Queen Elizabeth the Second National Trust v Green Growth no 2 Limited [2014] NZHC 3275 (17 December 2014)

Last Updated: 19 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-004592 [2014] NZHC 3275

BETWEEN	QUEEN ELIZABETH THE SECOND NATIONAL TRUST Plaintiff
AND	GREEN GROWTH NO 2 LIMITED Defendant THE REGISTRAR OF LANDS Interested Party

Hearing:	24–27 November 2014
Appearances:	F B Collins and H E Eglinton for the Plaintiff W A McCartney for the Defendant A F Todd for the Interested Party
Judgment:	17 December 2014

_{[RESERVED] JUDGMENT OF WYLIE J}

This judgment was delivered by Justice Wylie

On 17 December 2014 at 11.00 am

Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

_Date:

QUEEN ELIZABETH THE SECOND NATIONAL TRUST v GREEN GROWTH NO 2 LIMITED [2014] NZHC 3275 [17 December 2014]

INDEX

Paragraph
Introduction ............................................................................................................[1]

Summary judgment application .............................................................................[9] Pleadings – Fraud .................................................................................................[12] Factual Background .............................................................................................[16] Analysis ................................................................................................................[72] A. The Queen Elizabeth the Second National Trust Act ...................................[73] B. What does covenant B429136.1 provide?....................................................[81] C. Should the Court make a declaration as to the meaning of the covenant? ...[88]

4. Does indefeasibility under the Land Transfer Act attach to an open space covenant?......................................................................................................[94]

E. Rectification ...............................................................................................[106]

Would rectification have been available as between the Trust and

Mr Russell? ................................................................................................[107]

Is rectification available as between the Trust and Green Growth? .......... [119]

Should rectification be ordered by the Court in the exercise of its

discretion? ..................................................................................................[137]

Rectification ordered ..................................................................................[139] E. Green Growth’s counterclaims...................................................................[142] Counterclaims generally – indefeasibility..................................................[142] Wrongfully notified – s 81 of the Land Transfer Act ..................................[150] Summary ............................................................................................................[165] Costs ...................................................................................................................[166]

Introduction

[1] These proceedings concern an open space covenant which has been entered against the title to a block of land comprising approximately 404 hectares on the Coromandel Peninsula, near Tairua, under number B429136.1.

[2] The covenant is dated 8 April 1997. It is between the Queen Elizabeth the Second National Trust (‘the Trust”), and the late Mr Mallyon Russell, and it has been given pursuant to s 22 of the Queen Elizabeth the Second National Trust Act 1977. The covenant was entered on the title to the property on 24 July 1997.

[3] There are problems with the covenant which went unnoticed at the time. The definition of the words “protected area” contained in cl 1 of the covenant reads as follows:

“Protected area” means the area of native trees shown as area on

illustrative aerial photo attached.

There is no aerial photograph attached to the covenant and there is a blank space after the word “area” in the definition. There are two clauses in the covenant which refer to “the protected area” – cls (2) and (7).

[4] The Trust seeks a declaration as to the meaning of the covenant. In the alternative, it seeks rectification.

[5] The defendant, Green Growth No 2 Limited (“Green Growth”), is a successor in title to the late Mr Russell. While it also seeks to preserve much of the land for conservation, it wishes to subdivide part of the land and to erect a dwelling or dwellings on that part. It resists the trust’s claim for rectification.

[6] Green Growth has brought a counterclaim. It takes issue with the way in which the covenant was entered into. It says that the covenant contains a replacement third schedule which was initialled by Mr Russell in June/July 1997 and that this version of the schedule was swapped with an earlier schedule which had been signed by Mr Russell. It asserts Mr Russell’s signature on the replacement

third schedule was not witnessed and that, as a result, the covenant was wrongfully entered on the title. It alleges that:

(a) the covenant is void as a deed,

(b) there was no consideration for the covenant, (c) the covenant fails for uncertainty,

(d) the covenant was wrongfully obtained under the Land Transfer Act

1952 and should be removed under s 81 of that Act,

(e) the insertion of the replacement third schedule was a variation to the covenant and was invalid under the Queen Elizabeth the Second Trust Act.

(f) the covenant as between the Trust and Mr Russell was an unconscionable bargain.

It seeks removal of the covenant.

[7] As an alternative to removal of the covenant, Green Growth seeks rectification. It seeks that the covenant should be rectified to record the position as it was prior to substitution of the replacement third schedule.

[8] The Trust for its part disputes each of the causes of action brought by Green Growth in its counterclaim. As an affirmative defence, it asserts that the causes of action raised by Green Growth are precluded by s 62 of the Land Transfer Act and s 22(6) of the Queen Elizabeth the Second Trust Act.

Summary judgment application

[9] Initially, the Trust applied for summary judgment. It sought a declaration that it was entitled to enforce specific provisions contained in the covenant against Green Growth. Alternatively, it sought rectification. This application was resisted

by Green Growth, and it in turn sought various orders, also by way of summary judgment.

[10] The respective summary judgment applications proceeded to hearing before Associate Judge Doogue in November 2012 and February 2013. He declined to adopt an interpretation of the covenant that treated the definition of the words “protected area” as redundant. Further, he declined the Trust’s claim for rectification. He also held that registration of the covenant was an interest in land that was covered by s 62 of the Land Transfer Act, and that, therefore, it had the protection of indefeasibility. He considered that, as a result, the Court could not

grant the relief sought by Green Growth in its counterclaim.¹

[11] Green Growth did not initially seek to appeal this decision. However, the Trust then signalled that it would raise an issue estoppel against Green Growth given the findings as to indefeasibility. Green Growth wished to protect itself against this possibility. It belatedly sought leave to appeal out of time to the Court of Appeal. There was a brief hearing before that Court on 7 April 2014, and in a minute issued on 9 April 2014, the Court recorded that the sensible course was to adjourn the

application before it until such time as this Court had heard the matter.² In the event,

I was advised by Mr Collins, appearing on behalf of the Trust, that the Trust was no longer alleging issue estoppel against Green Growth.

Pleadings – Fraud

[12] At the commencement of the hearing, Mr McCartney appearing for Green Growth, sought leave to file a reply to the Trust’s statement of defence to Green Growth’s counterclaim dated 13 May 2014. In the reply, he wished to assert that the process by which the covenant was obtained and entered on the title amounted to fraud for the purposes of s 62 of the Land Transfer Act, and that the

_{covenant therefore did not have the protection of indefeasibility.}

1. Queen Elizabeth the Second National Trust v Green Growth No.2 Ltd (2012) 14 NZCPR 548 (HC).

² Green Growth No.2 Ltd v Queen Elizabeth the Second National Trust CA623/2013, 9 April

2014.

[13] This application, insofar as it sought to raise fraud, was resisted by

Mr Collins appearing on behalf of the Trust.

[14] I declined to allow fraud to be raised for the following reasons:

(a) The issue of indefeasibility was raised at a very early stage. It was dealt with by Associate Judge Doogue in his reserved decision. It was pleaded as an affirmative defence by the Trust in June 2013 and again in its statement of defence to Green Growth’s amended counterclaim dated 13 May 2014.

(b) In November 2014, shortly before the trial commenced, Green Growth sought leave to file an amended counterclaim. One of the amendments sought to be made was to include an allegation of fraud. The application, insofar as it related to fraud, was rejected by Venning J in an oral judgment delivered on 17 November 2014.³

Green Growth was, in effect, asking me to revisit that ruling. Its

remedy, if it felt aggrieved by Venning J’s ruling, was to file an appeal

against the same. It had not done so.

(c) Fraud under the Land Transfer Act requires actual fraud, that is, dishonesty of some sort, not merely equitable or constructive fraud.⁴

It was difficult to ascertain the fraud alleged. It is common ground that the replacement third schedule was initialled by Mr Russell.

In my judgment, it was too late to raise an allegation of fraud. Even if such an allegation could responsibly have been made, it should have been raised at a very much earlier time.

[15] I therefore allowed the defendant to file their reply to the plaintiff ’s defence

to the counterclaim, but directed that [12(b)] and [39(a)] of that pleading – alleging fraud – be deleted.

³ _{Queen Elizabeth the Second National Trust v Green Growth No 2 Ltd [2014] NZHC 2860.}

⁴ Assets Co Ltd v Mere Roihi [1905] AC 176 (PC) at 210.

Factual Background

[16] Mr Russell owned approximately 611 hectares of land near Tairua. It was in two adjoining titles – one comprising just over 404 hectares and the other just over

207 hectares. The land had a number of steep gullies on it. There were stands of mature native trees on the property, as well as a block of pine trees. The land was initially farmed by Mr Russell, but in about 1984–1985, he gave up farming and previously grazed areas gave way to regenerating native bush. The land as a whole was described by one witness as “real tiger country”. It had significant infestations of possums, wild pigs, goats and mustelidae.

[17] Mr Russell’s land shared a common boundary with another large property owned by an entity known as the Te Moata Buddhist Community. That community had been established by a Mr Wyn-Harris.

[18] Mr Russell was a recluse. He was born in 1922. At the times in issue in this matter, he was aged between 75 and 77 years. He had few friends. His closest confidant over the years was a Mr Boyd. Mr Boyd is a retired trapper. He used to go hunting on Mr Russell’s land, and he knew Mr Russell over some 40 or so years.

[19] The original homestead on the land had burnt down, and Mr Russell lived in a hut. A photograph of the interior of the hut was produced in evidence. It was full of rubbish, and clearly, Mr Russell’s living conditions were appalling. The evidence disclosed that he had no electricity, no hot or running water, no bathroom as such and no proper toilet facilities. He suffered from malnutrition from time to time. Mr Wyn-Harris and other members of the Buddhist Community assisted Mr Russell on occasion. They provided food for him, kept a general eye on him, and looked out for his welfare.

[20] The evidence also disclosed that Mr Russell was intelligent, that he could read and that he had a good understanding of his affairs. Mr Russell’s mental state was assessed by a Dr Poppe in late 1997. He reported as follows:

As a result of my findings I can confidently confirm that Mr Russell is not only physically in good health related to his age but is fully aware of his surroundings, well aware of current proceedings against him and seems very well capable of making his own decisions.

He scored 58 points out of 60 on the augmented mini-mental state test which really is a very good result indeed.

Although Green Growth initially pleaded to the contrary, by the time the matter came before me, any suggestion that Mr Russell lacked capacity had been abandoned.

[21] Mr Wyn-Harris had entered into an open space covenant with the Trust to protect the Te Moata Buddhist Community’s land. At some stage, he must have discussed this with Mr Russell and Mr Russell in turn must have expressed interest in the idea. In August 1995, Mr Wyn-Harris approached a Mr Bishop, who was employed by the Trust. Mr Wyn-Harris told Mr Bishop that Mr Russell might be interested in placing an open space covenant over his land.

[22] Mr Bishop communicated this to the Trust’s representative in the Coromandel area – a Mr Parr. Mr Parr knew Mr Wyn-Harris and he had had some professional involvement with the Te Moata Buddhist Community. Mr Parr arranged an introduction to Mr Russell through two women from the Buddhist Community in about August 1995. When Mr Parr first met Mr Russell, Mr Russell was living in his hut on the property. He said that Mr Russell was very shy and that the first meeting was limited to explaining who he was and talking about very general matters.

