People considering applying to modify or discharge a restrictive covenant in the Supreme Court may overestimate how long the process takes.

Based on a dataset of 50 recent matters–from the date of the originating motion to the date of final orders:

• 50% of cases are resolved within 109 days, or three and a half months; and
• 90% of cases are resolved within 266 days, or just under nine months.

At one end of the dataset a case was heard and determined within 8 days of the receipt of the Originating Motion. At the other end was a case that took 622 days. That case involved the construction of a regional sporting facility and the discharge of dozens of covenants.

From the date of instructions, the process typically requires one to two weeks to draft and file the originating process.

In Joshua John Martin & Anor v Anton Lindeman & Anor S ECI 2023 05420, unreported 20 September 2024, the court upheld the plaintiffs’ case that they had been put to unnecessary expense by reason of the defendants pressing on with the proceedings, after being told why they did not enjoy the benefit of the covenant:

V.     I am satisfied that the defendants’ rejection of the First Compromise Offer was unreasonable. I have reached that conclusion for the following reasons.

W.     First, the First Compromise Offer was made in February 2024, very soon after the defendants were joined to the proceeding. The defendants had 14 days to consider the offer, which was supported by detailed written submissions that had been served on the defendants, a link to which had been included in the earlier notification of the proceeding. The compromise offered was clear in its terms and was significant. If accepted it would have seen the covenant maintained yet modified. The significance of the compromise is clear from the ultimate outcome of the proceeding which saw the covenant discharged. The compromise foreshadowed the plaintiffs’ intention to apply for indemnity costs in the event the compromise offer was rejected.

X.     Second, defendants were on notice at all stages that there was a live question whether there was any land with the benefit of the covenant, including in the notice provided of the proceeding, and prior to being joined to the proceeding. The defendants had the benefit of the plaintiffs’ detailed legal submissions before they sought to join the proceeding. Those submissions set out, with detailed reference to the relevant legal principles and case law, why the plaintiffs said the covenant did not benefit any land and why the land was not subject to a building scheme.

Y.      Third, the defendants sought to oppose the proceeding at least in part on considerations they thought relevant to the whole of the Point Leo Beach Estate, ie. not only in response to the matters raised by the plaintiffs’ application. The defendants sought to oppose the application on the basis that they were seeking to maintain a status quo that did not exist in law. They did so in circumstances where they were put on notice why that status quo did not exist.

Z.      Fourth, the defendants’ reliance on the positions taken by the Mornington Peninsula Shire Council and the plaintiffs’ previous planning advisors was unreasonable in circumstances where the defendants were legally represented and had the benefit of the plaintiffs’ preliminary submissions.

AA.   Fifth, for the reasons set out in the judgment, the defendants opposition to the plaintiffs’ application was without legal or factual merit.

For these reasons, the Court held that the defendants should pay the plaintiffs’ costs of the proceedings on standard basis, from a date sufficient to receive legal advice, and then on an indemnity basis from the date of the first Calderbank offer.

2024 09 19 Martin, Joshua John v Lindeman, Anton (costs)Download

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.

Objectors are again reminded that although they can be expect to be reimbursed for their standard costs for participating in a section 84 application (that is, reasonable costs, reasonably incurred), that expectation does not amount to an entitlement.

In 210 Hawthorn Road Pty Ltd v Megan Ellinson and Ors S ECI 2022 05081, Ierodiaconou AsJ took the unusual step of ordering indemnity costs against a defendant for persisting with an application for costs of no merit:

“I will allow the plaintiff’s application for indemnity costs in respect of the costs dispute.  As the reasons above disclose, there was no proper basis in fact or law for Dr Shafer’s application to recover the costs of Mr Shafer’s invoices.  I accept the plaintiff’s submission that it was a frivolous application.  It was a poor use of time. It falls into the category of cases that is continued in wilful disregard of known facts or clearly established law, and warrants an order for indemnity costs: see Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 at 7.”

