Supreme Court modifies Urban Land Authority covenant

It has been estimated that there may be as many as 35,000 covenants created by in Victoria by the Urban Land Authority, or statutory corporations that have carried on similar functions, including:

  • Urban Land Corporation;
  • Urban or Regional Land Corporation;
  • Victorian Urban Development Authority; or
  • Development Victoria.

These restrictive covenants can contain a combination of orthodox and unorthodox covenants, for instance:

i) there will not be erected on the land hereby transferred any building other than one house and usual outbuildings; and
ii) such house will not have less than seventy five percent (75%) of all external walls (save for provisions of windows, doors, fascias and gables) of brick or brick veneer; and
iii) such house will be for his own occupation; and
iv) he shall occupy the said house as his home for a period of at least five years.

Significantly, these covenants are unlike ordinary covenants that transfer the benefit to enforce a covenant to other landowners in the neighbourhood. Rather, the covenants are created by statute, and the only party with the ability to enforce the covenant may be the statutory corporation that created the covenant (or its successor).

However, officers of those authorities have expressed the view that they will not consent or assist in the removal of existing covenants. That is, they say, a matter for the responsible authority pursuant to the Planning and Environment Act 1987–typically Councils, or VCAT on review.

Yet at least one Council says it has no ability to remove the covenant, via the Planning and Environment Act 1987. Thus, there seems to be a lack of consensus on how these covenants may be modified or removed.

However, we now know that the Supreme Court of Victoria does have the power, and is prepared to modify statutory covenants in appropriate circumstances. See Re: Hamdan S CI 2018 02512.

Plaintiffs, prove your case

The Supreme Court has again dismissed an application to vary a covenant by reason of a plaintiff’s failure to discharge its evidentiary burden under s84(1)(c) of the Property Law Act 1958.

In Del Papa v Falting & Ors, Lansdowne AsJ held:

80 It is important to keep in mind, however, that the burden is not on the defendants to establish injury; rather, it is on the plaintiff to discount it. Mr Chapman concedes that he did not inspect the rear of the Subject Land and so its interface with the only adjacent benefited land, that owned by the eleventh and twelfth defendants. Accordingly, there is no evidence that there will be no substantial direct injury to this portion of benefited land.

81 This absence of evidence in relation to direct impact on the land of the eleventh and twelfth defendants, does undermine the plaintiff’s case pursuant to s 84(1)(c). The more significant factor in its failure, is, however, that the plaintiff has failed, in my view, to show that there will be no substantially injurious precedential effect of the proposed modification.

The Court was also unimpressed with the Plaintiff’s bifurcated application:

20 Mr Del Papa’s evidence is that he and his wife would be prepared to build in accordance with schematic design plans dated February 2017 that he attaches to his affidavit. An enlarged version is Exhibit F. These plans show two options. Option A is for two very substantial two storey dwellings, one five bedroom plus rumpus room and study, and one four bedroom plus rumpus room and study. Option B is for three slightly smaller, but still very substantial, two storey dwellings, each five bedroom plus rumpus room.

131 I would also have been troubled by the fact that the proposed development is not even certain as to number of dwellings, as the plaintiff seeks either a two, or a three, lot subdivision. This is a matter that the Court can of course determine, if persuaded to grant the application, but it does raise a question as to the degree of commitment of the plaintiff to pursue her advanced proposals if the application is granted.

The take away lesson for applicants is that when you move from an uncontested application to a contested hearing, you need to make a first-principles re-assessment of the evidentiary basis of your application: revisit the plans, revisit the site and reassess the forensic basis upon which you say a precedent will not be created.

The brutal consequences of breaching a restrictive covenant

In Manderson v Wright (No 2) [2018] VSC 162, the Supreme Court revealed the devastating potential consequences of breaching a restrictive covenant.

In this case Justice John Dixon ordered the demolition of about $1 million of building renovations at a property at Barwon Heads, saying the building works occurred outside the permitted building envelope governed by a restrictive covenant, “I am not persuaded in all of the circumstances that the hardship to the defendant from a demolition order is out of all proportion to the relief assured to the plaintiff.”

