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PROPERT Y L AW Y E R November 2016 · Volume 17 Issue 2

Contents O N T H E COV E R

From the Chair | Duncan Terris .

Photo by flickr user Bernard Spragg cb-a-ND

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From the Editor | John Greenwood .


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Section News | Katrina Thomas . .

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Registrar-General | Robbie Muir .

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E-dealing Consultant | Duncan Terris .

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Resource Management | Helen Andrews & Rachael Steller . . . . . . . . . . . . . . . . . . . . . Commercial Property | Michelle Hill ..


issue – Part 2 | Linda Fox ..

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What the LIM cases have taught us | Frana Divich . . Limited Partnerships are an option for running joint business ventures | Claire Tyler . . . . . . . . .

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Failure to place client funds on interest-bearing deposit ..

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Resource Management Act 1991 | . . . . . . . . . . . . . . . .

Court of Appeal clarifies the state of the law (twice) | Kimberly Lawrence .

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new Retentions Trust Regime | Brian Clayton, . . . . . . . . . . . . . .


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Hamish Bolland & Andy Cartwright . Case Notes . .

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Construction Industry: Countdown to the

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The constructive trust on a trust – the

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Questioning the pre-circulation rule in the Sean Conway & Rachel Murdoch .

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Retirement village living: pros and cons | Bryce Williams . . . . . . . . . . . . . . . . . . . . .

An update on the methamphetamine


Current issues and upcoming events DUNCAN TERRIS  Yet another year is rapidly drawing to a close. It has certainly been another busy one including events such as the very successful Property Law Conference in June, the popular PLS / LINZ / NZILE workshops around the country and regional lunchtime meetings in Christchurch, Hamilton, Palmerston North and Nelson to meet with local lawyers. We also made submissions on various proposed Bills and amendments including the Land Transfer Bill which involved extensive written submissions and an appearance before the Select Committee. Work behind the scenes has continued with various government departments such as IRD, LINZ, MBIE and MSD on matters including RLWT, Bright-line test, Tax Statements, building and housing issues and Enduring Powers of Attorney. We continued the Section’s engagement with some of the major banks and met with their legal teams on practice matters and suggestions for improvements in documentation and procedure. That dialogue has been mutually beneficial and is ongoing. None of us can work in a silo and much of what we do is looking to collaborate and exchange ideas with those we deal with in day-to-day practice. That includes legal executives and, perhaps most lacking of collaboration, is with surveyors on

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subdivision matters. While it may not be a daily activity for many, there will be subdivision work at some stage for any property lawyer, be it a simple 2 lot subdivision or a strata high-rise. In September this year, a 3 hour subdivision workshop was organised by LINZ / PLS / NZIS in Tauranga. There were more than 80 attendees from up to 150km away. So what was different about this event? Well, it was a combined group of attendees including lawyers, legal executives, surveyors and council officers. There were practical example exercises provided for smaller group discussion and then a collective response back to the group at large. It was one of the most insightful workshops I have attended from the perspective of the exchange of ideas between lawyers, surveyors and council staff. Each provided the other with an incredible insight and understanding of what some of the respective issues are and how they could be readily avoided if there was early collaboration on the best way to subdivide. That should include ongoing dialogue to ensure, for example, that any changes in the plan and easement schedule are discussed and communicated before easements are finalised by the lawyer. All who attended made the comment that they left with far greater insight into the process from the ‘other side of the fence’ and understood issues

that are faced and the importance of a collaborative approach. All too often the lawyer is the last person to know about the subdivision and often only finds out once the plan has been finalised and lodged, or even worse, the client does not even realise that a lawyer needs to be involved at all and that the surveyor does everything. This collaboration needs to start at the ‘coal-face’. Previous attempts at combined lawyer / surveyor functions have been less than successful. I would encourage rapport to be built at a local level, perhaps with a lunch or after work catch up. The Property Law Section is always happy to receive ideas and suggestions of how it may assist with building closer relationships with other professional bodies that play a key role in our daily practice. In reflecting upon 2016 it now seems difficult to deny the fact that the passing of another year is almost upon us. This will be the last publication for 2016 and it would be remiss of me not to take the opportunity to wish all of you a very relaxing holiday season. I am being intentionally literal in my choice of the word ‘relaxing’. The practice of law is a stressful and demanding one and it is imperative that we take time out to ‘recharge the batteries’ and reconnect with friends and family.

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Important and curious cases J O H N G R E E N WO O D   Kawarau Village cases – a vague promise to build and are rock anchors fixtures or chattels? Two decisions, one in the High Court and one in the Court of Appeal, were both delivered on the same date (9 September 2016) and concerned the Lake Wakatipu Kawarau Falls Station development initiated through the Melville Group. In Ho Kok Sun & Others v Peninsula Road Limited (In receivership and in liquidation) v Kawarau Village Holdings Limited and Others [2016] NZCA 247, an appeal was lodged by a number of purchasers who entered into contracts to buy units in two buildings in Stage 1 of a three stage development. While Stage 1 of the development was completed, Stages 2 and 3 had not progressed and in the High Court, Justice Gilbert had found that the vendors were not obliged to complete Stages 2 and 3. On this basis, settlement notices which had been issued against defaulting purchasers were considered to be valid. The appellants claimed that the settlement notices were invalid and the notices of cancellation amounted to repudiation of the agreements for sale and purchase. The Court of Appeal canvassed the promotional material and wording in the agreements for sale and purchase and focused on whether there was a positive obligation on the vendors to complete Stages 2 and 3. The Court had no difficulty in finding that the vendors were under a positive obligation to complete Stages 2 and 3, or at least to procure completion of those stages. The counter-argument was that completion of the development was not regarded by the purchasers as being an essential term of the contractual arrangements, even taking into account, as the High Court judge had found, that there


was an inherent unlikelihood that the parties would have contracted for construction of the project on this scale with such scant detail of what the vendor is actually obliged to do and when. The Court accepted that the test for essentiality, in terms of section 7(4)(a) of the Contractual Remedies Act, was that previously expressed in the Supreme Court in Mana Property Trustees Limited v James Developments Limited [2010] NZSC 90 being “... whether unless the term in question was agreed at the time of contracting to be essential, a cancelling party would more probably than not have declined to enter into the contract. That question must be answered by an objective contextual appraisal which disregards what a party may unilaterally have said about its intention in that regard”. The Court of Appeal held that it was more probable than not that the purchasers would have declined to enter into the agreements for sale and purchase if they knew there was no positive obligation to complete Stages 2 and 3. Consequently, it was an essential term. The appellants were not obliged to perform the agreements for sale and purchase, and were entitled to return of their deposits. The second Kawarau Village decision, Lakes Edge Developments Limited v Kawarau Village Holdings Limited [2016] NZHC 2141, concerned a somewhat surprising allegation from a neighbouring plaintiff owner that a number of rock anchors protruding from the defendant’s land into the plaintiff ’s land constituted a continuing trespass. The counter view from the defendant was that the rock anchors constituted a fixture and therefore, formed part of the plaintiff ’s land: there was no continuing trespass by the defendant. It is of interest that the installation of the rock anchors as part of the construction of

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a hotel on the defendant’s land resulted from a resource consent condition imposed during the first stage of development. It required rock anchors to be inserted in order to prevent “seismic drift” by any new structures down the hill towards Lake Wakatipu. Debate involved discussion over whether the anchors constituted a fixture or chattel, with the plaintiff drawing some authority from the recent High Court decision of Queenstown Central Limited v March Construction Limited. In that case, the fill on the land was deemed to remain a chattel and therefore constituted property which needed to be removed, meaning in that case the defendant was liable in trespass. The defendant argued that the case was distinguishable in that it could not be trespass if the owner of the neighbouring land had consented to its annexation. The Court noted that trespass is defined as an “unjustified direct interference with land in possession of another”: Bocardo SA v Star Energy Onshore Limited [2010] UKSC 35 and [2011] AC 380. The Court noted that the insertion of a subterranean object into the land of another can amount to a trespass. However, the Court found that in this particular case, as the fixture had been affixed with the consent of the landowner, it could not give rise to an action in trespass. The next question was the actual status of the rock anchors. The Court noted the authority of Holland v Hodgson 1872 (EL AR 7CP328) which held that when determining whether there had been an incorporation of personal property into land, the relevant considerations are (a) the degree or mode of annexation and (b) the object or purpose of the annexation. The Court held that the degree of annexation of the rock anchors was such that

it must have been intended that the rock anchors would become a permanent part of the plaintiff ’s land. The anchors were very deep below the surface and were set in concrete. It determined that the purpose of the annexation supported a finding that the rock anchors had been converted into fixtures.

Is fill on land a fixture or chattel? As noted above, Justice Davidson, in Queenstown Central Limited v March Construction Limited [2016] NZHC 1884, was called upon to consider the ownership of a large volume of ground fill, which was excavated as part of the prominent local landmark known as “Hendo’s Hole”. It noted that a resource consent was granted by the local council for the fill to be “stored” by way of being covered in topsoil and sown in grass for a five year term, on strict conditions. The Court was required to determine who owned the fill and who had the responsibility for removing it so that a commercial development could proceed. Justice Davidson, in a pithy observation, stated “The Fill at no stage has served the purpose of the Land, but the Land has served and continues to serve the purpose of storage of the Fill.” On this basis, he held that the Fill is not part of the Land. I am certain this March Construction case will provide law lecturers with useful exam ammunition in the future.

When is a subsidiary company not a subsidiary company? The recent Court of Appeal decision of 1 August 2016 in Steel & Tube Holdings Limited v Lewis Holdings Limited and Others 2016 NZCA 366, provides a good lesson when dealing with subsidiary companies. This case attracted the unwelcome attention of section 271 of the Companies Act 1993 which, as noted by the Court of Appeal, creates an exception to the general principle that a subsidiary company is a legal entity separate from its parent. As noted by the Court, this section allows the High Court to order a parent company to pay claims made against a subsidiary in liquidation. This case concerned a lease of premises; there was a lawful claim for unpaid rent and outgoings. The High Court found that there was no evidence of any independent

exercise of management of the subsidiary company. The subsidiary company was held to be a mere 'puppet' of the parent company Steel & Tube Holdings Limited; the subsidiary being incapable of conducting its own affairs. The Court of Appeal in confirming the High Court’s decision, noted the evidence from the High Court that the directors of the subsidiary company were the Chief Executive Officer and Chief Financial Officer of the parent company, had structured their decisionmaking in a manner that did not acknowledge the separate commercial existence of the subsidiary and did not hold any formal board meetings or discuss the subsidiary’s business with any conscious appreciation that they were the subsidiary’s directors. This case contains an important lesson about operating subsidiary companies.

Can an incorporated society be considered a company? The Court of Appeal decision in Hartley Clendon Vincent v Lakes International Golf Management Limited and Another [2016] NZCA 382 shows the importance of precision in drafting covenants. In this case a High Court decision allowing an interpretation that a reference to an incorporated society could include a reference to an incorporated company was overturned on appeal. A restrictive covenant registered against house lots surrounding a golf course made it compulsory for owners to join the golf club, which was to be an incorporated society. However, no incorporated society was ever formed, with playing rights simply being made available by joining the club. The actual club was owned by an incorporated company, with playing rights being obtained from a commercial

Photo by flickr user WSDOT cb-na-ND

management company. The (liberal) view in the High Court that the reference to an incorporated society could be interpreted to include a company because of the history of the development and because any prospective purchaser would understand the need to join a golf club as part of the decision to acquire a house lot was not accepted by the Court of Appeal. It refused to depart from the clear words of the covenant, since to do so in their view would rewrite the covenant. Although the Court of Appeal had sympathy for the effect of the decision on the golf club, the result was that landowners were not obliged to join the golf club or to remain a member of the golf club throughout their ownership of the land and therefore did not need to meet the levies imposed by the golf club. A clear lesson that there needs to be not merely precision in drafting but also scope to change. Continued on next page...

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Can an Administrator be appointed in relation to an unpaid construction debt owed by a Body Corporate? In TBS Remcon Limited v Body Corporate 354994 [2016] NZHC 1689, the High Court rejected an application by the plaintiff building contractor (a creditor of the Body Corporate) to appoint an administrator under section 141(3) of the Unit Titles Act. The Body Corporate was refusing to pay the balance under a construction contract of over $500,000. The Court found that the process under the Construction Contracts Act was more appropriate than the administrator provisions in the Unit Titles Act, which would see unit owners (and presumably also mortgagees) being denied significant property rights. Also, as noted by Justice Courtney, it would circumvent the process set out in the Construction Contracts Act for enforcement of a determination. Quoting from the High Court decision of Justice Ellis in Melville Viaduct Harbour Limited v Body Corporate 384911 [2012] 1 NZLR 84, Justice Courtney found that the factors normally relevant in making a decision on appointing an administrator are those which concern the existence of : 1. undemocratic or ultra vires decisions; 2. dysfunctionality; 3. deadlock and majority decisions brought about by improper influence of a third party; or 4. decisions which would deliberately or unnecessarily harm of the interests of the minority. That list, whilst not exhaustive, does limit the application of section 141 appointments to those relevant to the administration of the members of a body corporate. This was not such a case.

Estoppel cannot be used to make lawful that which is unlawful The Court of Appeal decision in Russmoor Limited v Body Corporate 345866 and Pog Mo Thon Limited [2016] NZCA 418 is notable not only for upholding the High Court decision that a Body Corporate does not have power to enter into a guarantee of rental income but also, importantly, for holding that the defence of estoppel could not be raised in a situation where the Body Corporate


had represented that the lease was valid and enforceable by continuing to pay rental and outgoings itself for more than seven years. The Court held that estoppel cannot be invoked to circumvent a statutory requirement, where Parliament had prohibited a Body Corporate from assuming an obligation via its amended rules to have a manager’s unit by leasing one of the members’ units. Further, as cited in the Court of Appeal decision, it is settled that estoppel cannot operate to make lawful that which is “unlawful” (see Mason House Kawau Limited v Stapleton [1948] 1015 (SC). This was also accepted in the High Court decision of Body Corporate 206697 v Chen [2009] 10 NZCLR 22.

Fast track disposal of land covenants Another recent decision in the High Court, on an application by Spring Grove Land Limited [2016] NZHC 2109 is noteworthy for the fact that the applicants were not required to serve notice on owners in relation to a request to remove two redundant land covenants registered in 2012. The first covenant was registered to prevent any business being established that might compete with a nearby meat processing works, while the second covenant contained a 'no complaints' clause in relation to smell. The evidence was that the tannery concerned had now ceased business and the land on which it stood had been sold to another owner. Ten separate owners were party to the original covenants. The applicant claimed that to arrange extinguishment by all owners via signing a registrable form of surrender was impractical. The Court held that both covenants should be surrendered by order of the Court. This effectively created a fast-track process, negating the need to circulate a surrender or Authority and Instruction forms to all owners in the hope they would expeditiously sign.

