NICHOLSON V MORNING STAR (ST LUKES GARDEN APARTMENTS) LIMITED HC CIV 2008-404-824

NICHOLSON V MORNING STAR (ST LUKES GARDEN APARTMENTS) LIMITED HC CIV 2008-404-824 29 April 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-824UNDER the Land Transfer Act 1952 IN THE MATTER OF Caveat No. 7658105.1 BETWEEN P R NICHOLSON Applicant AND MORNING STAR (ST LUKES GARDEN APARTMENTS) LIMITED Respondent Hearing: 28 March 2008 Appearances: Mr P Fuller & Mr B Vautier for Applicant Mr B Burt for Respondent Judgment: 29 April 2008 at 10 a.m.JUDGMENT OF ASSOCIATE JUDGE DOOGUE ____________________________________________________________________This judgment was delivered by me on29.04.08 at 10 a.m., pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateCounsel:Glaister Ennor, P O Box 63, Shortland Street, Auckland – peter.fuller@glaisterennor.co.nz Chapman Tripp, P O Box 2206, Auckland – james.burt@chapmantripp.comTABLE OF CONTENTSBackground ............................................................................................................................................ 2 Overview of the applicant's claim to be entitled to caveat and response by respondent. ...................... 5Submissions of applicant ........................................................................................................... 5Submissions for respondent....................................................................................................... 6Approach that the Court will take ............................................................................................. 7 Do the express terms of the Agreement entitle the respondent to make changes to the development? . 8Introduction ............................................................................................................................... 8Applicant's submissions ............................................................................................................ 8Respondent's submissions ......................................................................................................... 9The applicant's point that the respondent has not established that clause 5.6 applies........... 10Do the contractual terms, considered as a whole, entitle the developer to change the scheme?................................................................................................................................................. 11 Does the applicant have a caveatable interest in the common property shown as part of the FDUs?.. 13Submission that Common Property does not include the FDUs ............................................. 15 The provision in the contract by which the applicant agreed not to caveat the property. .................... 18 Balance of convenience and interference with third parties' rights ..................................................... 19Respondent's arguments.......................................................................................................... 19Discussion ............................................................................................................................... 19 Balance of convenience and the power of attorney.............................................................................. 21Introduction ............................................................................................................................. 21Discussion ............................................................................................................................... 22 Conclusion............................................................................................................................................ 25Background[1] On 27 May 2003, the respondent (as vendor) and the applicant (as purchaser) entered into an agreement for sale and purchase (The Agreement) of a property in a proposed development at St Lukes. On 5 September 2005, the respondent and the applicant settled the sale and purchase of the property for which the operative clause of the Agreement provided. [2] The operative clause of the Agreement provides:It is agreed that the Vendor sells and the Purchaser purchases the Property, upon the particulars set out above and the terms set out in this Agreement, including the Annexures.[3] The Agreement includes a page on which are inserted the particulars of vendor, purchaser, property, and other matters. Under property the following appears:Principal unit C28 Carpark accessory unit (s) two to be allocated, one with storage locker (basement) 53 St Lukes Road, Mt Albert, Auckland.[4] Inside the Agreement, property is defined as follows:Property means the Principal unit and any Accessory unit (s) comprised in the development specified on the first page of this agreement.[5] Common property is defined as:Common property means the common property comprised in the Unit Plan.[6] The property in question was an apartment unit and two accessory units which were carparks. The units were part of an apartment complex. The applicant was to acquire a unit title under the Unit Titles Act 1979. In the result, the applicant finds himself considerably dissatisfied with what occurred. He says that the agreement for sale and purchase had annexed to it a number of plans. The plans had annexed to them a sub-plan that showed the unit that the applicant was to purchase inBlock 3. The unit was identified on the sub-plan that had been initialled by the applicant and the authorised agent for the vendor. One of these showed what the overall complex would look like after completion of Phase Three. The plan so annexed showed expansive accessways, open spaces and more importantly, from the applicant's perspective, extensive landscape gardening. [7] "Property" was defined by clause 1.1 of the Agreement, in this case as principal unit C28 and two car park accessory units in the development known as "St Lukes Garden Apartments". [8] There is no explicit endorsement on the plans on what area is the common property. However, by virtue of s 3 of the Unit Titles Act 1972, which must be viewed as an essential part of the context in which the Agreement was entered into, common property is stated to be:So much of the land as is not comprised in any unit.