A subsequent decision on costs of the proceedings, saw the unsuccessful defendant, Ms Wright, liable for 50% of the costs of the proceeding, claimed by the plaintiff to be $460,000.

The Court sounds a note of caution to ambitious developers

The Supreme Court has refused an application to modify a single dwelling covenant to allow a 21 apartment development over two lots (~1,400sqm) in 9 Highlands Road in Thomastown–notwithstanding the absence of objectors in Court to oppose the application.

The decision of Re Morihovitis [2016] VSC 684 is somewhat different to the decision of Re Jensen [2012] VSC 638 where the Court refused a relatively modest unopposed application because it was proposed amongst a relatively intact network of single dwellings. Rather, the application in Re Morihovitis was found to be simply too great a departure from what the covenant originally contemplated:

 The absence of a single dwelling covenant on no. 11 immediately exposes the peculiar and testing feature of this application.  Subject to planning laws and considerations, there is nothing on title to prevent the plaintiff as owner of no. 11 from building an apartment block, or at the least, there is no restrictive covenant getting in the way of a planning application to do so.  But the presence of the restrictive covenant on no. 9 Highlands Road obliges the responsible authority under the Planning and Environment Act to refuse to grant a planning permit unless the covenant over that land is removed or varied.  Thus, by this application Mr Morihovitis seeks under s 84(1) of the Property Law Act to modify the single dwelling covenant on no. 9 by deleting and adding words as shown in this way −

… not at any time hereafter excavate carry away or remove or permit to be excavated carried away or removed any earth clay stone gravel or sand from the said land hereby transferred except for the purpose of excavating for the foundations construction of any building and basement to be erected thereon and that not more than one dwelling house and outhouses shall be erected on the said lot hereby transferred

The Court therefore found it would alter the character of the neighbourhood:

The judgment to be made about ‘substantial injury’ turns on the nature and degree of the injury to those benefits.  Here, in my judgment, the location of the proposed development is not so removed from the residential area of the neighbourhood that it can be regarded as being sufficiently far away from it to say that such changes will not be seen and felt.  It will be a conspicuous part of the neighbourhood.  It will be the only apartment block in the neighbourhood.  The scale of the project and its departure from the scale of any existing residential developments in the neighbourhood, means that if it does not of itself create the sort of notorious problems of higher density living as I have identified them, it will in my judgment be the beginnings of altering the character of the neighbourhood.

Although the Plaintiff endeavoured to make the most of the absence of objectors, the Court pushed back on any suggestion it would give the Plaintiff a free rein:

No objectors have attended Court.  However, it is established in the legal authorities on these applications that the absence of objectors does not necessarily satisfy the onus of proof, and it certainly does not amount to implied assent. But as is commonly submitted in these applications, the absence of objectors ought go some way to overcome a court’s caution.  In this case, it was submitted that the absence of objectors willing to advance their objection to a substantial development such as this was especially significant, meaning to say I think the Court should not be overly cautious or assailed by the scale of the development in the assessment of substantial injury.  The submission went a little further.  It was submitted that known cases where such applications were refused were, or tended to be, opposed applications on which the Court could act on grounds of resistance from a beneficiaries according to evidence adduced by them.  In this case, although it was said that the Court has to play devil’s advocate, it was submitted the Court should, in the absence of objectors or any other evidence, act on the plaintiff’s evidence.     

I do not accept the amplitude of that submission.

Ultimately, the Plaintiff was held to the contract he struck when he purchased his land, at least insofar as the present development was concerned:

To put it in plain terms, Mr Morihovitis has bought land knowing of a negative covenant on it which binds him as if he made it by private contract.  He cannot use the land in defiance of that contract.  By statute this Court might discharge that obligation or modify it if doing so will not cause substantial injury to those to whom the promise was made.  That cannot be done by saying or assuming that the planning authority will ensure that the apartment development is in accordance with planning laws and regulations.  The question for the Court is whether the landowner should be relieved of his promise and allowed to build an apartment block in the first place, before it is subjected to planning scrutiny.  For the reasons I have given, in my judgment the plaintiff has not shown that the proposed modification will not cause substantial injury to those to whom the covenant was given.