[23] Shortly thereafter, Mr Russell’s health began to deteriorate seriously. Members of the Te Moata Buddhist Community became aware of this and they arranged for Mr Russell to be taken off his land. Mr Boyd assisted in this regard. Mr Russell was initially hospitalised. When he recovered, he was relocated to a rest home in Tairua. He never returned to live on his land.

[24] Mr Russell’s solicitor was a Mr Jenkison. In August 1995, he prepared an enduring power of attorney for Mr Russell in favour of New Zealand Guardian Trust Ltd. He recorded in a letter to the New Zealand Guardian Trust that it was likely that

Mr Russell would remain a permanent resident in the rest home. He noted that

Mr Russell owned the land, and that he did not then want to sell it.

[25] Mr Parr had a number of further meetings with Mr Russell at the rest home. He found Mr Russell noticeably different. Mr Russell had become much less shy and their communications improved considerably as Mr Russell became more comfortable with him. Mr Parr gleaned the impression that Mr Russell had, over time, enjoyed watching the bush regenerate around him. Mr Parr also became aware from his discussions with Mr Russell that he wanted to help his neighbours at the Te Moata Buddhist Community, to thank them for their kindness and support. Mr Russell believed that he would be helping the peace and tranquillity of their retreat if he were to protect his own land by putting an open space covenant over it.

[26] Mr Parr prepared a report on the land for the Trust. He recorded in his report that he had met Mr Russell on four separate occasions and that Mr Russell “seem[ed] to be committed to protecting the bush”. He suggested that the purpose of any covenant should be to protect forest values. He also suggested a special condition as follows:

To allow areas currently in pines and grass to be available for replanting and production timber trees. To allow tracks and buildings for owner’s housing needs (approximately 40 hectares).

He observed that the property was high in historical values and observed that there were various rare species of plants, and plant associations, on the land. Mr Parr placed the highest rating value available under the Trust’s rating system – category 1

– on the land. He considered that the land was of special value, because it would enhance the existing covenant over the adjoining Te Moata Buddhist Community property. He recorded in his report that Mr Russell was in a rest home and that it was likely that the land would need to be sold to pay his rest home fees.

[27] Mr Parr sent his report to a Mr Lissaman. Mr Lissaman was the Trust’s field manager. He acted as a conduit between the Trust’s Board and its regional representatives. He considered Mr Parr’s report and made some edits to it. One of the alterations that Mr Lissaman made to the report was to record that Mr Russell’s

land provided a link between other areas recommended for protection and an existing block of land known as the Kapowai Forest Park owned by the Department of Conservation. He considered that placing an open space covenant over the land would protect and enhance the values of existing and important covenanted areas. He recommended to the Trust’s Board that an open space covenant should be offered to Mr Russell over both titles.

[28] The Trust’s Board met on either 18 or 19 October 1995. It considered the

report and resolved to offer Mr Russell an open space covenant over his land.

[29] The Trust had a template covenant. The template was amended in various respects to accommodate Mr Russell’s situation and the special condition that Mr Parr had recommended. The Trust was proposing a “whole of title” covenant, but providing for a management area of approximately 40 hectares where pine trees could be harvested and planted and within which Mr Russell could build a house or houses and subdivide. The proposed covenant was intended to be over both titles owned by Mr Russell.

[30] Unfortunately, the Trust no longer has a copy of the template as finally amended. There was, however, a draft produced in evidence. The following are noteworthy:

(a) There was no definition of the words “protected area”.

(b) The second paragraph in cl 2 of the covenant read as follows:

In particular, on and in respect of the land, except with the prior written consent of the Board or as allowed in the third schedule, the Owner shall not...

(c) Clause 7 required the owner to keep all fences and gates on the

boundary of “the land” in good order and condition.

(d) The third schedule read as follows:

1. An area not exceeding 40 ha(?) with approval of the Board

may be defined as a “management area” within which:

a) The owner may harvest and replant the existing area of pine trees and open grass lands (adjacent to the original homestead). The first call on the proceeds from this to be for the management and protection of the protected area.

b) The owner may after suitable survey definition at the Owner’s cost, subdivide and/or erect dwellings, ancillary buildings and access thereto and clear vegetation necessary for light and views up to 1000 m² per dwelling provided the siting, design and visual impact are not detrimental to the objectives of the covenant over the balance of the land.

[31] The draft covenant was forwarded to Mr Russell care of Mr Parr, together with a covering letter dated 31 October 1995.⁵ The letter recorded that the Trust Board had considered Mr Parr’s report and approved the project. It enclosed not only the draft covenant for Mr Russell’s consideration,⁶ but also an explanatory brochure about open space covenants generally. The board asked Mr Russell to consider its offer of a covenant and to advise whether or not he accepted the same by signing and returning a copy of the letter. The letter recorded that the Trust had not defined the area suitable for management and harvesting of the pines, or possible building sites, but that Mr Parr would have to get an aerial photograph on which those areas could be defined after further discussion with Mr Russell.

[32] Mr Parr met with Mr Russell and gave the letter and draft covenant to him. He took him through the covenant document, and explained it on a clause by clause basis. Mr Parr left the documentation with Mr Russell so that he could consider it.

[33] In mid December 1995, Mr Russell expressed interest in leaving the rest home and going back to his land. He spoke to Mr Parr about this, and Mr Parr in

5. All correspondence sent from the Trust to Mr Russell was addressed to Mr Parr. He, in turn, would deliver it in person to Mr Russell at the rest home.

⁶ It seems likely that the draft covenant was in the terms noted in [30] above. I note that on

25 February 1996, Ms Place, the Trust’s administrator, sent a facsimile to Mr Parr setting out the third schedule to the covenant. She said “Stephen: This Third Schedule is from H M Russell’s covenant document”. The third schedule was identical to that noted in [30(d)].

turn spoke to Mr Lissaman. Mr Lissaman prepared a file note regarding the discussion.

[34] By early January 1996, Mr Russell was coming under pressure from the owners of the rest home. His account was approximately $15,600 in arrears. The owners of the rest home wrote to Mr Jenkison in this regard.

[35] Mr Russell accepted the offer from the Trust by signing the letter dated

31 October 1995 on 8 February 1996. It was returned to the Trust and the Trust then proceeded to try and finalise the wording of the covenant document. Ms Place – an administrator at the Trust – sent the third schedule from the covenant document approved by Mr Russell to Mr Parr, and asked him some questions to clarify matters. Mr Parr responded on 28 March 1996. The main difficulty at that stage lay in properly defining the proposed management area. Mr Parr had ordered an aerial photograph of the land and it was thought that it would be possible to define the location and size of the management area on that photograph. In anticipation of receiving the photograph, a revised version of the covenant was drawn up.

[36] In April 1996, Mr Jenkison wrote to New Zealand Guardian Trust. A group of saw millers had asked Mr Russell to sign a logging agreement so that they could extract some of the timber on the property. Mr Jenkison in his letter recorded as follows:

Mr Russell has mentioned that the Queen Elizabeth Trust could be used to protect the native timber.

[37] On 15 April 1996, the Trust wrote to Mr Russell. It thanked him for confirming his acceptance of a covenant over his land, and included two copies of the revised covenant for Mr Russell’s signature. The letter recorded as follows:

We have reworked the wording of the covenant so that it is clearer. We have divided the land into two distinct covenant areas which will be clearly shown on an aerial photo (this will be attached to the document later).

The draft covenant attached to that letter contained the definition of the words

“protected area” noted above in [3]. The words “the land” in the second paragraph

of cl 2 and in cl 7 were deleted and replaced with the words “the protected area”. A

new third schedule read as follows:

1. An area not exceeding 40 ha with approval of the Board and shown as area on the illustrative photo attached, may be defined as a

‘management area’ provided that within the said management area

nothing is done that is detrimental to the aims and purposes of the covenant in relation to the protected area.

2. Within the defined management area the Owner may:

a) harvest and replant the existing area of pines trees and open grasslands (adjacent to the original homestead); the first call on the proceeds from this to be used for the management and protection of the protected area.

b) after suitable survey definition at the Owner’s cost, subdivide and/or erect dwellings, ancillary buildings, form an access thereto and clear vegetation necessary for light and views up to 1000m² per dwelling, after consultation with the Trust as to siting, design and materials.

The Trust, at this stage, still considered that an aerial photograph would suffice to define both the management area and the protected area.

[38] Mr Parr visited Mr Russell and left the documents with Mr Russell for him to consider. Ms Place chased the matter up with Mr Parr on 6 June 1996. Mr Parr responded on 7 July 1996, advising that the documents would be sent back to the Trust “soon”.

[39] Mr Russell decided to sign the covenant in the form in which it had been presented. A signing ceremony was arranged. It took place on 5 October 1996 at the Te Moata Buddhist Community Centre buildings. Mr Parr told me that it was held at Te Moata in recognition of the importance of achieving complete protection of the adjacent wilderness block. The ceremony was attended by Mr Russell, Mr Parr, members of the Te Moata Buddhist Community and a small number of other friends and supporters. Mr Boyd attended the ceremony and he told me that he witnessed Mr Russell’s signature on the covenant. Mr Boyd said that the document signed at

the ceremony was “the only document [he could] remember witnessing for

[Mr Russell] at any time or any place”.⁷

[40] A few days later, Mr Parr spoke to Mr Russell. The Department of Social Welfare was putting pressure on Mr Russell to sell part of his land to pay for his ongoing care in the rest home. Mr Parr was familiar with the relevant District Plan and he was aware that subdivision into 20 hectare conservation blocks would be permitted on Mr Russell’s land. As a “workaround”, it was agreed between Mr Russell and Mr Parr that the smaller title comprising 207 hectares should be deleted from the covenant to allow for such subdivision and to make that block more suitable for sale. The trade off agreed was that no subdivision would be allowed on the larger 404 hectare block. Mr Parr told me that Mr Russell was happy to proceed on this basis. As a result, Mr Parr, acting on Mr Russell’s instruction, crossed out any references in the covenant to the 207 hectare block of land.

[41] Mr Parr spoke to Ms Place about this. She in turn reported to Mr Lissaman. Mr Lissaman was told that the third schedule in the covenant over the 404 hectare block was to remain, as most of the proposed management area was to be within this title.

[42] At this stage, the Trust still did not have an aerial photograph but Mr Parr was chasing this up. Ms Place advised Mr Parr to instruct surveyors – Terralink NZ Ltd

– to mark up two photographs when they were received, so that they could be attached to the covenant. It was proposed that the management area should be marked “A”, and that the rest of the land – the protected area – should be marked “B”.

[43] On 1 November 1996, the covenant which had been signed by Mr Russell on

5 October 1996 was signed by the Trust. A copy of the signed document was sent to

Mr Russell by letter on the same day. The letter also advised that Mr Parr would be in contact with Mr Russell “regarding the final step in the covenanting process”.