[9] Much to the applicant's dissatisfaction, there have been very considerable changes made to the development as it has progressed. [10] The actual changes proposed are described by the applicant in part of his affidavit which I set out at the following terms:The Amended Consent (annexure "D" to my previous affidavit) was granted without my knowledge and approval on 22 April 2004. It has substantially and materially altered the development by significantly reducing landscaping and car-parking and increasing the intensity of the development. The Amended Consent development now consisted of 281 apartments – not only a 31% increase in the number of apartments but a huge loss of open and landscaped space. It meant that site coverage would increase to close to 80%. It effectively destroyed the large central open space shown on our contract and completely changed the promised 'garden' ambience that had been represented to us and that we relied upon in the Plans attached to the Agreement. The quality of landscaping is also poor and a boulevard of trees has been replaced with car-parking, and footpaths, water features and an elevated landscaped platform out from the Common Room, have not been constructed in accordance with the Plans.[11] As well, according to the applicant, the developer has, instead of building 85 two-bedroom units on the site, built 85 three-bedroom units. Carparks have beensubstantially reduced in number and a trading bank has been built on the site. A communal barbecue area has been deleted and there has been a reduction in the landscaped area. One of the access driveways is now blocked by a concrete wall in the area generally described as the northern end of Block G. As well, for example, a substantial area of land which had previously comprised landscaping and a paved turning circle is now to be built over in what is identified as a future development unit. [12] It will be apparent that the development was a staged unit title development of the type provided for in part 1 of the Unit Titles Amendment Act 1979. Section 4 of that Act provides that subdivision in stages is to be carried out by the successive deposit under the Land Transfer Act 1952 of: a) A proposed unit development plan ("PUDP") which shall specify all the units, and the whole of the common property, proposed to comprise the development when it is completed; b) One or more stage unit plans ("SUP") which shall specify each unit in each part of the common property that has so far been completed in relation to a building or buildings comprising part of the development and already erected on the land and also specify the area or areas designated on the plan as a future development unit ("FDU") in which further development or subdivision and other work is still required to complete the development; c) A complete unit plan ("CUP") which shall specify all the units and the whole of the common property comprising the development in relation to a building or buildings already erected on the land. [13] On 12 December 2007, that is more than two years after settlement, the applicant lodged a caveat against FDUs 4, 5, 6 and 7. The respondent, (St Lukes Garden Apartments Limited) is the registered proprietor of the land against which the caveat was lodged.[14] The applicant asserted that he was entitled to lodge a caveat against the FDUs:Pursuant to an agreement for sale and purchase dated 27 May 2003 wherein the Caveator is the purchaser and the registered proprietor The respondent (St Lukes Garden Apartments Limited) [sic] is the vendor.[15] In practical terms, the applicant filed the caveats in order to prevent the respondent from proceeding with the fourth stage of the development. [16] The applicant seeks an order, pursuant to s 145A of the Land Transfer Act 1952 (LTA), that a caveat lodged by him not lapse. [17] Before concluding this introduction I regret that it is necessary to observe that an excessive amount of paper has been filed in this proceeding. As is usually the case, the quantity of paper is inversely proportional to the degree of clarity achieved in explaining the applicant's case.Overview of the applicant's claim to be entitled to caveat and response by respondent.Submissions of applicant[18] The applicant's counsel submitted that Mr Nicholson had a 'beneficial interest' in common property contained within the future development units which were shown upon the registration of the third stage unit development plan. He said the FDUs set out areas of common property and common amenity. He said that Mr Nicholson had an entitlement to see those FDUs carried through to completion so that the common areas shown would actually be created as part of the future development on the site. He said that this entitlement was part of the 'bundle of rights' which Mr Nicholson acquired on the purchase of his principal unit. [19] He said that Mr Nicholson was not opposed to 'relatively minor variations that are inevitably required when a site is being converted from plans into an actual building.' Mr Fuller gave as an example of these the need to move a lift shaft because underground services have been uncovered that need to be protected. However, he said that the respondent here has changed the Agreement significantlyso as to increase the density of the development at the expense of Mr Nicholson's use and enjoyment of areas that were shown in the Agreement as being common property. [20] The applicant made reference to the power of attorney which the respondent claimed to be entitled to use to bring about changes to the development. The respondent's contention is that it can consent to those changes being made on behalf of Mr Nicholson by exercising the power conferred on it by the power of attorney which Mr Nicholson executed. Mr Nicholson's position, so far as the power of attorney is concerned, is that the power of attorney is not valid because its efficacy depends upon the body corporate rules being valid and for various reasons which I will refer to further on in this judgment, the applicant says that those rules were not validly made.Submissions for respondent[21] The respondent made the following two principal submissions in support of its position: a) The applicant has no caveatable interest in the four future development units (FDUs), which are the subject of the applicant's caveat; and b) The Court ought to exercise its discretion under s 145A of the LTA to refuse the order sought by the applicant. [22] The respondent's counsel said that the only issues in this proceeding were whether: a) the applicant has a caveatable interest in the FDUs pursuant to the Agreement; and b) the Court ought to exercise its discretion, on the balance of convenience, to refuse an order that the caveat not lapse. [23] Mr Burt said that issues are capable of determination on the evidence before the Court.