Young v Stolten

[2009] NZCA 264

IN THE COURT OF APPEAL OF NEW ZEALAND

CA535/2008
[2009] NZCA 264

BETWEENSHANG YOUNG

Appellant

ANDMARK RANDALL STOLTEN

First Respondent

ANDELIZABETH MARY STOLTEN

Second Respondent

ANDFREDERICK BRIAN WORRAL

Third Respondent

ANDCLIFFORD DIXON

Fourth Respondent

ANDPAMELA DIXON

Fifth Respondent

ANDCOLIN HODGES

Sixth Respondent

ANDLYNN HODGES

Seventh Respondent

ANDANDREW COOKE

Eighth Respondent

ANDKAREN COOKE

Ninth Respondent

ANDBRIAN WILTSHIRE

Tenth Respondent

ANDWILLIAM BASON

Eleventh Respondent

ANDGLENIS BASON

Twelfth Respondent

ANDFRANCIS COOTE

Thirteenth Respondent

Hearing:5 May 2009

Court:Hammond, Chambers and Baragwanath JJ

Counsel:R P Thomas for Appellant

B P Henry for Respondents

Judgment:24 June 2009 at 4 pm

JUDGMENT OF THE COURT

A        The appeal is dismissed.

BThe appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

REASONS OF THE COURT

(Given by Hammond J)

Introduction

[1]       Associate Judge Faire entered summary judgment against the appellant, Mr Young, and enjoined him from building, or making any further preparation to build on certain land in a subdivision at Howick, Auckland: HC AK CIV 2008-404-001497 8 August 2008.  Mr Young now appeals to this Court against that judgment.

[2]       The central issue in the case concerns the interpretation and application of certain restrictive covenants contained within a Memorandum of Transfer.  For the appellant, Mr Thomas submits that the Judge misconstrued the relevant covenants and wrongly granted the injunction.  Mr Henry submits that the Judge’s interpretation was correct, as was the relief afforded by him.

[3]       As is routinely the case with conveyancing disputes, this particular case can only be understood in terms of its own facts, to which we now turn.

The facts

[4]       The essential facts in this proceeding are not in dispute.

[5]       The litigants are all owners of property in a subdivision in Howick, Auckland.  The second to thirteenth respondents are the owners of Lots 1, 2, 3, 11, 12, 13, 15, 16, 17, 18, 19 and 20 on Deposited Plan 160921.  The first respondent’s land consists of a house and section and is Lot 1 on Deposited Plan 187531. 

[6]       The appellant’s land is a bare section and is Lot 2 on DP 187531.  Lots 1 and 2 on DP 187531 are a subdivision of Lot 10 on DP 160921.

[7]       The intent of the DP 160921 subdivision was to create sections of equal size, with a single home on each.  The intention behind the scheme of development is recorded in Recital B to the critical Memorandum of Transfer 871394.2:

It is the Transferor’s intention that land described in the First Schedule hereto shall be subject to a general scheme applicable to and for the benefit of all the land described in the First Schedule and that the owner or occupier for the time being of the land described in the First Schedule should be bound by the stipulations and restrictions set out in the Third Schedule hereto and that the respective owners and occupiers for the time being of any of the land described in the First Schedule may be able to enforce the observance of such stipulations and restrictions by the owners or occupiers for the time being of any of the land described in the First Schedule in equity or otherwise.

The land in the First Schedule is Lots 1 to 3 (inclusive), 5, 6 and 8 to 20 (inclusive) on DP 160921.

[8]       To achieve this intention, the Memorandum of Transfer contains restrictive covenants in the Third Schedule, which read as follows:

(a)Not to erect on the land any building except a single new dwellinghouse with garaging and other building normally appurtenant for which the current building cost shall not be less than $180,000 plus GST. …

(b)To commence construction in accordance with the plans and specifications approved by the Transferor hereunder within two (2) years from the date of the agreement …

[9]       An earlier owner of Lot 10 constructed a single dwellinghouse in accordance with the covenants.  That owner then subdivided Lot 10, on DP 187531, into two lots: Lot 1, which included the single dwelling, and Lot 2, a vacant section.

