Ghuznee Holdings Limited v Pati [2014] NZHC 1222 (3 June 2014)

Last Updated: 5 June 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-004843 [2014] NZHC 1222

BETWEEN	GHUZNEE HOLDINGS LIMITED Plaintiff
AND	PENE PATI and RICARDO OSCAR MARQUES Defendants

Hearing:	6 March 2014
Appearances:	H P Holland for the Plaintiff D R Bigio for the Defendants
Judgment:	3 June 2014

_{JUDGMENT OF GILBERT J}

This judgment is delivered by me on 3 June 2014 at 3.30pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

GHUZNEE HOLDINGS LTD v PATI and MARQUES [2014] NZHC 1222 [3 June 2014]

Introduction

[1] Ghuznee Holdings Limited seeks summary judgment on its claim that it has exercised an option to purchase Unit C in what was previously the Culverden Retirement Village in Mangere East. The option Ghuznee relies on is contained in a deed of covenant which was entered into in June 1998 between the original owner of the village, Culverden Retirement Village Limited, and the original owner of the unit, Joyce McLuckie. The covenant is registered against the title to Unit C and is expressed to be for the benefit of Unit Q, which was to be occupied by the manager of the village. The purpose of the covenant was to ensure that the owner of the village could maintain control over the use and occupation of individual units to ensure that they remained part of the village and occupied by residents over the age of 55 years, as required by the resource consent.

[2] Ghuznee claims that it acquired the rights formerly held by Culverden Retirement Village Limited as covenantee in June 2012, when it settled its purchase following a mortgagee sale of all of the other units in the village, including Unit Q. Ghuznee was unable to acquire Unit C at that time because it was not subject to any mortgage.

[3] Ms McLuckie died in December 2008. In January 2009, Ian and Norma Anderson, as trustees of the Tasi Uno Trust, acquired Unit C from the executors of Ms McLuckie’s estate. The first named defendant, Mr Pati, is a current trustee of the Tasi Uno Trust. He and the second named defendant, Mr Marques, are the current registered proprietors of the unit. Mr Marques, resigned as a trustee of the Trust in June 2013 and was replaced by Norma Anderson. However, the title does not reflect this change because caveats registered against the title have prevented registration.

[4] The defendants oppose the application for summary judgment on the following grounds:

(a) Ghuznee has no right to enforce the covenant because it is not a party to it and the covenant does not bind the successors in title of the

covenantor and is not enforceable by the covenantee’s successors in

title;

(b) the option was not exercised in time and has therefore terminated;

(c) the defendants have an arguable case that the covenant should be extinguished pursuant to s 317 of the Property Law Act 2007 because the covenant was only required for the purposes of the retirement village and this ceased to operate in early 2010;

(d) the defendants should be given an opportunity to pursue such an application before summary judgment is granted on the plaintiff’s claim because, otherwise, the defendants’ intended application will be rendered nugatory;

(e) specific performance should not be ordered; and

(f) the Court should exercise its residual discretion not to enter summary judgment in all of the circumstances of this case.

Does the covenant run with the land?

[5] A covenant is to be construed in accordance with ordinary principles of contractual interpretation having regard to the background circumstances in which it was created and its purpose.

[6] Culverden Retirement Village Limited was incorporated in 1987 for the purpose of developing the Culverden Retirement Village. It applied for planning consent for a 41 unit title development in 1988 on the basis that the entire development would operate as a housing facility for the elderly. A number of safeguards were proposed to ensure that the complex remained a residential village and did not revert to general residential use. These included that a memorandum of encumbrance would be registered against the title to all units binding all future purchasers to conduct any sale of the unit through the agency of Culverden

Retirement Village Limited to another purchaser aged over 55 who would occupy the unit exclusively.

[7] The development comprised 39 units intended for occupation by residents and a central complex comprising a two storey community centre (Unit P) and a manager’s apartment above that (Unit Q). The first stage of construction was completed in 1993 and all 41 units were completed by the end of 1999. Restrictive land covenants as envisaged by the resource consent were registered against the titles to the units.

