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 Chief Executive Officer of the Law Institute of Victoria, 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.

Supreme Court confirms the elements of a valid covenant

In a somewhat unusual case, the Supreme Court has ordered that a planning permit be varied to allow for the removal of a restrictive covenant in an appeal from VCAT pursuant to s148 of the Victorian Civil and Administrative Tribunal Act 1998.

In a decision welcome for its clarity, in Beman Pty Ltd v Boroondara City Council [2017] VSC 207 Emerton J overturned a finding by a legal member of the Tribunal that notwithstanding that the covenant expressed the intention that it would ‘run with the land’, it was essentially unenforceable because it did not specify which land should take the benefit.

In doing so, the Court provided a useful overview of one of the most common means of setting a covenant aside:

17                    The Tribunal’s decision turned upon the construction of the Covenant.  The issue for the Tribunal was whether the Covenant contained a personal promise from Mr Greenshields to Kate Lynch and Robert Byrne, enforceable only by Ms Lynch and Mr Byrne, or whether it contained a promise intended to benefit land owned by them.

18                    A restrictive covenant only runs with land to burden a successor in title if the following three elements are met:

(a)        the covenant must be negative;

(b)       the burden of the covenant must be intended to run with the land; and

(c)        the covenant must be given for the benefit of land, not simply for the benefit of the covenantee, and the covenant must touch and concern that land.[1]

19                    The applicant submits that the third element is not met in this case, as it is not possible to identify land sought to be benefited.

20                    In Fitt v Luxury Developments Pty Ltd,[2] Gillard J considered the passing of a benefit under a covenant and the need for the benefit of the covenant to be annexed to some land.  His Honour said:

Whether or not the benefit of the covenant is annexed to some land is a question depending upon the common intention of the original parties to the covenant.  It is necessary to construe the words of the covenant in their natural and ordinary meaning to determine the intention of the parties and whether they intended that the covenant was to be annexed to some land and run with it.  In carrying out this exercise the court may take into account the surrounding circumstances objectively known to the parties at the time.[3]

21                    As to how precisely the land must be identified, his Honour said:

Often the land to be protected is fully and accurately defined in the terms of the restrictive covenant.  However sometimes the covenant is expressed in general terms and refers to an area by a particular name.  It is well established that extrinsic evidence is admissible to explain the context in which the words were used.

It is not essential that the land to which the covenant is annexed should be expressly identified in the words of the covenant …  It is sufficient if the words define the land so as to make it open and ‘easily ascertainable’.[4]

22                    In Clem Smith Nominees Pty Ltd v Farrelly,[5] Bray CJ in the Full Court of the Supreme Court of South Australia sounded a warning about the use of extrinsic evidence to identify land entitled to the benefit of a restrictive covenant.  The Chief Justice opined that:

under the Torrens system it is essential before the burden of a restrictive covenant can be held to run with the land that the land entitled to the benefit of the covenant shall be capable of identification in some way from the registered document containing the covenant or, at least, from other related documents which can be discovered by a search in the Land Titles Office.  A prospective purchaser of land subject to a burden should be able to find out by a search whether the covenant  is a covenant in gross, which will not be binding on him if he purchases, or a covenant the benefit of which is attached to some parcel or parcels of land, which may be binding on him.[6]

23                    In the Tribunal, the Grace Park Residents Association submitted that it was possible to identify the beneficiaries of the Covenant by reference to the residual land in the area owned by Kate Lynch and James Byrne that still formed part of their landholding at the time the Covenant was created in October 1909.  The Tribunal accepted this submission, holding that the fact that the land sold in 1909 was a smaller part of a much larger residual landholding provided ‘some degree of counter-balance to the fact that the Covenant does not expressly identify the benefiting land’ and that this made it ‘more straightforward’[7] to infer that the residual landholding as at the date of sale in 1909 would benefit from the Covenant.

24                    In my view, the Tribunal erred in law in holding that the benefiting land had been sufficiently identified by this means.

25                    It is necessary to carefully consider the words in the Covenant to ascertain whether the benefiting land is identified, either expressly or by necessary implication.  The difficulty with the Covenant is that it does neither, even if surrounding circumstances are taken into account.

26                The Covenant, pared back to its essentials, provided that Mr Greenshields covenanted with Kate Lynch and James Byrne and ‘their transferees’ that certain things would be done on the land that was being transferred to him (the building materials covenant).  It also provided that certain things would not be done on that land (the Mary Street covenant) but granted Mr Greenshields and his transferees permission to do certain other things.  It then expressly recorded the parties’ intention that the Covenant be set out as an encumbrance at the foot of the Certificate of Title for Mr Greenshields’ land and that it would run with that land.

27                In my view, the words in the Covenant make it clear that the parties intended to burden the land acquired by Mr Greenshields.  As a result, the Covenant satisfies the first two elements of a restrictive covenant identified above.  Furthermore, the parties intended at least the first part of the Covenant to benefit persons taking title from Kate Lynch and James Byrne — ‘their transferees’.  However, even with the express acknowledgement that the Covenant (or at least the building materials covenant) was intended to benefit the transferees of Kate Lynch and James Byrne, the third element of a restrictive covenant remains unmet because it is unclear who are the relevant ‘transferees’ of Kate Lynch and James Byrne and therefore what land is to benefit from the Covenant.  The transferees of Kate Lynch and James Byrne might be persons to whom land was transferred by Kate Lynch and James Byrne prior to the date of the Covenant or they might be transferees to whom land was transferred after the date of the Covenant.  Indeed, they might be both.