⁷ But see below at [54] and n 8.

[44] On 8 November 1996, Mr Parr sent a memorandum to Mr Lissaman. He recorded that Mr Russell had signed the covenant document, but only as it related to the larger title, and that all reference to the smaller title had been struck out. The memorandum went on as follows:

It is now considered that the other title should go ahead, but allow for subdivision into conservation blocks with a minimum size of 20 ha. This requires a new document to be prepared but does it also require Board approval. If so can you place the matter in the agenda please.

This was a reference to the smaller 207 hectare block.

[45] On 15 November 1996, Ms Place asked Mr Parr to contact Mr Russell to try and locate the title to the larger block, so that the Trust could “register” the signed covenant over that block. She advised that she had spoken to Mr Jenkison, and to a Mr Olds at New Zealand Guardian Trust, but that neither of them had the title.

[46] It seems that aerial photographs of Mr Russell’s land were finally obtained in late November/early December 1996.

[47] Also in early December 1996, Mr Lissaman updated the Trust’s Board in relation to the situation. He sought the Board’s consent to ratify the covenant over the 404 hectare block of land, with the deletion of the 207 hectare block, and to put in place a new covenant over the 207 hectare block allowing subdivision into conservation blocks, with a minimum lot area of 20 hectares, each with a dwelling site, and approved access. The Board accepted these recommendations at a meeting held on 3 December 1996.

[48] In January 1997, the Trust prepared new covenant documents, one for the

404 hectare block and the other for the 207 hectare block. These documents were forwarded to Mr Russell by letter dated 7 January 1997.

[49] On 29 January 1997, Ms Place sent a memorandum to Mr Parr, asking him what had happened to the signing of the covenant over the 207 hectare block. She also asked him how long it would take to obtain the aerial photograph. (It seems that

Ms Place had overlooked that the photographs had been received in late November

1996 and that she had authorised payment of an invoice in relation to the same.)

[50] It also seems that Ms Place must have had some discussion with Mr Parr regarding yet further amendments to the covenants, because on 12 March 1997, she sent a further set of documents to Mr Parr “as requested”, incorporating the “slight alterations to text to read better...”. She asked Mr Parr to have these revised documents signed and initialled by Mr Russell.

[51] Mr Parr replied by facsimile on 13 March 1997. He enclosed yet a further proposed amendment to the third schedule to be included in the covenant for the

404 hectare block. The affect of the proposed amendment was to remove any reference to subdivision, and, as a result, to reduce the proposed management area to

20 hectares. Mr Parr asked Ms Place to consider this proposed amendment as a matter of urgency and to post a replacement page as soon as possible if she agreed with it, so that he could get it signed by Mr Russell at a meeting which he was proposing to hold with him during the coming weekend.

[52] Ms Place obliged. She prepared an amended version of the third schedule, which read as follows:

1. An area not exceeding 20 ha, with the approval of the Board and within the area shown as area A on the illustrative photo attached, be defined as a ‘management area’ provided that within the said management area nothing is done that is detrimental to the aims and purposes of the covenant in relation to the protected area.

2. Within the defined management area the Owner may:

a) harvest existing pines trees and replant in native vegetation or where suitable replant an area of pines or establish and maintain an area as open grassland adjacent to the original homestead.

b) erect dwellings and ancillary buildings subject to District Council planning requirements and after consultation with the Trust as to siting, design and materials, and maintain same; form access thereto; and clear vegetation necessary for light and views up to 1000m² per dwelling.

As can be seen, the draft covenant still proceeded on the assumption that an illustrative photograph would be attached.

[53] Mr Parr told me that it was his recollection that Mr Russell signed the replacement covenant for the 404 hectare block and a separate covenant for the

207 hectare block at the rest home. Mr Parr told me that he had the aerial photograph with him when he saw Mr Russell, and that he marked in on the photograph an outline of the proposed management area. He told me that he recalled discussing with Mr Russell where to place the outline of the management area, and that it was to be broadly around the area of the old homestead.

[54] Mr Parr said that Mr Boyd was present to witness Mr Russell’s signature. Their evidence is at odds with Mr Boyd’s evidence noted above at [39]. Both Mr Parr and Mr Boyd were patently honest witnesses, who were endeavouring to recollect events as best they could some 17 years after the event. On balance, I suspect that Mr Boyd was mistaken. It seems more likely that Mr Boyd was present at the meeting in the rest home, and that he witnessed Mr Russell’s signature at that

time.⁸ In the event, it does not matter, because the third schedule was amended yet

again, as I come to shortly, and it is common ground that Mr Boyd was not present on this later occasion.

[55] The signed covenants and the marked up aerial photograph were sent to the Trust, and on 8 April 1997, the covenants were signed by the Trust. It then sent a letter to Mr Russell on the same day enclosing his copy of the documents and

_{advising that it would shortly be sending them off for registration.}

⁸ In a letter dated 17 January 1997 sent by New Zealand Guardian Trust to Mr Jenkison, it was recorded that New Zealand Guardian Trust had received an open space covenant signed by Mr Russell dated 1 November 1996, and that Mr Russell’s signature had been witnessed by a “J T or J J Polson, a traveller/explorer, from 1A Barberry Lane, Te Atatu”. The covenant signed by Mr Russell at the signing ceremony on 5 October 1996 was not produced in evidence and it is no longer available. The statement made by New Zealand Guardian Trust in its letter ties in with the date of execution by the Trust (see above at [39]), and with the fact that the signed covenant was sent to Mr Russell by letter dated 1 November 1996. If New Zealand Guardian Trust is correct in the letter which it sent to Mr Jenkison, it must follow that Mr Boyd did not witness execution of the original covenant at the signing ceremony. There is no dispute that it is Mr Boyd’s signature on the covenant which has been dated 8 April 1997.

[56] The covenant over the 404 hectare block was signed correct by the manager of the Trust, a Mr Porteous, on or about 8 April 1997.

[57] On 16 April 1997, the Trust sent the signed covenant for the 404 hectare block to Terralink, together with the photograph which had been marked up by Mr Parr and Mr Russell. It asked for confirmation that the photograph would be acceptable to the District Land Registrar, and that the Trust would not be required to go to the expense of obtaining a survey.

[58] Terralink liaised with Land Information New Zealand. It took the view that the signed covenant in relation to the 404 hectare block was not a “whole of title” covenant, because the management area as defined was not subject to the covenant. The letter stated that the minimum standard of survey to support the covenant would be a Class C survey. Terralink advised the Trust of this by letter dated 9 May 1997. The Trust had not budgeted for a survey, and it would have been an expensive exercise. The Trust had limited funds at its disposal.

[59] On 16 May1997, the Trust wrote to Mr Russell. It advised him that the covenant had been “registered” on the title for the 207 hectare block. In regard to the larger block, it noted as follows:

...There is a delay in registering your other covenant... as we will need to define the management area of up to 20 ha. No doubt [Mr Parr] will explain this further when he sees you.

[60] On 19 June 1997, Ms Place sent a memorandum to Mr Parr. She enclosed a redrafted third schedule, which removed any reference to the management area. The Trust intended to make it clear that what was proposed was a covenant over the whole of the title to the 404 hectare block. This would avoid the need for a survey.

[61] On 23 June 1997, the Trust sent a letter to Mr Russell. The letter read as follows:

After several discussions with [Mr Parr] regarding the first covenant documents you signed, we have decided to alter the third schedule in an attempt to meet your future needs.

The two documents are now enclosed. If you agree with the wording of the third schedule please initial each page 4. These two pages are replacing the original ones you initialled which are also enclosed and can be destroyed.

We have title 43C/443 in our safe keeping, so as soon as these covenant documents are returned we will proceed with the registration.

[62] The covenant retained the definition of the words “protected area” as noted in

[3] above. The revised third schedule read as follows:

1. The Owner may maintain and upgrade the existing access track on the land.

2. The Owner may construct one dwelling, ancillary buildings and amenities after consultation with the Trust as to siting, design and materials in an area cleared of vegetation for light and views, a garden and orchard, provided such use does not detrimentally affect the rest of the native vegetation.

The existing third schedule, which had been signed by Mr Parr in late March/early

April 1997, was enclosed, with a line drawn through it.

[63] Mr Parr met with Mr Russell and explained the proposed changes to the third schedule. He told me that Mr Russell agreed to the replacement third schedule and that he initialled it. Mr Parr did not realise that the words “protected area” remained in the covenant. He said this was left in by mistake, and it should have been removed, as he had agreed with Mr Russell that this was to be a whole of title covenant, as a trade off for allowing subdivision of the 207 hectare block. He told me that an aerial photograph or a survey had become unnecessary, as the third schedule had been redrafted to avoid the need for either, and to make it clear that what was proposed was a whole of title covenant. He said that this had been the intention from the outset, and that the definition of the words “protected area” was something that he did not notice when he arranged for the replacement third schedule to be signed. Mr Lissaman told me much the same thing.

[64] It is common ground that Mr Boyd was not present when this replacement third schedule was initialled, and that Mr Russell’s initials have not been witnessed.

[65] The replacement third schedule was sent back to the Trust. It was then initialled by Mr Porteous, and two members of the Trust Board. The replacement third schedule was then inserted into the body of the covenant which had already been signed by the Trust and dated 8 April 1997, and the third schedule which was originally in the document was removed. Mr Porteous did not re-sign the covenant as being correct after these amendments were made. The document in its amended form was forwarded to Terralink on 14 July 1997, with a request that they “attend to registration”. As I have already noted, the covenant was entered on the title on

24 July 1997.

[66] On 5 September 1997, the Trust wrote to Mr Russell informing him that the covenant had been notified on the title to the 440 hectare block, and enclosing a copy of the documentation. It also returned Mr Russell’s title to him. Mr Parr delivered the letter and the title to Mr Russell and Mr Russell signed a receipt for the title.

[67] A company known as Pounamu Properties Ltd purchased both the

404 hectare block and the 207 hectare block from Mr Russell in mid 1999. The total purchase price was $400,000 and Mr Russell lent back $200,000 to the purchaser secured by way of mortgage.

[68] Mr Russell died on 17 December 2002.

[69] In July 2010, the Trust’s Board agreed to vary the covenant over the

404 hectare block at the request of Pounamu Properties Ltd. The Board’s consent was, however, subject to the Trust and Pounamu Properties Ltd agreeing on various conditions. The variation was not in the event signed; nor was any variation entered on the title.

[70] In 2011, a company known as ABD Properties Ltd (“ABD”) purchased both properties from Pounamu Properties Ltd for $540,000. ABD was controlled by a Mr Davis. He has had discussions with the Trust about ABD’s intentions for the property and ABD submitted a formal application to the Trust to vary the covenant over the 404 hectare block. ABD asked the Trust to vary the covenant to allow for a

19-lot subdivision of clustered housing to be excluded from the covenanted area, and

for a new 323 hectare lot to remain subject to the covenant. Approval was declined by the Trust at a meeting held on 6 March 2012. The Trust considered that ABD’s proposals were contrary to the purposes and objectives of the covenant.

