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Court of Appeal of New Zealand |
Last Updated: 13 December 2015
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellants |
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AND
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Respondent |
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Hearing: |
19 October 2015 |
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Court: |
French, Venning and Asher JJ |
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Counsel: |
A C Hughes-Johnson QC for Appellants
P B McMenamin for Respondent |
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Judgment: |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Asher J)
Introduction
[1] This is an appeal against part of two decisions of Associate Judge Osborne in the High Court at Christchurch. In the first decision, dated 16 April 2014, the Judge ordered that a caveat not lapse until further order of the Court.[1] In the second associated judgment of 4 September 2014, the Judge made more detailed consequential orders and confirmed his findings in the first decision.[2]
[2] The appeal is not about the caveat remaining. Rather, the appeal relates to an aspect of the judgments that is likely to be important, if not determinative, in the later substantive hearing between the parties. That aspect is a straightforward issue of contractual interpretation. The appellants, Stuart and Julie Lindsay, say the Associate Judge erred in finding it was not reasonably arguable that the agreement between the parties obliged the respondent, Noble Investment Ltd (Noble), to provide stormwater services to a lot purchased by them.
Background
[3] In 2002 Noble planned to subdivide a large piece of land it owned on the outskirts of Christchurch. Noble planned to do this in two stages, first through an initial subdivision and then through a further subdivision where lots in the initial subdivision would be further divided into smaller titles.
[4] The Lindsays as purchaser entered into an agreement for sale and purchase with Noble as vendor, dated 11 February 2002 (the agreement). The Lindsays purchased land described as Lot 4. It was 10,834 square metres. The purchase included a onetenth share in a proposed Lot 22, which would be a thin strip of land connecting various lots to the road and through which services could be provided. The agreement also referred to the purchase of another lot, Lot 15, which was to be transferred back to Noble, and this occurred later.
[5] The Lindsays settled their agreement to purchase Lot 4 when the titles to the initial subdivision became available on 14 October 2003. They proceeded to occupy the land. Noble had sold a number of lots in the initial subdivision to third parties, but also retained a considerable number of lots. It then proceeded with the proposed further subdivision. The proposed subdivision application, including the subdivision of Lot 4, was approved by the Christchurch City Council on 25 May 2009. Noble has undertaken residential subdivision work in adjoining areas of the development.
[6] Under the initial subdivision referred to in the agreement, the services Noble was obliged to provide were to go through Lot 22, which was known as “the access lot”. In the final subdivision application approved on 25 May 2009, the services configuration changed. Rather than Lot 22 being the access route and the route for services, a new spine road in a different position in the subdivision was approved, and it is through that spine road that it is intended there should be access to the subdivision and the provision of services. The Lindsays had not been party to any agreement varying the obligation of Noble to provide the services through Lot 22.
[7] Once the further subdivision was completed, the Lindsays came to consider that Noble had failed to fulfil its obligations under the agreement. On 9 November 2012 they lodged a caveat to protect their claimed rights under the agreement. The caveat was lodged against various titles in the subdivision that were owned by Noble. The caveat claimed an estate or interest in the following terms:
Pursuant to an Agreement for Sale and Purchase dated 11 February 2002 whereby the registered proprietor agreed to provide services for sewer, stormwater, water supply, power and telecommunications for the benefit of the land owned by the Caveators in (now) Identifier 442736 ...
[8] The Lindsays submitted the agreement to provide services required the registration of easements over parts of Noble’s land in favour of the Lindsays’ land.
[9] Following unsuccessful negotiations about Noble’s alleged breaches, on 10 June 2013 Noble initiated the caveat lapsing procedures under the Land Transfer Act 1952. The Lindsays applied for an order that the caveat not lapse.
[10] In the first decision under appeal, Associate Judge Osborne concluded the caveat should not lapse, for the Lindsays as caveators had established a reasonably arguable case that, by the agreement, Noble granted the Lindsays an equitable easement that protected rights of access for roadway and services.[3] That part of the judgment is not appealed. However, in the course of his judgment, the Associate Judge found the Lindsays had no caveatable interest in respect of stormwater services, because it was not reasonably arguable that the agreement obliged Noble to provide stormwater services to Lot 4.[4] Accordingly, the equitable easement identified by the Associate Judge was other than in respect of stormwater services.
[11] As noted above, the Lindsays seek to challenge this finding on appeal. They submitted that, having regard to the contract and the parties’ correspondence, it is reasonably arguable Noble is obliged under the contract to provide stormwater services. In contrast, Noble said the contract contains no such term and the discharge of stormwater from Lot 4 is plainly not its responsibility.
