SALT OF THE EARTH V FINER HC AK CIV2008-404-2388

SALT OF THE EARTH V FINER HC AK CIV2008-404-2388 17 July 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV2008-404-2388UNDER Section 145A of the Land Transfer Act 1952 BETWEEN SALT OF THE EARTH Applicant AND KEITH FREDERICK FINER Respondent Hearing: 15 July 2008 Counsel: N A Farrands for Applicant R A Smith for Respondent Judgment: 17 July 2008 at 4 pmRESERVED JUDGEMENT OF ASSOCIATE JUDGE HOLEThis judgment was delivered by Associate Judge Hole on 17 July 2008 at 4 pm pursuant to Rule 540(4) of the High Court Rules Registrar/Deputy Registrar Date ..Solicitors: Morrison Kent, PO Box 222, Auckland Knight Coldicutt, Private Bag 106 214, Auckland CityFacts[1] In March 2007 the applicant completed the purchase of a property at 211 Ponsonby Road, Auckland. 211 Ponsonby Road is next to the respondent's property at 213 Ponsonby Road. Between the two properties is a concrete driveway which gives access to the rear of both properties. After purchasing 211 Ponsonby Road, the applicant became aware that a legal right-of-way easement had never been created for the driveway. [2] On 20 April 2007 a representative of the applicant, Ms Barratt, visited the respondent's property to discuss formalising a legal right of way in respect of the driveway. She met Mr Noel Finer ("the deceased") who was then aged 90 and lived on his own at 213 Ponsonby Road. The only evidence as to the meeting comes from Ms Barratt. She says that she and the deceased discussed the driveway and the deceased said that as long as he could remember the driveway had been used as a shared driveway. He thought that a formal right of way had previously been created and attempted unsuccessfully to look for the relevant documentation. Thereupon Ms Barratt and the deceased agreed to formalise the existing arrangement by the creation of a right of way easement. It was agreed that the applicant would organise this and pay all the costs involved. [3] The applicant arranged for the requisite survey to be completed and the consequential legal documents to be prepared. Ms Barratt then attempted to locate the deceased so that the documents could be signed. She was not able to do so. The deceased died on 17 September 2007. [4] Unaware of the deceased's decline in health and the fact that he had vacated 213 Ponsonby Road, the solicitors for the applicant wrote to him on 17 August 2007 enclosing the easement documents with the request that he sign them. Paragraph 4 of the letter of 17 August 2007 suggested that the deceased seek his solicitor's advice regarding the documentation. [5] On 4 September 2007 Ms V Green, a niece of the deceased, responded to the 17 August 2007 letter indicating that she and her sister held power of attorney for thedeceased. She stated that the deceased had no interest in an easement and no need of it. Accordingly the attorneys were not prepared to sign the documentation. [6] Upon the death of the deceased the 213 Ponsonby Road property passed to his estate. The executors of the estate refused to honour the alleged agreement and as a result the applicant has lodged a caveat (No. 7720452.1 (North Auckland Registry)) against the certificate of title for 213 Ponsonby Road. The respondent has applied to the Registrar of Land for the caveat to lapse. Hence this application.The Application[7] The applicant has applied for an order that Caveat No. 7720452.1 not lapse. [8] The applicant claims that there is an equitable easement created by way of contract between the deceased and the applicant. The applicant says the respondent as executor of the deceased's estate must honour that contract.The Law Relating to Application[9] The legal principles pertaining to this type of application were summarised inGrowes Investments Ltd v Brian David Wood (18/4/08), Associate Judge Gendall HC Wellington, CIV2007-485-2533 where at paragraphs 45-51 he said:"It is well established that an applicant to sustain a caveat has the burden of establishing a reasonably arguable case that it has a caveatable interest in the property; Simms v Lowe [1988] 1 NZLR 656 (CA); Wellesley Club Inc v Wellesley Property Holdings Ltd [2007] 8 NZCPR 421 at [20] An equitable interest which gives relief in the land itself is sufficient to support the caveat: Wellesley Club Inc v Wellesley Property Holdings Ltd[2007] 8 NZCPR 421 at [38]. A caveat is not to be allowed to lapse unless it is patently clear that it cannot be maintained because there is no valid ground for lodging it or no such ground exists now."