Kaimai Properties Ltd v Queen Elizabeth The Second National Trust

• Jurisdiction: New Zealand
• Judge: Kós P
• Judgment Date: 15 February 2021
• Neutral Citation: [2021] NZCA 10
• Court: Court of Appeal
• Docket Number: CA370/2019
• Date: 15 February 2021

Between

Kaimai Properties Limited

Appellant

and

Queen Elizabeth the Second National Trust

Respondent

[2021] NZCA 10

Court:

Kós P, Cooper and Gilbert JJ

CA370/2019

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Contract, Property — appeal over refusal of application to rectify covenants — use of neighbouring land for quarry and expansion of that operation — open space covenants — applicable principles — interpretation of covenants — admissibility of extrinsic evidence — applicable principles of contract construction — consideration and interpretation of covenant terms — whether common mistake

Counsel:

A R Galbraith QC and K E Cornegé for Appellant

R J B Fowler QC and F B Q Collins for Respondent

• A The appeal is dismissed.

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

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Kós P)

1 This appeal is about two blocks of land in the Kaimai Ranges. The landowner entered open space covenants over parts of the land with the Queen Elizabeth the Second National Trust. 1 At the time one of the blocks was subject to a licence enabling a third party to quarry that land. The landowner did not consult the quarry

operator. It now seems one of the covenanted areas may restrict expansion of the quarry. The quarry operator then sought to purchase the two blocks from the landowner. During negotiations it discovered the covenants, but proceeded with the purchase notwithstanding. It later applied to the High Court for declarations that the terms of the covenants permitted expansion of the quarry into the covenanted areas. Alternatively, it sought rectification of the covenants

2 Edwards J dismissed the claim. 2 The quarry operator, now also owner of the land, appeals.

Background

3 The two blocks of relevant land are adjoining titles in the Kaimai Ranges. Bartons Kaimai Farm Ltd operated a quarry on the main block from 1973 and then purchased that block in June 1979. In March 1982 it sold it to Hiona Heights Ltd, owned by a Mr Ian Diprose. Mr Diprose already owned the smaller block. In September 1982 Bartons and Hiona entered an agreement giving Bartons the right to operate the quarry in a defined area for a 40-year term commencing 21 December 1981. 3 During that term no royalties were payable on rock mined.

4 In 1983, Hiona entered a Land Improvement Agreement (LIA) with the Hauraki Catchment Board, whereby Hiona agreed that 100 ha of the mainly southern parts of the main block would be held as a reserve and protected from stock grazing.

5 In 1986, the Swap family purchased Bartons. The appellant, Kaimai Properties Ltd, is part of a group of companies owned by the Swaps.

6 In 1993, Hiona and Bartons reached an agreement under which Bartons retained its entitlement to operate the quarry within a defined quarry area until 2021 with no payment of royalties to Hiona. 4 The 1993 agreement provided for a right of

renewal for a further 40 years at a royalty rate to be agreed. It also contemplated the expansion of the quarry beyond the south eastern boundary. Clause 6 provided expansion outside of the quarry area, if necessary, would be subject to further negotiations between Hiona and Bartons, as would the question of any additional royalty payments

7 We record the Judge below found the boundary of the quarry area in the 1982 and 1993 agreements did not change. 5 Though both agreements record the quarry area as 39.4242 ha, the relevant plans in fact show the quarry area was extended to the east to a feature marked on a plan as the “point on crag”.

8 In April 1998 the Matamata-Piako District Council granted a certificate of compliance for the quarry operation. This confirmed existing land use rights. Relevantly these provided for expansion of the quarry to the east.

9 In 2003, Hiona reached an agreement with the Matamata-Piako District Council regarding the proposed establishment of a green belt. A Development Concept Plan (DCP) was developed and agreed in April 2003. The plan allowed quarrying, as well as conservation and commercial forestry, in the quarry area. The proposed expansion of the quarry, at least for that 10-year timeframe, was to the east.

10 In November 2004, Mr Diprose began looking for ways to reduce his rates burden and get some fencing assistance. The Waikato Regional Council suggested he place parts of the land under covenant and put him in contact with Mr Hamish Dean of the Trust.

11 In February 2005, Mr Diprose met with Mr Dean and Mr Rien van de Weteringh of the Waikato Regional Council at the blocks to discuss the possibility of covenanting the land. Messrs Diprose and Dean met several times subsequently.