Latest on Land Transfer Bill The report back on the Land Transfer Bill by the Government Administration Committee was issued in October, following direct consultation with principal stakeholders including the New Zealand Law Society. The report confirms that an important omission was accepted by the

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Committee who removed clauses 54 and 55 from the Bill, concerning verification of identity of a mortgagor by mortgagees. The banking industry submitted that the verification provisions would impose significant compliance costs on banks. On this basis, and because the Committee’s view was that the low occurrence of mortgage fraud meant the cost of the new requirements would outweigh the benefits, the Committee agreed to remove these provisions. Secondly, and importantly, the manifest injustice provisions in clauses 56 and 57 will remain but with some amendment, including the clarification that forgery or other dishonest conduct does not of itself constitute manifest injustice. Any orders made are only intended for exceptional cases, where the Court is satisfied that compensation could not properly address the injustice. Practitioners will remember that the manifest injustice provisions will allow the High Court to order the cancellation of registration of a person as the owner of an estate or interest in land, creating a limited exception to the indefeasibility rule. There are guidelines set out in clause 57 to assist the Court with its analysis in dealing with such exceptional cases. Thirdly, some further clarification has been provided in relation to the Court’s ability to adjust compensation awards by amending clause 68, which will allow the Courts to take into account increases in market value by having a second valuation done at the date of Court judgment.

Christmas greetings As this is the last issue for 2016, may I take the opportunity to wish all readers a relaxing Christmas and a stress-free and successful 2017, as we continue to confront the tsunami of continuing legal education seminars, the bombardment of new legislation (not always adequately drafted) and the need to exercise great patience in waiting for regulations to be passed before we can properly advise our clients! We should of course be eternally grateful, as it provides a continuing source of issues to resolve!


From the section manager K AT R I N A T H O M A S   According to Statistics New Zealand (, World Statistics Day was 20 October. At the time I began drafting this article, New Zealand’s population was 4,728,366. According to the website, there is an estimated increase of one person every 5 minutes and 2 seconds (factoring in births, deaths & migration) in this country. Building consents were issued for 2,550 new dwellings in September 2016. These comprised: ▪ 1,892 houses; ▪ 393 townhouses, flats, and units; ▪ 206 apartments; and ▪ 59 retirement village units. The trend is increasing. In the year ended September 2016, 29,935 new dwellings were consented – up 14 percent from September 2015. The different consent categories really make you stop and think about the diversity of lifestyles in New Zealand needs for different types of dwellings to cater to our population spread. The Property Law Section’s Chair has commented that “the only constant is change” in the property law space. These population statistics, and the variety of topics discussed in this issue of The Property Lawyer certainly seem to bear this out. Since the last issue of The Property Lawyer went to print in September, Section activity has included:

Mini Seminars The team spent two days in Central and South Auckland in September, in order to make this popular seminar as accessible as possible to Aucklanders. Both days were fully subscribed. The final mini seminar for 2016 was held in Nelson in early November. The Property Law Section would like to acknowledge and thank Robbie Muir, Registrar-General of Land, Jo Buckton, Executive Officer, NZ Institute of Legal Executives, and the expert LINZ staff

members for their generous contribution of time and expertise to these events throughout the year.

Law Reform AML/CFT There was a large degree of practitioner feedback on the forthcoming implementation of Phase 2 of AML/CFT. The opinion of property practitioners was particularly important to the Law Society’s submission; high value transactions are the norm rather than the exception in this field, meaning property lawyers are more likely be impacted by the new regime than other lawyers. The Law Society made a submission on 16 September to the Ministry of Justice, addressing many of the concerns expressed by Property Law Section members.

Trust law review and Property (Relationships) Act review The Law Commission has commenced a review of trust law in New Zealand. An exposure draft Bill has now been released which aims to update and improve the Trustees Act 1956. A Property Law Section working group has been reconvened to work on this. All of its members have worked on the many previous submissions made by the Law Society in this area. The members are therefore able to use this experience to progress the Law Society’s input into this important area of legal practice. In the very early stages of the Law Commission’s review, it became evident that many submitters to the project were concerned about existing legislative provisions in the relationship property area. To this end, there will be a separate review of the Property (Relationships) Act 1976. Consultation will occur throughout 2016 and 2017, with a report to the Minister due by November 2018. A joint working group has been set up for this review, comprised

of senior experienced lawyers from both the property and family law practice areas.

Tax Statements A large number of Section members engaged with LINZ’s recent review of the Tax Statement form. We would like to thank LINZ for their invitation to us to feed back on the proposed new form. Re-wording of a few of the more problematic questions in the form should make the form easier to complete for lawyers and clients alike. Updated guidance notes will also be supplied and have been based on many of the comments made by Section members. The new version of the form is due to go live prior to Christmas.

Season’s Greetings All in all, it has been a very busy year for the Section. Many thanks go out to all the volunteer committee and working group members who have given of their time and expertise on many substantial matters affecting property lawyers in 2016. It is also pleasing to see the level of engagement by Section members, many of whom have taken the time to write and phone in with queries and feedback. I look forward to working through 2017 with you all. For now, I am personally hoping for a peaceful Christmas and New Year with a good book, some good wine and hopefully no more earthquakes!

Correction In the last issue (Vol 17-1) a feature quote in the centre page 10 was printed incorrectly. It should have read: “Any decision [by the Council] to amend or reject a recommendation should include consideration of the consequential changes that may need to be made to other parts of the Unitary Plan to maintain overall integration and consistency.” Our apologies for this error.


Verification of identity – witnessing in person ROBBIE MUIR 

Verification of identity is an accepted and very necessary requirement for many government and commercial interactions. As all property lawyers know, it is particularly important in context of conveyancing and land transfer where it is essential for the integrity of the title system that property transactions are properly authorised by the registered landowner. This is tightly regulated through the provisions of section 164A of the Land


The witness certifications in the client A&I form are predicated on ‘in person’ verification.

Transfer Act 1952 under which lawyers and conveyancers are required to certify as to their client's authorisation, identity and capacity. There are well established protocols in place for meeting these requirements with reference to reliable forms of government issued photo identification and other corroborating landowner information. Guidance on these matters is set out in the LINZ Identity Verification Standard (LINZS20002) and the NZLS Property Transactions and E-Dealing Practice Guidelines. The witness certifications in the client


A&I form are predicated on ‘in person’ verification – i.e. that the person undertaking the identity verification is physically present when the client presents their photo ID and signs the A&I form. This enables the witness to sight the original photo identification, determine that it does belong to the person presenting it, and then confirm that the A&I is knowingly and freely signed by that person. As the use of videoconferencing (ie Skype) has for some time now been an accepted means of doing business and interacting with clients in other contexts. There have been calls from practitioners to allow such methods to be used when witnessing A&I forms signed by overseas or out-of-town clients. While ‘in person’ verification and witnessing is preferred for the reasons outlined above, the Office of the RegistrarGeneral of Land and the NZLS Property Law Section have considered the matter and endorsed the following protocols for limited use of videoconferencing.

Practice note on the use of videoconferencing facilities in witnessing Authority and Instruction forms Discussion has taken place between the Property Law Section and the RegistrarGeneral of Land/LINZ concerning the use of videoconferencing facilities (such as Skype) in witnessing Authority and Instruction forms (A&I forms). While witnessing in person is generally the preferred approach, LINZ and the Property Law Section consider the use of videoconferencing (ie Skype) to be an acceptable practice where the lawyer or conveyancer who will be certifying and signing the transaction in Landonline: 1. has known their client for more than 12 months; 2. has a copy of their client’s current photo ID on file (the original having previously been sighted); and 3. is able to clearly see their client and

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confirm what documentation is being signed When adopting this approach the witness certification in the A&I form should be modified (or a further certification added) to indicate that videoconferencing was used and confirm that each of the above conditions have been met. Witnessing an A&I form involves not only verification of client identity but also of their legal capacity and bona fides. The videoconference witnessing session must be abandoned if the lawyer or conveyancer: ▪ Has any doubts whatsoever as to the identity or capacity of the client; ▪ Has any concerns that the client may be acting under duress or at the direction of another person; or ▪ Is unable to clearly see and confirm what documentation is being signed in the course of the videoconference session. Other important considerations to be mindful of when deciding whether to witness the signing of an A&I by videoconference include: ▪ Whether videoconferencing is appropriate when you are dealing with (for example) a very elderly client or one that has limited technical knowledge, or if you have not had any direct contact with your client in recent years; ▪ Whether the ID you hold on file is still current (e.g. an expired passport will not meet the conditions for videoconference witnessing); ▪ Whether you and your client both have adequate videoconferencing facilities to ensure adequate image clarity/audibility throughout the videoconference connection (the session should be abandoned if any technical issues are encountered during the videoconference).


1. This practice note should be read in conjunction with the LINZ Identity Verification Standard (LINZS20002) and the NZLS Property Transactions and E-Dealing Practice Guidelines.

2. This limited endorsement for witnessing by videoconference relates ONLY to the witnessing of A&I forms.


Current matters and constant change DUNCAN TERRIS 

The old adage that ‘the only true constant is change’ has never been truer it seems than now for property transactions. Recent changes include Tax Statements, IR 1101 forms for Residential Land Withholding Tax (RLWT), banking changes, Foreign Account Tax Compliance Act (FATCA) and Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT). We are also at the first stage of the full replacement of Landonline. At first glance, all of this can seem somewhat daunting but if we break each aspect down into its component parts it becomes manageable. The Property Law Section aims to keep you informed with this publication and regular e-bulletins. The focus is to give helpful and practical information for those at the ‘coal face’. Let’s look at some of these changes and assess their impact.

Tax Statements and IR 1101 Forms We are now reasonably familiar with the requirements around Tax Statements for most transactions. Feedback from IRD and LINZ showed that there was some confusion with some of the questions in that form and they have reviewed and simplified it. The Property Law Section had an opportunity to provide feedback and suggestions into that revised form and we are grateful to LINZ for that. The notes to that form have also been revised to provide better clarification on what is required. Part of the change process referred to above includes becoming thoroughly familiar with the RLWT (IR 1101) form to ensure statutory compliance. There have been previous articles, seminars and webinars on the topic. The key trigger for completion of the IR 1101 is any sale of residential land that has been owned for less than 2 years. If the vendor is not an ‘offshore person’ for the purposes of RLWT then there are very few questions

to answer in the form, but it must still be completed. (Refer to my earlier column in the September 2016 publication for more detail).

Banking Changes Banks are all moving to intraday payments which is a step closer to real-time banking and saves waiting until ‘day roll over’ overnight to update the Trust Account. As noted in a recent e-bulletin, the contractual settlement procedures require a Same Day Cleared Payment (SCP), unless both parties agree otherwise. We have also seen improvements to the SCP process introduced with quicker processing times and clear Key Performance Indicators defined for the banks. We now include the email address of the recipient rather than a fax number. We have received some reports of the payer (purchaser’s lawyer) inserting their own email address in the notification section. That does somewhat defeat the purpose so please ensure it is always the payee’s (vendor’s lawyer) email address. Some banks have elected to partially mask the recipient account number. The Section did not have any advance notice of this intention and would have challenged this had it been consulted. The rationale for those banks who adopt this approach is of course concern over cyber-hacking. The reality is that it is reasonably easy for anyone to find a firm’s Trust Account number from the firm’s own website, the Law Register or by contacting the firm. The Section does not believe on balance that the SCP email advice notification needs to be masked and has conveyed that to the banks concerned. In the interim, it is possible to physically see the funds in the Trust Account after processing of the SCP if there is any concern that the wrong account has been used.

couple of years on Advanced Survey and Titles Services (ASaTS). This project is a complete replacement of the Landonline system which has been with us for a period approaching 15 years. As with any significant government IT project, there is very close scrutiny and analysis by government and Treasury. Funding for the first phase has been approved. LINZ is currently working with prospective third party providers to deliver the project A specialist ‘Working Group’ has been formed to ensure that the project will deliver on the future needs of users. That group compromises representation from key stakeholder groups including NZLS (via the Property Law Section’s Land Titles Committee), NZIS and ADLSi. An integral part of the process includes a position for a lawyer on the project in Wellington. LINZ and the Property Law Section will be involved in the joint appointment of the person to fill the role, which would report to the Land Titles Committee. This represents an exciting opportunity for an enthusiastic property lawyer to put his or her ‘stamp’ on the next system to serve the profession for the next decade. It is ideally suited to someone who has only known the electronic system of conveyancing and is familiar with technology and progressive thinking. Please contact the Section Manager for a position description and/or to provide any expression of interest: Katrina.thomas@

Summary The above topics are just some examples of what we need to be aware of in day-today practice. You are encouraged to take the time to read the e-bulletins which are typically brief and topical. Also utilise the seminars and webinars on these subjects to ensure that you remain ‘current’.

Replacement of Landonline – (ASaTs) System Progress There have been updates over the past

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Update on proposed plan processes and law reform in environmental area H E L E N A N D R E WS & R AC H A E L ST E L L E R   Introduction It is a busy time in the world of resource management law. Appeals on the Proposed Auckland Unitary Plan (“PAUP”) are underway, and hearings on the Proposed Christchurch Replacement District Plan (“PCRDP”) are ongoing, with decisions being issued as the hearings on each chapter are concluded. Legislative and policy reform continues with amendment to the Housing Accords and Special Housing Areas Act 2013 (“HASHAA”) and progression of the Resource Legislation Amendment Bill 2015 (“Bill”), introduction of the National Policy Statement on Urban Development Capacity (“NPS-UDC”) and release of the Productivity Commission’s report on Better Urban Planning. This article highlights the key aspects of these ongoing changes relevant to property lawyers.

Proposed Auckland Unitary Plan and Proposed Christchurch Replacement District Plan Since the last issue of The Property Lawyer, Auckland Council has issued its decisions on the PAUP. The deadline for appeals against those decisions (other than for designations and heritage orders) ended on 16 September 2016. Decisions on the PCRDP are being issued progressively. Therefore, some chapters of the PCRDP are beyond appeal, some chapters are within the appeal period, and decisions are yet to issue on other chapters. This has left property owners in both cities uncertain as to whether the operative or proposed plan applies (or both), and therefore what they are able to do with their property. Both the PAUP and PCRDP identified the rules that had immediate legal effect from the date of notification. A rule in a proposed


plan has immediate legal effect if it:1 1. Protects or relates to water, air, or soil (for soil conservation); 2. Protects areas of significant indigenous vegetation; 3. Protects areas of significant habitats of indigenous fauna; 4. Protects historic heritage; or 5. Provides for or relates to aquaculture activities. Once the Council has notified its decision on a proposed plan (ie the PAUP or PCRDP) and the appeal period has ended, the proposed plan is considered to be operative (and the former plan replaced), other than in respect of any provisions which are subject to appeal.2 If there is no appeal related to a particular provision, the proposed plan is deemed operative and supersedes the previous operative plan. For example, if there are no appeals regarding the PAUP rules applicable to construction of new buildings in a particular zone (such as

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height, height in relation to boundary, site coverage, etc) then those provisions are deemed operative and corresponding provisions from the previously operative plan can be disregarded. Where a provision of the PAUP or PCRDP is under appeal, the provisions of both the operative and proposed plans have legal effect and will need to be considered in the context of relevant consent applications. That will remain the position until the appeal relating to the relevant proposed plan (PAUP or PCRDP) provision is resolved or determined. Where the proposed plan provisions challenged by an appeal are inconsistent with the equivalent provisions of the operative plan, the need to consider both the proposed and operative plans raises an issue of the relative weight to be accorded to the competing plan provisions. In such cases, it will be necessary for applicants and Council officers to adopt a position as to the relative weight to be accorded to each plan. Where the plans

are consistent, a weighting exercise is not necessary. The basic legal position that applies3 is that before a resource consent can be granted, the operative plan is required to be applied and regard must be had to a proposed plan. The general rule of thumb is that the closer a proposed plan comes to being final, the greater the weight that can be applied to it. Other factors may also be relevant, for example, that the proposed plan is the “latest word”. The issue of weighting is not always a straightforward exercise. In any particular case, it will be necessary to analyse the relevant appeals to determine whether they directly challenge the relevant provision or whether the effect of the appeal is more subtle. Each case will need to be considered having regard to the relevant appeals. Helpfully, the chapters of the PCRDP that are operative have been published on a separate webpage for the New Christchurch District Plan.4 Christchurch City Council has also provided a table indicating the dates that decisions on each chapter were publicly notified, the date the appeal period ends, and whether the decision is operative.5 On 4 November 2016 Auckland Council published an annotated version of the PAUP to show the parts that are under appeal, and the parts that can now be treated as operative.6

