Whittaker v Jericevich

[2012] NZHC 1545

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2012-441-000186 [2012] NZHC 1545

BETWEEN  JEFFREY WILLIAM WHITTAKER Appellant

ANDANTONY MIROSLAV JERICEVICH AND MARIA KATHRYN JERICEVICH Respondents

Hearing:         20 June 2012

Counsel:         M B Lawson for appellant

B W Gilmour and M Nicol for respondents

Judgment:      2 July 2012

RESERVED JUDGMENT OF DOBSON J

[1]      The parties to these proceedings are both owners of properties in a relatively recent residential subdivision promoted as “Eskridge Farm Park” (the development). The  respondents  (the  Jericevichs)  have  had  designed  and  built  a  single  storey dwelling house, with the intention of operating it as a bed and breakfast as well as it being their own residence.   Their home complies with all relevant resource management  and  building  code  requirements,  but  the  appellant  (Mr Whittaker) complains that a bed and breakfast operation run from a property in the development is prohibited because of a restrictive covenant that was placed on the titles of all the sections in the development by the developer. That provision provides:

The transferee (being the owner) shall ... (b) not permit the placement or erection on the lot [of] any building other than a one single storey residential dwelling together with not more than two single storey accessory buildings...

[2]      Mr Whittaker pursued a claim in the Napier District Court to prevent the conduct  of  a  bed  and  breakfast  business  on  the  basis  that  such  operation  was

prohibited by the terms of this provision in the restrictive covenant.  In a reserved

WHITTAKER v JERICEVICH HC NAP CIV-2012-441-000186 [2 July 2012]

decision on 19 March 2012, Judge B Mackintosh refused relief on the basis that the terms of the covenant did not prohibit the activity of a bed and breakfast operation within the Jericevichs’ home.  Mr Whittaker has appealed that decision.

[3]      The issue in the appeal is whether the scope of the restrictive covenant is to be interpreted so as to prohibit the operation of the bed and breakfast business. Before reviewing the factual background in which the covenant now appears on the titles to both properties, there is an issue of law as to whether the approach to interpretation of the terms of a restrictive covenant permits any account to be taken of the context in which the relevant provision appears.

[4]      Authority in the High Court of Australia has given pause for thought on the appropriateness of admitting evidence of context as an aid to interpreting the terms of a restrictive covenant.[1]   The rationale for disregarding extrinsic evidence was that a third party searching the title could not be expected to look for extrinsic evidence as to the circumstances existing at the time the dealing was registered against the title.  In the particular case, the provision was an easement, but the same approach

would apply to restrictive covenants such as the one registered here.

[1] Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 239 ALR 75 (HCA).

[5]      That approach to interpretation was considered by the Court of Appeal in Big River Paradise Ltd v Congreve.[2]    The prospect of disregarding extrinsic evidence was rejected in favour of the approach otherwise applying to interpretation of contractual   provisions   as   described   by   the   House   of   Lords   in   Investors Compensation Scheme Ltd v West Bromwich Building Society[3]  and by the Court of Appeal  in  Boat  Park  Ltd  v  Hutchinson.[4]     Accordingly,  the  Court  of Appeal  in Big River Paradise approached interpretation of the restrictive covenant not in the abstract, but being prepared to have regard to a broader range of extrinsic facts,

which in the circumstances of that case included reference to the location of the

properties that were affected as the dominant and servient tenements.

[2] Big River Paradise Ltd v Congreve [2008] NZCA 78.

[3] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).

[4] Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA).

[6]      On that basis, it is appropriate to adopt what is now the well-settled gloss on the  approach  of  the  House  of  Lords  in  Investors  Compensation,  typified  by McGrath J in Vector Gas Ltd v Bay of Plenty Energy Ltd:[5]

In  summary,  Lord  Hoffman  said  that  interpretation  of  a  commercial agreement is the ascertainment of the meaning it would convey to a reasonable person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contract.  The language the parties use is generally given its natural and ordinary meaning, reflecting the proposition that the common law does not easily accept that linguistic mistakes have been made in formal documents.

[5] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC) at [61].

[7]      It  is  accordingly  appropriate  to  review  the  factual  context  as  having  a potential bearing on the disputed interpretation of the restrictive covenant in this case.

