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

VCAT confirms 60(5) of the Planning and Environment Act 1987 is only useful for removing “deadwood” restrictive covenants

In the Red Dot decision of Giosis v Darebin CC [2013] VCAT 825, the Victorian Civil and Administrative Tribunal comprised of Senior Member H. McM Wright QC confirmed that 60(5) of the Planning and Environment Act 1987 (Act) is useful for little more than removing “deadwood” or non-contentious restrictive covenants.

The case concerned an applicant seeking to review the decision of the Darebin City Council to refuse a permit to vary a restrictive covenant burdening land at 26 Maclagan Crescent, Reservoir (refer detail from Land Victoria, plan below).

The part of the covenant sought to be varied vary provides as follows.

(c)           no shops, laundries, factories or works shall be erected on this Lot and not more than one dwelling house shall be erected on any one Lot and the cost of constructing each house shall not be less than Four Hundred Pounds (inclusive of all architect’s fees and the cost of erecting any outbuildings and fences). [emphasis added]

The variation sought to replace the words “one dwelling house” with the words “three dwellings” thereby enabling the application to be made to redevelop the land for three units or dwellings.

There were five objectors, three of which were beneficiaries, all of whom lived 100m away from the burdened land.

The Council had refused the application on the grounds that:

The proposed variation to the Covenant … to allow not more than three dwellings to be constructed on the lot will result in detriment to beneficiaries and is therefore contrary to Section 60(5) of the Planning and Environment Act 1987.

60(5) of the Act provides:

(5)          The responsible authority must not grant a permit which allows the removal or variation of a restriction referred to in subsection (4) unless it is satisfied that –

(a)          the owner of any land benefitted by the restriction (other than a owner who, before or after the making of the application for the permit but not more than three months before its making, has consented in writing to the grant of a permit) will be unlikely to suffer any detriment of any kind (including any perceived detriment) as a consequence of the removal or variation of the restriction; and

(b)          if that owner has objected to the grant of the permit, the objection is vexatious or not made in good faith.

The Tribunal quoted from the second reading speech of the Planning and Environment (Amendment) Act 1993 (Vic) that inserted section 60(5) into the Act. This speech coined the term “deadwood” covenants or covenants without a continuing purpose:

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.

After quoting from Carabott and Ors v Hume City Council (1998) 22 AATR 261 that considered the effect of s60(5) of the Act in some detail, the Tribunal raised a particular flaw with the proposal before it—the absence of plans:

17           Unlike many applications for a variation of a restrictive covenant the present applicant has not concurrently sought approval for any particular form of development. This makes it difficult for the responsible authority to be satisfied as required by paragraph (a) because it must consider all possible forms of three unit multi-dwelling development and conclude that it is unlikely that any of them would cause detriment to a benefitting owner.

The Tribunal found in the absence of a firm development proposal there were an infinite number of three unit or three dwelling developments that could take place in consequence of the variation of the covenant and that it could not be “positively satisfied of a negative, namely, that there is unlikely to be detriment of any kind”:

21           … In my view it is simply not possible to say that none of those developments would be likely to have a detrimental impact of some kind on the benefitting properties, particularly the adjoining units at 28 Maclagan Crescent. The application for permit therefore falls at the first hurdle.

This case therefore underscores the limited utility of applying to VCAT to modify or remove a covenant in the face of heartfelt opposition on the part of one or more beneficiaries. The absence of plans simply made the task more difficult.

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It is permissible to look outside the Register of Titles to properly understand the effect of a restrictive covenant

In a decision handed down in May 2013, the Supreme Court of Victoria confirmed that it is permissible to refer to materials outside the Register of Titles to properly understand the effect of a restrictive covenant.

In Suhr v Michelmore [2013] VSC 284 the Plaintiffs contended that the following covenant was void for uncertainty:

[W]ill not at any time hereafter erect any building of a greater height than twelve feet above the present level of the land hereby transferred and any such [building] shall not be erected within five feet of the southern boundary of the lastmentioned land. [Emphasis added]

All parties agreed that the words “the present level of the land” was a reference to the level of the land in 1937. However, the plaintiffs contended that this level could not be determined on the face of the covenant and could not permissibly be determined by reference to extrinsic evidence.

Pagone J rejected this argument, noting that the covenant clearly directed a reader to something outside the register:

11           The cases decided since Westfield Management Ltd v Perpetual Trustee Company Ltd[1] do not compel the conclusion propounded by the plaintiffs, namely, that the covenant must be void for uncertainty because the determination of the “present level” of the land as at 1937 would require reference to something outside of the Register. Plainly it would be void for uncertainty if its terms were “so vague that it [was] really impossible of apprehension or construction” such as might occur by the omission of any criteria by which the words in the restrictive covenant are to be ascertained. In Miller v Evans[2] Hall J took what might be called a narrow view of the impact of Westfield as limiting the construction of the restrictive covenant to what appears on the “face of the document” and not “to go beyond the text”. A statement to much the same effect may be seen in Ryan v Sutherland.[3] Neither case concerned a restrictive covenant where its terms, as revealed on the face of the Register, directed a searcher unambiguously to something outside the Register.

The Court also noted an important difference between easements and restrictive covenants namely that the former require registration for validity whereas the latter are required to be notified but the recording does not establish or effect validity:

14           A restriction in a covenant to be valid must of course, be capable of operation. However, that does not mean that all of the terms of a covenant must appear on the Register. It is important to bear in mind that the function of registration on title of a restrictive covenant is to give notice rather than to create validity.

In the circumstances, the covenant was capable of being properly construed and that it was therefore permissible for the covenant to refer a reader to extrinsic materials, in particular the condition of the land itself:

17           The covenant in this case, without regard to extrinsic evidence, itself unambiguously directs attention to the land for its operation. The covenant, as was in my view correctly conceded, was valid when first made in 1937, and is not shown by the plaintiffs to have become invalid because of any material change to the land since then. A visual inspection of the land revealed by the numerous present and historical photographs tendered in evidence showed that there had been no construction on the land since 1937 beyond such work as was required to surface or resurface the land for use as a tennis court. Such variation to the level of the land as may have occurred by its surfacing or resurfacing is in my view de minimis. In my view the covenant is not void for uncertainty and does not offend the principles in Westfield.

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] (2007) 233 CLR 528

[2] [2010] WASC 127

[3] [2011] NSWSC 1397, [10] (Black J)