Taylor v Small
[2019] NZCA 152
•13 May 2019 at 12.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA715/2018 [2019] NZCA 152 |
| BETWEEN | WILLIAM PETER TAYLOR AND SUSAN MARY TAYLOR |
| AND | GEOFFREY CLEMMENT SMALL AND ARIA SMALL |
| Hearing: | 9 April 2019 |
Court: | Miller, Collins and Toogood JJ |
Counsel: | R B Brabant and S T Darroch for Appellants |
Judgment: | 13 May 2019 at 12.30 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed in part.
BThe cross-appeal is dismissed.
CThe case is remitted back to the High Court to determine the issues dealt with under the second ground of appeal in accordance with [82] of this judgment.
DCosts are awarded to the first respondents in accordance with [84] of this judgment.
____________________________________________________________________
REASONS OF THE COURT
(Given by Collins J)
Introduction
Four questions are raised in this appeal, namely whether the High Court was correct when it ruled:[1]
(a)That certain covenants allowed a dwelling house to be built on each of seven lots of land that had been subdivided from land Mr and Mrs Small (the Smalls) purchased from Mr and Mrs Taylor (the Taylors).
(b)That an equestrian facilities building, constructed by the Smalls on one of their subdivided lots, complied with the terms of the covenants.
(c)That conduct subsequent to the creation of the covenants was not admissible in construing the intentions of the parties to the covenants.
(d)That the Taylors were not estopped from advancing their interpretations of the covenants.
[1]Taylor v Small [2018] NZHC 2785.
It will be immediately apparent that the answers to questions [1](a) and (b) involve interpretation of the terms of covenants that restrict the use of land the Smalls purchased from the Taylors. There are two covenants in issue, referred to as Covenants 3 and 4. The terms of those covenants are, in all material respects, identical. The key clause of the covenants states:
(i)That the Covenantors shall not erect or permit to be erected or placed on the servient lands or any part thereof any building or erection other than a new (not being an existing building previously occupied or used and removed from another locality) single dwelling house and such farm outbuilding or ancillary buildings as are usual and reasonable for the type of rural use of the land in the subdivision (of which the dominant land and the servient lands form part) and of a nature design or style (including that of the garden or land-scaping aspects and fencing of surrounding grounds) in keeping with each other such that the dwelling house and any additional buildings and the surrounding grounds thereof blend in with the rural nature of the surrounding area to ensure that a pleasing and aesthetically compatible appearance is maintained for the benefit of the dominant land and all the servient lands.
The interpretation exercise raised by the first two grounds of appeal depends on the answers to the following two questions:
(a)Does the restriction in the covenants to “not erect … on the [Smalls’] lands or any part thereof any building … other than a new … single dwelling house” mean that a dwelling house cannot be constructed on each of the Smalls’ seven subdivided lots?
(b)Is the equestrian facilities building a “farm outbuilding or ancillary [building that is] usual and reasonable for the type of rural use of the land in the subdivision …”?
The question set out at [1](c) has been presented by way of cross-appeal, although the issues raised by that question also relate to the correct interpretation of Covenants 3 and 4. It is argued on behalf of the Smalls that Gordon J, the High Court Judge, erred when she held that evidence of changes to boundaries and development of the land subsequent to the creation of Covenant 3 (and later Covenant 4) was inadmissible in construing the intention of the parties who created the covenants.
The question we have set out at [1](d) also arises by way of cross-appeal. The Smalls claim that the Taylors and other appellants are estopped from arguing that a single dwelling house cannot be built on each of the seven lots created by the Smalls. In their second ground of cross-appeal, the Smalls also contend that Gordon J erred when she ruled that the appellants were not estopped from asserting the Smalls’ equestrian facilities building breached the terms of the covenants.
Background
The subdivisions
The land at the heart of this litigation comprises rural lifestyle blocks adjacent to Ingram Road, which is located south of Auckland, about mid-way between Ramarama and Bombay.
In 1994, the Taylors, who at the time owned approximately 73 hectares of farmland, obtained approval from the then Franklin District Council to subdivide 40 hectares. Because Gordon J has comprehensively set out the history of the various subdivisions and boundary changes that have occurred since 1994 we can briefly summarise the essential features of the history of the subdivisions of the land in question.
