application procedure under pt 19 is normally limited to cases where particularised pleadings and interlocutory steps such as discovery are not necessary for the proper determination of issues.6 It is not appropriate where factual issues are in dispute.

[18]   Here, I consider that pleadings and interlocutory processes are not required. The application is not opposed. There are no disputed facts. The originating application process has been applied in a number of recent cases involving applications under s 316 of the PLA.7

[19]   The objective of the High Court Rules is to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application.8 I consider the pt 19 originating application procedure is in the interests of justice in this case. Permission to proceed under pt 19 is granted.

6      Jones v O’Keeffe [2019] NZCA 222 at [52].

7      Wang v Auckland Council [2021] NZHC 499; Re Marriner Property Ltd [2020] NZHC 1747; Land Depot Ltd v Friese [2020] NZHC 1085; and Fair v Fair [2019] NZHC 2349, (2019) 20 NZCPR 652.

8      High Court Rules 2016, r 1.2; see also Solar Bright Ltd v Martin [2019] NZHC 300 at [18] and [26].

Modification of covenants

Legal principles

[20]Sections 316 and 317 of the PLA provide:

316Application for order under section 317

(1)A person bound by an easement, a positive covenant, or a restrictive covenant (including a covenant expressed or implied in an easement) may make an application to a court for an order under section 317 modifying or extinguishing that easement or covenant.

(2)That application may be made in a proceeding brought by that person for the purpose, or in a proceeding brought by any person in relation to, or in relation to land burdened by, that easement or covenant.

(3)That application must be served on the territorial authority in accordance with the relevant rules of court, unless the court directs otherwise on an application for the purpose, and must be served on any other persons, and in any manner, the court directs on an application for the purpose.

317Court 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.

[21]   A court in this context includes the High Court exercising originating jurisdiction.9

[22]   Turning to the Court’s approach in s  317  cases,  in  Synlait  Milk  Ltd  v  New Zealand Industrial Park Ltd, the Supreme Court said:10

[67] The cases on s 317 generally adopt a two-stage approach. The court’s first task is to determine whether one (or more) of the grounds in s 317(1) is made out. If one (or more) of the grounds in s 317(1) is made out, the second task is to determine whether the discretion to extinguish or modify the covenant should be exercised. We adopt that approach. We acknowledge, however, that if the court finds one or more of the grounds in s 317(1)(a) is engaged, it will have found that (using the words of s 317(1)(a)) “the easement or covenant ought to be modified or extinguished (wholly or in part)”, which may bring into play at the first stage some of the considerations that are also relevant at the second stage.¹¹

[23]   Having considered the effect of the legislative broadening of the statutory power, the Supreme Court said it would not overlay the requirements of s 317 with additional, non-statutory criteria that have the effect of altering the clear parliamentary intention that easements and covenants should be amenable to modification or extinguishment in defined circumstances.12

9      Sutherland v MacAlister (2010) 11 NZCPR 732 (HC).

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

11  Similarly, if the court found s 317(1)(f) was engaged, it would have determined that it was just   and equitable to modify or extinguish the covenant. That too may bring into play at the first stage some of the considerations that are also relevant at the second stage.

12 At [85].

[24]   The Supreme Court concluded that the exercise of the discretion to modify or extinguish the easement or covenant requires consideration of all relevant factors (including the power to award compensation). The Court did not see any intent that any one factor should be disqualifying.13

Is one (or more) of the grounds made out?

[25]   Mr Condor, for THL, relied on each the grounds in s 317(1)(a)-(f) except (e), but primarily relied on s 317(1)(d): that is, that “the proposed modification … will not substantially injure any person entitled”.

[26]   Mr Condor submitted that the covenants were intended to facilitate building on the setback. This has already commenced. Even if this were not the case, the modification would not remove the benefit of the covenants. They will continue to apply to the balance of the land, unamended. The only parties who could suffer any harm in a practical sense have given their consent to the change.

[27]   Mr Condor also submitted, relying on s 317(1)(b), that the covenant in its unmodified form would unreasonably impede the use of the land. Obtaining express consent of all owners of the benefitted land would be almost impossible. Even service of this application has taken more than three months. Of those parties served, fewer than one-third have provided written consent to the application. If the owner was required to obtain the written consent of the other owners in any case where a road was proposed, it would become prohibitively difficult and expensive, even more so than in the present application.

[28]He submitted the burden is also plainly unreasonable when:

(a)the covenant was intended to render easier the industrial development of the area;

(b)the covenant is entirely unrelated to roading; and

13 At [90].

(c)112 (of the 114) legal benefitted titles derive no practical benefit from the covenant.

[29]   Mr Condor also submitted that to require the owner to obtain the consent of all these parties would not preserve any right intended to be conveyed by the covenants. The only right it might preserve is the power of the other owners to hold the owner of the burdened land to ransom by using an unrelated restriction to block development. The covenants’ function is a barrier to development – development of the kind that they were intended to facilitate. This would be contrary to the policy of s 317 and amount to the kind of vexatious use that the Court of Appeal has criticised.14

[30]   I am satisfied that at least one of the grounds in s 317(1) is made out. In terms of s 317(1)(d), the proposed modification will not substantially injure any person entitled. As Mr Condor submitted, the only parties who could suffer any harm in a practical sense have given their consent. Also, in terms of s 317(1)(b), continuation of the 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. The covenants were intended to facilitate development, not inhibit it.

Exercise of discretion

[31]   Mr Condor submitted that these two factors alone would warrant the modification. He submitted the case is somewhat analogous to this Court’s decision in Nova Scotia River Estates Ltd v Whangarei District Council, which also considered a covenant that would be an unreasonable barrier to council roading.15 In that case Moore J was satisfied that the absence of practical injury, and the need to facilitate the intended use of development, warranted the modification sought – which was to remove the covenant from the land to vest in the Council, broadly equivalent to the modification sought here.

14     New Zealand Industrial Park Ltd v Stonehill Trustee Ltd [2019] NZCA 147, [2019] 20 NZCPR 119.

15     Nova Scotia River Estates Ltd v Whangarei District Council [2017] NZHC 196.

[32]Mr Condor submitted that other factors support this conclusion:

(a)The parties directly affected by the modification have consented to it. All other parties have been served with the proceeding and have taken no steps to oppose.

(b)There has been a relevant change in circumstances in two principal ways. First, the character of the neighbourhood has changed. At the time the covenants were registered, the burdened land was made up of two kiwifruit orchards. The entire area is now being developed as an industrial estate. Secondly, work has already begun on the setback, meaning that the motivating circumstance of the covenant no longer applies.   Whether or  not this means that the separate ground under    s 317(1)(a) is also made out, it weighs in THL’s favour in the exercise of discretion.

(c)The modification gives effect to what the covenants were intended to achieve.

(d)The term proposed is one that may well be included in the covenants if they were being registered today. Mr Donne said their usual practice, and that of several other developers, is to include clauses in covenants that allow them to be automatically removed if they are to be vested as a road.

[33]   I am satisfied that the combination of these factors means it is just and equitable that the covenants be modified. The covenant should be modified to the limited extent sought. I also do not consider that compensation is appropriate in the circumstances.

[34]   As to the form of modification, Mr Donne provided two examples of the kinds of clauses that are used. In the circumstances of this case, the shorter form should suffice.

[35]   Finally, to assist with the process of registering this change with Land Information New Zealand, I confirm that the affected parties have been served with this application and accordingly there appears to be no need for them to be served again prior to registration.

Result

[36]I make the following orders:

(a)THL is granted permission to proceed by originating application.

(b)Covenants 8496522.1 and 8496602.5 are modified by the insertion of a new clause 4 that provides:

4.These covenants will automatically cease to have any effect  on any allotment that is intended to vest as road or reserve upon approval as to survey by Land Information New Zealand of the LT plan which includes such vesting.

Gault J