Aust-One Investment Pty Ltd v New World Investments Pty Ltd

[2023] NSWCA 22

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Aust-One Investment Pty Ltd v New World Investments Pty Ltd [2023] NSWCA 22

Hearing dates:

15 September 2022

Date of orders:

21 February 2023

Decision date:

21 February 2023

Before:

Macfarlan JA at [1];
Mitchelmore JA at [2];
Kirk JA at [149]

Decision:

See [148].

Catchwords:

LAND LAW – positive covenants – enforceability of positive covenants – positive covenant in registered easement requiring owner of dominant tenement to pay proportion of rental payments from lease of shops to owner of servient tenement – whether positive covenant binding on successors in title to owner of dominant tenement – scope of conditional benefit principle – whether conditional benefit principle forms part of Australian law – whether primary judge erred in applying conditional benefit principle to the facts – whether positive covenant part of the essential fabric of the registered easement

LAND LAW – easements – construction of easements – admissibility of information beyond the register – whether earlier deed between parties to an easement admissible as an aid to construction of the easement – whether primary judge erred in having regard to earlier deed, even for limited purpose

Legislation Cited:

Conveyancing Act 1919 (NSW), ss 70A, 88B, 88BA, 88D, 88E, 88F, 181A, Pt 3, Sch 8, Pt 6

Land Title Act 1994 (Qld), s 97A

Lands Administration Act 1997 (WA), s 15

Law of Property Act 2000 (NT), Pt 9 Div 4

Limitation Act 1969 (NSW)

Planning and Environment Act 1987 (Vic), ss 173, 182

Property Law Act 1974 (Qld), s 55

Real Property Act 1900 (NSW), s 36

Cases Cited:

Aspden v Seddon (No 2) (1876) 1 Ex D 496

Austerberry v Corporation of Oldham (1885) 29 Ch D 750

Bulstrode v Lambert [1953] 1 WLR 1064

Cameron v Dalgety [1920] NZLR 155

Casuarina Rec Club Pty Ltd v Owners - Strata Plan No 77971 (2011) 80 NSWLR 711; [2011] NSWCA 159

CEG Direct Securities Pty Ltd v Wang (2021) 390 ALR 772; [2021] NSWCA 76

Chamber Colliery Company Ltd v Twyerould [1915] 1 Ch 268

Clifford v Dove (2003) 11 BPR 21,149; [2003] NSWSC 938

Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164

Elliston v Reacher [1908] 2 Ch 665

Elwood v Goodman [2014] Ch 442

E R Ives Investment Ltd v High [1967] 2 QB 379

Esso Australia Resources v Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67

Fanigun Pty Ltd v Woolworths Ltd [2006] 2 Qd R 366; [2006] QSC 28

Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281

Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154; [1998] HCA 15

Frater v Finlay (1968) 91 WN (NSW) 730

Gallagher v Rainbow (1994) 179 CLR 624; [1994] HCA 24

Gardner v Hodgson’s Kingston Brewery [1901] 2 Ch 198

GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills (2014) 17 BPR 33,133; [2014] NSWCA 202

Government Insurance Office (NSW) v K A Reed

Services Pty Ltd [1988] VR 829

Hopgood v Brown [1955] 1 WLR 213

Ippin Textiles Pty Ltd v Winau Aust Pty Ltd (2021) 386 ALR 286; [2021] NSWCA 9

Jones v Pritchard [1908] 1 Ch 630

Mount Cathay Pty Ltd v Lend Lease Funds Management Ltd [2013] 1 Qd R 528; [2012] QCA 274

Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45

Pirie v Registrar-General (1962) 109 CLR 619; [1962] HCA 58

PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643

Re Ellenborough Park [1956] Ch 131

Rhone v Stephens [1994] 2 AC 310

Rufa Pty Ltd v Cross [1981] Qd R 365

Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244

Stolyar v Towers (2018) 19 BPR 38,287; [2018] NSWCA 6

Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557

Tito v Waddell (No 2) [1977] Ch 106

Todrick v Western National Omnibus Co Ltd [1934] 1 Ch 561

Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143

Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45

Westhoughton Urban District Council v Wigan Coal and Iron Co Ltd [1919] 1 Ch 159

Wilkinson v Kerdene Ltd [2013] 2 EGLR 163; [2013] EWCA Civ 44

Texts Cited:

A Bradbrook and S MacCallum, Bradbrook and Neave’s Easements and Restrictive Covenants (3rd ed, 2011, LexisNexis Butterworths)

B Edgeworth, Butt’s Land Law (7th ed, 2017, Lawbook)