There were six original residential lots created by the 1994 subdivision. Original Lot 2 was sold in 1994 and, in due course, acquired by Mr and Mrs Johnston (the Johnstons), the third appellants. Original Lot 3 was sold by the Taylors in 1997. That lot is currently owned by Mr Savory and Ms Renwick, the fourth appellants.
In 2004, the Taylors further subdivided original Lots 4 and 5. That subdivision created two further lots from original Lot 4 and part of original Lot 5. The first of those 2004 lots, comprising part of original Lot 4 and the part of original Lot 5, was purchased by Mr and Mrs Jackson (the Jacksons), the second appellants. The second 2004 lot, comprising the other part of original Lot 4, was at some stage sold to Mr Wang and Ms Qi, who gave notice of being interested parties but did not otherwise participate in the proceeding. The dwelling houses occupied by the Jacksons and Mr Wang and Ms Qi both lie within the boundaries of original Lot 4.
Original Lot 2 was subject to Covenant 1 while original Lot 3 was subject to Covenant 2. The dominant land of those covenants included all the original Lots. Those covenants contained a clause identical to that set out at [2].
In 1998, the Taylors and the owners of original Lot 3 agreed to Covenant 3, which applied to the Lots then owned by the Taylors, namely original Lots 1, 4, 5 and 6. Lot 3 was the dominant land of Covenant 3. Covenant 4 was created in favour of the Lot purchased by the Jacksons in 2004, at the time it was purchased from the Taylors. The servient land of Covenant 4 included original Lots 1 and 6.
In 2013, the Smalls purchased 17.5 hectares in a single lot from the Taylors. That land comprised a large part of original Lot 1, a small part of original Lot 4, most of original Lot 5 and all of original Lot 6. Thus, the land purchased by the Smalls was subject to Covenants 3 and 4, which contain the clause set out at [2].
In 2014, the Smalls obtained a building consent and constructed the equestrian facilities building that became a catalyst for this litigation. The equestrian facilities building comprises a 300 m2 stable and barn complex with 96 m2 of temporary accommodation on two levels and an 85 m2 truck and machinery shed. The construction works undertaken in 2014 included the building of other equestrian facilities and the preparation of a building site for a dwelling house that has yet to be constructed.
In 2015, the Smalls applied to the Auckland Council, which had by this time taken over the role of the Franklin District Council, for consent to subdivide the land they had purchased from the Taylors into seven lots. It was their intention to sell six lots and use the proceeds to build a home on Lot 7, where they are temporarily living in the equestrian facilities building.
After obtaining approval and titles for their subdivision, the Smalls advertised Lots 1 to 6 for sale. Those lots range in size from approximately 3,000 m2 to 5,300 m2. They have sold Lot 4 to Bombay Investments Ltd, the second respondent. That lot sits within the boundaries of original Lot 1. A single dwelling house is under construction on that lot. In 2018, the Smalls sold another of their subdivided lots that sits within the boundaries of original Lot 5. The Smalls ceased marketing their other lots once this litigation commenced.
The covenants
The recital to Covenants 3 and 4 referred to the creation of “identical positive and restrictive land covenants” to those contained in Covenants 1 and 2.
Clause (ii) of Covenants 3 and 4 stipulate the base value of any dwelling house that can be built on the servient land. Clause (ii) of Covenant 3 states:
(ii)That the Covenantors will not erect or permit to be erected or placed on the servient lands or any part thereof any dwelling house except in accordance with (i) hereof and unless the value of the dwelling house (not including any ancillary buildings) shall have a value of not less than a base figure of $200,000.00 as at the 1st day of October 1994, adjusted by the movement of the New Zealand Institute of Valuers Model Housing Cost Index from that date to the date of application for a permit.
Clause (ii) of Covenant 4 sets the base value of any dwelling house at $300,000 as at 1 October 2004.
Clause (iii) of the covenants prohibits the erection on the servient lands of any caravan, hut or shed unless they are of a permanent nature and form part of the additional or ancillary farm buildings referred to cl (i). Clause (iv) requires any covenantor who farms servient lands to comply with best farming practices and to keep the lands in question free from pests and noxious plants.
