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].

Regularising a longstanding breach of a covenant

There is a little known provision in the Planning and Environment Act 1987 (Act) that has been interpreted to allow the modification of a covenant without notice if the covenant has been breached for a period of two years or more. Section 47(2) of the Act provides:

(2)          Sections 52 and 55 do not apply to an application for a permit to remove a restriction (within the meaning of the Subdivision Act 1988) over land if the land has been used or developed for more than 2 years before the date of the application in a manner which would have been lawful under this Act but for the existence of the restriction.

Section 52 of the Act deals with advertising of applications for permits to potentially affected third parties and section 55 deals with referral to bodies such as DELWP, Telstra, VicRoads and so on.

In Hill v Campaspe SC [2004] VCAT 1399, the Tribunal explained:

26           My conclusion is that if part of a covenant is breached, and the breach continues for 2 years without any action on the part of those having the  benefit of the covenant, it is reasonable that no notice should be given of  an application to vary by removal part of the covenant of which there is a breach.  But this exemption from notice pursuant to section 47(2) of the Act should not extend to the removal of any aspect of a covenant of which there is no breach.

Although the proper interpretation of this provision is not free from doubt, this decision suggests that if a use or development has been in breach of a covenant for more than two years, a permit can be granted to remove or modify the covenant to regularise the use or development. If you rely on this provision, the relevant responsible authority under the Act should issue the permit to remove or amend the covenant without notifying other beneficiaries. However, as DP Gibson cautions, the power is limited, so any application should be judiciously drafted.

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

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

An overview of the process for modifying a restrictive covenant under the Property Law Act 1958 with precedents

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 or this. More complex examples that incorporate applications for declarations can be found 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. Two examples can be found here and 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.

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.

The importance of Calderbank letters in restrictive covenant cases

The final orders in Suhr v Michelmore are a timely reminder of the importance of Calderbank letters in restrictive covenant cases, with the court ordering solicitor/client costs after an offer of compromise (in the form of a Calderbank letter) was made and rejected before the commencement of the merits hearing.

An informative paper on Calderbank offers and Offers of Compromise is attached, with thanks to my colleagues Daryl Williams SC and Andrew Downie.

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

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

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

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

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

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

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

The Council had refused the application on the grounds that:

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

60(5) of the Act provides:

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

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

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

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

The effect of the clause is that permits should be granted only for “dead wood” covenants if no owner benefitting from the covenant objects to its removal or variation. The alterative avenues to remove or vary a covenant remain in place, being applications to the Supreme Court under the Property Law Act 1958 and the preparation of a planning scheme amendment.

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

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

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

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

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

Image

 

The Supreme Court of Victoria changes the way applications to modify or remove a restrictive covenant are to be advertised

The practice of the Supreme Court is apparently now to require a sign on the land for most applications to modify or remove a restrictive covenant pursuant to s84 of the Property Law Act 1958, along with a letter giving direct notice of the application to nearby beneficiaries (see example of advertising orders, attached).

A sign on the land giving notice of use and development proposals has long been used in the planning jurisdiction by reason of s52(2)(d) in the Planning and Environment Act 1987 expressly contemplating this form of notice.

Historically, orders for the advertising of s84 applications were made by requiring the publication of a notice in The Age and a newspaper circulating generally in the area. However, with fewer people buying print newspapers and fewer still reading the public notice sections of those papers, there has long been a question as to this requirement’s effectiveness.

It remains to be seen what this exposure to foot traffic will mean to the number and quality of objections by beneficiaries.

However, applications to modify or remove a covenant pursuant to the Planning and Environment Act 1987 will still require both a sign on the land and a notice in the newspaper by reason of section 52(1AA):

(1AA)  If an application is made for a permit to remove or vary a registered restrictive covenant or for a permit which would authorise anything which would result in a breach of a registered restrictive covenant, then unless the responsible authority requires the applicant to give notice, the responsible authority must give notice of the application in a prescribed form—

                         (a)  by placing a sign on the land which is the subject of the application; and

                         (b)  by publishing a notice in a newspaper generally circulating in the area in which that land is situated. [Emphasis added]

Bradbrook and Neave’s “Easements and Restrictive Covenants”, Lexis Nexis Butterworths, Australia 2011

Bradbrook and Neave’s Easements and Restrictive Covenants has been the standard Australian text in the area since the publication of the first edition in 1980.

The book is divided into two parts with Adrian Bradbook taking responsibility for easements and Susan MacCallum updating the work of Marcia Neave, now a member of the Victorian Court of Appeal, on restrictive covenants.

The preface to the third edition claims there is still not a sufficient corpus of Australian material to justify the exclusion of some cases from other common law jurisdictions, but the breadth of its analysis of more parochial decisions is nonetheless impressive.

From a Victorian perspective, the book not only covers the traditional jurisdiction of the Property Law Act 1958, but the Planning and Environment Act 1987, the Subdivision Act 1988 and the various planning schemes too.

This is particularly helpful, for the Victorian Civil and Administrative Tribunal is now dealing with the lion’s share of easement and restrictive covenant matters and if the recommendations of the Victorian Law Reform Commission final report Easements and Covenants (2010) are accepted, VCAT’s jurisdiction in this area will only grow.

If you have the second edition published in 1999, you will find the latest edition most helpful, if only for charting the degree to which various divisions of the Supreme Court have applied or declined to follow Justice Morris’ landmark decision in Stanhill v Jackson [2005] VSC 169, a decision that aimed to re-write the way in which restrictive covenants are modified or removed under section 84 of the Property Law Act 1958.

This is a well written and thoroughly researched text. The respect it has developed is evident in its widespread citation by Judges and Tribunal Members alike. No one who practices in this area should work without it.

Matthew Townsend
townsend@vicbar.com.au