[8] Such a covenant was registered against the title to Ms McLuckie’s unit when she acquired it in June 1992. This covenant required Ms McLuckie to sell, and Culverden Retirement Village Limited to buy, Unit C in various circumstances, including if she ceased to occupy the unit. The material terms of this covenant were as follows:

WHEREAS

A. CULVERDEN RETIREMENT VILLAGE LIMITED a duly incorporated company having its registered office at Auckland (hereinafter called “the Transferor”) is seised of a stratum estate in freehold within the meaning of the Unit Titles Act 1972 in Principal Unit C on Unit Plan No.

145836, more particularly described in Certificate of Title Volume 86C

Folio 47 (North Auckland Registry) (hereinafter called “the first-described

_{land”) being a unit located in the Culverden Retirement Village;}

B. BY AN AGREEMENT in writing dated the 23^rd of April 1992 between the Transferor and JOYCE LESLEY MCLUCKIE of Auckland, Widow (hereinafter called “the Transferee”) the Transferor agreed to sell and

the Transferee agreed to buy the first-described land and to enter into the covenants on the part of the Transferees hereinafter appearing.

C. IT IS the parties’ intention that the owner or owners for the time being of the first-described land shall be bound to sell the land to the Transferor and any subsequent owner of the land described in the First

Schedule (hereinafter jointly and severally called “the dominant owner”) and

in particular shall be bound by the stipulations and restrictions set out in the

Second Schedule hereof;

D. IT IS the parties’ intention that the dominant owner shall be able to

enforce the observance of the stipulations and restrictions set out in the

Second Schedule upon the owner or owners for the time being of the first described land.

...

1. The Transferor TRANSFERS all its estate and interest in the first described land to the Transferee.

2. THE TRANSFEREE COVENANTS AND AGREES WITH THE TRANSFEROR that she will henceforth and at all times observe and perform all the stipulations and restrictions contained in the Second Schedule hereto so as to bind the first described land for the benefit of all the land described in the First Schedule hereto WITH THE INTENTION that each of the said stipulations and restrictions shall enure for the benefit of the stratum estate described in the First Schedule and every part thereof forever.

...

_{THE FIRST SCHEDULE}

A stratum estate in freehold within the meaning of the Unit Titles Act, 1972 in Principal Unit Q on Plan 145836 more particularly comprised and described in Certificate of Title Volume 86C Folio 61 (North Auckland Registry).

_{THE SECOND SCHEDULE}

(a) The Transferee will not sell assign gift transfer or otherwise dispose of the land to any person firm or corporation other than the dominant owner or a party nominated in writing by the dominant owner.

(b) The Transferee shall forthwith

(i) upon ceasing to occupy the Unit, or

(ii) upon the dominant owner giving the Transferee notice that the dominant owner has determined (in his, her or its absolute discretion) that the Transferee is no longer occupying the unit, or

(iii) upon the dominant owner giving the Transferee notice that the dominant owner has determined (in his, her or its

absolute discretion) that the Transferee is in breach of any

rule set out in the Body Corporate Rules (from time to time) for the operation of the Body Corporate or the Culverden Retirement Village.

sell and transfer the Unit to the owner of the land described in the First

Schedule.

The price to be paid by the dominant owner to the Transferee shall be (inclusive of Goods and Services Tax and any other taxes) calculated as the sum of ONE HUNDRED AND FIVE THOUSAND DOLLARS ($105,000.00) less:

(i) a capital replacement and care charge calculated as: CRC = P x (y + 1) x 0.03

where “CRC” is the capital replacement and care charge,

“p” is the sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) and “y” is; the number of complete calendar years

since the Transferee obtained possession of the unit, provided that

capital replacement charge herein shall not exceed THIRTY THOUSAND DOLLARS ($30,000.00); and

(ii) any monies due to the dominant owner or any associated company by the Transferee; and

(iii) such charge as the dominant owner may reasonably and properly determine for the renovation and restoration of the unit to the same condition as when the Transferee took possession of the same.

The dominant owner shall pay to the Transferee the price, and the Transferee shall contemporaneously pass to the dominant owner a completed Transfer of the Unit, discharge(s) of all or any mortgages, liens, charges or other indebtedness, such settlement to be within 60 days of the dominant owner giving notice requiring sale.

(c) The Transferee shall not mortgage or charge the Unit except to a mortgagee or chargeholder who has first agreed to be bound by the conditions on the part of the Transferee contained herein.