The litigation
The appellants, led by the Taylors, became concerned about two issues:
(a)That seven dwelling houses and related outbuildings would be constructed on the land purchased by the Smalls. Mr Taylor says that the appellants are distressed about the “potential interference of intensive and intrusive housing and building on the landscape”.
(b)The scale and style of the equestrian facilities building. Mr Taylor describes the building as “a commercial size shed”. Adjacent to that building is “an Olympic size arena and a six horse walker”. The building, which Mr Taylor says can be described as utilitarian, is constructed primarily from long-run steel. Mr Taylor says the equestrian facilities building “does nothing to fit in with the landscape or enhance the feeling of rural living”.
Unsuccessful attempts were made to resolve the conflict. When those efforts failed, the appellants’ proceeding was commenced by way of an application under the Declaratory Judgments Act 1908 for declarations that Covenants 3 and 4 prohibit the building of more than three dwelling houses on the land purchased by the Smalls and prohibited the construction of the equestrian facilities building. The appellants also sought an injunction restraining the Smalls, and any purchasers of the land, from constructing dwelling houses in breach of the covenants and an order requiring the Smalls to deconstruct and remove the equestrian facilities building within six months.
The appellants argue that the effect of Covenants 3 and 4 is that only three dwelling houses may be built on all of the land purchased by the Smalls because the covenants provide a limit of a single dwelling house per original lot, and the Smalls’ land includes only three of the original lots that do not already have a dwelling house, namely original Lots 1, 5 and 6. The appellants also contend that the equestrian facilities building constructed by the Smalls does not comply with Covenants 3 and 4 as it is not an “outbuilding” or “ancillary building” that is “usual and reasonable for the type of rural use of the land in the subdivision”.
The Smalls, in addition to rejecting the interpretation of Covenants 3 and 4 advocated by the appellants, claimed by way of an affirmative defence that the appellants are estopped from asserting their interpretation of Covenants 3 and 4. The Smalls argue the appellants’ conduct has been such that they should, as a matter of law, be precluded from asserting limits to the number of new dwelling houses that may be built on the Smalls’ subdivision land and also from pursuing their claim that Covenants 3 and 4 prohibited the construction of the equestrian facilities building.
High Court judgment
In her judgment, Gordon J identified the three issues that she needed to consider in the following way:[2]
(a)How many new single dwelling houses may be built on the Smalls’ land;
(b)Do Covenants 3 and 4 permit the building constructed by the Smalls; and
(c)Are the plaintiffs estopped from asserting their interpretation of Covenants 3 and 4, both in respect of the number of new dwelling houses that may be built on the Smalls’ land and whether Covenants 3 and 4 permit the construction of the building.
[2]Taylor v Small, above n 1, at [37].
The Judge held that “single” in cl (i) of the covenants does not refer to a numerical value. Instead, she held it describes the nature and style of the dwelling house that can be built on the land.[3] Accordingly, the appellants failed in their application for a declaration restricting the number of new dwelling houses that could be built on the lots in the Smalls’ subdivision.
[3]At [66].
In the High Court, the Smalls contended that changes to the boundaries and the use of the land in question subsequent to the creation of Covenant 3 (and later Covenant 4) was admissible and relevant to the interpretation of the covenants. Gordon J held, however, that the evidence in question was not admissible.[4] The Smalls have cross-appealed this aspect of the High Court judgment.
[4]At [90].
In relation to the question we have set out at [1](b), Gordon J agreed with the Taylors that an “outbuilding” or “ancillary” building must be subordinate to and separate from a main building and issued a declaration to that effect.[5] There has been no cross-appeal from that aspect of the High Court judgment.
[5]At [98] and [166].
Having concluded that in the absence of a dwelling house on the Smalls’ Lot 7 the equestrian facilities building was not an “outbuilding” or “ancillary” building, Gordon J went on to consider whether the building in issue was otherwise compliant with Covenants 3 and 4. In particular, she considered whether the building was “usual and reasonable for the type of rural use of the land in the subdivision”. Gordon J concluded that the building did not violate this part of Covenants 3 and 4 for the following reasons:[6]
(a)Other clauses in Covenants 3 and 4 refer to farming. Since horses are farm animals, buildings that accommodate horses constitute farming within the meaning of that concept in Covenants 3 and 4.