Case database relevant to restrictive covenant advice and litigation

The following cases are for use in litigation and advice work. Some of these are available on Austlii, others are not.

If you have any interesting or significant cases that I’ve missed, please email them to me at townsend@vicbar.com.au

A duplicate file may suggest different varying formats (for example .doc and .pdf).

The suffix (ocr) suggests the file has been scanned for optical character recognition.

Matthew Townsend
Owen Dixon Chambers
https://www.vicbar.com.au/profile/6975
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

Brick no longer means ‘double-brick’ in building materials covenants

In Clare & Ors v Bedelis [2016] VSC 381 AsJ Derham found that a house built using a wooden sub-frame, did not breach a building materials covenant preventing the construction of a dwelling house “other than one having walls of brick or stone.”

In doing so, the Victorian Supreme Court effectively set aside the approach that has been in place since the 1956 decision of Sholl J in Jacobs v Greig VLR 597 that has often been said to require houses subject to such building materials covenants to be double brick construction:

113 In my unaccompanied view of the Land and neighbourhood, it became apparent that the bulk of the houses were constructed with an external appearance of brick.  Some had upper levels that included timber.  But the overall appearance of the neighbourhood was that the houses were substantial in size and built of brick, whether that was solid brick or brick veneer could not be seen.  Apart from the decision in Jacobs v Greig, there is no warrant in this case for the conclusion that the requirement, in effect, that the dwelling house on the Land be constructed with walls of brick or stone has the purpose of anything more than the aesthetic appearance of the house and the avoidance of low quality materials.  As I have said, I am not prepared to take judicial notice that strength, durability or any other matter forms a part of the purpose of the Covenant.  The evidence before Sholl J in Jacobs v Greig is not before me.  In any event, that decision was merely an interlocutory decision arrived at on the basis that there was a prima facie case that the construction of the covenant required solid or cavity brick and not brick veneer.  …

119 The evidence in this case clearly shows that the house has walls of brick, albeit brick veneer.  There is nothing in the covenant that requires the roof to be supported by the brick walls as distinct from the timber frame.  There is no evidence produced by the plaintiffs to establish that the meaning of the expression ‘walls of brick or stone’ in 1956 or indeed at any other time, does not embrace brick veneer walls.  I am therefore not satisfied that the house under construction is in breach of the covenant because it is constructed with walls of brick veneer.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

Construing a covenant: a restatement of principles

In the decision of Clare & Ors v Bedelis [2016] VSC 381 AsJ Derham has usefully restated the principles for construing or interpreting a covenants:

(a)               subject to the qualifications mentioned below, the ordinary principles of interpretation of written documents apply.[1]  The object of interpretation is to discover the intention of the parties as revealed by the language of the document in question;[2]

(b)               the words of a restrictive covenant:

(i)     should generally be given their ordinary and everyday meaning and not be interpreted using a technical or legal approach.[3]  Evidence may be admitted, however, as to the meaning of technical engineering, building or surveying terms and abbreviations;[4]

(ii)  must always be construed in their context, upon a reading of the whole of the instrument,[5]  and having regard to the purpose or object of the restriction;[6]

(c)                importantly, the words of a restrictive covenant should be given the meaning that a reasonable reader would attribute to them.[7]   The reasonable reader may have knowledge of such of the surrounding circumstances as are available.[8]   These circumstances may be limited to the most obvious circumstances having regard to the operation of the Torrens system and the fact that the covenant is recorded in the register kept by the Registrar of Titles.[9]  As the High Court held in Westfield:

The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee…[10]

