Johns and Johns v Wu and Cheng

• Jurisdiction: New Zealand
• Judge: Nicholas Davidson J
• Judgment Date: 17 January 2019
• Neutral Citation: [2019] NZHC 12
• Docket Number: CIV-2017-404-001781
• Court: High Court
• Date: 17 January 2019

Between

Leslie Roy Johns and Leonie Mary Johns

Plaintiffs

and

Yun Feng Wu and Xiao Wei Cheng

First Defendants

Auckland Council

Second Defendant

[2019] NZHC 12

CIV-2017-404-001781

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Judicial Review, Property — enforcement of covenant concerning design and quality of building in residential subdivision — building cost based on discontinued Index

Appearances:

G J Round for Plaintiffs

E St John for First Defendant

S F Quinn for Second Defendant

JUDGMENT OF Nicholas Davidson J

INDEX

	Para No
A. INTRODUCTION	[1]
Background	[1]
Litigation history and pleading	[9]
B. THE COVENANT	[14]
History	[14]
C. OVERVIEW OF EVIDENCE	[25]
The ‘Modal’ house and The Index	[37]
Inspection	[45]
A perspective	[46]
D. ISSUES RELEVANT TO INTERPRETATION AND ENFORCEABILITY OF THE COVENANT	[49]
The ‘costs’ or ‘value’ calculation under the covenant	[49]
What ‘build costs’ are relevant to the operation of the covenant?	[50]
The architectural and retrospective minimum build costs certification	[55]
Does the covenant apply to “secondary” dwellings?	[56]
E. IS THE COVENANT ENFORCEABLE IN WHOLE OR IN PART?	[65]
The competing positions	[65]
Interpretation / a replacement mechanism for the Index?	[67]
Rectification / Implication	[80]
Discussion	[86]
Bonnar	[99]
Conclusion as to a substitute mechanism — and compliance of this dwelling under such	[101]
An imperfect analogy to the Index	[104]
F. OBSERVATIONS	[112]
Is the Council's decision to approve or not approve subject to judicial review, and if so, by whom?	[113]
Does the Council owe a duty of care to neighbours, and if so, to whom?	[125]
Is the Council liable to the plaintiffs in negligence?	[126]
What loss have the plaintiffs suffered	[127]
G. SUMMARY OF JUDGMENT	[128]
Covenant	[132]
Concluding Comments	[136]
H. DISPOSITION	[138]

A. INTRODUCTION

Background

1 The attempt to control the appearance and “value” of residential dwellings to maintain economic and aesthetic qualities of a neighbourhood has taken different forms over the years. Mechanisms can be found in District Plans (formerly Schemes), conditions of resource consents and instruments registered on land titles. This judgment concerns one such attempt more than 25 years ago by the registration of a (restrictive) covenant on certificates of title (identifiers), in what is now an attractive residential subdivision in Manurewa, Auckland.

2 The covenant was registered pursuant to a memorandum of transfer dated 30 May 1990 when bare land in Auckland was sold by the then Manukau City Council for residential development. One Lot, to which the covenant applies, is now owned by the first defendants, Yun Feng Wu and Xiao Wei Cheng (“ Mr Wu” and “ Ms Cheng”). The covenant is discussed further in this judgment, but focus falls on sub-clauses which purport to impose a minimum ‘cost’ of construction, to impose a check on the design of a “residential building”, and to prohibit the use of specified construction materials.

3 The factual setting is a small residential building of 60 m ², referred to as a ‘dwelling’ for this judgment, erected at the rear of a property at Peretao Rise, in ‘The Gardens’, in 2017. It is the second dwelling on the Lot as the principal dwelling was built some years ago. As such it will be described as the ‘secondary’ or ‘minor’ dwelling.

4 The plaintiffs, Mr and Mrs Johns, with the support of some others in the neighbourhood, say this dwelling has been built in breach of the covenant registered on the title to Mr Wu's and Ms Cheng's property in favour of their property and others nearby. It was entered between Manukau City Council as transferor and Fletcher Building Limited (“ Fletcher”) as transferee in 1990, when Fletcher bought residential land on which to build.

