Is the Court still processing s84 applications?

For the time being, it is business as usual with the Supreme Court, insofar as the judges and their associates are still processing s84 applications, typically on the papers.

This may change at any time, with the imminent introduction of stage 2 of the COVID-19 shutdown in Victoria.

We are yet to know how trials are going to be processed, but there is a commitment amongst the legal and related professional communities to continue operating in a manner where those operations are consonant with sound public health outcomes.

Trials may well proceed either by way of video conferencing or subject to social distancing protocols such as having a limited number of people in the Court room at any one time.

I’ll update with further developments as they become known.

Changes to Supreme Court practice

Quite a few changes are now underway in Lonsdale Street, triggered in part by the retirement of Derham AsJ and the never-ending number of applications to vary covenants pursuant to section 84 of the Property Law Act 1958. Amongst these changes is the appointment of Judicial Registrars to hear first returns to determine the extent of notice to beneficiaries and the welcome return of Efthim AsJ to hear restrictive covenant and other cases in Court 2.

The focus of the Court seems to be on clearing a backlog of unpublished decisions and otherwise improving the speed with which with covenant cases are resolved. While these steps are good for the efficient conduct of the business of the court, the faster pace of hearings also places a greater obligation on practitioners to ensure that draft orders and submissions are forwarded to the judge’s associate a clear day or two in advance of the hearing, and with even greater attention to detail. The court appears to be particularly grateful for short written submissions to accompany applications on their first return.

The retirement of Derham AsJ is the end of an era for the restrictive covenant jurisdiction. His Honour presided over a veritable renaissance of restrictive covenant modifications that arguably began with Morris J’s analysis of what amounts to “substantial injury” in Stanhill v Jackson [2005] VSC 169 and his Honour’s summary of how to construe a restrictive covenant in Clare v Bedelis [2016] VSC 381 has likely been cited in every contested s84 application since its publication.

A new set of guidelines for practitioners is also believed to be awaiting finalisation that may lead to further efficiencies in procedure.

Supreme Court accepts a rooming house is a legitimate ‘comparator’ when modifying a single dwelling covenant

In April 2019, in Re: EAPE (Holdings) Pty Ltd [2019] VSC 242, the Supreme Court found that when advancing a case for the modification of a single dwelling covenant, it is legitimate to say that the proposal for modification should be compared against a rooming house–an as-of-right land use arguably providing accommodation to the lowest end of the rental market.

This is potentially significant, because until this time, the comparator typically used in argument before the Court is a large single dwelling that would not need planning permission. In other words, applicants often argue:

– I can build this large house without modifying the covenant;

– given that my proposal for two or more dwellings is lower in impact than a large house, I should be allowed to modify the covenant for there is, relatively speaking, no substantial injury to beneficiaries by the covenant being so modified.

Now, applicants before the Court can legitimately invite the court to compare the proposed modification with the impact that beneficiaries might experience if the land was instead developed and used as a rooming house, with the increased activity, noise and parking impacts that routinely accompany such uses.

In EAPE the Court placed considerable emphasis on the plaintiff’s apparently genuine intentions to pursue the rooming house option in the event the modification was not granted, but one can imagine judges in future cases simply being convinced that a rooming house was a reasonably likely outcome of its refusal to modify a covenant: see Prowse v Johnston [2012] VSC 4 at 120.

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.

A guide to mediating a restrictive covenant dispute

At the second return of an application for the modification of a restrictive covenant (usually, the first hearing after notification to beneficiaries), the judge may ask whether you wish to set the matter down for mediation.

If one or both parties agree, the judge may add the following words into the draft orders:

– The proceeding be referred to a mediator to be agreed between the parties or in default of agreement to be appointed by the Court, such mediation is to take place by [date].
The mediation must be attended by those persons who have the ultimate responsibility for deciding whether to settle the dispute and the terms of any settlement and the lawyers who have ultimate responsibility to advise the parties in relation to the dispute and its settlement.
Subject to the terms of this order, the solicitor for the plaintiff must, after consultation with all parties, deliver to the mediator a copy of this order and copy of any other relevant information, and take all steps necessary to ensure that the mediation commences as soon as practicable.
The mediator not later than 3 days after conclusion of the mediation, report back to the Court as to whether the mediation is finished.
Subject to any further order, the costs of the mediation shall be paid in the first instance by the plaintiff.

For plaintiffs, the benefit of mediating is the prospect of an almost certain outcome in litigation that they are likely to end up financing. It also perhaps comes as the unwelcome news arrives that the case is going to be contested.

For defendants, it may also mean that an acceptable outcome may be achieved, without the expense and inconvenience of having to prepare for a contested hearing.

