SPARK NEW ZEALAND TRADING LTD v CLEARSPAN PROPERTY ASSETS LTD [2018] NZCA 248 [13 July 2018]

SPARK NEW ZEALAND TRADING LTD v CLEARSPAN PROPERTY ASSETS LTD [2018] NZCA 248[13 July 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA159/2017[2018] NZCA 248BETWEEN SPARK NEW ZEALAND TRADINGLIMITEDAppellantAND CLEARSPAN PROPERTY ASSETSLIMITEDRespondentHearing: 27 March 2018 (further submissions received 3 April 2018)Court: Kós P, Brown and Gilbert JJCounsel: M E Casey QC for AppellantD J Chisholm QC and J C Brabant for RespondentJudgment: 13 July 2018 at 11.30 amJUDGMENT OF THE COURTA The question of law on which leave was granted is answered as follows:Is the arrangement described at [5]–[8] of this judgment asubdivision for the purposes of s 218 of the Resource ManagementAct 1991?No.B The appeal is dismissed.C The appellant must pay the respondent costs for a complex appeal on a band Bbasis and usual disbursements. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] Telecommunication companies like the appellant, Spark, typically buildcellphone towers on other people's land. Rather than buy land, they lease part of thelandowner's fee simple estate. The respondent, Clearspan, has made a business oftaking over these leases by acquiring an undivided share of the fee simple as tenant incommon, its share being proportionate to the area the telecommunication companyleases of the whole fee simple. Clearspan and the landowner (now tenant in commonto Clearspan) enter into mutual covenants providing for exclusive use areas.Each agrees not to go onto the exclusive-use area of the other. Clearspan's exclusiveuse area is the land leased to the telecommunication company. By aggregatingnumerous sites upon which cell towers are constructed, Clearspan has superiorbargaining power as compared with individual, disparate sole owners of the land.Some telecommunication companies do not like this change.[2] Spark says such an arrangement is a "subdivision of land" for the purposes ofs 218 of the Resource Management Act 1991 (RMA). If the arrangement is asubdivision, the regulatory requirements of the RMA would apply.Clearspan disagrees. It says the arrangement is not a subdivision, but simply the saleof an undivided share of the fee simple of the whole allotment, beyond the scope ofs 218.[3] Spark applied to the Environment Court, successfully, for declarations that thearrangement was a subdivision.1 On appeal to the High Court, Palmer J disagreed andheld it was not a subdivision.2 Spark now appeals having been granted leave to doso.3 The sole issue we have to decide is whether the arrangement, described in moredetail immediately below, is "a subdivision of land" for the purposes of s 218 ofthe RMA.1 Spark New Zealand Trading Ltd v Clearspan Property Assets Ltd [2016] NZEnvC 115[Environment Court judgment]. Vodafone NZ Ltd applied alongside Spark, and Kordia Ltd alsojoined an appeal to the High Court. They are not parties to this appeal, however.2 Clearspan Property Assets Ltd v Spark New Zealand Trading Ltd [2017] NZHC 277, (2017) 19ELRNZ 682 [High Court judgment].3 Spark New Zealand Trading Ltd v Clearspan Property Assets Ltd [2017] NZCA 352.The arrangement[4] In November 1997, Telecom New Zealand Ltd, Spark's predecessor, enteredinto a lease of part of some commercial land in Mt Roskill owned by some peoplecalled the Goldwaters. The Goldwaters' land was 809 m2 in area. The lease was forjust 42.5 m2 of that area, involving part of the yard at the back of the property.The lease permitted Spark to install and access a cellphone antennae tower andassociated equipment.[5] In December 2008, the Goldwaters transferred an undivided 5.25 per centinterest in the fee simple to Clearspan.4 The result was to make Clearspan and theGoldwaters tenants in common of the land to the extent of their respective shares.It also resulted in the issue of two new certificates of title. One records Clearspan asregistered proprietor of a 5.25 per cent share of the fee simple estate in the land, withan encumbrance registered in favour of the Goldwaters. The other certificate of titlerecords the Goldwaters as registered proprietors as to a 94.75 per cent share of the feesimple estate, with an encumbrance registered in favour of Clearspan.[6] Each registered memorandum of encumbrance binds future owners. Clause 5of each identically provides:In the event the Encumbrancee transfers or alienates the land in theEncumbrancee's Certificate of Title the Encumbrancee will transfer thismemorandum of encumbrance to the same party who acquires an interest inthe Encumbrancee's Certificate of Title.