Extrinsic Evidence: Far from Instrumental. The Case for Restricting Admissibility of Extrinsic Evidence in Interpreting Registered Instruments

Transcription

1 Extrinsic Evidence: Far from Instrumental. The Case for Restricting Admissibility of Extrinsic Evidence in Interpreting Registered Instruments Brittany Reddington A dissertation submitted in partial fulfilment of the degree of the Bachelor of Laws (Honours) at the University of Otago October

2 Acknowledgements To my supervisor, Dr Ben France-Hudson. I could not have asked for a better person to guide me through this year, you have gone so far above and beyond what I expected from a supervisor and I am extremely grateful. To Simon Connell and Jess Palmer for your support and interest in my topic, and to Shelley Griffiths and Nicola Peart for your support throughout my time at university. To Barry Allan, for being my surprising last-minute saviour. To my flatmates at 156 Albany, even Mulvey. To Sam, Angus and Tim for your proof-reading and ideas. And finally, to my family for your incredible support not just through this year, but every year. 2

3 Table of Contents Introduction... 4 Chapter One: The Problem... 7 A The Torrens System Problems with the deeds system Objectives of the Torrens System and related Acts Conclusion B Contractual Interpretation The Traditional Approach The Modern Approach and the ICS Principles The Modern Approach in New Zealand Conclusion C The Problem Where does the problem arise? The Conflict Which should win? Chapter Two: Approaches A The New Zealand Approach B The Australian Approach C The UK Approach D Modern Contractual Interpretation Approach E Conclusion Chapter Three: A New Approach A Exploring a restrictive rule What extrinsic material should be admissible under a restrictive rule? A note of caution To what provisions would the rule apply? B Responding to Concerns Big River Conclusion C What About Unregistered Interests? Chapter 4: A Contract Lawyer s Objections Addressed A The Search for Universal Meaning B Support from Contract C Support from Public Documents D Resolving the discomfort of unilateral instruments E Conclusion Conclusion Bibliography

4 Introduction The law on interpreting instruments registered under the Torrens System is at the intersection of two distinct areas of law, property law and the law of contract. As with many areas of law, property and contract have different underlying goals, which can conflict when the two areas intersect. In New Zealand, a conflict has arisen regarding the correct legal approach to the interpretation of registered instruments, where both Torrens system principles and contractual interpretation principles are at play. Imagine that a land-owner enters into a covenant with their neighbour which prevents subdivision of their property. The land-owner then sells the land to a developer. The developer argues they are entitled to divide the land under planning legislation, as long as they create leasehold estates which last for less than 35 years (as this would not be a subdivision under the Act). The neighbour sues the developer for breach of covenant, but the developer seeks to admit as evidence an between the original parties suggesting that subdivision in the covenant have the same meaning as the planning legislation. The outcome of the case is determinant upon whether the court admits this as evidence. If the is let in, the court could be minded to interpret the instrument as allowing subdivision as the developer wishes. If it is not, then the word subdivision can only be interpreted in light of the instrument and its purpose, which is likely to suggest that subdivision in its usual sense is prohibited. These are markedly different outcomes which illustrate why a resolution of this conflict is necessary. The advent of a modern and contextual approach to contractual interpretation has caused confusion over the appropriate interpretive approach in this situation. At the moment, uncertainty exists in New Zealand as to whether registered instruments should be interpreted in accordance with this modern approach, or whether a different approach should be taken. On one hand, one could argue that interpretation should be in accordance with Torrens principles, to uphold the important role land plays in our society. On the other hand, contract scholars argue that to interpret instruments differently upon registration would lead to situations where a contract has more than one meaning. This poses a problem for contract scholars who seek to determine universal meaning in a contract. Other jurisdictions appear to have a more settled approach than New Zealand, with Australia, for example, adopting a restrictive approach to the sorts of evidence that can be adduced. In 4

5 Westfield Management Ltd v Perpetual Trustee Company Ltd 1 (a case involving a dispute about whether third parties could use an easement to access land adjacent to the servient tenement) the High Court of Australia said: 2 The third party who inspects the register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered instrument However, in New Zealand this approach has been doubted, essentially because of the difficulties it creates in the contractual interpretation sphere. In my view, New Zealand should adopt a restrictive approach to interpretation similar to that propounded in Westfield. Torrens principles must be prioritised over contractual theory in this instance, these principles are ones which Parliament has chosen to protect and treat as distinct. However, in making this argument, there are certain aspects of the debate which this dissertation does not pursue. The law on contract interpretation in New Zealand is far from settled, and it is not my aim to attempt to resolve this uncertainty. Some may argue that in fact no problem exists in the area of interpreting registered instruments, as in their opinion, the contractual interpretation approach in New Zealand does not permit consideration of the type of evidence considered problematic. However, I cannot resolve arguments regarding the truly correct approach to interpretation in the context of this dissertation. I proceed on the basis that contractual interpretation is unsettled, and in its most liberal incarnation in New Zealand, poses a significant problem for Torrens principles. Chapter One explores the problem of interpreting registered instruments, beginning by considering the Torrens system. In particular, it notes the historical background to the Land Transfer Act and addresses the overall goals and principles of the system. This provides the context necessary to understand why I advocate for a restrictive approach to extrinsic evidence. Next, I will explore the evolution of contractual interpretation, before considering 1 Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528, [2007] HCA At [39]. 3 I will be using the Land Transfer Act 2017 throughout this dissertation, but will reference the 1952 Act when necessary. 5