[71] In May 2012, the properties were transferred by ABD to Green Growth. Green Growth was incorporated solely to own and restore the properties. It owns no other land. It is a wholly owned subsidiary of ABD. Mr Davis is also a director of Green Growth and it was his evidence that the company holds the title as a bare trustee for ABD. Green Growth has advertised the 404 hectare property for sale on the Trade Me website. The asking price is $3,800,000. The advertisement states that

the covenant will be removed prior to settlement.⁹

Analysis

[72] At law, a covenant is a promise made under seal in a deed. There are various statutory provisions which allow for certain covenants, particularly for conservation or subdivision consent purposes.¹⁰ Open space covenants are provided for by the Queen Elizabeth the Second National Trust Act 1977.¹¹

A. The Queen Elizabeth the Second National Trust Act

[73] I start by considering the Queen Elizabeth the Second National Trust Act.

[74] I was told in evidence that the initiative for the legislation came from a group of dairy farmers in the Waikato who had stands of kahikatea and other native trees on their farms. They valued these trees and did not want to run the risk that future owners of their farms might cut them down. They approached the government of the day and managed to obtain ministerial support for legislation which could assist in

_{ensuring ongoing protection for such areas. The Act was put in place as a result of}

⁹ Mr Davis did say that this advertisement had been put on the Trade Me website in a moment of frustration, and that the property is not for sale at the price of $3,800,000. He denied trying to exploit the error in the covenant.

¹⁰ _{Hinde McMorland & Sim, Land Law in New Zealand (LexisNexis, online ed) at [17.001].}

¹¹ See the helpful discussion in the Professor D L Donahue "Law and Practice of Open Space

Covenants" (2003) 7 New Zealand Journal of Environmental Law at 119.

this initiative and to commemorate the Silver Jubilee of Her Majesty Queen

Elizabeth II.

[75] The Trust was established as a body corporate, with perpetual succession. Its general functions are to encourage and promote, for the benefit and enjoyment of the present and future generations of the people of New Zealand, the provision, protection, preservation and enhancement of open space. It is administered by a Board which is required to undertake various specific functions in this regard,

including negotiating the execution of open space covenants.¹² The Board is given

such powers as are reasonably necessary or expedient to enable it to carry out its functions.

[76] Specifically, s 22(1) provides as follows:

22 Open space covenants

(1) Where the board is satisfied that any private land, or land held under Crown lease, ought to be established or maintained as open space, and that such purpose can be achieved without the Trust acquiring the ownership of the land or, as the case may be, the lessee's interest in the land, the board may treat and agree with the owner or lessee of the land for the execution by the owner or lessee in favour of the Trust of an open space covenant on such terms and conditions as the board and the owner or lessee may agree.

...

Relevantly, subs (4) to (7) of s 22 read as follows:

...

(4) The effect of an open space covenant shall be to require the land to which it applies to be maintained as open space in accordance with the terms of the covenant and, subject always to those terms, in accordance with the other provisions of this Act relating to land to which open space covenants apply.

(5) An open space covenant may be executed to have effect in perpetuity or for a specified term, according to the nature of the interest in land to which it applies and the terms and conditions of the agreement between the Trust and the owner.

¹² Queen Elizabeth the Second National Trust Act 1977, s 21.

(6) Notwithstanding any rule of law or equity to the contrary, every open space covenant shall run with and bind the land that is subject to the burden of the covenant, and shall be deemed to be an interest in the land for the purposes of the Land Transfer Act 1952.

(7) The District Land Registrar for the land registration district in which the land is situated shall on the application of the board enter in the appropriate folium of the register relating to the land that is subject to the burden of the covenant a notification of the covenant.

...

[77] The word “covenantor” in relation to an open space covenant, is defined to mean the owner or lessee for the time being of the land to which the covenant applies.¹³ The words “open space covenant” are not separately defined. However, the words “open space” are defined as follows:

Open space means any area of land or body of water that serves to preserve or to facilitate the preservation of any landscape of aesthetic, cultural, recreational, scenic, scientific, or social interest or value.¹⁴

[78] Open space covenants can be varied. Section 22A(1) provides as follows:

22A Variation of open space covenants

(1) Subject to subsections (2) and (3), the board and the covenantor may, by a memorandum of variation executed by them both,—

(a) make to any of the terms and conditions of an open space covenant executed under section 22 any variation that is not contrary to the purposes and objectives of the covenant; and

(b) correct any error of description in the covenant (whether with respect to the boundaries of an area of land or otherwise).

(2) Notwithstanding section 9(10), the board shall not enter into any memorandum of variation under this section unless all of the members of the board agree to the proposed variation.

...

[79] The public is given freedom of entry and access to all Trust land and to all land subject to an open space covenant (subject to any provisions contained in any

¹³ _{Section 2.}

¹⁴ Section 2.

particular covenant).¹⁵ Every member of the public who has obtained entry or access to any land subject to an open space covenant commits an offence if they light any fire on that land, or wilfully damage or cause to be damaged, any property or thing vested in or under the control of the owner of the land, or wilfully alter, obliterate, deface, pull up, remove or destroy any boundary mark, mark, or sign on that land without the consent of the owner.

[80] The Act does not make express provision for any disputes which may arise between an owner and the Trust pursuant to an open space covenant. It is, however, clear that once a covenant is in place, the Trust can seek an injunction to secure compliance with its terms.¹⁶

B. What does covenant B429136.1 provide?

[81] The covenant records that it is entered into pursuant to s 22 of the Act. It records that it was the intention of Mr Russell and the Trust to bind the land set out in a schedule of land “into whosoever hands the same may come”.

[82] The land the subject of the covenant was identified in a schedule. It was the

404 hectare block. Its lot and DP number were set out, as was its certificate of title reference.

[83] The terms of the covenant were set out in three additional schedules and Mr Russell and the Trust mutually covenanted to observe and perform their respective duties and obligations contained in each of those schedules, “to the end and intent that the same shall bind the land in perpetuity”.

[84] The first schedule recorded that the purpose of the covenant was to achieve the following open space objectives:

¹⁵ _{Section 33.}

¹⁶ See, for example, Queen Elizabeth the Second National Trust v Netherland Holdings Ltd [2014] NZHC 1094. It has been suggested by the Environment Court that open space covenants may not be as efficacious as consent notices under the Resource Management Act 1991. The High Court on appeal declined to comment on this suggestion. See, Morgan v Whangarei

District Council [2008] NZRMA 113 (HC) at [9] and [50].

(a) To protect and maintain open space values of the land; and

(b) To protect native flora and fauna on the land.

[85] The second schedule contained relevant definitions and detailed the parties’

obligations more fully:

(a) The words “the land” were defined in cl 1 to mean the property or part

thereof defined as being subject to the covenant.

(b) The words “protected area” were defined in cl 1 as noted in [3] above.

(c) The word “owner” was defined in cl 1 to mean the person or persons

who, from time to time, are registered as proprietors of the land.

(d) The first paragraph in cl 2 provided as follows:

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 [Trust’s] 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.

(e) The second paragraph in cl 2 provided as follows:

In particular, on and in respect of the protected area, except with the written consent of the Board, or as outlined in the third schedule, the Owner shall not...

There then followed nine subparagraphs – (a) to (i) – which restricted what the owner can do. For example, the owner could not fell, remove, burn or take any native trees, shrubs, or plants of any kind. The owner could not plant, sow or scatter any trees, shrubs or plants, or the seeds of any trees, shrubs or plants, other than local native flora, or introduce any substance injurious to plant life except in the control of noxious plants. The owner could not disturb the ground, or construct, erect or allow to be erected any new buildings, or make any exterior alterations to existing buildings. The owner could not effect a

subdivision, or allow cattle, sheep, horses or other livestock to enter, graze, feed or otherwise be present on the land.

(f) There were further clauses in the second schedule which dealt with the land, and not simply the protected area. For example, except with the consent of the Trust’s Board, no action was to be taken which could adversely affect any water resource on the land. The owner also agreed to comply with various statutory provisions in relation to pests and biosecurity.

(g) Clause 7 provided that the owner was to keep all fences and gates on the boundary “of the protected area” in good order and condition, and to accept responsibility for all repairs.

(h) The parties covenanted that members of the public should have freedom of entry and access to the land with the prior permission of the owner.

[86] The third schedule is in the terms which have been noted above at [62].

[87] There is an obvious difficulty with the covenant. The second paragraph in cl 2 in the second schedule applies only to the protected area. The protected area cannot be identified. There is no illustrative aerial photograph attached depicting it.

C. Should the Court make a declaration as to the meaning of the covenant?

[88] The Trust sought a declaration in the following terms:

A declaration that the true meaning and effect of the covenant contained in covenant B429136.1 is to protect all of the land as described in the Schedule of Land and described in the body of the covenant as ‘the Land’ or

‘Protected area’.

[89] I have considered whether it is possible, by the ordinary process of interpretation, to take a clear meaning from the covenant which the Court can declare.

[90] It is trite law that interpretation is the ascertainment of the meaning which the document will convey to a reasonable person having all of the background knowledge which has reasonably been available to the parties in the situation which they were in at the time of the contract.¹⁷ I have set out the background knowledge the parties had in some detail above. It can be assumed that the Trust was aware of the Act and its provisions, and that Mr Russell was aware of them, at least in broad

terms. As noted in [31] above, he did receive an explanatory brochure from the Trust at the outset.

[91] One interpretation may be that the words “protected area” embrace the whole of the land. I do not, however, consider this interpretation is open, given the terms of the covenant:

(a) There are references in the first schedule of the covenant to “protection”, but those provisions are concerned with the protection of open space values and flora and fauna. They are not directed to any particular area requiring protection.

(b) The definition of the words “protected area” in the covenant is confined to an “area of native trees”. There are stands of native trees on the property, but they do not cover the whole 404 hectares. The parties knew this.

(c) When a management area was being discussed, it was intended that it should be limited in size. The protected area was to comprise the balance of the land. It was not envisaged that it would include all of the land.

(d) If the parties had intended the protected area to embrace the whole of

the land, the words “protected area” would not have been defined separately from the words “the land”.

¹⁷ Investors Compensation Scheme v West Bromwich Building Soc [1997] UKHL 28; [1998] 1 WLR 896 (HL) at 912–

913; Boat Park Ltd v Hutchison [1999] 2 NZLR 74 (CA); Vector Gas Ltd v Bay of Plenty Energy

Ltd [2010] NZSC 5, [2010] NZLR 444 at [11], [62] and [127].

[92] Once it is accepted that the protected area and the land were intended to be different things, it must follow that the provisions of cl 2(a) to (i) do not apply to the whole of the land. However, given the background, it seems to me that Mr Russell and the Trust did not intend that the prohibitions contained in cl 2(a) to (i) were to be otiose. Other clauses in the covenant which apply to “the land” do offer protection – for example, the introductory paragraph to cl 2 noted above in [85(d)]. It cannot therefore be said that the whole document is void for uncertainty; rather, the protection afforded to the land is more limited if cl 2(a) to (i) do not apply to all of the land. An interpretation which results in cl 2 (a) to (i) being redundant would not, in my judgment, fully accord with Mr Russell’s expressed intention to protect his land, the trees and regenerating bush. It would also not fully accord with the Trust’s mandate and statutory function.

