Botany Land Development Ltd v Auckland Council & Margaret Ellen Pallister, Wendy June Pallister and Jillian Mary Menzies

• Jurisdiction: New Zealand
• Judge: Stevens
• Judgment Date: 13 March 2014
• Neutral Citation: [2014] NZCA 61
• Docket Number: CA732/2013
• Court: Court of Appeal
• Date: 13 March 2014

Between

Botany Land Development Limited

Appellant

and

Auckland Council

First Respondent

Margaret Ellen Pallister, Wendy June Pallister And Jillian Mary Menzies

Second Respondents

[2014] NZCA 61

Court:

O'Regan P, Stevens and Asher JJ

CA732/2013

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision which granted the respondent council's application to sustain a caveat — dispute concerned the proposed sale of coastal land near Maraetai — second respondents were the owners and entered into sale agreement with the appellant council which contended that the second respondents were obliged to offer to sell it the land by virtue of a covenant in gross which stated that if the land and dwellings were no longer occupied they were to be offered for sale to the council — encumbrance also contained a rent charge payable to the council — council had started specific performance proceedings to enforce the agreement — council wished to create a reserve — whether the council had a reasonably arguable case for a caveatable interest in the land — whether the existing registered interest under the encumbrance meant that it was not entitled to lodge the caveat under s137 LTA (caveat against dealings with land).

Counsel:

N R Campbell QC and R D Butler for Appellant

B J Upton and T K Cunningham-Adams for First Respondent

No appearance for Second Respondents

JUDGMENT OF THE COURT

• A The appeal is dismissed.

• B The appellant must pay the first respondent costs for a standard appeal on a band A basis and usual disbursements.

REASONS OF THE COURT

(Given by Stevens J)

A caveat to protect the Council's interest

1 This appeal concerns the proposed sale of a 1.9 hectare parcel of land at Umupuia Beach near Maraetai. The land has been owned by members of the Duder family for more than 150 years. It is currently owned by the trustees of the Margaret E Pallister Family Trust (the trustees). Mrs Pallister is a member of the Duder family and is one of the trustees.

2 On 5 November 2012 the trustees entered into a conditional agreement, which later became unconditional, to sell the land to the appellant, Botany Land Development Ltd (Botany Land). Completion of the sale, due to settle on the 24 June 2013, cannot proceed because the Auckland Council (the Council) has lodged a caveat against the title to the land.

3 The Council filed a proceeding in the High Court seeking to sustain the caveat, contending that the trustees are obliged to offer to sell the land to the Council by virtue of a covenant in gross, contained in a memorandum of encumbrance registered against the title in February 1988. The Council says it has a contractual right to receive that offer and argues that it is entitled to protect its interest in the land pursuant to that covenant by a caveat. Botany Land and the trustees argue that the caveat should be removed so that the agreement for sale and purchase might be completed.

4 In the High Court, Lang J granted the Council's application for an order that the caveat be sustained. 1 The order was made conditional upon the Council issuing a proceeding seeking specific performance of the relevant obligations secured by the covenants in the encumbrance. 2 We were told that such proceeding has been issued and is awaiting a hearing.

5 Botany Land appeals against the High Court decision of Lang J.

6 There are two issues to be determined:

• (a) Whether the Council has a reasonably arguable case for a caveatable interest in the land; and

• (b) Whether the Council's existing registered interest under the encumbrance means that it was not entitled to lodge the caveat.

Some further background

7 The land now owned by the trustees was once part of a larger block, in excess of 3.46 hectares, owned as tenants in common by Mrs Pallister and her brother John Duder. The title to this land was divided between the two siblings in November 1987 and it was at that time that both Mrs Pallister and her brother gave an encumbrance in favour of the Council. 3

The encumbrance is created

8 The division of the land resulted in John Duder owning the beachfront land at 200 Maraetai Road, Mrs Pallister owning beachfront land at 184 Maraetai Road and the two siblings owning a half share each of adjacent land (at 185V) running in front of both 184 and 200. An encumbrance in similar terms was entered into in respect of each of the three properties.

9 The encumbrance was registered against the title to the land in question on 18 February 1988. The circumstances which led to the creation of the encumbrance are expressly described in the Third Schedule of the encumbrance as follows:

THE THIRD SCHEDULE (the Circumstances)

Application has been made to the Council for consent to the subdivision of the land for the occupation of the Encumbrancer, their spouses, children and mother only, and in support of such application the Encumbrancer has offered to enter into this Memorandum and the covenants of the Fourth Schedule which are desirable having regard to the Designation of the land in the Council's district scheme as a proposed reserve.

10 The parties to the memorandum of encumbrance were the Council and “encumbrancer”. This latter entity was described as follows:

Encumbrancer: JOHN DUDER of Dargaville, Farmer and MARGARET ELLEN PALLISTER of Brookby, Married Woman as tenants in common in equal shares (in this Memorandum called “the Encumbrancer”)

11 The recitals and operative parts of the encumbrance are:

WHEREAS:

• (1) The Encumbrancer is registered as proprietor of an estate in fee simple in the land described in the Second Schedule.

• (2) The land is situate in the district of the Council.

• (3) As a result of the circumstances disclosed in the Third Schedule the Encumbrancer has agreed:–

  • (a) to grant and make the rent charge with the Council as set out, and subject to the conditions expressed, in the First Schedule; and

  • (b) to enter into the covenants in the Council's favour as set out in the Fourth Schedule.

  NOW THIS MEMORANDUM WITNESSES that the Encumbrancer ENCUMBERS the land for the benefit of the Council as set out in the First Schedule AND COVENANTS with the Council as set out in the Fourth Schedule.

  IN WITNESS WHEREOF this Memorandum has been executed this[30] day of [November] 1987.

  SIGNED by the said JOHN DUDER and MARGARET ELLEN PALLISTER

12 The covenants said to have been entered into “in the Council's favour” are set out in the Fourth Schedule:

THE FOURTH SCHEDULE (the Covenants)

• 1. THAT the land and the dwellings thereon shall be principally occupied and used as a residence only by the said JOHN DUDER and MARGARET ELLEN PALLISTER, their mother, their respective spouses and children (hereinafter called “the Family”).

• 2. UPON the land, or any part thereof for which there is, or may be a separate Certificate of Title, being no longer occupied as to the dwelling or dwellings thereon by a member or members of the family, then the land in that Certificate of Title shall forthwith be offered for sale to the Council by notice in writing setting out the price and terms of the offer. The offer shall be open for acceptance by the Council for not less than 90 days from the date of its receipt and in default of such acceptance the Encumbrancer may thereafter sell the land and dwellings to any other person or persons but only at the same price and on the same terms as it was offered to the Council. These provisions shall also apply to any revised or amended offer which the Encumbrancer may subsequently make to the Council.

• 3. THE said dwellings on the land shall not be in any way extended or materially altered or improved by the Encumbrancer provided that nothing herein shall prevent the carrying out of normal maintenance work or interior alterations to permit the continued enjoyment of the dwellings by the Encumbrancer.

  …

13 It is these provisions, together with the context applying in November 1988, that will inform the interpretation of the encumbrance. That task will arise in the determination of the specific performance proceeding begun by the Council in the High Court to enforce the encumbrance against the trustees. We do not need to express any view on the issues of interpretation involved.

14 The obligations of the encumbrancers in the Fourth Schedule are covenants in gross. They are owed to the Council and not to an owner of a dominant tenement. Covenants in gross cannot run with the land. 4 As Lang J correctly noted, “an instrument containing such obligations would not normally be registrable against the title to the land under the Land Transfer Act 1952.” 5 It was no doubt for this reason that the encumbrance also contained a rent charge of one dollar payable to the Council each year. The conditions relating to the rent charge are contained in the First Schedule and include the following:

• 3. The covenants of the Fourth Schedule shall be enforceable only against the owners and occupiers for the time being of the land and not otherwise against the Encumbrancer and his successors in title.

• 4. Section 104 of the Property Law Act 1952 applies to this Memorandum of Encumbrance but otherwise (and without prejudice to the Council's rights of action at common law as a rentchargee:–

  • (a) The Council shall be entitled to none of the powers and remedies given to Encumbrancees by the Land Transfer Act 1952 and the Property Law Act 1952; and

  • (b) No covenants on the part of the Encumbrancer and his successors in title are implied in this Memorandum other

    than the covenants for further assurance implied by Section 154 of the Land Transfer Act 1952.

15 The rentcharge meant that the encumbrance could be treated as a mortgage for the purposes of the Land Transfer Act 1952 and the Property Law Act 1952 (now 2007 Act). Thus the encumbrance could be registered against the title to the property and would bind successors...