For both parties, mediation permits creative settlement opportunities that might not be possible in an otherwise binary decision making process. For instance, in Rosenwald v Hogg, Macaulay J observed:

This is a classic example of a case where the parties may well have been able to achieve a ‘compromise’ result, by negotiation and agreement,  which the court simply could not give them.  That opportunity was given to the parties at the commencement of this case when I pointed out the finely balanced difference between them having regard to their respective experts’ opinions.

One example may be the articulation of building envelopes as occurred in this case.

Another example might be the drafting of a side agreement, for instance, in relation to the retention of protection of vegetation during the development process. Bear in mind, however, that side agreements may be personal and of little use if the relevant land is subsequently sold. Covenants, of course, mostly run with the land.

A mediation will usually take only half a day. They normally commence with the mediator explaining that what is said in the mediation is ‘without prejudice’–that is, it cannot be referred to in open Court. And then the parties may take a few minutes each setting out what they hope to achieve from the mediation. The mediator may then take the parties aside to ‘caucus’ or endeavour to ascertain the underlying objectives of importance to each party. Identifying these underlying issues is likely to assist in achieving an outcome that is acceptable for everyone.

The choice of the mediator is important. Someone who has experience in the jurisdiction is more likely to be able to fairly and accurately assess the likely range of outcomes at a contested hearing. Three names include:

A mediator is not there to provide legal advice to act as a party’s advocate. That said, there may be some practical benefit in having a neutral third party explaining the process in objective terms. For unrepresented parties, and for those quite unfamiliar with the process of modifying a restrictive covenant, this may be of particular assistance.

For applicants, it is important to remember that simply because you have a mediated agreement doesn’t mean the Court will necessarily accept that agreement by modifying the covenant in the manner agreed. You may still need to convince a judge that you have established an absence of substantial injury on the totality of beneficiaries, and that there are no other reasons why the judge should exercise his or her residual discretion against the modification proposed. However, a mediated outcome, in most cases, will certainly assist in proving to the Court an absence of substantial injury and one might suggest that it’s still better to fail here, than after the expense of a contested hearing.

How to choose a lawyer to run your restrictive covenant case

Choosing a lawyer to run your application to either modify or remove a restrictive covenant, or to defend such an application, can have considerable bearing on both the substantive outcome of the proceedings and, of course, costs.

In this sub-specialty of property law, only a relatively small number of law firms have had much recent experience, particularly in contested applications.

Getting your choice of lawyer wrong can mean up to twelve months lost by pursuing the wrong type of application or perhaps losing an opportunity to recover a proportion of your costs.

The best means of choosing the right solicitor (or barrister) is to look through recent published cases to see: who has been acting for who, where the relevant land was located; and in which jurisdiction the case was run.

The following search from the independent Australian Legal Information Institute lists all Victorian cases (Supreme Court proceedings, VCAT hearings and panel hearings) using the search phrase “restrictive covenant”:

http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=phrase&query=restrictive+covenant&meta=%2Fau&mask_path=au%2Fcases%2Fvic

The following is a similar search narrowed to Supreme Court proceedings:

http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=phrase&query=restrictive+covenant&meta=%2Fau&mask_path=au%2Fcases%2Fvic%2FVSC

And the following is a similar search narrowed to VCAT proceedings:

http://www.austlii.edu.au/cgi-bin/sinosrch.cgi?method=phrase&query=restrictive+covenant&meta=%2Fau&mask_path=au%2Fcases%2Fvic%2FVCAT

However, be careful about making predetermined judgements about which jurisdiction in which to commence your application. The decision to pursue an application under the Planning and Environment Act 1987 vis a vis the Property Law Act 1958 may prove to be of considerable importance and you should be confident your lawyer is familiar with the advantages and disadvantages of both avenues.

Dealing with deregistered companies referred to in restrictive covenants

Restrictive covenants in Victoria often give development discretion to companies that have long been deregistered. A good example is the series of covenants affecting the area around Altona that may provide:

… nor will I or my heirs executors administrators or transferees use any material other than brick and/or stone for the main walls of any such shop or dwelling house without the consent in writing of the said Altona Beach Estates Limited

Altona Beach Estates Limited, the original developer of the land, has long ceased to exist.

A question is then raised: how will the Australian Securities & Investments Commission (ASIC) exercise its discretion if it is called upon to act in the capacity of the deregistered company pursuant to section 601AE(2) of the Corporations Act 2001?

Helpfully, ASIC has produced a practice note of sorts to explain its policy in relation to such requests.

This policy states that ASIC may consider applications for consent under an encumbrance (e.g. plans of subdivision where there is no specific prohibition to subdivision in the encumbrance; construction of a fence within the restrictions/conditions of the encumbrance) and may consider applications to discharge expired encumbrances. However, ASIC will not otherwise vary the restrictions/conditions of an encumbrance or discharge a current encumbrance.