12 Exactly what was said between Messrs Diprose and Dean at those meetings is disputed and central to the claim for rectification. Both Messrs Diprose and Dean

accepted they cannot recall exactly what was said. The contested nature of the content of the meetings can be summarised

13 Mr Diprose believes he made it clear to Mr Dean that flexibility would be needed to allow the quarry to expand. Mr Diprose's belief that flexibility would be provided for in the covenant was to a degree corroborated by Mr Taris, the surveyor we refer to below. In cross-examination, Mr Diprose accepted he may not have stated the quarry would need to expand into the covenanted areas “in direct terms”, but that reality would have been obvious to Mr Dean from his site visits.

14 Mr Dean on the other hand stated he would remember if Mr Diprose had said expansion was to be into the covenanted areas. If it had been said, Mr Dean said he would have explained it would not be possible. When cross-examined, Mr Dean stated he believed from the DCP the quarry would expand to the east; he did not recall any mention by Mr Diprose of expansion to the south. He said he was depending on Mr Diprose to advise him of any issue of conflict:

… if somebody had said that to me it would have been a simple matter of making the covenant boundary back to where it needed to be. [There] … was no drive to have it right next to the quarry so … if that discussion had taken place … it would have been dealt with.

15 Mr Dean compiled a report following these visits. That report mentioned three special conditions which were carried through into sch 3 of the covenants (outlined at [20] below). The report does not mention expansion of the quarry.

16 The Trust board approved two open space covenants over 151.2 ha of land in the blocks on 18 May 2005. The approval documents contained indicative boundaries. The proposed covenants were sent to Mr Diprose and his wife in June 2005. The Diproses signed the covenants in September 2005.

17 The covenanted land was described by area and by reference to an attached aerial plan. This plan was not however attached until 2007, following a survey undertaken by Mr Taris. Mr Diprose showed Mr Taris around the land and subsequently made several changes to the indicative boundaries during the survey. One of those changes was to the boundary of the main block covenant to allow an area for overburden from the quarry to be deposited. Mr Diprose deposed Mr Dean agreed to the alteration and commented “it's better to change now as it will be difficult to change later”.

18 The covenants, featuring the now-agreed boundaries depicted in aerial plans, were registered over the blocks on 15 October 2007. The economic benefits of the covenants to Mr Diprose were modest: a sum of approximately $11,000 from the Trust for surveying, fencing and planting, and approximately $7,000 from the Regional Council for the latter two, together with a modest annual rates remission in respect of the land (which was less than $150).

19 The most relevant clauses of the covenants are cls 2.1, 2.2(g) and 4.1 of sch 2. Clause 2.1 provides:

2.1 No act or thing shall be done or placed or permitted to be done or remain upon the Land which in the opinion of the Board materially alters the actual appearance or condition of the Land or is prejudicial to the Land as an area of open space as defined in the Act.

Clause 2.2(g) provides the owner agrees not to “[c]arry out any … quarrying of any minerals … or other substance” without the prior written consent of the Trust. Clause 4.1 provides:

4.1 If notified by any authority, body or person of an intention to erect any structure or carry out any other work on the Land, the Owner agrees:

• (a) to inform the authority, body or person of this Deed;

• (b) to inform the Trust as soon as possible; and

• (c) not to consent to the work being done without consulting the Trust.

20 Schedule 3 of the covenants recorded special conditions relating to the use of the land. Both covenants allowed the continued use of farm tracks and water for farming purposes, and cl 3 of sch 3 of the main block covenant allowed the continued use and expansion of communications and radar facilities located in the south-east corner of the main block. There is no special condition allowing expansion of the quarry into the covenant areas.

21 In 2009 Hiona (and Mr Diprose) agreed to sell both blocks to Kaimai. During negotiations, the Swaps first became aware of the open space covenants. Following legal advice, the sale proceeded in September 2009 with ownership of the blocks transferring to Kaimai.

22 In 2012, the Swaps determined the quarry would soon need to expand south, thereby affecting 40 ha of the covenanted area. Following a formal proposal by its sister company, Bartons, to expand the quarry, Kaimai advised the Trust of the request in October 2015. Kaimai took the position that cl 4.1 only obliged it to consult with the Trust, but the Trust had no right of veto over the expansion.

23 In November 2015, the Trust advised it considered it had a veto right and did not consent to the expansion.

24 Kaimai commenced...