(b)The Judge relied on evidence from Mr Beal, the Director of an accountancy firm that is involved with the rural economy in the Franklin region, that equestrian facilities are common within the area.
[6]At [104]–[111].
Gordon J held that the “surrounding area” in Covenants 3 and 4 encompassed the broader Franklin district, not just the land within the subdivision.[7]
[7]At [114].
Gordon J granted the declaration sought but declined injunctive relief on the basis that the Smalls planned to build a main dwelling house on the property, which would render the equestrian building an “outbuilding”.[8] The second ground of appeal challenges the decision not to issue an injunction.
[8]At [173].
There were three grounds upon which the Smalls argued that the appellants are estopped from asserting their interpretation of Covenants 3 and 4:
(a)Representations that the Smalls say were made by the Taylors when selling the land to them in 2013, namely, advertising materials that referred to the land having exceptional “building sites”, “huge future potential” and “sub-division potential”.
(b)The parties had embarked on a course of dealing on the basis of mutual assumption concerning the meaning of the covenants.
(c)The failure of the Taylors to inform the Smalls about the restrictions in the covenants.
Gordon J held that the advertising material promulgated by the Taylors was not sufficiently clear as to give rise to estoppel by representation in relation to the number of dwelling houses that could be built on the land that the Smalls acquired.[9] The Judge also held that there was no evidence of any mutual assumption by the parties as they had never discussed the terms of the covenants.[10] She also held there was no duty on the Taylors to explain the covenants because they could not have known that the Smalls were relying on an ability to build further houses as a factor in their decision to proceed with the purchase.[11]
[9]At [143]–[144].
[10]At [146] –[148].
[11]At [153].
Gordon J also held that no estoppel arose in relation to the building of the equestrian facilities building.[12] She found no evidence that the Taylors were aware of a misapprehension by the Smalls as to the requirements of the covenants so there was no duty on them to speak up.[13]
[12]At [150].
[13]At [159].
The second ground of the cross-appeal focuses on those parts of the High Court judgment that rejected the Smalls’ arguments in relation to estoppel.
First ground of appeal
The first ground of appeal requires us to answer the question posed at [1](a).
Summary of submissions
Mr Brabant, senior counsel for the appellants, said that the intended meaning of cl (i) of Covenants 3 and 4 was best understood by first considering Covenants 1 and 2 as those covenants established the restrictions on building development when the first two lots of the original subdivision were sold by the Taylors.
Mr Brabant submitted the ordinary meaning of the terms of Covenants 1 and 2 is clear: “A single (one) dwelling house (which must be new) could be erected on the lots being sold”.
Turning to Covenants 3 and 4, Mr Brabant emphasised the importance of the parties’ intention to mirror Covenants 1 and 2, which simply referred to building a dwelling house “on the land”. As only one servient lot was involved, Mr Brabant said it was clear that this was a numerical limit of one dwelling house. He said that the use of the phrase “on the servient lands or any part thereof” in Covenants 3 and 4 was adopted to deal with the fact those covenants applied to several different servient lots. Accordingly, he submitted that the reference to “any part thereof” referred only to the individual titles recorded in Covenants 3 and 4, namely original Lots 1, 4, 5 and 6.
Ms Simkiss, senior counsel for the first respondent, submitted that Gordon J was correct in her interpretation of the term “single” in cl (i) of Covenants 3 and 4. She submitted that “or any part thereof” merely emphasises that the restrictive covenants extend to all parts of the servient land. She submitted further that the interpretation advanced by Mr Brabant was untenable because it requires interpreting “any part thereof” as referring only to the lots arising from the original subdivision in 1994, and that it was unreasonable to read down the word “any” in such a restrictive way.
Analysis
The parties accept that the correct approach to interpreting Covenants 3 and 4 is that set out by the Supreme Court in Firm PI Ltd v Zurich Australian Insurance Ltd,[14] in which the Court substantially adopted the principles of contractual interpretation articulated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society.[15] The Supreme Court said:[16]
… the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.” This objective meaning is taken to be that which the parties intended. …
…
While context is a necessary element of the interpretative process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of a contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive indicator of what the parties meant. …
(Footnotes omitted).