(d)              the words of the covenant should be construed not in the abstract but by reference to the location and the physical characteristics of the properties which are affected by it,[11] and having regard to the plan of subdivision and, depending on the evidence, possibly having regard to corresponding covenants affecting other lots in the estate;[12]

(e)               because the meaning of particular words depend upon their context (including the purpose or object of the restriction in a covenant) cases that consider similar words provide no more than persuasive authority as to the meaning of words in a different document.[13]  Further, the decisions upon an expression in one instrument are of very dubious utility in relation to another;[14]

(f)                 the rules of evidence assisting the construction of contracts inter partes, of the nature explained by Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales,[15] do not apply to the construction of easements and covenants;[16]

(g)               if the meaning remains in doubt after other rules of interpretation have been applied, as a last resort or ‘very late resort,’ the covenant should be construed contra proferentem, that is, against the covenantor;[17]

(h)               whether a covenant has been breached or not is a question of fact to be determined according to the facts of the case and in the light of the actual language in which the restrictive covenant is framed;[18] and

(i)                 generally speaking, the proper construction of an instrument intended to have legal effect is a question of law, not fact.[19]  On the other hand, the meaning of a particular word or expression in such an instrument may be a question of fact, particularly where the Court has already determined as a matter of construction that the word or expression is used in its ordinary and natural meaning.[20]

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

[1]               Bradbrook and Neave’s Easements and Restrictive Covenants, AJ Bradbrook and SV MacCallum, 3rd Ed, (‘Bradbrook & Neave’), [15.3].

[2]               Bradbrook & Neave; But see Prowse v Johnston & Ors [2012] VSC 4 at [55]–[58] (‘Prowse’).

[3]               Re Marshall and Scott’s Contract [1938] VLR 98, 99; Ferella v Otvosi (2005) 64 NSWLR 101 at 107 (‘Ferella’); Ex parte High Standard Constructions Limited (1928) 29 SR (NSW) 274 at 278 (‘High Standard’); Prowse at [52].

[4]               Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 at [157]-[158](‘Phoenix); Westfield Management Limited v Perpetual Trustee Company Limited, (2007) 233 CLR 528 at [44] (‘Westfield’).

[5]               Ferella at 107; High Standard at 278;  Prowse at [52].

[6]               Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22], 462 per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Phoenix at [148]-[149].

[7]               Phoenix at [157]-[158].   

[8]               These are limited by the decision in Westfield and subsequent decisions: see Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324; Berryman v Sonnenschein [2008] NSWSC 213; Shelbina Pty Ltd v Richards [2009] NSWSC 1449; Neighbourhood Association DP No 285220 v Moffat [2008] NSWSC 54; Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281 at [33]-[34]; Prowse at [58].

[9]               Westfield at [37]-[42]; Sertari at [15]; Phoenix at [148]-[158].

[10]             Westfield at [39].

[11]             Richard van Brugge v Hare [2011] NSWSC 1364 at [36]; Big River Paradise Ltd v Congreve [2008] NZCA 78 at [23].

[12]             Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 at [16]; See Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281 at [33]; Prowse at [58].

[13]             Bradbrook & Neave at [15.4] citing Christie & Purdon v Dalco Holdings Pty Ltd [1964] Tas SR 34 at 41.

[14]             Ferella at [17]; In Re Marshall and Scott’s Contract [1938] VLR 98, at 100 where Mann CJ observed that small differences of language can be of great importance and that the decision often turns on them; Prowse at [54].

[15]             (1982) 149 CLR 337.

[16]             Westfield; Ryan v Sutherland [2011] NSWSC 1397 at [10]; Prowse at [57].

[17]             Ferella at [21]; Bradbrook & Neave’s at [15.6].

[18]             Per Herring CJ in In Re Bishop and Lynch’s Contract [1957] VLR 179 at 181; Prowse at [53].