B Edgeworth, “The Numerus Clausus Principle in Contemporary Australian Property Law” (2006) 32 Monash University Law Review 387

C Jessel, Positive Covenants and Freehold Land (2019, Wildy, Simmons & Hill)

F Pollock, Principles of Contract (7th ed, 1902, Stevens and Sons, London)

H Theobald, The Law of Land (1902, Clowes and Sons, London)

HWR Wade, “Case and Comment: Real Property – Positive Covenant – Deed – Perpetuity” (1957) 15 Cambridge Law Journal 35

HWR Wade, “Covenants – A Broad and Reasonable View" (1972) 31 Cambridge Law Journal 157

N P Gravells, “Enforcement of positive covenants affecting freehold land” (1994) 110 Law Quarterly Review 346

R Brown, The Law Relating to Covenants Running with Land (1907, Sweet and Maxwell, London)

Category:

Principal judgment

Parties:

Aust-One Investment Pty Ltd (Appellant)
New World Investments Pty Ltd (Respondent)

Representation:

Counsel:
Mr AJ Macauley and Mr F G Di Lizia (Appellant)
Dr RCA Higgins SC with C Trahanas (Respondent)

Solicitors:
Rutland’s Law Firm (Appellant)
SMB Law (Respondent)

File Number(s):

2022/65396

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of NSW

Jurisdiction:

Equity

Citation:

[2022] NSWSC 137

Date of Decision:

18 February 2022

Before:

Robb J

File Number(s):

2020/296043

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Aust-One Investment Pty Ltd (“Aust-One”), appealed from a Supreme Court decision which held that it was bound by the terms of a covenant in a registered easement requiring it to make certain payments to the respondent, New World Investments Pty Ltd (“New World”).

The proceedings concerned two adjoining retail buildings located in a shopping area in Sydney. Aust-One is the owner of the dominant tenement, which comprises four shops and a restaurant on the ground floor and two residential units on the first floor. New World is the owner of the servient tenement, on which a number of retail shops in an arcade are located.

In 1963 the previous owners of both properties executed a transfer (the “Transfer”) which contained a number of easements and covenants. The Transfer was registered in 1964. Relevantly, the Transfer included two easements in favour of the dominant tenement: a right of way over part of the servient tenement and the right to use the amenities located on it, and another easement for support. Those easements were expressed to be in consideration of a number of covenants which bound the owner of the dominant tenement and their successors in title. One such covenant required the dominant owner to pay to the servient owner one-quarter of the gross rentals received from the four shops. The servient owner was also bound by a covenant requiring it to repair and maintain the amenities located in the arcade.

Prior to the execution of the Transfer, the previous owners of both properties also entered into a deed with the local council (the “Council Deed”), which was admitted by the primary judge for the purposes of providing evidence of “a number of objective background facts”. His Honour made it clear that he considered it unnecessary to refer to the Council Deed for the purposes of construing the terms of the Transfer, which were sufficiently clear.

In the proceedings below, Aust-One sought a declaration that the payment covenant was not a burden that ran with the dominant tenement, and therefore that it was not liable to pay any money to the servient owner from time to time pursuant to that covenant. New World filed a cross-claim seeking declaratory relief to the opposite effect, and damages against Aust-One. The primary judge acknowledged that the payment covenant was a positive covenant, which was subject to the “general rule” that such covenants are not enforceable against successors in title. There were nonetheless two avenues by which the covenant could be enforceable, both of which were considered in turn by his Honour.

As to the first, on which New World primarily relied, his Honour held that the payment covenant was not an essential part of the fabric of the easement, such that it could be enforced against Aust-One. As to the second, his Honour accepted that the performance of the payment covenant was a condition upon Aust-One’s right to enjoy the right of way, the right to use amenities and to enforce the repair covenant. Aust-One was therefore bound by the payment covenant, and its claim against New World was dismissed. In so finding, his Honour accepted that the so-called “conditional benefit principle” formed part of the law of Australia.

On appeal, Aust-One contended that the primary judge erred by admitting and relying on the Council Deed for the purpose of construing the Transfer, by finding that performance of the payment covenant was a condition upon the various rights it enjoyed pursuant to the Transfer, and by finding that the payment covenant was binding on it as long as it continued to enjoy those rights. By way of a notice of contention, New World submitted that his Honour ought to have found that the payment covenant was part of the essential fabric of the easements granted.

The Court upheld the appeal.