[24] In more detail, Counsel for the respondent submitted:• The respondent had an entitlement, under the Agreement, to vary the development plans and specifications;• at the time of lodging the caveat, the applicant had (and has) no determinate, present interest in the FDUs;• common property, as defined in the Agreement, does not include land comprised in the FDUs;• there is no evidence that the applicant has any beneficial interest under the Agreement;• the applicant is in breach of a "no caveat" clause in the Agreement;• the balance of convenience favours Morning Star, because the relief sought by the applicant may interfere with third parties' rights; and• the balance of convenience favours Morning Star due to the power of attorney granted by the applicant to Morning Star.Approach that the Court will take[25] The approach that the Court will take is to enquire at the outset whether the applicant has a right to require the development to be completed in accordance with the plan that was annexed to the Agreement that he signed to buy unit C 28. That issue will be determined by considering the contractual arrangements that the applicant entered into with the respondent.Do the express terms of the Agreement entitle the respondent to make changes to the development?Introduction[26] It was not disputed for the respondent that the planned future development of the residential complex will now take a different form from that which was presented to Mr Nicholson when he entered into the Agreement. [27] The respondent relies on a number of provisions of the Agreement between the parties to justify the changes to the plan that have been made since the parties entered into their Agreement.Applicant's submissions[28] Mr Fuller said that the changes which the respondent has made to the scheme have been very substantial. Mr Fuller said that if the Court allowed the respondent to make any changes that it wished, then a number of drastic consequences would follow. It would mean that the development plans and specifications attached to the Agreement that Mr Nicholson signed -are essentially meaningless, notwithstanding the fact that it is precisely those graphic materials that induced Mr Nicholson to enter into the contract.[29] Mr Fuller said that such an interpretation would leave Mr Nicholson without a remedy even if the respondent went as far as to modify the development to the point where it included only principal units and accessory units in the FDUs with the result that there was no common area left at all. He said:It is submitted that when owners are faced with such substantial and detrimental prospects it is appropriate for the Court, with respect, to determine the proper legal extent of the rights and obligations of the parties under the Agreement.[30] I also understand that Mr Fuller submits that, given the claimed unfettered right to modify the unit title scheme so far as FDUs are concerned, it is possible thatthe total abolition of common area could lead to a situation where, in order to move about the property to park a motor vehicle or to access his unit, the applicant would be obliged to trespass on other owners' units. [31] Mr Fuller suggested that the 'Court' (presumably meaning the trial Court) was the appropriate forum to interpret contractual terms that purport to create an opportunity to vary plans and specifications. [32] He also suggested that 'public policy considerations' might be invoked to restrain the respondent from untrammelled exercise of its rights to vary the scheme that formed the subject matter of the Agreement. He went on to say:It is submitted that in these particular circumstances, where there is a dispute over the interpretation of the Agreement and powers of attorney and resource consent non-compliance, a caveat is justified to protect a (sic) beneficial interests in common property that is part of an FDU.Respondent's submissions[33] Mr Burt said that the respondent was specifically entitled to make changes by reason of clause 5.6 of the Agreement which provides:The Vendor may vary or alter the Development Plans and Specifications when necessary or expedient for the Vendor to do so, so long as any such variation or alteration does not, in the Vendor's reasonable opinion, materially diminish the value or use of the Property or substantially change the Property.[34] Mr Burt submitted that:39. "Property" is defined in the Agreement as principal unit C28 and the two car park units purchased by the applicant. The definition of "Property" in the Agreement does not extend to any common property in the development. 40. Yet the applicant's complaint does not relate to the applicant's principal unit and car park units. Indeed, there is no evidence that the use or value of those units have been affected in any way, nor can there be any evidence that those units have been substantially changed. 41. On the contrary, the applicant's complaint relates to areas which may become common property. The applicant lodged the caveat toprotect his alleged beneficial interest in that common property (as to which, see below). See, for example, the applicant's affidavit in reply, paragraphs 1.2 to 1.4, 3.1, 3.2, 5.4, 5.9 and 7.2, as well as the synopsis of argument on behalf of the applicant, paragraphs 1.4, 5.1(b) to (e), 6.3, 6.4, 7.2 to 7.4 and 9.3. 42. Under the Agreement, Morning Star has an unfettered entitlement to vary or alter the Development Plans and Specifications, insofar as those variations or alterations are to common property, or indeed to any principal or accessory unit other than those the applicant agreed to purchase. 43. For that reason, the applicant has no caveatable interest in the FDUs, but more importantly, on the evidence before the Court, the applicant cannot succeed at trial and therefore the caveat should be allowed to lapse: Orams Marine (Auckland) Limited v Ports of Auckland Limited at 92.[35] In his submissions on the meaning of clause 5.6 Mr Burt referred to definitions of the word 'expedient' contained in the Oxford English Dictionary, which are 'advantageous' or 'advisable on practical rather than moral grounds'. [36] I do not believe, though, that focusing on the use of the term 'expedient' in clause 5.6 of the agreement is the complete answer for the respondent. The respondent can make changes where they are expedient but subject to the condition that the variation or alteration does not in the vendor's "reasonable opinion" materially diminish the value or use of the property. So even if the respondent reasonably considered that a particular change was 'expedient' it would still need to be a change that did not materially diminish the value or use of the 'property'.The applicant's point that the respondent has not established that clause 5.6 applies[37] In my view, when one analyses the applicant's submission it is essentially a submission that the respondent is in breach of the contract. Some evidential basis must be provided for that assertion. It is not correct, in my view, to approach matters on the basis that it is merely for the applicant to submit that there is no evidence that the change was necessary or expedient nor any evidence showing an absence of material diminishment of value. The applicant has to demonstrate an arguable case. He cannot do that by making an assertion that the respondent is in breach of the contract and then draw the Court's attention to the fact that the respondent has notprovided any evidence contraverting that assertion. That said, I accept that the Court is entitled to take the view that the inherent circumstances of the case or the evidence generally before the Court could justify inferences that the respondent is not able to justify the steps he has taken by reference to clause 5.6. The correct approach is to focus on the changes that are actually proposed and then examine whether the applicant is able to mount a reasonable argument that the changes envisaged are not justified by clause 5.6.Do the contractual terms, considered as a whole, entitle the developer to change the scheme?[38] I do not accept that it is legitimate for the applicant to rely on arguments such as the one that the scheme could be changed to the extent that Mr Nicholson could find himself unable to get access to his unit without trespassing on someone else's property. In my assessment, that example is a type of reductio ad absurdum. It is not an example of changes that are actually proposed in this case. The example that the applicant has offered amounts to a variation that would deprive the contract of any practical advantage to the applicant or, alternatively, render the contract impossible to perform. It may be supposed that the Court would not countenance an interpretation of clause 5.6 which would have such an effect. [39] It is fair to record that Mr Fuller put other examples of changes before the Court that could be embarked upon if the respondent were to be given free rein to change the development as it wished:Offensive and nuisance activities such as the building of a petrol station; Complete elimination of landscaping areas and an almost complete occupation of the site with building and development; Tall and bulky towers that may shade and obscure the views of existing residents; and Substantial additional numbers of people and increasing pressure on community infrastructure including roading and parking and an associated loss of privacy.[40] I simply record that none of these are examples of what the developer now plans.[41] In order to determine this question it is necessary to come back to the actual circumstances that present themselves in this case rather than considering hypothetical factual scenarios. I have recorded at paragraph [10] and following the detail of the changes which the applicant alleges have been made. [42] To dispose of one preliminary point, I agree that 'the property' as defined in clause 5.6 consists of Mr Nicholson's principal unit and two accessory units. [43] At the outset I must state my conclusion that the developer does not have an unfettered right to change the development. The power contained in clause 5.6 of the Agreement is a limited one and does not authorise making changes unless in the vendor's reasonable opinion they do not materially diminish the value or use of the property or substantially change the property. The developer is not entitled to make changes to the common area and justify them on the basis that he does not think that the changes will adversely affect Mr Nicholson's property. His view must be a reasonable one. That imports an objective standard. Before making changes he must form a reasonable opinion whether the changes will materially diminish the value of Mr Nicholson's unit. A further factor he must take into account is whether the changes will materially "diminish ..the use" of the property. This last expression is not a particularly easy one to understand but it may be seen as guarding against a material restriction on the use of the property. To 'materially diminish' the value or use means that only diminishments of substance need to be taken into account and minor or trivial matters can be ignored as not having importance or materiality. [44] Even though Mr Nicholson has not provided evidence on the point of whether the changes will materially diminish the value or use of his property, the Court may be able to draw inferences from such material as has been made available concerning the issue of whether the respondent could have held a reasonable opinion on whether the proposed changes will materially diminish the value or use of his property. The evidence that Mr Nicholson has given must be accepted for the purposes of argument at this stage of the proceedings even though it is possible that this issue will be one that will be factually disputed by the developer if matters go further. But on the present state of the evidence, it seems to me at least reasonably arguable that where substantial parts of the landscape space are lost and where thereis a 31% increase in the number of apartments that are fitted onto the site, the changes could well materially diminish the value of Mr Nicholson's property and that the contrary view would not be a reasonable one. That being so, it is reasonably arguable that the changes proposed by the respondent would not be sanctioned by clause 5.6. and that the proposed changes, if carried out, would constitute a breach of Mr Nicholson's contractual rights.Does the applicant have a caveatable interest in the common property shown as part of the FDUs?[45] Mr Burt's submission was that because the respondent had an unfettered entitlement to vary or alter the Development Plans and Specifications the applicant could have no caveatable interest in the FDUs. I have concluded that the respondent does not have an unfettered entitlement to so deal with the property and thus alter in any way he sees fit the common property areas shown as part of the FDUs. [46] It is necessary now to consider the next argument advanced by Mr Burt that he says tells against the existence of a caveatable interest. That argument is that the applicant has no present determinate interest in the FDUs. Mr Burt presented the submission in this form:Kilmartin v Monk (2005) 5 NZ ConvC 194,122 (High Court) is authority for the principle that the caveatable interest must exist at the time when the caveat is lodged with the Registrar of Land. A necessary corollary of the requirement for the caveatable interest to exist at the time the caveat is lodged is that the interest must be determinate, or at least there can be no doubt that there is such an interest. The interest cannot be contingent (which was the very situation with the mortgage in Kilmartin v Monk). In this case, any interest by the applicant in the FDUs is contingent at best. The contingency which the applicant must rely upon to give rise to any interest in the FDUs is completion of the development in accordance with the original Development Plans and Specifications. However, as those Development Plans and Specifications are subject to change (as set out above), it is possible that, on completion of the development, the applicant may have no interest in the FDUs.[47] With respect to Mr Burt, I do not find the Kilmartin v Monk decision of any real assistance in this case. That was a case where a lender had power under the loan agreement to call on the borrower to execute a second mortgage over land. The argument for the borrower was that no such demand had been made at the time when the caveat was lodged. Rodney Hansen J, in an oral decision, determined that the equitable mortgage which the lender claimed was a sufficient basis for his caveat, could not in fact be relied upon to support the caveat. [48] In my view, guidance is provided as to the general circumstances in which the courts will recognise that a party has a caveatable interest in property by the Court of Appeal decision in Bevin v Smith [1994] 3 NZLR 648. That was a case where it was necessary to determine whether a vendor of a farm property held that property as trustee for the purchaser at a time when he acquired an additional small piece of access land to the farm property. At the relevant time the contract which the parties had entered into was deemed to be void because the provisions of the Land Settlement Promotion Act 1952 had not been complied with. After considering New Zealand and Australian authorities, the Court of Appeal said at page 665:For these reasons we consider that an equitable interest in land should, and does, pass under a conditional contract of the kind involved here, even though specific performance of the contract in the strict sense is not available. We agree with the recent Australian authorities to the effect that the equitable estate passes when equity will, by injunction or otherwise, prevent the vendor from dealing with the property inconsistently with the contract of sale, ie inconsistently with the purchaser's contingent ownership rights.[49] In my judgment, it is arguable that the respondent is proceeding with the development in a way which contravenes the contractual rights of the applicant. [50] The applicant has a contractual entitlement to the common property that was shown as part of the FDUs. He asserts that the respondent is proposing to substantially change the character of and reduce the amount of common area in such a way as to constitute a breach of contract. If the case that he makes out is an arguable one, then equally he ought to be able to obtain an injunction to restrain the respondent from dealing with the land in such a way. That being so, he has sufficient equitable interest in the land to justify his caveat.[51] If the developer is not entitled to make the changes that it has purported to make, then, as I have said, it is likely that the Court will take steps to prevent him proceeding with what are arguably unauthorised changes and to give appropriate declaratory relief. That could take the form of declaring that the applicant has an interest in the common area as the contract originally provided. That is, the contractual rights and responsibilities of the parties revert to what was originally agreed. That is to say, Mr Nicholson will be entitled to insist on performance of the scheme in the same form that underlay the parties' original Agreement or, at least, to obtain an order restraining the respondent from proceeding in a way that is inconsistent with the original agreement.Submission that Common Property does not include the FDUs[52] Mr Burt submitted:52. As noted above, the applicant claims, by virtue of the Agreement, an interest in common property to be constituted in the FDUs. 53. However, clause 1.1 of the Agreement expressly defines "Common Property" in the Development as being "the common property comprised in the Unit Plan". 54. "Unit Plan" is defined as being the deposited unit plan, which subdivides the phase of the development in which the applicant purchased units. That unit plan is annexed as exhibit "RIP2" to the affidavit of Mr Parker. 55. Areas of common property, bounded by principal units, accessory units and/or future development units, are clearly depicted on the unit plan. The common property does not extend to include FDUs 2, 3, 4 and 5, from which the FDUs which are the subject of this proceeding were derived. 56. The Agreement (by virtue of which the applicant claims a caveatable interest) therefore conveys an interest in only the common property which is depicted on the unit plan. The Agreement conveys on the applicant no interest in common property which may or may not be contained in FDUs 4, 5, 6 and 7. 57. For that reason, the applicant has no arguable case in respect of those FDUs and, in Morning Star's submission, the caveat must be permitted to lapse.[53] In response, Mr Fuller submitted:However, parties cannot contract out of the statutory scheme for staged developments in the Unit Titles Act 1972 and Unit Titles Amendment Act 1979. The key provisions are set out below. S9 Common Property (UTA 1972) (1) The common property shall be held by the proprietors of all the units as tenants in common in shares proportional to the unit entitlement in respect of their respective units; Providing that nothing in this subsection shall affect the interests among themselves of the proprietors of a stratum estate in an individual unit. (2) While the same person is proprietor of all the units, subsection (1) of this section shall apply as if there were different proprietors for each of the units. (3) The proprietors of all of the units may sell or lease part of the common property or may grant an easement over the whole or part of it" S11(3), specifying ancillary rights in relation to common services, infrastructure and property, states that: "The rights created by this section shall carry with them all ancillary rights necessary to make then effective as if they were easements". S2 also defines Future Development Unit: 'Future Development Unit', in relation to a subdivision of land into units in stages, means a unit that is proposed to be developed or subdivided into 1 or more units (with or without common property) at a later stage of the development, and that is shown on a Stage Unit Plan as a Future Development Unit. Proposed Unit Development Plan is defined as follows: 'Proposed Unit Development Plan', in relation to a subdivision of land into units in stages, means a plan specifying all the units and the whole of the common property proposed to comprise the development when it is completed. S2 of the Unit Titles Amendment Act 1979 defines Stage Unit Plan as: 'Stage Unit Plan', in relation to a subdivision of land into units in stages, means a plan specifying each unit and each part of the common property (if any) that has so far been completed to the extent necessary for the purpose of section 5(1)(g) of the principle Act at the date of the deposit of the plan, the balance being specified as one or more further development units. S4 – how subdivision in stages effected:The subdivision of land so as to provide for units in 2 or more stages shall be effected by the successive deposit under the Land Transfer Act 1952 of – (a) a proposed unit development plan, which shall specify all the units, and the whole of the common property proposed to comprise the development when it is completed; (b) one or more stage unit plans, which shall specify each unit and each part of the common property, if any that has so far been completed.." S6 Deposit of Unit Plans under this Part states at (2): Every successive stage unit plan (except the first) and the complete unit plan relating to a development shall be deposited insubstitution for, and under the same number as, the stage unit plan previously deposited in respect of that development. Therefore it is submitted that the following conclusions can be made: (i) Common property in the PUD plan is all property not specified as a principal or accessory unit. (ii) The Act anticipates that future development units will contain common property. (iii) The rights and beneficial interests of owners in common property make them effective as if they were easements (s11). (iv) With each deposit of a stage plan it supersedes the previous stage which means that the interest of existing owners are not locked into any particular stage as the Respondent alleges. (v) This has been illustrated in the example cited in the Applicant's synopsis and a close examination of the title plans for the second and third stage in PRN Reply "G" (para 7.2 to 7.4 Applicant's Legal Synopsis).(vi) There can be no alterations or variations to the common property in an FDU from that specified in the PUD plan without the consent of every proprietor (s 9(4))."[54] This is a matter upon which it is not possible to come to more than a tentative view. The issue is not just a matter of contractual and statutory interpretation. It is an issue upon which the mechanics involved in successive staged subdivisions requires some understanding. I do not have the material that would give me that understanding. However, on the basis of the material that has been put before me I can express my views briefly.[55] The claim by the applicant is founded upon the Agreement. But in his capacity as purchaser of a unit as part of a staged development, it is entirely possible that he acquire interests in common areas which are not identified in the Agreement. It is possible, and in my view likely, that because of his status as purchaser of one of the stages, he may well have interests in common areas to be established once future development units have been completed – such interest accruing to him as a result of the statutory scheme under which the staged development is to be carried out. That is, his posited entitlement arises from the statutory enactments to which Mr Fuller has referred. I accept the logic of Mr Fuller's argument because from my reading of the statute and my understanding of the statutory scheme disclosed, the proprietorship of common areas is not compartmentalised into discrete areas which can be taken advantage of, exploited and used only by proprietors of principal units in that particular stage of the development. The development when completed will, in other words, be viewed as a whole. On that basis, the applicant has a reasonably arguable case that he has an interest in the common areas to be established once the FDUs 4, 5, 6 and 7 are completed. That is sufficient to dispose of this particular argument by the respondent.The provision in the contract by which the applicant agreed not to caveat the property.[56] For the respondent Mr Burt emphasised the words in bold which appear in clause 6.7 of the Agreement:The Purchaser will not lodge any caveat against [Morning Star's] title to the Land or the Property until after the issue of a separate certificate of title for the Property and only where [Morning Star] is in default of its obligations under this Agreement" (emphasis added).He said that the respondent was not in breach of its contractual obligations. [57] I earlier set out my view that the applicant has demonstrated that it is reasonably arguable that the respondent is in breach of the Agreement (See paragraph [44] above). That is sufficient to dispose of the reliance by the respondent on clause 6.7 of the Agreement. For the purposes of this application, the applicant is not prevented by clause 6.7 from lodging caveats.Balance of convenience and interference with third parties' rightsRespondent's arguments[58] Mr Burt's argument on this part of the case was:74. The Court is unlikely to maintain a caveat, where to do so would interfere with third parties' rights: Rawat v Melview Featherston Street Limited [citation provided below] 75. In this case, the Development Plans and Specifications differ between agreements for sale and purchase (see, for example, the applicant's affidavit in reply, exhibits "A" and "P"). 76. The applicant seeks to prevent Morning Star lodging a unit plan which is inconsistent with the Development Plans and Specifications attached to the Agreement. 77. However, if Morning Star is prevented from lodging such a unit plan, the rights of third parties will be affected. In particular, purchasers of units in blocks G and H will be unable to obtain title to the units which they have agreed to purchase. 78. For that reason, the balance of convenience favours allowing the caveat to lapse.Discussion[59] I consider that this argument can be shortly disposed of. The argument presupposes that the purchasers in subsequent stages of the development, for example block "G", will have their property rights interfered with if the respondent is prevented from making changes to the scheme from the form that it took at the time when the applicant purchased, and that, as a result, buyers in the later stages will not get what they are entitled to. In that way, Mr Burt said, third parties' rights will be interfered with. [60] As I see it, the effect of the caveat is to preserve the position until the Court can come to a conclusion on the issues in the case. Those issues are, first, whether the applicant has the rights that he says he has under the Agreement. The other issue is whether the respondent is justified in reducing the benefits that it is required to provide to the applicant under the Agreement on the basis that it is the respondent's prerogative to change the scheme.[61] The submission for the respondent is based on an underlying argument that the purchasers of the units in later stages have rights in respect of a common area which they are entitled to enforce against the respondent, and which they will not be able to enforce if the applicant prevails with his argument concerning the more expansive common area to which he says he is entitled. [62] The argument therefore, posits a contest of the purchasers in Mr Nicholson's stage against those who have purchased in later stages. If the caveat is sustained, Mr Nicholson will then be in a position to bring proceedings based upon what he says is his equitable interest in the common area over which later purchasers are presumably also making claims, based upon their contracts. In my judgment, the contest resolves itself to which equities will have priority. [63] Were the Court to make orders that effectively end the caveat, then that would disable Mr Nicholson from bringing proceedings to enforce his equitable interest. [64] But in my view, it is not inconceivable that Mr Nicholson may prevail against the later purchasers. If so, the continued existence of the caveat would be justified. [65] Mr Burt relied upon the authority of Rawat v Melview Featherston Street Limited HC AK CIV 2006-404-5297 6 November 2006. However at paragraph 113 of his decision the Judge said:If the Court was to order specific performance for the plaintiff, the defendant would not be able to complete settlement under the third party agreement. No argument was raised to counter the proposition that the third party agreement pre-dates the plaintiff's Agreement and thus creates a prior equitable interest.[66] The position is not entirely clear here as to order in which the various agreements were entered into. But given that the stage "G" and related stages come later in the sequence of development of the lot and given that Mr Nicholson's Agreement was entered into on 27 May 2003, it may well be that that the applicant's agreement is prior in time. I do not therefore accept that the probability is that the third parties' rights would be defeated by the continuation of the caveat.Balance of convenience and the power of attorneyIntroduction[67] Mr Burt submitted as follows:On 24 August 2005, the applicant executed a power of attorney in favour of Morning Star. The power of attorney was given for value and is expressed to be irrevocable (clauses 1 and 6) [Nicholson Reply, exhibit "M"]. The power of attorney therefore cannot be revoked without Morning Star's consent: sections 20 and 21 of the Property Law Act 2007. The applicant had an obligation under clause 5.3(e) of the Agreement to execute and deliver to Morning Star the power of attorney in the form attached to the Agreement. Although clause 5.3 refers to the power of attorney annexed as Schedule 1 to the Body Corporate Rules, "Body Corporate Rules" is a defined term under the Agreement, and means the draft Body Corporate Rules attached to the Agreement as annexure A. Accordingly, the applicant had a contractual obligation to provide the power of attorney to Morning Star at settlement irrespective of any issue concerning the validity of the actual body corporate rules deposited with the Registrar-General of Land. There is no dispute about the validity or binding nature of the power of attorney granted by the applicant to Morning Star. Indeed, the submissions on behalf of the applicant do not substantiate any arguable basis for such a dispute. The power of attorney expressly provides for Morning Star to perform and execute all of the applicant's rights and other functions which relate to the execution of all documents, and the exercise of all powers, necessary to lodge (inter alia) any substituted proposed unit plan or plan of redevelopment (clause 1(c) of the power of attorney). The power of attorney thereby enables Morning Star to vary or alter the proposed unit plan, to accord with any variation or alteration of the Development Plans and Specifications. More importantly, however, the power of attorney expressly empowers Morning Star to "withdraw any caveat lodged by the Proprietor against the title to any unit or future development unit on Unit Plan 346086 " (emphasis added) (clause 1(d)). Accordingly, pursuant to the power of attorney, the applicant has granted Morning Star the power to withdraw the caveat under s 147 of the LTA. Such a power subsists notwithstanding any order of the Court that the caveat not lapse.[68] I note that in paragraph 1 of the power of attorney it is stated that the 'Appointor' irrevocably appointed the attorney to perform and to execute all his rights, duties, obligations and other functions and explicitly conferred power to withdraw any caveat lodged by the 'Proprietor' (clause 1(d)). There were other features of the power of attorney that it is not necessary to mention beyond noting that the power of attorney was irrevocable.Discussion[69] Unfortunately neither party addressed arguments to me on what limits, if any, might attach to the respondent's exercise of the power of attorney. That is a key issue. The only issue raised by the applicant was whether the power of attorney was validly granted. In that regard, I agree with the submissions by Mr Burt that the power of attorney was validly granted and I do not see any substance in the arguments for the applicant that the power of attorney was somehow linked to the rules of the body corporate which the applicant's counsel submitted were invalid for various reasons. [70] I remind myself that the question of use of the power of attorney is relevant to the issue of balance of convenience in this case. Mr Burt submitted that there was no point in sustaining a caveat if the respondent could then withdraw it by using the power of attorney. [71] In determining the validity of Mr Burt's argument, one has to anticipate whether the applicant could potentially make any other applications to the Court and what the outcome of those applications might be. Specifically, one has to ask if the Court in other proceedings could restrain the respondent from exercising the power of attorney in the circumstances of this case. [72] In the section of the judgment that follows, I will consider what limits are to be imposed on the exercise of the power of attorney in this case. As part of that discussion, it will be necessary to make limited reference to decided cases.[73] It is clear that an exercise of a power of attorney which constitutes a breach of duty of good faith or is dishonest or done for some improper motive is not a valid exercise of the power: Medforth v Blake [1999] 3 All ER 97, at 112. [74] In the New Zealand case of Powell v Thompson [1991] 1 NZLR 597, the attorney used the power to pay her own personal debts which was held to be a contravention of the fundamental nature of an agency or fiduciary relationship. The position in this case is somewhat different from the facts of that type of case where there has been bad faith or a misuse of the power for some personal advantage. In my view it is necessary to approach matters on the basis of attempting to determine what the objective and purpose was for giving the power of attorney. [75] The purpose of the power of attorney in the present case was to enable the attorney to stand in the shoes of the party appointing it and to carry out actions that could only be done with the fiat of the apointing party. Far from being exercisable in the interests of the applicant, it is clear that the power of attorney was to be used for the benefit of the respondent. It would enable the respondent to withdraw any caveat which the applicant lodged. Arguably, the power of attorney could be used in circumstances where powers of attorney are conventionally used, such as to perform actions on the part of the donor when he/she because of absence was unable to carry them out. But the main purpose would seem to be to provide the donee with a simple, efficient mechanism which would enable him to reverse the act of the donor in lodging a caveat. [76] It seems to be obvious that the power could be exercised (indeed would probably only be exercised) in circumstances where some point of contention had arisen between the parties. That is to say, the context in which the power was granted to the respondent envisaged just the sort of circumstances that have arisen on this case where there is a dispute between the applicant and respondent. [77] No doubt there were limitations on the exercise of the power. It could not be invoked in circumstances where to do so would be commit a fraud on the power, for example. But beyond that point, it is difficult to see what limitations might exist.[78] The use to which the respondent would put the power of attorney in this case, namely to withdraw a caveat, is an exercise of the power which the contract expressly anticipated. [79] The entitlement under the provision is to withdraw 'any caveat'. The use of the words 'any caveat', make it difficult to envisage limitations on the exercise of the power of attorney to withdraw a caveat. However, it seems unlikely that in conferring a power of attorney on the respondent, the applicant gave it carte blancheto act in contravention of the applicant's contractual rights. [80] That is to say the Court considering the issue of an injunction to prevent the respondent from exercising the power of attorney to withdraw the caveat might be invited to enquire into whether, in the words of clause 6.7, the respondent is in default of its obligations under the Agreement. The applicant would have to demonstrate that there was a serious issue to be tried and that the balance of convenience favoured the issue of an injunction. [81] I conclude that a Court considering injunctive or other relief would be entitled, if not required, to make some enquiry into whether there had been a default on the part of the respondent which justified the applicant in lodging a caveat. Because, if circumstances had arisen in which the applicant had an explicitly recognised right to caveat, it is arguable that the respondent is not contractually entitled to use the power of attorney to defeat the applicant's right. That is, in such circumstances there must be a limitation on the respondent's ability to deploy the power of attorney. If that is so, then consistently with such an approach it could restrain the respondent from using the power of attorney in such a way that it would cut across the entitlements of the applicant under the contract. [82] Taking all of these matters into account, I believe that it is reasonably arguable that the respondent does not have the right in the present circumstances to use the power of attorney to withdraw the caveat and that it could be restrained from doing so.[83] Of course, the Court in these proceedings could not, even if it wished to, make any order restraining the exercise of the power of attorney in such a way. But the Court has to try to anticipate what a Court considering injunctive relief would make of the applicant's case because the merits of that case bear upon the balance of convenience considerations which the Court needs to weigh up here. [84] If, as I have concluded, it would arguably be a breach of the respondent's contractual obligations to the applicant to use the power of attorney to withdraw the caveat, and if it could be restrained from doing so, then the balance of convenience argument which Mr Burt invoked as a ground for the Court declining to order an extension of the caveat, falls away.Conclusion[85] I have concluded that it is reasonably arguable that the applicant has an equitable interest in the common area to be created by the future development units. Further, I do not consider that the applicant was prevented from lodging a caveat by the prohibition in the contract because I consider that the respondent was arguably in breach of the contractual obligations it owed to the applicant. In that circumstance the applicant was entitled to caveat. [86] I do not accept that the balance of convenience favours the respondent on the grounds that the power of attorney is decisive. I have concluded that there may be limitations on the use of the power of attorney and power for the Court to intervene to make orders preventing its misuse. [87] Nor do I accept that arguments concerning the rights of third parties in the property point away from the grant of an order on the grounds that that factor means that the balance of convenience weighs against the applicant. [88] The application is granted. I would expect the parties to resolve the matter of costs between themselves but if that proves not to be possible they should file memorandum not exceeding three pages each within 10 working days._____________ J.P. Doogue Associate Judge