Special Housing Areas Earlier this year the development community raised concerns that Special Housing Areas (“SHAs”) had not been given enough time to make their way through the special process established by the HASHAA before key parts of the HASHAA were due to be repealed. The Government responded by passing the Housing Legislation Amendment Act 2016, which received Royal Assent on 12 September 2016.7 This Amendment Act made several changes to the HASHAA. In particular, it has: 1. Allowed new SHAs to be established until 16 September 2019 (rather than 16 September 2016). 2. Extended the timeframes for disestablishing SHAs. The applicable timeframe now depends on the date that the Order in Council establishing the

Accord Territorial Authority

Expiry of Housing Accord

Auckland Council

31 December 2016 (or any later date if mutually agreed following the 2016 local government elections) – extended from 30 September 2016

Christchurch City Council

The date the HASHAA is repealed

Nelson City Council

31 December 2016 (or any later date if mutually agreed following the 2016 local government elections) – extended from 16 September 2016

Queenstown-Lakes District Council

The date the HASHAA is repealed

Selwyn District Council

16 September 2018

Tasman District Council

16 September 2016

Tauranga City Council

31 December 2016 (or any later date if mutually agreed following the 2016 local government elections) – extended from 16 September 2016

Wellington City Council

The date the HASHAA is repealed

Western Bay of Plenty District Council

The date the HASHAA is repealed

SHA was notified in the Gazette.8 3. Allowed applications under HASHAA to continue to progress through the process provided by HASHAA, where a plan change becomes operative before a final decision is made on the application under HASHAA. This amendment was particularly important in Auckland and Christchurch due to the PAUP and PCRDP processes occurring in both cities. In order for a Council to act as an Accord Territorial Authority and process applications under HASHAA, it must have entered into a current Housing Accord with the Government. To fully give effect to the recent amendments to HASHAA, Councils may need to extend their Housing Accords. (See table above for all current Housing Accords and their expiry dates.) In the absence of a current Housing Accord, the Minister is able to establish SHAs by Order in Council.9 Qualifying development (resource consent) applications can be processed by the Chief Executive instead of the Accord Territorial Authority, but plan change and plan variation applications can only be processed by an Accord Territorial Authority.10

National Policy Statement on Urban Development Capacity 2016 The NPS-UDC was issued by notice in the

New Zealand Gazette on 3 November 2016.11 It will take effect on 1 December 2016. The NPS-UDC requires all local authorities that expect to experience urban growth to provide feasible development capacity in the short (up to 3 years), medium (3-10 years) and long (10-30 years) term and to consider the benefits and costs of urban development when making decisions under the RMA. Local authorities containing a mediumor high-growth urban area within their district or region must: 1. Carry out a housing and business development capacity assessment every three years. 2. In this assessment, consider the rate of take-up of development capacity. 3. Monitor a range of indicators, including the number of resource consents and building consents granted (but not whether they are implemented). 4. Provide an additional margin of feasible development capacity over and above projected demand of at least 20% in the short and medium term, and 15% in the long term. In addition, local authorities with a highgrowth urban area within their district or region must set minimum targets for sufficient, feasible development capacity for housing based on these assessments, and must incorporate those targets into plans and regional policy statements.

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These measures may help local authorities avoid a common error – assuming that all property owners will develop their property to the extent permitted by the relevant planning instruments. However, the NPS-UDC only directs local authorities that have a high-growth urban area within their region or district to actually incorporate the results of these increased monitoring and assessment requirements into relevant planning instruments. It is therefore unlikely to have a significant impact on other local authorities.

The Productivity Commission’s draft Better Urban Planning Report As noted above, the PAUP and PCRDP are still making their way through their respective bespoke processes, therefore the results of these processes have not yet been considered in full. The effects of the extension of HASHAA and the new NPS-UDC are also not yet known, nor is the potential impact of the Resource Legislation Amendment Bill 2015 that is currently making its way through Parliament.12 No n e t h e l e s s , t h e P r o d u c t i v i ty Commission’s draft Better Urban Planning Report has recommended significant changes to the urban planning framework, including application of processes similar to those used for the PAUP and PCRDP, for plan making in the future. The draft report supports two key aspects of the PAUP and PCRDP processes: 1. E s t a b l i s h i n g a p e r m a n e n t Independent Hearings Panel (IHP) to hear submissions on planning instruments, potentially chaired by a High Court or Environment Court Judge. The report also considers the possibility of locating the IHP within the Court system. 2. Applying the more narrow appeal rights adopted for the PCRDP and PAUP13 to plan making processes. The draft report also makes the following key recommendations: 1. Separate regulation of the urban/ built environment and the natural environment – although it is unclear how these two environments will be defined and delineated, and how they will be regulated separately (ie through separate provisions in a new


Act, or through two entirely separate Acts, etc). 2. Improving the capability and culture of Councils and the planning profession to allow for bold, creative, and innovative approaches to planning.


Where a provision of the PAUP or PCRDP is under appeal, the provisions of both the operative and proposed plans have legal effect and will need to be considered in the context of relevant consent applications.

increase the availability of Environment Court Judges to chair the IHP (if this recommendation is incorporated in the final report). Submissions on the draft report closed on 3 October 2016. The Productivity Commission’s final report was originally due on 30 November 2016, but this deadline has now been extended to February 2017 following receipt of more than 70 submissions that “raised some important and complex issues that require, and deserve, further detailed analysis and discussion”.14

Conclusion The significant amount of change underway in resource management does not appear to be slowing down in the near future. This may create challenges for property owners who are trying to figure out what they can do with their property. Applications are likely to be held up while Councils (and eventually Courts) work through the many legislative amendments and new policies. We will report back in future articles in The Property Lawyer as these changes come into effect.


Resource Management Act 1991 (“RMA”), s 86B

2. RMA, s 86F 3. See for example Queenstown Central Limited v Queenstown Lakes District Council [2013] NZHC 815 4. 5. decisions/ 6. planspoliciesprojects/plansstrategies/unitaryplan/Pages/ paupappeals.aspx 7. This Amendment Act also amended the Housing Act 1955 8. HASHAA, s 18 9. HASHAA, s 16 10. HASHAA, s 23

3. Restricting public participation in a manner similar to the amendments proposed in the Bill, namely: narrowing notification requirements and restricting appeal rights. The draft report notes that these amendments will further reduce the Environment Court’s workload. However, this would

11. Issue 99, Notice 2016-go6232 12. See for more information on the Bill. At the time of writing, Bill had been discharged from the Local Government and Environment select committee on 7 November 2016, without report and is now business before the House. 13. Outlined in our article in the September issue of TPL (Vol 17-1, pages 10-12): Proposed Auckland Unitary Plan Update 14. Email from Productivity Commission to submitters (31 October 2016)

CONTRIBUTING AUTHOR Rachael Steller is a solicitor at Berry Simons in Auckland.

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Futile to tender settlement? MICHELLE HILL

Even with the best laid plans, from time to time when acting for a purchaser you will be faced with a defaulting vendor and the decision whether or not to tender settlement. The obligations of the parties are concurrent and conditional; the vendor is not obliged to convey the land and the purchaser is not obliged to pay the purchase price unless the other party performs their concurrent obligation. This means that neither party will be in breach of the contract if it fails to complete, unless the other party tenders performance of their concurrent obligation. However, where the vendor gives an ‘unambiguous indication’ of not being ready to settle, so that the tender of settlement would be ‘nugatory or futile’, the purchaser does not have to tender settlement (and is accordingly not itself in breach for failing to do so).1 Making the judgement call that the vendor has given an unambiguous indication of not being ready to settle is not always easy. Getting it wrong can have dire consequences. In The Official Assignee v Kingston Development Group Limited [2016] NZCA 415, the vendor asserted that those dire consequences were the right for the vendor to cancel. The case looks at the question of when can a purchaser’s solicitor conclude that it would be futile to tender settlement and that the purchaser is therefore relieved from the obligation to do so? In this article I also consider some practical steps to protect your client’s position in this regard.

Background Facts Kingston Developments Group Limited (‘Kingston’) had purchased a property in Auckland for $16,686,000. As part of the deal, it had granted the vendor (BC Corporate Administration Limited (BCCA))

an option to purchase the property back for the same price (less costs). The sale price was significantly below the actual value of the property. In essence, therefore, the arrangement was a funding arrangement whereby Kingston had lent funds to BCCA taking security by way of title (rather than mortgage). The Official Assignee (‘OA’) had acquired (by Court order) a right to take an assignment of BCCA’s rights under the buy-back option. It duly exercised its right to take an assignment, and exercised the buyback option (for the original sale price of $16,686,000 plus costs). It then entered into an agreement to on-sell the property to Shanghai Zhengchang International Machinery and Engineering Company Limited (‘Shanghai’) for $25,000,000 – a significant profit. Shanghai nominated Flourishing Property Company Limited (‘Flourishing’) to complete the purchase. Settlement was scheduled for 16 January 2015 and time was expressed as of the essence. In the lead-up to settlement, OA’s solicitors wrote to Kingston’s solicitors (on 2 January 2015) alerting them to the need for a contemporaneous settlement (Kingston to OA and OA to Flourishing) in person by way of exchange of bank cheques. OA’s solicitors then had a phone discussion with Kingston’s solicitors on 7 January in which Kingston’s solicitors said they did not expect there to be any issues with settlement in person by way of bank cheques. Kingston had granted ASAP Finance Limited (‘mortgagee’) a security interest in the land in the form of mortgage by virtue of a general security interest. Two days before settlement, on 14 January, OA’s solicitors wrote to Kingston’s solicitors raising various matters relating to settlement including a suitable time to attend the in-person (with bank cheques) settlement. Not having had a response,

they followed up by email and phone seeking an urgent response. Kingston’s solicitor replied the next morning, but not in response to the question as to a suitable time for the in-person settlement. OA’s solicitor therefore followed up again by email and then by phone asking for an urgent confirmation from the mortgagee that the general security interest had been released. The proposed arrangements for settlement had been set out in a memorandum dated 15 January sent by OA’s solicitors to Kingston’s solicitors. The proposal reflected the fact that the OA was not in funds to purchase from Kingston without the purchase money that was to be paid by Flourishing. Unfortunately, Kingston’s solicitors had not informed the mortgagee’s solicitors that an in-person settlement was required and, on the day of settlement, there was no-one at the mortgagee’s solicitors’ firm available to attend the in-person settlement. At 2.26pm, Kingston’s solicitor rang OA’s solicitor and left a voicemail message expressing that physical settlement would be a problem because the mortgagee was unable to attend. OA’s solicitor responded by email at 2.56pm stating that ‘settlement in person is required due to the on-sale being transacted contemporaneously’. Kingston’s solicitors responded by email at 3.15pm advising that the ‘mortgagee is not able to attend the settlement in person and we are able to complete a normal direct credit settlement today’, then at 3.27pm advising ‘our bank is open until 4.30pm. Can you confirm when you will attend our offices – we will need to deposit the cheque BEFORE 4.30.’ At 3.42pm, Kingston’s solicitors sent a further email stating ‘we require you to provide a settlement cheque and your undertakings direct to us’. OA’s and

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Kingston’s solicitors then managed to speak with each other at 3.50pm. OA’s solicitor’s file note of the conversation recorded Kingston’s solicitor as saying ‘Sounds too hard [to settle today]. Can we just agree to defer until Monday?’ Meanwhile, Kingston’s solicitor had received instructions from their client that settlement had to occur that day, ‘or not at all’. They were not prepared to agree a deferment of settlement. Kingston’s solicitor next sent OA’s solicitor a short email stating ‘Our instructions are for settlement today’. From then on, Kingston’s solicitor’s communications with OA’s solicitor were ‘short and clipped’. Presumably this was as a result of strategic instructions from their client to be in a position to cancel the agreement and retain the property (which was valued at significantly more than the sale price). OA’s solicitor tried to contact Kingston’s solicitors ‘several times’ by telephone to clarify whether his email was an acceptance that settlement would be in-person by way of bank cheques and with the mortgagee in attendance. She couldn’t reach him. At 4.07pm, she sent an email stating ‘Please call me urgently – are you saying settlement today in-person at your office?’ At 4.08pm he called her. File notes demonstrate that OA’s solicitor could not understand how Kingston’s solicitor could discharge the mortgage in the absence of the mortgagee and that when she was told


this, she said, ‘Okay think we are on the same page. Am trying to get [the mortgagee’s solicitors] sorted for attendance. Let me confirm.’ Kingston’s solicitor did not comment. OA’s solicitor phoned the mortgagee’s solicitor at 4.16pm and explained that it was necessary for a solicitor from their office to attend settlement. The mortgagee’s solicitor indicated that would not happen. OA’s solicitor then phoned Kingston’s solicitor at 4.24pm. They both discussed that settlement was not happening as the mortgagee’s solicitors would not attend – and that neither Kingston nor Flourishing would agree to defer settlement. OA’s solicitor’s evidence was that Kingston’s solicitor gave the clear impression that he agreed that the inability of the mortgagee’s solicitor to attend settlement meant that settlement could not occur on that day. At 4.30pm, Kingston’s solicitor emailed OA’s solicitor attaching undertakings which included to discharge the mortgage upon evidence of a bank cheque and an undertaking that the bank cheque to be delivered to them derived from cleared funds in their (OA’s solicitors’) trust account. At 4.56pm, OA’s solicitor sent a settlement notice to Kingston’s solicitors alleging that the agreement was unconditional, settlement of the sale was required by 4pm on 16 January 2015, and that Kingston had failed to settle. It claimed that the

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purchaser was ‘in all material respects ready, able and willing to settle’. At 5.15pm, Kingston’s solicitor sent an email to OA’s solicitor cancelling the agreement. What OA’s solicitor did not know, however, was that Kingston’s solicitor had been in discussions with his firm’s bank between 2.49 and 4.17pm and had managed to arrange a ‘force limit’ on his firm’s trust account enabling the mortgage to be discharged prior to receipt of the purchase price. Accordingly, the discussions and emails in which Kingston’s solicitor purported to be ready and willing to settle (despite the mortgagee’s solicitor not being able to attend an in-person settlement) reflected the fact that, unbeknownst to OA’s solicitor, he had arranged a means by which that could occur.

High Court decision In order to prove in the High Court that Kingston had repudiated the contract, it was necessary for the OA to prove that Kingston’s solicitors ‘by their conduct made it clear that it was futile for the OA to tender settlement’. The ‘ultimate issue’ was whether Kingston’s solicitor had an obligation to intervene and advise OA’s solicitor that there was no need for her to make contact with the mortgagee’s solicitors. The High Court also took note of

Kingston’s solicitors’ duties to their client: Kingston stood to make a substantial gain if the OA failed to settle by 5pm (it would get to retain a property worth $25,000,000 which it had acquired for $16,686,000). Because the contract provided that time was of the essence, Kingston was entitled to take advantage of OA’s failure to tender the purchase price before 5pm on 16 January (provided it was not itself in breach of the contract). The High Court found there had been no misrepresentation by Kingston’s solicitor, nor had Kingston’s solicitor intended to mislead OA’s solicitor. However, the judge concluded that the OA had not proved that tender would have been futile. OA’s solicitor’s honest belief that it would have been futile was ineffectual and Kingston had been justified in cancelling the contract at 5.15pm on 16 January.