Approach to appeal
[12] Section 137(1) of the Land Transfer Act regulates the entitlement of a person claiming to be entitled to or beneficially interested in the land or estate to lodge a caveat. The applicable legal principles that govern an application to sustain a caveat are now well settled:
- (a) The onus is on a caveator to show a reasonably arguable case for the interest claimed.
- (b) The caveator must show an entitlement to or beneficial interest in the land referred to in the caveat. A personal or contractual right will not be sufficient unless it involves an interest in the land. What is necessary is a legal or beneficial interest. The types of interest are not closed.[5]
- (c) An equitable interest in land can be sufficient, and such interest can be created by agreements for sale and purchase.[6]
- (d) Given the summary nature of the procedure, it is not suited to the determination of disputed questions of fact. To order a caveat to lapse, it must be “patently clear” the caveat cannot be maintained because there was no ground for lodging it at the time it was registered, or because such ground no longer exists.[7]
[13] It was not submitted on behalf of the appellants that there was any question arising in relation to the technical requirements of a servient and dominant tenement and a right being capable of being the subject matter of a grant. As we discuss later, we proceed on the basis it is reasonably arguable that the contractual right at issue in this case, if established, could give rise to an equitable interest.
[14] As both counsel submitted, whether or not a caveatable interest exists depends upon the objectively determined construction of the contract. That is determined by ascertaining the meaning of the relevant clauses within the context of the document as a whole, and what those clauses would convey to a reasonable person having all the background knowledge reasonably available to the parties in the situation they were in at the time of the contract.[8]
[15] While words are not given a purely literal meaning, the text remains central.[9] As the majority of the Supreme Court said in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:[10]
While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[16] Although a commercially absurd interpretation may provide reason to read the contract in a different way than the language might suggest, that does not mean the court can conclude the contract does not mean what it seems to say simply because the court considers it is unduly favourable to one party.[11]
The agreement
[17] The agreement was in the Auckland District Law Society standard form. It contained a number of special conditions of sale, which were attached to the agreement. The “access lot” was defined as Lot 22 on the plan of proposed subdivision. The “further subdivision” was the Noble subdivision that would follow the issue of title according to the plan of proposed subdivision.
[18] The special conditions also defined services in cl 16:
“Services” means power, telecommunications, water supply, sewer and the carriageway contained within the Access Lot.
[19] As mentioned, the appellants accept the definition excludes stormwater discharge.
[20] Clause 19 is headed “services”. It states that prior to the settlement date and in accordance with the initial subdivision the vendor “will arrange for power and telecommunications services to be available at a service point stipulated by the purchaser”. It provides that the vendor will construct a sealed vehicle carriageway on the access lot, will provide connection to the Christchurch City Council water supply, will install and meet the cost of a connection to a communal sewerage system, and that all services will be provided in accordance with the conditions of the consent to the initial subdivision and to the standards required by the relevant authority.
[21] Under the heading “further subdivision”, cl 21 provides that Noble will pursue the further subdivision. Clause 21.5.2 provides that if vendor obtains the further consent, the purchaser agrees:
21.5.2 to execute and deliver all documents required to grant, create or receive whatever easements, covenants, restrictions, or other encumbrances, rights or obligations that may be imposed by the Relevant Authority or that may reasonably be required by the Vendor in order to effect the Further Subdivision and to provide for access and services to the lots within the Further Subdivision, and to enable the Vendor to register all such documents against the relevant certificates of title; ...
Analysis
[22] The context here is uncontested. The Lindsays were buying a piece of land for subdivision purposes. That piece of land sat within a larger piece of land owned by Noble. Noble intended to develop that land, the Lindsays’ land and other land it had sold as part of a large subdivision. The Lindsays’ land would be part of that broader subdivision. Noble was entering into similar agreements with other purchasers. The Lindsays, together with their co-purchasers, would be in substance co-venturers in respect of the subdivision.[12]
[23] There was no express provision in the contract for the granting of an easement. However, no particular form of words is necessary for an implied grant of an easement. Associate Judge Osborne found there was a reasonably arguable case that Noble had granted the caveators an equitable easement. This was also the conclusion reached by the Associate Judge and the Court of Appeal in the related case of Philpott v Noble Investments Ltd.[13]
[24] The intention to confer a right to an easement is implicit in cl 19. In this case there was a contractual intention that the vendor would be responsible for access to the public road via the access lot (cl 19.2), power and telecommunications services at a service point on the boundary between the Lindsays’ property and the access lot (cl 19.1), together with a connection to the Council water supply (cl 19.3), and the installation of a communal sewerage system (cl 19.4). It can be inferred that it was intended these benefits would pass with the titles, and that the rights were more than personal. The dominant land was Lot 4 and the servient land could be any of the Noble land, including land Noble had on-sold to other Noble purchasers.[14]
[25] Therefore we accept it is reasonably arguable Noble possessed an intention to confer on the Lindsays a right that affected the land and that this right was capable of being made the subject of the grant of an easement. However, the question is whether the provision of stormwater services was part of that right.
