GREEN GROWTH NO. 2 LIMITED v QUEEN ELIZABETH THE SECOND NATIONAL TRUST [2016]

NZCA 308 [5 July 2016]

IN THE COURT OF APPEAL OF NEW ZEALAND

CA47/2015

[2016] NZCA 308

BETWEEN

GREEN GROWTH NO. 2 LIMITED

Appellant

AND

QUEEN ELIZABETH THE SECOND

NATIONAL TRUST

Respondent

Hearing:

18 May 2016

Court:

Randerson, Stevens and Wild JJ

Counsel:

N R Campbell QC and W A McCartney for Appellant

F B Q Collins and P B Kirby for Respondent

Judgment:

5 July 2016 at 3.30 pm

JUDGMENT OF THE COURT

A The appeal is dismissed.

B The appellant must pay the respondent costs for a complex appeal on a

band A basis and usual disbursements. We certify for second counsel.

C There is no order for costs in respect of CA623/2013.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No

Introduction

The facts in more detail

The first signed version of the covenant (covering both blocks)

The second version of the covenant (for the larger block)

The third version of the covenant (for the larger block)

Was the Judge correct to find that the Trust was entitled to

rectification of the covenant against Green Growth?

Rectification as between the Trust and Mr Russell

Should rectification have been granted against

Green Growth?

Green Growth’s argument on appeal

Indefeasibility – discussion

Indefeasibility – conclusions

Was the covenant void, wrongfully notified on the title, or

obtained by unconscionable conduct?

The execution of the third version of the covenant

The certificate of correctness

Did the Judge err in finding that the covenant was not

wrongfully notified under s 81 of the LTA?

Was the Trust’s conduct unconscionable?

Does the notification of the open space covenant on the title to

the subject land afford the protection of indefeasibility?

The indefeasibility of the open space covenant – discussion

Green Growth’s application for rectification

Summary

Result

[1]

[11]

[22]

[33]

[36]

[47]

[48]

[59]

[66]

[67]

[84]

[101]

[103]

[121]

[123]

[131]

[140]

[146]

[154]

[156]

[157]

Introduction

[1] The respondent Trust was established by the Queen Elizabeth the Second

National Trust Act 1977 (the QEII Act). The Trust’s broad mandate is to encourage

and promote the provision, protection and enhancement of open space for the benefit

and enjoyment of the people of New Zealand.1 Amongst the functions of the Trust, it

may enter into open space covenants with private landowners or in respect of Crown

leasehold land.2 The objective of an open space covenant is to protect and maintain

1 Long Title to the Queen Elizabeth the Second National Trust Act 1977 (QEII Act).

2 QEII Act, s 22.

the open space values of an area of land or water. This objective commonly includes

the protection of native flora and fauna.3

[2] An open space covenant may be in force for a specified period of time or

endure in perpetuity. It takes effect in accordance with the provisions of the QEII

Act but subject to the terms agreed with the landowner.4 The covenant runs with and

binds the land and is deemed to be an interest in the land for the purposes of the

Land Transfer Act 1952 (the LTA).5 The District Land Registrar is obliged to notify

the covenant on the title of the affected land upon the Trust’s request.6

[3] In 1995 the Trust began discussions with a Coromandel landowner, the late

Mr Mallyon Russell, who owned two adjoining blocks of land near Tairua, one of

404 ha and the other of 207 ha. Mr Russell was interested in placing open space

covenants on his land which contained areas of native bush. Eventually, after several

different versions of the covenant were prepared, Mr Russell entered into two

covenants with the Trust which were notified to the District Land Registrar and

entered on the titles to the land. The covenant with which this appeal is concerned

was recorded on the title to the larger block of land on 24 July 1997.

[4] Mr Russell became ill during the period leading up to the covenants being

completed but there is no issue as to his legal capacity. He died in 2003. Meanwhile

the land had been sold to a company named Pounamu Properties Ltd in 1999. It was

then acquired by a company known as ABD Properties Ltd in 2011. That company

was controlled by a Mr Davis. Finally, the land was transferred to the appellant

Green Growth, a wholly-owned subsidiary of ABD Properties. Mr Davis said Green

Growth holds the land as bare trustee for ABD Properties.

[5] In 2011 ABD Properties approached the Trust seeking to vary the covenant

over the larger block in order to allow for a 19-lot subdivision of clustered housing

3 Although an open space covenant is not separately defined, “open space” is defined by s 2 of the

QEII Act as meaning “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”. 4 QEII Act, s 22(4).

5 QEII Act, s 22(6).

6 QEII Act, s 22(7).

on part of the land. A balance lot of 323 ha was to remain subject to the covenant.

The Trust declined this proposal.

[6] The covenant has been on the title since 1997. Several years ago the Trust

became aware of deficiencies in its drafting. In particular, the covenant had a

definition of a “protected area” which referred to an area marked on an aerial

photograph to be attached to the covenant. No aerial photograph was attached and

part of the definition was left blank. The Trust’s position was that the reference to

the protected area was a mistake and did not reflect the common intention of the

Trust and Mr Russell. In 2012 the Trust issued proceedings seeking an order

rectifying the covenant by deleting references to the protected area.

[7] Green Growth disputed the Trust’s claim on multiple grounds:7

(a) It denied the Trust was entitled to rectification and certainly not

against Green Growth as a third party.

(b) It maintained that the covenant was void because of the manner in

which it was executed, in particular by the substitution of a third

schedule to the covenant which it alleged was not correctly signed and

witnessed.

(c) It said the covenant was wrongfully notified on the title to the land in

terms of s 81 of the LTA and should be removed.

(d) It alleged the Trust had acted unconscionably in its dealings with

Mr Russell.

[8] Green Growth’s pleadings included a counterclaim seeking, in the alternative,

an order for rectification of the covenant to conform to an earlier pre-notification

version of the covenant. The Trust denied the allegations made by Green Growth

and asserted that the validity of its covenant was protected by the doctrine of

indefeasibility of title.

7 Some by way of defence and some by counterclaim.

[9] In the High Court Wylie J found in favour of the Trust on all the issues raised

and ordered rectification of the covenant by deleting all references to the protected

area.8

[10] Against that background the broad issues on appeal are whether the Judge

erred in:

(a) Finding the Trust was entitled to rectification of the covenant against

Green Growth.

(b) Finding the covenant was not void or wrongfully notified on the title.

(c) Not making a finding on unconscionable conduct.

(d) Finding there was no basis for Green Growth’s counterclaim for

rectification.

The facts in more detail

[11] The facts are largely undisputed and are drawn from the Judge’s findings.9

The land at issue was farmed by Mr Russell until about 1984 or 1985. The land

contains some significant areas of native bush but much of it is regenerating bush

with some areas of wilding pines.

[12] Mr Russell was a recluse. At relevant times he was aged between 75 and

77 years. He had few friends. His closest confidant was a Mr Boyd who had known

Mr Russell for many years. Mr Boyd was a witness to Mr Russell’s signature on

some of the later documents entered into in connection with the covenant.

[13] The original homestead on Mr Russell’s land had burned down and

Mr Russell lived in a hut in conditions the Judge described as appalling.10

The

Te Moata Buddhist Community owned a property adjoining Mr Russell’s land. The

Community’s land was subject to an open space covenant with the Trust. It was

8 Queen Elizabeth the Second National Trust v Green Growth No. 2 Ltd [2014] NZHC 3275.

9 At [16]–[87].

10 At [19].

through Mr Wyn-Harris of this Community that Mr Russell was put in touch with the

Trust. The regional representative of the Trust was Mr Stephen Parr. When Mr Parr

first met Mr Russell in 1995 he was still living in his hut on the property. Mr Parr

described Mr Russell as being very shy and said discussion at their first meeting was

limited to general matters.

[14] Shortly thereafter, Mr Russell’s health began to seriously deteriorate and

members of the Buddhist Community arranged for Mr Russell to be taken off his

land. He was initially hospitalised but later relocated to a rest home in Tairua. He

did not return to live on his land.

[15] Mr Parr had several further meetings with Mr Russell at the rest home. He

found Mr Russell to be noticeably different. Their communications improved

considerably and Mr Russell appeared to be comfortable with him. Mr Russell

wanted to help his neighbours at the Buddhist Community and to thank them for

their kindness and support. Mr Russell 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 on it.

[16] Mr Parr reported to the Trust that he had met Mr Russell on four separate

occasions and that he seemed to be committed to protecting the bush on the property.

It was intended that the covenant would cover the whole of the title to both blocks of

land but with a special condition allowing areas currently in pines and grass to be

available for replanting and the production of timber. As well, approximately 40 ha

was to be allowed for tracks and buildings for the owner’s housing needs. The report

recorded that Mr Russell was in a rest home and that it was likely the land would

need to be sold to pay his rest home fees.

[17] In October 1995 the Trust’s Board met and resolved to offer Mr Russell an

open space covenant over his land. By letter of 31 October 1995 the Trust wrote to

Mr Russell care of Mr Parr. This was the method of communication adopted by the

Board on the understanding that Mr Parr would take any correspondence and

documents to Mr Russell and discuss them with him in person. The Trust’s letter

included a draft covenant along with an explanatory brochure about open space

covenants generally. The Trust advised Mr Russell that the area suitable for

management and harvesting of pines or possible building sites had not been defined.

Mr Parr was to obtain an aerial photograph and have further discussions with

Mr Russell.

[18] Mr Parr met with Mr Russell and gave the letter and draft covenant to him,

explaining it clause by clause. Mr Parr left the documentation with Mr Russell so he

could consider it.

[19] The draft covenant forwarded to Mr Russell by the Trust on 31 October 1995

was in a standard or template form and could not be located. However, another draft

was produced. This referred to a “protected area” and also to a “management area”

of 40 ha within which the owner would be permitted to undertake certain activities.

We will refer to the terms of the draft in more detail below. For present purposes, it

is sufficient to note that, at the time of the letter of 31 October 1995, there was no

completed definition of the protected area nor of the location and definition of the

40-hectare management area.