6 the way in which this evolution has created a problem in relation to the interpretation of instruments registered under the Torrens system. Chapter Two considers the ways in which different jurisdictions have responded to this problem. First, I consider the New Zealand approach, noting that we are yet to reach a conclusion at an appellate level. Second, I outline the Australian High Court approach in Westfield. 4 The High Court of Australia favoured a restrictive approach to interpretation, excluding much of the evidence which would be admissible under the modern contractual interpretation approach. Overseas judiciary and academics have criticised this approach. The third approach examined is the England and Wales Court of Appeal decision set out in Cherry Tree Investments Ltd v Landmain Ltd. 5 Under this approach, all extrinsic evidence can be admitted, but the court does not attach the same weight to it as they would in regular contract disputes. Finally, this chapter considers the argument put forward by academics such as Matthew Barber and Rod Thomas that the modern contractual interpretation approach should be applied to registered instruments. I conclude this chapter by arguing that none of the established approaches are suitable for New Zealand, and that a different, more restrictive approach is necessary to properly give effect to Torrens principles. Chapter Three s aim is to formulate a restrictive approach. I suggest that New Zealand should adopt an approach which is similar to Westfield, a restrictive rule to be applied to all registered documents regardless of whether the parties to the instrument are original or subsequent. I consider what evidence should be permitted under this restrictive rule, before responding to the critiques of Westfield to demonstrate why they do not pose a problem. In Chapter Four I argue why the restrictive rule is preferable. I draw support for this from a range of other areas of contract law and respond to the arguments against a restrictive approach. I conclude that the importance of land makes it appropriate for a bright-line restrictive rule to be applied to interpretive disputes. This is not a return to the parol evidence rule, but is a more limited approach to interpretation than under a contractual approach. 4 Westfield, above n 1. 5 Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736, [2013] CH

7 Chapter One: The Problem The problem of interpreting registered instruments arises because of the unavoidable conflict that exists between the goals of the Torrens system and the goals of the modern approach to contractual interpretation. The goal of this chapter is to outline the reasons for this conflict and to chart the evolution in contract law, and land law principles, that have led to the problem. A The Torrens System The Torrens system is not a system of registration of title but a system of title by registration. 6 In New Zealand, the Torrens System of registration is codified in the Land Transfer Act 2017, 7 and underlies all transactions regarding the sale and purchase of land. Established by Sir Robert Torrens and others in South Australia in 1857, the Torrens System arose to resolve the problems that individuals experienced in proving their ownership or interests in land under the English legal system that had been exported to Australia (the deeds system). 8 Examining the aims and objectives of the Torrens System supports the argument that applying the modern contractual interpretation approach to registered instruments is detrimental to Torrens principles. 1 Problems with the deeds system Prior to the Torrens system, anyone who claimed ownership of land had to prove to a prospective purchaser that they had in law acquired what they claimed from a predecessor, and that their predecessor too had lawfully acquired title (the deeds system). 9 Under the Deeds system, transfer was completely dependent validity of conveyance, with no ability to cure defects in the chain. 10 This was in line with the usual principle of nemo dat 11 that is fundamental to the law of property. However, the differences between land and chattels meant that this rule did not fit well with land transfer, resulting in two main problems. 6 Breskvar v Wall (1971) 126 CLR 217, at per Dixon J. 7 The successor in title to two Acts of the same name, enacted in 1952 and T W Mapp Torrens Elusive Title, Alberta Law Review Book Series (University of Alberta, Alberta, 1978), at 1. 9 At T Bennion, D Brown, R Thomas and E Toomey New Zealand Land Law (2 nd ed, Thomson Brookers, Wellington, 2009) at Nemo dat quod non habet, meaning no one can give what he has not got. 7

