McArthur Ridge Trustee Limited v FM Custodians Limited [2015] NZHC 496 (17 March 2015)

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IN THE MATTER	of the Declaratory Judgments Act 1908
BETWEEN	MCARTHUR RIDGE TRUSTEE LIMITED Plaintiff
AND	FM CUSTODIANS LIMITED First Defendant DOMINION FINANCE GROUP LIMITED (In Receivership and In Liquidation) _{Second Defendant}

Hearing:	13 March 2015
Appearances:	F B Barton and A M Cunninghame for Plaintiff (Respondent) J E Bayley for First Defendant (Applicant)
_Judgment:	_{17 March 2015}

[1] FM Custodians Limited (FMC) applies for an order consolidating this proceeding with proceeding CIV-2010-409-1100. I refer to the present proceeding as the declaratory proceeding, and to the 1100 proceeding as the Alemann proceeding.

[2] The Alemann proceeding was commenced in 2010. Alemann Estate Limited is the first-named of 14 plaintiffs. Each owns a block of land in the McArthur Ridge development near Alexandra. All were bought from Central Otago Pinot Noir Estate Limited (COPNEL). All have plantings of grapevines which are operated as one

[3] As a result all the separately owned parts of the vineyard are dependent upon having access to a communal water supply, and other services essential to the operation of a vineyard. There are three nearby lots, adjacent to some of the plaintiff’s blocks, on which there are reservoirs. From those water sources there are pipes to the separate allotments. The contractual obligation of COPNEL to each purchaser was to hold the lots on which the reservoirs and other infrastructure items are located on trust, and then convey those allotments to the owners of the individual lots, unencumbered, at a later point. This has not occurred, and this proceeding has resulted. There are issues over whether this obligation subsists.

[4] Events which have occurred in the period ranging between seven and 12 years since the sale and purchase agreements were signed have added layers of complexity to the situation facing Alemann and the other plaintiffs. Various endeavours to work through these difficulties and conclude an acceptable outcome have not, so far, met with complete success.

[5] Last year McArthur Ridge Trustee Limited (MRT) brought the declaratory proceeding. MRT is a company formed by all the plaintiffs in the Alemann proceeding together with COPNEL, as to the balance of land it holds, and another company which purchased a sizeable holding with a view to undertaking a further development.

(a) A declaration that all the provisions of the Deed of Covenant in Schedule 1 to Encumbrance 5836440.5 form part of the terms and conditions of Encumbrance 5836440.5 for the purposes of section 62 of the Land Transfer Act 1952;

DP 325098 and Lot 101 DP 333976, (Otago Registry), together with all related headworks, pipeworks, generators, pumps, screens, filters, meters and associated plant and equipment located on any Lot against the title to which Encumbrance 5836440.5 is registered, form part of the easement facility for the purposes of the provisions of the Land Transfer Regulations 2002 incorporated by reference into Encumbrance 5836440.5;

(c) A declaration that the obligations under the Deed of Covenant of “the Owner” as defined in the Deed are enforceable by “the Manager” as defined in the Deed against any registered proprietor for the time

being of any Lot against the title to which Encumbrance 5836440.5 is registered, including any such person who becomes a registered proprietor through the exercise of the mortgagee’s power of sale of any such Lot, and against any mortgagee in possession of any such Lot or any other person.

[7] FMT applies to consolidate this proceeding with the Alemann proceeding. FMT has a first mortgage over Lot 50, and a second mortgage over Lot 101. The principal infrastructure assets, apart from piping under the ground, are on Lots 50 and 61, and those parts of Lot 101 as are intended to eventually be held in proposed Lots 13 and 14 when Lot 101 is subdivided. The finer details of this are of no present moment. I refer to these properties as the infrastructure lots.

(ii) is brought under the provisions of an Act conferring special jurisdiction on the court.

[9] The discretion to make an order is broad, and a range of possible orders is open to the Court. For example, it may consolidate the two proceedings on such terms as it thinks just, order them to be tried at the same time but without consolidation, order them to be tried consecutively but without consolidation, and order one of the proceedings to be stayed until after the determination of the other.¹

[10] The easements in favour of the plaintiffs in the Alemann proceeding, and the parties whose relevant interests are held by MRT, were created by deed of covenant. The deed of covenant is attached to a memorandum of encumbrance, and the latter document is registered on the relevant titles. The parties to the deed of covenant are

[11] The first declaration sought is that all the provisions of the deed of covenant attached to the encumbrance form part of the terms and conditions of the encumbrance for the purposes of s 62 of the Land Transfer Act 1952.

[12] Debate on whether this is the case or not is centred on the sole operative clause of the memorandum of encumbrance:

NOW THIS MEMORANDUM WITNESSES that the Owner encumbers the Property with the annual rent charge and on the terms and conditions described in Schedule 2 to better secure to the Manager performance by the Owner of the Owner’s duties and obligations under the Deed.

[13] Schedule 2 contains “Terms and Conditions of Encumbrance”, six in number. Schedule 1 contains the deed of covenant. There is no reference to Schedule 1 in the operative clause of the encumbrance.