Court of Appeal decision On appeal, the OA argued that the High Court had erred in deciding that Kingston was ready, willing and able to settle as Kingston’s words and conduct, viewed objectively, indicated that tender would be futile. The test (as established by Bahramitash v Kumar2) has its origins in estoppel principles which prevent a party resiling from a mistaken belief that it has encouraged (or by silence knowingly permitted) the other party to rely upon. The Court of Appeal considered that Kingston’s solicitor had deliberately not contradicted OA’s solicitor’s stated belief that settlement could not happen (because the mortgagee could not attend in-person). This was a case of ‘indicated futility’ and in such case the indication by the vendor by words or conduct that a tender by the purchaser would be futile meant that the vendor could not treat the purchaser as being in default by failing to make the tender. It is an objective assessment which should be informed by the principles governing equitable estoppel. Here, a reasonable person in OA’s solicitor’s position would have understood Kingston’s solicitor to have told her that tendering settlement was futile. The judgement recognised that a conclusion that going through the motions of tendering would be futile is ‘not one that will be lightly drawn’. Further, it will normally be prudent (except in the ‘clearest of

cases’) for a purchaser to formally tender so that the issue does not arise in litigation. It is up to the purchaser to prove that to tender would have been futile – which is to be judged objectively at the time the tender was due. It is not enough for the purchaser’s solicitor to subjectively conclude (however honestly) that the vendor is unable to settle. The futility of the exercise must be clear, and it must be shown to have been a ‘foregone conclusion’ that the tender would not have been accepted or was not able to be accepted. The ultimate question, therefore, was whether the OA established on the evidence that Kingston, through its solici-


Making the judgement call that the vendor has given an unambiguous indication of not being ready to settle is not always easy. Getting it wrong can have dire consequences.

tors, unambiguously indicated it was a foregone conclusion that the tender of the purchaser money would not have resulted in settlement. While Kingston’s solicitor made no express statement as to being able to settle, the Court of Appeal considered that OA’s solicitor reasonably concluded in the circumstances that the vendor would not perform its concurrent obligations to transfer clear title in response to a tender of the contract price. Kingston’s solicitors had raised a fundamental difficulty with their own ability to settle and never advised how that difficulty had been resolved so that settlement could proceed. The Court of Appeal regarded Kingston’s solicitor’s silence (ie failure to advise it had arranged the force limit so they could settle

without the mortgagee in attendance) was an effective endorsement of OA’s solicitor’s conclusion that settlement could not occur. Kingston’s solicitor had a duty to inform OA’s solicitor that settlement could occur without the mortgagee’s solicitor attending. Actual knowledge by the silent party that the other party is relying on a false assumption is a precondition to the duty to speak and that requirement was clearly satisfied here. This was a case where ‘the silence spoke unequivocally’. The Court of Appeal held that Kingston was not entitled to cancel the contract.

Commentary This was clearly a very frustrating situation for OA’s solicitors. They had given Kingston’s solicitors sufficient advance notice of the requirement for an in-person settlement but, as events unfolded, risked their client losing a lucrative deal through having to make a last minute judgement call that tendering settlement would have been futile. However, from Kingston’s solicitors’ perspective, they had a duty to promote their own client’s interests and such duty can involve being less than forthcoming at times. When acting on a purchase, therefore, you should have a clear plan in place should the vendor default. If it appears to you that the vendor is going to be unable to settle, then be overt: tell the vendor’s solicitor that it appears to you that it would be futile to tender settlement and get them to confirm that they do not require you to do so. Ask the question: Is it futile for our client to tender settlement? If they respond in the negative, or not at all, then ideally go ahead and tender settlement. However, another option (which is less favourable but could have assisted OA in this case) is to put them on clear notice that you have formed the view that it would be futile to tender settlement and that if they do not advise you otherwise then you will be relying on their silence. This should be sufficient to give rise to a duty by the vendor’s solicitor to speak and to make it unconscionable for the vendor to later assert that you should not have held that view. 1.

Bahramitash v Kumar [2005] NZSC 39

2. Bahramitash v Kumar [2005] NZSC 39

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What the LIM cases have taught us FRANA DIVICH  As a matter of general practice lawyers recommend that their clients obtain a land information memorandum (LIM) before purchasing a property. The information that must be contained in a LIM is prescribed by s44A(2) of the Local Government Official Information and Meetings Act 1987. The Council is obliged to disclose information it knows about the property, but not information which is apparent from the District Plan. The obligation is broad and includes potential erosion, subsidence, flooding, rates, consents under the Building Acts and information notified to it under s 124 of the Weathertight Homes Resolution Services Act 2006 ('WHRS Act'). Councils may also provide any further information that it considers, at its discretion, to be relevant.1 The obligation to provide information can lead to claims if the s 44A(2) information is missing or inaccurate. In the last ten years there have been a number of important judgments that have explored the duty owed by Councils when providing LIMs. This article summarises these decisions.

Resource Planning Management Ltd & Anor v Marlborough District Council2 This claim concerned a winery that purchased land near the Wairau River. The land is known as Fox’s Island because it had once been surrounded by water, but is now dry as the river has been diverted. LIMs were issued by the Council to the winery prior to the land being purchased. At the time the land was purchased, a proposed District Plan was being developed that ultimately introduced a flood hazard overlay over the land. The winery made a submission on the proposed District Plan in an effort to have the flood hazard overlay removed, but this did not happen and the winery went into liquidation. A claim was brought against the Council. Many complaints were made but the focus was on the LIMs that were issued which were said to be misleading because certain information had not been disclosed. The information allegedly not disclosed was


(a) the Council’s assessment that the land was hazardous, (b) the opinion of staff in the Council’s Rivers Department about the wisdom of having permanent buildings on the site and (c) the Council’s assessment that the land was likely to be included within the flood overlay. The Council’s Rivers Engineer was firmly of the view that the land was not suitable for building and that there ought to be a


We now have a useful body of case law to guide us in the interpretation of s 44A. The cases tell us whothe Council owes duties to, and the extent of those duties.

thirty year moratorium on building in any event. Separately, the head of the Rivers Department at the Council believed that the land was in the “most dangerous” area of the Wairau plain. The LIM provided general information about the land. It warned of the threat of flooding, both directly and by erosion and referred to an engineer’s report. The Court accepted that (a) the hazardous nature of the land had been made plain; (b) the views of the people in the Rivers Department was not the official policy of the Council, hence their views

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did not need to be disclosed in the LIMs; and (c) while there was no disclosure of the proposal to impose the flood hazard overlay, the overlay had not been finalised at the time of the application for the LIMs. The Court accepted that until the flood hazard overlay had been finalised, it did not need to be referred to in the LIM. The (then) current District Plan had referred to the ongoing review of measures to reduce flooding and for this reason the plan could be revised at any time. This was sufficient notice of the possibility of a change being made that might affect Fox’s Island.

Weir v Kapiti Coast District Council3 The Council engaged a coastal scientist, Dr Shand, to prepare a coastal erosion assessment. The final report of 2012 was relied upon by the Council to place coastal erosion ‘prediction lines’ on its cadastral maps over the length of the Kapiti coastline and associated estuaries (‘Shand lines’). The lines predicted possible incursion of the coastline 50 and 100 years into the future. Two lines were predicted; one based on the incursion being managed as best possible, a second, the incursion if no coastal protection was undertaken. The Council used the lines in its review of its District Plan and the proposed plan released in 2012 included ‘no build’ and ‘relocatable build’ areas based on the Shand lines. The Council took the view that the information in the Shand report needed to be linked to property files and made available on LIMs. A group of affected property owners applied for judicial review of the decision to note up the LIMs in this way. Their argument was that the Shand lines were unreliable. The Council’s position was that the information was uncertain, but given the clear wording of section 44A(2), it was required to include this information. It had no discretion. In spite of the uncertainty regarding the reliability of the Shand lines, the Court found that the Shand reports contained information in relation to potential erosion. The words “potential erosion” had to be read widely. For future events, such as erosion,

Photo by flickr user Nick Hobgood cb-na-ND

it was sufficient if there was a possibility of such future events occurring. The Court said the information in the Shand report met this threshold. The Court was asked to determine what “known to the Council” meant. This is because Dr Shand’s report was speculative and the information had not been discovered by the Council itself. The Court accepted that the reports by Dr Shand were known to the Council, saying: “[64] …the Council needs to know about the report but does not need to believe that the predictions in them are accurate or even probably accurate.” The landowners argued that the Council always had a duty to consult before placing information on a LIM. The Court disagreed; there was no discretion over whether to include information on LIMs. The Council’s only discretion related to how the information was portrayed in the LIM. The Court was concerned however that the Shand lines were too definitive, there needed to be a better explanation of how they were arrived at. This was because the presence of the Shand lines and a LIM

would undoubtedly affect the value of a property. The hearing was adjourned at that point to allow consultation over how to present the Shand Report information on LIMs. Following further academic review and public hearings on the proposed District Plan, the Council decided not to include the Shand lines in the District Plan and to remove the lines from all LIMs. Instead, the Council placed a general precaution regarding coastal erosion on LIMs.

Marlborough District Council v Altimarloch Joint Venture Ltd & Ors4 In 2004 Altimarloch Joint Venture Limited (AJVL) purchased a large rural property for $2.65 million. The agreement for sale and purchase included resource consents for water rights to remove 1,500 cubic metres of water per day from a stream for the purposes of irrigation. The term in the contract was drafted from information set out in the LIM that had been obtained by the vendors’ agents. The information about the water

consents in the LIM was incorrect. The property held resource consents to take only 750 cubic metres a day from the stream. The LIM representations were repeated by both the solicitors and the real estate agents for the vendors. The vendors knew the correct situation but without noticing the mistakes made by their solicitors and real estate agents, they signed the sale and purchase agreement for the property containing the incorrect information about the water rights. AJVL sued the vendors who in turn sued their solicitors, the real estate agents and the Council. Damages of approximately $1.1 million were assessed on the basis that that was the cost to secure an extra 750 cubic metres of water a day to the property. The vendors’ solicitors and real estate agents, pursuant to their terms of instruction by the vendors, were both found liable to the vendors for the full $1.1 million. As the value of the land was $2.675 million, and its value without the water rights was $2.55 million, the tort measure of damages, that is the measure applying

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to parties such as the Council, was the difference ($125,000) representing the loss in value. The Supreme Court considered whether a duty of care was owed by the Council when providing a LIM. It found that both proximity and policy considerations favoured the imposition of a duty of care on territorial authorities so that if they negligently gave erroneous information on a LIM and the recipient relied on that information to its detriment, it will be liable for the loss their negligence caused, save possibly for the discretionary information given under subsection (3). As an aside, this case has had a lot of academic attention because the measure of damages for the contract breakers (the vendors, real estate agents and the vendors’ solicitors) was substantially more than the damages awarded for the Council’s negligence. It is one of the leading New Zealand authorities on the approach to equitable apportionment.

York v Westland District Council5 This case was an unsuccessful application for leave to appeal from a decision of the Court of Appeal striking out a proceeding filed in July 2012 based on an allegedly negligently prepared LIM issued in August 2005 when the claimant purchased a motel. The Court of Appeal, following Altimarloch, found that the loss was suffered when the claimants paid a price for the property that exceeded its true value and the claim was time-barred. In dismissing the application for leave, the Supreme Court declined to distinguish Altimarloch and observed that limitation had been considered by the Supreme Court in Murray v Morel & Co and Thom v Davys Burton.

Henry & Tan v Auckland Council6 This dispute concerned a cliff top property in Bucklands Beach with spectacular views over the Hauraki Gulf. In August 2008 a slip affected the neighbouring property and spread to undermine the claimants’ property. As a result, a two year old building was demolished down to the foundations. Proceedings were issued against the Council, focusing on information provided in a LIM that the claimants obtained prior


to their purchase. The LIM notation came about after some scrutiny of the stability of the land by geotechnical engineers employed by the Council, the developer and the next door neighbour. Several drafts were prepared (with the involvement of lawyers) and finally the wording was agreed. The Court expressed the Council’s duty to: “…identify the relevant special feature or characteristic of the land and must, within the parameters of what is actually known by the Council, be accurate and not misleading…the Council need not include all the information about the subject property that is in the Council’s possession and it has a wide discretion as to how the information is disclosed”.7 The Court went on to say that the Council’s role is not advisory; rather its focus is on putting the LIM recipient on notice of particular facts within its knowledge. The other interesting observation by the Court was that the Council does not owe a duty of care to an existing landowner when preparing a LIM but the overriding public law obligation of fairness means that Councils would be required to consult with landowners about the wording of LIMs.

in the District Plan. ▪ The opinions of Council employees are not the official policy of the Council and do not need to be included in LIMs. ▪ The Council does not need to believe the information in its possession – it is sufficient that it knows about it. ▪ There is no duty of care owed to current owners, but there is a public law duty to consult with them over the terms of the LIM wording. ▪ The Council may not owe a duty in respect of discretionary information given under s 44A(3) of the Act. ▪ If suing on a LIM where the loss was suffered before 1 January 2011, the claimant has six years to bring proceedings.8 ▪ The Council has a discretion as to how it discloses the information it holds.

Editor’s Note: The issue of water rights in the Altimarloch case raises broader issues about: ▪ purchasers making their own enquiry (even getting an expert report) since it is such a critical matter when looking at water supply to a vineyard; and ▪ being careful where a Council is not a unitary authority as was the case in Altimarloch. Water and contamination issues are primarily a regional Council's responsibility and therefore separate enquiry to the regional Council is needed.

Summary We now have a useful body of case law to guide us in the interpretation of s 44A. The cases tell us whothe Council owes duties to, and the extent of those duties. Due to the cases we know: ▪ The duty the Council owes is to provide information to potential purchasers that is within the Council’s knowledge. ▪ That information needs to be accurate and not misleading. ▪ It should not be advisory i.e. it is not for the Council to advise the LIM recipient on what to do or what action to take upon them receiving the information. ▪ The Council does not need to provide information in the LIM that is contained


s. 44A(3) of the Local Government Official Information and Meetings Act 1987

2. HC, Blenheim, CIV-2001-485-000814, 10 October 2003, Ellen France J 3. [2013] NZHC 3522 and [2015] NZHC 43 4. [2012] 2 NZLR 726 5. [2014] NZSC 71 6. (2015) 16 NZCPR 683 7. Para [90] of the judgment of Justice Ellis 8. Post that date limitation will be dictated by the provisions of the Limitation Act 2010.

CONTRIBUTING AUTHOR Frana Divich is a Partner at Heaney & Partners in Auckland.

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Limited Partnerships are an option for running joint business ventures CLAIRE TYLER  Limited partnerships are a relatively new type of ownership structure for businesses or joint ventures in New Zealand, governed by the Limited Partnerships Act 2008 (“the Act”). They are becoming a more and more popular structure for a variety of commercial and farming ventures in New Zealand. Limited partnerships give one partner (the general partner) the responsibility for the day-to-day running of the business or venture and the liability for the venture, while a limited partner generally contributes financially, but does not have any liability for the venture (other than the initial capital it put in). Limited partnerships can be a viable option for many investors (including overseas investors) who do not want to be involved in the day-to-day running of a business or venture, but are able to contribute capital. For example: A company wanted to produce health products from Manuka trees on some farm land. The owner of the farm land was happy to contribute their land to the project, given they would receive voting rights and a share of profits from the venture, but did not want to be involved in the day-to-day running of the venture as they did not have commercial expertise or desire to do so. A limited partnership would give both parties what they want, as the company could be the general partner and take control and responsibility for the venture, and the land owner could contribute land (or capital) without incurring liability for the success of the venture as the limited partner (other than to the extent of the land or capital it had contributed).