[14]Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
[15]Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
[16]Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 14, at [60] and [63].
We do not think it is necessary to ascertain the objective meaning of Covenants 3 and 4 by first identifying the meaning of Covenants 1 and 2. While Mr Brabant is correct when he says all the covenants are linked, the crucial words of all four covenants are identical. In our assessment, the meaning of Covenants 3 and 4 can be ascertained from the ordinary and common meaning of those words when read in the context of the covenant as a whole.
When viewed in isolation the word “single” is capable of referring to the numerical value “one” or to the nature and style of the dwelling house that may be constructed on the land subject to the covenant, in other words, that the dwelling house is not comprised of multiple units. When viewed in the context of the entire covenant, however, the following four conclusions emerge.
First, the covenant is concerned with the quality of buildings, and the use that may be made of the servient land. This is clear from those parts of the covenants that say:
(a)any dwelling house constructed has to be new, as opposed to a used house that is moved from another site;
(b)the dwelling house (and any additional buildings) are required to “blend in with the rural nature of the surrounding area to ensure that a pleasing and aesthetically compatible appearance is maintained for the benefit of the dominant land and all the servient lands”;
(c)the only point of distinction between Covenants 3 and 4 concerns the base value of any dwelling house that is constructed on the servient land. In the case of Covenant 3, that base value is $200,000 while Covenant 4 refers to a base value of $300,000. This underscores the Smalls’ submission that Covenants 3 and 4 are concerned with the quality, not the quantity, of dwelling houses that are able to be constructed on the servient land;
(d)clause (iii) of both covenants is concerned with ensuring covenantors adhere to high standards of building practice by prohibiting the erection of temporary caravans, huts or sheds on the servient land. In a similar vein, cl (iv) is concerned with farming and land use standards. Clauses (iii) and (iv) reinforce the argument that the covenants focus upon the quality of buildings that can be erected and the quality of the use of the servient lands.
Second, if “single” in Covenants 3 and 4 was intended to be a reference to “one” then it would be reasonable to expect the clause to refer to a “single new … dwelling house”, rather than a “new … single dwelling house”.
Third, as Gordon J correctly noted, depending on the context in which the indefinite article “a” appears, it can mean “one”, “some” or “any”.[17] The indefinite article “a” therefore does not necessarily refer to the numerical value “one”.
[17]Taylor v Small, above n 1, at [62], citing Lesley Brown (ed) Shorter Oxford English Dictionary (5th ed, Oxford University Press, Oxford, 2002).
Fourth, interpreting “a” in the covenants to mean “one” would nullify the effect of the adjective “any” in the part of the covenant that reads “or any part thereof”. The appellants’ argument requires “any” to mean “a”. We agree with Gordon J when she concluded that this aspect of the appellants’ approach is not supported by the plain wording of the covenants.[18]
[18]At [64].
For these reasons, we are satisfied that Gordon J was correct when she concluded that “single” in cl (i) of the covenants refers to the nature, design or style of a dwelling house that may be constructed on the servient lands, and does not limit the number of houses that may be built on the lands subdivided by the Smalls.
Second ground of appeal
The second ground of appeal requires us to answer the question posed at [1](b).
The issues raised by the second ground of appeal require an assessment of conflicting evidence about whether the equestrian facilities building was “usual and reasonable for the type of rural use of the land in the subdivision”.
It was unfortunate that the issues raised by the second ground of appeal were addressed in an application for a declaration and injunction, rather than in a hearing where factual issues could be properly tested. This arose because the parties hoped that the declaratory judgment process would provide a fast and comparatively inexpensive mechanism to resolve their dispute. As it transpired, however, the evidence relating to the second ground of appeal was contradictory and needed to be assessed in the usual way.
Mr Brabant submitted that Gordon J was correct in her assessment that, in the absence of a dwelling house, the equestrian facilities building breaches Covenants 3 and 4 because it is not an “outbuilding” or an “ancillary” building.
There was no cross-appeal or direct challenge to this aspect of the High Court judgment. Instead, Ms Simkiss focused on the application for an injunction and submitted that an order to demolish the equestrian facilities building would be inappropriate when what was required by the covenants was the building of a dwelling house that was “usual and reasonable for the type of rural use of the land in the subdivision”. She submitted the Smalls acted entirely reasonably in waiting for the first ground of appeal to be resolved before progressing with building a dwelling house. In these circumstances, she argued injunctive relief was entirely inappropriate.