[8]      Mr Whittaker had purchased directly from the developer, but the Jericevichs were  subsequent  purchasers  from  an  intermediary  buyer  from  the  developer. Mr Whittaker’s agreement for sale and purchase of his section was in evidence, and it included a description of constraints on use of the land in somewhat different terms from the restrictive covenant that the developer registered against all the titles at the time of subdivision.   Mr Whittaker’s agreement for sale and purchase included, in the context of constraints that would apply, a definition of “residential dwelling house” as a “detached residential building designed for occupation exclusively as one  household  unit  for  residential  purposes  only”.    There  was  no  equivalent provision in the Jericevichs’ contract to purchase their section.

[9]      The introduction to the restrictive covenant as registered stated:

Eskridge has been developed for the purpose of creating a farm park of a high standard to permit the registered proprietors of the various Lots to benefit and to ensure the registered proprietors of the Lots get the benefit of the subdivision.

The first of the constraints specified was that owners would not further subdivide, and that was then followed by the provision in issue in this case.

[10]     Further provisions in the restrictive covenant obliged an owner of a lot to submit concept drawings to the developer, and to obtain the developer’s approval to plans and specifications before obtaining building permits or commencing construction.  The covenant prohibited erection of dwelling houses with a floor area of less than 200 square metres.   The covenant also obliged the owners of lots to complete construction promptly, to complete landscaping, not to occupy the dwelling house until completed, and thereafter not to carry out any alterations without first obtaining the consent of the developer.  Further provisions prevented the placement or erection of any relocated or transportable buildings, controlled the erection of flagpoles or satellite dishes and obliged owners to install any exterior lighting so as to cause minimal interference and nuisance to the owners of other lots.

[11]     With limited exceptions, the 20 paragraphs describing the constraints in the restrictive covenant relate to the appearance of structures and vegetation on the lots. Those exceptions constrain owners from causing a nuisance or disturbance to others, not to engage in shooting, and relate to the control and behaviour of animals on the property.

[12]     The Jericevichs obtained the approval of the developer, apparently on an informal basis, to the plans of the structure as completed.  In the District Court, the alter ego of the development company, Mr Jans, gave evidence.  He was inclined to think that the use of part of the proposed building for a bed and breakfast would not be prohibited by the terms of the covenant.  Mr Lawson submitted that little regard should be had to Mr Jans’ evidence, and that it should be treated as equivocal in circumstances where Mr Jans was inclined to agree with all propositions put to him by counsel for both parties.

[13]     The relevant building code imposed additional structural requirements on the Jericevichs when designing their home because part of the property was to be used for a bed and breakfast operation.  In particular, there was a requirement for firewalls that would isolate each of the areas available for occupancy by customers of the bed and breakfast operation, as separate “cells”.   The structure has been built in compliance with such requirements.

[14]     The  District  Court  Judge  analysed  the  plaintiff’s  claim  by  posing  two questions.  First, whether what the defendants had built was a residential dwelling house, and secondly whether the covenant restricted commercial or business usage of a building on the site.  Her Honour was satisfied that the Jericevichs had built a residential dwelling house and found that the terms of the covenant did not preclude residents using their homes for a commercial or business purpose.

[15]     On  the  appeal,  Mr Lawson  argued  that  the  Judge  erred  in  treating  the Jericevichs’ property as a residential dwelling, when it was not exclusively of that character and contained a component that was for a commercial use, namely running a bed and breakfast operation.

[16]     Mr Lawson  further  argued  that  the  proper  interpretation  of  the  covenant constrained not only the form of structure that could be erected on the site, but also the use to which it could be put so that any use of a structure other than as a residential dwelling was prohibited by the covenant.

[17]     Both parties purported to accept that the expression “residential dwelling” should be interpreted in accordance with its plain and ordinary meaning.  Mr Lawson emphasised that “residential” qualifies the type of “dwelling” that is permitted, and that “residential” or “residing” conveys permanent use of the structure by the occupants for the purpose of dwelling in it, and not on a transitory basis.

[18]     Mr Lawson sought to support this interpretation by reference to the use of similar expressions in various statutes.  He cited the definition of “dwelling house” from the Resource Management Act 1991, which he treated as including the concept that it be a building used wholly or principally for the purposes of a residence.