[93] I agree with the Trust that the wording of the third schedule is clear and that, in a broad sense, the overall purpose of the covenant is to protect all of the land described in the land schedule forming part of the document. I cannot, however, see that a declaration in the terms proposed by the Trust would advance matters. To my mind, the proposed declaration is nebulous and it does no more than state the obvious. It would remain unclear whether the obligations contained in cl 2(a) to (i) form part of the covenant. I therefore decline to make the declaration sought.

4. Does indefeasibility under the Land Transfer Act attach to an open space covenant?

[94] Before I consider the Trust’s alternative claim for rectification, or Green Growth’s counterclaims, I consider whether or not open space covenants enjoy the benefit of indefeasibility under the Land Transfer Act. The answer to this issue potentially affects both the claim to rectification and the counterclaims.

[95] The concept of indefeasibility of title derives principally from s 62 of the Land Transfer Act, but also from ss 63, 64, 75, 182 and 183. The key section for present purposes is s 62. It provides as follows:

62 Estate of registered proprietor paramount

Notwithstanding the existence in any other person of any estate or interest, whether derived by grant from the Crown or otherwise, which but for this Act might be held to be paramount or to have priority but subject to the provisions of Part 1 of the Land Transfer Amendment Act 1963, the registered proprietor of land or of any estate or interest in land under the provisions of this Act shall, except in case of fraud, hold the same subject to such encumbrances, liens, estates, or interests as may be notified on the folium of the register constituted by the grant or certificate of title of the land, but absolutely free from all other encumbrances, liens, estates, or interests whatsoever,—

(a) except the estate or interest of a proprietor claiming the same land under a prior certificate of title or under a prior grant registered under the provisions of this Act; and

(b) except so far as regards the omission or misdescription of any right of way or other easement created in or existing upon any land; and

(c) except so far as regards any portion of land that may be erroneously included in the grant, certificate of title, lease, or other instrument evidencing the title of the registered proprietor by wrong description of parcels or of boundaries.

[96] The expression “indefeasibility of title” is not used in the section or

elsewhere in the Act. Rather, it

is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever... there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as a registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him.¹⁸

[97] As noted above, pursuant to s 22(6) of the Queen Elizabeth the Second National Trust Act, every open space covenant runs with and binds the land that is subject to the burden of the covenant, and is deemed to be an interest in the land for the purposes of the Land Transfer Act.

[98] Associate Judge Doogue referred to the relevant statutory provisions, and observed as follows:¹⁹

As a matter of statutory intention, it seems to me that it was intended that a covenant, once entered into, should bind not just the immediate parties, but successive owners. Open space covenants under the Act can, as was the case with Mr Russell’s land, be perpetual in their effect (s 22(5)). It cannot have been contended that successive owners of the land ought to be able to advance claims that they did not acquire their estate in the land subject to the covenant. While there is no authority directly on point, in my view, the effect of the two statutory provisions when read together lead to the view that a covenant registered under the Queen Elizabeth the Second National Trust Act attracts the protection of indefeasibility. The result is that a proprietor of the land who has acquired title after the point at which the covenant is placed on the title acquires the interest in the land subject to the covenant, unless a recognised exception to indefeasibility principle applies.

In any case, that the Act creates an interest in land is made clear by s 22(6). Interests in land are protected by s 62 of the Land Transfer Act. The situation is therefore different from that described in Land Law in New Zealand, where examples are given of interests that are noted on the register for the purpose of giving notice of the existence of those interests to any person dealing with the land affected by them. These notations do not confer the quality of indefeasibility to which they relate.

[99] I agree. I summarise the arguments advanced for Green Growth and my reasoning relatively briefly.

[100] Mr McCartney for the defendant argued that the Queen Elizabeth the Second National Trust Act overrides the Land Transfer Act. He noted that s 22(7) provides for notification of a covenant – not registration – and that notification is not required before the provisions of s 22(6) take effect. He submitted that notification is evidentiary, and not constitutive of the rights conferred by the Land Transfer Act. He observed that notification under s 22(7) is not mandatory, and suggested that the effectiveness of an open space covenant does not depend upon its notification. He argued that ss 22(6) and 22(7) are explicable as having the purpose of giving notice of the interest to any person dealing with the land, and that not all interests which are noted on the register are indefeasible. He argued that the Trust has a notified interest, and not a registered interest.

[101] I do not accept the defendant’s basic premise – namely that the Queen

Elizabeth the Second National Trust Act overrides the Land Transfer Act.

[102] The provisions of s 22(6) are, in my judgment, clear. Every open space covenant runs with and binds the land that is subject to the burden of the covenant. A covenant is deemed to be an interest in the land for the purposes of the Land Transfer Act. If a covenant is presented, the Registrar is required to enter it in the appropriate folium of the register relating to the land that is subject to the burden of the covenant a notification of the covenant. There is nothing in the Queen Elizabeth the Second National Trust Act 1977 which precludes the operation of s 62 of the Land Transfer Act. In my judgment, once notified, open space covenants have the

protection of “indefeasibility of title”.²⁰

[103] Mr McCartney referred to a number of statutory provisions which expressly provide that either registration or notification of various kinds of documents does not give the documents any greater operation than they had under the instruments creating them.²¹ To my mind, such provisions reinforce the width of s 22(6) of the Queen Elizabeth the Second National Trust Act. It does not provide that notification operates only as notice of the existence of the covenant.

[104] Professor Donahue, in a thoughtful article, has suggested that the Queen Elizabeth the Second National Trust Act authorises the creation of an interest in land by execution of an open space covenant, that every covenant becomes an interest in land binding and effective at the moment of its execution, and that every successive

owner is bound by the covenant, regardless of notification in the land register.²²

[105] I have difficulty accepting this assertion in its totality. If a purchaser acquires an interest in land without notice of an unnotified open space covenant, I doubt that

_{that purchaser would be bound by the covenant. I am not, however, required to}

²⁰ And see, Rodney District Council v Fisherton Ltd [2005] NZCA 173; [2005] NZRMA 514 (CA) at [26]; Barker v

_{Queenstown Lakes District Council [2006] NZHC 717; [2007] NZRMA 103 (HC) at [77].}

²¹ For example, licences to occupy under Part 7A of the Land Transfer Act; covenants under s 126A of the Property Law Act 1952, and now under s 307 of the Property Law Act 2007; access arrangements under the Crown Minerals Act 1991; and see, in relation to s 126A of the Property Law Act, Town & Country Marketing v McCallum (1997) 8 NZCPR 223 (HC);

²² Donahue, above n 11.

decide this question. Here, the covenant has been notified on the title to the land. The interaction of the Queen Elizabeth the Second National Trust Act and the Land Transfer Act, in my judgment requires that the covenant, as an interest in land, be afforded the benefits of indefeasibility under s 62.

E. Rectification

[106] As an alternative to its claim for a declaration as to the meaning of the covenant, the Trust seeks its rectification. First, I consider whether rectification would have been available as between the Trust and Mr Russell. I then consider whether it is available as between the Trust and Green Growth.

Would rectification have been available as between the Trust and Mr Russell?

[107] While there is no need for a concluded binding contract antecedent to the agreement sought to be rectified, a party seeking rectification must show that:

(a) the parties had a common continuing intention in respect of a particular matter and the agreement sought to be rectified;

(b) the common continuing intention was objectively apparent;

(c) the intention continued up to the time of execution of the agreement sought to be rectified; and

(d) by mistake, the agreement did not reflect the common continuing intention.²³

[108] Here, in my judgment, the Trust and Mr Russell did have a common continuing intention. It was their common and continuing intention to ensure that the 404 hectare block would be subject to an open space covenant protecting the land

_{and the trees and bush on it, but also allowing limited development. The extent and}

²³ Swainland Buildings Ltd v Freehold Properties [2002] EWCA Civ 560, [2002] 2 EGLR 71; Dundee Farm Ltd v Bambury Holdings Ltd [1978] 1 NZLR 647 (CA); Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC).

nature of any limited development evolved. Initially, it was proposed to have an open space covenant over the whole of the land – both the 404 hectare block and the

207 hectare block – with a management area not exceeding 40 hectares in a defined location. When the decision was made to allow subdivision of the 207 hectare block in accordance with the District Plan, and to make that land subject to its own covenant, the common intention in relation to development on the 404 hectare block changed. It was agreed that there should be no subdivision of the 404 hectare block, but that there should be a management area not exceeding 20 hectares in a defined location. This was the common intention at the time the covenant was signed in March/April 1997. Subsequently, it was agreed that one dwelling, together with ancillary buildings and amenities should be allowed anywhere on the 404 hectare block and that the whole block should be subject to the open space covenant. This was the common intention when the replacement third schedule was signed in June/July 1997.

[109] Green Growth submitted that the letter sent to Mr Russell on 23 June 1997 was “misleading”, because it stated that the replacement third schedule which was ultimately signed had been altered “in an attempt to meet [Mr Russell’s] future needs”. It argued that the document which was ultimately signed did not meet Mr Russell’s future needs, because it restricted development to one dwelling and ancillary buildings, whereas previous versions of the third schedule had allowed more than one dwelling.

[110] I do not consider that it is open to Green Growth to raise this issue for the reasons which I set out below, but, in any event, I reject the submission. It is clear from the evidence that Mr Russell’s “future needs”, and his intention, extended well beyond the number of dwellings which could be permitted on his land. Mr Russell wished to protect his land. He had enjoyed watching the bush regenerate around him after he ceased farming the land. He wanted to help his neighbours at the Te Moata Buddhist Community to thank them for their kindness and support. He believed he would be helping the peace and tranquillity of their retreat if he were to protect his own land by putting an open space covenant over it. As recorded in correspondence from Mr Jenkison, Mr Russell did not initially want to sell any of his land. He

ultimately accepted that he might have to sell part of the land, in order to meet his costs of care in the rest home. It was for this reason that the Trust, at Mr Russell’s instruction, altered the covenant to delete the 207 hectare block, and then put in place a more lenient covenant permitting subdivision of that block into 20 hectare lots. The evidence established that Mr Russell was keen to restrict development on his land insofar as it was reasonably possible, but recognising that he might need to sell it to fund his ongoing care. There is nothing to suggest that it was Mr Russell’s intention to maximise the development potential of the 404 hectare block. Indeed, the evidence points to the contrary.

[111] I now turn to the second requirement for rectification. In my judgment, there was an outward expression of the ultimate accord reached between Mr Russell and the Trust. Their continuing common intention was objectively apparent from the replacement third schedule. It was agreed by Mr Russell, and it was initialled by him. It was subsequently initialled by members of the Trust Board and its general manager.

[112] It is also clear that the parties’ common intention to put an open space covenant over the 404 hectare block, subject to limited development rights, continued at the time of execution of the replacement third schedule.