[26] The definition of services is precise, and plainly does not include stormwater services. In the definition of services, the end phrase “contained within the Access Lot” could qualify either the immediately preceding word “carriageway” or “all of the power, telecommunications, water supply, sewer and carriageway”. Although it is not essential to our decision, we favour the former interpretation as it would seem possible that some services might not be within the access lot.
[27] Mr Hughes-Johnson QC, for the appellants, accepted that the definition of services excluded stormwater. He argued, however, that the exclusion related only to the initial subdivision as defined in the agreement, and not the further subdivision contemplated by the agreement. Under cl 19, the services had to be installed “prior to the settlement date” and were to be installed “in accordance with the initial subdivision”. Therefore, he submitted, the definition of services did not have application throughout the totality of the agreement.
[28] This argument is not however supported by any words in the agreement. The agreement contains only one definition of “services” and there are no qualifying or limiting words (for example “as the context may require”) to suggest the definition does not apply throughout the contract wherever the word “services” is used. The purpose of a precise and unqualified definition of this type can be taken to be to avoid speculation as to any meaning other than that set out. The obligation to arrange for services in cl 19 is unambiguous. Clause 21, which relates to the further subdivision, makes no reference to additional services.
[29] Mr Hughes-Johnson also relied on cl 21.5.2, which refers to the purchaser providing all documents required of or by the vendor to effect the subdivision or to provide for access and services to the lots. In our view, this clause does not assist his argument as its purpose is to place an obligation on the purchaser, the Lindsays, and not Noble.
[30] A further argument raised by Mr Hughes-Johnson related to cl 23.1 of the agreement. It states that “the Vendor shall apply on behalf of the Purchaser and the other Noble Owners for the vesting ... of the Access Lot”. The appellants submitted the vesting could not be effected without the provision of stormwater services. However, stormwater services were not a requirement of the initial subdivision. It follows in our view that he later stormwater services required for the consent granted in 2009 for aspects of the further subdivision cannot assist in interpreting an agreement made seven years earlier, or the intentions of the parties at that earlier time, objectively assessed.
[31] Mr Hughes-Johnson referred to the commercial context. There was no detailed evidence about the commercial background. The case was put to us by both counsel on the basis that, for the initial subdivision at least, it was expected stormwater could be disposed of on-site. There was therefore no need to provide for the disposal of stormwater.
[32] There is indeed no evidence indicating that in 2002 there was any expectation provision for stormwater off-site would be a requirement of the further subdivision. We note indeed that one engineer, Mr Graham, deposed that the Council engineers had confirmed they were agreeable to roof run-off discharging into the ground. There is nothing in the evidence for the Lindsays that asserts stormwater provision was a requirement in 2002, or that they believed it to be so. As it was not an immediate requirement, it seems likely the parties never turned their mind to the issue of stormwater disposal off-site. In that context, it is unsurprising there was no express provision for Noble to provide for stormwater disposal off-site at any stage in the development process.
[33] Although Mr Hughes-Johnson did not argue for an implied term, we observe that the background facts would not support a position where an officious bystander would say “but of course” services must include stormwater.[15] This is because it was not clear stormwater would have to be discharged off-site, and, in any event, it is perfectly conceivable that some costs might have to be met by the purchaser. It is to be noted that in the Philpott case the definition of services did expressly include stormwater. It comes down to what the parties expressly agreed.
[34] We turn to the exchange of correspondence, which was also relied on by Mr Hughes-Johnson in support of his argument. He placed reliance on a letter sent by the Lindsays’ solicitors to Noble’s solicitors on 6 March 2002, some weeks after the signing of the agreement. The letter referred to a number of matters and recorded that the agreement was conditional upon solicitors’ approval of the deed of option and the special conditions of sale. It was recorded in the letter that Noble had made a number of representations and warranties, which included:
- The capacity of services to be installed at the cost of the vendor will be adequate for the proposed further subdivision (including Lot 4);
...