[19]     In fact, the terms of the definition in that Act, as they have been applied in the relevant Hastings District Plan, define a dwelling house as meaning “...any building, whether permanent or temporary, that is occupied, in whole or in part, as a residence; and ...”.  For resource management purposes, a bed and breakfast operation of up to six rooms was permitted by the District Plan in a rural residential zone without resource consent, treating it as a commercial but not a residential activity.

[20] Mr Lawson also cited the definition in the Goods and Services Tax Act 1985 of a “dwelling” which excludes a “commercial dwelling”, with that phrase being the subject of its own definition and which includes a bed and breakfast establishment. In addition, Mr Lawson cited provisions in the Building Act 2004 that, when applied in light of the provisions of certain regulations under the Act, would oblige the owner of a building that had been solely a residence to give notice of a change of use for the purposes of the Building Act if sleeping accommodation for others was to be

provided.  The relevant regulations[6]  contain separate definitions for “SH (Sleeping

Single Home)” as detached dwellings where people live as a single household or family, and “SA (Sleeping Accommodation)” being spaces providing transient accommodation.

[6] Building (Specified Systems, Change the Use and Earthquake-prone Buildings) Regulations

2005.

[21]     I  accept  Mr Gilmour’s  caution  about  the  inappropriateness  of  adopting interpretations used in different statutes, where the use of the expressions will be dictated  by the  statutory  purpose.   As  the  Court  of Appeal  noted  in  Big  River Paradise, statutory definitions of words are often unhelpful in ascertaining what

their ordinary meaning is as used in a contractual setting.[7]

[7] Big River Paradise Ltd v Congreve [2008] NZCA 78 at [32].

[22] Here, the Resource Management Act’s definition suggests an overlapping of the concepts of dwelling houses and residences. The recognition that a bed and breakfast operation is commercial in nature is sensible, but not necessarily inconsistent with the status of the building in which such an operation occurs as constituting a dwelling house. That is particularly so when the definition for resource management purposes treats dwelling houses as those that may be occupied only in part as a residence. The Goods and Services Tax Act requires a distinction between a dwelling as the principal place of residence of an occupant, and dwellings used for commercial purposes because that distinction is relevant to the assessability for GST of costs incurred and services provided in respect of them. Further, the distinctions in the Building Act reflect Parliament’s intention that distinctions be maintained for the purposes of different standards set for transitory accommodation

on the one hand, and single home structures on the other.

[23]     None of those contexts is useful in the present circumstances.  The relevant context  here is  a provision  crafted  for a developer  who would  have  wanted  to maximise the saleability of sections in a subdivision by imposing standards on what the purchasers of individual lots would be permitted to build on them.  I can readily infer that the character of the environment the developer was intending to promote would be reflected by requiring purchasers to build only relatively large, single storey, single unit dwellings with a maximum of two accessory buildings.   The character  sought  to  be  encouraged  in  the  development  was  also  reflected  in additional constraints on appurtenances likely to impede the enjoyment of the environment such as flagpoles or external lighting. To optimise the prospects of that, the covenant required the dominant feature on any lot to be a conforming residential dwelling.

[24]     Contrary to Mr Lawson’s argument, I am not persuaded that the terms of the covenant require that the character of the building be exclusively that of a residential dwelling  when  the  character  sought  to  be established for the subdivision  could reasonably accommodate residential dwellings with other components that did not compromise their overall character as such.   There is nothing in the specific paragraph, or in the context of the whole of the covenant, that would justify that.  It might be argued that if the provision was to be workable for anything less than exclusive character of structures as residential dwellings, then the drafter of the provision might reasonably have included a relevant qualification to recognise how much less than a structure that was exclusively that of a residential dwelling would be permitted.  An obvious example would be constraining buildings on the sites to “...one single storey predominantly comprising a residential dwelling together with

...”.   In the absence of such additional words, there is arguably no scope for a building to have any character other than that of a residential dwelling.

[25]     I am not satisfied that the context justifies that approach by reading in a requirement  for  the  exclusivity  of  the  character  of  a  building  as  a  residential dwelling.    The  totality  of  the  constraints  imposed  by the  covenant  suggests  an expectation of relatively expensive homes of relatively substantial size.  There is a diversity  of  activities  undertaken  “from  home”,  often  with  blurred  boundaries between  interests  in  the  nature  of  hobbies,  projects,  and  activities  having  a

commercial aspect to them.  Accordingly, the preferable approach to the covenant is to treat it as making reasonable accommodations for adjuncts to what would strictly be found in a residential dwelling, to the extent that they do not deprive a structure of its essential character as a residential dwelling.   Certainly, this requires judgement calls as to the boundaries of the constraint imposed by the covenant, but even on Mr Lawson’s  argument,  as  I  understood  it,  there  would  be  some  aspects  of commercial initiatives “pursued from home” that would not give rise to a breach of this covenant.