[9] Culverden and Ms McLuckie modified the covenant by a Deed of Modification of Covenant dated 24 June 1998. The materials terms of the Deed of Modification are as follows:

_{DEED OF MODIFICATION OF COVENANT}

THIS DEED OF MODIFICATION OF COVENANT made the 24 day of

June 1998

PARTIES:

CULVERDEN RETIREMENT VILLAGE LIMITED at Auckland

(“Culverden”)

JOYCE LESLEY McLUCKIE of Auckland, Widow (“the Unitholder”)

WHEREAS:

A Culverden owns Principal Unit Q on Plan 145836 ... (“Unit Q”);

B The Unitholder owns Principal Unit C on Unit Plan No. 145836 ...

(“the Unit”) being a Unit located in the “Culverden Retirement Village”;

C. Pursuant to Transfer C.382674.3 dated 8 June 1992 (“the Transfer”) the Unitholder agreed to be bound to sell the Unit to the owner of Unit Q (“the dominant owner”) and to be bound by the stipulations and restrictions set out in the Second Schedule of the Transfer (“the Second Schedule”);

D. Culverden and the Unitholder wish to modify the Transfer.

NOW THIS DEED WITNESSES:

1. Culverden and the Unitholder agree that both parties are no longer

bound by the Second Schedule and the same is mutually rescinded.

2. The Unitholder covenants and agrees with Culverden that they will henceforth and at all times observe and perform all the stipulations and

restrictions contained in the First Schedule hereto (“the First Schedule”) so

as to bind the Unit for the benefit of Unit Q with the intention that each of

the said stipulations and restrictions shall endure for the benefit of Unit Q

and every part thereof forever.

3. The Unitholder agrees that they will at all times while the Unitholder is the registered proprietor of the Unit hereafter save harmless and keep indemnified the dominant owner from all proceedings costs claims and demands in respect of the breaches by the Unitholder of any of the covenants and restrictions on the Unitholder’s part contained or implied in the First Schedule.

4. The Unitholder hereby jointly and severally appoints irrevocably the dominant owner their attorney for the purpose of executing any Transfer of

the Unit to the dominant owner or any other document required to be

executed or completed in order that the Unitholder observes and performs all the stipulations and restrictions contained in the First Schedule.

_{THE FIRST SCHEDULE}

_{1. OPTION TO PURCHASE}

The dominant owner shall have the option to purchase the Unit which shall be exercisable at any time:

(a) upon the Unitholder ceasing to occupy the Unit, or

(b) upon the dominant owner giving the Unitholder notice that the dominant owner has determined (in his, her or its absolute discretion) that the Unitholder is no longer occupying the Unit, or

(c) upon the dominant owner giving the Unitholder notice that the dominant owner has determined (in his, her or its absolute discretion) that the Unitholder is in breach of any rule set out in the Body Corporate rules (from time to time) for the operation of the Body Corporate or the Culverden Retirement Village, or

(d) upon the Unitholder seeking to sell, dispose or transfer the Unit.

_{2. NOTICE}

(a) The dominant shall give notice in writing within not more than 30 days of the option becoming exercisable under clause 1 hereof (“Notice”) to the Unitholder stating that it exercises the option. In the event that the dominant owner:

(i) does not exercise the option, this option shall terminate and the Unitholder shall be entitled to sell the Unit to any other third party who has first agreed to be bound by the conditions on the part of the Unitholder herein.

(ii) exercises the option, the Notice shall specify a settlement date (“settlement date”) being a date not more than 30 days following the service of the Notice.

(b) Service of the Notice shall be effected in accordance with the provisions of section 152 of the Property Law Act 1952.

(c) The price to be paid by the dominant owner to the Unitholder shall be (inclusive of Goods and Services Tax and any other taxes) the [same price as provided for under the original covenant as set out above].

(d) ...

...

(g) ...

_{3. CAVEAT}

The dominant owner shall be entitled to register a caveat against the title to the Unit to protect the dominant owner’s interest pursuant to this option to purchase. In the event that the dominant owner does not exercise this option to purchase, the dominant owner shall, at the cost of the dominant owner register a withdrawal of the caveat against the title to the Unit.