8 Firstly, conflicts existed between the true owner of land and those holding equitable interests in the land on the one hand, and a bona fide purchaser for value without notice on the other. 12 Without trusting that the vendor was acting honestly, how was the bona fide purchaser to know of any equitable interests burdening the land? Once a sale was made, what was to happen to the interests held by such equitable owners if the purchaser was truly unaware of them? Similar issues existed for purchasers buying land subject to legal interests, which they would be bound by regardless of their knowledge. Secondly, there were many practical problems with the system. The task of proving ownership was becoming increasingly onerous and expensive. 13 G H Seddon, New Zealand s land registrar at the introduction of the Land Transfer Act 1952 noted that: 14 the searching of titles and the investigation of all the deeds affecting them made conveyancing a laborious and costly procedure, and only experienced conveyancers were capable of performing the work involved. Less experienced persons usually searched back to a dealing by some experienced conveyancer, and relied on the fact that he had accepted the title as good. It was clear that a better system was necessary to avoid the complication and cost of the deeds system, which had been described as difficult to touch, disgusting to read and impossible to understand. 15 The deeds system also provided no real guarantee of title. Whalan explained that: 16 [other than] providing a further record of the chain of title, [the deeds system] added nothing to the security of title and did nothing to cure inherent defects in the deeds in the chain of title. From this recorded evidence of title a purchaser, at his peril, drew his own conclusions as to the validity of his vendor s title. Insecurity of title was one of the deeds systems biggest failings, and this was one of the key things the Torrens system was designed to cure. 12 Douglas J Whalan The Torrens System in New Zealand Present Problems and Future Possibilities in G.W. Hinde (ed) New Zealand Torrens System Centennial Essays (Butterworths, Wellington, 1971) at T W Mapp, above n 8 at G H Seddon, The Demise of the Deeds System (1951) 27 NZLJ Donovan v Bachstadt, 91 NJ 434, 453 A.2d 160 (1982). 16 D Whalan The Torrens System in Australia (Law Book Co., New South Wales, 1982), p 13. 8

9 2 Objectives of the Torrens System and related Acts The Torrens system is often described with reference to three principles: 17 a) The mirror principle the register accurately and completely mirrors the state of title; b) The curtain principle purchasers of land should not concern themselves with trusts and other interests lying behind the curtain of the register; and c) The insurance principle if the mirror of title gives an incorrect reflection and as a result a person incurs a loss, that loss should be met by the State. These individual principles can be reconciled into one overarching principle of simplifying the title of land and facilitating dealings therewith, with the goal of securing indefeasible title for all registered proprietors. 18 In order to achieve this aim, the Torrens system is designed around the recognition of four goals: certainty, economy, simplicity and facility. 19 a) Certainty The Torrens System aims to provide certainty. It does this by requiring every interest in land to be entered on a central register. This provides those looking at the register with an accurate picture of what interests pertain to that piece of land. 20 This saves every person dealing with land from the trouble of going behind the register (that is, to enquire about any interests which are not registered against the title) when investigating the validity of the owner s title. The register confers immediate indefeasibility, 21 which means that a person who registers a land transfer or other instrument obtains an immediate title to the estate created by the instrument, even if the instrument itself is void. As an example, we can consider the facts of Frazer v Walker. 22 The Frazers were the proprietors of a farm registered under the Land Transfer Act Without Mr Frazer s knowledge, Mrs Frazer mortgaged the farm to the Radomskis, forging Mr Frazer s signature. Mrs Frazer then defaulted on payments, leading to the Radomskis exercising their power of sale. When Mr Frazer found out about this fraud at 17 T Bennion, D Brown, R Thomas and E Toomey New Zealand Land Law (1 st ed, Thomson Brookers, Wellington, 2005) at Real Property Act 1886 (SA), s Whalan, above n 12 at Gibbs v Messer [1891] A.C. 248 at This was decided in Frazer v Walker [1967] NZLR Prior to this there was debate as to whether indefeasibility applied to protect any purchaser for value even if their empowering instrument is void, or only subsequent purchasers who are not party to the void instrument. In Frazer v Walker the Privy Council confirmed that indefeasibility is immediate, protecting a purchaser even if their instrument of transfer is void. 22 Frazer v Walker [1967] NZLR

10 the mortgagee sale, he applied for an order that the registrar should cancel the Radomski s mortgage as he was the beneficial owner of the property. The Privy Council held that the Radomskis had, by their registration, obtained an indefeasible mortgage to the land, despite the fraud by Mrs Frazer and the mortgage being void at common law. The court held that upon becoming registered, the proprietor is protected from any other claims unless they have acted fraudulently (or are caught by one of the other accepted exceptions to indefeasibility). 23 b) Economy By establishing a register that provides certainty for third parties, the Torrens System removed the need for expensive land surveying and legal fees. This is because the certificate of title lists the land area and size. All a prospective purchaser needs to do to make themselves aware of any interests in the land is look at the register. c) Simplicity The register removes the complexity of the previous system through removing the need for proof of ownership back to the very first owner of the land. It also simplifies the conveyancing process and reduces fees. d) Facility The Torrens System facilitates dealings in land through the central mechanism of the register. The register allows transfers to occur more quickly than the previous system, as it is only necessary to examine one document. These goals have recently been codified in the purpose provision of the Land Transfer Act Section 3(b) states that the aim of the Act is to retain the fundamental purposes of the Torrens system, which are to: (i) Provide security of ownership of estates and interests in land; (ii) Facilitate the transfer of and dealings with estates and interests in land; (iii) Provide compensation for loss arising from the operation of the system; and 23 Anthony Mason Indefeasibility Logic or Legend? in D Grinlinton (ed) Torrens in the Twenty-first Century (LexisNexis, Wellington, 2003), 3 at 6. Other exceptions to indefeasibility include overriding statutes or claims in personam. 24 Land Transfer Act 2017, s 3. 10

