IN THE COURT OF APPEAL OF NEW ZEALANDCA135/07

[2008] NZCA 78

BETWEEN BIG RIVER PARADISE LIMITEDAppellant

AND ROBIN LANCE CONGREVE, ERICA MARGARET CONGREVE AND THOMAS ALBERT CECIL MURRAY IN THEIR CAPACITIES AS TRUSTEES OF THE CONGREVE FAMILY TRUSTRespondents

Hearing: 6 March 2008

Court: William Young P, Glazebrook and Robertson JJ

Counsel: T G Stapleton for AppellantG P Curry for Respondents

Judgment: 9 April 2008 at 10 am

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The appellant is to pay the respondents costs of $6000 and usual

disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

BIG RIVER PARADISE LIMITED V R L CONGREVE, E M CONGREVE AND T A C MURRAY IN THEIR CAPACITIES AS TRUSTEES OF THE CONGREVE FAMILY TRUST CA CA135/07 [9 April 2008]

Introduction

[1] This case is between the Congreve Family Trust on the one hand and Big River

Paradise Ltd on the other. Big River Paradise is associated with Mr Eamon Cleary

and, for ease of reference, we will refer to the land owned by the company as if it

were owned by him. The Congreve property is on the South bank of the Clutha

River, not far from Wanaka. The Cleary property is on the North bank, effectively

opposite the Congreve property. The Cleary property is subject (as servient

tenement) to a restrictive covenant which is in favour of, inter alia, the Congreve

property (as dominant tenement). This covenant provides:

No subdivision of the Servient Lot shall permit the creation of more than three separate allotments nor permit more than one dwelling to be erected on each such allotment.

[2] Notification of this covenant was entered on the register pursuant to s 126A of

the Property Law Act 1952 (now s 307 of the Property Law Act 2007) and serves to

give constructive notice of the covenant to any purchaser of the servient tenement,

see s 62 of the Land Transfer Act 1952.

[3] Mr Cleary proposes to create over his property no less than 52 leasehold interests

with each lessee having a lease of less than 30 years and the right to erect a dwelling

(“Mr Cleary’s proposal”). Implementation of Mr Cleary’s proposal would not

amount to a “subdivision of land” for the purposes of the Resource Management Act

1991 as the leasehold term, in each case, would be less than 35 years, see s 218(1)(a)

(iii) (which is set out below at [10]). Mr Cleary has obtained a resource consent

which would permit implementation of his proposal albeit on somewhat constricted

terms.

[4] In the High Court, Williams J concluded that implementation of Mr Cleary’s

proposal would breach the restrictive covenant and he granted a declaration

accordingly. This appeal, challenging that conclusion, turns on a single question:

does Mr Cleary’s proposal involve a subdivision for the purposes of the restrictive

covenant? Before we address that question, however, we should refer briefly to the

factual background.

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Factual background

[5] The restrictive covenant was created by a transfer which was executed by Black

Bag Ltd on 5 June 2001 and registered on 2 August the same year. The transferee

was Justin Stanley Russell who was acquiring what became the servient lot. Black

Bag sold the dominant land to The Big River Company Ltd. At the time, Mr Lloyd

Ferguson was a director of both Black Bag and The Big River Company. This land

was then subdivided by The Big River Company and two of the resultant lots were

sold to the Congreves pursuant to a sale and purchase agreement of 21 August 2001.

The resulting transfer was not registered until June 2004.

[6] Both before and after the sale, Dr Robin Congreve (one of the trustees of the

Congreve Family Trust) dealt with Mr Ferguson and Mr Bob Mercer, the real estate

agent who was acting for The Big River Company. The Congreves’ solicitors also

dealt with the solicitors who were acting for The Big River Company. These

communications included discussions about the purpose and effect of the restrictive

covenant.

[7] Mr Cleary acquired his property pursuant to an agreement dated 23 May 2003.

Does Mr Cleary’s proposal involve a subdivision for the purposes of the restrictive covenant?

Overview

[8] The primary argument advanced by Mr Stapleton in support of the appeal is that

the words “subdivision” and “allotments” in the restrictive covenant must be

construed by reference to the meanings, for the time being, of “subdivision of land”

and “allotment” in the Resource Management Act.

[9] Mr Curry for the Congreves maintained that that the words “subdivision” and

“allotments” in the restrictive covenant should be construed in light of the obvious

purpose of the restrictive covenant and in the usual way in which they would be

understood, in that context, by people involved in property transactions. He

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maintained that so construed, the restrictive covenant plainly prohibits

implementation of Mr Cleary’s proposal.

