The Court of Appeal considered the proper operation of section 84(1)(c) of the Property Law Act 1958 in Sumervale & Sunyhill v Viva Energy [2024] VSCA 140.

The appeal was advanced by service station operators (Sumervale & Sunyhill) who enjoyed the benefit of a restriction preventing trade or business being carried out on the burdened land.

Viva Energy sought to remove the subject covenants on the basis that they were never intended as a restraint on trade, but rather, an attempt to protect the amenity of a residential estate that never materialised.

“6 As will appear, the critical issue concerns the meaning of the words ‘substantial injury’ and their relationship to the initial or intended purpose of the covenants that are sought to be modified or removed. The judge concluded that the current benefit that the applicants enjoyed, which was that no competitor could operate on the Land, was not an intended benefit and was not a purpose of the restrictions contained in the Covenants. Removal of the restrictions did not cause an injury of the relevant kind.”

The Court dismissed the construction contended for by the applicants, notwithstanding that they may be worse off if the covenants were removed.

“62 … A covenant confers a proprietary right to prevent the particular use of the burdened land for the benefit of the title holder of the benefitted land. In looking at whether the person will be harmed by its modification or removal, it is necessary to determine the nature of the benefit the restriction was designed to confer, and whether the injury is one that the restriction was intended to protect. Section 84(1)(c) does not prevent the removal of a restriction where the injury is unrelated to its intended benefit. To construe the section in that way would produce an entirely adventitious benefit and have the effect of extending the covenant to a circumstance that was never in contemplation. It would give an operation or effect that the covenant, properly construed, was not intended to have.”

This is a welcome finding. As the Court observed, to construe the concept of injury as tantamount to the loss of any benefit still being enjoyed would, in effect, compel the refusal of an application unless the restriction was obsolete, leaving section 84(1)(c) with very little, if any, work to do.

This is the most heavily used provision for the modification of restrictive covenants in Victoria.