Precedents

Precedents for restrictive covenant applications in the Supreme Court of Victoria

The importance of costs in restrictive covenant applications

Posted by

Section 24 of the Supreme Court Act 1986 (Vic) specifies that costs are in the discretion of the Court:

Costs to be in the discretion of Court

(1)     Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid. [1] …

This discretion in relation to costs is absolute and unfettered to ensure substantial justice is achieved between the parties:

3       … the court has an absolute and unfettered discretion in relation to costs, and may, in appropriate circumstances, examine the realities of the litigation and attempt to achieve on the matter of costs substantial justice as between the parties.[2]

Despite this discretion, there is a settled practice that costs follow the event, and a successful litigant should receive their costs absent disqualifying conduct:

Although costs are in the discretion of the Court, there is a settled practice (sometimes called a general rule) that in the absence of good reason to the contrary a successful litigant should receive his or her costs. It is not, however, a legal rule devised to control the exercise of the discretion.[3]

This discretion is modified in certain applications pursuant to section 84 of the Property Law Act 1958 (Vic) to the effect that:

… unless the objections taken are frivolous, an objector should not have to bear the burden of his own costs when all he has been doing is seeking to maintain the continuance of a privilege which by law is his.

This principle from Re: Withers[4]was applied by Morris J in Stanhill Pty Ltd v Jackson[5]who noted:

The principle set out in Re Withers is consistent with other decisions of the Court, such as that by Gillard J in Re Markin, Lush J in Re Shelford Church of England Girls’ Grammar School andMcGarvie J in Re Ulman. In my opinion, it is a sound principle.

However, his Honour sounded a note of caution that objector defendants should not see the reimbursement of costs as an entitlement:

It is also relevant that the defendants conducted the proceeding responsibly. If a defendant, resisting an application to modify a covenant, acts irresponsibly then it would not be entitled to costs in relation to that irresponsible conduct; indeed, it might be in a position where it would have to pay the plaintiff’s costs.[6]

Indeed, in Re Jeffkins Indenture,[7] the court suggested that defendants in applications for declarations in relation to restrictive covenants ought not expect a full indemnity on costs:

I would add, on the question of costs, that a plaintiff seeking a declaration that restrictive covenants do not affect his property is expected to pay his own costs. He is also expected to pay the costs of any defendants who enter an appearance down to the point in the proceedings at which they have had a full opportunity of considering the matter and deciding whether or not to oppose the application. Any defendant who then decides to continue, and appears unsuccessfully before the judge, does so at his own risk as to his own costs at that stage. Such defendant would not, however, be ordered to pay the plaintiff’s costs.

The Victorian Law Reform Commission adopted a somewhat similar recommendation in its report on Easements and Covenants:

45.    In an application under section 84 of the Property Law Act 1958 (Vic), the court or VCAT should apply the following principles to the award of costs:

a.       Where the application is unsuccessful, the applicant should normally pay the costs of any respondent entitled to the benefit of the easement or restriction.

b.      Where the application is successful, the applicant should normally pay the costs of the respondent incurred prior to the point in time at which, in the opinion of the court or of VCAT, the respondent has had a full opportunity to assess the merits of the application. The respondent should normally bear his or her own costs incurred after that point, but not the costs of the successful applicant.

By reason of the above, a well-advised plaintiff should look for opportunities to make Calderbank offers[8] and/or Offers of Compromise to improve their position in the future when it comes to discussing the issue of costs.

Calderbanks were unsuccessful in Wong v McConville[9] where the Court found that it was not unreasonable for the defendants to have rejected multiple offers to compromise.

Similarly, in Lahanis v Livesay & Ors (Costs) [2021] VSC 65 Derham AsJ found that in an application to modify a single dwelling covenant to allow two dwellings, there was insufficient difference between the offer to compromise and capitulation:

51     In this case, the factors that make up a so called ‘genuine offer’ have been separately considered, including whether the offer involved a real element of compromise. These matters include the timing of the offer, content and terms of the offer, its clarity, the explanation given for it, what was known or not known to the offeree at that time and the offerees’ prospects of success. What is left for consideration in order to determine whether the offer was a ‘genuine compromise’, in the sense of a real compromise, is whether it had an element of compromise or whether in truth it required the defendants to capitulate. In my view, it essentially required the defendants to capitulate.