[10]     Prior to the appellant’s purchase of Lot 2, a prospective purchaser sought approval from all property owners in the subdivision for a departure from the scheme of development.  But because all residents did not consent, that purchaser did not proceed.

[11]     The appellant subsequently purchased Lot 2.  In his affidavit he said:

[6]       … I had decided that this property would be great for us as it was so affordable for such a great location. 

…

[8]       When I went to see [my solicitor Ben Bong] later that month, he told me there was a building scheme covenant against the title and had that document. 

…

[13]     I understood from what he was saying that there would be no problem with me building on the site, but the property may not be attractive to some purchasers in the future when it came to reselling.

[14]     He said there were technical complications with the title.  The title was not straight forward, I should look to buy elsewhere.

[12]     In his affidavit, Mr Bong confirmed this evidence:

[6]       I told [Mr Young] that I did not think he should buy the property as the title seemed to not be clean cut.  I told him it was full of complications and he should look elsewhere to purchase a property with a clean title, rather than buying into a fight on a potentially difficult title issue.

[13]     This then is a case in which the appellant purchased a vacant section in a relatively high quality subdivision against legal advice, and commenced building on it when it must have been quite apparent that the adjoining owner, and quite possibly other owners in the subdivision, would stand on what they perceived to be their rights under the relevant covenants.  He should not therefore have been surprised when these proceedings were commenced against him.

The summary judgment application

[14]     On 14 March 2008, the first respondents filed their notice of interlocutory application for summary judgment after Mr Young had commenced building a dwelling on Lot 2, they said, in breach of the restrictive covenants.  Their argument was that the respondents had an indefeasible right to enforce the terms of the covenants and prevent construction of any dwelling on Lot 2.

[15]     It is convenient to note here that it was apparently accepted before the Associate Judge, and was expressly accepted before us, that the respondents have such an indefeasible right.  The dispute was and is as to the terms of that right and its application in the instant case.

[16]     In the notice of opposition to the interlocutory application, which was filed on 20 June 2008, Mr Young claimed that the intention of the scheme of development was not represented by the actual benefit and burden that the memorandum of transfer imposes.  Because there was a lack of mutuality of obligations between the various lots covered by the scheme of development, it was said that the Memorandum of Transfer should not bind the appellant.

[17]     After traversing the correct approach to summary judgment proceedings under r 136 of the High Court Rules (at [17]-[21]), the Associate Judge turned to consider the requirements for the operation and enforcement of a scheme of development.  He correctly noted that such schemes predate the doctrine of restrictive covenants, and are permitted by equity on the basis that there is a common intention to create, and a common interest to enforce, a scheme of reciprocal rights and obligations (at [25]).

[18]     The Associate Judge then held that if it were simply a question of the appellant being bound according to the intention of the transferor, there would be no question that the scheme applied to the appellant’s title (at [39]).  He then disagreed with Mr Thomas’s argument that the intention expressed in the Memorandum of Transfer in this case does not match the benefits and burdens which arose from the covenants.  Mr Thomas had submitted that the covenants are for the benefit only of Lots 5, 11, 12 and 17, the lots defined to take the benefit.  The Associate Judge preferred Mr Henry’s interpretation, namely that the covenants in the Memorandum of Transfer were for the benefit of all the lots described in the First Schedule:

[46]     [Mr Henry] submitted that the interpretation for which he opines is reached by virtue of the fact that the main part of the covenants contain three separate covenants which he defined as follows:

a)The transferee takes the land transferred, that is the first land described and that land is bound by the scheme;

b)Lots 5, 11, 12 and 17, the second schedule land, or land not transferred are entitled to the benefit of the scheme; and

c)The transferor covenants that all the land, i.e. the first schedule land shall be subject to the scheme and shall have the benefit of the scheme.

[47]     If the covenant is read in the way Mr Henry submitted it should be, then it follows that there is mutuality between all Lots and that each Lot is both entitled to the benefit of the scheme and is also subject to the stipulations and restrictions of the scheme.