In other cases:

a) an order for costs was made against the defendants in Rouditser & Rouditser v Schreuder & Schreuder S ECI 2018 01166 after the defendants were found by Derham AsJ to have been responsible for the trial being adjourned;

b) an order for costs was made against the defendants in Livingstone v Kelleher & Pomponio S ECI 2020 0460 after Matthews AsJ found the first defendant had put the court and the parties to unwarranted expense in necessitating an additional directions hearing; and

c) an order for costs was made against the defendants in Sijercic & Sijercic v Brotchie & Bennett S ECI 2021 03620 after Matthews AsJ concluded the defendant had not made sufficient effort to cooperate in the settling of pre-trial directions.

If the Victorian government wants to find land for additional housing, it should consider limiting people from contracting out of the planning system.

At the moment, the provisions for removing restrictive covenants via the Planning and Environment Act 1987 barely move the needle on releasing land for housing burdened by single dwelling covenants. This is perhaps not surprising, for the legislation was never intended to be broad in its application. In introducting section 60(5) of that Act, the Minister for Planning explained:

The effect of the clause is that permits should be granted only for “dead wood” covenants if no owner benefitting from the covenant objects to its removal or variation. The alterative avenues to remove or vary a covenant remain in place, being applications to the Supreme Court under the Property Law Act 1958 and the preparation of a planning scheme amendment.

However, in exercising its discretion pursuant to section 84 of the Property Law Act 1958 the Supreme Court is largely if not wholly concerned with the potential impacts on the private property rights of beneficiaries. As explained by Mukhtar AsJ in Re DVC Management & Consulting Pty Ltd:

“Recent decisions of this Court have it that town planning principles and considerations are not relevant to the Court’s consideration of whether an applicant has established a ground under s 84: see Vrakas v Registrar of Titles and Prowse v Johnstone.”

… Of course, if a covenant is removed or modified, disaffected neighbours may make later objections to the particular features of the proposed development to the planning authority on public planning grounds if and when a planning permit is sought.

Furthermore, it may even be inadmissible to rely on historical materials to explain to the Court why a restrictive covenant were created in the first place.

Take, for instance, a subdivision in which a single dwelling covenant was imposed on 4,000sqm lots by reason of an absence of reticulated sewerage. Upon the arrival of a full suite of services, those lots may now be capable of supporting a significant increase in the number of homes.

However, the Supreme Court might not only be legally incapable of taking into account the public benefits of releasing land for housing, it might be unable to properly consider the reason for the covenant in the first place, unless that reason is expressly stated in the restriction. The court is more likely to infer from the instrument’s language that the intention of the single dwellling restriction was to “preserve the area in question … as an area of spacious homes and gardens”.

True it is, that covenants can be removed by way of planning scheme amendments, but this option is rarely used because of its expense and political risks. To succeed, an application will need the support of the local council and the relevant Minister at the time the amendment is both prepared and adopted. The last time I recall this option being used the Council Officer was said to have declared “We won’t be doing that again. The next time someone asks us to remove a restrictive covenant, we will tell them to go through the Supreme Court.”

The nuclear option is to simply amend the Planning and Environment Act 1987 to provide that to the extent of any inconsistency between a restrictive covenant and a planning scheme, the planning scheme should prevail.

But there no doubt other, more incremental means of releasing land for housing presently burdened by restrictive covenants.

This would still allow the consideration of matters such as the protection of neighbourhood character, but in the framework of a discussion centred on the concept of net community benefit.

At the moment, tens of thousands of hectares of land in Victoria, must be subject to single dwelling restrictive covenants, yet there is no readily available means of convincing a Court or Tribunal that that land could be better used in the interests of the broader Victorian community.

A developer may want to know whether a particular development proposal will comply with a restrictive covenant.

