FAIRVIEW ESTATE INVESTMENT LTD [2023] NZHC 2874

FAIRVIEW ESTATE INVESTMENT LTD [2023] NZHC 2874 [13 October 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2023-404-2171[2023] NZHC 2874IN THE MATTER of Part 19 of the High Court Rules 2016 andss 316 - 317 of the Property Law Act 2007ANDIN THE MATTER of an application FAIRVIEW ESTATEINVESTMENT LIMITEDApplicationHearing: On the papersAppearances: SE Wroe for the ApplicantJudgment: 13 October 2023JUDGMENT OF FITZGERALD JThis judgment was delivered by me on 13 October 2023 at 4.00pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Psalms Law, AucklandTo: S Wroe, AucklandIntroduction[1] Fairview Estate Investment Limited (Fairview) is a property developer who isin the process of subdividing a property at 6 McMenamin Place, Auckland.1 Thesubdivision will contain 18 lots; 16 will be residential, and two will vest in theAuckland Council as local purpose reserves (the Reserve Lots).2 Fairview appliesunder the Property Law Act 2007 to have a covenant that burdens the entire propertyextinguished insofar as it relates to the two Reserve Lots. The covenant prohibits theowners of the burdened land (which includes the property) from objecting to thesubdivision and development of neighbouring land.Factual backgroundThe Covenant[2] The property was created by the subdivision of a larger piece of land originallyowned by HY Development Ltd (HYD) (the HYD land).3 The HYD land bordered aproperty owned by Stanley and Raymond Ulyate (the Ulyate title).4[3] On 10 August 2008, a covenant was registered against the HYD land thatrequired the current and future owners of the HYD land (which I will refer to as "theburdened land") to agree not to object to the development and subdivision of the landcontained in the Ulyate title (which I will refer to as "the benefited land").5[4] The covenant reads:2 CovenantsThe Covenantors hereby covenant, acknowledge and agree with theDominant Land Owner that the Covenantors will henceforth and at alltimes hereafter observe and perform the following stipulations andrestrictions to the end and intent that each of the stipulations andrestrictions shall, in the manner and to the extent prescribed, foreverenure for the benefit of, and be appurtenant to, the whole of theDominant Land from time to time:1 6 McMenamin Place has the record of title 446922 Lot 66 Deposited Plan 411252.2 The creation of the local purpose reserves is required under the Reserves Act 1977 and theResource Management Act 1991.3 The HYD land had the records of title NA59A/979 and NA52A/243.4 The Ulyate title was contained in the record of title 235933, DP 11, DP257939.5 The covenant is registered under Easement Instrument 8024143.4.2.1 The covenantors hereby agree that they shall not lodge, permitto be lodged or support the lodgement with the relevantauthority of any objection to the subdivision and developmentof the dominant land by the dominant landowner.2.2 The covenantors hereby covenant that they shall at all timeshereafter save harmless and keep indemnified the dominantlandowner from all proceedings, costs, claims and demandsin respect of breaches by the covenantors of the covenants andrestrictions herein contained and implied on behalf of thecovenantors which occurred while the covenantors were theregistered proprietor of the covenanting land.[5] Since the creation of the covenant in 2008, the Ulyate title has been subdividedinto 28 lots: 26 residential lots and two local purpose reserves. The HYD land wasalso subdivided, with the creation of 36 new titles, including 6 McMenamin Place.[6] Despite these developments, the covenant continues to run with both theburdened and benefited land. This accordingly means that the owners of the nowsubdivided Ulyate title continue to retain the benefit of the covenant, while the ownersof the subdivided HYD land, including 6 McMenamin Place, are burdened by it.The Fairview Subdivision[7] On or about 14 June 2023, Fairview's lawyers lodged the documentation toacquire new titles for the subdivision of 6 McMenamin Place. This was rejected byLand Information New Zealand (LINZ) on 28 June 2023. LINZ provided thefollowing instruction:Have the covenantees in Land Covenant 8024143.4 consent to the vesting ofLots 19 and 20 LT 578914 as Local Purpose (Esplanade) Reserve or lodge arevocation of the covenant as to those lots.[8] Having received that correspondence, Fairview instructed its solicitor toapproach Auckland Council to see if it would agree to taking the Reserve Lots subjectto the covenant. Auckland Council did not agree. Accordingly, Fairview would needto obtain the consent of all the owners and mortgagees of the benefited land to removethe covenant by consent. That would obviously be a time-consuming endeavour.