As there has been no cross-appeal from the declaration issued by Gordon J in relation to this aspect of the case, it is not appropriate for us to examine the correctness of the declaration. There are, however, aspects of the interpretation of Covenants 3 and 4 that we can address so that, if this litigation continues, the High Court can correctly apply the terms of the covenants to the facts that are found to exist by that Court.
As noted earlier, Gordon J also considered whether the equestrian facilities building was otherwise compliant with the covenants. She concluded that the equestrian facilities building did not violate the requirement that an outbuilding or ancillary building be “usual and reasonable for the type of rural use of the land in the subdivision”. We have already outlined her reasons for reaching this conclusion at [27].
Gordon J went on to consider the other phrases included in the latter part of the covenants. This included the supposed requirement that the equestrian facilities building “blend in with the rural nature of the surrounding area”. Gordon J held that “surrounding area” meant the broader Franklin district, not just the land within the subdivision. Based on the evidence of Mr Beal, Gordon J concluded that the equestrian facilities building could so blend in. She also considered the particular design and style of the building and concluded there was no evidence that the equestrian facilities building would not blend in with the rural nature of the wider area despite Mr Taylor’s unflattering description of the building.[19]
[19]At [122].
The High Court Judge noted that although the covenants refer to “ensur[ing] that a pleasing and aesthetically compatible appearance is maintained for the benefit of the dominant land and all the servient lands” she was satisfied the Court was not required to judge the aesthetics of the equestrian facilities building.[20]
Summary of submissions
[20]At [124].
Mr Brabant submitted that Gordon J erred by considering Mr Beal’s evidence of general practice in the Franklin area when the covenants refer to what is usual and reasonable for the type of rural use of the land in the subdivision. He submitted this required the High Court to assess the equestrian facilities building in relation to other buildings in the subdivision and that the Judge’s failure to do so was a critical error. Mr Brabant also submitted that if “surrounding area” was intended to refer to the broader Franklin region, then it would have been necessary to specify a measure of proximity, otherwise the covenants would be too uncertain. He also argued that the parties could not have intended that the limits of the restrictive covenants would be subject to the vagaries of the general population’s use of land over which owners of the subdivided land have no control.
Ms Simkiss adopted the reasoning of Gordon J on this issue and submitted that if the parties had intended “surrounding area” to mean only the subdivision, then they would have clearly said so.
Analysis
We are satisfied that Gordon J erred in the way she interpreted the requirement of the covenants that an outbuilding or ancillary building be:
… usual and reasonable for the type of rural use of the land in the subdivision … and of a nature design or style … in keeping with each other such that the dwelling house and any additional buildings and the surrounding grounds thereof blend in with the rural nature of the surrounding area to ensure that a pleasing and aesthetically compatible appearance is maintained for the benefit of the dominant land and all the servient lands.
In our assessment, the relevant parts of the covenants are best read as meaning that any dwelling house and outbuilding must:
(a)be usual and reasonable for the type of rural use of the land in the subdivision; and
(b)be of a nature, design or style in keeping with each other.
These two requirements are distinct but are designed to achieve the same overall purpose of ensuring that the subdivision blends in with the rural nature of the surrounding area. In other words, the last portion of cl (i) of the covenants, beginning from “such that”, expresses the purpose of the two requirements we have outlined at [59]. The first requirement is aimed at ensuring the buildings are not unusual for a rural property. The second requirement is aimed at maintaining consistency between the buildings within the subdivision.
The first requirement is concerned with assessing whether a building is “usual and reasonable” for rural use. In other words, there needs to be an assessment of the type of land use that is being carried out, including on the dominant and servient lots, and whether, when viewed objectively, the building in question is reasonable.