As to the admissibility of the Council Deed:

Per Mitchelmore JA, Kirk JA agreeing:

The primary judge’s reasons reflected an awareness of the limitations on the use he could make of the Council Deed in construing the Transfer. Despite the references his Honour made to the Council Deed, his conclusions rested upon the terms of the registered documents, including the Transfer: [51]

As to whether the payment covenant formed part of the essential fabric of the easement:

Per Mitchelmore JA, Macfarlan JA and Kirk JA agreeing:

Whether a covenant or condition forms part of the essential fabric of an easement turns on the proper construction of the relevant instrument: [57]

Cameron v Dalgety [1920] NZLR 155; Frater v Finlay (1968) 91 WN (NSW) 730; Rufa v Cross [1981] Qd R 365; Clifford v Dove (2003) 11 BPR 21,149; [2003] NSWSC 938 considered.

Notwithstanding that the grant of the easements in the present case was expressed to be “subject to” the covenants, the payment covenant was not formulated by reference to the easements, which would be completely effective whether or not the payment covenant is performed. It followed that the primary judge did not err in concluding that the payment covenant was not of the essence of the easements granted in the Transfer:[57]-[59]

Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557; Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244 considered.

As to the application of the conditional benefit principle:

Per Mitchelmore JA:

It is unnecessary finally to determine whether the conditional benefit principle, as formulated in Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164, should form part of the common law of this country. The focus of the conditional benefit principle as it has developed, is on the terms of the instrument, the right or rights that have been granted, and whether the exercise of the right or rights is conditional or reciprocal upon performance of a positive obligation (either expressly or as a matter of implication). Matters of substance or undue emphasis on the intention of the parties at the time of the grant should not distract from this central focus: [142]-[144]

Aspden v Seddon (No 2) (1876) 1 Ex D 496; Chamber Colliery Company Ltd v Twyerould [1915] 1 Ch 268n; Halsall v Brizell [1957] Ch 169; E R Ives Investment Ltd v High [1967] 2 QB 379; Tito v Waddell (No 2) [1977] Ch 106; Rhone v Stephens [1994] 2 AC 310; Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557; Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164; Wilkinson v Kerdene Ltd [2013] 2 EGLR 163; [2013] EWCA Civ 44; Elwood v Goodman [2014] Ch 442; GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills (2014) 17 BPR 33,133; [2014] NSWCA 202 considered.

In the present case, neither the terms of grant of the easements nor the terms of the payment covenant expressly condition the exercise of the rights conferred by the easements on compliance with the payment covenant, nor does the payment covenant refer to the purpose for which the payment it requires is made: [137]

Aspden v Seddon (No 2) (1876) 1 Ex D 496; Fanigun Pty Ltd v Woolworths Ltd [2006] 2 Qd R 366; [2006] QSC 28; Rufa v Cross [1981] Qd R 365; Halsall v Brizell [1957] Ch 169; Wilkinson v Kerdene Ltd [2013] 2 EGLR 163; [2013] EWCA Civ 44; Elwood v Goodman [2014] Ch 442 distinguished.

The primary judge erred in concluding that Aust-One could, at least in theory, unilaterally disclaim the rights the subject of the easement in issue. The third requirement in Davies v Jones was not satisfied: [146]

Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164 considered.

Per Mitchelmore JA, Macfarlan JA agreeing:

The primary judge erred in concluding that the entitlement to enjoy the rights conferred by the Transfer depended upon performance of the payment covenant, in circumstances where the requisite conditionality or reciprocity between the covenant and the rights granted did not exist. The second requirement in Davies v Jones was not satisfied: [145]

Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164 considered.

Per Kirk JA:

A survey of the case law reveals that there are sufficient imperatives to accept some variant of the conditional benefit principle as a matter of equity. To do so recognises the justice to be served in the sorts of examples apparent in the case law. But, reflecting the manner of development of the common law, any such development should be careful, evolutionary and so far as possible harmonious with broader legal principle: [259].

In circumstances where the owner of land burdened by an easement seeks to enforce a positive covenant against the owner of land which benefits by reason of an easement, the conditional benefit principle has at least three requirements. The first is that there be a right held by the defendant, such as a right of way, to which a condition, such as a payment covenant, is attached. The second is that it was intended that the covenant run with the land. The third is that burden which the covenant places on the dominant land is conditional or reciprocal in the sense that it can be characterised as benefiting the servient land by ameliorating the effects or sharing the costs of being subject to the correlative burden in favour of the dominant tenement: [264].

This third requirement is sufficient to dispose of this case. New World made no attempt to characterise the obligation of Aust-One to pay one quarter of the gross rentals of the four shops as ameliorative. Unsurprisingly, there is no evidence indicating that such a significant and ongoing fee was a reasonable proxy of the cost of maintaining the right of way: [272].