[19]             See, in relation to statutes, S v Crimes Compensation Tribunal [1998] 1 VR 83 at 88 (J D Phillips JA).  See, in relation to written contracts, FAI Insurance Co Ltd v Savoy Pty Ltd [1993] 2 VR 343 at 351 (Brooking J); O’Neill v Vero Insurance Ltd [2008] VSC 364 [10] (Beach J); Prowse at [53].

[20]             See S v Crimes Compensation Tribunal [1998] 1 VR 83 at 88; cf Phoenix at [158]; Prowse at [53].

Regularising a longstanding breach of a covenant

There is a little known provision in the Planning and Environment Act 1987 (Act) that has been interpreted to allow the modification of a covenant without notice if the covenant has been breached for a period of two years or more. Section 47(2) of the Act provides:

(2)          Sections 52 and 55 do not apply to an application for a permit to remove a restriction (within the meaning of the Subdivision Act 1988) over land if the land has been used or developed for more than 2 years before the date of the application in a manner which would have been lawful under this Act but for the existence of the restriction.

Section 52 of the Act deals with advertising of applications for permits to potentially affected third parties and section 55 deals with referral to bodies such as DELWP, Telstra, VicRoads and so on.

In Hill v Campaspe SC [2004] VCAT 1399, the Tribunal explained:

26           My conclusion is that if part of a covenant is breached, and the breach continues for 2 years without any action on the part of those having the  benefit of the covenant, it is reasonable that no notice should be given of  an application to vary by removal part of the covenant of which there is a breach.  But this exemption from notice pursuant to section 47(2) of the Act should not extend to the removal of any aspect of a covenant of which there is no breach.

Although the proper interpretation of this provision is not free from doubt, this decision suggests that if a use or development has been in breach of a covenant for more than two years, a permit can be granted to remove or modify the covenant to regularise the use or development. If you rely on this provision, the relevant responsible authority under the Act should issue the permit to remove or amend the covenant without notifying other beneficiaries. However, as DP Gibson cautions, the power is limited, so any application should be judiciously drafted.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

Building materials covenants still have work to do in Victoria

In Gardencity Altona v Grech [2015] VSC 538 Associate Justice Lansdowne refused an application to remove a covenant requiring the main walls of any dwelling or shop on the land to be of brick and/or stone, on the basis that it could not be said that the covenant was obsolete, or that it’s removal would not occasion substantial injury to those with the benefit of the covenant.

No single dwelling covenant attached to the land, and so arguably, only the building materials covenant prevented the applicant from realising his development plans for the land.

Instrumental to her Honour’s reasoning was that the defendants had a genuine preference for the use of brick as a building material.

Her Honour also left open the possibility that if it were shown that removal of the brick or stone restriction would make a taller building less likely that may be a further benefit conferred by the restriction and so further reason why the restriction is not obsolete.

Significantly, the application was made in a neighbourhood found to be predominantly constructed with brick or stone:

142 I find on the whole of the evidence that the buildings in the neighbourhood predominantly have their main walls constructed in brick or stone. As indicated, I refer in this finding to the actual incidence of the use of brick or stone, rendered or exposed, not the visual incidence of exposed brick. By ‘predominantly’ I mean well more than half, and on a broad estimate at least two thirds.

This feature of the case will require close scrutiny for parties wishing to rely on the decision as a precedent.

Of particular interest is that the Court declined to apply the 1956 decision of Jacobs v Greig [1956] VLR 597, often cited as authority for the proposition that a requirement to build out of brick requires ‘double brick’ construction rather than brick veneer:

134 Having regard to Mr McLaughlin’s expert evidence that brick veneer is now an acceptable use of brick in construction, I consider the particular outcome in Jacobs v Greig to be limited to its particular facts and time. On the principle identified in that case, I find that an ordinary resident of Victoria would consider the covenants here in question do not now exclude brick veneer. Accordingly, I find that for this case at least, brick veneer is ‘brick’ for the purposes of the covenants, and like covenants in the area.