[26]     In considering the interpretation of the relevant provision in the covenant, I have disregarded the evidence of Mr Jans as to how he thinks it would apply to the present situation.  That evidence is essentially a reflection of his subjective approach, and as such is not an appropriate reliable influence on its interpretation in the present dispute between two subsequent holders of titles that include the covenant.

[27]     I have also disregarded the additional provision in the agreement for sale and purchase  between  the  developer  and  Mr Whittaker  that  provided  a  somewhat expanded notion of a “residential dwelling house”.   It is understandable that that provision may have informed Mr Whittaker’s view to the scope of the covenant, but it is not a legitimate aid to interpretation of the covenant as registered on the titles.

[28]     I am also unable to attribute relevance to a distinction in the wording used in the covenant.  The words “residential dwelling” are only used once, in the provision particularly in issue.  In all other parts of the covenant, references are to a “dwelling house”.   There is no clear rationale for the difference.   It is the first use of the expression that is critical, and the drafter can be expected to have focused most particularly on the scope of buildings permitted, when that was the specific subject matter.

[29]     The second aspect of Mr Whittaker’s challenge to the District Court decision criticises  the  judgment  for  interpreting  the  relevant  part  of  the  covenant  as addressing only the form of structure permitted on lots in the subdivision, and not extending to any implied constraint on use.  On Mr Lawson’s argument, a constraint

on use that could be made of buildings permitted on the site should be read into the wording of the covenant.

[30]     As  a  matter  of  conveyancing  drafting,  it  is  reasonable  to  expect  that  a constraint on use would ordinarily be separately addressed in a restrictive covenant such  as  this.    Certainly,  clear  signals  would  be  required  before  it  would  be appropriate  to  imply  a  limitation  on  the  use  to  which  owners  could  put  their buildings.  In situations different from the present, such as leases of retail premises in a commercial development, issues as to enforceability of a restraint of trade are likely to arise, and in all contexts the precise scope of what is permitted or prohibited is  likely  to  be  disputed  so  that  some  specificity in  drafting  can  reasonably  be expected.

[31]     Certainly, issues such as the enforceability and scope of constraints are less likely to arise in a residential subdivision than in a retail leasing situation, but there is still an expectation that the full scope of any constraints on future activities on a subdivided section would be spelt out clearly by a developer, and not left as a matter of implication.

[32]     Mr Lawson’s  rejoinder  to  my  raising  this  point  was  that  no  significant element of implication is required and that the on-going constraint on use naturally arises from the terms of the words used in the relevant paragraph of the covenant. He maintained that submission, notwithstanding the absence of any reference in the paragraph to use of the site, in a lengthy sentence that addresses only the character of what can either be placed or erected on the lot.

[33]     At its highest, Mr Lawson’s argument is that if a buyer accepts a constraint that he can only place or erect a single storey residential dwelling on the site, then he is also accepting the constraint that he cannot use that structure as anything other than a residential dwelling.  The latter is a constraint of a different kind, and in this context  I am not  persuaded that  the implication is justified.   There are diverse situations in which activities occur beyond the core of what might be expected of occupants of a residential dwelling, and it is unrealistic to attribute to the developer an intention to constrain any use that is not covered by the activity of residents

“dwelling” on the site, when that could well be counterproductive in promoting the development.

[34]     It is conceivable that, in circumstances materially different from the present, the covenant might be invoked to constrain activity that was entirely antithetical to that of a residential dwelling where the conduct of that activity deprived the building of its status as a residential dwelling.  In those circumstances there would implicitly be a constraint on a use that is antithetical to the range of primary or subsidiary uses that might be made of a residential dwelling, but that is not the present case.

[35]     For all these reasons, I am satisfied that the appeal must be dismissed.  The respondents are entitled to costs.

Dobson J

Solicitors:

Lawson Robinson, Napier for appellant

Bannister & von Dadelszen, Hastings for respondents