Section 218 of the Resource Management Act

[10] Section 218 of the Resource Management Act relevantly 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 a District Land Registrar for the issue of a separate certificate of title for any part of the allotment; or

(ii) by the disposition by way of sale or offer for sale of the fee simple to part of the allotment; or

(iii) by a lease of part of the allotment which, including renewals, is or could be for a term of more than 35 years; or

(iv) by the grant of a company lease or cross lease in respect of any part of the allotment; or

(v) by the deposit of a unit plan, or an application to a District Land Registrar for the issue of a separate certificate of title for any part of a unit on a unit plan; or

(b) an application to a District Land Registrar for the issue of a separate certificate of title in circumstances where the issue 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 a continuous area and whose boundaries are shown separately on a survey plan, whether or not—

(i) the subdivision shown on the survey plan has been allowed, or subdivision approval has been granted, under another Act; or

(ii) a subdivision consent for the subdivision shown on the survey plan has been granted under this Act; or

(b) any parcel of land or building or part of a building that is shown or identified separately—

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(i) on a survey plan; or

(ii) on a licence within the meaning of Part 7A of the Land 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.

…

[11] Mr Cleary relies primarily on s 218(1)(a)(iii). But prior to 1 August 2003,

the relevant portion of that subsection was in these terms:

(iii) by a lease of part of the allotment which, including renewals, is or could be for 20 years or longer …

Mr Stapleton accepted that if “subdivision” in the restrictive covenant is to be

construed in accordance with this definition, the appeal must fail.

The approach of Williams J

[12] Williams J addressed the case by reference to three questions which he

identified as follows:

[44] The three principal matters for discussion and decision in relation to interpreting the covenant can be conveniently summarized in the following propositions:

a) Does the RMA, particularly the definitions of “subdivision of land” and “allotment” in s 218 govern interpretation of those terms in the covenant?

b) Given the covenant is to be interpreted in accordance with the approach in Investors Compensation Scheme [Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL)] and Boat Park [Ltd v Hutchinson [1999] 2 NZLR 74 (CA)], would precedent decisions as to terms used in the covenant, particularly “subdivision” and “allotment”, be part of the background knowledge reasonably available to the parties when they executed the covenant?

c) What meaning does the covenant, construed as a whole, convey to a reasonable person with such knowledge?

[13] He answered the first question by concluding that the Resource Management

Act definitions did not control the meaning of the restrictive covenant.

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[14] In respect of the second question, he concluded at [66] that the covenant

should be construed in accordance with:

… the generally held and understood meanings of the words “subdivision” and “allotment” rather than any strict definition as if the words were a term of art – still less the definition of these terms in the RMA – and the framers of the covenant could reasonably be supposed to have had at least a general understanding of the judicial approach to the interpretation of the words they were using.

In the course of answering this question, he surveyed a number of New Zealand

decisions in which “subdivision” was discussed.

[15] He then addressed the third of the questions in this way:

[67] In light of the whole of the foregoing, in June 2001, the date of the transfer containing the covenant, what is the meaning the framers would have intended to convey to reasonable persons with their background knowledge?

[68] In that regard, it is first pertinent to note that whilst the covenant was created for the benefit of the owners of the dominant lot, one of whom was a director of the company owing those lots, the interpretation of the covenant is not confined to persons with an interest in the dominant lots but, being a public document, is to be construed from the point of view of a reasonable person with the framers’ background knowledge. Construction of the covenant is not synonymous with enforceability.

[69] Secondly, it is crucial to the construction of the covenant and what underpins it that, at the time the covenant was entered into, the servient lot, despite its size, was vacant (apart, perhaps, from one house the evidence suggests may have already been on it). The framers of the covenant clearly intended the servient lot to be capable of subdivision but only to the extent of creating three separate lots with one house on each. Development of part of the servient lot by permitting 52 dwellings to be erected with the necessary roading, planting and infrastucture would clearly not have been intended by the framers of the covenant. Having contemplated subdivision of the servient lot, had the framers intended its development by permitting seventeen times the stated number of lots and houses, being property developers themselves they would have said as much.

[70] Further, reasonable persons, with a normal understanding of the meaning of the words and knowing something of the precedental background, would have concluded that where subdivision of the servient lot into three with one house on each was permitted, a division of the land in the sense of cutting up the servient lot into 52 smaller allotments with access and necessary infrastructure went well beyond what the covenant allowed and amounted to a subdivision of that land, even though not a “subdivision of land” for the purposes of s 218 of the RMA.

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[71] The conclusion must accordingly be that the Congreve Trust, as owners of part of the dominant lot, are correct in their approach to its construction.