This is a welcome development given that double brick is now rarely used in Victoria for reasons of cost and energy efficiency.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

The Court reaffirms defendants’ right to costs, notwithstanding Calderbank offers

The Supreme Court has reaffirmed the principle in Re: WIthers [1970} VR 319, that in restrictive covenant cases, defendants are ordinarily entitled to their standard costs, even if they lose the contested proceedings.

In a carefully considered decision, in Wong v McConville & Ors (No.2) [2014] VSC 282, AJ Derham rejected the plaintiff’s application for indemnity costs, notwithstanding that she made two “Calderbank offers”, or offers of compromise foreshadowing an application for indemnity costs should the defendants achieve a worse outcome at trial than the offer contained in the Calderbank letter.

Although a number of aspects of his Honour’s judgement turned on the particular facts of the merits hearing (see Wong v McConville & Ors [2014] VSC 148), the decision underscores the difficulty Plaintiffs face when endeavouring to settle an application to modify or remove a restrictive covenant prior to a contested hearing.

Some principles emerge from the case:

Calderbank offers are unlikely to be effective before all relevant evidence has been circulated:

There are usually no pleadings in cases of this kind, and there were none in this case. At the time the offer was made, and closed, the defendants had not, and had not been required to, file their evidence, including expert evidence. Nor had significant evidence in response to the evidence of the defendants, notably the Supplementary Report of Mr Easton, been filed or served. Thus the stage at which the offer was made preceded a full consideration of the relevant material. The prime focus of that material was the expert opinion of Mr Gattini, upon whose views the defendants were well entitled to depend in considering the offer, and Mr Easton’s response to it in October 2013. Another important element of the defendants’ evidence was the evidence of Mr Zhang concerning the effects of the proposed modification on the amenity of his, and his family’s, occupation of the neighbouring land. The defendants were entitled to consider the entirety of the evidence when considering their position. [Emphasis added]

Additional time, relative to ordinary proceedings, should be allowed to consider a Calderbank offer given the difficulty of getting instructions from a large group of objectors:

30… 14 days was allowed. Considered in isolation, that time is not umeasonable. This factor, however, must be considered in this case in conjunction with the first factor. The ability of the defendants, as a group, to consider the offer and arrive at a reasoned view must necessarily have been affected by the fact that they are brought together as neighbours. They were apparently not otherwise associated with one another. They lived at quite separate locations within the subdivision. They were encouraged by the Court’s orders to combine their resources so as to reduce costs. This, I infer, was likely to make it more difficult and time consuming to arrive at a decision. This is a matter that the plaintiff’s advisers ought to have known. Having regard to the state of the evidence at the time, either the offer was made too early, or insufficient time was given for them to consider the offer. [Emphasis added]

A good deal of ingenuity will be needed to devise an offer that is both attractive to defendants, but that will bind future owners of the land

35. The submission by the defendants that the concessions offered by the plaintiff in relation to setbacks and landscaping, in each of the 8 August and 10 October offers, could not form any part of an order of the Court modifying the covenant, has particular significance in this case. In this regard, the plaintiff submitted that the setback provision in the offer of 8 August could be made the subject of a negative stipulation (for example, that any dwelling at the rear of the burdened land shall not be closer than three metres to the southern boundary). The plaintiff’s counsel also submitted that the other elements of the offers could also be the subject of negative stipulations. I do not think that this is correct. It is, in my view beyond human ingenuity to turn a positive agreement to plant tall screening plants along the western and southern boundaries of the land into a negative stipulation. It must be remembered in this context, that it is immaterial whether the wording of the covenant is positive or negative. What is essential is that the covenant is negative in substance: Shepherd Homes Ltd v Sandham (No 2). [Emphasis added]

Read as a whole, the decision does not suggest Calderbank letters will be of no use in restrictive covenant cases. Rather, it perhaps suggests that they are unlikely to be effective much earlier than immediately before trial and that considerable efforts will be needed to devise an offer that is unreasonable for the defendants to reject on the merits. Solicitors will need to do far more than offer to reimburse the defendants’ costs in exchange for their collective capitulation.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation