Tisot v Selak

[2024] NZHC 1300

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-000308

[2024] NZHC 1300

IN THE MATTER OF

Covenant numbered D606543.7

BETWEEN

ANTHONY ZVONKO TISOT, JOANNE MARIE TISOT and TIMOTHY GRANT

LIVINGSTONE as trustees of the A & J TISOT FAMILY TRUST
First Plaintiffs

ANTHONY ZVONKO TISOT
Second Plaintiff

AND

DANNY SELAK

First Defendant

DANNY SELAK and MARIE POSA as

trustees of DAN’S FAMILY TRUST Second Defendants

Hearing:	22–24 and 26 April 2024
Appearances:	D Broadmore and Z Sinclair for the Plaintiffs A Barker KC and L Kemp for the Defendants
Judgment:	24 May 2024

JUDGMENT OF GORDON J

This judgment was delivered by me on 24 May 2024 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:      Buddle Findlay, Auckland

Kemp Barristers & Solicitors, Kumeu Counsel :      A Barker KC, Auckland

TISOT v SELAK [2024] NZHC 1300 [24 May 2024]

TABLE OF CONTENTS

Background  [13]

Creation of the covenant  [13]

Tisot purchase of 16A Scott Road  [22]
Changes to Scott Point area  [25]

Mr Tisot’s attempts to remove covenant  [29]

Mr Selak’s purchase of 16 Scott Road  [31]

The Deed  [36]
Settlement of purchase of 16 Scott Road  [39]

Unconscionability – the defence  [43]

Unconscionability: legal principles  [48]

Was Mr Selak under a qualifying disadvantage?  [54]

Did Mr Tisot have knowledge of Mr Selak’s disadvantage?  [72]
Did Mr Tisot take advantage of the disadvantage (active extraction or

passive acceptance of benefit)?  [79]

Approaches to the Smiths: by Mr Tisot and then Mr Selak on behalf of

Mr Tisot  [80]

Conversation between Mr Selak and Mr Tisot after Mr Selak’s approach to

the Smiths  [98]
Meeting with Dail Jones  [106]

Is it likely Mr Selak would have agreed to the removal of building

restrictions on 16A Scott Road?  [112]

Mr Tisot’s explanations for Mr Selak’s agreement to sign the Deed                  [118]

The Deed  [122]

Respective benefits  [125]

Subsequent conduct  [127]

What was said by Mr Tisot and what Mr Selak understood at that time           [133] Conclusion on third element of unconscionability  [140] Misrepresentation  [146]

Misrepresentation  [149]

Statements of law  [152]

Inducement  [153]

Cancellation  [156]

Analysis  ]157]

Section 317 Property Law Act  [162]

The PLA and legal principles  [164]

Removal of covenant due to changes – s 317(1)(a)(ii) and (iii) and (b)           [169] Section 317(1)(a)(ii) and (iii) – changes to neighbourhood or other changes [169] Section 317(1)(b) – change in the extent of the impediment  [174] Changes since the covenant was created  [175] Should the covenant be extinguished or modified due to changes?                [185] Whether to extinguish or modify  [188]

Whether substantial injury – s 317(1)(d)  [203]

Compensation  [211]

Result/Orders  [213]

Costs  [218]

[1]    The second plaintiff, Anthony Tisot, and the first defendant, Danny Selak, have known each other for over 50 years. Until recently they were close friends. As well as socialising together the two of them worked on various projects together in the past.

[2]    In 2016 at Mr Tisot’s request, Mr Selak signed a Deed of Surrender agreeing to remove a restrictive covenant (covenant) over a property owned by Mr Tisot’s family trust at 16A Scott Road, Hobsonville (Deed). At the time he signed the Deed Mr Selak had signed an unconditional agreement to purchase the next door property at 16 Scott Road (now owned by Mr Selak’s family trust) which has the benefit of the covenant.

[3]    The most significant clause in the covenant prohibits any structures or buildings on two defined parts of 16A Scott Road, which together amount to almost two thirds of that property. Any such buildings would impact on part of the view of the harbour from 16 Scott Road, and in respect of one of the areas, any buildings would impact on the privacy of 16 Scott Road.

[4]    The trustees of Mr Selak’s family trust have refused to remove the covenant in accordance with the Deed.

[5]    The parties to the proceeding, as well as Mr Tisot and Mr Selak, are the first plaintiffs, Mr Tisot, his wife Joanne Tisot and accountant Timothy Livingstone, who are the trustees of the A & J Tisot Family Trust (TF Trust).

[6]    The second defendants are Mr Selak and his sister Marie Posa, who are the trustees of Mr Selak’s family trust, Dan’s Family Trust (DF Trust).

[7]    Mr Tisot and the TF Trust have, they say reluctantly, commenced this proceeding seeking orders for the removal of the covenant, or damages, or an order under s 317 of the Property Law Act 2007 (PLA). Specifically they seek:

(a)damages from Mr Selak for breach of the Deed requiring removal of the covenant; or, preferably

(b)specific performance of the Deed requiring removal of the covenant; or

(c)orders under s 317 of the PLA for the covenant to be extinguished, or in the alternative, modified.1

[8]    The central issue in this proceeding is whether the Deed is effective. The defendants say it is not. They admit that Mr Selak signed the Deed but say the following in counterclaims and affirmative defences:2

(a)The Deed was an unconscionable bargain and they seek a declaration that the Deed is void and of no effect.

(b)Mr Selak relied upon misrepresentations made by Mr Tisot prior to Mr Selak signing the Deed. They say, if contrary to (a) above, the Deed is otherwise binding on them, they would be entitled to cancel the Deed under s 37 of the Contract and Commercial Law Act 2017 (CCLA) and they seek a declaration accordingly.

[9]    As to s 317 of the PLA the defendants’ position is that the jurisdictional requirements for that section are not in issue. Mr Selak says he has always agreed that the covenant can be (mostly) extinguished. There is just one clause in issue. That should be amended so that he is provided with a protective view shaft from his property out to the harbour. He says a covenant in this form will still allow for significant development in one of the identified areas on 16A Scott Road (area A) but with no development in the second area (area C). Mr Selak does not seek any financial compensation in addition to the protection of this view shaft.

[10]   In the alternative, if the covenant were to be removed in its entirety the defendants say it would be appropriate for an award of financial compensation to be made to them.

1      Under s 316(3) of the PLA an application to extinguish or modify a restrictive covenant must be served on the relevant territorial authority. The Auckland Council was served and has confirmed that it has no objection to the orders being made and abides the decision of the Court.

2      In closing submissions, Mr Barker KC, counsel for the defendants, abandoned: the affirmative defence that Mr Selak did not have the authority of the trustees of the DF Trust, as the owners of 16 Scott Road, to bind them; and the affirmative defence/counterclaim that the Deed was entered into under a mistake on Mr Selak’s part.

[11]   Both 16A Scott Road (at 2.387 hectares) and 16 Scott Road (at 7943 m2) have, since the covenant was created, become valuable properties following legislative changes and rezoning of land at Scott Point, Hobsonville which now allow more intensive residential development. Trevor Walker, the valuer for the plaintiffs and Peter Bates, the valuer for the defendants agree that:

(a)the market value of 16A Scott Road without the covenant is

$18,250,000 (plus GST, if any);

(b)the market value of 16A Scott Road with the covenant is $15,150,000 (plus GST, if any);

(c)the market value of 16 Scott Road with the covenant is $7,950,000 (plus GST, if any); and

(d)the market value of 16 Scott Road without the covenant is $7,550,000 (plus GST, if any).

[12]   There is a minor difference in the figures adopted by the valuers as to the reasonable price for which the proprietor of 16 Scott Road might have sold the property rights in  the  covenant.  Mr Walker  says  $650,000  (plus  GST,  if  any). Mr Bates says $775,000 (including GST, if any). They have, however, agreed a reasonable price of $660,000 (plus GST, if any) which is the equivalent of $759,000 if expressed on a GST inclusive basis.

Background

Creation of the covenant

[13]   It is necessary to go back to the year 2000. At that time the Smiths were the registered proprietors of a large parcel of land at 16 Scott Road, Hobsonville (original land). The Smiths applied to the then Waitakere District Council to subdivide the original land. Consent was granted and in May 2001 three separate lots were created: Lot 1 (16 Scott Road); Lot 2 (16A Scott Road) and Lot 3 (3701 m2) being a public recreation reserve adjacent to an existing reserve and now vested in the Auckland

Council. Refer to the subdivision plan at Annexure A to this judgment. The layout of the subdivision was such that some of the views from the house on 16 Scott Road to the harbour were over the newly created 16A Scott Road.

[14]   There was (and is) a house on 16 Scott Road but 16A was (and remains) bare land.

[15]   The conditions of resource consent for subdivision (consent conditions) are in summary as follows:

(a)Restrictions on the nature of construction work that could be undertaken, including the extent of excavations and the design of residential dwellings as regards acoustic performance standards (conditions 1, 2, and 4);

(b)Particular requirements for addressing stormwater-runoff in any development (condition 3);

(c)No minor household unit was permitted unless the District Plan was changed so as to allow for greater density of development as a permitted activity (condition 5);

(d)Any development within area B was subject to restrictions. There could be no removal of existing vegetation on area C and mitigation planting was required between a proposed dwelling on 16A Scott Road and the existing house on 16 Scott Road (condition 6).3

[16]In particular condition 7 states that the owner shall not:

Place, erect, construct or permit to remain on any part of the land described in the Third Schedule hereto [ie Lot 2 – 16A Scott Road] marked “A” and “C” on Deposited Plan 206422, any residential buildings of any nature.

[17]   On 22 May 2001 the Smiths transferred 16A Scott Road to themselves. As part of that transfer, the Smiths (as both transferor and transferee) created and granted the

3      Areas A, B and C are identified on Annexure A.

covenant on 16A Scott Road in favour of 16 Scott Road. The covenant largely mirrors the consent conditions as follows:

(a)The land is only able to be used for a residential use (clause (a)).

(b)There are restrictions on the type of building and building materials that could be used. Second-hand building materials and other identified materials were not permitted (clauses (b), (d), (f), (g), (h) and (j)).

(c)Critically, for this case, (clause (i)) states:

The Transferees will not at any time erect or permit to be erected any building or other structure on the areas marked “A” and “C” on Deposited Plan 206422 and further that no new plantings or vegetation shall be permitted without the prior consent of the registered proprietors of Lot 1 on Deposited Plan 206422 to the intent that this restrictive covenant shall be forever appurtenant to the within described land.

[18]   It is only the latter restriction above that is in issue in this case. The defendants have no objection to the removal of the other restrictions in the covenant.

[19]   The Court did not hear from the Smiths as they are no longer available but it seems likely that having regard to: the location of the house on 16 Scott Road and its orientation; and the areas on 16A Scott Road on which no development was permitted (areas A and C) that the purpose of the covenant was to protect the views in that direction from 16 Scott Road over 16A Scott Road.