Evaluation

[16] Mr Stapleton argued that the restrictive covenant should be construed as a

public document and in accordance with the principles discussed in Opua Ferries

Ltd v Fullers Bay of Islands Ltd [2003] 3 NZLR 740 (PC) at [19] – [20]. He

maintained that this excluded consideration of the sort of extrinsic evidence as to the

circumstances which obtained at the time the covenant was entered into which are

usually relevant to the interpretation of contracts, see Investors Compensation

Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) and Boat

Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA).

[17] Mr Stapleton also argued that when interpreting a restrictive covenant or

easement which has been registered or notified under the Land Transfer Act, a Judge

is not entitled to take into account all the extrinsic evidence which might be

admissible in a dispute between the parties to a contract. In this respect, he relied on

Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 239 ALR 75 (HCA).

In Westfield (which concerned the interpretation of an easement), the Court noted (at

[39]) that a third party inspecting the register could not, consistently with the Torrens

system, be expected to look for extrinsic evidence as to the circumstances existing at

the time the easement was granted.

[18] In Westfield, the Court certainly concluded that evidence as to the

intentions and expectations of the parties, at the that time, was inadmissible as

to construction but was rather more equivocal as to the materiality of objective

factors, see [40] - [41]. For instance the Court seemed to be of the view that the

nature of the surface of the land at the time the instrument was executed might

be material to its interpretation.

[19] To the perhaps uncertain extent that Westfield requires extrinsic evidence to

be ignored when construing a registered instrument, it is open to question whether it

should be applied in New Zealand.

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[20] Such a requirement would not be in accord with the approach taken by this

Court in Ohinetahi Ridge Ltd v Witte (2004) 5 NZConvC 193,938, a case which

concerned water easements. These easements referred to some of the relevant water

supply infrastructure (namely a spring, a well and existing pipes) which was in place

when they were created. This necessitated inquiry into the nature of that

infrastructure. But the Court also saw as relevant (or possibly relevant) to the factual

matrix a broader range of extrinsic facts, see for instance [9], [11], [22] - [25], [44]

and [53]. In short, the Court construed the easements as it would have construed

ordinary contracts.

[21] Further, if Westfield were adopted in New Zealand, this would sit rather

oddly with s 126G of the Property Law Act 1952 (now s 317 of the Property

Law Act 2007) which allows a Court to modify an easement or covenant where

it is satisfied that there has been a change since its creation in:

(a) the nature or extent of the use being made of the benefited land,

the burdened land, or both;

(b) the character of the neighbourhood; and

(c) any other circumstance the court considers relevant.

If it is legitimate to consider the circumstances at the time of the creation of an

easement or covenant when deciding whether to modify or extinguish it, then it

might be thought legitimate to consider the same circumstances when engaged

in an interpretation exercise.

[22] As well, Westfield leaves some unresolved and perhaps troublesome

issues:

(a) Should so narrow an approach be taken as between the initial

parties to the restrictive covenant or easement?

(b) If not, when should the narrow approach kick-in, when one of the

original parties sells or when both sell?

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(c) What if the subsequent parties are well aware of the relevant

extrinsic evidence? This might arise if the extrinsic evidence

relates to a particular pattern of use which existed at the time the

document was executed and was continuing when the subsequent

party became affected by the easement or restrictive covenant.

[23] As subsequently applied in Australia, the Westfield approach has been

held not to exclude consideration of the physical characteristics, including

location, of the relevant properties; cf Sertari Pty Ltd v Nirimba Developments

Pty Ltd [2007] NSWCA 324 at [13] – [16]. In this context, we think it clear that

the restrictive covenant should be construed not in the abstract but, at the very

least, by reference to the location of the properties which are affected by it.

Beyond that, we prefer not to go because irrespective of whether the Westfield

approach is adopted, the result is the same for Mr Cleary.

[24] Mr Stapleton’s argument involved an acceptance of the proposition that when

the covenant was executed, it precluded implementation of Mr Cleary’s proposal

(see [11] above). He therefore had to argue that the effect of the covenant changed

as a result of amendments made in 2003 to the Resource Management Act. In other

words he argued that the words “subdivision” and “allotments” had ambulatory

meanings. This raises quite subtle issues which require some explanation.

[25] The courts sometimes have to determine whether a particular word or phrase

has a static or mobile meaning, see Bennion, Statutory Interpretation (4th ed 2002) at

1000 – 1004. This arises most commonly with statutory provisions which

incorporate standards (eg “fit for habitation”), the practical implications of which are

likely to evolve over time.