[14] In the fifth cause of action on the Alemann proceeding (1100) this aspect of the encumbrance is called into question. The Alemann plaintiffs seek an order that the encumbrance be rectified to make it clear that the properties are encumbered with the annual rent charge on the terms and conditions described in both Schedules 1 and

[15] Broadly speaking, the difference between the first declaration sought in the declaratory proceeding, and the relief sought in the fifth cause of action in the Alemann proceeding, is that in the former proceeding the declaration relates to the interpretation of the encumbrance, but in the latter rectification is sought.

[16] Mr Bayley says that there are common issues between both proceedings in this respect. Plainly he is right. However, Mr Barton says that the complexities of the proceeding are such that an early answer on the meaning and ambit of the encumbrance will assist in resolving other issues raised in the Alemann proceeding.

[17] If this were the only declaration sought I would not order consolidation, because although similar issues are raised, in this respect, in both proceedings, and there are other factors which favour consolidation, I consider that the interpretation of the encumbrance is a point of considerable importance to the case as a whole which should be decided as soon as practicable. The issue is discrete and readily capable of determination on a declaration proceeding. The proceeding has a one day fixture shortly.

[18] I am also mindful that it may be open to argument that construction of the document, or rectification of it, can be dealt with as one issue.

[20] The second declaration raises questions over whether the reservoirs and other stipulated infrastructure and equipment form part of the easement facility. Mr Bayley has two arguments.

[21] First, clause 7(e) of the deed of covenant provides that a proportional share of the infrastructure lots will be transferred by MRM to each purchaser of a lot containing plantable areas, which are those parts of the properties which are suitable for the growing of premium pinot noir grapes.

[22] However, COPNEL and MRM also entered a management agreement. One issue requiring determination in the Alemann proceeding is whether the management agreement was cancelled in September 2009, or for other reasons has ended. The counterclaim brought in the Alemann proceeding specifically pleads that the plaintiffs have purported to cancel the contract, but without any lawful basis.

[23] Mr Bayley says that before the issue sought to be determined by the second declaration can be decided, it is necessary first to establish whether the management contract has come to an end. If it has, so too have the obligations in clause 7 of the deed of covenant, because clause 10 provides that the obligations in clauses 6 and 7 expire on the expiration or earlier termination of the management agreement.

Mr Bayley says that determining whether the items described in the second declaration form part of the easement facility is premature until that is decided.

[24] Secondly, in each agreement for sale and purchase of the small allotments there is a clause to the effect that the property will receive the benefit of easements to store and take water over each of the infrastructure lots, such easements to be registered on completion of the last stage of the subdivision and transfer of the infrastructure lots to the owners as I have set out. Mr Bayley argues that the fact that these obligations are in the agreements for sale and purchase, in various formats, shows that there was no intention that the deed of covenant would provide easement rights, and this is an issue that needs to be determined at trial of the Alemann proceeding. It cannot be decided within the parameters of the declaration proceeding.

[25] Mr Barton’s position is that this, and the third declaration to which I will refer shortly, do not require consideration of wider issues. I respectfully disagree. In my opinion the issues which MRT seeks to have determined by the granting of the second declaration are integrally involved factually with issues arising in the Alemann proceeding, will require the consideration of the evidence that will be led in that proceeding, and must be determined at the same time.

[26] The third declaration raises a question over who may enforce the deed of covenant. MRM assigned its interest to MRT in February 2013. However, it is an issue for determination in the Alemann proceeding whether the management contract was cancelled in September 2009, as I have said, resulting in the assignment having no effect. That is a factual issue requiring determination before the Court can properly reach a conclusion on the third declaration sought.

[27] In my opinion it follows that the issues arising in relation to the second and third declarations sought are such that consolidation should be ordered. This position differs from the conclusion I have reached in relation to the first cause of action.

[28] There are other factors favouring consolidation, including commonality of parties, the same counsel acting for the plaintiffs and for some of the defendants in both proceedings, and the fact that there is potential for waste of resources of both counsel and the Court if two hearings were to take place. However, counsel indicated that if I concluded that the issues raised in relation to the second and third declarations require the proceedings to be consolidated, but that the issues relating to the first do not, an alternative course would be to stay the declaratory proceeding save only for the claim for the first declaration, with the claims for the second and third declarations being raised by amended pleadings in the Alemann proceeding.

(2) The applications for the second and third declarations in the declaratory proceeding are stayed.

(4) Costs are reserved. Each party has succeeded in part. My inclination is that costs should lie where they fall. If either counsel disagrees application may be made for costs by memorandum within five working days and in that event a memorandum in response should be filed and served within a further five working days. Memoranda must not exceed three pages.

[30] If counsel are able to resolve, by agreement, the remaining issue on the MRT

[31] The Registry is asked to arrange a telephone case management conference in approximately two months with a view to the Court making orders to close the

High Court of New Zealand Decisions

McArthur Ridge Trustee Limited v FM Custodians Limited [2015] NZHC 496 (17 March 2015)

High Court of New Zealand

McArthur Ridge Trustee Limited v FM Custodians Limited [2015] NZHC 496 (17 March 2015)