It might be a mistake to believe this power exists in section 84(2) of the Property Law Act 1958 that provides:

(2)     The Court shall have power on the application of any person interested—

(a)     to declare whether or not in any particular case any land is affected by a restriction imposed by any instrument; or

(b)     to declare what upon the true construction of any instrument purporting to impose a restriction is the nature and extent of the restriction thereby imposed and whether the same is enforceable and if so by whom.

In Prowse v Johnston[1] the plaintiff’s case was put first as a declaration application and as a modification application in the alternative:

21 … so far as declaratory relief is concerned, the plaintiff now seeks, in substance, a declaration that a development generally in accordance with the current architectural plans would not contravene that part of the restrictive covenant which prohibits the erection of more than one house on each of Lots 7 and 8. In the alternative, the plaintiff seeks an order under s 84(1)(a) or (c) of the Act modifying that particular restriction. Further, the plaintiff seeks an order under s 84(1)(a) or (c) modifying the restrictions relating to excavation, building materials, subdivision and frontages. Taken together, the modifications sought are modifications that would permit the construction of a building generally in accordance with the current architectural plans.

In that case, Cavanough J expressed reservations as to whether section 84(2) was capable of being used to determine a hypothetical question such as whether a building constructed in accordance with a given set of plans would satisfactorily comply with a restrictive covenant. His Honour therefore relied on the Court’s general jurisdiction to make a declaratory order:

26     As indicated above, the declaration is sought under s 84(2) of the Act or under the Court’s general or inherent jurisdiction and powers, including under s 36 of the Supreme Court Act 1986. It would necessarily be a declaration as to a situation or position that has not yet arisen, in that the development is merely proposed. It is very doubtful whether s 84(2) of the Act would authorise the Court to make a declaration of that kind. The plaintiff acknowledged this during oral submissions and thereafter placed principal reliance on the Court’s general or inherent jurisdiction. I accept that that jurisdiction may extend to future questions, and that it is available in this case. The jurisdiction is apparently no less ample than any jurisdiction under s 84(2) of the Act. So it is not necessary to decide finally whether jurisdiction under s 84(2) of the Act also exists.

In Stoops v Lefas, Cavanough J again discussed section 36 of the Supreme Court Act and Rule 23.05 of the Supreme Court Rules in this context:

17. …However, the claim which Mr Stoops wanted to be free to advance at trial, as set out in the originating motion, was a claim of an entirely theoretical or hypothetical nature. It did not involve any definite development proposal for the land. In fairness to him as an unrepresented litigant, I informed him that, in my view, the Court would probably not entertain such a claim in any event and that, if he wished to proceed, he would probably need to put forward a definite building proposal. I also expressed concern that his claim might in any event amount to a claim for a declaration as to a future matter; that, in those circumstances, s 84(2)(b) of the Property Law Act 1958 might not be applicable; and that he might need to rely on the Court’s general jurisdiction and powers to grant declarations. …I ordered…that by a specified time the plaintiff file and serve a further amended originating motion confining the proceeding to a claim for a declaration in respect of a clearly defined proposal for the land in question, such as the proposal the subject of the decision given by VCAT in 2003 in the matter referred to above, namely Stoops v Frankston City Council; and that the parties be prepared on 14 May 2015 to advance the cases which, if this proceeding were not stayed, they would respectively advance at the final hearing of the proceeding (as confined in accordance with my order)…

19. In his further amended originating motion filed on 15 April 2015, Mr Stoops duly invoked s 36 of the Supreme Court Act 1986 and Rule 23.05 of the Supreme Court (General Civil Procedure) Rules 2005 (as well as s 84(2)(b) of the Property Law Act 1958 ) in relation to his claim for a declaration in the contingent final hearing. He substituted for his theoretical or hypothetical claim a claim with respect to the very building proposal (and associated architects’ plans) which had been the subject of the application for review determined by VCAT in 2003. He exhibited the relevant plans to an affidavit of his own affirmed on 10 April 2015 and filed on 15 April 2015.