[10] The Court retains a residual discretion even once that initial onus has been met as to whether to remove a caveat. However, as was stated in Growes Investment Ltd at paragraph 51:"This discretion will be exercised sparingly; the Court must be completely satisfied that the legitimate interests of the caveator will not thereby be prejudiced: Pacific Homes Ltd (in receivership) v Consolidated Joinery Ltd[1996] 2 NZLR 652 (CA). At that stage the onus is on a respondent to show why the discretion should be exercised".The Equitable Easments by way of Contract[11] Hinde McMorland & Sim Land Law in New Zealand (volume 2, Wellington, Lexus Nexus 2004 at page 691) notes that the following 3 elements are necessary for the creation of an equitable easement by way of contract:(1) The right to be granted must possess the essential characteristics of an easement, viz: (a) A servient tenement exists on either property; (b) The right to be granted accommodates the dominant tenement and is related to the land itself; (c) The dominant and servient owners are separate people; and (d) The right is sufficiently defined as to be certain, a burden from the point of the servient owner and not amounting to a right of occupation. (2) Valuable consideration (needed for the existence for the contract); and (3) Either a sufficient memorandum in writing to satisfy section 24 Property Law Act 2007 (formerly section 2 Contracts Enforcement Act 1956), or a sufficient act of part performance.[12] In this case there is no issue that the right to be granted possessed the essential characteristics of an easement. [13] Likewise, given the mutuality inherent in the proposed easement, consideration exists. Here, the proposed easement involved each landowner granting to the other the right to use a portion of his land in exchange for being able to use the other landowner's piece of land. Each provided something of value to the other. In addition, according to Ms Barratt, the agreement involved the applicant paying all the legal costs which had the effect of bestowing a benefit on the deceased. [14] There was no memorandum in writing. Thus, the applicant relies on part performance.Defences[15] The respondent relied on two defences. First, he claims that there was no concluded agreement sufficient to constitute a contract. Second, he says there has been insufficient part performance.The Contract[16] The evidence supporting the proposition that there was a concluded contract entered into between the applicant and the deceased comes from the affidavit of Ms Barratt. In her affidavit she records how she went to visit the deceased at his home. When she mentioned the right of way he was surprised that there was no legal easement pertaining to it in existence. At paragraph 13 she recorded:"The deceased and I discussed formalising the shared use of the driveway and talked about creating a legal right of way for each property over the driveway. The deceased said he was happy for this to occur, particularly as he understood it had been done in the past anyway. I offered to have the necessary legal documents and survey documents prepared at Salt's cost if he would be prepared to sign them once completed and he said he would do this. It was my understanding from our discussion that all we were agreeing to was to give each other the legal right to use the other's land for the purposes of using the driveway. We finished our meeting with an agreement that I would get back to him to arrange signing of the documents once they had been completed".[17] The essential elements of paragraph 13 of the affidavit are that Ms Barratt and the deceased agreed that the easement should be documented and that all costs would fall upon the applicant. Whether one could go as far as to construe from the discussion that they each agreed to give the other the legal right to use the other's land must be debatable. However, that would have been the effect of the agreement. [18] The respondent claims that there was no agreement because: a) The deceased did not accept the legal easement as he did not see it before his death. It is difficult to see how the fact that he did not see the documentation means that he did not enter into the agreement.b) There was no evidence that he was going to accept whatever legal easement was presented to him. Obviously, one can imply a term into the oral agreement that the documentation resulting from the agreement would be acceptable to the deceased. Indeed, the letter dated 17 August 2007 from the applicant's solicitors recognised that it was important that he obtain legal advice relating to the proposed documentation. c) There was no discussion over compensation for the deceased. There did not need to be: see the previous discussion on consideration at para [13]. d) The deceased had not waived any rights to independent legal advice. There seems to have been no mention of legal advice but this, per se,does not prevent there having been an agreement. (See also paragraph [18](b)). I accept the absence of legal advice, particularly in a case like this, can be a strong factor when considering part performance and the overall discretion vested in the Court. However, it is not relevant to the existence of the contract. e) He had not waived any right to consult his attorneys. It is apparent that no mention of any attorney was made at the meeting. f) The deceased's contractual capacity was highly questionable. Whilst Ms Barratt obviously must have been aware that she was dealing with an elderly man who was not very well, this does not mean that she appreciated that he might not have the ability to enter into a business arrangement such as was