28                The Tribunal accepted the submission that the ‘transferees’ in question were the transferees of the residual land in the area owned by Kate Lynch and James Byrne that still formed part of their main landholding at the time the Covenant was created in October 1909.  That may have been a reasonable assumption, having regard to the likelihood that Kate Lynch and James Byrne would seek to protect the value of the land that they continued to hold and would have had less interest in the value of the land that they had already sold off.  However, there is no compelling reason to limit the intended beneficiaries of the Covenant in this particular way.  The words of the Covenant, construed in context, do not require any such a conclusion.

The take home message from this decision is that, once again, restrictive covenants are often of varying quality and effectiveness. Although it may have been the drafter’s intention that the covenant run with the land, the passage of time and the demands of the Torrens system mean that the Courts are no longer prepared to enforce its terms.

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/

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].

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 importance of choosing the right planner in a covenant modification application

Once again, we’ve seen the importance of choosing an appropriately experienced town planner when applying to the Supreme Court for the modification of a restrictive covenant.

In Re: Morrison, the Plaintiff selected a town planner that hadn’t been involved in a contested covenant case before and the report in support of the application read like a report for a permit application under the Planning and Environment Act 1987.

In handing down his judgement, Associate Justice Derham dismissed this approach: “Looking at the expert reports, it is clear that Mr Chapman had a primary focus on planning considerations, considering his emphasis on restrictive covenants generally being an out-moded form of controlling development that had been largely rendered redundant by the introduction of planning schemes.”

In other words, the planner was downplaying or dismissing the need for restrictive covenants on the basis that any amenity impacts could be adequately protected by the planning scheme.

Unsurprisingly, this wasn’t accepted by the Court: “Ultimately, the planning process is a separate process with different objectives and considerations to be taken into account. As pointed out by the defendants, restrictive covenants are given explicit priority over the planning process in s 61(4) of the Planning and Environment Act 1987 (Vic). On the basis of these authorities, I do not consider that the amenity concerns of the defendants can be appropriately met through application of the planning scheme.”

Plaintiffs sometimes succeed in using town planners with little or no covenant experience in non-contested cases, but this strategy is soon exposed once put to their proof by a well-advised defendant. The better strategy for applicants is to chose the correct town planner from the start of the process and to craft the application with suitable precision.

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

AsJ Lansdowne discourages planning experts from relying on Stanhill v Jackson [2005] VSC 169

In the course of argument in the matter of Gardencity Altona Pty Ltd v Grech & Ors SCI 2012 05752, a case concerning an application to remove or modify a “brick and stone” restrictive covenant, AJ Lansdowne suggested that planning consultants might wish to think twice before relying on the Stanhill v Jackson [2005] VSC 169.

MR TOWNSEND: … the point remains that he relied on re Stanhill to form the basis for his report.

HER HONOUR: Yes.

MR TOWNSEND: And it’s now a discredited decision.

HER HONOUR: Yes. Not of course the only expert in this jurisdiction to that – – –

MR TOWNSEND: No, no. I – absolutely. People – – –

HER HONOUR: And perhaps the message should be broadcast more broadly.

MR TOWNSEND: Yes. … people still think wistfully of Stanhill – – –

HER HONOUR: Yes.

For a more recent interpretation of what constitutes “substantial injury” in s84(1)(c) of the Property Law Act 1958, see Freilich v Wharton [2013] VSC 533 (22 October 2013), per Bell J.

Supreme Court keeps “substantial injury” applications alive

While Justice Bell in Freilich v Wharton [2013] VSC 533 appeared to close the door firmly shut on applications to modify covenants in reliance on section 84(1)(c) of the Property Law Act 1958, the so-called “substantial injury” test; Associate Justice Derham has pushed it back slightly ajar in Wong v McConville and Others [2014] VSC 148, albeit on a basis not expressly considered by Justice Bell.

Wong concerned an application to modify a single dwelling covenant on Pascoe Vale Road, in Strathmore, to allow the construction of two dwellings.

Relying on the precedent created in Hermez v Karahan [2012] VSC 443, the Plaintiff in Wong tabled concept plans that showed the sort of development contemplated should the court agree to allow the modification.

Associate Justice Derham placed weight on the near equivalent amenity impacts that a single dwelling would create, should the present application fail:

67 In relation to the concerns that Mr Zhang has regarding potential overlooking and overshadowing of his backyard, I observe that they are minor matters having regard to the surrounds and other aspects that I have pointed to above, and:
(a) These are matters that will and should be addressed in the planning process; and
(b) It is as likely as not that, given the nature and pattern of residential development in the neighbourhood, these concerns will arise with the construction of a single dwelling on the Land, especially if it were a double-storey dwelling with a substantial footprint.

On this basis, he allowed the modification to the covenant.

Although this decision should give hope to landowners keen to subdivide their land, but presently constrained by a single dwelling covenant, there were locational factors present in Wong, that might not be present in other cases. In particular, the land was at the periphery of the subdivision subject to the covenant; had direct access to an arterial road; and was in close proximity to a freeway overpass.

What the case does highlight, however, is the continuing relevance of planning controls in cases to modify covenants purusuant to the Property Law Act 1958–not so much for reasons of public policy, but for predicting what form a development may ultimately take.