Judgment

1. MACFARLAN JA: I agree with Mitchelmore JA that as a matter of construction of the terms of the Transfer “there is not the requisite conditionality or reciprocity, as the cases [to which her Honour refers] explained those concepts, between the rights granted by the Transfer and the payment covenant” (at [145] below). For that reason, and because I agree that the Notice of Contention should be rejected, I agree with the orders that her Honour proposes.

2. MITCHELMORE JA: The principal issue in this appeal is whether a positive covenant in a registered easement runs with the dominant tenement, so as to bind the owner of the dominant tenement from time to time. The primary judge concluded that the positive covenant did run, applying what his Honour described as the principle of conditional benefit: Aust-One Investment Pty Ltd v New World Investment Pty Ltd [2022] NSWSC 137. The appellant (“Aust-One”) contends that his Honour erred in reaching that conclusion. The respondent (“New World”) seeks to defend his Honour’s conclusion and further contends, by way of a Notice of Contention, that his Honour should have found that the positive covenant was part of the essential fabric of the easement.

3. The submissions of both parties proceeded on the assumption that the principle of conditional benefit forms part of the law in this country. Following questions raised in the course of the hearing, both parties filed supplementary submissions supporting the application of the principle.

4. In order to determine the content of the principle of conditional benefit, and whether it should be applied, I have undertaken a review of the cases in which the principle has been applied or discussed. Unlike the primary judge, I do not consider that it has been accepted as part of the law in Australia in a settled form. However, the question of whether it should form part of the law is unnecessary finally to decide in this case. On the construction of the registered transfer that I prefer, the conditional benefit principle does not operate to except the covenant in issue from the general rule that positive covenants do not run with the land. The primary judge erred in concluding to the contrary.

5. I agree with his Honour’s rejection of the respondent’s contention that the positive covenant was an essential part of the easement. It follows that the appeal should be allowed and the notice of contention should be dismissed.

Background to the issues arising on the appeal

6. The proceedings concern two retail buildings which are located in a shopping area in suburban Sydney. Rather than identify the respective addresses or Lot numbers, the primary judge described both buildings by reference to their street numbers: No 181 (owned by Aust-One) and No 183-185 (owned by New World). Both buildings have frontage to a main street in the shopping area (the Street), with a lane located at the rear (the Lane). Across the Lane from the buildings is a multi-storey car park that the local Council constructed (the Car Park): [2]. Access to the Car Park from the Lane is via a footbridge over a stormwater culvert.

7. No 181 is the dominant tenement: [3]. The two-storey building that is located on No 181 comprises five shops on the ground floor (one of which is a restaurant) and two residential units on the first floor. Aust-One has been the registered owner of No 181 since August 2002.

8. No 183-185 is the servient tenement: [3]. Like No 181, the building located on No 183-185 currently houses a number of retail shops. New World has been the registered owner of No 183-185 since 1992.

9. The covenant in issue was contained in an agreement that was executed in a registrable form on 30 September 1963, by the then owners of No 181 and of No 183-185. Like the primary judge, I will refer to this document as the Transfer: [3]. The Transfer is registered on the folios of both No 181 and No 183-185. Given its significance to the issues on the appeal it is convenient to set out its terms in full:

“I, WE, MENDEL REICH of [Suburb] Draper and ANNA REICH his wife being registered as the proprietor of an estate in fee simple in the land hereinafter described, subject, however, to such encumbrances, liens and interests as are notified hereunder, in consideration of the covenants and Agreements on the part of DOMENICO PERRI of [No 181] Shopkeeper and MARY ROSE PERRI his wife do hereby transfer and Grant to the said DOMENICO PERRI of [No 181] Shopkeeper and MARY ROSE PERRI his wife as joint tenants (herein called transferee) out of ALL such our Estate and Interest in ALL THE land mentioned in the schedule following: – [title reference to No 183-185 inserted] full and free right as appurtenant to the land comprised in [certificate of title reference for No 181]

(a) For the said Transferees his her and their executors administrators and assigns and his her and their servants agents licensees invitees and all other persons authorised by him her or them in common with the Transferors his her and their executors administrators and assigns and his her and their servants agents licensees and all other persons authorised by him her or them from time to time and at all times hereafter and for all purposes to pass and repass on foot along and over all that part of the Arcade erected on that piece of land as shown in the plan hereunto annexed and therein coloured red and from time to time and at all times to use for the purposes for which they have been erected all stairs landings washrooms water closets and urinals erected upon or over the said piece of land.