[7] Each encumbrance incorporates a reciprocal deed of covenant in favour of theother tenant in common. In the covenant in favour of Clearspan, the Goldwaters agree: the Covenantor, its tenants, agents, licensees and invitees will not at anytime use, occupy, enter or remain upon the Exclusive Use Area to the intentthat the Covenantee will at all times be entitled to exclusive use, occupationand enjoyment of the Exclusive Use Area.4 42.5 m2 being 5.25 per cent of 809 m2: see [4] above.Clause 2.2 provides that Clearspan may grant rights over the exclusive use area.The Goldwaters have the same rights in respect of the balance of the land. As Palmer Jobserved:5Effectively, each agrees not to exercise their right of possession over theother's covenanted area.[8] The lease was not assigned, possibly because its fixed term had expired.Nonetheless Spark continues to use the land as informal tenant or licensee of, now,Clearspan. Precisely which is neither apparent on the record nor material.[9] For simplicity we call the combined transaction, described in [5]–[8] above as"the arrangement".Statutory scheme[10] The High Court judgment sets out the legislative history covering theregulation of subdivisions.6 It is unnecessary to repeat it here. Section 11(1) of theRMA prohibits a subdivision of land, within the meaning of s 218, unless it ispermitted by a plan or resource consent, or in certain other specified circumstances.It is common ground that none of those exceptions apply. If the arrangements here area subdivision, they will contravene the RMA.[11] Section 218 provides:218 Meaning of subdivision of land(1) In this Act, the term subdivision of land means—(a) the division of an allotment—(i) by an application to the Registrar-General of Land forthe issue of a separate certificate of title for any partof the allotment; or(ii) by the disposition by way of sale or offer for sale ofthe fee simple to part of the allotment; or5 High Court judgment, above n 2, at [7].6 At [10]–[12].(iii) by a lease of part of the allotment which, includingrenewals, is or could be for a term of more than35 years; or(iv) by the grant of a company lease or cross lease inrespect of any part of the allotment; or(v) by the deposit of a unit plan, or an application to theRegistrar-General of Land for the issue of a separatecertificate of title for any part of a unit on a unit plan;or(b) an application to the Registrar-General of Land for the issueof a separate certificate of title in circumstances where theissue of that certificate of title is prohibited by section 226,—and the term subdivide land has a corresponding meaning.(2) In this Act, the term allotment means—(a) any parcel of land under the Land Transfer Act 1952 that is acontinuous area and whose boundaries are shown separatelyon a survey plan, whether or not—(i) the subdivision shown on the survey plan has beenallowed, or subdivision approval has been granted,under another Act; or(ii) a subdivision consent for the subdivision shown onthe survey plan has been granted under this Act; or(b) any parcel of land or building or part of a building that isshown or identified separately—(i) on a survey plan; or(ii) on a licence within the meaning of Part 7A of theLand Transfer Act 1952; or(c) any unit on a unit plan; or(d) any parcel of land not subject to the Land Transfer Act 1952.(Emphasis added.)[12] In Waitakere City Council v Kitewaho Bush Reserve Co Ltd, a High Courtdecision, Randerson J noted that the subdivision of land "is not merely an exercise ofdrawing lines on a plan but has ramifications for the environment which are properlyto be considered under district plans and decisions made under the RMA".7Subdivisions have physical effects, including more intensive use of land than7 Waitakere City Council v Kitewaho Bush Reserve Co Ltd [2005] 1 NZLR 208 (HC) at [102].previously. They can impact on infrastructure services and might also create relevantprecedent effects.8[13] In Horokiwi Holdings Ltd v Registrar-General of Land, this Court noted thats 11 is "quite specific" in its exclusion of transactions from RMA controls oversubdivisions.9 In that case the particular transaction did not fall within the s 11(1)exception. This Court emphasised there the need to "focus on the words used in theRMA and the statutory purpose".10 And, in Mawhinney v Waitakere City Council weobserved that "subdivision is not a purely technical matter and the Council isentitled to consider an application [for subdivision consent] in light of the impact thesubdivision will have on the management of associated resources".11Judgments belowEnvironment Court[14] The Environment Court decision, delivered by Judges B P Dwyer andJ A Smith, focused on s 218(1)(a)(ii).12 It addressed the question whether a divisionof an allotment had occurred as a result of: (a) disposition; (b) by way of sale; and (c)for the fee simple to part of the