Body Corporate 341188 v District Court At Auckland

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeCourtney
Judgment Date26 August 2015
Neutral Citation[2015] NZCA 393
Date26 August 2015
Docket NumberCA185/2014

[2015] NZCA 393

IN THE COURT OF APPEAL OF NEW ZEALAND

court:

Ellen France P, Courtney and KÓs JJ

CA185/2014

Between
Body Corporate 341188
First Appellant
George Victor Wilkinson And Jeremy K Collinge And Others
Second - Eleventh Appellants
and
District Court At Auckland
First Respondent
Escrow Holdings Forty-One Limited
Second Respondent
Kallina Limited
Third Respondent
Auckland Council
Fourth Respondent
Chang Tjun Chong & Others
Fifth - Thirtieth Respondents
Counsel:

G J Kohler QC and T M Bates for First to Eleventh Appellants T J Herbert for Second and Third Respondents

Appeal against a decision of the High Court (HC) which held that the appellant did not have the right to use a car park located on an adjoining site — a land covenant noted on the titles of both sites required the appellant to pay for the upkeep of the car park — the covenant also precluded the owners of the car park from allowing anyone other than the body corporate unit owners and one other building to use it — the Memorandum of Encumbrance was executed in favour of the Council in consideration for the Council's consent to the subdivision — the car park was owned as to one half by each of the adjoining sites — the body corporate's title was uncoupled from the title to the half share in the car park and the respondents argued that the body corporate had lost the right to use the carpark — said that the covenant did not confer a positive benefit on the owners — the HC reversed the de-amalgamation but found that the land covenant did not create any positive rights of access or use, but equally the owners of the carpark could not permit anyone else to park there — whether the covenant could be read as conferring a positive right on the body corporate to use the carpark.

The issues were: whether the covenant could be read as conferring a positive right on the owners of Lot 2 to use Lot 4 as a carpark.

Held: A literal reading of the covenant would produce an absurd result, namely that the unit owners had to pay the costs associated with the car park without having any right to park there, while the owners of Lot 4 were prevented from allowing anyone other than the owners of Lots 2 and 3 to use the car park.

The interpretation of easements and covenants affecting land used the same objective, purposive approach taken for other commercial contracts of identifying the parties' intentions by discerning the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

In this case, there was a relevant statutory context for interpretation. It was apparent from the wording of the Memorandum of Encumbrance that the two instruments were to be considered in conjunction and against the relevant provisions of the Land Transfer Act 1952 (LTA) and Property Law Act 2007 (PLA). The Memorandum of Encumbrance, which imposed a rent charge over Lot 4, was obviously drafted in accordance with form D in sch 2 of the LTA then in force. The Memorandum of Encumbrance and the Deed of Covenant were intertwined, with the Deed of Covenant clearly entered into as a means of ensuring compliance with the Memorandum of Encumbrance.

Historically, covenants in respect of land were binding on the parties to them but not necessarily on their successors in title. Before 1 January 1987 there was no satisfactory way of making the burden of a positive covenant run with the land. Section 303 PLA (legal effect of covenants running with land) provided that in certain circumstances the burden of positive covenants entered into after 1 January 1987 could be enforced against successors in title. However, covenants in gross (personal covenants binding only the particular land owner and not attaching to the land itself) were not enforceable at all against successors in title. One method of overcoming the barrier to enforcement of such covenants was the use of an encumbrance instrument, which is provided for in the LTA.23

The enforceability of positive covenants in gross remained less certain than that of negative covenants in gross. Whether a covenant was negative or positive depended on the substance, not merely the form, of the promise.

The covenant was to be interpreted in the context of the original joint ownership of Lot 4 by the respective owners of Lots 2 and 3. That factual situation, evident from the titles, was important. It was only when the title to Lot 2 was uncoupled from the one half share in Lot 4 that it became apparent that the owners of Lots 2 and 3 might have needed (and did not have) a legal right to access Lot 4.

It was clear from the face of that instrument that the Council required the covenant as a condition of the subdivision. There was no basis on which to infer that the Council had any interest in how the owners of Lots 2 and 3 regulated their relationship. It was, however, reasonable to infer that, in approving the subdivision of an inner-city site, the Council had an interest in ensuring that there would be adequate car parking for the development. A covenant in gross secured by a memorandum of encumbrance was the recognised method for achieving such an objective.