[20] By early January 1996, Mr Russell was coming under pressure from the

owners of the rest home since his account was approximately $15,600 in arrears.

The owners of the rest home wrote to Mr Russell’s lawyer, Mr Jenkison on this topic.

Mr Jenkison had earlier prepared an enduring power of attorney for Mr Russell in

favour of the New Zealand Guardian Trust Company Ltd. Neither Mr Jenkison nor

New Zealand Guardian Trust were called upon to give advice to Mr Russell about

the covenant.

[21] Mr Russell signified his acceptance of the Trust’s offer on 8 February 1996.

There followed communications between Mr Parr and the Trust’s administrator,

Ms Place. The main difficulty lay in properly defining the proposed management

area. Mr Parr ordered an aerial photograph of the land expecting it would be

possible to define the location and size of the management area on that photograph.

The first signed version of the covenant (covering both blocks)

[22] On 15 April 1996, the Trust wrote to Mr Russell advising that documents had

been prepared for his signature and that Mr Parr would be delivering them to him

personally “so that you can discuss with him any concerns you might have”. The

letter advised that:

We have reworked the wording of the document 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).

[23] The letter also noted for Mr Parr’s benefit that there were two small blank

spaces in the document and that when the aerial photograph was obtained the areas

would be marked with letters to identify them.

[24] The covenant sent with the letter of 15 April 1996 recorded the intention of

the parties that the terms of the covenant would bind the land in perpetuity. The

purpose of the covenant was to achieve the following open space objectives of the

parties:

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

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

[25] The “land” was defined as “the property or part thereof defined as subject to

this covenant”. It is common ground that the “land” referred to the entire land

described in the relevant titles totalling 611 ha. The expression “protected area” was

separately defined as meaning:

the area of native trees shown as area [blank] on illustrative aerial photo

attached.

[26] The principal operative clause was contained in the Second Schedule and

provided:

2. 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 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.

In particular, on and in respect of the protected area, except with the

prior written consent of the Board, or as outlined in the Third

Schedule, the Owner shall not:

(a) Fell, remove, burn or take any native trees, shrubs or plants of

any kind.

(b) Plant, sow or scatter any trees, shrubs or plants or the seed 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.

(c) Mark, paint, deface, blast, move or remove any rock or stone or

in any way disturb the ground.

(d) Construct, erect or allow to be erected, any new buildings or

make exterior alterations to existing buildings.

(e) Erect, display or permit to be erected or displayed, any sign,

notice, hoarding or advertising matter of any kind.

(f) Carry out any prospecting or exploration for, or mining or

quarrying of any minerals, petroleum, or other substance or

deposit.

(g) Dump, pile or otherwise store any rubbish or other materials,

except in the course of maintenance or approved construction,

provided however that after the completion of any such work all

rubbish and materials not wanted for the time being are removed

and the land left in a clean and tidy condition.

(h) Effect a subdivision as defined in the Resource Management Act

1991.

(i) Allow cattle, sheep, horses, or other livestock to enter, graze,

feed or otherwise be present provided, however, that they may

graze up to any approved fenceline on the perimeter of the land.

[27] The Third Schedule provided for activities in the management area in these

terms:

1. An area not exceeding 40 ha with approval of the Board and shown

as area [blank] 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.

[28] Mr Parr visited Mr Russell and left the documents with him to consider. In

due course, Mr Russell decided to sign the covenant in the form in which it had been

presented. A signing ceremony at the Buddhist Community took place on 5 October

1996. Those present included Mr Russell, Mr Parr and Mr Boyd, the last of whom

witnessed Mr Russell’s signature on the covenant. At the time the covenant was

signed the aerial photograph had still not been obtained and the blanks in the

covenant had not been filled.

[29] On 1 November 1996 the Trust sent to Mr Russell a copy of the covenant

signed and sealed by the Trust. Mr Russell was advised that Mr Parr would be in

contact with him regarding “the final step in the covenanting process”.

[30] Around this time Mr Parr spoke again to Mr Russell. The Department of

Social Welfare was still endeavouring to have Mr Russell 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 was aware that subdivision into 20-hectare conservation blocks would be

permitted on Mr Russell’s land. He recalled discussing with Mr Russell a

“workaround” under which the Trust would still have a covenant over the smaller

block but, to make it more attractive for sale, some limited subdivision would be

allowed while still protecting the bush. The trade-off was that there would be no

subdivision allowed in the larger block of land. In cross-examination, Mr Parr

agreed it was still contemplated at this stage that subdivision would be permitted in

the management area. Mr Parr’s evidence was that Mr Russell agreed to these

changes.

[31] On 3 December 1996 the Board accepted recommendations from its officers

to ratify the covenant over the 404-hectare block of land; to delete the covenant

relating to 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 size of 20 ha, each with a dwelling site and access. The Judge found that the

aerial photographs of Mr Russell’s land were finally obtained in late November or

early December 1996. They have not been attached to any of the versions of the

covenant. The photographs showed a smaller area of land on the larger block

marked “A” in the vicinity of the old homestead near the boundary between the two

blocks and a much larger balance area marked “B”.

[32] The new covenant for the smaller block was later signed and entered on the

title on 23 April 1997. It allowed for subdivision into 20-hectare lots. No issue

arises in respect of that covenant.

The second version of the covenant (for the larger block)

[33] Further amendments to the covenant for the larger block were discussed

between Mr Parr and Ms Place.11

She prepared an amended version of the Third

Schedule which had the effect of reducing the proposed management area to 20 ha.

The amended Third Schedule read:

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.

[34] The Judge accepted Mr Parr’s evidence that the second version of the

covenant for the larger block was signed by Mr Russell at his rest home with

Mr Boyd as a witness. He also accepted Mr Parr’s evidence that at the time of this

meeting with Mr Russell, Mr Parr had with him the aerial photograph and that he

marked on it an outline of the proposed management area marked A. Mr Parr

11

Ms Place was an employee of the Trust.

recalled discussing with Mr Russell where to place the outline of the management

area. It was to be broadly in the area of the old homestead which had burned down

some years before. The Judge also concluded on the evidence that the covenant for

the smaller block was signed at the same time.

[35] The signed covenants and the marked up aerial photograph were sent to the

Trust and the covenants duly signed by the Trust. Completed copies of each

covenant were forwarded to Mr Russell on 8 April 1997. The covenant over the

larger block was signed correct by the manager of the Trust, Mr Porteous, on or

about that date.

The third version of the covenant (for the larger block)

[36] Yet further difficulties then arose. The Trust was informed that the

District Land Registrar was not satisfied that the management area was sufficiently

defined. The District Land Registrar was of the view that the covenant was not a

“whole of title” covenant. This meant a Class C survey definition was required to

sufficiently identify the area marked A and the balance of the land (shown as area B

on the aerial photograph).

[37] This advice caused the Trust to reconsider the terms of the covenant since the

Trust had limited funds at its disposal and had not budgeted for a survey, which was

likely to be expensive. Ms Place prepared a revised Third Schedule which removed

any reference to the management area. The Trust intended to make it clear that the

covenant covered the whole title so as to avoid the need for a survey.

[38] The Trust then wrote to Mr Russell on 23 June 1997 in these terms:

After several discussions with Stephen [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.

[39] The revised covenant still contained the incomplete reference to the protected

area. The revised Third Schedule read:

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.

[40] The letter to Mr Russell of 23 June 1997 also enclosed the previous

Third Schedule (the second version) signed in late March or early April 1997. This

had a line drawn through it. Mr Parr’s evidence was that he met again with

Mr Russell and explained the changes to the Third Schedule. Mr Russell agreed to

initial the replacement Third Schedule. As the Judge noted, it is common ground

that Mr Boyd was not present when this replacement Third Schedule was initialled

and that Mr Russell’s initials were not witnessed.

[41] Mr Parr explained that he did not realise at the time that the protected area

definition remained in the covenant which continued to contain a blank reference to

an illustrated aerial photograph. He said this was left in by mistake. It should have

been removed as he had agreed with Mr Russell that this was to be a whole title

covenant as a trade-off for allowing for potential subdivision on the smaller block.

The redrafting of the Third Schedule meant it was no longer necessary for an aerial

photograph or a survey. It had been intended from the outset that the covenant

should cover the whole title.

[42] Mr Parr’s evidence about the change to the Third Schedule was not

challenged in cross-examination. Indeed, it was put to him that he had “talked

Mr Russell through” the changes, a proposition with which Mr Parr agreed. In

particular, it was not suggested that Mr Russell had not understood or agreed to the

changes. Nor was there any challenge to Mr Parr’s evidence that he had not noticed

the now redundant reference to the protected area. The Trust field manager,

Mr Lissaman also gave unchallenged evidence that he had not noticed that the

protected area definition was still included in the covenant.

[43] Such challenge as there was to Mr Parr’s evidence of this meeting with

Mr Russell focused on the reference in the letter to Mr Russell of 23 June 1997 that

the alteration to the Third Schedule was “an attempt to meet your future needs”. On

this point, Mr Parr agreed that he gave Mr Russell the letter containing those words

but there is no evidence there was any discussion on that topic. Nor was it put to

Mr Parr that he ought to have told Mr Russell that the reason for the change was to

avoid the costs of survey.

[44] The replacement Third Schedule was sent back to the Trust and initialled by

Mr Porteous and two members of the Board. It was then inserted into the body of

the covenant which had already been signed by the Trust and dated 8 April 1997.

The replaced Third Schedule was removed. Mr Porteous did not re-sign the

covenant as being correct after these amendments were made. The covenant in its

amended form was entered on the title on 24 July 1997.

[45] The history of the subsequent transfers of the land is described in [4] and [5]

above. We note that when ABD Properties purchased both properties from Pounamu

Properties in 2011, the purchase price was $540,000. After the transfer of title to

Green Growth, the 404-hectare block was advertised for sale on the Trade Me

website for $3.8 million. The advertisement stated that the covenant would be

removed prior to settlement. In evidence, Mr Davis said the advertisement had been

placed in a moment of frustration and that the property was not for sale at that price.

