Auckland’s ‘unforeseeable’ sprawl ends protective covenants on rural land
New Auckland
The Supreme Court rules in favour of big new factory on farmland, saying nobody could have prophesied industrial and residential expansion as far as Pōkeno.
Synlait’s leadership is nonchalant about its decision to blow hundreds of thousands of dollars to settle a long-running neighbours-at-war land dispute – just weeks before the Supreme Court found in favour of the dairy’s big new factory.
The milk company must now pay a “reasonable” settlement, as well as picking up significant court and legal costs that the Court would otherwise have ordered Synlait’s neighbour to pay.
But the reason for chief executive Leon Clement’s sanguine response is that the third possible outcome – a court ruling against Synlait – would have been disastrous for the listed company’s industrial expansion.
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Synlait had bought a 28 hectare block of land at Pōkeno from Stonehill Trustee, to build a $280 million infant milk formula factory. But there were 200-year covenants on the land restricting its use to lifestyle farming, grazing or forestry.
As part of the sale, Stonehill had undertaken to get those restrictions removed.
Synlait began constructing its factory – only to have the Court of Appeal rule in favour of a neighbouring property owner, NZ Industrial Park Ltd, that its historic covenants remained in force.
“There was considerable confidence that the decision would go in Synlait’s favour from the hearing, but given the uncertain timing of the judgment the opportunity to settle for a reasonable amount was taken as it suited the company to remove the issue.”
– Leon Clement
NZ Industrial Park Ltd is owned by pharmaceuticals executive Qing Ye (also known as Karl Ye) who was considering building either a basalt quarry, a tourism venture or a housing subdivision on its adjacent land, and claimed the big milk powder factory would adversely impact his plans.
Synlait took over the litigation from Stonehill and appealed to the Supreme Court – but after waiting five months for a ruling, it finally gave up and, on November 6, announced an out-of-court settlement with Ye. The terms of the agreement are confidential but Synlait had earlier promised investors that the company’s legal exposure was “not substantial”.
New Zealand Accounting Standards require companies, where practicable, to declare the estimated financial effect of any contingent liability. Synlait did not do that, saying its accountants agreed the settlement would not be substantial enough to require a provision in its financial statements
Synlait settled the dispute to provide certainty to jittery investors, at a time when the company was also facing uncertainty on international markets. Its shareholder a2 Milk, which sources all its milk powder from Synlait, was forced to slash its revenue forecast last month. That hit Synlait’s share price too.
The case had been heard by a full bench of the Supreme Court. Its judgment, delivered by Justice Mark O’Regan, says the issues raised by the appeal are “matters of general importance”.
“There was uncertainty as to whether NZIPL would ever develop a quarry,” the judgment says.
“Retaining 8 hectares of grazing land in the middle of an 80 hectare industrial zone containing 40-metre-high processing plants and warehouses was not only incongruous, but could not have been foreseen.”
– Justice Mark O’Regan
Obtaining resource consent for a quarry would also be difficult given the encroaching residential development and other dairy factories in close proximity. “The planning changes in this case have contributed to the change in the character of the neighbourhood from rural land uses to major industrial and residential developments.”
The presence of the Synlait factory would not make any substantial difference, as Synlait’s land, and other land surrounding the quarry, was now part of a major industrial park.
The judgment said the changes that had occurred in Pōkeno and the area surrounding the quarry were not reasonably foreseeable when the covenants were set in place.
“Pōkeno was not identified for significant growth until 2007 … The impediment on the use of that land is now greater because its potential uses and, given the nature of the neighbourhood, its reasonable uses, have expanded in a way that would not have been foreseen when the covenants were entered into.
“Retaining 8 hectares of grazing land in the middle of an 80 hectare industrial zone containing 40-metre-high processing plants and warehouses was not only incongruous, but could not have been foreseen.”
Synlait chief executive Leon Clement said the court’s decision clarified an important issue.
“There was considerable confidence that the decision would go in Synlait’s favour from the hearing, but given the uncertain timing of the judgment the opportunity to settle for a reasonable amount was taken as it suited the company to remove the issue,” he told Newsroom last night.
“The Synlait case demonstrates how difficult it can be to extinguish or vary land covenants which a land owner finds undesirable for its proposed site use.”
– Bridget Parham and Kate James
“Synlait welcomed the release of the Supreme Court judgment as it provided greater clarity in this area of the law.”
Legal firm Tompkins Wake has warned that the case is a cautionary tale for developers.
“The Synlait case demonstrates how difficult it can be to extinguish or vary land covenants which a land owner finds undesirable for its proposed site use,” wrote lawyers Bridget Parham and Kate James.