It was common ground that cl 3, under which the owners of Lot 4 agreed not to allow any person other than the owners of Lots 2 and 3 to use the car park, was couched in negative language. However, the substance of the covenant was a positive one, notwithstanding the negative wording. While the literal meaning of the language used in cl 3 was negative, the natural and ordinary meaning of it was positive. In ordinary language, to say that “no one other than X may use the car park” would always be understood as meaning that “only X may use the car park”. Excluding all but one identified person from using the car park was simply another way of saying that the identified person could use it.

Clause 3 was not to be read in isolation from the other covenants made by the Lot 4 owners, particularly the various positive obligations imposed on them to meet substantial costs in connection with maintaining the car park and to repair damage to it. While the owners of Lot 2 were liable to pay their respective share of the costs of maintaining and operating the car park, the owners of Lot 4 had to undertake the necessary work to keep the car park in good repair and condition (cl 5), pursue the recovery of repair costs against third parties unlawfully using and damaging the car park (cl 7), and make good any damage or destruction from “fire earthquake or from any cause whatsoever” with the cost of doing so “borne by the registered proprietor(s) from time to time of Lot 4”.

Whether the covenant required the covenantor to incur expenditure had been regarded as a relevant consideration in determining whether the covenant was, in substance, positive or negative. If expenditure was required that fact told in favour of the covenant being a positive one.

The Deed had no commercial purpose unless the covenants as a whole were interpreted as imposing positive obligations there was no commercial purpose in the owners of Lot 4 incurring obligations to keep the building in good repair and make good damage to it if they did not have to allow it to be used. There was no commercial purpose in the owners of Lots 2 and 3 agreeing to meet the costs associated with the car park if they did not receive any rights to use it. The only way these covenants could have any commercial meaning would be if the owners of Lots 2 and 3 actually got what they were paying for — access to and use of the car park.

Although the Memorandum of Encumbrance did not purport to confer any positive rights on the owners of Lots 2 and 3, it clearly contemplated that such rights would be conferred. The only conceivable benefit that could have been conferred was the right to use the car park on Lot 4. If the owners of Lot 4 were to refuse the owners of Lots 2 and 3 the right to use the car park there would be no benefit conferred, only a burden. If that were to happen the owners of Lot 4 would be in breach of the covenant contained in the Memorandum of Encumbrance.

The purpose of the covenant was to confer on the owners of Lots 2 and 3 the right to use Lot 4 for parking and, when read in its entirety in light of that purpose, the substance of the promises made in the covenant was to confer the right on the owners of Lots 2 and 3 to use the car park on Lot 4. It was implicit that this right carried with it the right to use the access-ways in and out of the car park.

The appeal was allowed. The HC judgment was set aside. Declaration given that the Covenant conferred on the registered proprietors of Lot 2 the exclusive right to use the area for the purpose of car parking.

JUDGMENT OF THE COURT
  • A The appeal is allowed.

  • B The judgment of the High Court is set aside.

  • C There are declarations in the terms set out at [53].

  • D The second and third respondents must pay the appellants one set of costs for a standard appeal on a band A basis and usual disbursements.

  • E Costs in the High Court are to be reconsidered by that Court in light of this judgment.

REASONS OF THE COURT

(Given by Courtney J)

Introduction
1

Ten unit owners of an apartment block claim the right to use a car park located on an adjoining site. A land covenant noted on the titles of both sites requires the owners of the apartment block to pay for the upkeep of the car park. The covenant also precludes the owners of the car park from allowing anyone other than the owners of the apartment block and one other building to use it. Nevertheless, the owners of the car park maintain that the unit owners have no right to use the car park.

2

The Body Corporate of the apartment block and the unit owners 1 applied for declaratory relief regarding their rights and obligations. In the High...

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2 cases
  • Escrow Holdings Forty-One Ltd v District Court At Auckland
    • New Zealand
    • Supreme Court
    • 20 December 2016
    ...Auckland City Council, which was the relevant local authority prior to the formation of the Auckland Council. 2 Body Corporate 341188 v District Court at Auckland [2014] NZHC 442 [Body Corporate 341188 (HC)] 3 Body Corporate 341188 v District Court at Auckland [2015] NZCA 393, (2015) 1......
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    ...with considering the terms of the right of way easement itself and the purpose for which it was granted. As was said in Body Corporate 34118 v District Court at Auckland: 12 [18] In New Zealand the interpretation of easements and covenants affecting land has been undertaken by the same obje......

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