What are Limited Partnerships and how do they operate? A limited partnership is a legal entity which is registered with the Companies Office in the Limited Partnerships register. Limited partnerships operate in a similar way to a standard partnership, where generally partners each contribute towards

Photo by flickr user russellstreet cb-a-ND

the initial capital of the partnership, and share the profits and losses based on their contribution to the capital. However, unlike standard partnerships, they are registered entities (through the Companies Office, as above) and are a separate legal entity on their own. They are a well-recognised business structure overseas. As referred to above, the parties to a limited partnership are: a. A ‘general partner’, who generally contributes capital and is responsible for the day-to-day running of the partnership and bears all of the liability for the business or venture; and b. A ‘limited partner’ who generally contributes capital but bears no liability for the debts or liabilities of the partnership (other than liability in relation to the initial capital they put in), provided that they do not take part in management or running of the business or venture. It is worth noting that: a. Each partner does not necessarily have to put in capital to the partnership – this will depend on the terms of the partnership agreement; and b. The absence of liability for the limited partner is dependent on them not being involved in the management and

running of the business or venture. If they do get involved in the management of the venture, then their liability will no longer be limited. This is also the case where the limited partner has held themselves out to a third party to be the general partner. There can be more than one of each type of partner, for example, there can be one general partner and two limited partners. There are also some tax advantages of using a limited partnership, in particular that it is not taxed as a separate entity; the partners are instead taxed personally on any profits. Clients should be encouraged to take tax advice when considering setting up a limited partnership.

Partnership Agreements The Act requires limited partnerships to have a written partnership agreement in place recording the arrangements with regard to the partnership and the conduct of its business. The following matters are required to be included in the partnership agreement: ▪ Any restriction on assigning or disposing of an interest in the partnership; ▪ Whether there are any restrictions on the business or activities that the partnership may carry out;

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▪ Entitlement of partners to distributions; ▪ Any restrictions on the general partner competing with the limited partner; ▪ Leaving or being admitted to the partnership; ▪ How the limited partnership terminates; and ▪ The nature of any conflict of interest policy in place. Any provisions included in a partnership agreement which are contrary to the Act will be invalid, so it is important that clients and their advisors are aware of the provisions of the Act. The partnership agreement does not need to be registered on the Limited Partnerships register, unlike a company where the constitution is a publically registered document. Parties involved in ventures like this generally appreciate this element of privacy for their business arrangements. When applying to register a limited partnership, the general partners needs to certify that the partnership agreement complies with the Act.

Who can be a partner? The partners can be individuals or other entities, such as companies or ‘normal’ partnerships under the Partnerships Act 1908. There are residency requirements as detailed below. In the case of individuals, at least one of the general partners must be resident in New Zealand or another “enforcement country” (being Australia at this stage). The requirements also include that the individual must be over 18, must not be an undischarged bankrupt, must not be prohibited from being a director of a company or from being a general partner of a limited partnership and must not be subject to a property order under the Protection of Personal and Property Rights Act 1988. In the case of partnerships, overseas companies or limited partnerships becoming partners of a limited partnership, the relevant entity must have at least one director, partner or officer living in New Zealand or Australia. In the case of any director living in Australia, they must also be director of an Australian company. There are no such restrictions in the Act for New Zealand companies becoming limited partners, but the Companies Act 1993 has its own requirements regarding


residency of directors which would need to be complied with before the company itself could be registered. The details of the general partner are made publically available via the Limited Partnerships register, but the limited partner’s details are not. This adds a further element of privacy for the limited partner.

Naming of a partnership The Act provides some restrictions around naming of partnerships, similar to a company. These are: a. The name of the partnership must include the words “Limited Partnership”, “LP” or “L.P.” at the end of its name. b. The name cannot be identical or almost identical to any other limited partnership, company or overseas limited partnership registered in New Zealand, otherwise the application for registration will be rejected. Unlike the process for registering a company, there is no ‘name reservation’ process – this is instead reviewed as part of the application to register the limited partnership. c. The name must not be offensive or contravene any other legislation. The partnership must ensure that its name is clearly stated in every written communication sent by the partnership and every document signed by the partnership that creates a legal obligation. In a similar vein to companies, a person or entity cannot hold itself out to be a limited partnership or use the word “Limited Partnership” in its name if it is not a registered limited partnership.

What are the ongoing reporting responsibilities of a limited partnership? A limited partnership is required to prepare financial statements every year, which need to be audited in certain circumstances. It is also required to file an annual return with the Companies Office, similar to a company.

How does a limited partnership terminate? Termination of a limited partnership will depend on what the partnership agreement provides, however there are some events that cause the partnership to terminate, including: 1. A resolution of the limited partnership to terminate; 2. If there has been no general partner for 10 working days or more (for example if the only remaining general partner resigned or, in the case of a company as a general partner, the company was struck off the Companies register and no replacement general partner was appointed); 3. If there has been no limited partner for 10 working days or more (similar to above, this would include a situation where the only remaining limited partner resigned or, in the case of a company as a limited partner, the company was struck off the Companies register and no replacement limited partner was appointed); or 4. The Partnership Agreement has lapsed for 10 working days or more (for example if there was a provision in the Partnership Agreement providing that it would terminate or lapse upon the occurrence of a certain event, or at a certain date). It is therefore important that the partnership has arrangements recorded in its Partnership Agreement regarding such matters as appointment of successor partners where a general partner or limited partner leaves the partnership.

Conclusion Limited partnerships are a viable option for many business ventures. There are many aspects to consider when advising clients as to whether a limited partnership is the right structure for a particular venture, including responsibility and liability for the partnership and eligibility to be a partner, including residency requirements.

CONTRIBUTING AUTHOR Claire Tyler is an Associate at Rainey Collins in Wellington.

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CPD DECLARATIONS WILL BE DUE BEFORE YOU KNOW IT It is recommended lawyers not leave completing their CPD Plan and Record (CPDPR) to the last minute. Your CPDPR is a living document and it is easiest to update as soon as you have completed a CPD activity. However that is not always possible. The CPD year ends on 31 March 2017 and your declaration is due not later than 5 working days after that date. However once you've completed your CPD requirements you can make your declaration online. You can do that now or at any time. Now is a good time to check you have completed the requirements and are up to date with your learning plan and record.


For more information about CPD and how to complete your CPDPR refer to the Law Society’s website: T H E P R O P E R T Y L AW Y E R   —   VO L U M E

17 ISSUE 2


Retirement village living: pros and cons B R YC E W I L L I A M S   The number of new retirement villages appearing on our horizon is only likely to increase to accommodate our ageing landscape. Retirement villages are an attractive option because they can offer a good balance between living independently and having access to support and healthcare, if needed. New villages are being designed and constructed to cater for the needs of residents as they age. Villages comprise independent living options in a townhouse, villa or apartment and (as needs increase), serviced apartments, care suites, rest homes, hospitals and dementia care units. Village living is becoming increasingly popular with a large percentage of residents reported as being happy with their experience.

Pros and cons Choosing to shift into a retirement village is a lifestyle choice, not an investment decision. There are many positives to the retirement village option including: greater security, companionship, no house maintenance and access to support and healthcare. However, there can be downsides including: limitations on the use of the unit, no capital gain and a deferred management fee structure. However, for most intending residents, financial considerations usually give way to the lifestyle offered.

Advice The Retirement Villages Act 2003 ('the Act') provides that an intending resident must receive independent legal advice from a lawyer before signing the occupation right agreement ('ORA'). The lawyer who witnesses the signature of the intending resident must certify that they have explained the general effect of the ORA and its implications before the intending resident signed it. The explanation must be given in a manner and in a language that is appropriate to the age and understanding of the intending resident. If the ORA is signed by an attorney of an intending


resident, or a welfare guardian or manager under the Protection of Personal and Property Rights Act 1988, that person must be treated as the intending resident. Common questions we receive from our clients around moving into retirement villages are: ▪ How does this differ from usual home ownership? Buying into a retirement village is different from buying a normal residential property. Rather than buying the unit, a person is buying the right to occupy it and use the facilities and services at the village. The ORA is not an interest in land and as a result, the resident does not acquire ownership rights. This imposes limitations on use of the unit and who may stay in the unit with the resident. The resident does not have the right to assign their interest or rent out the unit. ▪ How secure is my right to occupy? Some clients are concerned about what might happen to their occupancy rights if the operator of the Village runs into financial difficulty. All units in registered retirement villages have a memorial on the title to the land where the village is situated. That memorial gives the resident security over any individual or company that may have lent the operator money. Practically speaking, if the operator cannot repay the loan, the lender cannot evict the resident and sell the unit to recover their money. ▪ What restrictions are there? All villages have age restrictions. Intending residents usually need to be 55 years or older (in some cases 75 years) to apply. The unit is for the resident’s personal use and occupation. Residents may have friends or relatives stay but not long term. They are only allowed to alter the structure of the unit with the operator’s consent and usually only if a resident develops disabilities. ▪ What are the financial implications? Residents do not usually receive any capital gain and will generally not get

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back what they paid for the unit. This is because a “deferred management fee” (DMF) applies. This term describes the amount deducted by the village when the unit is sold. The amount is generally a percentage of the purchase price multiplied by the number of years of occupancy. It is typically capped at between 20-30 percent accruing over three to five years. Residents will pay a weekly or monthly fee for outgoings which may be fixed for the life of the ORA or adjusted for inflation. In some villages the fee could continue until the resident’s unit is reoccupied (although after six months the operator must reduce it by 50%). ▪ What if the unit is damaged or destroyed? The Retirement Villages Code of Practice 2008 ('Code') sets out the minimum requirements that operators of retirement villages must carry out, or make sure are carried out, to meet their legal obligations under the Act. The Code is enforceable as a contract by a resident and prevails over any less favourable provision in the resident’s ORA. Under the Code, if a unit is damaged or destroyed and cannot be rebuilt, the ORA is terminated and the resident must receive an amount equal to the entry payment without any deduction. ▪ What if I change my mind? By the time clients come to see a lawyer they have usually done their homework and made up their mind to shift into a retirement village. However, if there is a change in circumstances or simply a change of mind, there is a cooling-off period of 15 working days after the resident signs the ORA during which the resident can cancel it. In addition, if the unit is to be built and is not finished to the point of practical completion within six months after the proposed date for completion, the resident can cancel the ORA. It is recommended that intending residents consider a village that is a member of the Retirement Villages Association (RVA).

Photo by flickr user nznationalparty cb-nd

According to its website, the RVA’s village membership accounts for more than 95% of all registered villages in NZ. There is an accreditation process which provides some comfort that the village is as good as the operator says it is, and complies with the Act. Most villages require intending residents to have enduring powers of attorney for both property and personal care and welfare and a will. The Commission for Financial Capability has produced a useful resource for intending residents titled, “Thinking of living in a retirement village?” Residents can find a copy of this resource at

Family trusts Typically operators do not permit trustees of a family trust to enter into an ORA. However, some ORAs recognise that funding may be provided by a family trust and are willing to accept an instruction from the resident/s where the termination proceeds are repaid to the trustees of the family trust. If trustees are advancing funds to a resident to pay the occupancy advance or entry payment, the loan is documented between the trust and the resident. Trustees need to understand that some of the loan will not be repaid because of the deferred management fee (DMF). The Trustees could resolve to make a capital distribution to the resident of the amount

equivalent to the DMF and lend the balance.

Joint tenants Most ORAs provide that where there are two residents, they hold the occupancy rights jointly. On the death of one of the residents the ORA transmits automatically to the surviving resident. On termination of the ORA the termination proceeds are then payable to the surviving resident or his/her estate. Couples in second or third relationships may have signed life interest wills to provide a residence for the survivor of them but intend for their interest in the residence to ultimately pass to their children. They may not intend for the survivor of them to receive the termination proceeds outright. Because of the joint ownership structure, intending residents should consider signing an agreement which provides for the exit payment, or termination proceeds, to be divided equally between the residents or their respective estates. In addition, it would be prudent to review the couple’s wills so that the life interest includes occupancy rights in a retirement village unit with the executors authorised to lend the deceased’s share of the termination proceeds to the survivor, to acquire occupancy rights in alternative accommodation e.g. a serviced apartment.

Maintenance and upgrading of retirement village property In the majority of retirement villages, the operator is responsible for the maintenance and upgrading of retirement village property. However, where residents own their own unit e.g. a unit title structure, the resident may be responsible for maintenance and upgrading. The sections in the Unit Titles Act 2010 which relate to long-term maintenance plans, funds and ancillary matters, do not apply to a unit title development that is a retirement village. Therefore, it is important for intending residents to be advised on who is responsible for maintenance and upgrading of retirement village property. Intending residents should also be advised to make appropriate enquiries about whether a long-term maintenance plan and fund exists, and to obtain information about the state of the village to determine it is in a sound condition and is regularly maintained. Disclosure Statements must contain details of the state of the retirement village. Those may include details about the condition of the buildings and facilities and what maintenance, if any, is required. If an operator is aware of significant maintenance issues but this detail is not set out in the Disclosure Statement, a resident could cancel the ORA on the basis of substantial and/or material non-disclosure. Furthermore, any misrepresentation about

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the state of the Village and its facilities could give rise to a right of cancellation under the Contractual Remedies Act 1979. If an ORA is cancelled the resident is entitled to receive a refund, without deduction, of: ▪ all capital sums paid before or after the resident’s occupancy as consideration for the right of occupation of the unit; ▪ any other payments made for which services or facilities were not provided; ▪ interest (at the rate set down in the regulations to the Act); and ▪ the actual and reasonable costs associated with ending the ORA, such as legal expenses and removal costs.

The Levers do have the right: ▪ to information; ▪ to be consulted; ▪ to make a complaint and have the dispute heard; ▪ to be treated with courtesy and have rights respected; and ▪ to not be exploited. It was decided there was no exploitation here as the BCC manager made no gain from the hedges. The dispute was not found to be frivolous or vexatious but the Levers did not succeed in having the hedge maintained at a lower height.


Sale or disposal of a vacant residential unit

Every retirement village must have a complaints policy and procedure. If a complaint has not been resolved within 20 working days of the complaint being made, the complaint can be referred to a disputes panel. Copies of the decisions can be found on the Commission for Financial Capability’s website: The most recent dispute was decided in October this year between the Levers and the Bethlehem Country Club. The dispute arose over the manager of Bethlehem Country Club (BCC) planting a hedge between the Levers’ unit and a neighbouring unit. The Levers contended it blocked their view. They lodged a formal complaint, followed by a dispute notice. BCC challenged the validity of the dispute notice. However, the Panel found the notice complied with s 53 of the Act. Using a broad interpretation approach, the Levers’ occupancy rights included their dwelling and the facilities, and improvements on the land (such as the hedge). The Levers' issues concerned the height of the hedge and their treatment by the BCC manager (potential exploitation of the Levers by BCC Management). However, even though the Levers had rights under the Code of Residents’ Rights and the Code, these rights did not extend to making decisions about planting or maintenance of gardens, shrubs or trees. There is no moral requirement under the Code of Residents’ Rights or the Code of Practice: these are statutory and contractual rights. The Levers' only legal rights concerning the hedge were the right to give their views, and for the BCC manager to consider them.


It is important that retirement village operators understand their responsibilities in relation to the sale or disposal of a vacant residential unit (as set out in s51 of the Code), otherwise they could find themselves party to a dispute with the former resident, or their attorney or estate. A former resident can issue a dispute notice concerning the operator’s breach of the Code in disposing of a residential unit, but must wait nine months after the unit becomes available for re-occupation or disposal to do so. The operator must appoint a disputes panel to resolve a dispute for which a disputes notice has been given. The panel must be appointed within 20 working days after the operator has received the dispute notice. One of the members and chair of the panel must be a retired Judge or have held a practising certificate as a barrister and solicitor for at least 7 years. The operator is responsible for the cost of the panel. In a dispute about the disposal of a retirement unit, a disputes panel may order that the operator: ▪ market the residential unit concerned in a particular way, or at a particular price; ▪ pay the resident a sum in compensation; ▪ pay the resident interest not exceeding the rate of interest prescribed under the

Judicature Act 1908; and ▪ if the resident has a legal or equitable estate or interest in the unit, buy the resident’s estate or interest at a price and within the time fixed by the panel; or… pay a sum fixed by the panel (emphasis added). The panel must not make such an order unless it has considered the alternative orders it could make and is satisfied that none is appropriate. The cost associated with appointing a disputes panel could be significant and orders which a panel can make could potentially stretch the financial resources of smaller villages. In addition, the panel has a discretion to award costs. As a result, it is important for operators to resolve disputes with residents as quickly as possible, in order to avoid the cost associated with the disputes process.

Variations to the Code of Practice The Code has been updated to include variations to the disputes resolution process. The variations come into force on 1 April 2017 and are intended to facilitate early resolution of disputes. The amended Code will: ▪ require operators to have and use a written procedure so that residents may raise concerns or issues informally; ▪ require operators to report to the Retirement Commissioner six-monthly in relation to formal complaints for each village; ▪ include a step-by-step procedure for formal complaints to encourage early resolution; ▪ include a diagram explaining the complaint process to assist residents understand the options available; ▪ require operators to pay for mediation services for disputes between operators and residents; and ▪ require operators and residents, for disputes between residents, to share the cost of mediation services equally.

CONTRIBUTING AUTHOR Bryce Williams is an Associate at Gibson Sheat in Lower Hutt. Bryce would like to acknowledge the assistance of Zoë Westlake in the production of this article.

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An update on the methamphetamine issue – Part 2 L I N DA F OX

Photo by flickr user grimages cb-nd

This article expands on the article published in the last edition of The Property Lawyer, focussing on the perspective of landlord-clients (including advice practitioners might give clients who are agents or property managers) and provides a brief update of progress towards the issue of standards for methamphetamine decontamination.

Real Estate Agents If a reasonable suspicion is formed that the property may be contaminated with meth, agents should in discussion with their manager, refrain from any further marketing of the property until it has either been decontaminated or they have proof it is not contaminated, and, if they think the level of contamination might be significant, consider not letting anyone onto the property other than those involved in detecting and decontaminating the property. Again, if there is a reasonable suspicion of contamination and the vendor cannot

provide evidence the property is not contaminated, the agent should advise the vendor to arrange a meth test or ask them if they will consent to the agent informing potential purchasers of the contamination risk. Agents must advise vendors that, even if the methamphetamine test returns a negative result or shows contamination at a ‘safe’ level, they are still required to disclose knowledge of the test and result if asked by a potential purchaser, as they cannot give false or misleading information. A full and transparent answer must be given by any agent questioned specifically on this issue by a potential purchaser. Even if the LIM shows decontamination has been completed satisfactorily, agents should let potential purchasers of decontaminated properties know of the history, not least because the Auckland Regional Public Health Service advises that no decontamination procedure can guarantee absolute safety. If the vendor refuses, then the agent should cease acting for the vendor/client.

If the likely level of contamination is low and open homes proceed, to comply with the agents’ obligations under the Health and Safety at Work Act 2015, the agent must ensure that the possibility of methamphetamine contamination is noted on the Open Home Hazard Acknowledgment form signed by customers prior to entering the open home, erect appropriate signage notifying of the risk of possible contamination and, where practicable, obstruct access to areas of possible contamination e.g. if limited to a shed/garage. Agents should also include a meth test condition in any Agreement for Sale and Purchase, giving the purchaser the right to terminate the contract should testing disclose contamination.

Property Managers Property managers should gain consent of landlords to test ALL properties they manage at the commencement and end of every tenancy. It is also prudent to inspect properties regularly (and perhaps

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randomly) throughout a tenancy. If a property manager becomes suspicious or has reason to suspect contamination during a tenancy, they are advised to consult the landlord with a view to testing for contamination. Many property managers already regularly test properties for methamphetamine using an indicative ‘strip’ test or ‘sniffer’ dogs, discussing any positive result with landlord clients with a view to obtaining a comprehensive test from a suitably qualified methamphetamine testing company. As with real estate agents, property managers should not allow anyone onto premises they suspect are contaminated, unless they are testing or decontaminating. To do otherwise would risk the agency or management company being liable as a Person Conducting a Business or Undertaking (‘PCBU’), along with the landlord, for a breach of the Health and Safety at Work Act 2015 (‘HSWA’). Property managers should also consider contacting both the Police and the local Council to check information they may hold, having recorded all relevant information regarding possible contamination. If contamination is found above the ‘safe’ level (once that standard is established), the landlord must be advised to cancel the tenancy agreement under ss56-59A of the Residential Tenancies Act 1986 (‘RTA’) or arrange alternative accommodation for the tenant until decontamination is complete, in consultation with the insurer. If the landlord refuses, the property manager has the right to cancel the tenancy agreement under clause 12.1.4 of the Residential Management Authority (or similar relevant provision if another form is used) if they believe there is a risk to the health and safety of the tenant (Wilson & James v Residential Property Management Ltd (trading as Quinovic Property Management) Tenancy Tribunal Waitakere TT 1708/03, 14 June 2004) and should not re-let until professional decontamination is proven by written report. If there is evidence of a meth lab on the property, there is an obligation to report to the Police.

Landlords Landlords have a duty to provide a clean and safe home for occupation. The Misuse of Drugs Act 1975 makes it an offence for anyone to knowingly permit the use of any


premises for the purpose of committing an offence, such as the manufacture of methamphetamine. The Tenancy Tribunal (‘Tribunal’) has determined that meth contamination exceeding the 0.5 µg per 100cm2 Ministry of Health Guidelines level amounts to ‘damage’ to the premises (TT Pukekohe, 15/06955/MK, 16 March 2016) and therefore a landlord will breach the RTA if they let out a property with contamination at or above this level. Letting contaminated properties is a breach of the landlord’s obligations to


Recently the Ministry of Health issued new recommended guidelines, making a clearer distinction between ‘safe’ decontamination levels for houses in which meth has been used and clandestine meth laboratories.

provide premises in a reasonable state of cleanliness under s45(1) (a) of the RTA: The Tribunal recently determined that actual knowledge of significant methamphetamine contamination by the landlord (or Property Manager) was irrelevant, the important question being: “Did the contamination of the premises with methamphetamine residue mean that it was uninhabitable or not fit to live in?” (TT Pukekohe, 15/06955/ MK, 16 March 2016). The RTA provides for termination of a tenancy on short notice where the premises are so seriously damaged as to be considered uninhabitable (for which

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no definition is given, but the Tribunal has used the Guidelines to assist in determining this factor) and found where the level is exceeded on interior surfaces, the property is not “fit to be lived in’. In so finding, it determined the landlord was liable for breach of the implied term that the property was habitable and the tenants entitled to compensation for their loss (TT Pukekohe, 15/06955/MK, 16 March 2016). Although the Tribunal is generally cautious regarding applications for damages by tenants, the landlord may be liable for exemplary damages of up to $3000 for contravening s45(1)(a) RTA, in addition to penalties for any breach of the HSWA. Landlords seeking to terminate a tenancy due to methamphetamine contamination must ensure the levels are such that it would be unreasonable to require the landlord to reinstate the property” (TT Tauranga, 15/01248/TG, 26 November 2015). In that case the Tribunal held contamination to a level higher than the Guidelines in 9 of the 11 rooms in the property satisfied them the premises were uninhabitable as a result of serious damage. If a landlord does not use a property manager, they should personally arrange testing all properties at the commencement and end of every tenancy, and periodically throughout such tenancies. It is important to note landlords may not test a house for methamphetamine while it is occupied without express permission from the tenant, unless there is a clause in the tenancy agreement allowing such testing. Therefore, all tenancy agreements should contain a clause prohibiting tenants from using or storing illegal substances on the property and reserving the landlord’s right to test the property for illegal substances before, during and after the tenancy. Such a clause, when highlighted during the letting process, will deter some tenants and make others feel reassured. Property lawyers should also consider recommending such clauses when acting for landlords.

Rights of Tenants If a tenant suspects a property they are occupying was previously used as a meth lab or has methamphetamine contamination they should leave the property and inform the police (Parker and Smith). Tenants wishing to end a tenancy because they believe the premises to be

contaminated can apply to the Tenancy Tribunal under s56 of the RTA and also to have the property cleaned. If the local authority is notified and a cleansing order made under s41 of the Health Act 1956 or a dangerous building notice issued, Council will prevent anyone living or staying there until the premises have been cleaned and passed a retest. A meth monitoring system may add a point of difference for tenants but is costly over the life of an average tenancy. Regular testing is a necessary best practice recommendation. Tenants should also ensure they have contents insurance in the event there is methamphetamine contamination in the property they occupy.

Insurance Position There are no set guidelines for insurance cover for claims relating to methamphetamine contaminated properties at present. Home owners need to check if their particular insurer will cover the costs of decontamination, which can be very costly. Many insurers will specifically exclude

claims for chemical contamination from their policies as they are updated. If not excluded, they may impose limitations such as a cap on the maximum they will pay for such a claim. Some insurance companies are requiring quarterly testing and property managers are advised to check if this is a requirement of the landlord’s insurer. Insurance companies may also require evidence the property was properly managed for methamphetamine contamination, on receipt of a claim.

Brief Update Recently the Ministry of Health issued new recommended guidelines, making a clearer distinction between ‘safe’ decontamination levels for houses in which meth has been used and clandestine meth laboratories. The new guidelines will be incorporated

into the new National Standard due to be released by Standards New Zealand early in 2017. They replace the ‘general’ guideline of 0.5 µg per 100m2 with a ‘conservative’ meth surface concentration of 2.0 µg per 100cm2, recommended as the standard for maximum meth residue in remediated houses and, for former clandestine laboratories, where there is the prospect of additional organic chemicals either undetected during clean-up operations, or that have uncharacterised toxicity. A precautionary recommendation that the existing ‘conservative’ meth standard of 0.5 µg per 100cm2 is retained as a clean-up standard and a survey of heavy metals (especially mercury and lead) should accompany clean-up operations.

CONTRIBUTING AUTHOR Linda Fox is Director at Carson Fox in Auckland. Linda would like to acknowledge the assistance of Shannon Stewart, Solicitor at Carson Fox, in the production of this article.

Failure to place client funds on interest-bearing deposit A lawyer, D, who failed to place client funds on interest-bearing deposit has been fined $7,000 by a lawyers standards committee. The issue arose when the New Zealand Law Society Inspectorate completed a trust account review of the firm D was a director of. “The Inspectorate report indicated that there are five affected estates with average account balances in the trust account of $237,000 over periods ranging from 13 to 20 months,” the committee noted. Section 114 of the Lawyers and Conveyances Act 2006 (LCA) provides that it is a duty of practitioners to ensure that, wherever practicable, all money held on behalf of any person, related person, entity or incorporated firm earns interest for the

benefit of that person (with some exceptions, such as when the person instructs otherwise). D initially advised the Inspectorate that he understood it was not possible to put monies held in the trust account on deposit unless he had an Inland Revenue number for the person or entity concerned. He also said the trustees had “lacked enthusiasm” to bring funds into the tax net. D subsequently said the firm’s accountant had checked and it was possible to put funds on interest-bearing deposit without providing details of an IRD number. He also said it would be appropriate for his firm to compensate clients for the loss. “In the committee’s view, s 114 of the [LCA] is clear and there was an obligation on [D] to ensure that the money he

held on behalf of various estates earned interest unless it is not reasonable or [is] impractical to do so,” the committee said. “In this instance, there was no reason not to earn interest and [D]’s failure to do so was in breach of s 114.” The committee found unsatisfactory conduct on D’s part. As well as the fine, the committee ordered D to rectify, at his own expense, the omission by compensating each client the amount of gross interest they would have been entitled to earn had the money been placed on interest-bearing deposit at the outset. D was also ordered to make trust accounting education part of his CPD planning for the next year and undertake that training, and to pay $1,000 costs.

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Questioning the pre-circulation rule in the Resource Management Act 1991 S E A N C O N WAY & R A C H E L M U R D O C H   The issue of public participation in planning processes is a vexed one. Planning decisions affect people in a very real way, and providing opportunities for members of society to lend voice to such decisions is a critical part of the scheme of the Resource Management Act 1991 ('Act'). While few would dispute the importance of public participation, the question of how such views are best incorporated into the process is not simple. There are competing considerations at play, such as the need to manage cost for all participants including applicants and local authorities, and ensuring a robust and fair process that achieves outcomes in accordance with the purposes of the Act. This dynamic is well illustrated by the recently introduced section 103B of the Resource Management Act 1991Act, which requires pre-circulation of the evidence of the council, the applicant and any expert evidence called by submitters. Previously, pre-circulation was at the discretion of the consent authority. We set out below the rationale for the introduction of the pre-circulation rule, before exploring how it is working in practice and before suggesting some possible alternatives.

Why was the pre-circulation rule introduced? The pre-circulation rule was introduced as part of phase two of the National-led Government’s programme of reform of the Act. The Regulatory Impact Statement prepared by the Ministry for the Environment provides some insight into the rationale behind its introduction. In the course of targeted consultation with central government Departments, local authorities, consent applicants, resource management lawyers and Commissioners, the Ministry identified that the written evidence supplied by applicants at resource consent hearings sometimes deviated substantially from the content of the original application. This left little time for submitters, local authority


staff and Commissioners to consider this new information before responding. In predicting the likely impact of a pre-circulation rule, the Ministry assessed that: ▪ The potential reduction in costs for applicants in engaging experts to appear would be low; ▪ The ability of Commissioners to run a quicker hearing, focussing on remaining points of contention and thereby reducing costs associated with expert witnesses’ presence at a hearing would have a medium impact on all participants; and ▪ Local authority staff and submitters would experience a high benefit from having seen written evidence before a hearing commences. Although the pre-circulation rule received little comment as it passed through the House of Representatives, it was remarked on in many of the 294 submissions made on the phase two reforms. The rule was supported by key players such as the Resource Management Law Association of New Zealand and the Local Government Association. It was also largely supported by local authorities, although some Council submissions criticised the lack of consequences for filing late evidence or otherwise failing to comply with the substance or intent of the rule (see, for example, the submissions from the Greater Wellington Regional Council and the Upper Hutt City Council). The pre-circulation rule did not, however, receive universal support. Some submitters argued it would increase the formality of hearings and add cost and complexity to applications that could be dealt with without pre-circulation. A submission by Westfield New Zealand went further, highlighting the distinction between “expert” and “lay” evidence and the requirement on submitters to pre-exchange one type of evidence and not the other, (while the applicant is required to exchange all evidence, expert or not). The

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submission also highlighted the potential for applicants to be caught off-guard by ‘lay’ submitter evidence that has not been pre-exchanged.


...[t]here is always going to be a degree of tradeoff when the need for public participation is balanced alongside the importance of enabling growth and ensuring that strong environment outcomes are delivered in a timely and costeffective way.

Comment Eighteen months on from the introduction of the pre-circulation rule, it is worth asking whether it has succeeded in its aims of narrowing down points of contention and improving procedural fairness by reducing the risk of “ambush” by applicants. Certainly Commissioners are provided with more time to digest key issues

and consider respective parties’ positions before the hearing begins. This streamlines the hearing process and allows better utilisation of experts if Commissioners are well across the issues before the hearing commences. Submitters are also given a greater opportunity to consider an applicant’s evidence, as well as seeing if and how the proposal has evolved since their original submission. This is important, as the process is not enhanced by lay submitters being confronted with dense evidence briefs on the day of a hearing, which set out a plethora of alterations that have not been previously signalled. These are all positive outcomes. Anecdotally however, we are also seeing very extensive “lay” submissions presented on the day of the hearing, without affording the applicant, the local authority or the Commissioner(s) any prior visibility of the matters to be addressed. As submitters seek to meaningfully engage with the process, and as information relating to resource management issues becomes increasingly accessible ahead of time, the temptation for lay submitters to respond by producing extensive “expert-like” evidence at the hearing is understandably high. That is not necessarily a bad thing. Committed engagement by submitters is to be commended and supported. Public participation within decision making is, after all, a fundamental tenet of the Act and our democractic society. Moreover, the applicant’s right of reply provides some opportunity to address matters raised during the hearing and therefore mitigate any direct prejudice as a result of the pre-circulation rule. That said, it is difficult for the applicant, local authority reporting officer or cCommissioner to meaningfully consider and respond to such evidence “on the hoof ”. Local authorities have no sense of how long submitters might need to present their “evidence” and hearings which were thought to have been sped up by the pre-circulation end up being slowed, as submitters present extensive responses to the applicant’s evidence. More often than not applicants are requesting the opportunity of replying in writing, which further lengthens the timeframes. Perhaps more importantly, it is also, in our view, questionable as to whether this process facilitates effective participation.

Despite extensive and time-consuming analysis carried out by submitters, lay evidence on issues such as planning interpretation, or traffic and noise effects is likely to carry little weight against expert views. Moreover, such submissions are often misdirected with criticism targeted at matters outside the Commissioners’ control or which are already settled. In such circumstances it is questionable whether submitters are being given a true opportunity to participate or are simply being provided with the perception of participation. Few would argue that the latter is useful or appropriate. Certainly there is no gain for either applicant or submitters if we are all simply “going through the motions”. One of the functions available to a Commissioner under the Act is to direct any person presenting submissions on the relevance of part or the whole of those submissions. In our view, this could be more effectively achieved if the Commissioner (or a ‘friend of the submitter’ appointed by the Council) has an opportunity to review the content of the evidence that will be presented ahead of time. Stronger directions by a Commissioner may also address the increased scope for “game-playing” provided by the pre-circulation rule. Such assistance – if it can be called that – would help streamline the hearing, reducing costs for all parties, and arguably would also generate more effective participation, as Commissioners could better engage with submitters on the most relevant parts of their evidence. It could reduce hearing timeframes, as applicants could review submitters’ evidence prior to the hearing and deal with outstanding issues during it, rather than extending the process by relying on the right of reply.

Possible alternatives Proposals that are properly tested and scrutinised generate better environment outcomes. Understandably, participation in resource management hearings for lay

submitters can often seem a bit David and Goliath-like. In many instances, this view is not just a perception but a reality, as well-funded applicants are able to engage technical and legal experts to go into battle for them. At the very least, submitters ought to be required to pre-circulate “lay” evidence that comments substantively on matters of evidence raised in the s 42A report or in expert evidence filed by the applicant. Allowing submitters to simply “get it off their chest” where the “it” can have no or very limited or no ultimate relevance or effect on the decision fosters at best an inefficient process, and at worst, disillusionment among our communities with the ability to effectively participate in local decision making. Even though the pre-circulation rule is still in its infancy, there is also perhaps room for a wider conversation here about alternatives, which could include: ▪ Local authorities absorbing the role of submitters by inviting and considering their views as part of the s 42A report. Local authorities would be well placed to perform such a role, with their planning teams and ability to engage external experts; ▪ Sourcing and providing better funding for lay submitters to engage appropriately qualified experts to navigate the issues on their behalf; or ▪ Exploring whether appropriate funding could be made available to submitters at earlier stages of the planning process, such as the drafting of Plans. Ultimately, as the Ministry analysts that prepared the Regulatory Impact Statement accepted, there is always going to be a degree of trade-off when the need for public participation is balanced alongside the importance of enabling growth and ensuring that strong environment outcomes are delivered in a timely and cost-effective way. On the basis of the above, we may not be quite there yet.

CONTRIBUTED AUTHOR Sean Conway and Rachel Murdoch are with Greenwood Roche. Sean is a Lawyer based in Wellington and Rachel is a Solicitor based in Christchurch.

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The constructive trust on a trust – the Court of Appeal clarifies the state of the law (twice) K I M B E R LY L AW R E N C E   It is common in New Zealand for the family home to be owned by trustees of a discretionary family trust. Often these trusts are characterised by a high degree of settlor control. A relationship breakdown can cause problems as assets are not owned personally by the parties to the relationship and fall outside the relationship property pool. Novel ways to attack trusts and access trust property have been created.1 In a de facto relationship it is common for one party to make contributions to the home or other property owned by the trust, but fail to appreciate the legal significance of the home being owned by trustees rather than by the other partner personally. When the relationship ends and there is no statutory mechanism to compensate for improvements or contributions made to trust property, the contributing party may feel aggrieved. The perceived unfairness is often compounded where the other party to the relationship exerts a high degree of control over the trust and made representations that work would not go unrewarded. The ‘constructive trust on a trust’ doctrine has developed to provide a remedy in these situations.

The constructive trust on a trust The constructive trust in New Zealand has a long history in the relationship property context as a tool to reverse unjust enrichment.2 Prior to the Property (Relationships) Act 1976, de facto partners had very limited remedies and often had to rely on common law causes of action. To establish a constructive trust in this context, it was held in Lankow v Rose that the following must be shown:3 ▪ Contributions, either direct or indirect, were made to the property in question; ▪ The claimant had an expectation of an interest in the property; ▪ This expectation was reasonable; and


▪ The defendant should reasonably expect to yield the claimant an interest. If the claimant could demonstrate each of these four points, it has traditionally been regarded as unconscionable for the defendant to deny the interest claimed. Equity will recognise a constructive trust accordingly. The classic constructive trust analysis was applied to property held by trustees of an express trust, rather than an individual, for the first time in Prime v Hardie.4 In 2014, this type of claim received some impetus from the Court of Appeal’s decision in Murrell v Hamilton.5 Mr Hamilton and Ms Murrell began a relationship in 2002. In January 2004 they moved into a house which was being built by a building company operated by Mr Hamilton. The property was owned by the trustees of the WEH Family Trust. Mr Hamilton was a trustee along with his solicitor. After separation in early 2010, Ms Murrell claimed that some of the proceeds of sale of the property were held by the family trust on constructive trust for her, reflecting her contributions to the property. In the High Court, Panckhurst J identified the extent of Ms Murrell’s interest as being a 15% interest or $37,500.6 He accepted that there were circumstances where a constructive trust could attach to trust property, and that it was unconscionable for Mr Hamilton to deny that Ms Murrell had a reasonable expectation of an interest in the property. However he also found that the second trustee (Mr Hamilton’s solicitor) had not created or encouraged any expectation that Ms Murrell would have an interest in the property, and therefore the claim must fail. The Court of Appeal, however, considered that the evidence showed that the solicitor trustee had left all matters in relation to the property to be dealt with by Mr

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Hamilton and had allowed Mr Hamilton authority to bind the trustees accordingly. The court said he (the solicitor trustee) had “abjured” his responsibilities in relation to the property in favour of Mr Hamilton. In what it described as “an unusual factual situation”, the Court of Appeal considered that it would be unconscionable for the trustees to deny Ms Murrell’s claim, as otherwise the trust would be unjustly enriched by her contributions. The Court of Appeal therefore awarded $37,500 to Ms Murrell, to be paid from the trust. Application was made for leave to appeal to the Supreme Court but this was declined as the Supreme Court considered that the case turned on its particular facts and had no commercial significance. Following Murrell, it looked as though the constructive trust could offer an effective “trust busting” mechanism in the relationship property context. However, subsequent cases have revealed several significant difficulties with such constructive trust claims. Before considering these cases it is important to understand two longstanding principles of trust law.

Non Delegation and Unanimity Rules “Delegatus Non Potest Delegare”7 is a maxim which applies emphatically to trustees. All trustees must conscientiously take part in decision-making unless delegation is specifically permitted by the terms of the trust or by statute. The principle of non-delegation has been illustrated by a number of Court of Appeal decisions.8 The Unanimity Rule requires that, unless the terms of the trust specificallyally authorise otherwise, all trustees must actively take part in decisions and decisions must be unanimous. This was explained by Justice Hammond J in Rodney Aero Club Inc v Moore9 as follows: The unanimity rule is a corollary

to the non-delegation principle for, if trustees cannot delegate, it must follow that they must all perform the duties attendant upon the execution of the trust. There is no such thing in trustee law – at least absent a provision in the trust instrument – for some such concept as a “managing trustee”, or suchlike. Both in theory and in practice, the settlor requires several persons to execute the office, and to watch over each other. In one English case10 documents were set aside because the trustees did not understand the need to exercise their discretion. In New Zealand, it is established that land sales and security documents signed by only some of the trustees do not bind trust property.11 A claim to impose a constructive trust over an existing trust could be expected to encounter difficulties overcoming these two longstanding principles of trust law. This was recognised by the High Court in decisions subsequent to the Murrell v Hamilton decision.12 For a time, it looked as though the constructive trust on a trust doctrine may have encountered sufficient resistance from established principles of trust law to halt its progress.

Recent developments These issues were addressed in the recent Court of Appeal decision of Vervoort v Forrest.13 In that case, the Court of Appeal canvassed the history of the constructive

trust operating against assets owned by trustees of an express trust, and noted the criticisms of the doctrine that had been levelled. The Court found at paragraph [62]: The judge was quite right in acknowledging the traditional trust principles of unanimity and non-delegation, but those principles must yield to the practical realities when one trustee is in absolute control of all trust activities and the other trustees have effectively abdicated their responsibilities. The Court of Appeal noted that there are 300,000 – 500,000 private trusts in New Zealand and that a good portion of New Zealand’s real estate is likely held in discretionary family trusts. The court essentially found that trust law is poorly understood and, most trusts are poorly administered. It is not uncommon for “one relationship partner” to be in control of the trust and to have isolated the other trustee from trustee functions. It found that to allow traditional trust principles of non-delegation and unanimity to deny claimants a remedy would “be to allow trust principles to operate as a weapon for inequity”.14 The Court of Appeal found that on the facts of Vervoort, the constructive trust could operate against the conscience of other trustees due to their “practical surrender of their trustee role to [the settlor]”.15 It also found that the trust beneficiaries would be enriched at the expense of the applicant if such contributions were

allowed to go without remedy,16 and as such, there was no objection to recognising her claim to trust assets. All of this was decided even after the court noted that proceeding against a controlling trustee personally could provide an alternate means of redress.17 Other commentators have suggested that claims should be made directly against the trustees in unjust enrichment, rather than using the constructive trust (a proprietary remedy) to obtain an advantage not available to general trust creditors.18 The court accepted that there are “conceptual objections to allowing a trustee to bind the trust with the effect of giving third parties expectations over properties held for beneficiaries”, but found that these needed to bend to the “practical reality” of New Zealand’s trust landscape.19 This decision recognised the flaws in the constructive trust on a trust doctrine, yet cast them aside for ‘practical justice’. It enjoyed a chilly reception from trust practitioners. Any doubt that the law would proceed in this fashion was soon removed by the Court of Appeal’s decision in Hawkes Bay Trustee Company Limited v Judd.20 The court noted the decision in Vervoort and affirmed that trust principles must bend to practical realities. The High Court in Judd found that the independent trustee in that case delegated all matters in relation to the matrimonial home (including maintenance, expenditure, and renovations)

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to his co-trustee. Unlike Vervoort, a case of independent trustees doing nothing at all, Judd was a case of an otherwise active trustee who specifically chose not to engage with certain matters. The constructive trust on a trust can seemingly operate in both situations. At present it seems a constructive trust can arise in relation to contributions made to property owned by trustees of an express trust when: ▪ An expectation of benefit is created in the mind of the claimant, who made contributions in reliance on this expectation; ▪ The trustee creating the expectation of an interest has an apparent ability to give assurances or undertakings on behalf of the trustees despite the unanimity rule (for example, one trustee making decisions without consultation); and ▪ The beneficiaries of the trust are enriched at the expense of the claimant (and their time, energy, or resources).

A better way forward? Other objections have been raised to the application of the constructive trust in this context, particularly in relation to the Lankow v Rose requirements. The first issue is that many of these claims are based on non-financial contributions, which outside the relationship property context might be viewed as de minimis, ie insufficient to found a constructive trust claim. It is hard to imagine, for example, a brother helping his sister paint her house and expecting to receive an interest in her property. The constructive trust is a proprietary remedy and more than minimal contributions are required before a property right should be recognised. A second problem is meeting the requirement that the claimant must establish that they reasonably expected to benefit from the trust property. Where one party is aware that property is held in a trust rather than by their partner personally, it is hard to see how they could have a reasonable expectation of benefitting. If nothing else, they are aware that the property is not owned by their partner, and should hesitate before any reliance is placed on representations made by their partner. A recent District Court decision recognised that there were problems meeting the


requirement that there be a ‘reasonable expectation’ of an interest, and that an interest should reasonably be expected to be yielded, when property is held by trustees of an express trust.21 Where there is such a degree of settlor control over the trust that the claimant partner may have reasonably relied on representations, investigations should be made as to whether the powers held by the other party in relation to the trust were such as to qualify as relationship property under the Supreme Court’s decision in Clayton v Clayton.22 A more conceptually coherent way forward would be to abandon the constructive trust on a trust and leave claimants to pursue personal remedies against the party who made representations to them. One option might be to pursue that party as an agent of the trustees, acting outside the scope of their authority (under the unanimity and non-delegation rules). If they have insufficient assets to meet any such personal claim, the prospect of bankruptcy may be enough to convince the trustees to satisfy their debts. If not, the claimant is no worse off than any other creditor who transacts with a party without assets. Other writers have suggested that a claim could also be made against the trustees in unjust enrichment; the claimant essentially being in the position of a trust creditor.23 The trustees would be personally liable for any such debt owed, subject to their right of indemnity from the trust assets.

personal characteristics, are required to actively engage in their role, act personally and make decisions unanimously. If these rules have been eroded in the wake of the Vervoort and Judd decisions, it begs the question whether they are only eroded in the relationship property context or whether now, perhaps, a single trustee signing a contract for the sale of land might be able to bind fellow trustees if they had expressly or passively ‘delegated’ their powers. Limits on the Courts’ power to achieve ‘practical justice’ in the trust context are becoming less clear. There are other avenues to pursue ‘justice’ for claimants without putting long-established principles at risk. ‘Practical justice’ all too often means ‘flexible, discretionary and unpredictable justice’, which some would argue, is no justice at all.