5 The covenant applies to four Lots, and is clearly intended to maintain a “certain standard” of a new dwelling. In doing so, it set a base figure of $85,000.00 for the costs of construction of such building in 1985, adjusted by the annual movement of the New Zealand Institute of Valuers' Modal Housing Cost Index (“ the Index” or “ the Modal Housing Index”). The difficulty is that the Index was discontinued in the late 1980s or 1990, perhaps even before the covenant was registered, but more or less contemporaneously. The covenant was intended to work in practice by application for ‘approval’ when building consent was sought from the Auckland Council (“ the Council”), based on compliance with the covenant. The Council's ‘approval’ is expressly not given or refused as a local authority under its statutory or regulatory powers, but as successor to the Manukau City Council, the original transferor. However the plaintiffs say it nevertheless performs a local government role when it considers approval under the covenant, relevant to the case for judicial review of the Council's decision to approve this dwelling.

6 Mr and Mrs Johns say the dwelling has been built in breach of the covenant, as they say it cost less to build than the Covenant requires as a minimum. They want the Court to order its removal. They claim against the Council for giving approval, they say wrongly. Mr Wu and Ms Cheng do not understand the degree of opposition they have faced, and the threat to the dwelling which was built as a “granny flat”. They regard it as a “well built and beautifully presented building”. When they began building they did not understand or even know about the covenant, and nor did their advisers. They have a young family. Mr Wu explained that the dwelling was designed and constructed with professional advice and they thought that they had a lawful building consent in all respects.

7 Historically, the Council has only had to consider approval under the covenant on a very limited basis. It wants to know whether today it remains enforceable in whole or in part, and if so what is required to satisfy the covenant, and how the Council should undertake the ‘approval’ exercise. The Council does not enter the debate about whether the covenant is enforceable, but says if it is, then it has done everything that can be expected of it. Mr Wu and Ms Cheng say the covenant is unenforceable, at least as to the minimum ‘build cost’ of a dwelling, but if it is enforceable, they say that on any reasonable re-wording of the covenant by the Court as to the measure of minimum ‘build costs’, the dwelling is compliant, or so nearly so that on all these bases no relief should be ordered by the Court.

8 There is no doubt that Mr Wu and Ms Cheng have been through the mill, as there has been vigorous and at times hostile opposition to their construction of the dwelling. The build slowed right down and it was abundantly clear when Mr Wu gave evidence that he and Ms Cheng have been under a good deal of personal pressure. This was not helped by the actions of some of their opposition, including the involvement of a Mr Slavich under the pseudonym of “John Watson”, who maintained a vigorous and at times hostile correspondence critical of them, the Council, a quantity surveyor, and an architect asked by the Council to consider the design of the dwelling. Mr and Mrs Johns seek to distance themselves from his conduct and I find that they should not be regarded as the authors of that hostility, which went beyond reasoned opposition. Even so, this young couple faced public condemnation for building this dwelling, by signage and other communications. I find that Mr Wu and Ms Cheng acted with integrity at all times. There is not the slightest indication that they sought in any way to take wrongful advantage by not at first seeking approval of the Council to construction of the dwelling under the covenant, and then in the way they did so. Historically, the covenant has very seldom come before the Council and it may not have been understood by trade and professional advisers as operative given that.

Litigation history and pleading

9 The plaintiffs sought an injunction for non-compliance with the covenant. Mr Wu and Ms Cheng eventually sought an unconditional approval from the Council having first obtained a ‘ conditional’ approval which simply required compliance with the covenant. After the Council was told about the costs of building in 5 September 2017 and an architect certified the design, it gave its unconditional approval.

10 Mr Wu and Ms Cheng sought orders to strike out the application for injunctive relief, but Muir J held that the case should proceed to trial. 1 The plaintiffs seek an order for removal of the finished dwelling and claim in negligence against the Council

for issuing the consent in circumstances when they say it knew, or ought to have known, that it would not meet what they say is the minimum ‘build cost’ under the covenant. They do not rely on the covenant requiring certification of an architect as to the design as there is such certification, and it is unimpeachable. The plaintiffs also seek judicial review of the Council's decision to issue consent (thus giving its approval), saying it was unlawful because it failed to bring to account relevant factors, and that the Council made an error of fact in approving the dwelling, and otherwise acted irrationally in refusing to review its decision to unconditionally approve the dwelling

11 The Council is the unitary territorial authority established under the Local Government (Auckland Council) Act 2009, and the successor to the Manukau City Council. It pleads that the minimum cost of a residential building under the covenant as of 2017 was approximately $266,000.00 (plus GST),...