[20]   A further matter to note in relation to the title of 16 Scott Road is that, while on 28 May 2001 the covenant was lodged on the title to 16A Scott Road, it was not noted on the title to 16 Scott Road.4 However, the consent notice was registered on both titles.

4      At the time the covenant was created in 2001, it was not possible to enter a notation on the title of the benefited land. That has only been possible since 1 June 2002, being the date on which the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002, s 65(4), came into force: DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [17.033].

[21]   As far as the zoning at that time, the original land was outside the Metropolitan Urban Limits. It was zoned Rural 1 but was transitioning to Countryside Human Environment, which became the operative zoning in March 2003. Under these zonings only one dwelling could be built on 16 and 16A Scott Road and the minimum site size was at least four hectares. More generally, 16 and 16A Scott Road and the surrounding neighbourhood was a rural-residential environment, containing a mix of lifestyle and horticultural/agricultural activities.

Tisot purchase of 16A Scott Road

[22]   Once the subdivision was completed the Smiths marketed 16A Scott Road for sale. The information package prepared by the estate agents for prospective purchasers included a copy of the covenant and the consent notice.

[23]   Mr Selak looked at 16A Scott Road at that time. His evidence was that he wanted a place for his palm-growing business. He says that the estate agent told him that he would not be able to put palms on the land or other items required for a palm- growing business because there were owner and Council restrictions. Mr Selak says, for those reasons he did not inquire further and did not see the information package prepared by the estate agent. Instead he purchased 8A Scott Road in September 2004.

[24]However, the TF Trust did purchase 16A Scott Road from the Smiths for

$862,000 with the sale settling on 27 August 2001.

Changes to Scott Point area

[25]   The zoning framework in 2000 clearly signalled that the original land and surrounding environment were a rural environment and that the land should be predominantly utilised for rural activities then and into the future.

[26]   Since then the wider Scott Point area has, in a planning context, been transformed from a very low-density farming and horticultural area that sat outside the Rural Urban Boundary into a medium density compact development, facilitated by different legislation over time and driven at the local level by the Auckland Unitary Plan: Operative in Part (AUP (OP)) and the Scott Point Precinct provisions.

[27]   I will refer to the legislative and zoning changes in more detail when I come to the application under s 317 of the PLA. The above brief summary suffices for present purposes.

[28]   From at least July 2014 Mr Tisot and Mr Selak were both members of the Scott Road Landowners Group. The evidence included various emails between the members and to and from Council officers throughout 2015 in relation to the development of the Scott Point area.

Mr Tisot’s attempts to remove covenant

[29]   Against the background of legislative and zoning changes that had occurred, since at least 2015 Mr Tisot has wanted to sell 16A Scott Road to a developer. There are email exchanges between 10 March and 17 March 2016 between Mr Tisot and the Smiths’ son in law, Shane Brady, regarding the possible removal of the covenant to facilitate a sale of 16A Scott Road to a developer. On 12 March 2016 Mr Tisot emailed Mr Brady a copy of the covenant, the consent notice, a noise effect covenant and a fencing agreement that were all registered on the title to 16A Scott Road.

[30]   On 14 March 2016 Mr Tisot emailed Mr Brady documents for the Smiths to sign in relation to the removal of the covenant. On 17 March 2016, by email, Mr Tisot agreed to pay the Smiths’ legal costs to review the documents.  By email, also on   17 March 2016, Mr Brady advised Mr Tisot that the Smiths were not keen on removing the covenant but that they were interested in discussing a possible sale of 16 Scott Road. That did not go any further.

Mr Selak’s purchase of 16 Scott Road

[31]   Mr Selak, however, was actively interested in purchasing 16 Scott Road. But before doing so he needed to first sell his property at 8A Scott Road. He did so in May 2016. Mr Selak negotiated directly with the Smiths. The content of discussions between Mr Tisot and Mr Selak around this time is in dispute. Mr Tisot says that he asked Mr Selak, if he were to purchase 16 Scott Road, whether he would agree to remove the covenant. He says Mr Selak agreed.  Mr Selak says that was not what  Mr Tisot asked him to agree to.

[32]   There is also a dispute over when Mr Tisot asked Mr Selak if he would confirm the agreement in writing and what exactly was said by Mr Tisot on that issue. I will consider the disputed evidence in the context of my consideration of the unconscionability and misrepresentation defences.

[33]   As between Mr Selak and the Smiths, on 17 May 2016 Mr Selak entered into an agreement to purchase 16 Scott Road (the sale and purchase agreement). The purchaser was expressed to be “Danny Selak and/or nominee”. The purchase price ultimately agreed was $4 million. The sale and purchase agreement was conditional as it contained a due diligence clause. Settlement was to be on 29 September 2016.

[34]   After signing the sale and purchase agreement Mr Selak met with his then lawyer, Dail Jones, to discuss the agreement.

[35]   On 23 May 2016 the Smiths’ lawyers sent Mr Jones a deposit slip for the payment of the deposit of $400,000. Mr Jones says that Mr Selak appeared to be satisfied with what he had learnt from his discussion with him and Mr Selak asked Mr Jones to make the agreement unconditional. On 24 May 2016 Mr Jones sent a communication to the Smiths’ lawyers to say that the due diligence condition was satisfied and that Mr Selak would pay the deposit personally. That deposit had, in fact, been paid by Mr Selak on 23 May 2016.

The Deed

[36]   In an email of 18 May 2016 Mr Tisot asked his daughter, a legal executive at Buddle Findlay, to prepare an agreement recording that Mr Selak would remove the covenant from 16A Scott Road once he had completed the purchase of 16 Scott Road.

[37]   On 19 May 2016 Mr Tisot emailed the Deed to Mr Selak. Mr Tisot had signed the Deed as trustee on behalf of the TF Trust.5  Under the Deed the TF Trust was  the

5      There is no issue as to Mr Tisot’s authority to sign the Deed on behalf of the TF Trust.

“Grantor”. Danny Selak and/or nominee was the “Grantee”. The terms of the Deed include that:

(a)On completion of settlement of the purchase of [16 Scott Road] the Grantee will forthwith surrender the covenant (“Surrender”).

(b)The Grantee agrees to execute all documents and do all things necessary to complete the Surrender.

[38]   Mr Selak countersigned the Deed on 30 May 2016. He returned a copy of the signed Deed to Mr Tisot on 3 June 2016.

Settlement of purchase of 16 Scott Road

[39]   On 11 September 2016 Mr Jones attended on Mr Selak and his sister, Ms Posa, to sign the deed of appointment of a new trustee (Ms Posa) and resignation of an existing trustee (Gibson Nominees Ltd). Mr Jones further attended on Mr Selak and Ms Posa on 14 September 2016 to deal with the nomination deed and private individual client authority for the purchase of 16 Scott Road. This was effectively the date that the DF Trust became the nominee purchaser of 16 Scott Road.

[40]   With agreement from the Smiths, Mr Selak took early possession of 16 Scott Road on 28 August 2016. The purchase settled on 29 September 2016 and the trustees of the DF Trust became the registered owners of that property.

[41]   By October 2019 the covenant had still not been removed. Solicitors’ correspondence followed but without resolution being reached.

[42]   On 30 October 2023 the consent notice on 16A Scott Road was cancelled by the Auckland Council on the basis of (among other things) the changes to the zoning of 16A Scott Road.

Unconscionability – the defence

[43]   The defendants say that the Deed should be set aside on the basis that it is an unconscionable bargain. They say that Mr Selak has suffered from life-long

processing issues in terms of his ability to read and comprehend written documents. As a consequence he relies on the verbal advice and assistance of friends and advisers when undertaking and evaluating legal documents. Mr Barker KC, counsel for the defendants, submits when that is understood in the context of what he characterises as an unusual transaction, those personal circumstances are a qualifying disadvantage.

[44]   The defendants also say that in the  course of the long  friendship  between Mr Selak and Mr Tisot, Mr Tisot became aware of Mr Selak’s processing issues and his necessary reliance on the advice of friends and advisers when considering and evaluating written documents. They say that the trust Mr Selak placed on others must have been apparent to Mr Tisot.

[45]   The defendants further say that Mr Tisot misrepresented the effect of the Deed to Mr Selak saying that it related simply to the removal of restrictions on 16A Scott Road which prevented the removal of noxious trees and the use of second-hand building materials. Mr Tisot knew that Mr Selak would want to help him to remove the comparatively minor Council restrictions. When Mr Selak asked Mr Tisot to send the Deed to his lawyers, Mr Tisot said that was not necessary. Further, Mr Tisot knew that Mr Selak did not, in fact, receive legal advice before signing the Deed.

[46]   As well, Mr Barker emphasises what he submits is one of the most striking features of this case, namely what he says was the inadequacy of the consideration. He says it was dramatically to the detriment of Mr Selak and solely for the benefit of the TF Trust.

[47]   In response, the plaintiffs say that Mr Selak does not have reading and processing issues that would support a finding of an unconscionable bargain. In any event, Mr Tisot was not aware of any such issues and he did not make the alleged representations. They also say that there were benefits to Mr Selak in entering the Deed, namely: the TF Trust would not be a competing purchaser for 16 Scott Road; not having to respond to an application under s 317 of the PLA and the benefit of helping a friend.

Unconscionability: legal principles

[48]   The parties agree on the legal principles and the framework for the Court’s consideration of a claim of unconscionability. Both counsel refer to the judgment of the Court of Appeal in Gustav & Co Ltd v Macfield Ltd where the Court derived the following principles from earlier cases. The Court noted the principles are not exhaustive. They are as follows:6

1Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.

2This equitable jurisdiction is not intended to relieve parties from “hard” bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.

3A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic which significantly diminishes a party’s ability to assess his or her best interests. It is an open-ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.

4If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the stronger party). The essential question is whether in the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.

5Before a finding of unconscionability will be made, the stronger party must know of the weaker party’s disability or disadvantage and must “take advantage of” that disability or disadvantage.

6The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.

6      Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30]. Affirmed in Gustav & Co Ltd v Macfield Ltd [2008] NZSC 47, [2008] 2 NZLR 735 at [23]–[25].

7“Taking advantage of” (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a benefit. Accordingly, as Tipping J said in Bowkett at 457, an unconscionable victimisation will occur where there are:

… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience accept the benefit of this transaction in these circumstances either at all or unless you have full independent advice.

8If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.

[49]   In summary, equity will intervene and a court may set aside a transaction where:

(a)the party raising the defence has a qualifying disability or disadvantage which significantly diminishes his or her ability to assess their best interests;

(b)the other party must know or ought reasonably to have known of that disadvantage; and

(c)the other party must take advantage of the disadvantage either through active extraction or passive acceptance of a benefit.

[50]   There is no room for the Court to intervene “on a tender moralistic basis”.7 Rather, unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, the dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do.8

[51]   Part of the defendants’ case on this defence is that, as noted above, Mr Tisot misrepresented what he was asking Mr Selak to agree to and thus the effect of the

7      Bowkett v Action Finance Ltd [1992] 1 NZLR 449 at 462.

8      Nichols v Jessup [1986] 1 NZLR 226 at 234 per McMullin J, citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474.