15. At [65].

The current state of affairs is unsatisfactory. It is not enough to cite ‘practical justice’ as an excuse for dispensing with centuries of trust law. The Law Commission’s recent extensive report on trust law recommended that the unanimity and non-delegation rules be included in a new Trusts Bill.24 The unanimity rule was retained, and the circumstances in which trustees can delegate their powers remain limited.25 Trustees, generally appointed for their

17. At [68].


Recent examples of this can be seen in the Supreme Court decisions of Clayton v Clayton [2016] NZSC 28 and 30.

2. Gillies v Keogh [1989] 2 NZLR 327. 3. Lankow v Rose [1995] 1 NZLR 277. 4. [2003] NZFLR 481. 5. [2014] NZCA 377. 6. Murrell v Hamilton [2013] NZHC 3241. 7. A delegate is not able to delegate. 8. Niak v Macdonald [2001] 3 NZLR 334; Hansen v Young [2004] 1 NZLR 37 and CIR v Newmarket Trustees Limited [2012] NZCA 351. 9. [1998] 2 NZLR 192 10. Turner v Turner [1983] 2 AII ER 745. 11. Burt v Henry High Court Hamilton CIV 2007-419000043, 6 June 2007; Cleary v Sellen High Court Wellington CIV 2014-485-2148, 29 November 2004; Ponniah v Palmer [2012] NZCA 490 at [25]; Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at 19.15. 12. Blumenthal v Stewart [2014] NZFLR 1002 and Vervoort v Spears [2015] NZFLR 525; [2015] NZHC 808. 13. [2016] NZCA 375. 14. At [64]. 16. At [67]. 18. Charles Rickett Instrumentalism in the Law of Trusts – The disturbing case of the constructive trust upon an express trust (ADLS, Cradle to Grave Conference 2016). 19. At [69]. 20. [2016] NZCA 397. 21. Winchester Trust v Brougham & Dey [2016] NZDC 18553 at [87]-[91]. 22. [2016] NZSC 28. 23. Charles Rickett Instrumentalism in the Law of Trusts – The disturbing case of the constructive trust upon an express trust (ADLS, Cradle to Grave Conference 2016). 24. Law Commission Review of the Law of Trusts: Preferred Approach Paper (NZLC IP31, 2012) 25. Law Commission Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013)

CONTRIBUTING AUTHOR Kimberly Lawrence is a solicitor at Greg Kelly Law in Wellington.

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Construction industry: Countdown to the new retentions trust regime BR I A N C L AYTO N , HA M ISH B O LLAND & ANDY CARTWRI GHT  The Construction Contracts Act 2002 ('Act') is an important piece of legislation in the construction industry. The key purposes of the Act are: ▪ Facilitating regular and timely payment; ▪ Speedy resolution of payment disputes (‘quick and dirty’ on-the-papers adjudication); and ▪ Providing remedies for recovery of payment. The Construction Contracts Amendment Act 2015 came into force on 1 December 2015. The three key changes are: ▪ ‘Rights and obligations’ determinations of an adjudicator are now enforceable through the courts (i.e. not just payment dispute determinations). This change came into force on 1 December 2015. ▪ Design, engineering and quantity surveyor services are now subject to the legislation. This change came into force on 1 September 2016. ▪ Retention money – developers and contractors typically hold back some money from their contractors and subcontractors until completion, as a form of performance security – is to be held on trust. This change comes into force on 31 March 2017. These are all major changes for the construction industry, and introduce new challenges and opportunities for the participants. ▪ The retentions trust regime is a particularly interesting development. The Mainzeal insolvency is a good example of subcontractors being left out-of-pocket when the head contractor goes bust. The retentions regime is an attempt to better protect those that have had retentions deducted from their payment claims where the payer goes insolvent. ▪ Retention money must be held on trust by the payer, as trustee, for the benefit of the payee. The payer must not use the retention money, other than to remedy defects in the performance of the payee under the contract. ▪ There is considerable conjecture around

Photo by flickr user Cornelius Bartke cb-nd

how the retentions regime will operate what is and what is not retention in practice and it has raised some impormoney? Record keeping may help, but tant questions. For instance: how often are insolvencies marked by ▪ The retention trust regime only applies poor record-keeping? to commercial construction contracts In a piece of good news on the retentions (not residential construction contracts trust regime, the Regulatory Systems with a home owner) where the reten(Commercial Matters) Amendment Bill, tion money is more than a de minimis which was introduced in October 2016, amount. What will the de minimis clarifies that the obligation to hold retenamount be? tions on trust will only affect commercial ▪ Some developers may opt to require construction contracts entered into on, or bonds in lieu of retentions in order to after, 31 March 2017. This will be a welcome avoid the application of the retention relief to many in the construction industry trust regime, so will pressure come to – many of whom will be trying to grapple bear on contractor bonding? with the ramifications of the regime and ▪ Is the payer only required to hold in trust how to deal with it leading up to the 31 the net amount of retentions i.e. the March 2017 ‘go live’ date. difference between the retentions held by it and retentions held against it? ▪ For debt-funded projects i.e. where the developer draws down on a loan facility in order to pay the contractor, CONTRIBUTING does the developer need AUTHORS to draw the gross payment amount down and place the Brian Clayton (top photo) is a Partner, Hamish Bolland is retention money portion in a Senior Associate and Andy a separate account? Cartwright is a Solicitor with ▪ As retention money can be the Construction and Major comingled with other money, Project team at Chapman how will the payees (crediTripp in Auckland. tors) and receivers identify

T H E P R O P E R T Y L AW Y E R   —   VO L U M E 1 7 I S S U E 2


Held, orders made under to approve the scheme under s 74 Unit Titles Act 2010 – orders accordingly.

Wheeldon v Body Corporate 342525 Wheeldon v Body Corporate 342525, 14/9/2016, Young J, O’Regan J, France J, Supreme Court of New Zealand, [2016] NZSC 125

Building – Regulation – Construction – Defects – Leaky buildings Civil procedure – Appeals – Leave to appeal – Supreme Court Company law – Bodies corporate – Management Property – Real – Title – Unit titles

CASE N OT E S 1 1 A U G U S T TO 3 1 O C TO B E R 2 0 1 6

UNIT TITLES Body Corporate 204299 v Whyte Body Corporate 204299 v Whyte, 2/9/2016, Hinton J, High Court, Auckland, [2016] NZHC 2083

Company law – Bodies corporate – Powers Property – Real – Title – Unit titles Judgment of Hinton J regarding approval of the scheme of repair proposed by W and others and agreed to by BC204299.


Unsuccessful application by W and others for leave to appeal against the lower courts’ refusal to grant injunctive relief to stop BC342525 carrying out repairs of a leaky apartment complex. Held, none of the grounds for the proposed appeal justified the grant of leave – application declined.

Body Corporate 207650 v Speck Body Corporate 207650 v Speck, 8/8/2016, Gilbert J, High Court, Auckland, [2016] NZHC 1826

Building – Regulation – Construction – Defects – Leaky buildings Company law – Bodies corporate – Powers Property – Real – Title – Unit titles Successful application by BC207650 for an order approving a scheme to repair an apartment building which was not weathertight. Held, the scheme was designed to create a fair result for the different unit owners and there was no opposition to it so it was appropriate to approve it under s 74 Unit Titles Act 2010 – application granted.

C AV E AT S Stokes v Gold Band Finance Ltd Stokes v Gold Band Finance Ltd, 16/9/2016, Wild J, French J, Brown J, Court of Appeal (NZ), [2016] NZCA 442

Civil procedure – Time – Extension Property – Real – Encumbrances – Caveats – Removal Unsuccessful application by Ss for

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extension of time to file appeal – Ss had filed a notice of appeal against a High Court decision, but failed to file the case and seek fixture within time – appeal then deemed to be abandoned – Ss sought extension in order to revive the appeal. Held, delay unsatisfactory – appeal also now of no practical value as caveats they were disputing had been removed and titles transferred to purchaser via mortgagee sale – application declined.

Corbans Viticulture Ltd v Waihopai Valley Management Ltd Corbans Viticulture Ltd v Waihopai Valley Management Ltd, 6/9/2016, Associate Judge Matthews, High Court, Blenheim, [2016] NZHC 2113

Civil procedure – Costs – Award Property – Real – Encumbrances – Caveats – Removal – Withdrawal Judgment of AJ Matthews regarding costs following the parties’ agreement to remove a caveat on the title to land after WVML applied for the caveat’s removal. Held, WVML’s application was justified although the parties eventually reached agreement in negotiation rather than in court, 2B costs and disbursements awarded to WVML – orders accordingly.

POSSESSION Hortiventure Ltd v Alpine Sun Ltd Hortiventure Ltd v Alpine Sun Ltd, 8/9/2016, Collins J, High Court, Christchurch, [2016] NZHC 2130

Civil procedure – Application – To strike out Property – Real – Possession Successful application by HL for order striking out an application by ASL for early possession – HL leased a property owned by ASL – dispute arose about HL’s compliance with the terms of the lease – High Court held that the lease required the parties referred their dispute to arbitration and stayed ASL’s application for early possession pending the outcome – costs awarded to HL – dispute not referred to arbitration and when the lease came to an end ASL resumed possession of the

property – HL now sought to strike out the early possession application. Held, no prospect that ASL’s claim for early possession could succeed – application struck out – application granted.


Osmond v Blanchett

King David Investments Ltd v Zhang

Osmond v Blanchett, 26/8/2016, Glazebrook J, Young J, O’Regan J, Supreme Court of New Zealand, [2016] NZSC 112

King David Investments Ltd v Zhang, 7/9/2016, Randerson J, Wild J, French J, Court of Appeal (NZ), [2016] NZCA 421

Civil procedure – Appeals – Leave to appeal – Supreme Court Property – Real – Possession Unsuccessful application by Os for leave to appeal against a summary judgment order for possession of land made against them. Held, the lower courts applied standard principles to the facts they found and there was no appearance of a miscarriage of justice – application declined.

FM Custodians Ltd v St Asaph Investments 2011 Ltd FM Custodians Ltd v St Asaph Investments 2011 Ltd, 17/8/2016, Dunningham J, High Court, Christchurch, [2016] NZHC 1914

Property – Real – Possession

Civil procedure – Appeals – Determination Civil procedure – Orders – Consent Property – Real – Sale and purchase agreements Unsuccessful appeal by KDI and others against a consent order made in the High Court (‘HC’). Held, the proper course of action was to apply to the HC to set aside the consent order as there was no jurisdiction for an appellate court to set aside a consent order through an appeal – appeal dismissed.


Successful application by FMCL for order for vacant possession of property against SAIL. Held, reasons to follow – application granted.

Re Woolcock

FM Custodians Ltd v St Asaph Investments 2011 Ltd

Successful application by Sarah Bradshaw (‘SB’) for an order vesting disclaimed property in her following her ex-husband’s bankruptcy. Held, SB had taken responsibility for paying the mortgage arrears and it was fair that the property was vested in her to allow it to be sold and the debt reduced – application granted.

FM Custodians Ltd v St Asaph Investments 2011 Ltd, 17/8/2016, Dunningham J, High Court, Christchurch, [2016] NZHC 1915

Civil procedure – Summary judgment Property – Real – Possession Successful application by FMCL for order for possession of property – FMCL had applied for summary judgment against SAIL for principal and interest owing under a loan agreement – judgment had been entered for the amount – FMCL now sought vacant possession of the property. Held, order made that SAIL vacate and deliver up possession of property to FMCL – application granted.

Unsuccessful appeal by H against High Court (‘HC’) judgment refusing stay of judgment – unsuccessful application by H for stay pending appeal of substantive judgment – H unsuccessfully appealed to HC against District Court judgment finding him in breach of lease of land owned by MT. Held, no error in HC judgment – no injustice likely to result from enforcement of judgment – application declined – appeal dismissed.

Re Woolcock, 14/9/2016, France J, High Court, Napier, [2016] NZHC 2172

Family law – Relationship property – Division – Vesting Property – Real – Disclaimed property

LEASE Hill v Māori Trustee Hill v Māori Trustee, 9/8/2016, Kós P, Cooper J, Winkelmann J, Court of Appeal (NZ), [2016] NZCA 380

Civil procedure – Appeals – Determination Civil procedure – Judgments – Stay Property – Real – Lease

Full copies of judgments summarised in this service are available through Thomson Reuters judgment service. You can order judgments by emailing service@ Include your name, phone number and how you want the judgment delivered (post, fax, DX). Please provide as much detail about the judgment as you can! (Name, Judge, Court etc).






Chair: Dr Royden Somerville QC

Join us to be updated on the latest issues in environmental law. The proposed reforms – Resource Management Act 1991; the hearing processes used for proposed policy and planning instruments in Auckland and Christchurch; collaborative planning process; the challenges when proffering predictions about the future environment; and the development of the jurisprudence involving tikanga Māori and how to address evidence of Māori values in the Environment Court. These subjects will be examined by members of the judiciary and experienced practitioners.


15 Nov


16 Nov

Live Web Stream

16 Nov

Philip Strang, plus Niamh McMahon (AK) Simon Price (CH)

To qualify as a trust account supervisor, you must complete 40-55 hours’ preparation, attend the assessment day and pass all assessments.


16 Nov


23 Nov

Dr Gerard Curry Peter Whiteside QC

Fiduciary obligations are fundamental to all lawyers’ practice. This seminar covers the nature and extent of the duties, remedies for breach, and an update on case law since the Lawyers and Conveyancers Act came into force ten years ago.


22 Nov


23 Nov


24 Nov


23 Nov

A workshop to enable you to unlock the mysteries of financial documents, gain an insight into the world of accounting and make you more effective and confident when advising your clients on financial matters.


9-10 Nov (Limited)


14-15 Nov


16-17 Nov


7 CPD hours


7.5 CPD hours



Lloyd Austin

7 CPD hours

(Limited) (Full)


Paul Collins David Murphy

Are you considering Practising on Own Account, either alone or in partnership, in an incorporated practice or simply returning to NZ and considering your options but unsure of the process or if you meet the criteria? This practical webinar will give you an overview of the steps needed and an understanding of the process to be undertaken in preparing to Practise on Own Account.


30 Nov

Geoff Harrison Jennifer Perry

This presentation will outline some of the tools that you can employ when advising your clients on how to protect their assets. It will include consideration of some of the developments in the law relating to express and constructive trusts.


27 Oct

Liza Fry-Irvine Joanna Pidgeon

A strong working knowledge of the body corporate governance regime under the Unit Titles Act 2010 is essential, whatever the nature or size of the development. This presentation will ensure you are well equipped to give practical body corporate governance advice to protect chairs and committee members from personal liability and are up to date with recent case law in this area. This In Short is based on the webinar held in September.


8 Nov

Mark Kelly

This presentation will be of interest to commercial lawyers and corporate counsel who are either contemplating or are actively involved in commercial mediation. It will take a practical focus in considering what commercial mediation is, and outlining how to; get involved, prepare, and achieve the best result from this process.


22 Nov

1.5 CPD hours


2 CPD hours


2 CPD hours


2 CPD hours

Brochures for CLE programmes are distributed with LawTalk. If you have not received a brochure for any of the courses listed: Visit: | Email: | Phone: CLE information on 0800 333 111.

Online registration and booklet purchases available at

Property lawyer Volume 17 Issue 2  
Property lawyer Volume 17 Issue 2  

The Property Lawyer is the quarterly magazine of the Property Law Section of the New Zealand Law Society.