[113] Although this issue was not raised by the parties, I note that it is not the replacement third schedule which the Trust seeks to rectify. Rather, it seeks to rectify the second schedule to the covenant which was signed by Mr Russell in late March/early April 1997 and by the Trust on 8 April 1997. In my judgment, there are two answers to this potential difficulty – first, the covenant made no greater sense in March/April 1997 when it contained an earlier version of the third schedule, than it did when the replacement third schedule was substituted. There was no illustrative photograph attached and the definition of the words “protected area” did not identify any particular area of land. Secondly, and more importantly, the replacement third schedule varied the covenant as a whole.

[114] By mistake, the covenant, once varied, did not reflect the common intention evinced in the replacement third schedule, because references to the protected area, and the illustrative aerial photograph, were not deleted from the second schedule. As a result, the covenant did not accurately record the parties’ contractual bargain. I am satisfied that the mistake was common to both Mr Russell and the Trust for the simple reason that the document they signed contained a meaningless definition.

[115] Here, the covenant was prepared by the Trust. It has been observed that a court may be less willing to rectify a document where the party seeking rectification is the party who prepared the document. Nevertheless, it is clear that, in a proper case, the court can grant relief at the instance of such a party.²⁴

[116] I am satisfied that the covenant would reflect the parties’ common intention if

it is rectified as follows:

(a) The words “protected area means the area of native trees shown as area on illustrative aerial photo attached” in cl 1 of the second schedule are deleted;

(b) The words “on and in respect of the protected area” in the second

paragraph of cl 2 are deleted;

(c) The words “of the protected area” in the first line of cl 7 in the

second schedule are deleted.

[117] The Trust, in its statement of claim, did not seek to rectify cl 7 in the manner noted above. However, in my view, this alteration is also necessary to reflect the parties’ common intention. Were cl 7 to continue to refer to the protected area, the problem of identification would remain, and the parties’ common intention would

_{again be defeated, at least in part.}

²⁴ Meagher Gummow and Lehane’s Equity: Doctrines & Remedies (4th ed, LexisNexis, Sydney,

2002) at [26–080].

[118] If Mr Russell or his estate was still the registered proprietor of the land, I would not hesitate to order rectification. However, Mr Russell has sold the land. Green Growth is now the third successor in title of the land from Mr Russell.

Is rectification available as between the Trust and Green Growth?

[119] Green Growth, (faced with an argument from the Trust that indefeasibility of title precludes the causes of action relied on by it in its counterclaim), argued that the Trust “faces its own hurdle of indefeasibility”. It submitted that it is the registered proprietor of an indefeasible title, and that it was a bona fide transferee for value of the land. It accepted that it was aware of the notified covenant, but argued that it had no knowledge of the Trust’s claim for rectification. It submitted that even if the Trust could have brought a claim for rectification personally against Mr Russell while he owned the land, it could not bring such claim against it as a bona fide purchaser for value.

[120] The Trust responded by asserting that Green Growth was on notice and that, in such circumstances, rectification is available, and notwithstanding the fact that Green Growth is a successor in title.

[121] As the Court of Appeal has observed, the availability of rectification in such

circumstances is a “difficult and debatable issue”.²⁵

[122] Rectification is an equitable doctrine, which permits the court, in appropriate circumstances, to alter the terms of a written document to accord with the intentions of the party or parties executing it. Normally, the parties to the document it is sought to rectify are before the court. This is not, however, a necessary requirement. For example, the fact that one or other parties to the document sought to be rectified is dead, is not a bar to rectification – if the settlor to a voluntary settlement is dead “and it is afterwards proved from the instructions or otherwise that beyond all doubt the deed was not prepared in the exact manner in which he intended, then the deed may

_{be reformed and those particular provisions necessary to carry his intentions into}

²⁵ Child v Dynes [1984] NZHC 226; [1985] 2 NZLR 554 (CA) at 561.

effect may be introduced”.²⁶ Further, the Court of Appeal has held that the equity of rectification can bind assignees of contractual rights:

In the simplest case “assignment” can be used to denote the transfer to B of A’s rights against C. Such assignment may subject B to any undisclosed entitlement in C to reduce A’s apparent rights; such entitlement is called an equity. One example is C’s entitlement to a set off against A... A second is an estoppel... A third, of present relevance, is rectification of the contract between A and C.²⁷

The rationale is that an assignee cannot be in a better position under the contract than the assignor.²⁸ The effect of rectification, when granted, is to relate back to the time of execution of the document, and after rectification, the document is to be read as if it had originally been executed in the rectified form.²⁹

[123] I conclude that the equity of rectification is available against an assignee. I now turn to consider whether the Land Transfer Act affects the availability of rectification.

[124] First, I note that registration of a document under the Land Transfer Act does not of itself prevent its rectification.³⁰

[125] Secondly, it is well settled that the principle of indefeasibility under the Land Transfer Act does not deny the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as the court acting in personam may grant.³¹

[126] Relevantly, indefeasibility does not affect the power of the court to rectify mistakes in carrying a contract into effect as between the parties to it.³² Further, a

²⁶ _{Lister v Hodgson (1867) LR 4 Eq 30 at 34.}

²⁷ Todd (Petroleum Mining) Co Ltd v Shell (Petroleum Mining) Co Ltd CA155/05, 23 September

2005; and see, Property Law Act 2007, s 50(3); and see, Butler, Equity and Trusts in

_{New Zealand (2nd ed, Thompson Reuters, Wellington, 2009) at [29.2.9].}

²⁸ _{Bay of Plenty Electricity v Natural Gas Corp Energy Ltd [2001] NZCA 337; [2002] 1 NZLR 173 (CA) at 182.}

²⁹ _{Meagher Gummow and Lehane, above n 24, at [26.080].}

³⁰ Merbank Corp Ltd v Cramp [1980] 1 NZLR 721 (HC); United Building Soc v Alcamo Holdings Ltd [1989] ANZ Conv R 233,366 (HC); Wellington City Council v New Zealand Law Society [1988] NZHC 743; [1988] 2 NZLR 614 (HC).

³¹ Frazer v Walker [1967] NZLR 1069 (PC) at 1078; Regal Castings Ltd v Lightbody [2008] NZSC

_{87[2008] NZSC 87; , [2009] 2 NZLR 433 at [155]–[156].}

³² Hinde McMorland & Sim, above n 10, at [9.050]; and see cases there cited at n 2.

claim to rectification is an equity which, in cases dealing with interests in land, is not available against a bona fide purchaser without notice (either actual or constructive).³³ Rectification has, however, been ordered of registered documents which affect the rights of third parties who were on notice, and notwithstanding the absence of privity. For example, in Merbank Corporation Ltd v Cramp,³⁴ Barker J rectified a registered second mortgage by inserting a charging clause into the document. Both the original mortgagee and mortgagor were before the Court. It was held that the mortgage should be rectified without loss of priority. A subsequent registered mortgagee and lien holders were deemed to know of the existence of the registered second mortgage. Barker J found that there could be no doubt as to what the document sought to achieve, and that, in the circumstances, they could not have been prejudiced. Similarly, in Fifty-seven Willis Street Ltd v Mortgage Holdings Ltd,³⁵ Gendall J deleted a term in a registered mortgage, and substituted another term. He noted that it is a long-recognised principle that a claim for rectification is an equity which is not binding on a bona fide purchaser without notice (actual or constructive). He considered that, on the facts before him, the defendant, as an assignee, was on notice, and that rectification was appropriate.

[127] In one case, Child v Dynes, the court took this a stage further, and ordered rectification of a deficient restrictive covenant contained in a memorandum of transfer at the suit of a successor in title which affected the title of a registered proprietor who was also a successor in title.³⁶ I note as follows:

(a) The parties before the Court were both assignees. The plaintiffs had purchased a property which was subject to a building height restriction. Before they purchased the property, they were assured that an adjacent piece of land was subject to the same restriction. They built a house on their land, complying with the height

_{restriction. The defendants had the title to the adjoining land. They}

³³ National Provincial Bank Ltd v Ainsworth [1965] UKHL 1; [1965] AC 1175 (HL) at 1238; AMP Mutual Provident Society Ltd v Bridgemans Art Deco Ltd [1996] 2 NZLR 263 (CA) at 269 and 277; and see, Butler, above n 24, at [29.2.9]; Hinde, McMorland and Sim, above n 10, at [9.054].

³⁴ _{Merbank Corporation Ltd v Cramp, above n 30.}

³⁵ _{Fifty-Seven Willis Street Ltd v Mortgage Holdings Ltd (2005) 2 NZCCLR 460 (HC).}

³⁶ Child v Dynes, above n 25.

did not know the precise terms of the restrictive covenant when they purchased their property. They later discovered that the terms of the restriction applicable to their property did not refer to buildings. They wished to build a house which would infringe the height restriction. The plaintiffs sought rectification of the covenant.

(b) Evidence was given by a law clerk who had prepared the registered document containing the building height restriction under the supervision of the solicitor acting for the subdividing vendor of both lots. Barker J considered that the presence of the law clerk “waived any privilege”, and that, accordingly, the presence of the original transferor was not necessary. Further, he was prepared to infer from the evidence of the law clerk what the common intention had been, and he considered that there was no point in having the predecessors in title to the defendants as parties either.

(c) Barker J considered that the essential question was whether the plaintiffs as assignees had the right to seek rectification, and that this, in turn, required a determination as to whether their right as assignees could be “exalted to the status of an interest”. He observed that the right to have a document rectified is generally believed to be a “mere equity” and therefore unassignable for being a right in personam. However, relying on Merbank, he considered that when such a right is ancillary to an equitable interest, then it falls somewhere between equities and interest, “probably closer to the latter”. He considered that the closer an equitable right comes to a proprietary right, the easier it is to say that it exhibits some of the characteristics of a proprietary right.

(d) Barker J then observed that “the rationale for refusing rectification in the case of third parties must lie in the consideration as to whether rectification, if ordered, would prejudice the third parties”. He found that because the defendants knew of the height restriction, and must

have assumed when they signed the agreement for sale and purchase that it applied to buildings, there could be no prejudice to them in allowing rectification in conformity with that belief.

This decision was appealed to the Court of Appeal.³⁷ The Court of Appeal dealt with it on a different basis. As noted above, Somers J observed that it had not been necessary for the Court of Appeal to examine “this difficult and debatable issue” – that is whether rectification was available.

[128] Similarly, registration of a transfer in favour of a successor in title did not preclude rectification in Doubtless Bay Water Supply Company Ltd v Robinson,³⁸ where Salmon J rectified a deficient easement. I note as follows:

(a) The easement had been put in place pursuant to a water supply agreement. The easement differed in a number of material respects from the water supply agreement. It did not include the plaintiff ’s right to erect a pump building, reservoirs, or to install pipe lines for reticulation or a bore and pumping equipment, all of which were provided for in the agreement. The plaintiff, ignorant of the defect, had installed a bore, pipes, metering equipment, and a pumping shed. The first defendants were the original registered proprietors of the land subject to the easement. They agreed that the easement should be rectified.