He maintained he was interested in the conservation values of the land and he had no

immediate wish to subdivide the property. However, he agreed he wished to have

the ability to subdivide the land in future if required.

[46] Importantly, Mr Davis accepted he was aware of the open space covenant

before Green Growth took title to the land and that he had full knowledge of the

potential restrictions on the development on the land. In particular, he knew the

Third Schedule permitted reconstruction of only one dwelling house and ancillary

buildings and he was aware of the error in the covenant relating to the definition of

the protected area. Further, he knew the Trust had declined ABD Properties’ request

to subdivide the property. He maintained however that the covenant was not valid.

When it was put to him that Green Growth was taking the risk that the covenant

would be found to be valid and that Green Growth would be restricted from any

development other than that allowed for in the covenant, Mr Davis’ response was to

say that the risk was no greater than that faced by the previous owner.

Was the Judge correct to find that the Trust was entitled to rectification of the

covenant against Green Growth?

[47] This issue requires consideration of two separate steps:

(a) Was the Trust entitled to rectification of the covenant as between itself

and Mr Russell?

(b) If so, is the Trust entitled to rectification against Green Growth?

Rectification as between the Trust and Mr Russell

[48] There is no dispute about the principles applying to rectification as

summarised by the Judge:12

(a) The parties must have had a common continuing intention in respect

of the particular matter in the agreement sought to be rectified.

(b) The common continuing intention must be objectively apparent.

(c) The intention must continue up to the time of execution of the

agreement sought to be rectified.

(d) It must be demonstrated that, by mistake, the agreement does not

reflect the common continuing intention.13

[49] The Judge’s finding on the issue of common intention was:

12

Green Growth, above n 8, at [107]. 13

Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 2 EGLR 71;

Dundee Farm Ltd v Bambury Holdings Ltd [1978] 1 NZLR 647 (CA); Wellington City Council v

New Zealand Law Society [1988] 2 NZLR 614 (HC), affirmed on appeal [1990] 2 NZLR 22;

John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed,

LexisNexis, Wellington, 2016) at [10.6.1].

[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 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.

[50] Green Growth submitted that the letter the Trust sent to Mr Russell on

23 June 1997 was misleading because it stated that the replacement Third Schedule

ultimately signed had been amended in an attempt to meet Mr Russell’s future needs.

In addressing this submission, the Judge concluded:

[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.

[51] Mr Campbell QC submitted on Green Growth’s behalf that the Trust was

obliged to offer convincing proof of the alleged common intention that was

inconsistent with the covenant.14

He submitted that to ascertain objectively the

intentions of the parties it was necessary to consider the terms of the documents they

signed since it was said there was little other guide to Mr Russell’s intentions.

Counsel submitted the best guide to the intentions of the parties was the second

version of the covenant as at April 1997. It was contended that the Judge had erred

in finding that the common intention at that time was that there be no subdivision of

the 404-hectare block. In the version of the Third Schedule signed at that time,

cl 2(b) permitted the owner to erect dwellings and ancillary buildings within the

defined management area but subject to planning requirements and consultation with

the Trust as to siting and other matters.

[52] We accept that the Third Schedule in the second version of the covenant

permitted the owner to erect dwellings and ancillary buildings subject to the matters

we have set out. However, as the Judge noted, the reduction of the management area

to 20 ha effectively precluded subdivision because the minimum lot size under the

district plan was 20 ha. Any subdivision involving lots less than that area was likely

to have been a non-complying activity. There was no evidence an application for a

non-complying activity would have been successful.

[53] Be that as it may, the essential issue is whether the third version of the

covenant reflected the common intention of the parties. Mr Campbell submitted that

Mr Parr’s evidence did not go as far as saying that he explained to Mr Russell there

would no longer be a separate protected area. That seems likely because Mr Parr

said he did not notice the covenant still included references to the protected area.

The focus of the discussion was on the new Third Schedule. As described at [41]

and [42] above, Mr Parr’s unchallenged evidence was that the changes were

discussed and agreed before Mr Russell initialled the new Third Schedule in the third

version of the covenant. We note too that the Judge accepted Mr Parr was a

“patently honest” witness. We accept that the revised Third Schedule differed in

material respects from earlier versions. In particular, there was no longer any

reference to the management area contained in earlier versions; there was no

reference to the prospect of subdivision; and the owner was permitted only to

14

This is a well-established proposition: see Andrew Butler Equity and Trusts in New Zealand

(2nd ed, Thomson Reuters, Wellington, 2009) at [29.2.3].

construct one dwelling on the land after consultation with the Trust as to siting and

other matters. We are satisfied on the basis of Mr Parr’s evidence that Mr Russell

understood and agreed to the amended terms. As we note below, the protected area

had become redundant with the new terms agreed.

[54] Mr Campbell submitted the Trust had misled Mr Russell by stating in its

letter to him of 23 June 1997 that the Third Schedule had been altered in order to

meet Mr Russell’s future needs. It was said the letter misrepresented the reason for

the alteration (to avoid the cost of survey). As well, the new Third Schedule did not,

when compared with the earlier version, meet Mr Russell’s future needs.

[55] We are not persuaded there is anything in the first point. If it were to be

seriously advanced, it should have been put to Mr Parr that he ought to have told

Mr Russell that the reason for the change was to avoid the costs of survey. As we

have already noted, this did not happen.15

In any event, we are satisfied for the

reasons the Judge gave that Mr Russell’s future needs extended well beyond the

number of dwellings which could be permitted on his land.16

It is important not to

lose sight of the fact that the Trust had departed from the original intention to have a

whole of title covenant over both blocks. Instead, the covenant relating to the

smaller block was amended to permit Mr Russell to subdivide the smaller lot in

order to meet his then pressing financial commitments. This relaxation of the

original covenant for the smaller block was a key reason, discussed and agreed

between Mr Parr and Mr Russell, for the more restrictive terms of the final version

of the covenant relating to the larger block.

[56] We conclude, in agreement with the Judge, that the common intention of the

Trust and Mr Russell was reflected in the third version of the covenant save that, in

error, the references to the protected area in the Second Schedule remained. To that

extent, the third version of the covenant did not accurately record the parties’

common intention. As the Judge said, this mistake was common to both Mr Russell

and the Trust since the document they signed contained a meaningless definition. It

15

At [43] above. 16

See the Judge’s reasons quoted at [50] above.

was also redundant in the light of the amended terms agreed between Mr Parr and

Mr Russell.

[57] We agree with the Judge that 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 initialled by him. It was subsequently initialled by

members of the Trust Board and its general manager.17

We also agree with the Judge

that the common intention of the parties to place an open space covenant over the

larger block, subject to limited development rights, continued at the time of

execution of the replacement Third Schedule.18

[58] We also agree with Wylie J that the covenant would reflect the common

intention of the parties if rectified by the deletion of the references to the protected

area.19

It is common ground that rectification is an equitable remedy granted at the

discretion of the Court. We are satisfied, as was the Judge, that there are no

discretionary grounds upon which the Court could have declined to rectify the

covenant as between the Trust and Mr Russell.

Should rectification have been granted against Green Growth?

[59] After a full examination of relevant authorities, Wylie J concluded that an

order for rectification could be made against Green Growth, despite there being no

privity of contract between the Trust and Green Growth. The Judge rejected

Green Growth’s submission that it was a bona fide transferee for value of the land

such that its indefeasible title precluded any claim for rectification. While Green

Growth accepted it was aware of the notified covenant, it argued it had no

knowledge of the Trust’s claim for rectification.

[60] Wylie J began by observing it was not a necessary requirement for

rectification that the parties to the document at issue were before the court. He

referred to this Court’s decision in Todd Petroleum Mining Co Ltd v Shell (Petroleum

17

Green Growth, above n 8, at [65] and [111]. 18

At [112]. 19

At [116].

Mining) Co Ltd for the proposition that the equity of rectification can bind the

assignees of contractual rights.20

Wylie J then went on to consider whether the LTA

affected the availability of rectification. He concluded it did not. The essential steps

in his reasoning were:

(a) The registration of a document under the LTA did not of itself prevent

its rectification.

(b) The principle of indefeasibility under the LTA did not prevent a

plaintiff from bringing a claim in personam against a registered

proprietor, founded in law or in equity, for such relief as the court

might grant.

(c) Indefeasibility did not affect the power of the court to rectify mistakes

in carrying a contract into effect as between the parties to it.

(d) While a claim to rectification was an equity which, in cases dealing

with interests in land, was not available against a bona fide purchaser

for value without notice, rectification had been ordered of registered

documents which affect the rights of third parties who were on notice,

notwithstanding the absence of privity.21

[61] The Judge concluded:

[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.

20

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

2005. 21

The cases cited by the Judge included Merbank Corp Ltd v Cramp [1980] 1 NZLR 721 (SC);

Fifty-Seven Willis Street Ltd v Mortgage Holdings Ltd (2005) 2 NZCCLR 460 (HC); Child v

Dynes [1985] 2 NZLR 554 (HC/CA); Doubtless Bay Water Supply Co Ltd v Robinson (1997) 3

NZ Conv C 192,579 (HC).

[62] Referring to relevant sections in the LTA including ss 62 and 182 he noted in

respect of the latter that it did not apply in its terms. Nevertheless it gave him cause

to consider the rhetorical question:22

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?

[63] Wylie J answered his rhetorical question in these terms:

[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.

(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.

(footnote omitted)

[64] On the facts, the Judge concluded that Green Growth had actual knowledge

of the open space covenant and the problems with it before it took title to the land.

The company had endeavoured to take advantage of the problems with the covenant.

First, by endeavouring through its parent company to persuade the Trust to vary the

covenant to allow for subdivision and the erection of clustered housing on part of the

land. Second, by advertising the land for sale at the price of $3.8 million, the

property being described in the advertisement as being ripe for development as a

“green/eco friendly” subdivision. Third, by stating in the advertisement that the

covenant would be removed prior to settlement.