proposed. Her affidavit indicates that she had a perfectly rational discussion with the deceased. Whilst medical documentation has been anexed to the affidavit of Virginia Ann Green dated 11 July 2008, none of that documentation goes as far as to indicate that the deceased did not have the mental ability to enter into a contract. At most, it notes cognitive impairment and a lack ofappreciation that he may no longer be able to look after himself at his home. I shall return to this matter later in this judgment. [19] It follows that I am satisfied that the parties did conclude an oral agreement for the creation of the easement.Part Performance[20] The respondent complains that the only evidence of part performance by the applicant is the preparation of the relevant documents. In T A Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 Tipping J noted that section 2 Contracts Enforcement Act 1956 (now section 24 Property Law Act 2007)"requires the contract to have been carried into effect at least in part by the party seeking to enforce it in such a way that it is unconscionable for the other party to rely on the Act".[21] Tipping J concluded his discussion on part performance in T A Dellaca Ltd as follows:"Against the background of the authorities and learned writings which I have traversed and for the reasons given I am of the view that in a part performance case the Court must consider 3 points which I would frame as follows: (1) Was there a sufficient oral agreement such as would have been enforceable but for the Act? (2) Has there been part performance of that oral agreement by the doing of something which: (a) Clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; (b) When viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and such as that alleged was in existence. (3) Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?".[22] As indicated previously, I am satisfied that there was a sufficient oral agreement which would have been enforceable but for the Act.[23] I agree with counsel for the applicant that the survey and preparation of the easement documents amounted to a step in the performance of the contractual obligation incurred by the applicant pursuant to the contract and that this was done on the footing that a contract relating to the land was in existence. [24] In considering whether in the circumstances in which part performance took place, it might be unconscionable for the applicant to rely on the Act, the respondent relies upon the suggestion that the deceased did not have the requisite mental capacity to enter into legal relations and the absence of legal advice. I have already commented on this at paragraph [18]. The absence of legal advice at the time of entering into the oral agreement may well be important: but its importance is directly related to the mental capacity of the deceased about which the Court has insufficient evidence. The topic merges with the overall residual discretion vested in the Court. [25] Not only does the respondent allege the mental incapacity of the deceased, but he also says that this is supported by a gross inequality of consideration. He referred to valuation evidence indicating that the presence of the right of way added an extra $120,000 to the value of 211 Ponsonby Road. He noted that no monetary compensation was offered by the applicant to the deceased so that the net result was that the applicant was to obtain a windfall and the respondent would simply bear the burden of the proposed easement. [26] The problem with this argument is that there is insufficient evidence to support it. If the value of 211 Ponsonby Road was to be enhanced in the sum of $120,000 by the creation of the easement then prima facie the value of 213 Ponsonby Road would have been likewise enhanced. There is no evidence either way. Plainly, the Court would need evidence as to how the right of way easement was to either benefit or detrimentally affect 213 Ponsonby Road before reaching any conclusion on a possible inadequacy of consideration. [27] In short, the argument advanced by the respondent falls short on the evidence. The valuation evidence is incomplete. The medical evidence is inadequate. The absence of legal advice, whilst important, is not on its own sufficient. Accordingly, proof of "gross inequality of consideration coupled with theweakness and ignorance of the defendant" (Nicholls v Jessup (No 2) [1986] 1 NZLR 237 at page 239) or a "marked imbalance of benefits" (Nicholls v Jessup [1986] 1 NZLR 266 at page 5) is lacking.Conclusion[28] I am satisfied that the applicant has shown that there is a reasonably arguable case that it has a caveatable interest in the property. Accordingly the application for an order that the caveat not lapse is granted. [29] During the hearing there was no discussion as to costs. Subject to any further submissions I consider that costs should follow the event and be calculated in accordance with category 2B. Thus, subject to memoranda being filed within 14 days of the date of this judgment, there is an order accordingly. _____________________ Associate Judge J D Hole