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New Zealand Industrial Park Ltd v Stonehill Trustee Ltd [2019] NZCA 147

09 May 2019

Decision

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Summary

Summary: PROPERTY LAW—Restrictive covenants—Property Law Act 2007—Section 317—Extinguishment of covenant
CIVIL PRACTICE AND PROCEDURE—Indemnity costs—Costs of enforcement

The appellants’ land had the benefit of restrictive covenants registered over part of the respondent’s land.  These restricted the use of this part of the respondent’s land to grazing, lifestyle farming or forestry.  The covenants were originally intended to facilitate consent for quarrying on the dominant land, part of which is now owned by the appellants.  The respondent sold its land to a third party which is now building a dairy factory on the land subject to the covenant.   

The respondent applied to the High Court for orders extinguishing or modifying the covenants under s 317 of the Property Law Act 2007 (PLA).  The High Court granted this application finding:

a) there had been a change in the nature or extent of the use being made of the benefited land, much of which had been sold and will never be developed as a quarry;
b) the use of the burdened land had also changed and was now zoned Industrial 2;
c) the character of the neighbourhood had changed beyond recognition;
d) the covenants had no continuing practical value;
e) the continuation of the covenants would impede the reasonable use of the burdened land in a manner or to an extent that could not reasonably have been foreseen by the original parties to the covenants; and
f) extinguishment would not substantially injure the appellants.

In a later judgment, the High Court declined to order the respondent to pay any compensation to the appellants.  The Court awarded indemnity costs to the appellants being costs of enforcement payable in terms of the covenants.

The appellants appealed to this Court against the extinguishment of the covenants and the refusal to order compensation.  The respondent cross-appealed against the indemnity costs order.
HELD: APPEAL AGAINST EXTINGUISHMENT ALLOWED

Was there a sufficient change in the nature or extent of the use of the benefited and burdened lands?
Held: No. The changes were not sufficient to justify extinguishing the covenants. The aggregate resource is located on the appellants’ land and this land is still zoned for aggregate extraction and processing.  The only change in the use of the burdened land is the construction of the dairy factory in breach of the covenants.  

Was there a sufficient change in the character of the neighbourhood?
Held: No.  While the neighbourhood had changed, this did not justify extinguishing the covenants.  The changes did not increase the burden imposed by the covenants on the burdened land in a different way or to a different extent from that which could have reasonably been contemplated when they were entered into 20 years ago for a term of 200 years.  

Was there a sufficient change in other circumstances to justify extinguishing the covenants?
Held: No.  The utility of the covenants was not sufficiently impaired by rezoning, nor was the fact that the dairy factory could have been built on other parts of the burdened land relevant to the assessment.

Would continuation of the covenants impede the reasonable use of the burdened land in a different way or to a different extent from that which could reasonably have been foreseen by the original parties to the covenants?
Held: No.  The impediment upon the burdened land had not changed sufficiently to justify extinguishment.

Would extinguishment substantially injure the appellants?
Held: Yes.  The appellants lost valuable rights as a result of the covenants being extinguished.  Their ability to develop a quarry would likely be impeded if a dairy factory is constructed on the burdened land.

HELD: APPEAL AGAINST REFUSAL TO ORDER COMPENSATION DISMISSED; CROSS-APPEAL AGAINST INDEMNITY COSTS AWARD DISMISSED

Should compensation have been awarded to the appellants?
Held: No.  As the covenants should not have been extinguished the question of compensation does not arise.

Should the appellant have been awarded indemnity costs?
Held: Yes.  The appellants’ costs in defending the respondent’s application to extinguish its covenants is a form of enforcement of the covenants falling within the indemnity costs provision in the covenants.