[9] The sale and purchase agreements in place for subdivision of 6 McMenaminPlace contain an extended sunset date of 1 November 2023. If new titles are not issuedby that date, purchasers will have the ability to cancel the agreements. Fairview wasof the view that it could not acquire the consent of all the relevant parties before thesunset date. Instead, it elected to apply to the Court to extinguish the covenant, thoughonly on the two Reserve Lots to vest in Council.[10] Fairview then instructed its solicitor to write to all the owners of the benefitedland inviting them to advise of any objections to the application and to indicate if theywish to be served with a copy of the proceedings. A process server was engaged forthat purpose and an affidavit summarising the results of service is before the Court.[11] Fairview has received only one response to its correspondence, which was anemail from Raymond Ulyate. Mr Ulyate is a director of a company that ownsbenefited land. He is also one of the original grantees of the covenant. Mr Ulyate'sinitial communication was to the effect that he would require further time to respondas he was overseas. On 17 September 2023, he sent a further email confirming thathe had no objection to the application for the removal of the covenant from the ReserveLots.6[12] In a minute dated 29 September 2023, Tahana J granted leave for Fairview tocommence its application by way of originating application under ss 316 and 317 ofthe Act. In noting Fairview's efforts to contact the owners of the benefited land,Tahana J also accepted that there was no obvious basis upon which those owners whodid not respond could oppose. Tahana J accordingly directed that the Council was theonly party that needed to be formally served.6 My Ulyate also confirmed that Shelley Ulyate did not object. Ms Ulyate is also a director of acompany that owns benefited land.Relevant Law[13] Fairview's application to extinguish the covenant is necessary because of theeffect of s 239 of the Resource Management Act 1991, which relevantly provides:239 Vesting of reserves or other land(1) When the Registrar-General of Land deposits a survey plan, or a ChiefSurveyor approves a survey plan to which section 228 applies,—(a) any land shown on the survey plan as reserve to be vested inthe territorial authority or the Crown, vests in the territorialauthority or the Crown, as the case may be, free from allinterests in land, including any encumbrances (without thenecessity of any instrument of release or discharge orotherwise) for the purposes shown on the survey plan, andsubject to the Reserves Act 1977;[14] Fairview's filing for new titles was rejected by LINZ because the requisiteconsent was not acquired pursuant to s 224(b)(i):224 Restrictions upon deposit of survey planNo survey plan shall be deposited for the purposes of section11(1)(a)(i) or (iii) unless—(a) [Repealed](b) where land shown on the survey plan will vest in the Crownor a territorial authority, there is endorsed on the survey planor deposited with the Registrar-General of Land, writtenconsent to the subdivision given by—(i) in the case of land subject to the Land Transfer Act2017, every registered owner of an interest, includingany encumbrance, in the land; or[15] An order under s 317 of the Act extinguishing the covenant from the twoReserve Lots would remove the need for consent. Section 317 relevantly provides:317 Court may modify or extinguish easement or covenant(1) On an application (made and served in accordance withsection 316) for an order under this section, a court may, byorder, modify or extinguish (wholly or in part) the easementor covenant to which the application relates (the easement orcovenant) if satisfied that—(a) the easement or covenant ought to be modified orextinguished (wholly or in part) because of a changesince its creation in all or any of the following:(i) the nature or extent of the use being made ofthe benefited land, the burdened land, orboth:(ii) the character of the neighbourhood:(iii) any other circumstance the court considersrelevant; or(b) the continuation in force of the easement or covenantin its existing form would impede the reasonable useof the burdened land in a different way, or to adifferent extent, from that which could reasonablyhave been foreseen by the original parties to theeasement or covenant at the time of its creation; or(c) every person entitled who is of full age andcapacity—(i) has agreed that the easement or covenantshould be modified or extinguished (whollyor in part); or(ii) may reasonably be considered, by his or heror its acts or omissions, to have abandoned,or waived the right to, the easement orcovenant, wholly or in part; or(d) the proposed modification or extinguishment will notsubstantially injure any person entitled; or(e) in the case of a covenant, the covenant is contrary topublic policy or to any enactment or rule of law; or(f) in the case of a covenant, for any other reason it is justand equitable to modify or extinguish the covenant,wholly or partly.(2) An order under this section modifying or extinguishing theeasement or covenant may require any person who made anapplication for the order to pay to any person specified in theorder reasonable compensation as determined by the court.[16] In determining applications under s 317, the Court applies a two-stage test.7First, the Court will consider whether one or more of the grounds in s 317(1) is madeout. Second, the Court will determine whether to exercise its discretion to extinguishor modify the covenant. The onus of proof rests with the owner of the burdened landto show that there are reasons for the orders sought.8 Fairview's application relies onthe grounds set out in s 317(1)(a) and s 317(1)(d).[17] Under s 317(1)(a), Fairview must establish that the covenant ought to beextinguished because of a change since its creation in the nature or extent of the useof the benefited and/or burdened land. Here the focus is not on the fact of the change,but on the impact that change has on the benefit or burden arising out of the covenant.9The change must have occurred since the creation of the covenant and before theapplication was made.10 Finally, the change must also have been lawful, for exampleit cannot have breached zoning or planning rules, or the terms of the covenant. 11[18] Pursuant to s 317(d), Fairview must establish that the extinguishment wouldnot substantially injure the benefited owners. Injury can include economic, physical,or intangible consequences.12 The applicant must establish that any injury sufferedwill not be substantial.13 In instances where the benefited owners have been served,an absence of objection to the application will be strongly persuasive in showing thatthe extinguishment will not substantially injure a benefited owner.14[19] If the Court considers that one of the grounds in s 317(1) is made out, then theCourt has jurisdiction to make the order sought. In deciding whether to exercise thatdiscretion, the expropriation of private property rights and the sanctity of contract are7 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657.8 Manuka Enterprises Ltd v Eden Studios Ltd [1995] 3 NZLR 230 (HC); Waikauri Bay ReserveLtd v Jamieson HC Auckland CP1981/87, 12 February 1990; Rental Space Ltd v March (1999)4 NZ ConvC 192,873 (HC) at 192,887; and New Zealand Industrial Park Ltd v Stonehill TrusteeLtd [2019] NZCA 147 at [72].9 Synlait, above n 7, at [138]; citing Okey v Kingsbeer [2017] NZCA 625, (2017) 19 NZCPR 25 at[53].10 Reynolds v Parklands Properties Ltd [2021] NZCA 394, (2012) 22 NZCPR 516, at [46]–[48].11 Synlait, above n 7, at [141].12 Synlait, above n 7, at [105].13 Chand v Auckland Council [2021] NZCA 282, [2022] NZRMA 34.14 Cookeson Properties Ltd v Gray [2016] NZHC 2112.relevant factors to consider.15 However, these factors "must be considered in thefactual context before the court, rather than as generic fetters on the court'sdiscretion."16[20] In Synlait Milk Ltd v New Zealand Industrial Park Ltd, the Supreme Courtnoted that there has been a relaxation in the approach the courts have adopted to theexercise of their discretion under s 317. The Court went on to clarify that recentamendments to this provision have demonstrated a "parliamentary intention that thesection should be applied less restrictively than it was in the past."17Applicant's submissions[21] Ms Wroe, counsel for the applicant, submits that the covenant ought to beextinguished because in the circumstances, the test under s 317 is met and there is noreason why the covenant should not be extinguished from the two local purposereserves.Application of s 317(1)(a)[22] Ms Wroe says that there has been a change in the nature and/or extent of theuse being made of the benefited and/or burdened land. At the time of the covenant'screation, the benefited land was a single title, and the purpose of the covenant wasprimarily to prevent objections being raised to the subdivision and development of thattitle into 28 smaller parcels.Application of s 317(1)(d)[23] Ms Wroe submits that none of the benefited owners will be substantiallyinjured by the change because the covenant no longer serves a useful purpose, and ifit does, that benefit is retained by the new 16 residential lots still being bound thecovenant.15 C Hunton Ltd v Swire [1969] NZLR 232 at 235; and Harnden v Collins [2010] 2 NZLR 273(HC) at [25].16 Synlait, above n 7, at [88].17 At [79].[24] After having reviewed the materials, I requested that the applicant file furthersubmissions on whether the possibility of the Council objecting to any furtherdevelopment of the benefited land would give rise to prejudice the owners of that land.[25] Ms Wroe has since confirmed that there are two properties within the benefitedland that still have development potential. These properties are owned by companiesthat have Mr Ulyate and/or Ms Ulyate as directors. As noted earlier, Mr Ulyate hasconfirmed that neither he nor Ms Ulyate object to this application.[26] As Ms Wroe highlighted there may be circumstances where other benefitedowners may wish to redevelop their land—in these circumstances the covenant wouldcontinue to apply. In theory, the removal of the covenant from the two Reserve Lotswould mean that the Auckland Council could object to that development. But inpractice, Ms Wroe submits that the Council would not object to the development as alandowner, but rather it would fulfil its role and function under the ResourceManagement Act as a neutral territorial authority. Ms Wroe submits that if the Councilwere to object for reasons that were not available to it as a territorial authority, thatdecision is likely to be reviewable.Discussion[27] Tahana J earlier made directions that the owners of the benefited land did notneed to be formally served with these proceedings. I have reviewed and seen theaffidavit of service, from which I am satisfied that a process server took steps to delivercorrespondence and associated documents from the applicant's solicitors explainingthe proposed extinguishment of the covenant from the Reserve Lots. I am accordinglysatisfied that the owners of the benefited land have had an opportunity to consider theproposal and to respond to it if they wished to do so. As noted, only one has chosento do so and has no objection to the proposed extinguishment of the covenant from theReserve Lots.[28] I would not have been prepared to extinguish the covenant in relation to thetwo Reserve Lots on the basis of s 137(1)(a). Rather than the purpose of the covenantbeing limited to the particular subdivision of the benefited land when it was a singletitle into 28 smaller parcels of land, the covenant is in more broad terms, by which theowners of the burdened land covenant, among other matters, that they will not lodgeany objection or object to the subdivision and development of the dominant land.While its immediate purpose may have been the then proposed subdivision into the28 lots, the covenant is not framed in that way. And as Ms Wroe notes, there are twoproperties within the benefited land that still have development potential, though thoseproperties are owned by companies associated with Mr Ulyate who has consented tothe covenant being removed from the two Reserve Lots.[29] I am satisfied, however, that it is appropriate to extinguish the covenant fromthe Reserve Lots pursuant to s 317(d) of the Act. Importantly, the application relatesto removing the covenant from those two Reserve Lots only, and the benefit of thecovenant will remain on all of the residential lots that will be created as a result of thesubdivision of 6 McMenamin Place. Accordingly, each of the owners from time totime of the new residential lots will be bound by the terms of the covenant, unless anduntil it were to be modified or extinguished either by agreement or by order of theCourt.[30] In theory at least, there remains the prospect of the Council being relieved ofthe burden of the covenant in relation to the two Reserve Lots. However, I am satisfiedthat as a matter of practice, this does not give rise to any prejudice to the owners ofthe burdened land. The Council obviously has no interest in the Reserve Lots, or thedevelopment of any of the benefited land, other than in its role as local authoritycouncil. The Court accordingly proceeds on what I consider to be a reasonableassumption that the Council would approach any proposed further development orsubdivision of the benefited land wearing its "local authority hat", and thus exercisingthe controls and discretions in relation to any such subdivision that it already has,irrespective of being relieved of the burden of the covenant. For these reasons, I amsatisfied that the extinguishment of the covenant on the Reserve Lots only "will notsubstantially injure any person" that would have otherwise benefited from thecovenant remaining on those lots.Result[31] The applicant's originating application dated 18 September 2023 isaccordingly granted. I make an order in terms of paragraph 1(a) of the application.[32] I make no order as to costs._________________________Fitzgerald J