The second requirement acts to ensure a level of consistency between the designs and styles of the various buildings within the subdivision. Gordon J and the parties have treated this as limited to consistency between the dwelling house and outbuilding. If, however, the “a” in the phrase “a new … single dwelling house” is interpreted as meaning “any”, as Gordon J correctly concluded, there is no basis to limit the phrase “in keeping with each other” to just a dwelling house and its outbuilding. The “each other” must refer to all other dwelling houses and outbuildings within the subdivision. This interpretation is consistent with the purpose of the covenants to ensure that the buildings “blend in” and “that a pleasing and aesthetically compatible appearance is maintained for the benefit of the dominant land and all the servient lands”.
Our interpretation means that the High Court erred when it failed to consider the evidence concerning the size and design of the various buildings within the subdivision. That exercise requires, however, an appraisal of competing evidence, which is likely to require cross-examination.
Because we are satisfied that there was an error in the approach taken by the High Court Judge in relation to the second ground of appeal, we are allowing the appeal in part. This conclusion requires us to remit the issues dealt with under the second ground of appeal back to the High Court for determination in accordance with the terms of this judgment.
First ground of cross-appeal
The evidence before the High Court showed that:
(a)Two dwelling houses had been built within the boundaries of original Lot 4 before the Smalls purchased their land from the Taylors. One of those dwelling houses was built by the Jacksons.
(b)Between 1998 and 2013, a number of changes were made to the boundaries of the original lots subdivided by the Taylors so that, by the time the Smalls brought their land, only original Lot 3 remained unchanged from the 1994 subdivision.
In the High Court, the Smalls endeavoured to argue that the boundary changes made since Covenant 3 (and later Covenant 4) was created, and the fact that two houses had been built on original Lot 4, were relevant in determining the objective intentions of those who created Covenants 3 and 4.
Gordon J rejected the Smalls’ argument on two grounds:[21]
(a)Referring to the decision of the minority in Wholesale Distributors Ltd v Gibbons Holdings Ltd, Gordon J reasoned there was only evidence of the Taylors’ post contractual conduct and that the evidence from only one party to Covenants 3 and 4 could not shed light on what both parties to the covenants intended.[22]
(b)As the disputed words were contained in covenants, a cautious approach needed to be taken when considering the admissibility of extrinsic evidence as to the meaning of those covenants.
[21]At [84]–[90].
[22]Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [52].
Ms Simkiss’ primary submission was that the High Court erred by not following the approach of the majority of the Supreme Court in Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust, a case decided one month prior to the High Court hearing.[23] The majority in Green Growth concluded that when interpreting a covenant, the Court should “… not exclude references to facts which a reasonable future reader of the [covenant] could be expected to be aware of and would recognise as relevant …”.[24] An example referred to by the majority was “the configuration of land”. In this case, Ms Simkiss submitted that the construction of two dwelling houses on original Lot 4 and the realignments of the boundaries subsequent to the creation of Covenants 3 and 4 are highly relevant to determining the objective intention of those who created the covenants.
[23]Green Growth No 2 Ltd v Queen Elizabeth the Second National Trust [2018] NZSC 75, [2019] 1 NZLR 161.
[24]At [74](c).
Mr Brabant submitted that Gordon J correctly rejected the extrinsic evidence relied upon by the Smalls because:
(a)the evidence did not shed light on the objective intention of both parties to the covenants; and
(b)when viewed in context, the reference by the majority in Green Growth to “the configuration of land” clearly meant the physical characteristics of the land and not to subdivision boundaries created after the covenants were entered into.
Analysis
The first ground of the cross-appeal is rendered moot by our decision in relation to the first ground of appeal. We record, however, that the approach taken by Gordon J in deciding not to consider the extrinsic evidence when assessing the objective meaning of Covenants 3 and 4 was at odds with the approach of the majority in Green Growth. In particular, the fact that two dwelling houses had been erected within the boundaries of original Lot 4 after the creation of Covenants 3 and 4 was a factor that might have been relevant to determining the objective meaning of those covenants. It is, however, unnecessary to go further than to say that the approach taken in the High Court judgment was not consistent with the law as articulated by the majority in Green Growth.
Second ground of cross-appeal
Our answer to the first ground of appeal also renders it unnecessary to dwell on the question posed at [1](d) insofar as it relates to the alleged numerical limitation contained in the covenants.
Ms Simkiss submitted that the Smalls carried out their subdivision in the reasonable belief that the covenants did not restrict the number of dwelling houses that could be constructed on their subdivided lots. She submitted that the Taylors, through the materials advertising the land that the Smalls purchased, and through their silence, encouraged the Smalls to believe that there would be no issue that a dwelling house could be built on each of the seven subdivided lots. It was argued that if the appellants’ interpretation of the covenants was correct, then they had a duty to warn the Smalls, but they chose not to do so. Ms Simkiss submitted that in these circumstances the appellants’ conduct was unconscionable.
The second ground of the cross-appeal included an argument that Gordon J erred when she concluded the appellants were not estopped from advancing their argument that the equestrian facilities building breached the terms of Covenants 3 and 4.
Mr Brabant argued that the High Court Judge correctly concluded there was no basis upon which the affirmative defence of estoppel could succeed.
Analysis
Ms Simkiss is correct when she submitted that the proper approach to estoppel requires an assessment of whether a party’s overall conduct was such that it would be unconscionable for them to be permitted to resile from their previous position.[25] It is accordingly unnecessary to ascertain whether the conduct in issue fits within a predetermined formula as to what is unconscionable. Nevertheless, it is still necessary for the party alleging the estoppel to show that their belief or expectation had been created or encouraged by some conduct of the party against whom the estoppel is alleged.[26] Furthermore, that belief or expectation must have been reasonably relied upon and detriment must be likely if the belief or expectation were departed from.
[25]Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA) at 359, citing Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1981] 1 All ER 897 (Ch).
[26]Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86.
While we agree with Ms Simkiss’ formulation of the law, we disagree with the way she has attempted to apply the law to the facts of this case. Our reasons for reaching this conclusion can be stated briefly.
First, like Gordon J, we are satisfied there was insufficient specificity about the advertising materials attributed to the Taylors. The advertising materials pointed to by the Smalls included a statement that the land the Taylors were selling had “sub‑division potential”. That description could not be construed as a representation that conflicted with the Taylors’ interpretation of Covenants 3 and 4. There is also no suggestion that any positive representation was made by the Taylors in relation to the construction of the equestrian facilities building.
Second, there was no evidence that the Taylors were aware of the Smalls’ alleged misapprehension concerning the Taylors’ interpretation of the covenants at the time the Smalls applied for and obtained consent to subdivide the land into seven lots, or at the time the Smalls began construction of the equestrian facilities building. In these circumstances, it cannot be said the Taylors had a duty to warn the Smalls in relation to either issue.
Together, these reasons mean that, from an objective standpoint, it cannot be said the Taylors created or encouraged the Smalls’ beliefs concerning the meaning of the covenants or their expectation concerning the Smalls’ willingness to enforce them. Those reasons would also have rendered unreasonable any reliance by the Smalls on their expectations and beliefs.
Finally, while there has been an unfortunate disintegration in relations between the parties, the conduct of the Taylors and other appellants falls well short of being unconscionable. This conclusion follows naturally from the reasons already given because the Taylors can hardly be said to have acted unconscionably for engaging in conduct that objectively did not create or encourage the Smalls’ beliefs and expectations concerning the covenants.
For these reasons the cross-appeal is dismissed.
Result
The appeal is allowed in part. “Single” in cl (i) of the covenants refers to the nature, design or style of a dwelling house that may be constructed on the servient lands, and does not limit the number of houses that may be built on the lands subdivided by the Smalls. However, the High Court erred when it failed to consider the evidence concerning the size and design of the various buildings within the subdivision. That exercise requires an appraisal of competing evidence, which is likely to require cross-examination. The question whether the equestrian facilities building is usual and reasonable for the type of rural use of the land in the subdivision is remitted to the High Court for reconsideration in accordance with the terms of this judgment.
The cross-appeal is dismissed.
Costs
The principal issue in this appeal is encapsulated in the first ground of appeal. The Smalls succeeded on that issue and therefore have substantially succeeded in the appeal. We determine the Smalls are entitled to 70 per cent of the costs that might otherwise have been awarded. The appellants are therefore jointly and severally liable to pay the Smalls one set of 70 per cent of costs for a standard appeal on a band B basis, and the usual disbursements.
Solicitors:
Grove Darlow & Partners, Auckland for Appellants
MinterEllisonRuddWatts, Auckland for First Respondents
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