52     In conclusion, it is in my view incorrect to say, as the plaintiff submitted, that the real cause of the litigation from the time of the expiry of the Calderbank offer was the defendants’ refusal to accept the offer and not the defendants’ legitimate action in defence of the Covenant. The defendants were entitled to put their views before the court and justified in opposing the application, so that the costs incurred by them ‘were a necessarily incident to such an application’. In my view, it is only right and proper that the plaintiff should pay all the defendants’ costs incurred by reason of the application on the standard basis.

That said, Calderbanks have been successfully applied by defendants in Michelmore v Suhr[10], and Manderson v Smith.[11] In the latter case, Efthim AsJ held that an offer of compromise should have been accepted and directed the Plaintiff to pay indemnity costs:

21     In my view, indemnity costs should be awarded to the defendants from the date of the first offer of compromise. The plaintiff commenced the proceedings knowing that he had a fence on his own property encroached the boundary line by a much greater distance than the defendants’ fence and knowing that all other residents had fences. He should also have known that the defendants’ fence was at best only six centimetres over the boundary line.

22     The first offer of compromise should have been accepted and, in my view, it was unreasonable that it was not. The defendants have come to the Court with clean hands, they obtained a permit from the local council to erect the fence. It is clear from the evidence of Ms Smith that the defendants were concerned about the native flora. They were put to a great deal of expense in defending this claim which they should never have had to do.

As a matter of practicality, however, while most cost disputes are resolved by negotiation, Calderbanks and offers of compromise can still have an outsized impact on this process, simply because of their potential impact should they be upheld by the Court.

Moreover, objectors’ costs are typically low until after the second return of the application, meaning a plaintiff can commence a section 84 application with a fair degree of confidence about how much the process will cost.

It is not until the number and extent of defendants becomes known that the implications of a Re Withers’ costs ruling starts to emerge.

None of this is to say that a defendant can take an order for costs for granted:

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

These examples of costs orders against defendants should not dissuade beneficiaries from acting in good faith to protect their property rights and from subsequently seeking reimbursement for the reasonable costs in doing so, but defendants must remember that they too, are bound by the following overarching obligations in the Civil Procedure Act 2010:

20     Overarching obligation to cooperate in the conduct of civil proceeding

A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.

22     Overarching obligation to use reasonable endeavours to resolve dispute

A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless—

         (a)           it is not in the interests of justice to do so; or

23     Overarching obligation to narrow the issues in dispute

If a person to whom the overarching obligations apply cannot resolve a dispute wholly by agreement, the person must use reasonable endeavours to—

(a)     resolve by agreement any issues in dispute which can be resolved in that way; and

(b)     narrow the scope of the remaining issues in dispute—

unless—

(c)     it is not in the interests of justice to do so; or

(d)     the dispute is of such a nature that only judicial determination is appropriate.

24     Overarching obligation to ensure costs are reasonable and proportionate

A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—

(a)           the complexity or importance of the issues in dispute; and

(b)           the amount in dispute.

25     Overarching obligation to minimise delay

For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to—

(a)     act promptly; and

(b)     minimise delay.

[1]              Supreme Court Act 1986 (Vic) s 24.

[2]              Manderson v Wright (Costs) [2018] VSC 177, [3] (John Dixon J).

[3]              BCA Asset Management Group Pty Ltd v Sand Solutions (Vic) Pty Ltd [2021] VSC 177, [11].

[4]              Re Withers [1970] VR 319.

[5]              Stanhill Pty Ltd v Jackson [2005] VSC 169.

[6]              Ibid, [6].

[7]              [1965] 1 WLR 375

[8]              See Calderbank v Calderbank [1975] 3 All ER 333.

[9]              [2014] VSC 282

[10]             [2013] VSC 284

[11]             Unreported, S ECI 2020 03378, 24 August 2021

[12]             [1970] VR 319

Supreme Court modifies Urban Land Authority covenant

Posted by

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.

Case database relevant to restrictive covenant advice and litigation

Posted by

1

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

Supreme Court issues “Guide to Practitioners” appearing in covenant cases

Posted by

The Supreme Court has prepared a Guide to Practitioners for lawyers preparing appearing in applications to modify or discharge a restrictive covenant pursuant to s84 of the Property Law Act 1958.

It provides a useful checklist for the preparation of evidence and includes three helpful precedents that reveal how the Court would like draft orders to be prepared.