[65] Having concluded that rectification was available in favour of the Trust

against Green Growth, Wylie J exercised his discretion to grant the remedy. His

reasoning was:

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

the following reasons:

22

Green Growth, above n 8, at [134].

(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.

Green Growth’s argument on appeal

[66] Mr Campbell submitted that the Judge had erred in concluding that the

principle of indefeasibility did not protect Green Growth from a claim for

rectification. Counsel sought to distinguish the authorities relied upon by the Judge

and placed particular emphasis on a decision of the New South Wales Supreme Court

in Tanzone Pty Ltd v Westpac Banking Corp.23

He submitted there was no evidence

that Green Growth knew of any claim for rectification at the time it acquired title.

Even if it did have that knowledge, the Trust’s claim for rectification was a mere

equity which could not prevail against the protection afforded to Green Growth by

s 62 of the LTA and the principle of indefeasibility it embodied. Finally,

Mr Campbell submitted that the Judge had erred in concluding that the Trust had an

in personam claim against Green Growth. Any such claim must arise out of the

personal conduct of the registered proprietor.

Indefeasibility – discussion

[67] As Wylie J observed, the original parties to a contract will more typically be

before the court in a claim for rectification. Nevertheless, at least in cases not

23

Tanzone Pty Ltd v Westpac Banking Corp [1999] NSWSC 478, (1999) 9 BPR 17,287, reversed

on a different ground on appeal in Westpac Banking Corp v Tanzone Pty Ltd [2000] NSWCA 25,

(2000) 9 BPR 17,521.

involving an interest in land, an assignee of contractual rights will be bound by an

equity that could be raised against the assignor, including an equity of rectification.24

There has been no decision at appellate level in New Zealand as to the availability of

rectification as against a successor in title under the LTA. As this Court observed in

Child v Dynes, the availability of rectification in such circumstances is a “difficult

and debatable issue”.25

It was not necessary in that case for the Court to reach any

conclusion on that issue.

[68] It is clear that, in the absence of fraud or any of the other three exceptions

specified in s 62 of the LTA, an equitable claim for rectification does not prevail

against a bona fide purchaser for value without notice.26

The more difficult question

is whether a claim for rectification is available against a registered proprietor who

takes title with notice that a claim for rectification has been made or is likely to be

made.

[69] We accept Mr Campbell’s submission that the New Zealand authorities relied

upon by the Judge all contain some points of distinction. Further, the Judge, while

noting Tanzone, did not discuss the implications of that case or other relevant

Australian authorities. We propose to discuss the relevant authorities and then to

reach our conclusion on their application in the present case.

[70] In Merbank Corp Ltd v Cramp, Barker J made an order rectifying a registered

mortgage which, in error, did not contain a charging clause.27

The Judge reviewed

authorities suggesting that a right to rectification was a “mere equity” but took the

view that the position was different where the equity was ancillary to or dependent

upon an equitable estate or interest.28

Barker J was unable to find anything in the

LTA which prevented any making of an order for rectification inter partes.29

He also

found there was no prejudice to subsequent mortgagees whom he found could not

have been in any doubt as to what the rectified mortgage had sought to achieve.30

As

24

Butler, above n 14, at [29.2.9]; and Todd Petroleum, above n 20. 25

Child v Dynes, above n 21, at 562. 26

See Frazer v Walker [1967] NZLR 1069 (PC). 27

Merbank Corp Ltd v Cramp, above n 21. 28

At 732. 29

At 729. 30

At 735.

Mr Campbell pointed out, rectification was granted against an original party to the

mortgage, not against a successor in title.

[71] In Child v Dynes Barker J ordered rectification of a restrictive covenant

which, in error, did not include a restriction on building height.31

The parties to the

proceeding owned adjoining sections of land. The restrictive covenants were

registered on the titles to the properties. Rectification was granted despite the fact

that neither the original transferors nor the original transferees were parties to the

proceeding. Barker J found that the Dynes knew of the height restriction when they

acquired their property and must have assumed when they signed the agreement for

sale and purchase that it applied to buildings and not merely to trees, shrubs or

hedges. He found there would be no prejudice to them if the order were granted.

[72] Barker J revisited the status of a right to rectification in equity:32

The right to have a document rectified for mistake is generally believed to be

a “mere equity” and therefore unassignable for being a right in personam.

On the other hand, in Merbank Corporation Ltd v Cramp [1980] 1 NZLR

721 at p 732, I suggested that when such a right is ancillary to an equitable

interest, then it falls somewhere between equities and interest – probably

closer to the latter. Stable SPJ in the Majestic Homes case thought that the

right to rectify a conveyance was a chose in action and thereby assignable,

relying on Dickinson v Burrell (1866) LR 1 Eq 337. In that case, A assigned

property to B in circumstances which gave A an equitable right to recover it

and so gave an equitable interest in it. That equitable interest was assigned to

C, who was allowed to sue B to recover the legal estate. This is a

recognisable class of equity, known now as the equity to set aside a deed; see

16 Halsbury's Laws of England (4th ed) para 1334.

The important point in that case was that the right was ancillary to the

property and that an assignment of such property is valid even though that

property may be incapable of being recovered without litigation. The case

does not establish that a right to rectification is an interest and assignable,

but it goes a long way towards it where, as here, the right relates to a

contract which is ancillary to property.

There is support for according a higher status to a right to rectify when it

relates to land in the warning against strict categorisation given by the

learned authors of Meagher, Gummow and Lehane, Equity: Doctrines and

Remedies (1975) at para 401. Possibly, such a right could be described as a

“latent” equitable interest (Everton, “‘Equitable Interests’ and ‘Equities’ – In

Search of a Pattern” (1976) 40 Conv (NS) 209, 215) in which case it

survives in this case for there are no competing “patent” equitable interests.

31

Child v Dynes, above n 21. 32

At 560.

Since nobody seems able to precisely say, as a matter of theory, what “mere

equities” are as opposed to “equitable interests”, 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. The distinction seems only to be useful

when it comes to consider priorities.

[73] After noting that the cases showed how difficult it was to fix a third party

with notice of the need for rectification, Barker J held 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”.33

[74] Barker J did not address the impact of an order for rectification on the

principle of indefeasibility in relation to a successor in title. Although the case came

on appeal to this Court, the appeal was dismissed on different grounds.

[75] Two other High Court cases were cited in which rectification was granted. In

Fifty-Seven Willis Street Ltd v Mortgage Holdings Ltd, Gendall J granted

rectification of a registered mortgage.34

On the facts, the Judge considered that the

defendant assignee was on notice and that rectification was appropriate. The

principle of indefeasibility was not discussed. In Doubtless Bay Water Supply Co

Ltd v Robinson Salmon J rectified a deficient easement.35

He held that the plaintiff’s

right to rectification was an equitable interest which had priority over the later

equitable interest of a purchaser who had constructive notice of the discrepancy

between the plaintiff’s registered easement and the water supply agreement on which

that was based. Salmon J agreed with Barker J’s view that, in the context of land, a

right to rectification is very close to being a fully-fledged equitable interest.

[76] However, as Mr Campbell observed, the claim to rectification in Doubtless

Bay was addressed on the assumption that the second defendants (who had acquired

the property from the original party to the easement) were not registered proprietors.

This was because the plaintiff had lodged a caveat against the title and the

registration had not occurred until after the litigation had commenced. The parties

agreed that the transfer to the second defendants would be registered without

33

At 561. 34

Fifty-Seven Willis Street, above n 21. 35

Doubtless Bay Water Supply, above n 21.

prejudice to the plaintiff’s claim, so the key issue was the competing priorities of the

equitable interests.

[77] There have been several Australian cases where the issue of rectification of a

registered instrument has been considered. In Majestic Homes Pty Ltd v Wise a

Full Court in Queensland dismissed an appeal from a judgment ordering rectification

of a registered lease.36

Rectification was ordered at the suit of a subsequent

purchaser of the land against the lessees as original parties to the lease. Following a

New Zealand case, Shepheard v Graham,37

the Full Court held this was not a bar to

relief even though there was no privity of contract between the parties seeking relief

and the lessees. The Full Court also considered the indefeasibility of the lessee’s

rights under the lease after its registration. Again, following Shepheard v Graham, it

was held this was not a bar to relief in circumstances where the lessees had become

aware of the error but had chosen to lie low and not draw this to the attention of their

solicitor or to the other parties.38

The Full Court found the lessees to be guilty of

sharp practice. Although it is not entirely clear from the report, it appears the lessees

were aware of the error before the lease was registered.

[78] Mr Campbell relied strongly on the Tanzone v Westpac judgment in the

New South Wales Supreme Court.39

Westpac was the lessee under a lease that had

an erroneous rent review clause ostensibly requiring Westpac to pay substantially

more than it should have. During the first half of the 20-year lease the original lessor

had not sought to enforce this rent review clause, but when Tanzone purchased the

property it sought the full amount from Westpac. Westpac applied for rectification.

[79] Windeyer J found in favour of Tanzone. Rectification was prima facie

available in Westpac’s favour against the original proprietor, and also against

Tanzone. The Judge held:40

… it was accepted [by Tanzone], correctly, that although an equity of

rectification of a lease is a “mere equity” it is available or would bind a

purchaser taking with notice of the equity, perhaps because it is attached to

36

Majestic Homes Pty Ltd v Wise [1978] Qd R 225. 37

Shepheard v Graham [1947] NZLR 654 (SC). 38

Majestic Homes, above n 36, at 233–234. 39

Above n 23. 40

At [39].

an equitable interest in land … The question is whether Tanzone took with

notice of the right of rectification. In other words did it purchase with notice

of a common mistake on the part of [the original proprietor] and Westpac,

giving rise at least to a right in Westpac to seek rectification in the terms

sought or to the same effect.

[80] The Judge found that Tanzone had such notice. However this conclusion was

made “on the principles of general law, leaving aside the question of

indefeasibility”.41

The Judge then went on to consider the effect of indefeasibility.

He concluded that ss 42 and 43 of the Real Property Act 1900 (NSW) (equivalent to

ss 62 and 182 of the LTA) meant that rectification was not available to Westpac:42

As the effect of the Torrens system was to put a purchaser with notice who

obtains registration of the transfer without fraud, in the same position as a

bona fide purchaser of the legal estate without notice, or a bona fide

purchaser of an equitable estate who gets in the legal estate after notice, then

in my view the only sensible conclusion to be drawn is that unless there is

some right in personam Tanzone takes free of the equity of rectification.

[81] The Judge concluded that a claim in personam must be based on more than

notice:43

The purpose and effect of the abolition of the effect of notice brought about

through s 43 of the Real Property Act cannot be defeated by some cause of

action which relies on notice for its existence. … notice itself cannot lead to

a right in personam …

[82] Windeyer J held that while notice itself could not lead to a right in personam,

notice together with an agreement to be bound by the interest was sufficient to

amount to unconscionable conduct justifying relief. However this was not

established on the facts. There was no express or implied agreement to recognise the

claim for rectification.

[83] Windeyer J relied on Ong v Luong in which McLelland J held that a claim for

rectification by a plaintiff lessee against the original owner of the property could not

be admitted against the defendant and was not an exception to the defendant’s

indefeasible title.44

That was so even if the defendants had notice of the equity prior

41

At [39]. 42

At [48]. 43

At [52]. 44

Ong v Luong (1991) 9 BPR 16,759 (NSWSC).

to becoming registered proprietors (which was not established on the evidence).

Mr Campbell also drew our attention to We Are Here Pty Ltd v Zandata Pty Ltd.45

Indefeasibility – conclusions

[84] We consider first the status of an equitable claim for rectification of an open

space covenant entered into under the authority of the QEII Act. We have already

mentioned s 22. It relevantly provides:

…

(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.

(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.

…

[85] The notification of an open space covenant on the title to the land is notice to

the world of its existence. It is also notice of its terms because the covenant is

available for public search. As Mr Campbell accepted, the effect of notification of a

valid open space covenant is that Green Growth and any successor in title is bound

by its terms.

45

We Are Here Pty Ltd v Zandata Pty Ltd [2010] NSWSC 262, (2010) 15 BPR 29,087.

[86] Section 62 of the LTA provides:

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.

[87] Where rectification is sought against a successor in title, s 62 of the LTA is

clearly engaged. The section protects against adverse claims in the absence of fraud

or any of the other three exceptions specified in s 62(a) to (c). It is uncontroversial

that fraud means actual fraud.46

It is well-established that mere notice of an

unregistered interest is not sufficient by itself to amount to fraud.47

[88] Although we agree with Barker J’s view in the authorities discussed that a

claim for rectification of an interest associated with or ancillary to land is more than

a mere equity and is more akin to an equitable interest in land, we do not consider

the court’s task is simply a matter of weighing competing equities. The paramountcy

of s 62 precludes that approach. In that respect, the approach adopted in Tanzone has

much to commend it in terms of principle.

46

Assets Co Ltd v Mere Roihi [1905] AC 176, 210. 47

Section 182 of the Land Transfer Act 1952 (LTA); see also Waimiha Sawmilling Co Ltd (in liq) v

Waione Timber Co Ltd [1926] AC 101 (PC) at 107.

[89] But we do not need to reach a concluded view on this because the protection

afforded to a registered proprietor by s 62 is only against claims which are adverse to

the interests of the proprietor. As noted by the Privy Council in Frazer v Walker:48

The expression [indefeasibility], not used in the Act itself, 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.

[90] The rectification of a covenant or other agreement between the original

parties so that it truly reflects what the original parties themselves intended could not

be adverse to the interests of either. When granted, the agreement is amended

retrospectively to take effect from the time it was made. We are satisfied s 62 has no

application in such a case, although relief may of course be declined on other

discretionary grounds.

[91] In cases such as the present where rectification is sought against a successor

in title, the court may consider whether the claim is adverse to the interests of the

proprietor and whether the grant of an order for rectification would undermine the

principle of indefeasibility. Where, upon analysis, the order for rectification would

not have that effect, we consider relief may be granted. In particular, if the order

sought is not adverse to the interests of the registered proprietor then we do not view

s 62 as precluding the grant of relief. Put another way, s 62 does not operate as a

shield to protect the registered proprietor irrespective of the impact on the registered

proprietor’s interests of the recognition of the claim or interest of another.

[92] We later find that the other challenges raised by Green Growth to the validity

of the third version of the covenant must fail. It follows that in order to assess

whether rectification would adversely affect Green Growth’s interests it is necessary

to evaluate the differences between the third version as it existed before rectification

and its terms after rectification.

[93] In this respect, we agree with the Judge that the grant of the order for

rectification did not increase the burden of the covenant on Green Growth. Prior to

the making of the order, the third version of the covenant agreed with Mr Russell:

48

Frazer v Walker, above n 26, at 1075.

(a) Placed a general restriction under the first part of cl 2 of the Second

Schedule on the owner not to do anything on the land which in the

Trust Board’s opinion would materially alter the actual appearance or

condition of the land or which would be prejudicial to the land as an

area of open space as defined in the QEII Act.

(b) The second part of cl 2 placed further particular restrictions on and in

respect of the protected area unless the Board consented in writing or

the activities were permitted by the Third Schedule.

(c) The matters authorised by the Third Schedule were the maintenance

and upgrading of the existing access track on the land and the

construction of one dwelling, ancillary buildings and amenities. The

owner was required to consult with the Trust as to siting, design and

other matters. The maximum area of the activities permitted was no

longer limited to 20 ha. While the reference to these activities being

permitted in the management area was removed, in our view the

covenant meant that, at least by implication, these activities were to be

within the protected area.

(d) The incomplete definition of the term “protected area” meant that the

size, shape and location of that area on the land was not prescribed.

Despite that, the limitations in the Third Schedule signified a clear

intention that only one dwelling, associated buildings and amenities

and an access track were to be permitted.

[94] The order made by Wylie J was to delete all reference to the protected area.

This removed any uncertainty about the scope of the protected area which the Judge

described as a meaningless provision. We accept it also meant that the restrictions in

the second part of cl 2 of the Second Schedule set out at [26] above applied to the

whole of the land not just to the undefined protected area. But we do not consider

this had the effect of materially increasing the burden of the covenant on the

landowner. The first part of cl 2 gave the Board very wide power to control any

activities on the land which in its opinion would materially alter the appearance or

condition of the land or which could prejudice the open space values of the land.

This power was exercisable over the whole of the land and was not limited to the

protected area. It was a major constraint on the landowner’s freedom to deal with

the land as he or she saw fit.

[95] The Third Schedule set out at [39] above clearly signalled that only one

dwelling would be permitted on the site. Given this and the purpose of the covenant

set out in the First Schedule, it was most unlikely the Board would ever view

subdivision of the land in a favourable light. Nevertheless, both before and after

rectification of the covenant, the Board had the power to consent to any of the

activities described in cl 2 at the owner’s request. Nothing changed in that respect.

We are satisfied the order for rectification did not adversely affect the interests of

Green Growth or any subsequent owner and was not therefore precluded by the

indefeasibility principle.

[96] Mr Davis’ own evidence showed the company took title to the land with full

knowledge of the terms of the covenant and the defect in relation to the definition of

the protected area. Although Mr Davis asserted his belief the covenant was invalid,

he admitted taking the risk it would be found to be valid. We accept Mr Collins’

submission for the Trust that the error was so obvious that Green Growth must be

taken to have been aware that an application for rectification to correct the error was

at least a reasonable likelihood. The precise form that application would take is

beside the point.

[97] We are satisfied that Green Growth’s intention was to take advantage of the

defect in the covenant by resisting the order for rectification and by attempting to

have the covenant removed altogether to advance its commercial objectives.

[98] We conclude that the order for rectification was appropriate and that it was

not precluded by the principle of indefeasibility of title in the circumstances of this

case.

[99] We can deal briefly with Green Growth’s submission that the Judge erred in

finding that the Trust had an in personam claim against Green Growth. As is well

known, the Privy Council in Frazer v Walker made it clear that the principle of

indefeasibility of title does not necessarily protect the registered proprietor from any

claim whatsoever. In particular, it does not protect against claims in personam.49

The nature of an in personam claim was discussed by Tipping J in Regal Castings

Ltd v Lightbody:50

[148] An in personam claim against a registered proprietor looks to the

state of the registered proprietor’s conscience and denies him the right to rely

on the fact he has an indefeasible title if he has so conducted himself that it

would be unconscionable for him to rely on the register. Such a claim is

concerned with the personal obligations of the registered proprietor rather

than with the sanctity of their title. A successful in personam claim

indirectly affects the registered proprietor’s title, such as when a decree of

specific performance is made; but the claim is not a claim to the land as

such. It is a claim that the registered proprietor perform the contract of sale.

[149] The in personam jurisdiction must not, however, be allowed to

impinge on the fundamental purpose of the Torrens system. In terms of s 62,

that purpose is to make the registered proprietor’s estate (or title, as it is

usually put) paramount against interests which are not notified on the

register. It is, in my view, immaterial whether such an interest could have

been registered. Hence, if Regal had an unregistrable interest in the land

which was not susceptible to in personam relief, that interest would not

prevail against the paramountcy provisions of s 62.

[100] It is not necessary for us to determine whether the Trust has an in personam

claim against Green Growth since we have already found that the Judge correctly

ordered rectification of the covenant and that the order was not inconsistent with the

policy underlying the indefeasibility provisions of the LTA.

Was the covenant void, wrongfully notified on the title, or obtained by

unconscionable conduct?

[101] Green Growth argued that the covenant was void because of the manner in

which it was executed; it was wrongfully notified on the title and should be removed

in terms of s 81 of the LTA; and the Trust had acted unconscionably in its dealings

with Mr Russell.

[102] In response, the Trust submitted that the covenant was not susceptible to

attack on any of these grounds because the Trust enjoyed the protection of

49

Frazer v Walker, above n 26, at 1075. 50

Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 (footnotes omitted).

Blanchard and Wilson JJ agreed with this analysis.

indefeasibility in respect of the covenant which made it immune from attack.

Green Growth disputed the claim to immunity on the grounds that s 22(7) of the

QEII Act provided only for the notification of the covenant and not for its

registration.

The execution of the third version of the covenant

[103] The essence of Mr Campbell’s argument under this heading was that the

covenant and any variations of it required execution as a deed. The admitted

absence of any signature by Mr Russell to the amended Third Schedule and the

failure to have his initials or signature witnessed meant that the covenant was void.

For the same reasons it was also wrongfully notified on the title for the purposes of

s 81 of the LTA. Added to that, the amended document should have been certified

correct after the changes had been made. Instead, the amended Third Schedule was

simply initialled by Mr Russell and members of the Trust and then the new

Third Schedule was substituted. The Trust had presented the new covenant to the

District Land Registrar for notification bearing the same certificate of correctness as

the earlier version.

[104] Wylie J found that the QEII Act does not require that a covenant be executed

as a deed.51

Rather, it was a statutory covenant provided for by the Act. It took the

form of, and was, a contract between the parties.

[105] The QEII Act does not explicitly provide that an open space covenant is to be

in the form of a deed. However, there are a number of indications in the legislation

that support Green Growth’s argument on this point. For example, s 22(1) of the

QEII Act authorises the Board to “treat and agree” with the owner or lessee of the

land for an open space covenant to be followed by the “execution” of an open space

covenant. Similarly, the term “executed” is used in relation to the completion of an

open space covenant under s 22(5). As Mr Campbell submitted, the use of the term

“execution” of covenants is a term usually used in relation to deeds rather than

simple contracts. In this respect, s 22 may be compared with s 18(6) of the Act

51

Green Growth, above n 8, at [153].

which allows the Board to “enter into” contracts. The usual meaning of “covenant”

is a promise or agreement in a deed rather than in a simple contract.52

[106] Counsel further submitted that if the covenant was to be executed as a deed,

then the formalities of execution in s 4 of the Property Law Act 1952 (PLA 1952) (in

force at the time) had to be adhered to. In particular, the covenant had to be signed

and attested by at least one witness.

[107] Mr Campbell submitted that the same result flowed from s 22(6) of the

QEII Act, which provides that the covenant is deemed to be an interest in land for the

purposes of the LTA. Counsel argued that this invokes s 157 of the LTA which, at

the relevant time, provided:

157 Instruments to be signed and attested

(1) Every instrument executed for the purpose of creating, transferring,

or charging any estate or interest under this Act shall be signed by

the registered proprietor and attested by at least one witness, and if

the instrument is executed in New Zealand the witness shall add to

his signature his place of abode and calling, office, or description,

but no particular form of words shall be requisite for the attestation.

…

[108] Counsel also referred to s 22A of the QEII Act which relevantly provides:

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.

52

Halsbury’s Laws of England (4th ed, reissue, 2007, online ed) Deeds and Other Instruments at

[448]; Hinde McMorland & Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at

[17.001].

(3) Any consent required by section 22 to the execution of an open

space covenant shall also be required in the case of any variation of

that covenant under this section.

(4) On application by the board, the District Land Registrar for the land

registration district concerned shall enter in the appropriate folium of

the register relating to the land that is subject to the burden of the

covenant a notification of a memorandum of variation executed

under this section.

…

[109] Mr Campbell submitted that the replacement Third Schedule was not “a

memorandum of variation executed by them both” in terms of s 22A(1). Even if it

could be construed as a variation, it was not executed by Mr Russell or by the Trust

because of the deficiencies already identified.

[110] We accept Mr Campbell’s submissions on this point. The place of a deed in

our legal system has largely been supplanted by simple contract and by statutory

forms such as those prescribed for dealings with land by the LTA. However, the

distinction between deeds and other instruments retains importance in some areas

including for limitation periods and in respect of the capacity to enforce obligations

in a deed without evidence of consideration.53

The nature of a deed is

uncontroversial:54

A deed is an instrument in writing on paper or parchment, signed and

attested in the manner required by law, whereby an interest, right or property

passes or an obligation binding on some person is created, or which is an

affirmance of some act whereby an interest, right or property has passed. It

is not necessary that the instrument should describe itself as a deed. Nor is

every instrument that has been executed with the formalities required for a

valid deed necessarily a deed. Conversely, the fact that a document

describes itself otherwise than as a deed does not mean that it is not a deed.

[111] In order to constitute a deed two requirements must be satisfied. First, the

formalities prescribed by s 4 of the PLA 1952 must be met.55

Second, the instrument

must be intended to take effect as a deed.56

53

Laws of New Zealand Interpretation of Deeds and Other Documents (online ed) at [1]. 54

Laws of New Zealand Interpretation of Deeds and Other Documents (online ed) at [2] (footnotes

omitted). 55

These are now contained in s 9 of the Property Law Act 2007. 56

Morley v Spencer [1994] 1 NZLR 27 at 29–30 (CA) and Domb v Owler [1924] NZLR 532 (SC)

at 537.

[112] An instrument may be required by statute to be executed as a deed or to

comply with the same formalities as to execution. For the reasons advanced by

Mr Campbell we consider that the terms of the QEII Act sufficiently imply that an

open space covenant is to be executed as a deed. Although the open space covenant

in this case did not describe itself as a deed, its formal language of recitals and the

execution of the second version in the manner required for a deed supports this

conclusion. It is also properly to be inferred from the perpetual effect of the

covenant and the provision in the QEII Act enabling the covenant to be notified on

the title under the LTA, that the parties intended the covenant to take the form of a

deed.

[113] It follows that the absence of any witness to the replacement Third Schedule

and the fact that Mr Russell and those signing on behalf of the Trust provided only

initials rather than full signatures means that the requirements of s 4 of the PLA 1952

were not met.

[114] We do not consider any different conclusion is required because the covenant

in its second version was correctly executed and the replacement Third Schedule was

only a variation. The formality of the process for a variation under s 22A of the QEII

Act leads to the same conclusion, namely that the replacement Third Schedule did

not comply with the formalities required by the PLA 1952.

[115] By reason of these same defects, the requirements of s 157 of the LTA for the

execution of documents creating an interest in land were not met in any event.

[116] This leads to the next issue. What are the consequences of non-compliance

with the requirements for execution under the PLA 1952 and the LTA? This Court

has held that a guarantee of a mortgage remains enforceable between the parties even

if it is invalid for non-compliance with the requirements for execution under s 4 of

the PLA 1952 (assuming there is no other ground for invalidity).57

Here, it is not in

question that Mr Russell and the Trust agreed to replace the Third Schedule and we

are satisfied there was sufficient consideration for the transaction by reason of the

mutual exchange of promises.

57

Austin v Southland Building Society [2012] NZCA 337 at [14]–[16].

[117] The more difficult question is the effect of non-compliance in relation to

successors in title such as Green Growth. We note that the learned authors of Gault

on Commercial Law state that a deed will not be valid unless it is executed in

compliance with s 9 of the Property Law Act 2007 (PLA 2007), which is expressed

in substantially similar terms to s 4 of the PLA 1952.58

However, we prefer the view

endorsed by the majority of the Privy Council in National and Grindlays Bank Ltd v

Vallabhji, that where the consequences of non-compliance with a statutory

requirement are not specified, then the consequences are to be ascertained by

implication from the context and scheme of the legislation at issue.59

[118] The Privy Council was considering the effect of an instrument under the

Chattels Transfer Act 1930 (Kenya) which had neither been attested nor registered as

required by the legislation. The majority of the Privy Council concluded that, in the

absence of any express provision in the legislation as to the consequence of

non-attestation of an instrument, the natural implication from the terms of the section

at issue in the context and scheme of the legislation was that the instrument was

valid between the parties.60

However it was incapable of registration and so

ineffective against other persons.61

[119] In the present case neither the PLA 1952 nor the LTA provides for the

consequences of a failure to comply with the attestation requirements. However, we

consider that an open space covenant that does not comply with the attestation

requirements of the PLA 1952 should be interpreted as meaning that the covenant is

invalid as against third parties at least until it is notified and a memorial thereof

entered on the certificate of title for the subject land. That conclusion follows

principally from s 22(6) and (7) of the QEII Act. If the Trust wishes to ensure that

the covenant runs with and binds the land that is subject to the burden of the

covenant, this result is to be achieved by requesting the District Land Registrar to

notify the covenant on the title. The logical corollary is that, absent such a request

and notification, successors in title are not bound by the covenant.

58

Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Thomson Reuters) at

[PL9.02]. 59

National and Grindlays Bank Ltd v Vallabhji [1967] AC 207 at 222. 60

At 225. 61

See also the view of Master Venning (as he then was) in Dixon v Laurie McGoverne Ltd HC

Christchurch M254/00, 8 September 2000 at [26].

[120] We now consider the other defects alleged by Green Growth before dealing

with the Trust’s argument that, upon notification of the covenant on the title to the

subject land, it was nevertheless entitled to protection from attack by the doctrine of

indefeasibility.

The certificate of correctness

[121] As to the certificate of correctness for the purpose of the LTA, Wylie J

proceeded on the assumption that a certificate of correctness signed by Mr Porteous

was required before the covenant was presented to the District Land Registrar for

notification.62

However, he found that even if this were the case, to require a fresh

certificate in these circumstances would amount to “a triumph of formalism over

practicality”.63

We agree with the Judge that what occurred was unfortunate and bad

practice but we do not consider that any failure to provide a fresh certificate of

correctness has the consequence of invalidating the covenant or rendering it void.

Unlike the requirements for attestation, the requirements of s 164 of the LTA are not

directed at the validity of the instrument. Rather, the section forbids the Registrar

from receiving an instrument that has not been endorsed with the necessary

certificate. Here the instrument was correctly endorsed originally and the only issue

was whether it ought to have been endorsed again after the amendment to the

Third Schedule. We are not persuaded that the Registrar’s acceptance of the

instrument in these circumstances should be construed as rendering the instrument

void or unenforceable against Green Growth.

[122] We do not overlook the decision of MacGregor J in De Chateau v Child but a

key distinguishing feature of that case was that an amendment inserted by one party

after certification was never agreed to by the other party to the instrument.64

62

In terms of s 164 of the LTA. 63

Green Growth, above n 8, at [163]. 64

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

Did the Judge err in finding that the covenant was not wrongfully notified under s 81

of the LTA?

[123] It was submitted for Green Growth that the Judge had erred in finding that

the covenant had not been wrongfully obtained in terms of s 81 of the LTA, which

relevantly provides:

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.

…

[124] In support of this submission counsel relied on the same defects in the

execution of the covenant as those already discussed. It was submitted that

Mr Porteous was aware of the defects and had acted intentionally when choosing to

substitute a Third Schedule rather than preparing a new covenant and when

presenting that document to the District Land Registrar without a new certificate of

correctness.

[125] As Mr Campbell accepted, there are limits on the scope of s 81. For

example, the section may not be invoked to impeach an indefeasible title.65

As well,

it is has long been recognised that the s 81 power cannot be used to the prejudice of a

registered bona fide purchaser.66

Counsel submitted that neither of these restrictions

applied in the present case because the covenant did not enjoy indefeasibility. It was

a notified interest rather than a registrable interest. As well it was not obtained bona

fide (the submission being that the Trust engaged in conduct Green Growth said was

wrongful). Counsel also relied on the fact that the Trust was not a purchaser.

65

Nathan v Dollars & Sense Finance Ltd [2007] NZCA 177, [2007] 2 NZLR 747 at [36] per

William Young P and [156]–[158] per Glazebrook and Robertson JJ. 66

Assets Co Ltd v Mere Roihi, above n 46, at 194–195 (PC); Frazer v Walker, above n 26, at 1079.

[126] We were referred to the decision of Barker J in Congregational Christian

Church of Samoa Henderson Trust Board v Broadlands Finance Ltd.67

The Judge

observed that “wrongful” registration “involves something more than that the

instrument pursuant to which it was procured was void or that the certificate of

correctness was erroneous for that reason”.68

Barker J adopted the views of the late

Professor Hinde to the effect that an entry is not wrongfully obtained if the person

applying for the entry has acted honestly and in good faith and has diligently carried

out the appropriate and required conveyancing procedures. Conversely, an entry is

wrongfully obtained if the person responsible is guilty of some intentional wrongful

act (or perhaps a negligent act) even if the relevant act falls short of fraud. On the

facts, Barker J held that the defendant and its solicitors had acted honestly and in

good faith throughout.69

The solicitor had acted diligently in accordance with

normal conveyancing procedure.

[127] Section 81 was also discussed at length by McGechan J in Housing

Corporation of New Zealand v Maori Trustee where a Housing Corporation

mortgage was registered but, due to oversight, was not produced to the Registrar of

the Maori Land Court for noting and endorsement in terms of s 233 of the Maori

Affairs Act 1953.70

McGechan J concluded:71

I see no escape from the conclusion that s 81 is alive and well, however

unwelcome, and applies where the person obtaining registration does so in a

manner which is “wrongful” in the sense that it infringes the legal rights of

another. While immediate indefeasibility may bar the citizen, and indeed

even this Court, it will not in such situations bar the Registrar.

[128] McGechan J went on to say that while this view may represent the law, it was

not consistent with present reality. He observed that if a person has been wronged by

registration, the invariable practice has been to require that person to take court

proceedings, following which the Registrar would then, as a matter of discretion and

practice, implement the result. In the circumstances of the case, McGechan J found

that the registration of the mortgage had been wrongfully obtained. A declaration

67

Congregational Christian Church of Samoa Henderson Trust Board v Broadlands Finance Ltd

[1984] 2 NZLR 704 (HC). 68

At 714. 69

At 715. 70

Housing Corporation of New Zealand v Maori Trustee [1988] 2 NZLR 662 (HC). 71

At 699.

was made that the mortgage was a valid instrument binding inter partes and having

priority over all instruments subsequently entered on the title, subject to the

discretionary power of correction and cancellation vested in the District Land

Registrar by s 81. The Court expressed the view, which was not binding on the

District Land Registrar, that the Registrar need not take any action in respect of the

mortgage.72

[129] We agree with the views expressed by Barker J in the Congregational

Christian Church case in respect of the scope of the Registrar’s powers under s 81 of

the LTA. It is significant that the section is headed “Surrender of instrument

obtained through fraud, etc”. This suggests that some form of moral obliquity is

required. There is no evidence of a lack of good faith on the Trust’s part. Even if

McGechan J’s view that the term “wrongful” is used in the sense that it infringes the

legal rights of another, we fail to see how Mr Russell’s legal rights were infringed,

let alone those of Green Growth, by the identified defects in the execution of the

covenant.

[130] In any event, even if the section applies, Wylie J was right to decline to

exercise the discretion to make any declaration of the kind sought by Green Growth.

Reliance on this section so long after the event by a third party was properly viewed

as opportunistic.

Was the Trust’s conduct unconscionable?

[131] Wylie J did not consider Green Growth’s claim that the notified covenant was

an unconscionable transaction and that the covenant should be removed from the

title. The Judge’s reasoning was that any claim that Mr Russell may have had was

not available to Green Growth as successor in title and, in any event, the covenant

was protected by s 62 of the LTA.

72

At 701.

[132] Mr Campbell submitted that personal equities such as a claim to rescission or

a claim to rectification, being ancillary to property, passed with the transfer of the

property.73

[133] We have reservations about counsel’s submission. No authority was cited for

the proposition that a claim that a transaction was unconscionable could be brought

by Green Growth as a successor in title in circumstances such as these. The essence

of an unconscionable transaction is that equity will intervene when one party, in

entering into a transaction, unconscionably takes advantage of the other.74

That will

be so when the stronger party knows or ought to be aware that the weaker party is

unable adequately to look after his or her own interests and the stronger party is

acting to his or her detriment. In those circumstances the burden falls on the

stronger party to show that the transaction was a fair and reasonable one and should

therefore be upheld.

[134] Usually, an application for the intervention of equity would be brought by the

party alleging he or she has been the victim of unconscionable conduct or by that

person’s personal representative. It would seem odd if allegations of unconscionable

behaviour could be alleged years after the relevant events by a party who was a

stranger to the transaction and whose only connection to the transaction was as a

successor in title to the land over which the covenant at issue applies. A claim of this

nature is essentially personal to the party allegedly disadvantaged.

[135] Even if Green Growth were able to bring such a claim, we are not persuaded

the Trust acted unconscionably in its dealings with Mr Russell. Mr Campbell relied

on the alleged misrepresentation to Mr Russell about the purpose of the new

Third Schedule and the alleged failure to give him sufficient time to consider the

new Third Schedule or to consult with anyone before it was initialled.

[136] We have already dealt with the alleged misrepresentation about the purpose

of the amended terms and need say no more about it. As to the manner in which

Mr Russell’s agreement to the Third Schedule was obtained, there is nothing to

73

Citing Dickinson v Burrell (1866) LR 1 Eq 337, and Child v Dynes, above n 21. 74

Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30]; endorsed on appeal [2008] NZSC

47, [2008] 2 NZLR 735 at [6].

suggest that the Trust took advantage of Mr Russell. It is evident that Mr Parr had a

good rapport with Mr Russell and there was no suggestion at any stage that

Mr Russell was reluctant to enter into the transaction or did not understand its

significance.

[137] Importantly, Mr Russell’s general practitioner, Dr Mogens Poppe, examined

Mr Russell on 24 October 1997 and provided a report to solicitors representing the

owners of the rest home in which Mr Russell was then residing. A full physical and

mental examination was conducted. Dr Poppe reported that:

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.

[138] The reference to current proceedings in Dr Poppe’s report appears to relate to

an application by the rest home manager in August 1997 for the appointment of a

welfare guardian for Mr Russell under the Protection of Personal Property Rights

Act 1988. This application was made several months after the documents relating to

the covenant were signed by Mr Russell. The appointment of a welfare guardian is a

lesser form of protection relating to personal care and welfare. Neither this

appointment, nor the fact that Guardian Trust held an enduring power of attorney for

Mr Russell, is of moment given Dr Poppe’s unchallenged medical report. We are

satisfied that if Mr Russell considered he needed advice from his lawyer he was well

capable of asking for it.

[139] As the Judge found, Mr Russell wanted to protect his land and the

regenerating bush after he ceased farming the land. Concerns about his rest home

fees were met by the Trust’s agreement to permit subdivision of the smaller block.

As the Judge said, Mr Russell was keen to restrict development on his land as far as

reasonably possible, but recognised he might need to sell all or part of it in due

course to fund his ongoing care. We are not persuaded there was any unconscionable

conduct on the part of the Trust. Indeed, the Trust was instrumental in assisting

Mr Russell to meet his wider objectives while ensuring that his financial welfare was

also protected. In doing so, the Trust was fulfilling its statutory mandate for the

benefit of the people of New Zealand.

Does the notification of the open space covenant on the title to the subject land

afford the protection of indefeasibility?

[140] In the High Court, Wylie J accepted the Trust’s submission that, once the

open space covenant was notified on the title to the subject land it attracted the

protection of indefeasibility under the LTA and under s 62 of that Act in particular.75

In so finding, the Judge rejected Green Growth’s argument that the LTA provided

protection only for registered interests and not those notified on the title. In rejecting

that argument, Wylie J agreed with Associate Judge Doogue who, in the context of

earlier summary judgment proceedings between the parties, found that the effect of

s 22 of the QEII Act and s 62 of the LTA, when read together, led to the view that the

covenant attracted the protection of indefeasibility. A proprietor of the land who

acquired title after the covenant was notified acquired the interest in the land subject

to the covenant unless a recognised exception to the indefeasibility principle

applied.76

[141] The arguments advanced by the parties in the High Court on this point were

essentially reiterated on appeal. Mr Campbell submitted for Green Growth that the

LTA does not confer indefeasibility on every interest in land. Rather, it confers

indefeasibility only on registered interests. Since s 22(6) of the QEII Act does not

deem an open space covenant to be a registered interest under the LTA, it did not

attract the protection of indefeasibility.

[142] Mr Campbell supported this argument by reference to the learned authors of

Hinde McMorland & Sim, who state:77

Not all interests which are noted on the register are indefeasible. Certain

statutes provide for the noting of interests on the register for the purpose of

giving notice of the existence of those interests to any person dealing with

75

Green Growth, above n 8, at [105]. 76

Queen Elizabeth the Second National Trust v Green Growth No 2 Ltd [2012] NZHC 3524,

(2013) 14 NZCPR 548 at [69]–[70]. 77

Hinde McMorland & Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at

[9.007].

the land affected by them. But these notations do not confer the quality of

indefeasibility on the interests to which they relate.

[143] The text gives three examples: licences to occupy issued by a flat or office-

owning company and registered under pt 7A of the LTA; covenants noted against a

title pursuant to s 307 of the PLA 2007; and access arrangements recorded by the

District Land Registrar under ss 83–85 of the Crown Minerals Act 1991.

[144] Mr Campbell also drew our attention to an earlier edition of Hinde

McMorland & Sim addressing s 126 of the PLA 1952. This deals with easements

and covenants both positive and restrictive. The edition of Hinde McMorland & Sim

published in 1978-1979 said:78

The essence of the section is that it makes provision for notification only; it

is not registration and none of the consequences of registration flow from

notification. This is made clear by the further provision that a notification in

the register book of a restriction does not give the restriction any greater

operation than it has under the instrument creating it. Thus the noted

restrictive covenant remains an equitable interest only and does not become

a legal interest. Also, its validity as a restrictive covenant continues to

depend solely upon the equitable rules governing that class of interest:

immediate indefeasibility, with its quality of rendering valid an otherwise

void interest, does not attach to it.

[145] In summary, Mr Campbell submitted that the legislature should be taken to

have used the term “notification” deliberately. Notification, as distinct from

registration, has no impact on the validity of the covenant. Rather, he submitted that

the sole effect and purpose of notification was to allow the notified covenant to

qualify, through s 62 of the LTA, the indefeasible title that the registered proprietor

of the servient land would otherwise enjoy. The extent of that qualification would be

determined by the terms of the covenant and whether or not it was valid. The

validity or otherwise of the covenant was not affected by notification.

The indefeasibility of the open space covenant – discussion

[146] We accept that not all interests cited on the register are indefeasible. There is

substantial variability in the language used in legislation providing for interests to be

78

Hinde McMorland & Sim Land Law in New Zealand (Butterworths, Wellington, 1978-1979)

vol 2 at [11.013] (footnote omitted). To similar effect see EC Adams The Land Transfer Act

1952 (2nd ed, Butterworths, Wellington, 1971) at [150].

recognised under the LTA and there is no uniform approach about the nature and

effect of such interests. Leaving aside for the moment the position in respect of

various forms of covenant, we note the following examples of interests recognised

by statute which may be entered on the title of land under the LTA:

(a) Section 5 of the Fencing Act 1978 provides for fencing covenants to

be registered.

(b) By s 142 of the Mining Act 1971 (now repealed), the District Land

Registrar could enter on any certificate of title the particulars of any

mining licence. This operated only as notice of the existence of the

mining privilege and did not create a registered interest under LTA.79

(c) Section 67K of the Forest Act 1949 allowed the District Land

Registrar to notify a sustainable forest management plan on the

register.

(d) Section 3 of the Forestry Rights Registration Act 1983 allows for

forestry rights to be registered under the LTA.

[147] Addressing covenants in particular, we have already mentioned s 126 of the

PLA 1952 (now s 307 of the PLA 2007). This section provided for the District Land

Registrar to enter a notification of a restrictive covenant and provided that every

such restriction so notified shall be an interest within the meaning of s 62 of the LTA.

However, s 126(b) specifically stated that a notification “shall not give the restriction

any greater operation than it has under the instrument creating it”. This qualification

is carried over into s 307(5) of the PLA 2007. We consider this is a point of

distinction since s 22 of the QEII Act does not include any such qualification.

[148] We have identified two other statutes providing for the registration of

covenants: s 41 of the Heritage New Zealand Pouhere Taonga Act 2014 provides that

heritage covenants are instruments that create an interest in land under s 62 of the

LTA and may be registered accordingly; and s 109 of the Resource Management Act

79

The Crown Minerals Act 1991, ss 83–85, is now to similar effect. Section 28 of the Water and

Soil Conservation Amendment Act 1971 (now repealed) used an identical scheme.

1991 provides that bonds or covenants under the Act are deemed to be instruments

creating an interest in land within the meaning of s 62 of the LTA and may be

registered accordingly. When registered under the LTA any such instrument under

these statutes shall be a covenant running with the land which binds all subsequent

owners.80

[149] Finally, we note that s 77 of the Reserves Act 1977, which relates to

conservation covenants, is drafted in terms almost identical to s 22 of the QEII Act.

We have been unable to locate any helpful commentary or authority in relation to

this provision.

[150] Our conclusion is that there is no hard and fast rule to determine whether the

protection of indefeasibility is available in respect of instruments notified on the title

to land under the LTA as distinct from interests that are registered. We accept that

s 62 confers protection on the registered proprietor of land or of any estate or interest

in land, subject to the statutory exceptions. However, we agree with the High Court

Judge’s view that the nature and extent of the protection available to the holder of an

interest in land that is authorised by statute and which may be notified on the title of

LTA land depends upon the true construction of the statute conferring the interest

read together with the relevant provisions of the LTA.

[151] Approached on this footing, we are satisfied that Parliament intended to

confer the protection of indefeasibility on an open space covenant authorised under

the QEII Act once notified under the LTA on the title to the servient land. Our

reasons for this conclusion are:

(a) The effect of an open space covenant is to require the land to which it

applies to be maintained as open space in accordance with the terms

of the covenant which may have effect for a specified term or in

perpetuity.81

80

This Court considered s 109 in Rodney District Council v Fisherton Ltd (2005) 12 ELRNZ 38,

[2005] NZRMA 514 (CA) but did not need to consider the distinction between registration and

notification under the LTA. 81

Section 22(4) and (5) of the QEII Act.

(b) In order to give effect to the potentially long term nature of any such

covenant, s 22(6) of the QEII Act is emphatic in providing that,

notwithstanding any rule of law or equity to the contrary, the covenant

shall run with and bind the land subject to the burden of the covenant

and shall be deemed to be an interest in land for LTA purposes. As

earlier noted, the District Land Registrar is obliged, on the application

of the Board, to enter a notification of the covenant on the title to the

land.82

(c) The object of an open space covenant is to further the Trust’s purposes

of encouraging and promoting the provision, protection and

enhancement of open space for the benefit and enjoyment of the

people of New Zealand. This suggests that Parliament is likely to

have intended that notification under the LTA would ensure that an

open space covenant would not be susceptible to attack for defects

such as the form of execution.

(d) If Parliament had intended to qualify the effects of notification then it

could have said so as it has in relation to covenants under s 126 of the

PLA 1952 and its equivalent in s 307 of the PLA 2007.

(e) It might be said that Parliament could have used the term “registered”

rather than “notified” if it had intended that notification was to have

the same effect as registration. However, Parliament has not

demonstrated any uniform approach to the distinction and, as

Mr Collins submitted on behalf of the Trust, the expressions

“registered” and “notified” are used interchangeably in s 62 of the

LTA itself.

[152] We conclude that Parliament intended that an open space covenant notified

under the QEII Act would attract the protection of indefeasibility such that, once

notified, the covenant would bind successors in title notwithstanding any defects in

82

Section 22(7) of the QEII Act. The District Land Registrar has a similar obligation to notify on

the title any variation of the open space covenant under s 22A(4).

the covenant. This conclusion is consistent with the principles underlying the LTA.

In particular, the essential purpose of the doctrine of indefeasibility is to protect the

registered proprietors of land from attack by adverse claim by parties claiming an

interest in the land where the interest is not recorded on the title.

[153] Here, as Mr Campbell accepted, the open space covenant was plainly notified

on the title. This constituted notice to the world of the existence and terms of the

covenant. To hold that the covenant is protected by the doctrine of indefeasibility is

consistent with the policy rationale underlying that principle.

Green Growth’s application for rectification

[154] Green Growth accepted that if the notification of the third version of the

covenant were removed for any of the reasons it advanced, this should be on

condition that the second version should be notified since it did not suffer from the

defective execution alleged. In that event, Green Growth sought rectification of the

second version to complete the references to the protected area definition.

[155] It is unnecessary for us to deal with this issue since we have concluded that

the third version was validly notified and is properly subject to the order for

rectification made in the High Court.

Summary

[156] In summary we conclude:

(a) The High Court was correct to order rectification of the open space

covenant.

(b) The High Court was correct to find that Green Growth was not

protected by the doctrine of indefeasibility of title.

(c) The High Court was correct to find that, by reason of the doctrine of

indefeasibility, the open space covenant was not susceptible to attack

by reason of its defective execution.

(d) The High Court was correct to find that the open space covenant was

not void for failure to provide a fresh certificate of correctness for the

purposes of s 164 of the LTA.

(e) The High Court was correct to find the covenant should not be

removed from the title under s 81 of the LTA.

(f) The execution of the open space covenant was not obtained by any

unconscionable conduct on the part of the Trust.

(g) The High Court was correct to reject Green Growth’s claim for

rectification.

Result

[157] For the reasons given, the appeal is dismissed.

[158] The appellant must pay the respondent costs for a complex appeal on a

band A basis and usual disbursements. We certify for second counsel.

[159] We record that an earlier appeal by the appellant (CA623/2013) was

abandoned with costs reserved. In view of the costs award made in favour of the

respondent in the substantive appeal, we make no order for costs in CA623/2013.

Solicitors: Carson Fox Bradley, Auckland for Appellant Gibson Sheat, Wellington for Respondent