Don't underestimate the power of covenants over land

When purchasing or developing property, it always pays to treat covenants with respect.  Even when it may seem that a covenant is no longer required because of development and growth around the property which appears contrary to the purpose of the covenant, the courts will be slow to sweep it aside.  This was the outcome in New Zealand Industrial Park Ltd (NZIPL) v Stonehill Trustee Ltd (STL).[1]

 STL had purchased land and was on-selling it to Synlait, which began building a dairy plant.  The land though was subject to a 20-year old covenant in favour of NZIPL which prevented this.  NZIPL owned neighbouring property that could be used for a quarry.  The covenant was intended to protect NZIPL in the event it decided to operate a quarry.  It provided for two things: one, part of STL’s land could only be used for grazing, lifestyle farming or forestry; and two, STL could not object to any proposed quarry on NZIPL’s land.  The covenant was to last for 200 years. 

 However, STL took the view that, given the extent of recent surrounding development, new zoning, and that there had been no quarry on NZIPL’s land for the 20 years since the covenant was registered, the covenant was no longer required.  STL applied to the High Court to have it removed.  NZIPL protested.

 The High Court held that in the circumstances the covenant could be removed.  NZIPL appealed this decision to the Court of Appeal (CA).  The CA took a different view, overturning the High Court’s decision and holding the covenant should remain.

 The CA noted that covenants play an important role in providing property owners with greater or more focused protection than planning controls.  The courts should not remove this protection simply because it inconveniences other owners of property.  The CA had to consider, and answered, the following questions:

  • Had there been a change in the nature and extent of use of the properties to which the covenant applies?  No, NZIPL still had the opportunity to operate a quarry and STL’s use of the land – a dairy plant – since the covenant was registered was the very thing the covenant prevented.  While the zoning of both properties had changed over time, this didn’t prevent a quarry and the purpose of the covenant was to protect from potential zoning changes.

  •  Had there been a change in the character of the surrounding area?  While there had been significant residential growth and industrial development in the neighbourhood, this did not increase the burden on STL’s land imposed by the covenant.  The developed, surrounding land was also never subject to the covenant.

 The CA also considered there were no other relevant circumstances to remove the covenant, refusing to entertain STL’s argument that because the dairy plant could be built on part of STL’s land that wasn’t subject to the covenant this meant the covenant should be removed. Further, given the covenant was to last for 200 years the CA found that it would have been foreseeable that its terms would provide relatively increased restriction on land use if zoning changed or zoning restrictions were relaxed in the future. 

 Finally, while zoning changes may have made it more difficult for NZIPL to obtain consent to operate a quarry, it didn’t prevent it entirely, and the CA found that NZIPL ultimately wanted to quarry their land.  The dairy plant could impede that development.  So, to remove the covenant would substantially injure NZIPL’s property rights.

 Importantly, for anyone considering removing or ignoring a covenant, bear in mind it’s not unusual for covenants to specify that the party who has the burden of it has to pay all the enforcement costs of the party who has its benefit. That was the case here and the CA awarded indemnity costs in favour of NZIPL.  That meant STL would not only have to pay all its legal and other expert costs, but all NZIPL’s legal and other expert costs as well.  These costs would not be insignificant.

[1] New Zealand Industrial Park Limited v Stonehill Trustee Limited [2019] NZCA 147.

Mycoplasma bovis - affected farmers seek legal help as eradication tops $227.5M.

A restricted place notice on the roadside of a Mycoplasma bovis infected farm .

A restricted place notice on the roadside of a Mycoplasma bovis infected farm .

Farmers caught in a protracted process dealing with cattle disease Mycoplasma bovis and facing compensation delays are seeking legal help. 

To date, $227.5 million has been spent by the Ministry for Primary Industries (MPI) on disease eradication, made up of $154.1m of operational costs and $73.4m on compensation to farmers. 

Law firm Tavendale and Partners, which has offices in Ashburton and Christchurch, has established a dedicated team to deal with the more difficult cases where progress has stalled between M. bovis-affected farmers and the ministry. The M. bovis team is headed by Tavendale partners Kirsten Todd and Alana Crampton. 

Tavendale and Partners lawyer Kirsten Todd says the biggest human welfare issues arise where farmers have been stuck under a cloud of uncertainty for a long time. "They feel like they have no control."

Tavendale and Partners lawyer Kirsten Todd says the biggest human welfare issues arise where farmers have been stuck under a cloud of uncertainty for a long time. "They feel like they have no control."

Todd said its cases "have been stuck in the too hard basket, where mistakes have been made and farmers have been in the system for more than 18 months since being identified as a property of interest.

"The biggest human welfare issues arise where farmers have been stuck under a cloud of uncertainty for a long time. They feel like they have no control. 