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

 

A step by step guide to modifying a restrictive covenant under the Property Law Act 1958 with precedents

Posted by

1

Originating motion in support of an application to modify or remove a restrictive covenant

If you are yet to decide which process to follow to modify or remove a restrictive covenant, you should read this article first. If you have already elected to pursue the Property Law Act 1958 or Supreme Court process, then the following discussion is an overview, along with some precedents you may wish to use. These are updated regularly.

To begin, when applying to remove or modify a covenant in the Supreme Court, an Originating Motion will need to be prepared, setting out the relief sought. Most applications will only need a simple Originating Motion such as this, this, this or this. More complex examples that incorporate applications for declarations can be found here, here, here and here.

In determining how to phrase the modification sought, you should seek the minimum change necessary to achieve your objectives. That is, if you are after a dual occupancy, seek to replace ‘one dwelling’ with ‘two dwellings’ or draft a variation to allow a particular form of development. Although a practice has been to vary covenants with the addition of the following words “… but this covenant will not prohibit the construction of any development generally in accordance with the development described in the plans prepared by ABC Architects dated 1 July 2016 numbered A00 to A30”, this technique known as the ‘proviso’ has recently fallen out of favour with the Court because it means attaching plans to an instrument of transfer that may sit in the Office of Titles for decades to come. For this reason, orders that incorporate a simple building envelope are preferred. The broader point, however, is that if you ask for removal of the covenant and you don’t actually need it, you may attract unwarranted opposition. Moreover, the Court is increasingly unwilling to allow the complete removal of anything but obsolete covenants.

No summons is required at this time given that the first hearing will ordinarily be ex parte.

While the schedules of parties may have been removed from the attached examples, such a schedule is ordinarily not added until after the first return of the application, for the identity of the Defendants is not likely to be known until that time.

Overarching Obligations Certification and Proper Basis Certification should also be provided.

The Court will also want an application form completed.

A helpful Guide for Practitioners has also been prepared by the Supreme Court. This provides a checklist for applications and some draft precedents. This version was updated by the Court in December 2016, but to be prudent, download the latest version from the Supreme Court website. As at March 2018, it is understood that a review is presently underway.

Affidavit in support of and in opposition to an application to remove a single dwelling covenant

Current practice is to include an affidavit from the Plaintiff setting out the intended use and development for the property. If the land is to be sold, that should be disclosed and the Court given a realistic understanding as to how the land might be used or developed. An example of a Plaintiff’s affidavit can be found here. Traditionally, solicitors would give this information to the Court on instructions, but the emerging best practice is to hear from the applicant directly.

The Court will also want to know whether there has been previous applications to modify or remove a restrictive covenant on the land.

If the land is under contract, full details of that should be out too. Indeed, there is an argument to suggest that the application should be made under the name of the owner, even if the land is under contract.

The objective is to provide the Court with reliable information about the covenant; its purpose; the identification of land with the benefit of the covenant; and any relevant circumstances surrounding the application. Ensure you have an up-to-date certificate of title for the land and that the application is made on behalf of that party or those parties.

If relying on a map showing the location of beneficiaries, ensure the map is clear and legible and accurately reflects the location of beneficiaries.

The quickest and most cost-effective means of establishing who has the benefit and the burden of the relevant covenant is to call a professional title searching service such as Feigl and Newell on (03) 9629 3011. Dinah Newell should be able to provide you with a colour-coded cadastral plan such as this. However, you should double-check any advice you receive to identify transcription or other errors. Mistakes made at this point of the process can be expensive to fix later on.

Evidence in support and in opposition to the modification of a covenant

Once you have the above information, you can provide it to a town planner for the preparation of a planning report. Two further examples can be found here and here. This version was in support of an application to modify a covenant restricting the height of a dwelling and was praised by the Court for its clarity.

A letter instructing a town planner in a s84 application can be found here. If you want the names of planners to prepare evidence in support of (or against) an application to modify or remove a covenant, find someone who has given evidence in a contested s84 application. You can look through Supreme Court cases in relation to restrictive covenants here. Unfortunately, all too often, planners approach the task as if it were a common or garden planning application in VCAT relying on principles of public policy rather than analysing impacts on proprietary rights. This evidence will almost certainly be useless. Just as importantly, a ‘cheap’ planning report may end up becoming expensive once it becomes clear how much additional work it will create for the lawyers to fix it up. Applicants are reminded that the Supreme Court is not the Victorian Civil and Administrative Tribunal where the tribunal member can patch up evidentiary gaps with their own knowledge and experience. In the Court, judges are confined to the evidence and if your planner does not adequately address the merits of the application in his or her written evidence, at trial, any significant omissions can be fatal.

