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A defendant’s costs are not an entitlement in section 84 applications

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In ROJ Property & Ors v Eventpower Property [2023] VSC 268, Derham AsJ comprehensively reviewed the factors bearing on costs determinations in applications to modify restrict covenants pursuant to section 84 of the Property Law Act 1958.

2023 05 25 ROJ Property Group v Eventpower Property (Costs) [2023] VSC 268Download

In finding that the defendant had put the plaintiffs to needless expense, the Court determined that the plaintiffs should get their costs from the time the defendant had been able to assess the plaintiffs’ case and its own answer to it:

The conclusion to which I am forced is that there is some other reason for animosity between the parties that underpins the inconsistent and intransigent attitude of the defendant to the signage proposed by the plaintiffs.  This has all the appearance of a desire to frustrate the plaintiffs’ signage display intended to advertise its home building business in the western suburbs.  This attitude is reinforced by the evidence of the response to the fourth Calderbank offer, which was a rejection of the offer with a counter-offer that the plaintiffs withdraw their application for modification of the Covenant and pay the defendant’s legal costs fixed at $40,000.00 (see above [16(d)]).  Given the nature of the restriction and the defendant’s and other landowners’ contravention of it, and the obvious, might I say, lack of injury arising from the proposed change, this counter-offer reveals a cavalier approach to the application in the proceeding and one that cannot have been rationally based on the prospects of the application being successful.

This might have been an unusual case insofar as the two parties to the litigation had some history, but it serves to reinforce the point that a defendant cannot assume it will invariably be entitled to its costs, nor should it ignore reasonable offers to settle.

Restrictive Covenants in Victoria–theory and practice

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The following paper Restrictive Covenants in Victoria–Theory and Practice is based on a presentation to the University of Melbourne’s undergraduate Property Law class. It provides a reasonably comprehensive overview of the law in relation to the construction, modification and removal of restrictive covenants in Victoria. It is current as at 26 May 2023.

2023-05-26-restrictive-covenants-in-victoria-theory-and-practiceDownload

An hour long walk-through of the notes can be found here:

And a downloadable audio version can be found here:

Comments are welcome: townsend@vicbar.com.au

A cost-efficient means of amending building materials covenants

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Recently, we managed to modify a building materials restrictive covenant through the Supreme Court’s section 84 process–without advertising to beneficiaries.

We achieved it by applying to add in the words “or other materials with a rendered finish” after the brick and/or stone restriction.

This might not work in all cases, for there were peculiarities in the distribution of beneficiaries’ here, but we are often approached by developers wishing to construct a building out of contemporary building materials where there is a brick and/or stone restriction.

This may be one of the most cost effective means of doing it.

2022 11 24 ORDERS, final, Azzopardi, 262 Queen St, AltonaDownload

Restrictive covenants in Victoria–the case for reform

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  • Section 84 of the Property Law Act 1958, is now the principal means of modifying restrictive covenants in Victoria.
  • Yet this provision was drafted in 1918 and essentially comes down to a test of “substantial injury” to beneficiaries.
  • The Victorian Law Reform Commission reviewed section 84 in 2011, but few recommendations were adopted, leaving the private rights of beneficiaries to triumph over broader concepts of net community benefit.
2022-09-law-institute-journal-feature-townsend-matthewDownload

Schematic diagrams might not be sufficient for trial

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The long awaited decision in Jeshing Property Management Pty Ltd v Yang [2022] VSC 306 has been handed down by the Supreme Court.

This was probably the most heavily contested restrictive covenant case since Prowse v Johnston and resulted in the dismissal of an application to modify a single dwelling covenant to allow five dwellings at 16 St Georges Road, Toorak.

As is often the case, restrictive covenant applications are the plaintiff’s to lose, and here too, the Court found the plaintiff had not discharged its onus to prove an absence of substantial injury to beneficiaries.