"The best thing MPI can do is show empathy, speed up their processes, show consistency in their approach and people and give farmers certainty," Todd said.  

The law firm had assisted about 35 M. bovis-affected farmers since the disease was identified in New Zealand almost two years ago, not all existing clients.    

"Sometimes farmers are distraught and stressed and being able to step in and communicate with MPI on their behalf can assist," Todd said.   

Since it was first detected in July 2017, M. bovis has been confirmed on 171 farms, of which 128 have been cleared, with 101,000 animals culled.  

Earlier in the eradication response, issues tended to be around animal welfare and logistics for livestock under movement restrictions, Todd said. "Getting feed and water to stock, moving stock to grazing and being able to milk them." 

The bottleneck had now shifted to compensation. 

Both MPI and AsureQuality, which handled auditing and inspection, appeared to have a high turnover of staff dealing with the response.

"You might be dealing with someone, given them your information and the next week you have to deal with someone new and you have to start again. This delays things."

A lack of consistency in livestock valuations was also an issue. Sometimes MPI applied the livestock valuation from its contracted provider, or the independent valuation provided by the farmer, or a mix of the two.

"We have had like-for-like claims for livestock valuations treated completely differently by MPI, even from the same farm. As we see multiple claims we see a difference in approach and no clear reason for this," Todd said.  

Crampton said this provided no certainty for farmers. "Farmers have had their livestock valuation applied one way for a herd and four months later for another herd it is treated totally differently." 

Tavendale and Partners lawyer Alana Crampton says that low-risk farmers, put under surveillance by MPI, are not entitled to compensation so they should seek legal advice.

Tavendale and Partners lawyer Alana Crampton says that low-risk farmers, put under surveillance by MPI, are not entitled to compensation so they should seek legal advice.

While MPI had a model to calculate milk production losses on dairy farms, beef farms were more complex.  

"Verifying the loss is challenging."   

Farmers had a legislative time limit of 12 months to make a claim for a verifiable loss. 

As low-risk farmers, put under surveillance by MPI were not entitled to compensation, the law firm recommended that they seek legal advice. Eligibility for compensation only applied once farmers were put under notice of direction or restricted place movement controls.  

A total of 512 properties are under active surveillance. Of these 229 were in Canterbury, including 62 in Mid-Canterbury, followed by 90 in Otago and 70 in Southland. 

"Clients last year dried off their cows early as they were undergoing testing and needed to prepare if they were found to have M. bovis. As they were not under a notice of direction or movement controls they cannot claim compensation for loss of milk production," Crampton said. 

No farmers were "better off" after compensation, as overdraft or bridging costs and additional legal and accountant expenses were not covered, Todd said. This did not include time dealing with the response.  

"We know there are losses that aren't covered.

"For example, a farmer that has to repopulate their herd has received some compensation from MPI and the meat price. If the cows they are buying to restock are dearer, the farmer has to cover that cost until MPI reimburses them with a top-up.  

"We have had clients that waited six months for compensation for loss of milk production. This is normally cashflow in the bank reducing their overdraft and interest costs," Todd said.   



Introducing the Tavendale and Partners Godzone team

Pictured from left, Duncan Rutherford, Sarah O’Neill, Belinda McCone and James McCone.

Pictured from left, Duncan Rutherford, Sarah O’Neill, Belinda McCone and James McCone.

The Godzone adventure race is one of those crazy extreme adventure races and this year it is being held in Canterbury! Tavendale & Partners has got behind some hardworking Cantabrians who are taking up what seems like an impossible challenge.

 The non-stop race is held between 10-17 March 2019 and starts in Akaroa. 47 four-person teams are expected to take between five and seven days to complete the race. The teams navigate their own way around the course using a variety of multisport disciplines including mountain biking, trekking, kayaking and pack rafting. The competitors don’t know where they are going or even when they will receive the race maps. They make their own decisions about when to stop to sleep and eat.

 This is the second year the firm has had a named team in Godzone competition but this year there are some fresh faces – all from one of the practice’s farming family clients. Belinda and James McCone are being joined by Belinda’s sister Sarah O’Neill, and her brother Duncan Rutherford.

 Mark Dineen, a keen cyclist and one of the firm’s partners, is full of admiration for the energetic team the firm is sponsoring. “I’m a keen cyclist and do a bit of triathlon, but nothing this serious,” he said. “I couldn't contemplate doing the race myself, but it is good to be involved and we like to encourage people to get out into the great outdoors!”

 The Tavendale Godzone team obviously has spent a great deal of time in the great outdoors. Belinda, James and Sarah have done three 24-hour races previously, with Duncan completing his first one late last year. Belinda and Sarah have also done the Coast to Coast race about 15 years ago.