[26] Similar issues can arise where changes (perhaps technological in nature) have

affected the practical meaning of a word. Should a right of way for “carriages” in an

easement created in the mid-nineteenth century be construed in a static way (ie by

reference to the types of carriage then in use) or receive a mobile interpretation as

including motor vehicles? This question arose in Attorney-General v Hodgson

[1922] 2 Ch 429 (Ch), where the word was held to encompass a motor car. It is

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important to recognise, however, that the underlying question is still one of

interpretation of the words as used in the instrument. In Hodgson, the interpretation

issue was whether “carriage” was intended to be used broadly (ie as a vehicle used

for carrying goods or people) or narrowly, by reference to the particular types of

carriage in use when the easement was created.

[27] A similar problem arose in Texaco Antilles Ltd v Kernochan [1973] AC 609

(PC), which concerned the phrase “public garage” in a restrictive covenant entered

into in 1925 in the Bahamas. In issue was whether this phrase encompassed a

service station, the primary function of which was the sale of petrol. Such an

establishment was said to have been “probably unknown” in 1925. Although by

1973, a service station of this character could fairly be regarded as a “public garage”,

this was not a controlling consideration. Instead the issue was whether such a

service station, if proposed in 1925, would have been seen then as properly described

as a “public garage”. In the end, what in a sense was a mobile interpretation (ie that

the phrase encompassed the service station) was adopted, but it was still grounded in

its intended 1925 meaning.

[28] Where a court has a choice between a static or a mobile interpretation, the

result of adopting a mobile interpretation is not to change the scope of the underlying

contract. For instance, the conclusion in Hodgson, that the word “carriage”

encompassed a motor car did not imply that the grantee of the easement was not

entitled to drive a horse and cart along the carriageway in issue. And likewise, in

Texaco Antilles, the conclusion that the phrase “public garage” included a service

station did not, as a corollary, mean that the sort of public garage which was

common in 1925 was no longer subject to the restrictive covenant.

[29] A mobile interpretation of “subdivision” in the covenant would mean that

“subdivision” would apply to the activities which were either recognised as

subdivisions in 2001 or were not known in 2001 but fall within the imputed intention

of the parties. Such an approach would not be of assistance to Mr Cleary. This is

why Mr Stapleton instead invited us to construe “subdivision” and “allotments” in an

ambulatory sense so the covenant means:

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No subdivision [of land within the then current definition of that term in the Resource Management Act 1991] of the Servient Lot shall permit the creation of more than three separate allotments [also as then currently defined in the Resource Management Act] nor permit more than one dwelling to be erected on each such allotment.

(Our emphasis)

As we have noted, on this approach the sort of activity which was prohibited when

the covenant was entered into became permitted once the definitions in the Resource

Management Act changed.

[30] No sensible conveyancing solicitor would draft a restrictive covenant in the

way postulated. Why should the parties to a contract incur the risk that the

obligations under it might be changed by processes over which they have no control

(ie the making of amendments to the Resource Management Act)? What if the

Resource Management Act is repealed? What if there is a change in the focus of

development controls away from the regulation of subdivisions?

[31] That these are not theoretical concerns can be illustrated in two ways:

(a) First by Westminster City Council v Duke of Westminster [1991] 4 All

ER 136 (Ch) where the parties to a 999 year lease chose to enter into a

covenant requiring that the premises be used to provide “dwellings for

the working classes within the meaning of the Housing Act 1925 or

any statutory modification or re-enactment for the time being in

force”. Unsurprisingly, this language led to trouble (and litigation)

once the term “working classes” dropped out of English housing

legislation.

(b) Secondly by the facts of the present case. When the restrictive

covenant was entered into and when the Congreves and Mr Cleary

agreed to buy their respective properties, implementation of

Mr Cleary’s proposal would have amounted to “a subdivision of land”

for the purposes of the Resource Management Act. On

Mr Stapleton’s argument, the contractual entitlements of the

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Congreves changed radically for the worse by reason of amendments

to the Resource Management Act over which they had no control.

[32] If it were right to construe the restrictive covenant by reference to the

definitions in the Resource Management Act, we have no doubt that, in the absence

of contrary wording, this would be to the definitions as they stood in June 2001

when the covenant was executed. But we can see no good reason why the covenant

should be construed by reference to the Resource Management Act. As Texaco

Antilles Ltd v Kernochan illustrates (at 621), statutory definitions of words are often

unhelpful in ascertaining their “ordinary meaning” when used in a contractual

setting. The Resource Management Act defines “subdivision of land” for the

specific purpose of identifying the types of subdivision which are subject to control

under that Act. There is no obvious logic in applying that definition to “subdivision”

when used in the restrictive covenant given the very different context.