[19]     Having reached the conclusion that there was the required mutuality, the Associate Judge granted injunctive relief in the following terms:

[51]     I enter summary judgment against the defendant and order that an injunction do issue restraining the defendant, his servants, agents or howsoever, from building or continuing to build or make any further preparation on the land in order to build a dwelling on Lot 2, Deposited Plan 187531.

The arguments of counsel

[20]     In this Court, Mr Thomas has re-ventilated his argument that the Memorandum of Transfer creates the benefit of the scheme only in favour of Lots 5, 11, 12 and 17, such that it fails effectively to create reciprocity of obligation and mutuality of enforcement.  He compared the Memorandum of Transfer with an earlier one relating to Lot 5 to demonstrate what he says has gone wrong in this instance.  He says there has been a drafting error.  On his analysis, Lots 1 to 3, 6, 8 to 10, 13 to16 and 18 to 20 are subject to the burden of the scheme but are not given the benefit.  It is Mr Thomas’s submission that a general right of enforcement in addition to the expressly granted right of enforcement to the owners of Lots 5, 11, 12 and 17 was a “double barrel” approach that was not available to the Court.  The inability of so many lots to enforce the scheme, in conflict with the expressed intention in the Memorandum of Transfer itself, means that the scheme fails to satisfy the requisite reciprocity of obligation and mutuality.

[21]     Mr Henry’s starting premise is that all the respondents have an indefeasible right to the benefit from the restrictive covenants.  Where there is a head-scheme of development relating to a plot of land, any sub-purchasers are bound by the covenants of that head-scheme: Brunner v Greenslade [1970] 3 All ER 833 (Ch). Applying the correct purposive approach to interpreting restrictive covenants (Big River Paradise Ltd v Congreve [2008] 2 NZLR 589 (SC), affirming Big River Paradise Ltd v Congreve [2008] 2 NZLR 402 (CA)), Mr Henry argued that the benefit and burden in respect of all the land which was the subject of the scheme applied to each of the lots. The essential element of a scheme of development is that of the parties’ intention at the time when the common owner was alienating the land. The original parties to the transfer would not have contemplated that the lots created by the original subdivision would be further subdivided in the future. Mr Henry further said that the two year deadline for commencing construction in the subdivision is a crucial indication of the intention behind the restrictive covenants.

Resolution

[22]     It will be appreciated that Mr Thomas’s argument endeavours to “subtract” certain lots from the overall scheme, so that it can then be said that there is not the required mutuality to enable enforcement of the covenants.

[23]     The argument is an ambitious one.  In our view, the key to the resolution of this particular dispute lies in a correct appreciation of the purpose of the entire Memorandum of Transfer, whereby Fletcher Homes Limited (Fletchers) became the owner of the land in this subdivision.  A concentration upon only the wording of part of the transfer gives an incorrect understanding of that document as a whole.

[24]     We put our translation in plain English terms.  The vendor and transferor was Howick Parklands Limited (Parklands).  Fletchers paid Parklands $1,470,000 for the land.  It is then necessary to analyse precisely what was agreed to and created by this transfer.

[25]     Firstly, by Clause 1(b) it is expressly provided that Parklands’ intention is that all the land in the subdivision shall be subject to a general scheme applicable to and for the benefit of all of the land in the subdivision and that the owner or occupier for the time being of any section in the subdivision should be bound by the stipulations and restrictions set out in the Third Schedule and that the respective owners and occupiers for the time being of any of any section in the subdivision may be able to enforce the observance of those stipulations and restrictions.

[26]     Secondly, Parklands agrees to transfer to Fletchers all its estate and interest in all the land in the subdivision except Lots 5, 11, 12 and 17. 

[27]     Thirdly, Fletchers, with respect to the land it is buying and for the benefit of the four sections which Parklands was keeping, agrees with Parklands and its successors as owners of the four lots that it (Fletchers) will observe and perform the stipulations and restrictions in the Third Schedule to the end intent that each of those stipulations and restrictions would inure for the benefit of those four sections.