(b) The second defendants had purchased the property from the first defendants. They were opposed to rectification. However, prior to purchasing the property, the second defendants had inspected the property. They had seen the pump shed, the reservoir and the bores which had been installed by the plaintiff. Further, the real estate agent involved had told them about the existence of the water supply agreement. They did not, however, make any further inquiries until

_{after the agreement for sale and purchase became unconditional.}

³⁷ _{At 561.}

³⁸ Doubtless Bay Water Supply Company Ltd v Robinson (1997) 3 NZ Conv C 192,579 (HC).

They did obtain a copy of the water supply agreement before they settled with the first defendants, and Salmon J considered that they should have observed the discrepancies and been alerted to the fact that something was amiss. He noted that after settlement, but before registration, the plaintiff had lodged a caveat to protect its position.

(c) Salmon J considered that, prior to registration, the water supply agreement created a valid easement in equity, which amounted to an equitable proprietary interest in the land. Following registration, the equitable easement became a legal easement, with the intended security that registration confers. He went on to discuss whether rectification was available. He observed that indefeasibility of the title does not preclude a claim founded in equity against the registered proprietor. He considered whether the right to rectification was a mere equity, or a full equitable interest. He cited Child v Dynes and agreed with Barker J that, in the context of land, a right to rectification is very close to being a fully-fledged equitable interest. He considered that where a contract is creating property rights, a right to rectification is more readily seen as an ancillary to those property rights. He observed that rectification does not create new rights, but rather, is a mechanism for achieving in the written documentation a true statement of a party’s agreement. He considered that where an agreement transfers property rights, the right to rectification may be regarded as being very close to a full equitable interest.

(d) Salmon J put registration of the transfer in favour of the defendants aside because of the caveat which had been lodged and because of the way in which that issue had earlier been resolved by the court.³⁹

Rather, he analysed the competing equities of the parties. He

considered that the second defendants’ equity accrued either when the

_{agreement for sale and purchase was completed, or when it became}

³⁹ See Doubtless Bay Water Supply Co Ltd v Robinson, HC Whangarei CP42/96, 19 December

1996.

unconditional. He observed where there are competing equities, normally, the first in time prevails, but that an equitable interest acquired for value without notice of an earlier interest does not necessarily give the later interest priority over the earlier one. Rather, it is simply one of the circumstances to be taken into account. He also observed that, in general, a later equitable interest cannot prevail over an earlier interest, if the holder of the later interest had notice of the earlier one at the time the later was acquired. He referred to the

judgment of Millett J in MacMillan Inc v Bishopsgate Trust (No 3)⁴⁰

to the effect that where there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right. He held that the evidence showed that the second defendants did have notice of the plaintiff’s interest before their equitable interest arose, and that the plaintiff’s equitable right to rectification had priority over the equitable interest of the second defendants.

[129] Similar views have been expressed in Australian courts in states which have legislation substantially similar to s 62.⁴¹

[130] The position seems to be that the equity of rectification, particularly of a document creating proprietary rights which is registered against a title to land, is available against a successor in title, notwithstanding registration of his or her title under the provisions of the Land Transfer Act, where the successor in title was on notice.

[131] I now turn to consider the facts in the present case.

[132] Green Growth is the registered proprietor of the land. It was not a party to the covenant, but the covenant is registered against the title to the land and

⁴⁰ _{MacMillan Inc v Bishopsgate Trust (No 3) [1995] 1 WLR 978 (CA) at 1000.}

⁴¹ See, for example, Majestic Homes Pty Ltd v Wise [1978] Qd R 225 (FC); cf Tanzone Pty Ltd v Westpac Banking Corp (1999) 9 BPR 17,287, [1999] NSWSC 478 (SC); reversed on a different ground on appeal, Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25; (2000) 9 BPR 17,521 [2000]

NSWCA 25.

Green Growth was aware of it when it acquired its registered interest. The evidence established not only that Green Growth knew of the covenant and the restrictions contained in it, but also that something was amiss with the covenant. Indeed, that was obvious from the covenant itself. Further, Green Growth knew that the Trust was aware that there were problems with the covenant, and that the Trust had agreed with a previous owner to vary the covenant. It also knew that the Trust had declined to accede to a variation proposed by its parent company, ABD. I refer to the following passages in the evidence of Mr Davis, Green Growth’s sole director:

(a) In his evidence-in-chief, Mr Davis stated as follows:

Q. ...And just one supplementary question Sir, before the point at which Green Growth No. 2 Limited purchased this land, were you aware of the – any of the dealings between Mr Russell and the Trust which led to the covenants?

A. Uh, no, so I was aware that there were some issues with the covenant itself and that was apparent just on the face of it and I was aware that previous – so the vendors who I was purchasing the property from had raised this with the Trust and challenged them on it, and the Trust had accepted that and come back to them with a variation proposal which gave them the right to subdivide. But, in terms of the actual dealings – so the detail underneath it no I wasn’t aware at all.

(b) In cross-examination, Mr Davis conceded as follows:

Q. ...you would be involved in any critical decisions that...

[ABD] made?

A. Yes.

Q. And so, were you aware when ABD Properties Limited purchased this wilderness block that there was the covenant in issue on the title?

A. Yes it was notified on the title.

Q. And do you accept that that had a number of restrictions within that covenant?

A. Yes on its face yes.

Q. ... So prior to ABD Properties purchasing the wilderness

block were you aware that this third schedule stated that

you may maintain and upgrade the existing access track on the land?

A. Yes.

Q. And were you aware that it also said that you may construct one dwelling, ancillary buildings and amenities after consultation with the trust?

A. Yeah now in order to answer that though, whilst I was aware of this covenant I was also aware that the trust had said there were issues with this covenant and that they had previously agreed that they would enter into a variation where they would – essentially they called it a rip and replace so where this covenant would be, um, deleted for want of a better term and a new covenant – call it contemporaneously entered into which allowed for subdivision and that they had written to the vendor’s lawyers and I've shown a copy of that letter which included the Trust board minutes where they’ve said, “We’ve reviewed your variation proposal and it has been accepted” and also attached in there was the proposed new covenant to be replaced.

(c) The further exchange also occurred:

Q. So do you accept the property was transferred to Green Growth No.2 Limited after ABD Properties Limited had been refused –

A. Yeah.

Q. – consent to subdivide? A. Yes.

Q. So do you accept that when Green Growth No.2 Limited agreed or decided to take ownership of the property that you as its director had knowledge of the covenant?

A. I do...

Q. Let's summarise the position as at the date that the property was transferred to Green Growth No.2 Limited?

A. Yeah.

Q. As a director you knew that there was a covenant registered against the title?

A. Notified, yes.

Q. And as a director you knew that third schedule of that covenant only allows you to build one build, one dwelling house ancillary buildings, is that correct?

A. Yes.

Q. And as director you also knew that there was an error in the covenant in that there was a blank in the definition of the protected area, is that correct?

A. Yes that's correct.

Q. And you also knew that ABD Properties Limited had applied to subdivide or have the right or the ability to subdivide but that proposal had been declined?

A. Yes that would be correct.

Q. So when Green Growth took ownership of the property, as its director you had full knowledge of the potential restrictions on development on this block of land?

A. Assuming that the covenant was valid, yes, but at that point I'd already begun to form my own opinion that it wasn’t. But certainly the covenant which is notified on the title I was well aware of, yes.

[133] Green Growth clearly had actual knowledge of the covenant and of the problems with it before it took title to the land in May 2012. It has endeavoured to take advantage of the problems with the covenant. First, its parent company, ABD, endeavoured to persuade the Trust to vary the covenant, to allow for subdivision, and the erection of clustered housing on part of the covenanted land. Further, Green Growth has advertised the land for sale on the Trade Me website. The asking price is $3,800,000. The property is described in the advertisement as being ripe for development as a “green/eco friendly” subdivision. The advertisement also records:

There is currently a QE2 open space covenant listed against the title of this property. However, that will be removed prior to settlement.

[134] The Land Transfer Act does deal with proprietors who acquire a title with notice. Relevantly, s 182 provides as follows:

182 Purchaser from registered proprietor not affected by notice

Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to

inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.

This section does not apply in its terms. Green Growth is not concerned with the transfer of the registered estate or interest in the land from ABD. Nor is this a situation concerning notice, direct or constructive, of any trust or unregistered interest. Nevertheless, s 182 causes me to pause. If a purchaser from a registered proprietor is not affected by notice of a trust or unregistered interest, why should a successor in title be affected by a claim to the equitable right of rectification?

[135] To my mind, the answer lies in the following:

(a) The concept of indefeasibility does not prevent equity, working alongside, and not contrary to the Land Transfer Act, from imposing in personam obligations (including equitable obligations) on a registered proprietor.⁴²

(b) Rectification, when granted, relates back to the time of execution of the document, and requires that it be read as if it had been originally executed in the rectified form.

[136] In my judgment, registration of Green Growth’s interest in the land as registered proprietor does not preclude the claim to rectification made by the Trust, because Green Growth was on notice of the Trust’s potential equity – that is the Trust might be able to seek rectification. The position is similar to that discussed, particularly in Childs v Dynes, and also in Doubtless Bay. In the circumstances of this case, Green Growth cannot seek to hide behind the skirts of indefeasibility, and

_{there is no jurisdictional impediment to the rectification order sought.}

⁴² Regal Castings Ltd v Lightbody, above n 31, at [141] and [146].

Should rectification be ordered by the Court in the exercise of its discretion?

[137] Rectification is a discretionary remedy.

[138] I am satisfied that the discretion should be exercised in this case, for the following reasons:

(a) In its present form, the covenant is unclear. It is intended to and will bind the land in perpetuity. Clarity is important for the Trust, for future successors in title, and in a broader sense, for future generations of New Zealanders who are the ultimate beneficiaries of the covenant.

(b) There is no significant prejudice to Green Growth in rectifying the covenant as I have set out in [116] above. Deletion of the definition of the words “protected area” does not prejudice it. Extending the second paragraph in cl 2 to the land as a whole does not prejudice it. That paragraph gives teeth to the covenant, but it does not change its overall tenor. The overarching obligations contained in the first paragraph of cl 2 and in the Act are not affected by the order sought. Rectifying cl 7 does not affect Green Growth, because its obligations as owner to fence the property are contained in the Fencing Act 1978, and the caveat mirrors those provisions. Importantly, no greater burden is imposed on it in relation to subdivision and development. Those restrictions are clearly spelt out in the third schedule and there is to be no change to that part of the covenant.

Rectification ordered

[139] Accordingly, I make the following order – open space covenant number

B429136.1 is rectified as follows:

(a) The words “protected area means the area of native trees shown as area on illustrative aerial photograph attached” in cl 1 are deleted;

(b) The words “on and in respect of the protected area” in the first line of the second paragraph of cl 2 are deleted;

(c) The words “of the protected area” in the first line of cl 7 are deleted.

[140] I was told by Ms Todd, appearing for the Registrar-General as an interested party, that a court order in such terms can be “memorialised” against the register, so that persons searching the register will be aware that the covenant has been rectified. Alternatively, it may be that the Trust and Green Growth can, with the benefit of this judgment, agree to vary the covenant. Any variation could then be entered on the title.

[141] I now turn to consider the defendant’s counterclaims.

E. Green Growth’s counterclaims

Counterclaims generally – indefeasibility

[142] Green Growth’s counterclaims can be summarised as follows:

(a) The open space covenant does not create an indefeasible interest;

(b) If it is not indefeasible, the covenant is open to attack by the defendant, and it can be removed from the title by order of the court;

(c) If the covenant is indefeasible, then Green Growth still has the right to raise its counterclaims because they are in personam claims;

(d) The covenant was invalidly executed because Mr Russell’s initialling

of the replacement third schedule was not witnessed;

(e) The covenant was not varied in the manner required by s 22A of the

Act;

(f) If the covenant is not valid as a deed, it cannot be enforced as a contract, because no consideration has been given by the Trust;

(g) The manner in which Mr Russell’s initials were procured on the

replacement third schedule was unconscionable;

(h) The manner in which the covenant was notified on the title was wrongful, because the covenant had been altered after execution and after being signed correct;

(i) The Registrar-General was misled, and the covenant was the original, unaltered covenant.

[143] I have already dealt with (a) above and my finding in that regard disposes of (a) and (b). In regard to the balance of the claims, the Trust responded by asserting that an open space covenant is a statutory covenant, which once “registered”, attracts the benefits of indefeasibility, and that in the absence of fraud, such claims as Green Growth may now wish to advance, are precluded.

[144] The consequence of my finding that the covenant enjoys the benefits of indefeasibility is that all but one of the causes of action (namely (h) above) raised by Green Growth are not open to it. Even if the covenant was flawed in one or other of the ways alleged, in the absence of fraud, s 62 confers indefeasibility.⁴³ As a matter of law, even registration which results from a void instrument is effective according to the terms of the registration, and it matters not for what cause or reason the instrument is void.⁴⁴

[145] Indefeasibility yields to fraud. As I have noted above at [12] to [15], fraud has not been pleaded in this case. In any event, it would not have been available on the facts.

_{[146] Indefeasibility is also subject to in personam obligations.}

⁴³ _{Boyd v Mayor of Wellington [1924] NZLR 1174 (CA).}

⁴⁴ Frazer v Walker, above n 18, affirming Boyd.

[147] Here, Mr McCartney argued that the causes of action which Green Growth seeks to raise are in personam claims. I disagree. The essence of claims in personam is that they arise from obligations with which registered proprietors have burdened themselves. An in personam claim is a personal right against the registered proprietor.⁴⁵

[148] Here, Green Growth has no personal right against the Trust. There is no trust or fiduciary relationship. There is no equitable claim. Rather, Green Growth is a successor in title to Mr Russell as covenantor. I am not aware of any authority suggesting that in personam claims such as those advanced by Green Growth survive in such circumstances. Nor could Mr McCartney point me to any authority. He did submit that there is no reason in principle why in personam claims such as those advanced by Green Growth could not be brought by a successor in title “if one of the original parties is demonstrated to have wrongly obtained an interest, and remains the holder of that interest”. In my view, this argument ignores the principle of indefeasibility conferred by s 62.

[149] Accordingly, and with one exception, I decline to consider the various causes of action alleged by Green Growth by way of counterclaim.

Wrongfully notified – s 81 of the Land Transfer Act

[150] Green Growth in its second amended counterclaim sought a declaration that the covenant was wrongfully notified under the Land Transfer Act. It asserted that the covenant (which it said is a deed) contained the replacement third schedule which was not part of the document when it was executed, and that it was not initialled by the original witness to the document or any other witness. It alleged the covenant therefore did not comply with r 12 of the Land Transfer Act Regulations

1966 (which were in force at the relevant time). It also said that the covenant was signed correct for the purposes of the Land Transfer Act by Mr Porteous, the Trust’s manager, before the replacement third schedule was substituted for the initial third

_{schedule. It said that the covenant was not capable of being signed correct in its}

⁴⁵ Tataurangi Tairuakena v Mua Carr [1927] NZLR 688 (CA) at 702; Frazer v Walker, above n 18;

Oh Hiam v Tham Kong (1980) BPR 9451 (PC).

final form, due to non compliance with r 12, and also with s 22A of the Queen

Elizabeth the Second National Trust Act.

[151] Indefeasibility of title is subject to powers vested in the Register under, inter alia, s 81 of the Act. It provides as follows:

81 Surrender of instrument obtained through fraud, etc

(1) Where it appears to the satisfaction of the Registrar that any certificate of title or other instrument has been issued in error, or contains any misdescription of land or of boundaries, or that any entry or endorsement has been made in error, or that any grant, certificate, instrument, entry, or endorsement has been fraudulently or wrongfully obtained, or is fraudulently or wrongfully retained, he may require the person to whom that grant, certificate, or instrument has been so issued, or by whom it is retained, to deliver up the same for the purpose of being cancelled or corrected, as the case may require.

(2) If the Registrar is satisfied as to any matter referred to in this section and there is a computer register involved, the Registrar may cancel or correct any computer register and, if appropriate, create a new computer register.

(3) The Registrar must not take action under subsection (2) without first giving notice to any person appearing to be affected and giving a reasonable period for any response.

[152] Section 81 of the Land Transfer Act requires the satisfaction of the Registrar, and vests a discretion in him or her. Here, there is nothing to suggest that the Registrar has been put on notice of, let alone considered, Green Growth’s allegation that the entry of the covenant on the title was wrongfully obtained. However, it seems that a declaration can be made in this regard.⁴⁶ I proceed on that basis.

[153] First, I observe that the Queen Elizabeth the Second National Trust Act does not require that a covenant be put in place by way of deed, and that the covenant at issue in this case does not purport to be a deed. Rather, it is a statutory covenant provided for by the Act. It takes the form of and is a contract between the parties. It follows that the formalities which apply to the execution of a deed did not apply to

_{execution of the covenant.}

⁴⁶ De Chateau v Child [1928] NZLR 63 (SC).

[154] Secondly, I observe that the Trust’s processes were not satisfactory. In evidence, Trust witnesses disclosed that it was not uncommon to add to executed covenants, for example, by the addition of photographs or the like. That is not good practice and indeed, it could be a recipe for disaster. Where a change or variation is required to a covenant, either a new covenant incorporating the change should be signed, or a memorandum of variation should be prepared.

[155] Despite the Trust’s unsatisfactory practice in this case, it is clear that the replacement third schedule was signed by Mr Russell. At the time of execution, Mr Russell had before him the former third schedule which had a line drawn through it. Mr Parr explained the alterations and the processes to him. Mr Russell in effect authorised a variation to the covenant when he signed the replacement third

schedule.⁴⁷ His signature was not witnessed and it would clearly have been

preferable if it had been. There is, however, no suggestion that Mr Russell did not sign the replacement third schedule.

[156] I am not persuaded that reg 12 of the Land Transfer Regulations 1966 applied. Relevantly, it provided as follows:

12 Correction of errors

(1) The Registrar may refuse to register any instrument containing an erasure or alteration.

(2) The Registrar shall refuse to register an instrument containing a correction unless:–

(a) The correction has been effected by deleting the words or figures written in error, and writing the correct words or figures above them; and

(b) Where the correction affects or could effect the interests of any signatory of the instrument, it is initialled or signed by each signatory of the instrument, and by either that signatory’s witnesses (if any) or a solicitor acting on that signatory’s behalf in the transaction; and

(c) Where the correction affects or could affect the interests of any person receiving the benefit under the instrument (not being a signatory of the instrument), it is initialled or signed

⁴⁷ Ibid – when the alteration was made without the consent of the party bound by the document;

and see Nathan v Dollars & Sense Finance Ltd [2007] NZCA 177; [2007] 2 NZLR 747 (CA) at [123].

by each such person or a solicitor acting on the person’s

behalf in the transaction.

[157] Here, the covenant presented to the Registrar did not contain an erasure or alteration. Nor did the document presented for notification contain a correction. The covenant as a whole had been varied by insertion of the replacement third schedule. Unsatisfactory though the process was, I doubt that reg 12 was engaged.

[158] Green Growth also alleged that s 22A of the Queen Elizabeth the Second National Trust Act was breached. I have set that section out above at [78]. I do not consider that this argument was available to it. It is precluded by s 62 and the principle of indefeasibility.

[159] Green Growth complained that the covenant was signed correct by Mr Porteous in or about April 1997, and that no later certificate of correction was given after the replacement third schedule was inserted into the document.

[160] It is clear from the evidence that Mr Porteous signed the covenant correct before the replacement third schedule was substituted for the earlier version of the third schedule. Again, that is poor practice, and again, it is fraught with risk. I am not, however, persuaded that it justifies the award of the declaration sought.

[161] Section 164 of the Land Transfer Act, as it stood at the relevant time, provided as follows:

164 Correctness of instrument to be certified

(1) No Registrar shall receive any application for bringing land under this Act, or any instrument purporting to deal with or affect any estate or interest under the provisions hereof, unless there is endorsed thereon a certificate that the same is correct for the purposes of this Act, signed by the applicant or party claiming under or in respect of the instrument, or by a practitioner employed by that applicant or party:

...

[162] Arguably, the section did not apply in its terms. It precluded the Registrar from receiving any instrument purporting to deal with or effect any estate or interest

“under the provisions hereof”. That was a reference to the Land Transfer Act. An open space covenant is not received by the Registrar under the provisions of the Land Transfer Act. Rather, it is received under the provisions of the Queen Elizabeth the Second National Trust Act. It may be that a certificate of correctness was not a requirement for notification of an open space covenant at the relevant time. This issue, however, was not argued by counsel, and I take it no further.

[163] Assuming that a certificate of correctness was required, I am satisfied that, in the circumstances of this case, to require that a fresh certificate of correctness had to be signed by Mr Porteous before the covenant was presented to the Registrar would be a triumph of formalism over practicality. Mr Russell had signed the variation to the covenant. The certificate of correctness should have been signed only after the document was ultimately finalised. It was not. That was unfortunate and bad practice. Nevertheless, I cannot see that it would have made any difference if the certificate of correctness had been signed a second time.

[164] In the exercise of my discretion, I decline to grant a declaration that notification of the covenant has been wrongfully obtained under s 81 of the Land Transfer Act.

Summary

[165] For the reasons set out in this judgment:

(a) I decline to declare the meaning of covenant B429136.1;

(b) I order rectification of covenant B429136.1 as set out in [139] above; (c) I decline to consider Green Growth’s counterclaims summarised in

[142(d)–(g)] above. Those claims are precluded by s 62 of the Land

Transfer Act;

(d) I decline a declaration that entry of covenant B429136.1 on the register was wrongfully obtained.

Costs

[166] Because the problems with the covenant were of the Trust’s making, it is my

preliminary view that costs should lie where they fall.

[167] If the Trust disagrees with that view, I direct as follows:

(a) Within 15 working days of the date of this judgment, the Trust is to file a memorandum detailing the costs and disbursements sought by it.

(b) Within a further 15 working-day period, Green Growth is to file a memorandum setting out its submissions in relation to costs/disbursements.

I will then deal with the issue of costs on the papers, unless I require the assistance of counsel.

Wylie J