[33] A division of property accomplished by depositing a survey plan under the

Land Transfer Act 1952 and the obtaining of separate titles is perhaps the core

meaning of the word “subdivision”. But when the legislature has set out to regulate

land development, it has customarily done so by reference to concepts of subdivision

which go well beyond that core meaning, a proposition which is exemplified by the

terms of s 218 of the Resource Management Act and the authorities cited by

Williams J in the judgment under appeal and in particular Re a Transfer, Hunter to

Gaulter (1902) 4 GLR 179 (SC), Re Transfers from Francis and Overend (1902)

21 NZLR 394 (CA), Re Transfer to Palmer (1903) 23 NZLR 1013 (CA) and

Waitemata County v Expans Holdings Ltd [1975] 1 NZLR 34 (CA). In the last of

those cases, Haslam J noted (at 48):

The absence of legislative consistency in the use of the term suggest that where, as here, the word “subdivision” is left undefined in an enactment, it must be accorded a common sense meaning which will conform to the context in which it is used.

[34] The purpose of this restrictive covenant is clear: to preserve the amenities of

the Congreves’ property (and the other land benefiting under the covenant) from the

adverse effects of extensive development of the Cleary property. Those adverse

effects are associated with the intensity of development and thus the number of

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houses which might be built. A purposive approach to the words “subdivision” and

“allotments” necessarily requires a focus on what the covenant was aimed at, namely

limiting the number of houses on the Cleary property to three. And if a division of

Mr Cleary’s property would facilitate the erection of more than three houses, the

precise legal mechanism by which that division is to be effected might be thought to

be irrelevant.

[35] The definition in the Resource Management Act shows that in June 2001 it

was not an abuse of language to describe the sort of development proposed by

Mr Cleary as a “subdivision”. Indeed, in our view, the proposed creation of

leasehold interests would necessarily involve a “subdivision” of Mr Cleary’s

property for the purposes of the restrictive covenant. It is in the nature of a lease that

there must be a defined area of property in which the lessee has an interest. We see

no difficulty in concluding that such defined areas of property as would emerge from

implementation of Mr Cleary’s proposal would be “allotments” for the purposes of

the restrictive covenants. Absent any contractual stipulation to the contrary, it would

be open to each lessee to obtain a registered certificate of title in relation to the

allotments so created (which in itself would amount to a subdivision under s 218(1)

(a)(i)). The conclusion that implementation of Mr Cleary’s proposed development

would be a subdivision thus seems obvious and it is a conclusion that is strengthened

by a purposive approach to the restrictive covenant.

Extrinsic evidence

[36] The conclusion we have reached means that the appeal must be dismissed.

But there remains one point to be mentioned.

[37] In support of their interpretation of the restrictive covenant, the Congreves

sought to rely on communications between Dr Congreve on the one hand and, on the

other, Messrs Ferguson and Mercer. They also invoked communications between

their solicitor and the solicitors for Black Bag.

[38] The substance of these communications, as described by Dr Congreve in his

affidavit, was twofold:

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(a) that the restrictive covenant prevented the creation of more than three

allotments and the erection of more than three houses; and

(b) that Mr Ferguson had required the covenant to protect the view of the

river from a nearby house which he was building.

In the High Court, Williams J held that this evidence was inadmissible, a conclusion

which the Congreves challenge by way of cross-appeal. This mode of challenge is

inappropriate given that the Congreves won the case in the High Court; there is thus

nothing substantive in the judgment against which they can appeal. We therefore

propose to treat the cross-appeal as if it were a notice under r 33 of the

Court of Appeal (Civil) Rules 2005.

[39] As is common where extrinsic evidence of this sort is relied on, the disputed

material adds nothing of value to the underlying interpretative debate. The

communications in issue are nothing more than statements of the obvious. In any

event, it seems inherently improbable to us that Dr Congreve, with his access to

independent legal advice, would pay any heed to what he had been told by Messrs

Ferguson and Mercer as to the interpretation of the restrictive covenant. Similar

considerations apply to the communications between the solicitors. Given that we

accept the primary argument as to interpretation advanced by the Congreves and, in

any event, see the extrinsic material as having no materiality, we decline to enter into

a debate as to its technical admissibility.

Disposition

[40] The appeal is dismissed. The appellant is to pay the respondents costs of

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$6000 and usual disbursements.

Solicitors: Evans Henderson Woodbridge, Marton for AppellantRussell McVeagh, Auckland for Respondents