11 (iv) Provide a register of land that describes and records the ownership of estates and interests in land. The statutory inclusion of these aims demonstrates that upholding Torrens principles remains extremely important, 25 which leads me to argue that where there is a conflict between these principles and other principles of law, these principles should be given priority. 3 Conclusion The Torrens System and the related Acts have greatly improved dealings in land. With the land register and indefeasibility of title, land transfer has become much more certain, simple, inexpensive and efficient. These characteristics and the principles underlying them should be considered when discussing the interpretation of registered instruments, as any approach to interpretation should not undermine these principles. B Contractual Interpretation Torrens principles are of great importance to our property system and society, and have been treated as such by the law. Lately the importance of Torrens principles has been challenged with the evolution of contractual interpretation and the increased search for a universal meaning of a contract. Consideration of this change is important in helping understand the recent confusion over the approach to interpreting registered instruments. 1 The Traditional Approach The law of contractual interpretation has historically been governed by two rules, affirmed in New Zealand in Benjamin Developments Ltd v Robt Jones (Pacific) Ltd. 26 First, where the terms of the contract had a plain meaning, the court had to give effect to that meaning. 27 The words must be taken as representing the intention of the parties. This leads into the second rule, the parol evidence rule. Under this rule, evidence extrinsic to the written contract was inadmissible for the purposes of interpreting that contract. 28 The Court in Benjamin Developments endorsed Mason J s true rule of contract interpretation from Codelfa Construction Pty Ltd v State Rail Authority of New South Wales 29 that evidence of surrounding 25 Land Transfer Act 2017, s 3(d) also reinforces this, providing another purpose of through all of the above means, maintaining the integrity of title to estates and interests in land. 26 Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189 (CA). 27 David McLauchlan The ICS Principles: A failed revolution in contract interpretation? (2016) 27 NZULR 263 at At Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at

12 circumstances is not admissible to contradict the language of a contract when it has a plain meaning. 30 There were limited exceptions to these rules. First, where the plain meaning of the contract was ambiguous, the court was obliged to consult the factual background. 31 Second, it was realised that there may be occasions where external circumstances create doubt or difficulty as to the proper application of the words to claimants under the instrument, or the subject matter to which the instrument relates. 32 Finally, there was an exception to both the plain meaning and parol evidence rule where adhering to the plain meaning would create an absurdity or inconvenience so great as to convince the court that the intention could not have been to use the words in their ordinary significance. 33 However, the mere fact that the application of the plain meaning rule may have produced a rule which the parties did not contemplate was not enough to justify departing from it. Rather, departing from the rule had to be truly necessary to make commercial common-sense of the transaction or to prevent the transaction from being rendered futile The Modern Approach and the ICS Principles In 1997 the law of contractual interpretation underwent a radical change with the decision of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society (ICS). 35 ICS introduced a heavily contextual approach to interpretation. Under this approach, the task of the court is to determine the meaning that a reasonable person with knowledge of the background would give the document. 36 Accordingly, on that approach, evidence of the background and matrix of fact (other than prior negotiations) is always admissible in interpreting the document. The plain meaning rule, previously of such central importance, is relegated to a proposition that where words do have a conventional or ordinary meaning, this is simply a strong indication that they were used in that sense Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189 (CA) at At At At At Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28, [1998] 1 WLR 896, [1997] PNLR McLauchlan, above n 27 at At

13 There are several important differences between the traditional approach and the modern approach. Firstly, under the traditional approach, great importance was placed on the meaning of the words themselves rather than the meaning of the document as a whole. 38 Lord Hoffmann set out five principles, and in his fourth principle, he emphasises the difference between the two approaches, stating that: 39 the meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. Secondly, the traditional approach s concern being primarily with the words of the contract meant that it was only permissible to depart from these if the plain meaning was so absurd that the parties could not possibly have intended it. 40 However, under the ICS principles it is sufficient to displace the plain meaning that the words would have conveyed a different meaning to a person with knowledge of background. 41 Thirdly, ambiguity is not a precondition for recourse to the factual matrix and consequently, for entertaining the need for some rearrangement of the words or syntax. 42 There is no limit to the amount of red ink or verbal rearrangement or correction which a court is allowed. 43 This modern approach from ICS is a significant departure from traditional plain meaning and parol evidence rules, and has been adopted to varying extents by different countries. 3 The Modern Approach in New Zealand From the initial adoption of the ICS principles in Boatpark Ltd v Hutchison and Findlay 44, to the infamous decision in Vector Gas Ltd v Bay of Plenty Energy Ltd, 45 New Zealand s approach to contractual interpretation has been fraught with uncertainty. Vector Gas saw (some members of) the Supreme Court take an ultra-contextual approach, allowing evidence of prior negotiations where they are relevant in establishing a fact or circumstance capable of 38 At Investors Compensation Scheme, above n 35 at McLauchlan, above n 27 at At At Chartbrook v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [25]. 44 Boatpark Ltd v Hutchison and Findlay [1999] 2 NZLR Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR

14 demonstrating objectively what meaning both parties intended their words to bear. 46 While Vector Gas itself produced no clear statement on the law due to the multiplicity of judgments, lower courts appeared to follow this more liberal approach, adopted by Tipping J. 47 However, a few recent cases indicate that courts are perhaps returning to an interpretive approach more akin to the plain-meaning rule than the contextual ICS principles. Firm PI 1 Ltd v Zurich Australia Insurance 48 concerned a dispute over the interpretation of an insurance contract. A majority of the Supreme Court considered the correct approach to interpretation to be an objective one, the aim being to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. 49 The court did not place a limit on what this background could be, but it did have to be background the reasonable person would consider relevant. The text is of central importance. Further, the court held that if the language has an ordinary and natural meaning, this will be a powerful indicator of what the parties meant Conclusion While the approach to contractual interpretation in New Zealand remains somewhat uncertain in the wake of Firm Pi 1, it is apparent at least that context and background are playing a much more significant role than previously. This contextual approach has led to a conflict with Torrens principles. C The Problem 1 Where does the problem arise? The law regarding the Torrens system and the law of contractual interpretation have fundamentally different goals. The Torrens system aims to achieve certainty and simplicity in the transfer of land, by ensuring that prospective purchasers do not have to look beyond the register. Contractual interpretation aims to determine the meaning that a contract would convey 46 Vector Gas, above n 45 at [131] per Tipping J. 47 Cap D Amarres Residents Assoc Inc v Centurion Management Services Ltd HC Auckland, CIV , 18 August 2011; Divett v Refocussing Trust HC Auckland, CIV , 19 July 2011; Chief of the NZ Defence Force v NZ Public Service Assoc [2011] NZEmpC 39; I-Health Ltd v isoft NZ Ltd HC Auckland, CIV , 8 September 2010; Todd Pohokura Ltd v Shell Exploration NZ Ltd HC Wellington, CIV , 13 July Firm PI 1 Ltd v Zurich Australia Insurance [2014] NZSC At [60]. 50 At [63]. 14

15 to a reasonable person. The majority of the time these two areas remain quite distinct, however overlap occurs when disputes arise over the interpretation of a registered instrument. While the term registered instruments can encompass a wide range of documents, in this dissertation the definition of registered instrument will be limited to those documents registered under the Land Transfer Act 2017, 51 or its overseas counterparts. These instruments include leases, licenses, easements and mortgages. For the purposes of this discussion I will also include instruments that are notified on the register such as covenants. This is because: 52 notification gives an indefeasibility benefit in that it prevents a purchaser who becomes registered proprietor from relying upon the indefeasibility provisions of the Land Transfer Act in order to defeat a restrictive covenant notified upon a certificate of title. Provided the restrictive covenant is a valid equitable interest, it cannot be defeated by the indefeasibility provisions of the Act. By terms of s 126A(1)(c) [of the Land Transfer Act 1952] the covenant becomes an interest within the meaning of s 62 of the Land Transfer Act. A purchaser is therefore required to take the land subject to such interest (providing that it is a covenant that is enforceable in equity). Notification performs the same function as registration insofar as it prevents prospective purchasers from overriding the notified interest. As with registered instruments, third parties are not expected to look behind the register to find out about the provenance of notified covenants. However, it is important to recognise that notification does not go so far as to cure defects in a void instrument in the same way registration does. While this significant difference does exist between registration and notification, for the purposes of this discussion they can be treated the same. 2 The Conflict The effect of registering interests in land is that the registered proprietor takes title subject to those interests, but free from all other unregistered interests. Nonetheless, following registration, it is still possible for there to be a dispute about the meaning of the registered instrument. Consider the example outlined in the introduction, in which where was a dispute between a developer and their neighbour over the meaning of the word subdivision y, and the 51 Previously the Land Transfer Act Town and Country Marketing Ltd v McCallum (1998) 3 NZ ConvC 192,698, 192,702 per Paterson J. 15