The Court’s general power to grant declaratory relief is discretionary, and requires a real question to be tried. Query whether a contradictor would be required in practice, or whether the Court would be satisfied with notice being first given to beneficiaries.

A plaintiff seeking a declaration that a particular development proposal complies with a covenant should therefore invoke the Court’s powers under section 36 of the Supreme Court Act 1986 (Vic) (Supreme Court Act) and rule 23.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Supreme Court Rules), which reads as follows:

23.05    Declaratory judgment

No proceeding shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed.

More generally, although plaintiffs are often tempted to run declarations as preliminary points, they are rarely short and sharp hearings, meaning that a failure in the declaration application can lead to litigation fatigue and the subsequent abandoning of an application. Far better then, in most cases, to run an application for declaration and an application for modification in the same hearing. As the adage goes “Most people who ask for a preliminary hearing on the separate question, eventually come to regret it.”

[1]              Prowse v Johnstone [2012] VSC 4.

[2]              [2016] VSC 350.

[3]              These rules were repealed and replaced in 2015. The current corresponding provision is in the same terms.

[4]              (1972) 126 CLR 297.

[5]              DPP v Frederico [2006] VSC 24.

Justice Matthews has reaffirmed the principle established in Randell v Uhl [2019] VSC 668 that an assessment of substantial injury for the purposes of section 84(1)(c) in the Property Law Act 1958, must be seen through the prism of the covenant’s purpose.

At issue in Viva Energy Refining Pty Ltd v Sumervale Pty Ltd & Anor (No 2) [2023] VSC 396 was whether one service station could object to the establishment of another in the same network of covenants, where the financial impacts of that approval were not in dispute.

Read literally, the covenants restricted “any trade or business whatsoever” from being carried out on the Land, but the court held that the benefit enjoyed by the Defendants from having no commercial competitor on the Land is not a benefit initially intended to or actually conferred by the Covenants:

181 The essential difference between the parties as to the approach that the Court should take, when considering whether the Plaintiff has satisfied the requirements of s 84(1)(c) of the PLA, boils down to this: is the Court to look at the Covenants as a whole to discern their purpose, as part of assessing the benefits initially intended to be conferred and actually conferred by the Covenants (the Plaintiff’s approach); or does the Court look solely at the restrictions contained in the Covenants themselves to elucidate the benefits (the Defendants’ approach)? In effect, the Defendants would have it that the Court should focus on whether the Defendants were intended to be conferred, and were actually conferred, a benefit by the ‘no trade or business’ restriction on the Land, without reference to the purpose of the Covenants. If so, the question then is whether the removal or modification of the Covenant would substantially injure the Defendants if the benefit did not remain or was adversely affected.

182 In my view, it is clear that the Plaintiff’s approach is to be preferred. It is consistent with the authorities, whereas the Defendants’ approach is not.315 I accept the Plaintiff’s submission set out at paragraph 90 above. In Randell v Uhl, Derham AsJ clearly assessed substantial injury by reference to the purpose of the covenant.316 For example, it is not a single dwelling restriction per se which is the benefit, but a low density neighbourhood as a consequence of that restriction which is to be assessed against the proposed modification.

183 Taking an individual restriction, without reference to other restrictions and the purpose of the covenant, as discerned from the terms of the covenant itself, is not the correct approach

This underscores the need for a holistic and purposive approach to the construction of covenants (as distinct from a literal reading), quite possibly the most common failing of practitioners and decision makers alike.

As a measure of how efficient the Supreme Court can be in processing applications to modify restrictive covenants, today we managed to modify a restrictive covenant within four weeks of taking instructions from a client.

The modification was a simple one that didn’t require notice to beneficiaries–namely, amending a building materials covenant to allow a substrate of concrete in addition to brick–but a similar pace can be achieved in applications made pursuant to section 84(1)(b) of the Property Law Act 1958–where there is agreement from beneficiaries to the modification or removal of a covenant.