From the NBR

Synlait Pokeno plant hit by court ruling

Tim Hunter

Thu, 09 May 2019

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Synlait's packaging plant near Auckland Airport

Legal complications have struck Synlait’s $280 million dairy processing plant under construction at Pokeno in the form of an Appeal Court ruling on land covenants.

The plant, which Synlait said in March is on track for commissioning for the 2019/20 milk season, is being built on land subject to covenants made 20 years ago.

The covenants require the land be used only for grazing or lifestyle farming.

Synlait agreed to buy the land in February 2018 on condition the covenants would be removed and had permission from the vendor to begin construction.

In May last year the vendor Stonehill Trustee – whose principals Peter and Julie Bishop were also involved in developing a plant acquired by Synlait near Auckland Airport – applied to the High Court for orders extinguishing the covenants.

The application was opposed by the beneficiary of the covenants, New Zealand Industrial Park, which owns adjacent quarry land.

Last November the High Court ruled that the covenants on the Stonehill property could be extinguished.

Justice Mark Woolford ruled that NZ Industrial Park had no plans to develop the quarry and the use of the burdened land, as well as its council zooming, had changed beyond recognition.

“There is no grazing and/or lifestyle farming. There is not a sheep in sight,” he said.

Another dairy factory had been built by Chinese company Yashili nearby and Pokeno was no longer a small village surrounded by farmland.

“The continuation in force of the covenants would impede the reasonable use of the burdened land in a different way or to a different extent from that which could have been reasonably foreseen by the original parties.”

However, the Appeal Court has overturned that decision.

In a decision issued on May 9, Justices Murray Gilbert, Edwin Wylie and Susan Thomas ordered the covenants be reinstated.

“In our judgment, the judge was wrong to conclude that the extinguishment or modification of the covenants, so as to permit operation of the Synlait dairy factory, will not substantially injure NZIPL, and valuation evidence was not required to establish that it sustained injury,” said the ruling issued by Justice Wylie.

It is not immediately clear how the ruling will affect Synlait.

According to the judgment Synlait’s purchase agreement says if the covenants are not removed by settlement date it could take possession “without any obligation to pay interest or other monies to the vendor … cancel the agreement … or settle the agreement without prejudice to its rights, including as to compensation.”

In a statement to the NZX issued on Friday morning Synlait said it is “working through” what the judgment will mean.

The ruling affected 28ha of land conditionally acquired last February, it said, and title had transferred to Synlait after the High Court’s decision.

“We will take some time to review the decision and consult with various advisers,” said Synlait CEO, Leon Clement.

Peter Bishop said he did not wish to comment at this stage.