16 outcome was dependent upon whether an (suggesting that the parties did intend the word subdivision to have the same meaning as in a relevant piece of legislation) between the original parties was admitted. If the court wants to give effect to contractual interpretation and apply the modern approach (at least as it stood following Vector Gas 53 ), they would likely admit the in accordance with Tipping J s observation that prior negotiations should be admitted when they are capable of demonstrating objectively what meaning both parties intended their words to bear. 54 This approach would probably lead the court to favour the developer deciding that subdivision is to have the same meaning as under the Resource Management Act 1991, as that is what the correspondence suggested was their common intention. If the court wanted to give effect to Torrens principles, they would limit the evidence to that which is apparent from looking at the register, refusing to admit the as it was not readily available to the third parties who examined the register, and would inject a great deal of cost, uncertainty and inefficiency into the conveyancing process. This approach would likely favour the neighbour, with subdivision having the meaning that is apparent from the wording of the document and its apparent purpose of limiting the degree of subdivision. It is not possible for the court to reach the same result using these divergent approaches. Cases such as this demonstrate the unavoidable conflict between Torrens principles and contractual interpretation principles that can arise where the two areas overlap. 3 Which should win? The only way to resolve the confusion in this area is to choose the principle which must be given priority. In my opinion, the correct approach in this instance must be the one that prefers Torrens principles. Property is almost unparalleled in its importance to our society. Property ownership has traditionally been the key means by which citizens obtain power and independence from the state. 55 Private property rights incentivise people to use their assets 53 Vector Gas, above n Vector Gas, above n 45 at [131] per Tipping J. 55 Alex Tuckness Locke s Political Philosophy in Edward N. Zalta (ed) The Stanford Encycopedia of Philosophy (Spring ed, 2016, online ed). 16

17 productively. 56 A stable and certain law is crucial to maintain a stable property market and increased property investment. 57 As Rose comments: 58 Economic thinkers have been telling us for at least two centuries that the more important a given kind of thing becomes for us, the more likely we are to have these hard-edged rules to manage it. We draw these ever-sharper lines around our entitlements so that we know who has what, and so that we can trade instead of getting into the confusions and disputes that would only escalate as the goods in question become scarcer and more highly valued. The importance of property to our society cannot be underestimated, and it is crucial that the law recognises this. Torrens principles must be prioritised over contractual interpretation principles where the two conflict. The remainder of this dissertation explores the ways in which courts have attempted to resolve this conflict, ultimately arguing that none of the existing ways are satisfactory and a restrictive rule to interpretation that upholds Torrens principles should be adopted. 56 Michael Robertson Liberal, Democratic, and Socialist Approaches to the Public Dimensions of Private Property in Janet McLean (ed) Property and the Constitution (Hart Publishing, Portland, 1999) at Lynden Griggs, To and from but not across: the High Court easements, Torrens and doctrinal purity (2008) 15 APLJ 261 at C Rose, Crystals and Mud in Property Law, (1988) 40 Standford L Rev 577 at 577-8, noted in Lynden Griggs, To and from but not across: the High Court easements, Torrens and doctrinal purity (2008) 15 APLJ 261 at

18 Chapter Two: Approaches On a practical level this conflict can be best demonstrated by reference to cases, across a range of jurisdictions, that have grappled with the issue. Moreover, due to the discrepancies between these decisions the literature discussing them also provides evidence of the philosophical and jurisprudential issues that arise. In my view, neither the judicial nor academic commentary suggests an approach which satisfactorily resolves the problem in this area, and a different approach is needed. A The New Zealand Approach The most cited New Zealand decision on this issue is the Court of Appeal decision in Big River Paradise Ltd v Congreve. 59 Big River concerned a property subject to a restrictive covenant which prevented the land from being subdivided into more than three lots. The land subject to the covenant had been sold to Big River Paradise Ltd, and the land owned by the other party had been sold to the Congreves. Big River wanted to create 52 leasehold interests in the land, with each lessee having a lease of 30 years. Under the Resource Management Act, a subdivision of land only occurs if the leasehold interest is for more than 35 years. The other party to the covenant opposed this on the basis that it breached the covenant. Big River argued that the word subdivision in the covenant must be construed by reference to the meaning of subdivision in the Resource Management Act. The Congreves contended that subdivision should be construed with reference to the obvious purpose of the covenant. Justice William Young discussed the restrictive approach taken by the High Court of Australia in Westfield, 60 but considered it unnecessary to decide on the facts whether Westfield should be upheld in New Zealand, as he considered it was clear from the document that subdivision for the purpose of the covenant was not the same as the RMA. 61 However, William Young J did express some concerns over the Westfield approach. These were primarily related to the fact that Westfield leaves a number of issues unresolved. 62 One such issue was whether the same narrow approach should be taken between the original parties to the instrument, and if the answer is no, when such an approach should kick-in. 63 He also considered an answer needed to be provided for situations where the third parties are well aware of the extrinsic evidence Big River Paradise Ltd v Congreve [2008] NZCA 78, [2008] NZLR Westfield, above n Big River, above n 59 at [34]. 62 At [22]. 63 At [22]. 64 At [22]. 18

19 Fittingly it was William Young J who delivered the Supreme Court s judgment on the issue nearly ten years later in Lakes International Golf Management Ltd v Vincent, 65 the most recent and highest level of discussion on the issue. The dispute in Vincent was over the interpretation of the term incorporated society in a registered covenant. Mr Vincent owned a property that was part of a golf course resort. When he purchased the property, it was subject to a covenant that said the landowner must join the golf club and pay membership levies. Golf club was defined for the purposes of the covenant as the golf club to be incorporated as an incorporated society to provide for playing rights on the course. However, an incorporated society was never actually formed, with the golf course being run instead by a succession of limited liability companies. The covenant was never enforced until 2010, when ownership of the Golf Course was taken over by Golf Management Ltd. Mr Vincent refused to pay the membership levies, arguing that the covenant was only enforceable by an incorporated society, which Golf Management Limited was not. Justice Heath in the High Court discussed the previous case law on the issue. 66 He noted Big River, and that William Young J had expressed concern at the Australian High Court s decision 67 to essentially exclude all extrinsic evidence when interpreting registered documents. 68 Justice Heath decided to proceed on the basis of [Big River] and leave the wider question for a senior appellate court to consider. 69 Interestingly, the Court of Appeal did not comprehensively discuss the issue of admissibility of extrinsic evidence, even after Heath J s apparent prompting. The Court s opinion on the matter is not particularly discernible from the judgement. Justice Heath s approach is criticised as not adhering closely enough to the wording of the instrument, and not being a strict enough interpretation. 70 Their approach was to construe the actual words of the covenant having regard to the factual matrix in which it came into existence. 71 In examining this factual matrix 65 Lakes International Golf Management Limited v Vincent [2017] NZSC Big River, above n Westfield, above n Lakes International Golf Management Ltd v Vincent [2015] NZHC 2771 at [23]. 69 At [24]. 70 Vincent v Lakes International Golf Management Ltd [2016] NZCA 382 at [35]. 71 At [35]. 19

20 however, they considered extensive extrinsic evidence including prior negotiations and correspondence with the lawyers who drafted the covenant, in a similar fashion to Heath J, who they had earlier criticised. In light of this evidence, they concluded that incorporated society must be interpreted strictly to mean only an incorporated society, and the limited liability companies did not fall within the covenant. 72 Accordingly, they held that the covenant was unenforceable against Mr Vincent. The Supreme Court heard arguments on three grounds, but the relevant one for the present purpose is the ground which asked, to what, if any, extent, is extrinsic evidence material to the construction of the covenant? 73 The Court felt that extended discussion on the general approach to interpretation was not warranted on the particular facts of the case, as they were unable to discern a genuine interpretation issue to which extrinsic evidence might be relevant. 74 While not partaking in a detailed discussion around interpretation, the court did state that admitting the extrinsic evidence relied upon by Mr Vincent would require an approach to the admissibility of extrinsic evidence which is more expansive than they would be prepared to accept. 75 The reasons for this opinion were essentially that the extrinsic evidence was not a matter the parties to the dispute were aware of at the time they took interests in the land, and that the particular evidence in this case reflected the subjective intentions of one of the original parties. 76 With these comments, it appears that the court is indicating a preference towards a restrictive interpretation approach that accords more with Westfield than with the modern contractual interpretation approach. This is a different direction than Big River, where William Young J expressed doubts about the desirability of a restrictive approach. In Vincent, it appears he has resolved his concerns in Big River, deciding that a restrictive approach is indeed appropriate, at least as between third parties. For example, he considers that: 77 A conclusion that the material relied on by Mr Vincent is admissible would require an approach to the admissibility of extrinsic evidence which is more expansive than we would be prepared to 72 At [35]. 73 At [23] [31]. 74 At [28]. 75 Lakes International Golf Management Limited v Vincent, above n 65 at [29]. 76 At [29]. 77 At [29]. 20

21 accept because, Golf Course and Golf Course Management were not original parties to the covenant and were not aware of the material at the time they took interest in the affected land, when they took interest they had no means of obtaining access to that material, and the material does not relate to the physical layout of the land In summary, the New Zealand courts have yet to comprehensively engage with the issue of interpreting registered instruments. 78 In our two most significant cases, the courts have refrained from making a substantive decision on the issue, but leaned towards a different outcome in each instance. 79 The reasons for this could be numerous, ranging from a reluctance to conclusively decide, to perhaps the fact that the facts of Vincent were not right for such a decision. Regardless of the reason behind this indecision, it seems inevitable that a decision will become necessary in the near future. B The Australian Approach The leading Australian case on the matter is the High Court decision of Westfield. 80 Westfield concerned a dispute over an easement registered over property in the Sydney CBD. Westfield applied for a court declaration that their easement over the driveway of Perpetual Trustee s property permitted them to allow third parties to also use the driveway for the purpose of accessing neighbouring properties. Westfield argued that ordinary contract principles apply to registered documents, and presented extrinsic evidence that would demonstrate the original parties intended the easement to allow access to the adjacent premises. The High Court noted that the primary judge had been prepared to accept Westfield s argument and had looked to extrinsic evidence to establish the intention of the parties. The High Court was not prepared to look at such evidence, stating that: 81 The third party who inspects the register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered instrument 78 Also note the case of Escrow Holdings Forty-One Limited v District Court at Auckland [2016] NZSC 167, [2017] 1 NZLR 374, where the Supreme Court chose not to resolve the issue. 79 Lakes International Golf Management Limited v Vincent, above n 65 ; Big River, above n Westfield, above n At [39]. 21

22 The court noted limited categories of extrinsic evidence that would be admissible, such as information about the physical characteristics of the land, evidence needed to correct a misdescription of the boundaries, and evidence to make sense of surveying terms. 82 Westfield has generally been accepted and followed in Australia. 83 It has been met with some criticism however, from both overseas courts and academics. One of the most significant criticism is the dearth of explanation and reasoning in the case, with the court leaving a lot of issues unresolved. 84 Commentators concerns lay in the same uncertainties raised by William Young J in Big River, mainly about what evidence would be admissible, what documents the rule would apply to, and the scope of the rule within different documents. 85 The restrictive rule has also been criticised on the basis that it would result in a lesser quality of interpretation. Lord Justice Arden 86 has considered that the rule from Westfield is less likely to find the meaning the parties would have intended, compared to the approach from ICS. Taking this approach would constitute a significant invasion of party autonomy, 87 as the court would not be giving effect to the intention of the parties. Barber and Thomas agree with this criticism. A further criticism of Westfield is that it differs from the normal contractual interpretation approach. 88 Barber and Thomas subscribe to the idea that a contract cannot have two different meanings, one when it is made and one after registration. If a restrictive interpretation approach is adopted, the same document would have two different meanings depending on what rules are being used. This is echoed by Lewison LJ in Cherry Tree, who (for the majority) considered it problematic to have a contractual meaning of a document as between the original parties, and a proprietary meaning as between third parties Westfield above n 1, at [40] [41]. 83 Michael Weir, Westfield 5 Years On 21 APLJ Barber and Thomas, above n 85 at 599. Matthew Barber and Rod Thomas Contractual Interpretation, Registered Documents and Third Party Effects (2014) 77(4) MLR 597 at 599; Big River, above n Barber and Thomas, above n 84 at In the minority in Cherry Tree, above n 5, discussed in further detail below. 87 Cherry Tree, above n 5 at [38]. 88 Barber and Thomas, above n 84 at Cherry Tree, above n 5 at [59]. 22

23 A final concern was that Westfield does not always lead to a fair result. 90 In explaining this criticism Barber and Thomas point out that the rule does not make much sense when the parties to the dispute are the original parties to the agreement, or where they are subsequent parties who had knowledge of relevant extrinsic evidence. They also point to problems that may arise when it is impossible to make sense of a document without extrinsic material. These points are largely similar to the concerns raised by William Young J in Big River, 91 demonstrating that they are questions which will need an answer if a restrictive approach is to be taken. While Barber and Thomas appear to be particularly concerned with the impact on contractual interpretation, they do not appear to be overly engaged with Torrens issues. For example, they describe the justification for exclusion of such evidence as being a Torrens indefeasibility one. 92 While indefeasibility is indeed an aspect of a Torrens justification, there are multiple other aspects to Torrens, such as the goals of achieving simplicity and certainty in facilitating title. When these other justifications are taken into account, many of their arguments against a restrictive rule fall away, as these relate to questioning the appropriateness of such a rule when there are no third parties involved, or when both parties are aware of the extrinsic evidence. Courts and academics alike have pointed out problems with Westfield, but these are largely to do with the way in which the court delivered the judgment rather than the rule itself. The High Court appears to have embraced a restrictive approach, but given little consideration to its application beyond the facts of the case before it. The judgment would perhaps have attracted less criticism had it not left open so many questions about the scope of the rule. The premise for the rule is fundamentally strong, which leads me to argue in the next chapter that a restrictive approach similar to Westfield should be adopted by New Zealand courts. C The UK Approach The UK approach to interpreting registered instruments was set out in the case of Cherry Tree Investments Ltd v Landmain Ltd. 93 Cherry Tree was the registered proprietor of a property in London, who were involved in a dispute over the validity of its purchase of the land from Dancastle. Dancastle had sold the property in exercise of its power of sale granted by a registered charge and a facility agreement. However, there was a mistake in registration which 90 Barber and Thomas, above n 84 at Big River, above n Barber and Thomas, above n 84 at Cherry Tree, above n 5. 23