IN WITNESS WHEREOF these presents have been executed this 24 day of

June 1998.

SIGNED by CULVERDEN

RETIREMENT VILLAGE LIMTED as Transferor. SIGNED by JOYCE LESLEY McLUCKIE

[10] As is clear from recitals C and D, and Clause 2, the original covenant was intended to bind Ms McLuckie and her successors in title and to be enforceable by Culverden and any subsequent owner of Unit Q. There can be no doubt that this covenant ran with the land.

[11] While the subsequent deed is described as a Deed of Modification, it records that the parties agreed that they were no longer bound by the covenants in the second schedule of the original deed and that these were mutually rescinded. The relevant operative covenants in the original deed are contained in schedule 2. These covenants, requiring sale and purchase of the unit in specified circumstances, were replaced with an option to purchase exercisable in those same circumstances or if the owner of Unit C wished to sell the unit.

[12] There was nothing in the Deed of Modification to suggest that the parties intended that the restrictions would no longer bind or benefit their successors in title. To the contrary, there are a number of indications that they intended that the covenant would continue to run with the land. First, the deed was registered against

the title to Unit C. Second, Clause 2 of the Deed of Modification refers to the unit holder covenanting and agreeing with Culverden “so as to bind the unit” (Unit C) “for the benefit of Unit Q” with the intention that each of the restrictions would “endure for the benefit of Unit Q and every part thereof forever”. Third, the indemnity for any breach by the unit holder applies only while that unit holder is the registered proprietor of the unit. The indemnity is in favour of the dominant owner. Thus, the indemnity contemplates that subsequent unit holders may breach the covenant and attract a liability to the dominant owner from time to time but any particular unit holder will only be liable to the extent of his or her own breach.

[13] Section 302 of the Property Law Act provides that a covenant burdening the land of the covenantor binds the covenantor’s successor in title unless a contrary intention appears in the instrument:

302 Construction of covenants relating to land: burdens

(1) This section applies to a covenant burdening land of the covenantor, whether expressed in an instrument or implied by this Act or any other enactment in an instrument, and whether a positive covenant or a restrictive covenant.

(2) Unless a contrary intention appears in the instrument, the covenant binds –

(a) the covenantor; and

(b) the covenantor’s successors in title; and

(c) persons claiming through the covenantor or covenantor’s successors in title.

(3) For the purposes of this section, –

(a) the covenantor’s successors in title include an occupier for

the time being of the burdened land:

(b) a restrictive covenant may relate to a subject matter not in existence when the covenant is made.

[14] There is no indication in the Deed of Modification that it is not intended to bind the covenantor’s successors in title. For the reasons given above, it appears from the instrument that the parties intended that it would do so. I conclude that the covenant ran with the land and Ghuznee is entitled to enforce it against the defendants.

Was the option exercised in time?

[15] Ghuznee purported to exercise the option by notice to the defendants dated

4 September 2013 and served on 11 September 2013. Ghuznee relied on subclauses

1(b) and (c) of the Deed of Modification. The critical paragraphs in the notice are as follows:

NOW TAKE NOTICE

1. The Dominant Owner HEREBY GIVES NOTICE pursuant to clause 1(b) of the Covenant that on 3 September 2013, the Dominant Owner determined in its absolute discretion that you are no longer occupying the Unit.

2. The Dominant Owner HEREBY GIVES NOTICE pursuant to clause 1(c) of the Covenant that on 3 September 2013, the Dominant Owner determined in its absolute discretion that you are in breach of the rules set in the Body Corporate rules (from time to time) for the operation of the Body Corporate.

3. That the Dominant Owner HEREBY GIVES NOTICE pursuant to clause 2(a) of the Covenant that it hereby exercises the option to purchase the Unit from you.

[16] Mr Bigio submits that the notice was ineffective. He argues that the option to purchase became exercisable more than 30 days prior to the date Ghuznee purported to exercise it. On that basis he contends that the option terminated prior to being exercised.

[17] The option becomes exercisable immediately upon the occurrence of any one of the four events listed in Clause 1 of the first schedule of the Deed of Modification, including if the unit holder ceases to occupy the unit. After the Tasi Uno Trust acquired Unit C, it was occupied by Mr Anderson’s mother until she died on

15 October 2012. At the time Ghuznee purchased the remainder of the units in June 2012, Unit C was tenanted to a third party pursuant to a periodic tenancy agreement. This party vacated the unit some time in 2013, but the evidence does not establish when.

[18] While Mrs Anderson was apparently not a final beneficiary of the

Tasi Uno Trust, it appears that she was an object of the Trust because the trustees

permitted her to occupy Unit C. On that basis, I consider that it is at least arguable that the trust, as the unit holder at the relevant time, was in occupation of the unit during this period. However, Mrs Anderson’s occupation of Unit C must have ceased at the latest upon her death in October 2012. Suzanne Kashkari, a director of Ghuznee, deposes that Mrs Anderson was not living in Unit C when Ghuznee purchased the other units in June 2012.

[19] The purpose of the covenant was to ensure exclusive occupation by an owner who had to be aged 55 years or more. I consider that it is at least arguable that the form of occupation objectively intended by the parties in Clause 1(a) of Schedule 1 of the Deed of Modification did not extend to occupation by a tenant. On this basis, I consider that it is arguable that the Tasi Uno Trust ceased occupying Unit C in October 2012 at the latest. If so, Ghuznee’s right to purchase was triggered no later than October 2012. Ghuznee was aware Unit C was tenanted to a third party at the time it purchased the other units in June 2012, but did not purport to exercise its option to purchase until September 2013. It is at least arguable that the 30 day period within which the option had to be exercised had long since expired and the option had terminated in accordance with its own terms.

[20] It follows that Ghuznee’s purported exercise of the option to purchase was arguably invalid and of no effect. There is arguably no agreement for sale and purchase for the Court to enforce. On this basis, Ghuznee’s application for summary judgment must be dismissed. The defendants have an arguable defence to the claim.

Should summary judgment be declined in any event because of the defendants’

intended application to extinguish the covenant?

[21] Section 316 of the Property Law Act enables a person bound by a positive covenant or a restrictive covenant to make an application to a Court for an order modifying or extinguishing the covenant. The application may be made in a proceeding relating to the land burdened by the covenant or in a separate proceeding. The territorial authority must be served unless the Court otherwise directs. On such an application being made, the Court may modify or extinguish the covenant, wholly or in part, if satisfied that this ought to be done because of a change since the

covenant was created in the nature or extent of the use being made of the benefitted land, the burdened land or both (s 317(1)(a)(i)).

[22] I accept Mr Bigio’s submission that the defendants’ intended application to extinguish the covenant is at least arguable given that the covenant was created to facilitate the ongoing operation of the retirement village in accordance with the resource consent and the village ceased to operate as such in January 2010.

[23] While a counterclaim is normally no answer to an application for summary judgment, Mr Bigio argues that in the particular circumstances of this case, it is a significant factor that should weigh in the exercise of the Court’s discretion as to whether to enter summary judgment. He submits that if summary judgment is entered on Ghuznee’s claim, the defendants’ counterclaim to extinguish the covenant would be pointless. I accept that proposition. However, if Ghuznee validly exercised its option to purchase, a binding agreement for sale and purchase would have come into being creating rights and obligations that should not be disturbed in the context of an application for an order under s 317. That section only confers a power to extinguish a covenant, not any agreement for sale and purchase formed following the exercise of rights under such a covenant. For this reason, I reject this alternative basis of opposition to the application for summary judgment.

Should specific performance be declined in any event?

[24] Mr Bigio submits that the Court should decline to make an order for specific performance in the exercise of its discretion in view of the defendants’ intended application for an order extinguishing the covenant. For the same reason given above, I also reject this alternative ground of opposition.

[25] Finally, Mr Bigio submits that specific performance should not be ordered because caveats have been registered against the title to Unit C by two other parties and the defendants are therefore unable to give clear title. I accept Ms Holland’s submission that the existence of these caveats would not be sufficient to prevent the Court from making an order for specific performance. However, for the reasons given above, the defendants have an arguable defence to the claim on the basis that

the option to purchase terminated because it was not exercised within the stipulated

30 day period.

Result

[26] The application for summary judgment is dismissed. [27] Costs are reserved.

M A Gilbert J