[28]     Fourthly, with regard to those stipulations and restrictions, Fletchers will be liable only in respect of breaches which occur while it is the registered proprietor of the land.

[29]     Fifthly, Parklands covenants with Fletchers that it will do all things necessary to ensure compliance with clause 1 and will ensure that the land in the subdivision is subject to a general scheme for the benefit of all the land and in particular will obtain like covenants from the transferees of Lots 5, 11, 12 and 17.

[30]     In fairness to Mr Thomas, we agree with him that the drafting of the particular Memorandum of Transfer is not entirely felicitous.  That has enabled Mr Thomas to argue that by a drafting error four lots had been left out of the Memorandum of Transfer, with the downstream consequences he relied upon for his case.  The short point, by way of reply to that proposition, is that the Memorandum of Transfer has to be looked at as a whole, as to its scheme and purpose.  When so viewed, the relevant covenants were still operative with respect to the section which Mr Young had unwisely purchased, and the respondents were entitled to enforce them against him.

[31]     The Associate Judge was therefore correct to find that on the merits the respondents (the applicants in the court below) were entitled to summary judgment.  This was of course necessarily subject to any concern about the appropriate remedy, to which we now turn.

Remedy

[32]     As an alternative argument, Mr Thomas submitted that the Associate Judge should not have ordered an injunction.  He said that summary judgment should not have been entered because there were disputed factual issues before the Court which needed to be resolved before the Court could conclude that damages in lieu of an injunction were not a better alternative.

[33]     Mr Thomas accepted that, on the law as it now stands, the High Court has the ability to make an injunction in the summary jurisdiction: Cordova v Wenzel (2005) 18 PRNZ 184 (HC) and Mikitasov v Collins [2008] NZCA 390 at [7].

[34]     Mr Thomas suggested that a scheme of development operates only in equity and that such things as issues of hardship, acquiescence and suitability of damages are highly relevant.  He argued that the Court has an ability to give damages in lieu in the subdivision context, effectively as payment of a licence fee for relaxation of the scheme: Wrotham Parkv Parkside Homes [1974] 1 WLR 798 (Ch).

[35]     The Associate Judge responded to the argument that damages were a more appropriate, or at least arguable, alternative remedy in the following way (at [50]):

(a)    If an injunction is issued now there can be no doubt that there will be compliance with the scheme;

(b)    If an injunction is not issued at this time and building work is commenced on the section, quite apart from the fact that there is a risk that whole scheme will be defeated, there is also the possibility that the overall financial harm to each party will be increased;

(c)    Mr Thomas invited me to find that there was no evidence of a high-handed attempt to circumvent any building scheme in this case.  Unfortunately, for the defendant I cannot accept that submission entirely.  As I have commented earlier in this judgment, he was advised by his solicitor not to proceed with the purchase.  That advice was given because of the existence of the covenant on the title; and

(d)    I do not find that there is any basis for a defence of laches as Mr Thomas suggested there might be in this case.  The time to enforce the scheme was when an attempt was made by a Lot owner to act in breach of it.  That only occurred with the preparatory work and advice given by the defendant that he was about to commence building.  I cannot find, in the material that has been placed before me, any ground that would justify a defence based on laches.

[36]     In our view, the Associate Judge was correct.  What Mr Thomas is really asking is that his client should be granted the indulgence of a licence fee for a relaxation of the scheme.  To put it more bluntly, he is endeavouring to enable Mr Young to buy his way out of the legal difficulties in which he has placed himself.

[37]     It has not been demonstrated that the Associate Judge was wrong.  In our view, the legal rights of the parties were clear.  This was an important conveyancing covenant, of a “property” character.  Mr Young went ahead and breached it, with his eyes wide open.  Mr Thomas’s able efforts to extract him from his own dilemma have not succeeded.  He cannot do that which he has sought to do.  The Associate Judge was perfectly entitled to take a firm line in recognising the legalities of the situation by enjoining Mr Young.

Conclusion

[38]     The appeal is dismissed.

[39]     The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Wood Ruck, Manukau for Appellant
Dennis J Gates, Whangaparoa for Respondents