The Court made adverse observations about the plaintiff having not prepared detailed plans in support of the application. Rather, Annexure A to the Originating Motion provided an annotated two dimensional building envelope:

Matthews AsJ explained:

338. For the reasons given above, I am not satisfied that there will be no substantial injury to any of the Defendants as a result of the Plaintiffs’ proposal. As a consequence, the s 84(1)(c) Application will be refused.

339. Before moving on, I wish to say something further about the way that the Plaintiffs put their case in respect of the Modification Applications, and it is convenient to do so here.  The Plaintiffs clearly made a decision to pursue the Modification Applications without providing detailed drawings or plans of their proposal; rather, the detail of the proposal was confined to the Proposed Envelope.  That was their choice, and they were entitled to run their case that way if they saw fit.  As noted earlier, having made that choice, they then have to bear the consequences of it in terms of not being able to clearly articulate the changes which may occur and whether they will be substantially injurious to the Defendants.

Schematic plans such as those shown above, may still be sufficient for unopposed applications or indeed for mediated settlements, but this decision suggests that plaintiffs take a risk by not preparing architectural drawings if the modification application proceeds to trial.

The importance of costs in restrictive covenant applications

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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

Tribunal refuses to remove covenant even where no beneficiary has objected

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It is relatively unusual for large development applications to simultaneously seek both planning approval and the modification or removal of a restrictive covenant. This is particularly so for covenants created prior to 25 June 1991 where section 60(5) of the Planning and Environment Act 1987 (PEA) applies. This provision states a responsible authority must not grant a permit that allows the removal or variation of a restrictive covenant unless it is satisfied that:

(a) the owner of any land benefitted by the restriction … 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.

The orthodox approach is to deal with the modification or removal of a restrictive covenant first, typically by way of an application pursuant to section 84 of the Property Law Act 1958, with a planning application being dealt with subsequently as part of a separate process.

Pulitano Properties Pty Ltd v Yarra Ranges SC [2022] VCAT 32, serves as a reminder as to why an assessment against section 60(5) of the PEA is to be avoided, seemingly at all costs.

In this case, the Tribunal was asked to remove a series of covenants that provided an absolute discretion to a natural person, deemed to be deceased, to accept or refuse plans for development:

[the covenantor] shall not erect on the said lot … any building whether shop or dwelling house except in accordance with a plan thereof which shall first have been submitted to and approved by the said Elizabeth Annie Lipscomb…

Notwithstanding the absence of opposition from beneficiaries or indeed any opposition to the removal of the covenants by the municipal council that was otherwise contesting the development application, the Tribunal still found that the combined operation of section 60(5) and clause 52.02 of the relevant planning scheme meant that it should reject the application to remove the restrictive covenants:

365 The opening words of s. 60(5) of the Act contain a mandatory direction to a responsible authority (and the Tribunal) that a permit to remove or vary a restrictive covenant must not be granted unless the responsible authority (or the Tribunal) is satisfied of the matters that follow.

366 The Tribunal has previously recognised that there is a stringency in the requirements of s. 60(5) of the Act that sets “the bar that is extraordinarily high. The existence of any detriment of any kind (including any perceived detriment) is sufficient to defeat an application to vary a covenant.”

367 I do not accept that the fact that none of the beneficiaries to the restrictive covenants have objected to the proposed development, of itself, supports a finding that the beneficiaries would not suffer any detriment of any kind because of the development. There may be many reasons why a person (including a beneficiary to a restrictive covenant) may not make an objection to a planning permit, however it is for the Tribunal to be ultimately satisfied that beneficiaries will not suffer detriment of any kind.

368 In light of our findings on the merits of the proposal particularly in respect to the impact of the proposal on the surrounding traffic network and the unacceptable visual bulk of the proposed building, I am not satisfied that the beneficiaries of the restrictive covenant will not suffer detriment of any kind.

369 The other reasons given by the applicant for the exercise of discretion cannot overcome the statutory obligation imposed by s. 60(5) of the Act on the Tribunal to be satisfied that the beneficiaries of the restrictive covenant will not suffer any detriment of any kind.

370 In addition, the findings on the matters of concern to the resident respondents, Mr Williams, the League and the ETR Board, as ‘affected persons’ for the purposes of clause 52.02 of the planning scheme supports my finding that the restrictive covenants should not be removed.