 Belinda participated in last year’s Godzone race, albeit somewhat reluctantly initially. “I got called in last year five weeks pre-race day when a woman broke her leg,” she recalled. “I was asked if I wanted to go in Godzone and I said ‘no’ and then thought about it and asked more questions, and then said ‘no’ again, but then the ‘yes’ came.”

 The team finished the 2018 race, held in Milford Sound, and while they didn’t grab any prizes, Belinda did catch the adventure race bug. “The day I got home we had our first team meeting. My brother and sister came over that night and we decided to go for it then.”

 The team has been already putting in a lot of training including a few 30 hour weeks. “We have religiously stuck to a training plan and we are pretty happy with how it has gone.”

 Training has included a 12 hour race in Twizel last weekend where they had the opportunity to practice all the challenging disciplines and were also able to do a mini-Godzone mock race in St Arnaud earlier in the year when six Godzone teams did a 36-hour training race. For that race however, they only had three team members. “My husband James broke his ribs falling off his mountain bike in the new year so he wasn't with us for that race, and he does most of the navigation,” said Belinda. The team were happy with their performance, and their improvement since. James is now fully recovered, which is just as well as you wouldn’t want to start this race nursing any injury.

 There is enough of a risk of injury in the race itself, but the team has the attitude of “what the hell, we are going to do it.”  Belinda hopes their training will help them avoid injury. “We have done quite a bit of training on rough ground, up mountains, down steams and not using tracks, and we are hoping that we have built strength and resilience.”

 Belinda says the team is relatively inexperienced at multi-day adventure racing, and therefore they don’t expect to win. “Our goals are to do the full course and finish with a ranking.”

 She thinks the biggest challenge for the team will probably be the family dynamics. “It is a mental game, and it is about knowing when to slow down and speed up,” she said. “The test is a mental and strategic one.” 

The team member’s history with Tavendale & Partners goes back some way and so they are delighted to carry the firm’s logo on their uniform. “We have got a family dairy farming business in Culverden, and while we started off farming together we have now branched off into our own little patches. Mark Tavendale worked with us a lot through that and my Dad also worked with Mark Dineen including when he was a stock agent up here.”

 Mark was keen to encourage the family in this extreme adventure race by sponsoring them. “It is a good mix for us with the other things we sponsor, such as cycling and show jumping,” he said. “We like to support the people who do the hard yards!"

 The race starts on Sunday morning in Akaroa, with Saturday being spent completing the registration, and attending briefings. The maps for stage one may be issued that afternoon. Just to get to the start line of the eight-stage race involves a lot of work sorting out gear and food. “In between each stage they tell us which of our three gear boxes we will need,” said Belinda. “We have to get all our gear in the right boxes so it is a bit of a logistical nightmare. If you stuff it up you might end up with no running shoes in the box that you get before a stage where you need them, or you haven't got any more batteries for your torch as they are in Box C and you have Box A!”

 Now the race is getting closer, Belinda did admit that everyone was “exceptionally nervous!” There is also a great deal of excitement and the whole firm wishes them all the best of luck.

 There is some team tracking information available on the event website so you can follow the progress of the Tavendale team here: https://godzoneadventure.com

 Go Team Tavendale!

New Zealand National Show Jumping and Hunter Championships

National Show Jump Champs

Welcome to equestrian sports sponsorship the Tavendale Team! 

 Tavendale & Partners are a new sponsor for the National Showjumping & Show Hunter Championships this year and have jumped straight into taking on the naming rights for the show. 

 It all came about when one of the partners, Olivia Macgregor, was attending a friend's wedding when she was introduced to Angus Taylor. The Chairman of the organising committee is never one to let an opportunity go by, and he just happened to mention to Olivia that the show was looking for sponsorship. "He asked if that was something my firm would be interested in," said Olivia. "Because the firm has a lot of agricultural connections, we thought it would be a good fit and was worth talking about."  

 The other partners agreed, and they decided to come on board, taking up the opportunity to be the key naming rights sponsor. 

 "We see that a lot of the people that would be at the event or involved in the sport would likely have a rural background, and that is very much a target market for us. We have a lot of existing clients who will hopefully be there, recognise our name and be happy that we are supporting that type of event. We would also like to attract a few new clients as well!"

You + us: AML/CFT

Why we need to ask you for information

There are changes to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“AML/CFT”) that will apply to you + us. 

You may already be aware of AML/CFT as the law currently applies to banks and other financial service providers.  

From 1 July 2018 AML/CFT will apply to your relationship with us. From 1 October AML/CFT will also apply to your relationship with your accountant and any Real Estate Agent that you deal with after 1 January 2019.