A planning report should include photographs of the neighbourhood so the Court can gain a clear understanding of the context in which the application is being made.

It should also identify land within the parent title that has been varied since the time of the original subdivision, whether this is by order of the Court, planning permission or simply a breach that has gone unchallenged. Evidence demonstrating how that change has occurred, should be annexed to the planning report when available. Often this will be the pivotal evidence in the hearing and it must be done with precision.

Applicants are sometimes keen to lodge the application without planning evidence to save costs or time, but this risks the application being dismissed for being improperly supported. Any planning evidence should be before the Court at or before the first return of the application.

In some cases, lay evidence may be sufficient, at least in opposition to a modification or removal application. For instance, in Gardencity v Grech, the defendants were successful despite the absence of any expert evidence, for the Court found the plaintiff had failed to prove the absence of substantial injury. Evidence from the defendants in that case can be found here, here and here. An example of an expert report in support of an application to oppose a modification can be found here.

For a separate discussion about what to include in an objection, look here.

The first return of the application

At the first hearing of an application, which is usually done ex parte, the Court is likely to make further orders, similar to the following for a sign to be placed on the land and for direct notice to be given to the closest beneficiaries. This raises a tactical question for applicants for it may be prudent to suggest to the Court that all beneficiaries be notified directly rather risk attracting the attention of non-beneficiaries via a sign on the land.

On the other hand, the Court has been known to be content with simply a sign on the land and no direct notification if there are no nearby beneficiaries.

The Court now also directs applicants to notify the beneficiary at the address indicated on title and at the street address, if different.

As always, practitioners should attend the Court with draft orders, preferably forwarded to the Court a few days beforehand. The Court is now directing the attachment of Information for Objectors to the draft orders. An example can be found here.

The normal standards expected of practitioners in ex parte applications apply, and you should disclose to the Court any necessary countervailing facts even if they are not helpful to your case. For instance, if your client is running a simultaneous application to modify a covenant elsewhere (which isn’t a good idea), the Court will want to know about it.

The second return–if the application is opposed

Once advertising has been carried out, an affidavit should be prepared that describes the process undertaken, the nature of responses received and whether any beneficiaries objected. This is a short example and a more comprehensive example. Leave sufficient time to complete this as it may be time consuming.

A sample letter sent should be included in the affidavit–not a copy of each letter sent.

In answering queries from third parties, including beneficiaries, avoid giving advice about who has the benefit of the covenant. Inquirers need to make their own investigations about their entitlement to participate in the proceedings and the answer is not always clear. Record details of all phone calls and emails as a summary should also be included in the affidavit of compliance.

The Court may then make orders providing for the further provision of evidence and the listing of the matter for hearing. Two examples can be found here and here. The schedule of parties may have been removed.

Increasingly, covenant cases are being set down for mediation.

The second return–if the application is not opposed

If no person seeks to become a Defendant, draft orders should be provided to the Court along with an affidavit to that effect (see examples above). Try to get the papers to the court three or four days in advance of the directions hearing so that the judge has time to read them before the hearing. An example can be found here.

Significantly, you may find that despite the absence of any defendants, you may still need to make out your argument for modification on the basis of the evidence provided. For instance, in Re Jensen, and Re: Morihovitis the Court refused relief despite the absence of any objectors.

A written outline of argument setting out why the variation or removal of the covenant should be provided to the Court, preferably in advance of the hearing. Two examples can be found here and here.

Submissions in support and in opposition to application to modify a single dwelling covenant

If the matter runs to a contested hearing, you will need to prepare a more comprehensive outline of argument. Submissions in support of a modification application can be found here: from Wong v McConville (opening); Wong (closing) and Re: Milbex. Submissions in opposition to a modification application can be found here from Re Pivotel; Suhr v Michelmore; and Prowse v Johnstone; and Re: Morrison.

To improve your client’s costs position in the litigation, a Calderbank letter or offer of compromise may be appropriate to disturb the defendants’ presumption that their costs will be reimbursed by the Plaintiff at the conclusion of the proceedings, irrespective of the outcome. A Calderbank letter needs to be drafted with precision and according to established principles if it is to be effective. Examples can be provided upon request.

Needless to say, all applications are different and great care should be taken to ensure that the relevant matters are placed before the Court.
townsend@vicbar.com.au 
Liability limited by a scheme approved under Professional Standards Legislation.