Synlait Milk chief executive Leon Clement said the company is "really comfortable" in its legal position after a two-day Supreme Court hearing wrapped up on Thursday on land use where its Pokeno factory is located.
The milk processor was appealing a May 2019 Court of Appeal decision which ruled covenants that restrict land use on a small tract must stand.
"We inadvertently ended up breaching its covenants there because we settled on land that had covenants that had been removed off it and then an appeal process placed those covenants back on," Clement told the New Zealand Shareholders' Association during a Zoom presentation.
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The company bought the land in February 2018, conditional on the seller, Stonehill Trustee, procuring the removal of covenants which restrict the site's use to grazing, lifestyle farming and forestry. A High Court decision in November 2018 removed the covenants and then Synlait took the title and built the factory.
The owner of adjacent land, Ye Qing and his company, New Zealand Industrial Park, succeeded in getting that decision overturned in May last year. Synlait then turned to the Supreme Court.
Synlait "is really pleased the Supreme Court has now heard and listened really carefully to both parties," Clement said.
If Synlait wins in the Supreme Court it is likely "those covenants will be released or modified that will allow us to continue to operate our site," he said.
No downside to hearing
In the event it doesn't have a favourable outcome, "we are kind of back to where we are today, which is an opportunity to continue discussions with the neighbour around how we settle, or to take further court action."
Regardless, he underscored it does not affect business continuity or Synlait's ability to extract value from that asset.
"It's simply around working through a dispute with the neighbour over a property right which we inadvertently landed ourselves in."
During the two-day hearing, Synlait argued the restrictions the covenants impose are unjustified, given the degree to which the nature of the area has changed since they were initially imposed in 1998 and 2000.
Respondents New Zealand Industrial Park Limited and Ye Qing argued the "purpose for which the covenants were granted remains relevant," in their submission.
They accepted that "there have been changes since the creation of the covenants in the character of the neighbourhood." However, they argued that the changes do not justify any modification of the covenants.
Importantly, they said the Synlait plant could prevent them from obtaining resource consents and operating a quarry.
Ye has indicated he plans to develop a quarry adjacent to Synlait's factory and has said there could be issues around food safety that might create obstacles for resource consent.
While Synlait has provided an undertaking not to object to, and to "take reasonable steps to support" any application for resource consent, the respondents said the undertaking does not go far enough because consent authorities would still be obliged to consider the effects of both the plant and the quarry.
Also, it is revocable and does not bind subsequent purchasers.