The law reflects New Zealand’s commitment to the international initiative to counter the impact that criminal activity has on people and economies within the global community.

From 1 July 2018 we are required to have measures in place to help us to detect money laundering and financing of terrorism as the services we offer may be attractive to those involved in criminal activity.

As a law firm we need to assess the risk we may face from the actions of money launderers and people who finance terrorism and identify potentially suspicious activity. To make that assessment, we need to obtain and verify information from existing and potential clients before we start providing our services to them.  This is known as “customer due diligence”.

What we will need from you

Customer due diligence requires us to undertake certain background checks before providing our services to you. We must also take reasonable steps to make sure the information we receive is correct. To do this, we need to obtain information from you and verify the information you provide us is correct. 

The information we will ask you for includes:

•       your full name; and

•       your date of birth; and

•       your address.

To confirm these details, we will need documents that include photo identification, like your passport or current driver’s licence and documents that show your address, like a current bank statement or utility bill.

If you are seeing us about a company or trust, we will also need information relating to the company or trust and the people associated with it (such as directors and shareholders, trustees and beneficiaries) and we may also need to ask you for information on the source of funds and wealth for a transaction.

We will make this process as easy as possible for you by providing you with detailed guidance on what we need.

If you cannot provide the required information?

If you are unable to provide the information we require, it is likely we will not be able to act for you. Because the law applies to everyone, we need to ask for the information even if you have been a client of ours for a long time.

Please contact us if you have any queries or concerns about these requirements.

Excluding liability in tort - construction contracts

The recent High Court decision on liability for defective buildings[1] emphasizes that it is virtually settled law that building contractors may face tortious liability for commercial or public buildings unless their contract expressly excludes it.  This begs the question as to how a contractor can limit or exclude its tortious liability for a commercial construction project.

The case involved Hawkins, which was contracted to build school buildings for Botany Downs Secondary School.  The buildings were constructed with defects and did not meet the Building Code (Code).  The Board of Trustees (Board) and the Minister of Education (Minister) claimed Hawkins owed them a duty of care to construct the building exercising reasonable skill and care and ensuring compliance with the Code.  They claimed Hawkins was negligent in failing to meet that duty and therefore liable to meet the costs to remedy the defects – some $17 million including GST. 

Hawkins argued unsuccessfully that it did not owe a duty of care to the Board or the Minister and so couldn’t be liable for the cost to repair the building to meet Code.  Hawkins said this was because the terms of their contract excluded such liability.[2]  However, when the Court looked at the contract, it held that there were no such terms that expressly or impliedly excluded liability in tort or that were otherwise inconsistent with imposing tortious liability.  The Court did however confine the tortious duty to compliance with the Code and not to other quality requirements under the contract.

While residential construction contracts often contain terms limiting the contractor’s liability, the Building Act and Consumer Guarantees Act ultimately prevent exclusion of liability anyway. 

In the commercial context, it is possible to negotiate an effective exclusion or limitation of liability, but it is difficult, and the default terms of industry-standard commercial construction contracts don’t include these.  Most principals won’t accept a contractor having limited or no liability if the building works don’t comply with the Building Code.  However, if the principal and the contractor have equal bargaining power – say, if the contractor has no competitor able to complete such a complex project, or the principal has particularly onerous construction or design requirements, or the parties have a very close working relationship – the contractor may be able to negotiate a limitation or exclusion of tortious liability.

If, through negotiation, a commercial construction contract does limit or exclude general liability, it’s important for a contractor to ensure that the exclusion/limitation of liability expressly captures tortious liability.  Otherwise the contractor may still be exposed.  Usually, the statutory time limit for a claim in contract expires before the time limit for a claim in tort.[3]  This often means principals can only sue a contractor for defective construction in tort – if the contract doesn’t expressly prevent this.

While errors and omission (“E&O”) / defective construction insurance cover is available under business policies (for an additional premium), such cover is usually limited and is unlikely to meet all tortious liability costs.  It’s far better if a contractor can limit or reduce their tortious liability in the commercial construction contract itself.   

Contact either Kirsten Todd or Jonny Pow today:

 

[1] Minister of Education & Others v H Construction Ltd (formerly Hawkins Construction North Island) [2018] NZHC 871.

[2] Hawkins had argued no such duty of care existed in the context of construction of a non-residential building.  However, the High Court had little trouble disposing of this argument, treating the law as now relatively settled that a builder (and territorial authority) owes a duty of care in the construction of a commercial building.

[3] This is because the statutory limitation period for a claim in contract generally runs from the date of the breach of contract (which is likely when defective works were physically carried out) whereas the limitation period for a claim in tort runs from the date that damage or loss accrued (which may be when the building suffers damage because of the earlier defective works).