In contrast, in an application pursuant to section 84 of the Property Law Act 1958 the Court would be unlikely to give much, if any, weight to injury occasioned on non-beneficiaries, and the absence of objectors might be expected to weigh heavily in favour of the Court’s discretion to remove or modify the restrictive covenants.

It’s not easy to remove an easement over the objections of the beneficiary

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A recent case in the Victorian Civil and Administrative Tribunal (VCAT) demonstrates the difficulties involved in removing an easement over the objections of the party with the benefit of the easement.

The case was Wheelhouse v Maribyrnong CC [2021] VCAT 1171, in which the Victorian Civil and Administrative Tribunal rejected an application by Wheelhouse to remove a ~24m by .9m walkway down the side of Wheelhouse’s home to Georgiadis’ home to the rear.

Wheelhouse was upset that Georgiadis, his visitors and guests, could see into his house as they walked down the pathway, amongst other things.

He argued Georgiadis had alternative access down a laneway to the rear.

The Tribunal applied the principles in KJ Barge & Associates v City of Prahran (1992) 10 AATR 345 asking:

1. Does the current use of or the current state or condition of the dominant and servient lands (tenements) indicate a need or requirement for the continued existence of the easement?

2. Would the owners of the dominant land (Georgiadis) suffer any material detriment in their use and enjoyment of the land if the easement was removed or varied?

The Tribunal noted the convenience that the easement provides to Georgiadis, and that removal of the easement would add time and distance to the pedestrian route to nearby Footscray:

“It is not uncommon for residential properties to have more than one access point and the mere fact that there are two access points to a site does not of itself mean that both access points are not needed.

The parties have different views as to whether the easement is needed for the purposes of mail and parcel delivery, waste collection, pedestrian access and emergency access.

Ultimately, these differences are not material to my decision in this proceeding… the current use, state and condition of the dominant and servient land indicates the easement is needed…

I consider the loss of this convenient, direct pedestrian access to Cowper Street would result in a material detriment to the use and enjoyment of No. 2/113 Cowper Street. In my view, this means that the need served by the easement is a real and ongoing one. For this reason, I do not consider it appropriate to grant a planning permit which would remove the easement.”

This case is a reminder that easements are property rights that the Tribunal will not lightly remove over the objections of the party with the benefit of the easement. Where easements are to be removed, this is best achieved by negotiation and agreement.

It’s also a reminder why people should study a section 32 agreement carefully and take advice about the consequences of easements and restrictive covenants, before a purchase of land is made.

The obsolescence power in section 84(1)(a) can be used to clean a certificate of title

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The Supreme Court has approved the use of section 84(1)(a) of the Property Law Act 1958 as a means of cleansing a title of a reference to a restrictive covenant with no further work to do.

Practitioners have in the past found that Titles Office officials have refused to remove a reference to a restrictive covenant from a certificate of title, unless directly ordered to do so by the Court.

In turn, the Court has expressed reservations about being able to direct the removal of the covenant from a title solely pursuant to its declaratory power under section 84(2) of the Property Law Act 1958.

The end result is that an originating motion seeking a declaration that a restrictive covenant is ineffective, should also seek a consequential finding of obsolescence.

In Re Pomroy [2021] VSC 739, the court held:

“83. It follows that the third element required in order for the Covenant to run with the Subject Land and burden the plaintiff, being a successor in title, is not present.  This is because the Covenant has not been given for the benefit of land and does not touch or concern that land.

84. As the benefit of the Covenant is unenforceable by any persons other than the Covenantees, it can no longer be said to affect the Subject Land.”

The Court then agreed to its powers under section 84(1)(a) as a consequence of this finding:

The plaintiff submits that with respect to s 84(1)(a), if the Court is of the view that the Covenant is ineffective and therefore no longer has any work to do, it would be appropriate to issue an order for its removal from title to the Subject Land.

I agree with this submission and will therefore make such an order.

A copy of the submissions presented to the Court can be found here.

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