allotment. The Environment Court was satisfied that(a) and (b) were met. The real issue was as to (c). The arrangement involved morethan a disposition of "simply an inchoate share as tenants in common in the feesimple".13 The Court said the question was whether, on a proper construction of theentire arrangement, a disposition of rights sufficient to see the sale of a fee simple topart of that allotment had occurred in terms of s 218(1)(a)(ii) of the Act.14 It concludedthat, in combination, the clear intent and effect of the arrangement was to achieve asubdivision under s 218(1)(a)(ii). It concluded:158 At [99].9 Horokiwi Holdings Ltd v Registrar-General of Land [2008] NZCA 233, [2009] NZRMA 40at [29].10 At [37].11 Mawhinney v Waitakere City Council [2009] NZCA 335 at [27].12 Environment Court judgment, above n 1, at [16]–[17]. The Court considered s 218(1)(a)(iii) wasinapplicable: at [49]–[51]. We reconsider that question below, at [29]–[30].13 At [22].14 At [25].15 At [43].the agreements have derogated from the unity of possession fundamental to atenancy in common, and led not only to a partition of the land and creation ofa new allotment under the RMA, but a disposition by offer of sale of part ofthe fee simple.High Court[15] Palmer J concluded the disposition by sale was not of "the fee simple to partof the allotment" in terms of s 218(1)(a)(ii). The concept of fee simple is "the largestestate known to the law", carrying exclusive right to possess, use, enjoy and alienatethe land.16 A tenancy in common, however, provides "unity of possession", that is, theequal right to occupy, use and enjoy the land.17 The arrangement here involvesco-ownership of the fee simple of the whole, and not "part of", the allotment.18[16] Clearspan and the original land owners negotiated a further set of contractualarrangements replicating most of the characteristics as if each held a fee simple estatein part of the land, but not all.19 Fundamental conceptual differences lie between anestate in land compared with an interest in land supplemented by personal contractualarrangements. An encumbrance is a statutory mortgage only and does not create ortransfer an estate in land.20 The personal contractual arrangements embodied in theencumbrances did not destroy the tenancy in common despite it creating a heavycontradictory overlay.21 While the arrangement is an "artificial contrivance" designedto avoid regulatory requirements, it was not a subdivision.22[17] "Subdivision" is defined exclusively to "mean", rather than "include", sixspecified means of subdivision in s 218(1)(a) and (b).23 Parliament could have madethat list non-exhaustive, but it had not. Instead, the definition provides relativecertainty by reference to certain specific means of subdivision using different legaltechniques in relation to "part of the allotment".24 Parliament did not intend16 High Court judgment, above n 2, at [48] citing G W Hinde and others Principles of Real PropertyLaw (2nd ed, LexisNexis, Wellington, 2014) at [3.004(a)].17 At [48].18 At [48].19 At [50].20 At [50].21 At [50].22 At [52].23 At [56].24 At [57].arrangements outside those specified meanings to fall within the meaning of"subdivision".25[18] The arrangement therefore did not fall within the meaning of "subdivision" ins 218. Nor did it alter the use of land or result in the intensification of land use thataccompanies residential subdivision, the wider concerns of the RMA to protect orpreserve land not applying here.26Submissions[19] We summarise here only the essential points counsel advanced. For Spark,Mr Casey QC submits the arrangement constitutes a subdivision because the sale is ofthe fee simple. The fee simple rights and interests in distinct and defined portions ofthe land were divided by way of deeds of covenant. The intention and effect of thosecovenants was to divide the fee simple rights in the allotment between co-owners asto each of the delineated parts. Further, what was sold was "part of the allotment".While the sale of a fee simple interest as tenant in common does not constitute asubdivision, the arrangement here went further and provides reciprocal covenantsrelating to specific parts of the land registered on the title using encumbranceinstruments. The intention of the arrangement was plain: the tenants in commonintended that all the incidents of exclusive ownership and possession of the respectiveexclusive use areas should remain vested in perpetuity in each of them respectively tothe exclusion of the other. The covenants destroyed the unity of possession andcompletely divided the rights in the land. They conferred on each of the owners allthe incidents of fee simple ownership of their exclusive use areas. There was no rightfor either owner to do anything in relation to the other's exclusive use area.The exclusive use provision is absolute. The right otherwise available to one tenantin common to grant rights over the whole land is abrogated.[20] For Clearspan, Mr Chisholm QC submits that the arrangement involves thesale of an undivided share of the fee simple to the whole of the allotment, coupled withpersonal covenants. That constitutes neither a "division" of an allotment nor a transfer25 At [58].26 At [56].of anything resembling the "fee simple" to part of that allotment. We will refer toMr Chisholm's arguments in more detail in our reasoning below.Analysis[21] We consider the arrangement involves the sale of an undivided share in the feesimple of the whole allotment, coupled with personal covenants. But we consider thatit cannot be described as a "subdivision of land" for the purposes of s 218, because thesale was not "of the fee simple to part of the land". We can be relatively brief inexplaining that conclusion. We make four points.[22] First, we start with the approach required to statutory construction in thisappeal. Palmer J referred to the Supreme Court decision in Commerce Commission vFonterra Cooperative Group Ltd that "[e]ven if the meaning of the text may appear plainin isolation of purpose that meaning should always be cross checked against purpose inorder to observe the dual requirements of s 5 [of the Interpretation Act 1999]".27 As theJudge noted, the potential effects of inappropriate subdivision of land provide apotential reason for Parliament to provide an expansive definition of "subdivision" inthe RMA.28 Mr Casey submitted the Judge unduly played down the importance of apurposive approach. We do not agree with that stricture. The starting point is the textof the statute. As the passage just cited from Fonterra makes plain, purpose is anecessary cross-check. In that respect the text here is relatively crystalline, or "tight"as Palmer J put it.29 Parliament has chosen transactional language in s 218(1) thatcontains precise metes and bounds. Not every "division of an allotment", or interestcreated in land, qualifies. Only certain specific forms of lease qualify under s218(1)(a)(iii) and (iv). A lease by the Goldwaters to Spark for 30 years, for instance,would not be qualify as a subdivision. Only transactions involving a distinct certificateof title or a unit plan (or an application therefor) under ss 218(1)(a)(i), (v) and 218(b).And, in s 218(1)(a)(ii), only a disposition by sale "of the fee simple to part of theallotment" qualifies. On its face those words require more than the mere creation ofan interest in that allotment.27 Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR767 at [22].28 High Court judgment, above n 2, at [54].29 At [56].[23] Secondly, we agree with Palmer J's observation that it would have been astraightforward task for Parliament to have included a non-exhaustive verb such as"includes" rather than "means", an anti-avoidance clause, an inclusive clauseembracing "any other arrangement with similar substance and effect", or a deemingprovision. As he said, it did none of these things.30 The primary inference to be drawnis that it did so deliberately. And, that in doing so, Parliament would have recognised:that (a) a significant number of transactions creating an interest in land would not fallwithin its definition; and (b) persons dealing in land might structure their affairs toavoid falling within the definition. In not adopting any of the precautionary draftingmeasures discussed, Parliament must be taken to have been content with that prospect.[24] Thirdly, it is reasonably clear to us why Parliament chose a precisetransactional definition in s 218(1). It was not seeking to capture each and any interestcreated in land, but only those transactions with material environmental implications.As Randerson J observed in Kitewaho, subdivisions have physical effects, includingmore intensive use of land and communal infrastructure services, and precedenteffects.31 It is these matters, in particular the intensity and scale of use of land, thatthe RMA regulation of subdivisions is concerned with and which s 218 focuses upon.It does so by regulating certain land transactions; those that carry the greater risk ofintensifying the use of land and services, and of impairing amenities.Typically, district plans establish land use controls governing minimum lot sizes andthe density of occupation thereof. The concern of s 218 is not therefore with landtransactions unlikely to intensify development, and thereby neither increase thedensity of occupation nor impact adversely on infrastructure and other amenities.The reasonably short-term lease originally entered by Spark was not s 218's concern,because it did not affect these considerations. Nor, it might be thought, would atransaction not materially different in its environmental implications from that lease.Neither that lease nor the arrangement between the Goldwaters and Clearspan wouldin practice facilitate intensified development.[25] Fourthly, we turn then to the application of the plain meaning of s 218(1)(a)(ii)to this arrangement. The issue here is the legal effect of the arrangement entered.30 At [56].31 Waitakere City Council v Kitewaho Bush Reserve Co Ltd, above n 7, at [99].If we have a criticism of the analysis in the Environment Court, and of Mr Casey'sargument, it is that they focused unduly upon perceived purpose (being to avoid theapplication of s 218) rather than the legal effect of the arrangement.[26] It is common ground that the transfer of an undivided interest in the land(thereby producing a tenancy in common) does not involve disposing of the fee simpleto part of the land. Here there was no sale or offer of sale of "the fee simple [estate]to part of the allotment". Rather, the arrangement involved the sale of an undividedshare of the fee simple to the whole of the allotment, coupled with lawfulencumbrances and personal covenants. Nor does the latent right then to apply fordivision of the land as between the tenants in common, under ss 339–343 of theProperty Law Act 2007, affect the common ownership status of the land.[27] The application of s 218 to the arrangement can therefore arise only, if at all,as a result of the encumbrances and personal covenants. Spark submits those"in effect" or "in substance" dispose of the fee simple to a portion of the allotment.We do not agree. It is common ground that the encumbrances continue in effect untildischarged but create no estate or interest in land. They are a form of statutorymortgage (charge) on the land only.32 We accept Mr Chisholm's submission that thecovenants associated with the encumbrance are personal in nature, do not run with theland and are vulnerable to discharge or deregistration in the usual way of suchcharges.33 Exclusive use covenants, involving a conditional waiver of part of a tenantin common's rights of possession, are a now familiar conveyancing device. They werediscussed by the High Court in 2001 in Keir v Law.34 That decision held that sucharrangements neither effect a division of the land nor destroy the inherent unity ofpossession of the owners in common.35 Rather the covenants reinforce that unitybecause their effectiveness depends on the common consent of the landowners.36Regardless of the covenants, each remains owner of the entire undivided fee simple,in proportion to their share. As Mr Chisholm submitted, both remain jointly andseverally liable to third parties in respect of the whole fee simple for local body rates,32 Land Transfer Act 1952 , ss 2 and 100 (applicable here); and Property Law Act 2007, s 79.33 Land Transfer Act, ss 97(3); and Property Law Act, s 203.34 Keir v Law (2001) 4 NZ ConvC 193,306.35 At [18].36 Nyberg v Handelaar [1892] 2 QB 202 (CA) at 205.land taxes, common law nuisance, Rylands v Fletcher liability, and RMA andBuilding Act 2004 liabilities.37Conclusion[28] For these four reasons we conclude that the arrangement is not a "subdivisionof land" for the purposes of s 218, because the sale was not "of the fee simple to partof the allotment".A supplementary point[29] In the course of argument we raised the possibility that the arrangement mightinstead be a lease within the scope of s 218(1)(a)(iii) of the RMA. An argument alongthose lines had been advanced by Spark in the Environment Court. That Court heldthe arrangement was not a lease.38 The argument was not advanced in the High Courtor before us. We invited counsel to consider the point further and file writtensubmissions, which we duly received. Neither party seeks to take that point further.In any event, it is now clear to us that even if the arrangement were a lease the effectof ss 210 and 212 of the Property Law Act would take it outside s 218(1)(a)(iii) ofthe RMA.[30] We need deal with this point no further.Result[31] The question of law on which leave was granted is answered no.[32] The appeal is dismissed.[33] Counsel were agreed that costs for a complex appeal were appropriate,whatever the outcome, that being the position taken below. But for that we wouldhave awarded costs for a standard appeal on a band A basis. The appellant must pay37 The covenants acknowledge continuing joint rating liability38 Environment Court judgment, above n 1, at [49]–[51].the respondent costs for a complex appeal on a band B basis and usual disbursements.We certify for second counsel.Solicitors:MinterEllisonRuddWatts, Auckland for AppellantBrown Partners, Auckland for Respondent