It is not then, as some might have you believe, a fait accomplis that the discretion will be exercised in the applicant’s favour.

The policy can be found here: http://asic.gov.au/for-business/closing-your-company/effects-of-deregistration/property-of-deregistered-companies/there-is-an-encumbrance-also-known-as-a-covenant-or-restrictive-covenant-over-my-property-in-favour-of-a-deregistered-company/

Objecting to an application to modify or discharge a restrictive covenant

If you own land with the benefit of a restrictive covenant, you may receive a letter by mail or see a sign on land giving notice of an application to modify or discharge it pursuant to s84 of the Property Law Act 1958.

If you wish to contest this application you may wish to:

  • write an objection; and/or
  • appear in court to support that objection.

The first step is to ascertain whether you have the benefit of the covenant. Because covenants are essentially contracts that run with the land, the law generally says that if you are not party to a contract you have no standing to enforce it.

If you have received written notice of the application, the chances are that your land has been identified as having the benefit of the covenant. If you have simply seen the sign on the land and live nearby, someone may have formed the view that your land either does not have the benefit of the covenant or that the modification or removal will not affect you. Or it may mean that the address for correspondence on your land title is out of date. This is surprisingly common.

If you are unsure whether your land has the benefit of a covenant, the cheapest and quickest option is to contact an experienced title searcher such as Dinah Newell from Feigl & Newell on (03) 9629-3011 or info@feiglnewell.com.au This is a specialised task and it is risky to leave it to someone who hasn’t done it before.

Once you have established a benefit, the question might then be what to write in your objection. Two decisions of the Victorian Supreme Court provide some guidance. The first is Prowse v Johnston in which Justice Cavanough listed the concerns of residents that he accepted were reasons a single dwelling covenant was not obsolete:

108 The objections of the defendants are set out in the various affidavits sworn by them. They are summarised in their written outline of submissions as follows:

(a) Loss of character of the residential estate being an estate with large single dwelling family homes and substantial gardens;

(b) Loss of privacy and overlooking into neighbouring private outdoor living areas and gardens;

(c) Bulk and dominance of proposed building particularly when viewed from adjoining residences and property;

(d) Loss of large, spacious Edwardian family home on the burdened land and surrounding mature trees and established garden;

(e) Loss of family neighbourhood with front and rear garden;

(f) Loss of spaciousness, beauty and privacy;

(g) Construction of a three-storey building with basement car parking over virtually the entire site in conflict with the prevalent single dwelling residential character of the area;

(h) Additional noise, traffic, parking and access issues associated with 18 units and 33 [actually 36] basement car spaces;

(i) This is the “thin end of the wedge” and the precedent effect of the removal of a covenant for the construction of a large unit development would be very significant;

(j) The character of the Coonil Estate has been maintained for over 90 years and should be preserved;

(k) Much of the Coonil Estate is a recognised heritage overlay area which should be preserved;

(l) The proposed development will be an isolated “eye sore” in stark contrast to the many period and heritage homes surrounding the burdened land; and

(m) The plaintiff’s land was purchased as part of the Coonil Estate, and has benefited from the reciprocal covenants given by others.

109 I accept that these are all admissible objections, though some are stronger than others. They are relevant to show that the covenant is not obsolete. They are also relevant for other purposes, to which I will come. The covenant is not obsolete. The purposes of the covenant are still being achieved throughout the Estate and on the burdened land, with a contribution in that respect from the covenant on the burdened land.

In the more recent decision of Oostemeyer v Powell Justice Riordan set out in paragraphs [36] to [45] the evidence he relied upon to reject an application to modify a covenant made pursuant to s84(1)(c) of the Property Law Act 1958 the so-called “substantial injury” test.

Once you have registered your opposition to the application to modify or remove the covenant you may be required to appear in the Supreme Court to support your objection. That is not to say the court will not consider your objection if you don’t appear. The Court generally reads every objection closely. However, in the standard form notice in the Court’s Guide for practitioners, the court makes it clear that “Written objections without an attendance may not be considered.”

Once at court, the Judge in charge of the list will set the matter down for a contested hearing.

It’s a matter of judgement at what point you wish to get a solicitor and/or barrister involved, if at all. Oostemeyer v Powell (above) demonstrates that unrepresented residents can succeed in fending off an attack on a covenant. However, it is relatively rare that objectors represent themselves in a contested hearing, partly because of the complexity of the proceedings and the time involved; and partly because objectors are typically reimbursed most of their costs, even if they are unsuccessful, in accordance with the principle in Re Withers.

The Supreme Court published information for objectors in December 2017.

Download a .pdf of this note.

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.

 

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

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