Deed, as well as stating that Mr Selak did not need to see a lawyer. The plaintiffs strongly deny that those things were said.

[52]   The alleged misrepresentations are also relied on in the affirmative defence of misrepresentation, which I will address below. The two defences are conceptually different but part of the factual underpinning is the same.

[53]   I will need to make a finding on what was said in the conversation(s) concerned. Mr Tisot and Mr Selak are each adamant about what was said. Accordingly, their evidence on this issue will need to be considered against the broader context of the case as a whole. I will do that as part of the third inquiry (para [49](c) above).

Was Mr Selak under a qualifying disadvantage?

[54]   Although it is clear that this inquiry is fact specific, some guidance may be derived from prior cases. In Bowkett v Action Finance Ltd Tipping J referred to the judgment of Kitto J in Blomley v Ryan where the Judge said that equity would grant relief against an unconscionable bargain:9

… whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.

[55]Tipping J also referred to the judgment of Fullagar J in Blomley v Ryan:10

The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis- à-vis the other.

9      Bowkett v Action Finance Ltd, above n 7, at 458 citing Blomley v Ryan (1956) 99 CLR 362at 415.

10     At 405. The two judgments were also referred to by Somers J in Nichols v Jessup, above n 8, at 235.

[56]   The disability concerned must be operative in the circumstances of the particular case.11

[57]   Mr Broadmore, counsel for the plaintiffs, submits the defendants have not established any qualifying disability or disadvantage which significantly diminishes Mr Selak’s ability to assess his best interests. He says the evidence is that Mr Selak can read and understand written material although it is more difficult for him to do so. He says Mr Selak accepted he could understand “more or less” the email that he forwarded to Mr Tisot in the context of their dealings as part of the Scott Road Landowners Group. Mr Broadmore referred to Mr Selak’s evidence that he could read emails if he printed them and read them a few times but he would not get them     100 per cent correct and he would not understand complicated issues correctly.

[58]   Mr Broadmore notes that there is no medical evidence of Mr Selak’s pleaded processing issues and, in fact, Mr Selak’s own evidence is that there has never been a formal diagnosis of reading and processing issues. As well, Mr Broadmore notes that the dealings concerned were oral discussions with Mr Tisot. He says Mr Selak was not sent a document he did not understand.

[59]   As to Mr Selak’s ability to assess his best interests, Mr Broadmore notes that Mr Selak accepted in cross-examination that he is able to do that. He says there was evidence from Mr Selak’s two siblings, Ms Posa, and his older brother, John Selak, that Mr Selak has been successful  in  business.  There  was  also  evidence  from Dail Jones, Mr Selak’s solicitor from around 2009 to 2019, whose evidence was that he found Mr Selak to be highly intelligent and further that he had a good understanding of businesses in which  he was involved including buying and selling properties.    Mr Jones agreed that Mr Selak was able to assess his own best interests.

[60]   Mr Broadmore also pointed to Mr Selak’s history of operating businesses successfully, including a Four Square grocery store; a retail fruit and vegetable store; and more recently, a palm-growing business, landscaping business and “chicken growing” business. He had also previously managed commercial properties for his

11     Sayers v Burton (2009) 11 NZCPR 39 at [24].

parents. As well he negotiated the sale price for his property at 8A Scott Road and the purchase of 16 Scott Road.

[61]   I do not consider there is anything in Mr Broadmore’s point that the agreement was reached in oral discussion between the two men. The plaintiffs are suing on the Deed that followed so it is that agreement that the Court is concerned with in terms of any disability or disadvantage.

[62]   I further consider that by emphasising Mr Selak’s success in business, the plaintiffs’ submissions lose the focus on what the Court needs to examine. Mr Selak’s evidence on this issue, which I accept, was that he had hearing issues that prevented him from learning at school. He says each year he was moved to the next class without having reached the basic levels required of reading, writing, spelling and comprehension. But he was good at numbers and that ability has been helpful to him in his adult life. He left school at the age of 15 and worked on the family orchard rather than doing an apprenticeship as he thought that would be too hard for him.

[63]   He says he almost never writes anything and relies on others to read and explain things to him. He says the more formal a document, the less confident he is of its meaning. Mostly he gets his sister, Ms Posa, to read written material to him and then he gets her to do the writing for him. He says he hardly writes anything beyond a few words because it is too hard and he does most of his communication by phone or by meeting people in person. Mr Selak was challenged on this evidence in cross-examination but I consider that the answers he gave were consistent with his primary evidence.

[64]   There was support on this issue from Ms Posa. She was well placed to give evidence, first as a sibling growing up with Mr Selak and then latterly as a trustee of the DF Trust and the person whom Mr Selak calls on to help him with documents after his marriage ended (before the events giving rise to this proceeding) and his former wife became unavailable to do so. Ms Posa’s evidence on this issue, which I accept, was that Mr Selak’s hearing problem had a negative impact on his education, particularly reading, writing and comprehension. She said his problems in dealing

with documents became more apparent as he got older. If he was given a document he was required to read or understand he would get stressed.

[65]   As his sister, trustee and a business professional, she has assisted Mr Selak by reading and explaining documents to him, and filling in forms or doing drafts for his written communications. Mr Selak would tell her what he wanted to say and she would write it for him. She explains that Mr Selak can read but he has to read something many times to be able to understand and grasp it. By way of example she explains that she assisted Mr Selak to prepare the draft for his brief of evidence and to review the documents relating to this proceeding. She says, however, that the words in the brief are Mr Selak’s as much as possible. She says the whole exercise was extremely stressful for him and he would stay up at night going over and over what had been written.

[66]   Ms Posa notes that while Mr Selak did not have a high education, he has always been a hard worker and has been successful in business by nurturing relationships and focusing on horticulture, which is what he knows best. She says he is not gullible but he is trusting. Ms Posa confirmed her evidence under cross-examination and stated that if something is more than a few lines or has some complexity to it, the first point of call for Mr Selak is to send it to her.

[67]   Mr Selak’s older brother,  John  Selak,  also  gave  evidence.  He  refers  to Mr Selak’s success (notwithstanding his limited education) which he says has been founded on hard work and a very strong moral compass upon which most of his decisions are based. He says once you have his trust, it is unconditional. Mr John Selak was not cross-examined.

[68]   The evidence of Mr Jones (now retired), who acted for Mr Selak since around 2009 and who was acting for him at the relevant time, was consistent with the evidence of Mr Selak and his family members on this issue. Mr Jones said he became aware very quickly that Mr Selak was not a person who could process written material. He said if he sent a letter, Mr Selak would phone him or arrange a meeting with him to ask him what the letter was about. He said it was rare for him to send an advice letter or other written communication. He would usually get Mr Selak into the office and

explain the issue and his advice. He said Mr Selak only proceeded on verbal advice, not written advice. But he added that Mr Selak’s ability to process written material is not a measure of his intelligence. He said in terms of the legal character of transactions such as leases, Mr Selak had no difficulty understanding them but it was only after Mr Jones had gone through all the documents and explained them and their effect. I accept Mr Jones’ evidence.

[69]   The documents that related to the Scott Road Landowners Group tended to support this evidence. Mr Selak was referred to them in cross-examination. There were no emails he had authored himself. The only emails he did send in his own name were, in fact, authored by Mr Tisot for Mr Selak.

[70]   Finally, I observed Mr Selak’s difficulties with written material first-hand as he read out his brief of evidence. Notwithstanding Ms Posa’s evidence that she assisted Mr Selak to write the brief of evidence, I accept it was his document and that it was a document with which he was familiar. It was not a complicated document and it was written in relatively plain language. As he read it out he: omitted words; substituted other words for words written on the page; mispronounced many words and, notwithstanding this proceeding is all about a covenant, he repeatedly read out the word “caveat” instead.

[71]   Having regard to the evidence of the witnesses and my own observations I consider Mr Selak has established that he has significant issues with reading and writing and understanding formal documents. It is a relevant disadvantage in relation to his understanding of the content of the Deed. While the Deed is not a lengthy document, it is written in formal legal language and contains a background section referring to the two properties, an interpretation section and then the agreement to remove a covenant identified only by its number. The covenant itself is not annexed. I consider Mr Selak would have needed someone to explain the document to him in terms of its content and its precise effect. Without a proper explanation, Mr Selak was not in a position to assess his best interests and accordingly, whether or not he should sign the Deed.

Did Mr Tisot have knowledge of Mr Selak’s disadvantage?

[72]   Mr Tisot says he had no knowledge of Mr Selak’s processing issues. It is also submitted on his behalf that he did not have constructive knowledge. Mr Tisot says in his experience Mr Selak was a competent and largely successful businessman who was reasonably astute. He says he often sent emails to Mr Selak, which he would not have done if he knew Mr Selak did not understand them. Mr Selak never told him he had any difficulty with the emails Mr Tisot sent him.

[73]   As part of their working together in the Scott Road Landowners Group, while Mr Tisot does not dispute that he wrote some emails on behalf of Mr Selak, he says he wrote them because Mr Selak asked him to and because Mr Tisot is better at writing emails. Mr Broadmore notes that Mr Tisot also wrote emails for others in the Scott Road Landowners Group.

[74]   I consider Mr Tisot somewhat downplayed the extent to which he acted in the interests of Mr Selak in that group. I say that for the following reasons. The proposals that the group was considering at  the  relevant  time  had  more  of  an  impact on Mr Selak’s previous property at 8A Scott Road than they did on 16A Scott Road. But Mr Tisot was instrumental in engaging with the Council on these issues. As already noted, he prepared emails for Mr Selak to send to the Council, including an email in which he advised the Council that he (Mr Tisot) would be attending on behalf of    Mr Selak. Further, Mr Selak prepared nothing independently in relation to the planning issues regarding Scott Point.

[75]   As well, Mr Tisot was the person who undertook “the detailed and careful analysis of the planning document on behalf of Mr Selak” (as put to Mr Tisot in cross- examination). Further, in relation to the issues affecting Mr Selak’s property, Mr Tisot acknowledged in cross-examination that:

They were the most concerning to him, because it was his property, and I assisted him to try and determine, particularly that local road, because of its size in relation to what he expected it should be and the impact and the alignment, was going to have an impact on the value of his property. He asked for my assistance to help him work out what that was and how to achieve that. I had limited assistance that I could provide, therefore he went and got professional assistance from, what I understand were planners and a lawyer.

[76]   Notwithstanding that evidence, Mr Tisot did not accept that it had become apparent to him that Mr Selak had difficulties dealing with complex documents in a written form. He said that because he has more experience in the field of earthmoving, drainage planning and infrastructure, it seemed natural for his help to be sought. But he did accept he was trusted by Mr Selak to advance Mr Selak’s interests before the Council officers.

[77]   I find that Mr Tisot must have had actual knowledge of Mr Selak’s reading and processing issues through their working together as part of the Scott Road Landowners Group.

[78]   At the very least he had constructive knowledge in that he ought to have known that Mr Selak did not properly understand what was being asked of him. The marked imbalance of consideration, the lack of any legal advice, the fact that Mr Selak did not have a copy of the covenant at the time (and Mr Tisot knew that) all should have put Mr Tisot on inquiry. In the absence of such inquiry I consider Mr Tisot should be treated as if he knew of Mr Selak’s disadvantage.

Did Mr Tisot take advantage of the disadvantage (active extraction or passive acceptance of benefit)?

[79]   To determine this issue, including deciding what Mr Tisot said to Mr Selak, it is necessary to examine the wider context surrounding the discussion between the two men and the signing of the Deed.

Approaches to the Smiths: by Mr Tisot and then Mr Selak on behalf of Mr Tisot

[80]   Mr Tisot’s approaches to the Smiths, his request that Mr Selak then approach the Smiths on his behalf and Mr Tisot’s own understanding of the difference between consent conditions and the covenant are relevant contextual issues.

[81]   In 2001 when he bought 16A Scott Road, Mr Tisot understood that it was subject to both the covenant and the consent conditions. He said he thought they were linked.

[82]   Then in his approaches to the Smiths, via their son in law Mr Brady, he equated the removal of the covenant with the removal of consent conditions. For example, in the email of 10 March 2016 to Mr Brady he said he had spoken to a planning consultant, met with the Special Housing Office and contacted Auckland Council for advice. He went on to say:

They all advise the consent notices and covenants are now redundant due to re-zoning of Scott Point to Special Housing and now also zoned fully residential. They advise these consent notices and covenants would be automatically removed and dealt with upon resource consent application for development.

[83]   Mr Tisot continues in the email saying it would be greatly appreciated if he could get the Smiths’ support and approval for removal of these from the title as it would make the sale of his property much smoother. He said they were trying to sell but an interested purchaser was wary of the consent notices and covenants on the title of 16A Scott Road. Mr Tisot copied and pasted into his email an email from the Council that related to removal of consent notices (not covenants) and how to make an application to do so.

[84]   To be fair to Mr Tisot, under cross-examination he acknowledged that at least in relation to his present knowledge, the statement to the Smiths that covenants can be dealt with in the same way as consent notices, was wrong.

[85]   As to when he learned the distinction between the two, an email from planning consultant David Wren to Mr Tisot dated 4 March 2016 said that the advice from the Council seemed to be these are not planning matters and they went beyond the scope of the plan change. In his email Mr Wren says “as the plan change is now operative the covenants you refer to are redundant”. He thought the best course of action was for Mr Tisot to consult with a property lawyer who could assist him with getting these removed.

[86]   On 8 March 2016 Mr Tisot’s legal executive daughter sought advice from the Council as to “how to have the all [sic] redundant covenants and consent notices etc. removed from the title to the land”. The response by a Council officer on 9 March 2016 was that “the short answer is that an application can be made under section

221(3) of the Resource Management Act to vary or cancel any condition specified in a consent notice”. The email is confined solely to consent notices.

[87]   On 12 March 2016 Mr Tisot emailed Mr Brady again, copying and pasting information in relation to consent notices under s 221, saying he found this on the web “relating to the consent & covenants”. At best, it is unclear whether Mr Tisot appreciated the distinction between covenants and resource consents as at 12 March 2016.

[88]   However, by 14 March 2016, Mr Tisot had conferred with his lawyer and he sent the Smiths a number of formal documents by email. They included the covenant itself and a document headed: “Easement instrument to surrender easement or profit à prendre or land covenant”. The subheading of that latter document referred to the Land Transfer Act 1952, ss 90A and 90F. There was also a client authority for the appointment of Buddle Findlay as solicitors for the purposes of the transaction and a waiver of independent legal advice.

[89]   At least from this point, Mr Tisot understood that the consent notice and the covenant were not linked and that the process to remove a covenant was quite separate from removing a consent. He also understood that the Smiths would either have to have independent legal advice or agree to waive independent legal advice.

[90]   The Smiths decided to take independent legal advice and upon their request Mr Tisot agreed to pay for it. They then informed Mr Tisot they did not wish to release the covenant.

[91]   It is not in dispute that Mr Selak told Mr Tisot in early May 2016 that he was interested in purchasing 16 Scott Road. Mr Tisot asked Mr Selak to take documents to the Smiths on his behalf, again seeking their agreement to remove the covenant.

[92]He emailed the documents to Mr Selak on 3 May 2016 saying:

Copies of the documents from our solicitors that were prepared for the Smith’s [sic] to sign for the removal of the covenants on our title.

Once signed, the documents then go back to our lawyers who send them to the Land Transfer Office & it’s all done.

[93]   The documents annexed were the three formal documents: the authority and instruction form; document for the removal of a covenant; and waiver of independent legal advice. The covenant itself was not attached.

[94]   The email went on to say that Mr Tisot had “also found this info regarding covenants and consent notices that are listed on property titles”. However, the information Mr Tisot copied and pasted into his email related solely to consent notices under s 221 of the Resource Management Act.

[95]   Mr Selak’s evidence was that he did not read the documents but he had a reasonable idea of what they were. But he didn’t understand the mechanics or exactly how things worked. He also said Mr Tisot was going to give him the documents in an envelope and subsequently did so. Mr Tisot does not accept that he delivered the documents in that way. That disagreement is not material so it is not necessary to resolve that issue.

[96]   However, two important points emerge from this evidence. First, the information Mr Tisot provided in the email to Mr Selak was about removing consent notices, with agreement from the Council, from titles. As I will come to, Mr Selak said that was what he thought he was doing in signing the Deed, namely assisting  Mr Tisot with issues with the Council.

[97]   The second issue, and here I accept the submission Mr Barker makes, is that the documents prepared for the Smiths to sign indicate the formal process required to remove the covenant. To the extent that Mr Selak did understand that these documents were to remove the covenant, they are quite different from the Deed that he later signed, which Mr Tisot says has the same effect. If the formal documents provided to the Smiths were those that were  necessary  to  effect  surrender  of  the  covenant, Mr Barker asks how was it that Mr Selak would understand that a brief conversation with a friend and a short document signed without legal advice could have the same effect.

Conversation between Mr Selak and Mr Tisot after Mr Selak’s approach to the Smiths

[98]   A day or so after Mr Selak spoke to the Smiths, he and Mr Tisot met face to face. They each give evidence as to what was said in that conversation. The two accounts are starkly different. Mr Selak said:

A couple of days later we had a face-to-face meeting and a chat. I asked him whether he wanted the documents back (the ones that the Smiths did not sign). Tony said “no, they are no use to me”. We had a chat in general including about Auckland restrictions on the land. Tony said, “would you sign it? “I said, “what exactly is it?”. He said, “It’s about removal of the trees, some second-hand materials and stuff like that “I said, “okay then”.

I understood he was going to prepare some documents to do this.

Then he asked me who is buying the property, under whose name is it? I told him I was buying the property and that I haven’t decided if I’m putting it under the trust or what. He said he will make it ‘or nominee’.

He then asked me where to send the document to. I told him to send it to my lawyer. He said “what’s the point, he will charge you. All you need is a signatory witness”. I asked him what a signatory witness was. He said “anybody”. I then said “okay, send it to my post office box” He said “I will bring it to you”.

[99]Mr Tisot’s evidence was as follows:

On or around 12 May 2016 I met with Danny following his meeting with the Smiths and Danny told me that despite his best efforts the Smiths refused to sign the documents agreeing to remove the Covenant. However, Danny said that Fred Smith had said “perhaps the new owner of his property might remove the covenant”. I took that to imply that Danny intended to be the new owner of  16 Scott Road.  At that  point I  asked Danny whether, if he purchased   16 Scott Road, he would remove the Covenant. He said “yes” he would. Danny was a friend and at that time I took him at his word that he would remove the Covenant.

[100]  Under cross-examination Mr Tisot’s position was that he was very clear there was no mention of anything else apart from what I have referred to in the paragraph from his brief of evidence quoted in [99] above: there was no discussion about Council restrictions relating to noxious trees and  second-hand  materials;  he  did  not  ask Mr Selak if he would agree to remove those Council restrictions; and what he was asking to be removed had nothing to do with consent notices, second-hand materials, trees or otherwise. Mr Tisot’s position was that the question of a document recording the agreement was not discussed at this meeting. It followed that there was no

discussion  about  sending  any  such  document  to  Mr  Selak’s  lawyer.     Under cross-examination Mr Tisot said:

No, there as [sic] no document even thought of then. I hadn’t even thought of it, it was after I discussed it with my wife subsequent to that verbal agreement and I explained to her and then we thought, we talked about it and we thought, well it’d be quite useful to have confirmation of that for those real estate agents and their buyers. As I said, I didn’t need that. That wasn’t for me.

[101]  I accept Mr Tisot’s evidence that the question of signing a document recording the agreement was not discussed on 12 May 2016 and that there was a later discussion with Mr Selak about that. I say that for the following reason. It was not until 18 May 2016 that Mr Tisot sent an email to his daughter which was headed “New S&P Agreement” saying:

I spoke to Danny & he has agreed to sign an agreement to say he will remove the covenant off our property once he completes the purchase of 16 Scott Road which settles on 29th September 2016.

Can you draft up the agreement ASAP.

[102]  The agreement for sale and purchase was dated 17 May 2016. The conversation between Mr Tisot and Mr Selak about signing an agreement must have been on or after that date. Under cross-examination Mr Selak appeared to accept there was a later conversation (that is not on 12 May 2016) about documenting the agreement, but then appeared to revert to his earlier position that this was discussed during the conversation on 12 May 2016.

[103]  However, this finding in favour of Mr Tisot as to when the discussion about documenting the agreement occurred does not dispose of the content of the conversation as regards the “lawyer” issue.

[104]  Even on Mr Tisot’s version of events, I consider there are question marks over his conduct. That is apparent from the following cross-examination of Mr Tisot:

Q. But as I understand it you believed that after that meeting [on 12 May 2016], Danny was, Mr Selak was bound to release and surrender the covenant?

A.       Yes.

Q. And he didn't have a copy of the covenant with him at that time? Well, you hadn't provided him with a copy of the covenant?

A.       I hadn't provided him with a copy, no.

Q.       He didn't have a lawyer giving him any advice on it, did he?

A.       I have no idea whether he did or didn't.

Q.Well, in that meeting, did you – you say that you didn't suggest to him to get a lawyer?

A.       That I didn't suggest or I did suggest?

Q.Sorry.  Well, did you recommend to him that he gets legal advice on  that?

A.       No, I didn't.

Q. But you knew,  from  what you’d done  with the  Smiths, that legal  advice, or at least an acknowledgement that such legal advice was necessary, was required for that arrangement to be effective, didn't you?

…

Q. Well,  when we were talking about  the Smith transaction, we had a  bunch of formal documents that were intended to effect it?

A.       That’s right.

Q.       One of those was the waiver of independent advice?

A.       Yes.

…

Q. And as I said, your understanding was that they would require legal advice to effect that transaction?

A.       Yes, that’s correct.

Q. What I’m putting to you is that you haven't here ensured any similar protection for Mr Selak have you? You haven't said to him: “You should get legal advice on this Mr Selak”, have you?

A.       No, I didn't suggest he get legal advice, no.

[105]  At that stage, of course, Mr Selak or the trustees of his trust were not yet registered proprietors of the property and accordingly they could not sign documents in that capacity as the Smiths would have been able to do. Nevertheless, I consider there was much less care on the part of Mr Tisot in his approach to Mr Selak as compared to his approach to the Smiths in relation to an acknowledgement of the need

for legal advice. Given the disproportionate benefits to each party this is a case where Mr Tisot should have said to his friend that before we reach agreement you should get independent advice.

Meeting with Dail Jones

[106]  Mr Selak’s meeting with his solicitor, Dail Jones, assists in determining what was said in the conversation on 12 May 2016 and again around 18 May 2016.

[107]  As already noted, Mr Selak negotiated directly with the Smiths, signing a conditional contract which contained a due diligence clause. Once the agreement for sale and purchase was signed Mr Selak met with Mr Jones.

[108]  That meeting was on or before 24 May 2016. That can be said having regard to the fact that it was on 24 May 2016 that Mr Jones advised the vendors’ solicitors that the due diligence condition had been satisfied.

[109]  One of the documents Mr Jones discussed with Mr Selak at this meeting was the consent notice registered on the title of 16 Scott Road. Mr Jones’ file copy of the title and the consent conditions with his handwritten notations was produced. One of the conditions in the consent notice which Mr Jones had marked for discussion is the restriction on Lot 2 of the subdivision (that is, 16A Scott Road). The restriction (which I have set out earlier but repeat for ease of reference) provides that the owner shall not:

7. Place, erect, construct or permit to remain on any part of the land described in the Third Schedule [16A Scott Road] hereto marked “A” and “C” on Deposited Plan 206422, any residential buildings of any nature.

[110] Mr Jones did not discuss the terms of the covenant (which will be recalled had a similar restriction) with Mr Selak because (as noted at [20] above) the covenant was not registered against the title of 16 Scott Road.

[111]  Mr Selak did not mention the agreement he had reached with Mr Tisot at that meeting. I consider that had Mr Selak understood from his conversation with Mr Tisot that he was agreeing to the removal of building restrictions on areas A and C on   16A Scott Road, he would have said so to Mr Jones when Mr Jones discussed

condition 7 of the consent conditions with him. There would have been no reason for him not to have done so.

Is it likely Mr Selak would have agreed to the removal of building restrictions on 16A Scott Road?

[112]  Mr Jones’ evidence was that he found Mr Selak “at all times to be highly intelligent and rational in his conduct of business matters”. Accepting that is how  Mr Selak operated, then if Mr Tisot’s  version  of events  is  to  be accepted, what  Mr Selak agreed to give up was not rational. In other words, it was not a foolish decision later regretted.

[113]  Mr Barker posed the question, looking at it from Mr Selak’s perspective, why would he have agreed to give up the protection of his views and privacy had he known what it was that Mr Tisot was asking of him. Mr Selak was buying the property in part because of the views. Mr Tisot acknowledges that. He says Mr Selak told him that he had originally offered $3.5 million to purchase 16 Scott Road but had to pay

$4 million because the Smiths had been insistent on their asking price because of the protection of the views. If the Court were to accept Mr Tisot’s evidence then Mr Selak was agreeing to give up the view protections for which he had paid an increased price.

[114]  The site visit conducted by the Court was of particular assistance on this issue. A consideration of the subdivision plan (Annexure A to this judgment) suggests that the view from 16 Scott Road is in part across the recreation reserve (Lot 3) and in part across area A of Lot 2 (16 Scott Road) and not particularly across area C. Further, the subdivision plan does not give any indication of privacy issues.

[115]  On the site visit the Court could see for itself first, that the orientation of the house is such that the view, in particular from the large deck on the seaward side of the house, is directly across area C and then further, over area A towards the harbour. As well, in relation to privacy issues, the deck is relatively close to the boundary with area C on 16A Scott Road. I find it difficult to accept that Mr Selak, a man who is said to conduct his affairs in a rational way, would have given up views and privacy for which he had just agreed to pay an increased price, and would have agreed to the possibility of residential buildings being built on his boundary just metres from his

deck simply because Mr Tisot asked him to do so. That would not have been an intelligent and rational decision on Mr Selak’s part.

[116]  Mr Selak did not sign the Deed until 30 May 2016 after being asked on a number of occasions by Mr Tisot to do so. He had his signature on the Deed witnessed by a car salesman while he was arranging the purchase of a vehicle from him. The casual nature of the signing and witnessing again suggests that Mr Selak did not understand the effect of the Deed.

[117]  As an aside and relevant to the earlier discussion regarding Mr Tisot’s role in assisting Mr Selak with written communications, the email to the car salesman confirming that Mr Selak would purchase the vehicle and confirming the order and extras was written and sent by Mr Tisot on Mr Selak’s behalf.

Mr Tisot’s explanations for Mr Selak’s agreement to sign the Deed

[118]  Mr Tisot’s evidence is that following Mr Selak’s agreement to remove the covenant he (that is, Mr Tisot) took no further steps towards purchasing 16 Scott Road and immediately ceased communications with the Smiths and the estate agent regarding any joint sale. Mr Tisot says he believed the agreement was beneficial to both of them because he did not continue his discussions with the Smiths regarding purchasing 16 Scott Road or removing the covenant and did not follow up with the real estate agent about a back-to-back sale of 16 and 16A Scott Road. He says this meant that Mr Selak was able to continue to negotiate the purchase of 16 Scott Road uncontested.

[119]  However, under cross-examination Mr Tisot acknowledged there was no record of his having made any initial engagement with the Smiths regarding purchasing of 16 Scott Road; there were no details of his taking steps to ensure that funding was in place; there were no details of his internally, within members of his trust or family, describing the potential for such a purchase. In explanation, Mr Tisot said that this was not the primary option. I consider that this “option” was illusory having regard to the above acknowledgements.

[120]  As well, I note that Mr Tisot did not say there was an arrangement with     Mr Selak whereby he would not attempt to buy 16 Scott Road if Mr Selak granted the release of the covenant.

[121]  Mr Broadmore submits that there were other benefits to Mr Selak in entering the Deed: not having to respond to an application under s 317 of the PLA and the benefit of helping a friend. I give those asserted benefits no real weight when compared with the benefits to Mr Tisot.

The Deed

[122]  When Mr Tisot emailed the Deed to Mr Selak on 19 May 2016, his covering email did not provide any explanation of the Deed or its meaning. Mr Tisot’s casual approach is illustrated by the fact that his email also includes advice to Mr Selak about Mr Tisot’s discussion with the sales manager at the motor vehicle dealership from which Mr Selak later purchased a vehicle (referred to above).

[123]  Further, the Deed itself is not clear as to what “covenant” it refers to. As already noted, there is no copy of the covenant attached to the Deed. Nor does the Deed explain the effect of the covenant. Further, again at this point Mr Tisot did not suggest to Mr Selak that he obtain legal advice even in circumstances where Mr Tisot had legal assistance by having the document drawn up by his legal executive daughter.

[124]  On receipt of the Deed Mr Selak did not show it to Mr Jones or his sister. There was no reason for him not to have done so, if he had known that signing the Deed would involve the release of the covenant. They were the two people whom he trusted to advise him as regards documents. That suggests to me that Mr Selak did not understand this was the effect of the Deed. That, in turn, informs my consideration of what Mr Tisot had said to him, which I will come to in due course.

Respective benefits

[125]  Based on present-day valuations 16A Scott Road is worth $3.1 million more with the covenant removed. In relation to 16 Scott Road without the protection of the covenant it is worth $400,000 less and up to $680,000 as a right to be negotiated away.

[126]  There is no valuation evidence as at May 2016. However, it can be said that the resulting agreement operated unfairly to Mr Selak. There was clearly value in the privacy and view protection afforded by the covenant, which I accept could be translated into a monetary figure. On the other side of the bargain, I accept there would have been a monetary benefit (although not quantified as at 2016) in terms of the price Mr Tisot would have achieved on selling the land to a developer with the restriction on building on two thirds of his land being removed.

Subsequent conduct

[127]  I turn to the subsequent conduct of the parties which is admissible not for the construction of the contract, but for the purposes of credibility issues affecting the question of whether something was stated during contractual negotiations.12

[128]  I consider that the subsequent conduct of the parties supports Mr Selak’s version of what Mr Tisot said on 12 May 2016 about what he was asking Mr Selak to agree to. There are the following relevant events. Mr Tisot and his wife had dinner with Mr Selak and his wife at 16 Scott Road in January 2017. Mr Tisot mentioned the covenants.13 Mr Selak asked Mr Tisot what these were because he had not seen them. The following day, 16 January 2017, Mr Tisot sent an email to Mr Selak in which he says: “I found copies of the covenants attached which I originally sent to Shane Brady.” I consider the fact that Mr Selak was unaware of the detail of the covenant as at this date supports his evidence that he did not understand the effect of the Deed.

[129]  Then on 25 January 2017 when Mr Selak was meeting with Mr Jones, Mr Selak showed him what Mr Jones describes as “some covenant documents”. Mr Jones said he realised that they were registered over 16A Scott Road for the benefit of 16 Scott Road. In a follow up email after that meeting Mr Jones pointed out to Mr Selak that the covenant was intended to be for the benefit of Mr Selak’s property. Mr Jones’ evidence was that Mr Selak did not mention any Deed or any document that related to the cancellation or removal of the covenant at the 25 January 2017 meeting. That again supports Mr Selak’s position that he was not aware of the effect of the Deed.

12     Andru Isac (ed), Cross on Evidence (online ed, LexisNexis) at [5.3].

13     When describing these events both Mr Tisot and Mr Selak refer to “covenants” as opposed to “covenant”.

[130]  It was not until 26 February 2019 that Mr Selak had a meeting with Mr Jones during which he showed Mr Jones what Mr Jones refers to as the “cancellation document” in his invoice regarding that meeting. It seems this was the Deed.

[131]  There was a meeting at 16 Scott Road between Mr Tisot, Mr Selak, Ms Posa and Mr John Selak in either January or July 2019.14 There was discussion as to what development would take place on 16A Scott Road and in particular there was discussion about how to protect Mr Selak’s views over that property. Mr Tisot largely agreed with the Selak witnesses and acknowledged that Mr Selak had concerns about what might be built and where, and the views he had that he wanted to retain. Those present walked over the two properties talking about the protection of views. Mr Tisot said they discussed the possibility of no building on area C and he said he could work with that and would have been prepared to agree to no building taking place on area C. But he said as far as area A was concerned, it was a much larger area and he did not consider it was feasible not to build houses there to try and retain a view of the particular channel marker that Mr Selak was wanting to protect.

[132]  This meeting does not really  advance the issue  of what  Mr Tisot  said  on 12 May 2016 and the issue of Mr Selak’s understanding at that time of what he was agreeing to: by July 2019 (accepting the evidence of the Selak family as to the date) this was after the meeting when Mr Selak had had advice from Mr Jones on the Deed. On Mr Tisot’s part, while he acknowledged he did not raise the Deed, he said because Mr Selak was a friend, he was prepared to come to “some amicable resolution”. He was reluctant to enforce the Deed legally because of the friendship.

What was said by Mr Tisot and what Mr Selak understood at that time

[133]  I return to the key issue. I accept that by May 2016 Mr Selak knew in general terms that there were restrictions on the title to 16A Scott Road that were for the benefit of the Smiths and that there were two different sets of restrictions: the “Smith” restrictions and the “Council” restrictions. In relation to the Council restrictions he was aware they included the “silly” restrictions regarding noxious trees, second-hand

14     Mr Tisot says it was in January 2019, whereas the Selak witnesses say it was in July 2019. Nothing really turns on the date.

building materials and similar. He also understood that Mr Tisot was wanting the Smiths to agree to remove the “Smith” restrictions.

[134]  On a reading of part of cross-examination of Mr Selak it appears he did know what the restrictions were, but on a close and careful read of that evidence I consider there is a distinction that needs to be made between that knowledge and what it was that he had been asked to relinquish when he and Mr Tisot spoke on 12 May 2016. At the end of his cross-examination he made his position clear that what he understood Mr Tisot was asking him and what the agreement related to was Council restrictions regarding noxious trees and the use of second-hand building materials and “stuff like that”.

[135]  I turn to my finding regarding what Mr Tisot said to Mr Selak having regard to the context discussed in sections of the judgment above. First, I consider any earlier discussions between the men (that is before 12 May 2016) were coloured by Mr Tisot’s own confusion between the covenant and the consent conditions; the process by which each might be removed; and further the relative ease with which Council restrictions might be removed following rezoning.

[136]  I do not consider Mr Tisot deliberately set out to deceive his friend of 50 years in a pre-determined way. However, at the time Mr Tisot was very anxious to sell 16A Scott Road, which by then had become a valuable piece of land without the earlier zoning restrictions. He had been liaising with real estate agents and potential purchasers were interested but the existence of the covenant was an impediment to selling the land.

[137]  In his eagerness to maximise the development potential of 16A Scott Road I consider Mr Tisot was at the very least careless in what he said to Mr Selak. I find that Mr Tisot asked Mr Selak to agree to remove “silly” Council restrictions regarding noxious trees and second-hand building materials “and stuff like that”. He did not make it clear that he was asking Mr Selak to agree to the removal of the restriction in the covenant that there be no building on areas A and C of 16A Scott Road.

[138]  When the two men spoke again around 18 May 2016 and Mr Tisot asked    Mr Selak to sign a written agreement, he did not provide him with a copy of the covenant. While knowing that the Smiths needed legal advice on the issue, he did not suggest to Mr Selak that he get legal advice. That also needs to be viewed in the context of my finding that Mr Tisot knew of the difficulties that Mr Selak had when dealing with formal documents and that Mr Selak trusted and relied on him in relation to documents.

[139]  The issue is though, did Mr Tisot go further and actively discourage Mr Selak from seeking legal advice? I have reached the view that he did. Had he not done so I consider Mr Selak would have sought advice (from either his sister or Mr Jones) on whether he should sign the Deed. That was how he conducted his affairs when being asked to read, understand and sign legal documents.

Conclusion on third element of unconscionability

[140]  I come to my conclusion on the third element that needs to be established for a finding of unconscionability.

[141]  There does not need to be active dishonesty on the part of the party who is seeking to take advantage of a transaction. That party’s conscience may be affected by the circumstances of the transaction:15

These cases, including not least of all the opinion of the Privy Council in O'Connor v Hart, do not require proof of an active extortion of a benefit, an abuse of confidence, a lack of good faith by the party seeking to hold the bargain. Accepting the benefit of an improvident bargain by an ignorant person acting without independent advice which cannot be shown to be fair, may be unconscionable. Such a transaction may affect the conscience of the party who benefits from it. The burden in such circumstances of proving that the bargain is fair and reasonable may rest on the party seeking to take advantage of it: …

[142]  In this case Mr Selak did not receive anything from the transaction. The agreement was only to his detriment and to the benefit of Mr Tisot. There is also no logical rationale for the agreement from Mr Selak’s perspective. As I have found earlier, this was not a foolish decision he later regretted.

15     Nicols v Jessup, above n 8, at 234.

[143]  There is also the lack of a legal advice to Mr Selak. Mr Tisot was aware of the importance of involving lawyers and also the significance of independent advice. That is apparent from the documents he provided to the Smiths. There is also the fact that the agreement was in the form of a deed. Mr Tisot took advice on how to achieve a binding legal document but did not suggest to Mr Selak he should also do so. That needs to be seen in the context of the longstanding friendship, a feature of which was the trust Mr Selak placed in Mr Tisot.

[144]  I consider the transaction can be seen to affect Mr Tisot’s conscience. He has not discharged the burden of proving that the bargain is fair and reasonable.

[145]I will make a declaration that the Deed is void and of no effect.

Misrepresentation

[146]  Having found in favour of the defendants on the affirmative defence of unconscionability it is not strictly necessary to consider the second affirmative defence of misrepresentation. But I do so for completeness. The discussion will be relatively brief as I have already made a finding in relation to what Mr Tisot said to Mr Selak on

12 May 2016 and around 18 May 2016 in the context of considering the unconscionability defence.

[147]  A party to a contract may cancel it if the party has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to the contract.16 A party may only exercise the right to cancel in circumstances including where the effect of the misrepresentation will be to substantially increase the burden of the cancelling party under the contract17 or, in relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for.18

16     Contract and Commercial Law Act, s 37(1).

17     Section 37(2)(b)(ii).

18     Section 37(2)(b)(iii).

[148]Here, the defendants say, in terms of the elements of the defence:

(a)there were misrepresentations made by Mr Tisot to Mr Selak as follows:

(i)the restrictions on 16A Scott Road Mr Tisot was seeking to remove related to the removal of noxious trees and the use of second-hand materials and stuff like that; and

(ii)it was not necessary for Mr Selak to take the written agreement to his lawyers as it would cost and all he needed to do was sign the document and have it witnessed;

(b)the representations induced Mr Selak to sign the Deed; and

(c)the effect of the misrepresentations was to either:

(i)substantially increase the burden of the Deed to Mr Selak; or

(ii)make the benefit or burden of the contract substantially different from that represented.

Misrepresentation

[149]  The term “misrepresentation” is not defined in the CCLA. However, the courts have proceeded on the basis that it has the same meaning as it had at common law, namely a representation of past or present fact that is false or misleading and includes half-truths. While mere silence may not amount to a misrepresentation, where silence distorts some positive representation, then this may amount to a misrepresentation under the CCLA:19

A party to a contract may be legally justified in remaining silent about some material fact, but if he or she ventures to make a representation upon the matter it must be a full and frank statement, and not such a partial and fragmentary account that what is withheld makes that which is said false. A half-truth may in fact create a misleading impression because of what it leaves unsaid.

19     Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [11.2.1(g)].)

(footnotes omitted)

[150]The Court must determine what the statement represented in context.20

[11]  Whether there has been a misrepresentation of fact is not determined merely by considering the literal meaning of the words used without regard to the context. The enquiry is what a reasonable person would have understood from those words in all the circumstances. Relevant considerations will often include the nature and subject-matter of the transaction, the respective knowledge of the parties, their relative positions and the words used. Where a party with superior knowledge takes it upon itself to make a representation of fact without qualifying it by reference to the basis for its assertion, it will generally have to accept the consequences of being wrong. However, each case will ultimately turn on its own facts.

(footnotes omitted)

[151]  Statements of opinion and statements as to a future state of affairs do not amount to misrepresentations.

Statements of law

[152]  Previously, under the common law the position was that statements of law could not amount to misrepresentations. However, in Southern Response Earthquake Services Ltd v Dodds the Court of Appeal held that an alleged misrepresentation to an insured regarding their maximum entitlement under an insurance policy was a proposition as to the effect by legal document. The Court held that courts do tend to regard statements about the effect of documents as representations and that in such cases it is difficult to distinguish between representations of fact and of law.21 The Court also expressed doubt that the “old common law rule that statements of law could not amount to misrepresentations” remains good law.22

Inducement

[153]  The representation must have induced the other party to enter into the contract. This requires that the misrepresentation produced a misunderstanding in the other party’s mind, that that party relied on the misrepresentation and that the

20     Ridgway Empire v Grant [2019] NZCA 134, (2019) 20 NZCPR 236.

21     Southern Response Earthquake Services Ltd v Dodds [2020] NZCA 395, [2020] 3 NZLR 383 at [132].

22 At [132]. See also Sky Network Television Ltd v My Box NZ Ltd [2018] NZHC 2768, [2019] NZLR 411 at [107] and Time Rich Asia Investment Ltd v Zhou [2024] NZHC 125 at [19].

misrepresentation must have been one of the reasons which induced him or her to enter into the contract.23 The representation need not be the sole inducement but it must have had a material effect on the alleging party’s decision to enter into the contract.

[154]  Reliance on the representation must have been reasonable such that no reasonable person in the position of the alleging party would have relied on it. However, where a clear and unequivocal representation is made, the alleging party should normally be able to take it at face value.24

[155]  There can be no inducement in circumstances where the alleging party had actual and complete knowledge of the untruth of the representation.25

Cancellation

[156]  Where a party has been induced to enter into a contract on the basis of a misrepresentation where any of the factors in s 37(2)(b) applies (refer [147] above) the requirement of substantiality means it must be something more than trivial or minimal but does not require a difference so great as to alter the subject-matter of the contract.26 The assessment must take into account both objective and subjective factors.27

Analysis

[157]  I have already found that Mr Tisot made the representation that what he was seeking from Mr Selak was his agreement to the release of restrictions on noxious trees, second-hand materials and stuff like that. The Deed that was sent to him after the further discussion on or about 18 May 2016 was an agreement for complete removal of all restrictions in the covenant, including importantly, the restrictions over building on areas A and C. The representation was clear. Although it was as to the

23     Burrows, Finn and Todd on the Law of Contract in New Zealand, above n 19, at [11.2.4].

24     Burrows, Finn and Todd on the Law of Contract in New Zealand, above n 19, at [11.2.4].

25     Burrows, Finn and Todd on the Law of Contract in New Zealand, above n 19, at [11.2.4].

26     Burrows, Finn and Todd on the Law of Contract in New Zealand, above n 19, at [18.2.2(b)] citing

Jolly v Palmer [1985] 1 NZLR 658 at 662.

27     Burrows, Finn and Todd on the Law of Contract in New Zealand, above n 19, at [18.2.2(b)] citing

Sharplin v Henderson [1990] 2 NZLR 134 at 137.

meaning and effect of a legal document, having regard to the authorities referred to in the footnotes to [152] above, this is an actionable misrepresentation.

[158]  The second representation regarding the need for legal advice is not, in my view, a statement of past or present fact. It is a statement of opinion and accordingly not an actionable misrepresentation.

[159]  As to context, the discussion on 12 May 2016  occurred in the  context  of  Mr Selak advising Mr Tisot that the Smiths had refused to sign documents prepared by Mr Tisot. While Mr Selak understood that there were “Smith restrictions” given the clear representation made by Mr Tisot, Mr Selak was entitled to take it at face value.   Mr Tisot was the one with superior knowledge of all the circumstances.     Mr Selak relied on what Mr Tisot said.   It was reasonable for Mr Selak to do so.   Mr Tisot was a longstanding and trusted friend. The only reason Mr Selak signed the Deed was because Mr Tisot requested him to do so.

[160]  The burden of the contract – loss of views and privacy, and the reduction in value of the land – was substantially different from that represented.

[161]  For the above reasons the affirmative defence is established. To the extent it is necessary, I will make an order cancelling the Deed under s 37(2) of the CCLA.

Section 317 Property Law Act

[162]  Having found in favour of the defendants on both their affirmative defences it is necessary to consider the plaintiffs’ claim for relief under s 317 of the PLA seeking an order that the covenant be extinguished, or in the alternative, modified.

[163]  The defendants accept that the jurisdiction to extinguish or modify, exists. Their primary position is that there should be modification and that it should protect Mr Selak’s view from his deck across 16A Scott Road to the harbour below. If, however, the Court exercises its discretion to extinguish the covenant then the defendants’ position is that there should be an order for compensation in favour of the defendants for the full value of the property rights they have lost. Having regard to

the agreed statement of the two valuers, Mr Barker says that should be in the sum of

$660,000 plus GST (if any) being the agreed “negotiation value” of those rights.

The PLA and legal principles

[164]  A person bound by a restrictive covenant may apply to a court for an order under s 317 of the PLA modifying or extinguishing the restrictive covenant.28

[165]Section 317(1) of the PLA provides:

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

28     Property Law Act, s 316(1).

(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.

[166]The plaintiffs rely on s 317(1)(a)(ii) and (iii), (b) and (d).

[167]  In Synlait Milk Ltd v New Zealand Industrial Park Ltd the Supreme Court explained the correct approach to s 317:29

… s 317 requires 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 so, the second task is to determine whether the discretion to extinguish or modify the easement or covenant at issue should be exercised (and, if so, to determine whether compensation should be payable). 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). We do not see any intent that any one factor should be disqualifying.

[168]  Section 317 can be used to free the owner of burdened land from a covenant simply to improve the enjoyment of his or her property or for his or her private purposes.30 This does not mean that the importance of contractual and property rights can be ignored. However, they must be considered in the factual context before the Court rather than as generic fetters on the Court’s discretion.31

Removal of covenant due to changes – s 317(1)(a)(ii) and (iii) and (b)

Section 317(1)(a)(ii) and (iii) – changes to neighbourhood or other changes

[169]It is convenient to deal with these two subparagraphs together.

[170]  Section 317(1)(a) deals with changes that satisfy the Court that the covenant “ought” to be modified or extinguished. The focus is not on the fact of change but on the impact of the change on the benefit or burden flowing from the covenant.32

29     Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [90].

30     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [86] citing Pollard v Williams

[2019] NZHC 2029, (2019) 20 NZCPR 371 at [19].

31     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [88].

32     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [138] citing Okey v Kingsbeer

[2017] NZCA 625, (2017) 19 NZCPR 25 at [53].

[171]  Zoning or planning changes may be relevant to both s 317(1)(a)(ii) and (iii).33 For example, the planning changes in Synlait had contributed to the change in the character of the neighbourhood from rural land uses to major industrial and residential developments. However, the Supreme Court made it clear that while a change in zoning is a factor that can be taken into account, it is not a decisive factor.34 But a change in zoning can be brought into consideration when determining whether the characteristics of the neighbourhood have changed.

[172]  Courts have found that a change from rural land to residential land is sufficient to show a change in character. In Re Aklander Investments Ltd the Court was satisfied that the covenant ought to be modified because of a change since the covenant’s creation to the character of the neighbourhood: “what was once largely rural land is now very much a residential part of Auckland City”. 35

[173]Similarly, in Re Barfilon Investments Ltd the Court was satisfied that: 36

… the combination of the creation of the SHA, the change of zoning from Rural Plains to a combination of Terrace Housing and Apartment Building, Mixed Housing Urban, Mixed Housing Suburban, and Local Centre zones and establishing the Drury 1 Precinct, and the qualifying development resource consent, give rise to such a change since the covenant was created in 1995 that it is appropriate for the covenant to be modified.

Section 317(1)(b) – change in the extent of the impediment

[174]  Under s 317(1)(b) the Court must determine whether the nature or extent of the impediment represented by the restrictive covenant has changed. Changes in the reasonable use of the land will be relevant to assessing whether the nature and extent of the impediment has changed.37 In Synlait the Supreme Court considered that threshold in s 317(1)(b) had been met:38

We conclude that, although the covenants continue to restrict the use of the burdened land in the same way as they always have, the impediment on the use of that land is now greater because its potential uses and, given the nature

33     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [150].

34     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [151].

35     Re Aklander Investments Ltd, [2017] NZHC 2939 at [3].

36     Re Barfilon Investments Ltd [2019] NZHC 780 at [33].

37     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [161].

38     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [166].

of the neighbourhood, its reasonable uses, have expanded in a way that would not have been foreseen when the covenants were entered into.

Changes since the covenant was created

[175]  At the time the  covenant  was  created  16A  Scott  Road  was  bare  land.  Mr Broadmore points to the following changes:

(a)In 2001 the Smiths owned both 16 and 16A Scott Road.

(b)As far as zoning at that time, 16A Scott Road was outside the Metropolitan Urban Limits. It was zoned Rural 1, and was transitioning to Countryside Human Environment, which became the operative zoning in March 2003. Under those zonings, only one dwelling could be built on 16A Scott Road and the minimum site size was at least four hectares.

(c)More generally, 16 and 16A Scott Road and the surrounding neighbourhood was a rural-residential environment, containing a mix of lifestyle and horticultural/agricultural activities.

[176]  Having regard to the above position in 2001, Mr Broadmore submits that the nature and extent of the impediment from the covenant was not significant (and the Smiths, as owners of both properties, would not have wanted it to be because of the impact on value). The covenant restricted the location of an anticipated single dwelling at 16A Scott Road and restricted other aspects of the construction of that dwelling.

[177]  In or around late 2013 there were legislative changes that affected the Scott Point area, including Scott Road, as follows:

(a)On 16 September 2013 the Housing Accords and Special Housing Areas Act 2013 came into force; and

(b)On 13 December 2013, the Scott Point Special Housing Area was announced. That was for the purpose of facilitating 2,592 homes across 283 hectares of land.

[178]  On 15 November 2016 the Auckland Unitary Plan became operative in part and it rezoned both 16 and 16A Scott Road (and surrounding sites) as Residential Mixed Housing Suburban Zone. This zone provides for buildings of eight metres in height (plus one metre), the latter allowing for pitched roofs. This enables a build height of two stories. Up to three dwellings per site is permitted as of right subject to complying with the relevant standards. The minimum site area is 400 m2.

[179]  Mr Broadmore submits the character of Scott Point is unrecognisable from its character in 2001. I accept that submission having regard to aerial photographs and my own impressions driving through the area to the subject sites. There have been significant changes to the character of the neighbourhood and also to the extent of the impediment of the covenant.

[180]  There is now extensive development across the Scott Point area. The character of the neighbourhood has completely changed from rural lifestyle properties to intensive residential subdivision developments. 16A Scott Road is now zoned for intensive development, which I consider would not reasonably have been foreseen at the time of the creation of the covenant. Then, the land was outside the Metropolitan Urban Limits and as a consequence its urban development was to be avoided.

[181]  Plan Change 13 (partially operative on 16 September 2011 and fully operative in April 2014) extended the Metropolitan Urban Limits to include the Hobsonville area (which includes Scott Point). However, resource consent is nevertheless required for development within the Scott Point Precinct to ensure that development is undertaken in a comprehensive and integrated manner that is consistent with the Precinct Plans.

[182]  Development plans produced in evidence indicate that without the covenant an 80 lot subdivision could be undertaken on 16A Scott Road in accordance with the zoning. However, with the covenant (that is, no buildings on areas A and C) the development plan is limited to 55 lots. I consider the nature and extent of the

impediment from the covenant is now significant in terms of the development that may occur on the land and it accordingly has a significant impact on the value of 16A Scott Road (as already referred to).

[183]For the above reasons I conclude that the thresholds under s 317(1)(a)(ii) and

(i)  and (b) are met.

[184]  I will defer consideration of whether the threshold under s 317(d) is met, until I have considered the exercise of my discretion in relation to s 317(1)(a)(ii) and (iii) and (b) as some of the discussion will be relevant to the threshold issue in s 317(1)(d).

Should the covenant be extinguished or modified due to changes?

[185]  Having found that the thresholds under s 317(1)(a)(ii), (iii) and (b) have been met, the next step is to determine whether the discretion to extinguish or modify the covenant should be exercised. Under s 317(1)(a) and (b) the Court may extinguish or modify a covenant even where it will cause substantial injury. Mr Broadmore acknowledges that extinguishment of the covenant will, through loss of views and privacy, cause financial injury to 16 Scott Road in the sum of $400,000, as agreed by the valuers. However, he submits that the injury is outweighed by the following considerations which he says support the covenant being extinguished (as opposed to modification).

[186]  First, the covenant now prevents 16A Scott Road from being used in accordance with the zoning in a way that is consistent with the neighbourhood. He says that intensive development may appear confronting but that is exactly what the planning policies and zoning is intended to enable and achieve. As a related point, Mr Broadmore notes that the amenity of 16 Scott Road will shortly be adversely impacted by intensive development already underway on its western boundary at    14 and 14A Scott Road. Resource consent has been granted for 163 lots. Also, the views to the east of 16 Scott Road across 16A Scott Road will shortly be adversely impacted by development on 18 Scott Road which is already underway. Resource

consent has been granted for 122 lots. The drawings for that development (on the side closest to 16A Scott Road) indicate dwellings of almost eight metres high.39

[187]  Mr Broadmore further notes that neither the defendants nor the plaintiffs were the original parties to the covenant so that sanctity of contract does not carry as much weight as it otherwise would have. He further says that the covenant has for almost eight years, since the zoning change in November 2016, impeded reasonable development on 16A Scott Road. The covenant could have been modified or extinguished at that time. The defendants have had the benefit of that unreasonable impediment for almost eight years. The development of the surrounding area is complete and in relation to 14 and 18 Scott Road, underway. Mr Broadmore submits that in all those circumstances the covenant should be extinguished. In the alternative, he proposes a modification.

Whether to extinguish or modify

[188]  I acknowledge the submissions made by Mr Broadmore as set out in the previous section of this judgment. I have reached the view that it is appropriate to exercise my discretion to grant the application in some form. The issue comes down to whether the covenant should be extinguished in its entirety or modified.

[189]In Synlait the Supreme Court cited with approval the statement of Cooke J in

Pollard v Williams:40

[18] Section 317 involves a balancing of policy considerations.  It  recognises the importance of property rights, and the sanctity of contract. But it also recognises other public policy considerations associated with the efficient utilisation of land resources. Parliament empowers the Court to act across contractual and property rights in light of the other policy considerations. Some restrictions can reasonably be removed, or relaxed. …

[190]  Mr Barker refers the Court to a decision of this Court in Purdie v Truckell where the Court balanced considerations in order to mitigate the potential detriment to a respondent.41 In that case the applicants applied to modify a covenant (with trees

39     This does not take into account earthworks for excavations for those dwellings.

40     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [81] citing Pollard v Williams, above n 30, at [18].

41     Purdie v Truckell [2016] NZHC 1231, (2016) 17 NZCPR 499.

not to exceed five metres in height) in order to comply with a resource consent which had been incorporated into a later covenant (trees to be between at least seven and  10 metres in height). The respondents opposed the application on the basis that there would be a detrimental impact on the views from their properties if the Court were to modify tree heights.

[191]  The Court granted the application, but on terms. It considered that through modification of the earlier covenant the respondent’s views would not be protected to the full extent provided for by that covenant. However, the Court considered it was reasonable for any modification of that covenant to be on terms that enhanced the respondent’s views over the lot subject to the covenant to the extent this could be achieved.42 The Court further stated that if there was to be modification for the benefit of the applicants that should be balanced to the extent that it was appropriate for the benefit of the respondents.43

[192]  I have arrived at the conclusion that the covenant should be modified rather than extinguished, for the following reasons. If the covenant were to be extinguished, this would enable the building of houses eight metres high on area C of 16A Scott Road close to the boundary with 16 Scott Road. While there would no doubt be excavation, area C is flat. The ground is level with the ground level on 16 Scott Road. Although residential buildings of similar proportions will be constructed on 14 and 14A on the western boundary of 16 Scott Road, Mr Selak’s house and particularly the deck is oriented towards 16A rather than to 14 Scott Road. The building of houses on at least part of area C will significantly impact on his privacy. As well, building on part of area C will impact on the views from 16 Scott Road.

[193]  Second, I take into account that in July 2019 Mr Tisot was prepared to agree to no building taking place on area C.

[194]  That leads to the form of the modification. Mr Selak says he wishes to retain his view of a particular channel marker in the harbour from his deck. A registered surveyor, Mark Parker, gave evidence of what would be required to achieve that. He

42 At [90].

43 At [111].

says the view shaft protection sought requires the drawing of a line of sight from a specific point on 16 Scott Road across 16A Scott Road. Mr Parker says the specific point is one metre above the deck on 16 Scott Road and the line of sight is to the low tide mark on a particular harbour beacon. The end objective for Mr Parker was to establish the upper height of any potential building envelope on 16A Scott Road. In essence that is a building envelope that sits on the natural ground level but that does not intersect with the view shaft.

[195]  In order to achieve that, Mr Parker’s calculations are that no houses could be built on area C without intruding on the view shaft. Building heights on area A would range from 2–4 metres, to 4–6 metres, and to 6–8 metres (the heights progressively increasing as one moves down the slope of area A from its boundary with area C, to the flat land on the part of A nearest the coast).

[196]  Mr Parker’s building heights did not take into account any excavation that would occur in the course of developing the site. Nor did he consider the impact of buildings on 18 Scott Road and how those buildings might intersect with the view shaft from 16 Scott Road.

[197]  The plaintiffs’ proposed modification is contained in a diagram which is attached to this judgment as Annexure B. The plaintiff’s position is that the only restriction that should remain is a limited restriction on building in area C with no restriction on building in area A. The restriction in relation to area C should be no greater than that as set out within the purple outlines in the annexed image. The modification reflects:

(a)no building within three metres of the boundary of Scott Road in the northern part of area C; and

(b)no building at all in the southern portion of area C.44

44 The reference to “no building” does not preclude the construction of a road through area C as  shown on possible development plans. The defendants acknowledge that a road could be constructed on area C (in terms of their proposed modification).

[198]  I intend to make an order adopting the modification proposed on behalf of the plaintiffs for the following reasons:

(a)Such a modification would preserve a reasonable degree of privacy and views from 16 Scott Road.

(b)Building on the northern part of area C would have some impact on privacy but the building set back of three metres as outlined in purple on Annexure B will provide some amelioration.

(c)Building on the northern part of area C will have limited impact on the view from 16 Scott Road towards the harbour as that view is more towards the south. In any event it is possible to build on area B. The view from 16 Scott Road towards the northeast over the northern part of area C is across to area B.

(d)Building on area A (without height restrictions) would have limited impact on the privacy of Scott Road as the land in area A slopes away from area C. Any houses constructed further down the slope and on the flat part of area A by the coast, would have no impact on the privacy of 16 Scott Road.

(e)As to the view,  because the land in area A is at a lower level than     16 Scott Road, there will be less of an impact on views than any building on area C. I accept that allowing building on area A (with no height restrictions) will result in more of an impact on the view from Mr Selak’s deck than would have been the case if the defendant’s modification was adopted. But in any event houses on 18 Scott Road will impact on that view.

(f)Adopting the modification proposed by the plaintiffs provides a reasonable degree of certainty as regards the ability to assess future compliance whereas the modification proposed for the defendants does not. The building heights in Mr Parker’s calculations are expressed in

relation to the natural ground level. I consider this could lead to issues in relation to assessing compliance further down the track once excavation has occurred.

[199]  For all those reasons I consider the covenant should be modified so that there are no restrictions on building in area A and limited restrictions as referred to above (adopting the plaintiffs’ proposal for modification) in area C. The modification will enable the reasonable development of 16A Scott Road and limits the injury that would be caused to 16 Scott Road if the covenant were to be extinguished.

[200]I will seek counsel’s assistance on the precise wording for the order.

[201]  Mr Barker made it clear that the only clause in the covenant which is at issue is clause (i) in Schedule A which contains the prohibition on building (and planting and vegetation) on areas A and C. The intent of my order will be to extinguish all the other restrictions and replace clause (i) with the restriction reflected in the modification proposed by the plaintiffs, namely that there be no building on area C within three metres of the boundary in the northern half of area C and no building at all in the southern half of area C – all of which is outlined in purple on Annexure B.

[202]  For the avoidance of doubt the modification will also reflect there may be building on area A with no height restrictions on building in area A (save for any restrictions otherwise in place such as by reference to zoning and such like, separate from the covenant).

Whether substantial injury – s 317(1)(d)

[203]For completeness I consider s 317(1)(d).

[204]  The inquiry under s 317(1)(d) focuses on whether the extinguishing or modification of the covenant will “substantially injure” the owner(s) of the benefited

land. The Court must be satisfied that it will not do so.45 The Supreme Court discussed the meaning of “substantial” in Synlait:46

It was common ground that for the injury to be “substantial”, it must be “real, considerable, significant, as against insignificant, unreal or trifling”. Australian cases express this in slightly different language, but the substance is the same: the injury must be real and have present substance, rather than merely being theoretical or fanciful.

The injury may be of an economic kind (for example, a reduction in the value of the benefited land), physical kind (for example, being subjected to noise or traffic), or intangible kind (such as impairment of a view, intrusion upon privacy, unsightliness or an alteration to the character or ambience of the neighbourhood).

Assessment of substantial injury requires the court to compare the position of the owner of the benefited land with the covenant in place with the position if the covenant is modified or extinguished. …

(footnotes omitted)

[205]  Mr Broadmore refers to the figure of $400,000 agreed by the valuers, being the amount of the injury expressed in financial terms. That sum is a five per cent reduction in the value of 16 Scott Road. I accept Mr Broadmore’s submission that when considering this issue it is the $400,000 figure that the Court considers. That is because s 317(1)(d) is directed at the injury that would be caused. Compensation under s 317(2) is a separate issue and is directed at the price that might be negotiated for removal. (In this case the valuers agree that sum is $660,000 plus GST (if any)).

[206]  While the valuers agree on the figure of $400,000, they disagree on whether that is “significant”. Mr Walker (plaintiffs’ witness) says it is not. Mr Bates (defendants’ witness) says it is significant.

[207]  Mr Broadmore submits the drivers of the financial injury of $400,000 are not substantial. As to the view he says 16A Scott Road has a protected view over the reserve land that will be unaffected even if the covenant is extinguished; it has a view of part of the harbour at least over area A (which is below the level of 16 Scott Road); and it will in any event have its views impacted by the development on 18 Scott Road. As to privacy and noise, Mr Broadmore notes the amenity of 16 Scott Road will shortly

45     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [103].

46     Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 29, at [104]–[106].

be adversely impacted by intensive development on its western boundary at 14 and 14A Scott Road.

[208]  He says to the extent there would be substantial injury to 16 Scott Road (which is denied) the plaintiffs’ proposed modification (which I have now adopted) would eliminate the vast majority of any injury.

[209]  I consider that were the covenant to be extinguished in its entirety there would be a substantial injury (as defined in Synlait) to 16 Scott Road in terms of impact on views, and privacy, both of which translate to a loss in value.

[210]  However, the modification I have adopted eliminates the vast majority of those adverse effects (as discussed in [198] above) to the extent that the modification will not substantially injure 16 Scott Road.  Adopting that modification, the threshold in  s 317(1)(d) is also met.

Compensation

[211]  Mr Selak’s position was that he would not seek compensation if his modification was accepted by the Court. The Court did not receive evidence or hear submissions on whether there should be compensation paid, and if so how much, if the plaintiffs’ modification was ordered by the Court.

[212]  I ask counsel to confer and file a joint memorandum with a proposal as to the process for the Court’s consideration of compensation (if any).

Result/Orders

[213]  The defendants succeed in both affirmative defences: unconscionability and misrepresentation. For that reason the plaintiffs fail in their first and first alternative causes of action for breach of contract (which seek damages and an order requiring the defendants to surrender the covenant on 16A Scott Road respectively).

[214]  I make a declaration that the Deed of Settlement dated 19 May 2016 (Deed) is void and of no effect.

[215]  I make a further (alternative) declaration that the defendants are entitled to cancel the Deed under s 37 of the Contract and Commercial Law Act 2017.

[216]  I make an order that land covenant numbered D606543.7 is to be modified in terms as set out in [199] to [202] above. Counsel are to confer and file a joint memorandum within 10 working days of the date of this judgment with a proposal as to the precise form of the order.

[217]  The Court will need to hold a further hearing (possibly on the papers) as regards compensation, if any. (Refer [211] and [212] above.) Counsel are to confer and are to file a joint memorandum with their proposal as to the procedure for this step within 20 working days. That time may be extended if necessary. A request by memorandum to do so will suffice.

Costs

[218]  I did not hear from counsel on costs. Costs are accordingly reserved. I will make timetable orders once the steps in [216] and [217] above, including final orders are complete.

Gordon J

Annexure A

Annexure B