[35] These stated representations and warranties were confirmed by Noble’s solicitors in their reply of 7 March 2002. Mr Hughes-Johnson submitted that without stormwater services the capacity of services would not be adequate for the proposed further subdivision.
[36] The expression used in the 6 March 2002 letter of “services to be installed at the cost of the vendor” is clearly a reference back to the definition of “services” in the agreement at cl 16 and the obligations in respect of those services in cl 19. This letter, read objectively, cannot be seen as intended to extend the meaning of “services” as defined. The paragraphs in the letter are directed to a different point, namely that the capacity of the services that are defined and are to be installed at the cost of the vendor will be adequate for the proposed further subdivision. In terms of the definition in the agreement, these services do not include stormwater. Similarly, the reference to the Lindsays being able to connect with the new services is to those defined services, which do not include stormwater.
[37] The terms of this letter in fact run against Mr Hughes-Johnson’s submission that there was a different and broader meaning for services in relation to the proposed further subdivision than in relation to the initial subdivision. Paragraph 3 appears to assume it will be the same services installed for the initial subdivision that must be adequate for the proposed further subdivision. It would be inconsistent with this if there was a further service to be installed.
Conclusion
[38] The words of the agreement do not include the word “stormwater” in the definition of “services”, and there is nothing to indicate the word “services” should assume a different meaning in relation to the initial and the further subdivisions. To the contrary, the natural reading of the definition in the context of the agreement is that the definition will govern the word “services” in relation to both subdivisions. This interpretation, which excludes stormwater services, is, if anything, confirmed in the subsequent correspondence.
[39] The background commercial context is consistent with this natural meaning. There is nothing to indicate that in 2002 the parties considered stormwater would have to be discharged off-site. Against that background, it is understandable it was not thought necessary to extend the definition of services to stormwater. So far all the discharge has been on-site. It is still not clear discharge off-site will be a requirement, although it may well become a requirement in the future.
[40] Accordingly, we conclude the Associate Judge was correct in finding it is not reasonably arguable that the agreement obliged Noble to provide stormwater services to Lot 4, and nor is it reasonably arguable that the correspondence in March added such an obligation. The interpretation sought by the appellants is untenable.
[41] The Lindsays may or may not have to find a way to discharge stormwater offsite. If that situation arises, they will have to take such commercial opportunities as are available. This may mean the Lindsays will have to negotiate with Noble to get access to the stormwater system if they wish to complete a subdivision. This may have serious consequences for the Lindsays. However, it is no reason to now, 13 years later, read a term into the contract that the parties did not consider necessary to include in 2002.
Result
[42] The appeal is dismissed.
[43] The appellants must pay the respondent’s costs for a standard appeal on a band A basis, and usual disbursements.
Solicitors:
Dallison
Stone, Christchurch for Appellants
K J McMenamin & Sons, Christchurch for
Respondent
[1] Lindsay v Noble Investments Ltd [2014] NZHC 799.
[2] Lindsay v Noble Investments Ltd [2014] NZHC 2127.
[3] Lindsay v Noble Investments Ltd, above n 1, at [101].
[4] At [45].
[5] Tom Bennion and others New Zealand Land Law (2nd ed, Brookers, Wellington, 2009) at 259, and Philpott v Noble Investments Ltd [2015] NZCA 342 at [28].
[6] Bevin v Smith [1994] 3 NZLR 648 (CA), Motor Works Ltd v Westminster Auto Services Ltd [1997] 1 NZLR 762 (HC) and Philpott v Noble Investments Ltd, above n 5, at [29].
[7] Sims v Lowe [1988] NZCA 253; [1988] 1 NZLR 656 (CA) at 659–660, and Philpott v Noble Investments Ltd, above n 5, at [26(c)].
[8] Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912.
[9] Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]–[63].
[10] At [63] (footnote omitted).
[11] Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 9, at [89].
[12] Philpott v Noble Investments Ltd, above n 5, at [38].
[13] Philpott v Noble Investments Ltd [2012] NZHC 1431; Philpott v Noble Investments Ltd, above n 5.
[14] This was found to be the case in Philpott v Noble Investments Ltd, above n 5, at [40].
[15] Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318 at [241]–[249]; BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 16 ALR 363 (PC) at 376.
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