(b) For the said Transferees and his her and their executors administrators and assigns to use for the purpose of support of the wall erected on that part of the land comprised in [certificate of title reference for No 181] shown in the plan hereunto annexed and therein coloured blue the wall erected on that part of the land comprised in [certificate of title reference for Nos 183-185] shown in the plan hereunto and therein coloured brown.

AND IT IS HEREBY AGREED AND DECLARED AS FOLLOWS: –

1. THAT the Transferors and his her and their executors administrators and assigns will at all times during the said term well and sufficiently repair maintain and keep the said Arcade stairs landings washrooms water closets and wall in good and substantial repair.

2. THAT the Transferees and his her and their executors administrators and assigns will during the said term on the first day of each calendar month commencing with the first day of May, 1962 next ensuing pay or cause to be paid to the Transferors or his her or their executors administrators or assigns one-quarter (1/4) of the gross rentals received by them during the then next preceding calendar month in respect of the shops erected by the transferees on that part of the land comprised in [certificate of title reference to No 181] shown in the plan hereunto annexed and therein coloured green.

3. THAT the transferees and his her and their executors administrators and assigns will not during the said term without the consent in writing previously obtained of the transferors or his her or their executors administrators or assigns let all or any of the shops erected by the transferees on that part of the land comprised in [certificate of title reference for No 181] shown in the plan hereunto annexed and therein coloured green to persons conducting or intending to conduct therein any business similar to any business being conducted in any of the shops erected on the land comprised in [certificate of title reference for Nos 183-185].

4. THAT the rights hereby transferred and granted may be released varied or modified only with the consent of [the Council] by the transferors or his her or their executors administrators or assigns together with the transferees or his her or their executors administrators or assigns.”

10. As the primary judge summarised at [23] and [39], the Transfer includes the following easements:

1. An easement of two parts in favour of No 181: a right of way (on foot) over the arcade in No 183-185 and a right to use the amenities located in that building (Clause (a)).

2. An easement for support also in favour of No 181 (Clause (b)).

11. The grant of the easements was expressed to be “in consideration of the covenants on the part” of the then owners of No 181. The following covenants in the Transfer applied to the owners of No 181, and were expressed also to bind “his her and their executors administrators and assigns”:

1. What his Honour, and the parties on this appeal, referred to as the “payment covenant” in Clause 2 of the Transfer; and

2. The “competition covenant” in Clause 3 of the Transfer.

12. In addition to the covenants binding the owners of No 181, the owners of No 183-185 were subject to the “repair covenant”, in Clause 1 of the Transfer. Finally, Clause 4 required the Council’s consent to any agreement by the other parties to the Transfer or their successors to release, vary or modify any of “the rights hereby transferred and granted”.

13. A number of drawings were annexed to the Transfer, which were also registered. A sketch plan that the primary judge prepared using an agreed colour copy of the deposited plan is annexed to these reasons. The drawing of the deposited plan shows the right of way over No 183-185 created by Clause (a) of the Transfer, by reference to the cross-hatching of the path through the arcade. The double-cross-hatching shows the four shops forming part of No 181 which were intended to have the benefit of the right of way. The deposited plan also included two smaller diagrams. Diagram A depicts the part of the first floor of No 181 over which the right of way extended, to the creation of a passage and what was described as the toilet block. Diagram B depicts the stairs leading from the ground floor of No 183-185, over which the right of way ran (to give access to the toilet block).

14. Also annexed to the judgment of the primary judge, and annexed to this judgment, are the two ‘as built’ plans which a director of New World prepared. The as built plans indicated that by contrast to the deposited plan, there was in fact a passageway beside Shop 4A that provided access from the back of the restaurant and the two residences upstairs to both the Street and the Lane, by means of the arcade on No 183-185: [34]. The basic layout of the ground floor of the properties can be seen in the following drawing (which is not to scale):

15. As the primary judge observed, the Transfer had the effect that “the whole of No 183-185 was made the servient tenement”, even though the easement granted only burdened the cross-hatched part of that property: [28]. By contrast, the payment covenant in Clause 2 of the Transfer applied only to the gross rental received from Shops 1A to 4A on No 181, which were marked with double cross-hatching: [29].

16. The Transfer and its registration followed the execution of a deed on 16 February 1962 by the then owners of No 183-185, the then owners of No 181, and the Council (the “Council Deed”). The primary judge admitted the Council Deed on the application of New World and over the objection of Aust-One, on the basis that “it contained evidence of a number of objective background facts of which there was otherwise no evidence”: [13]. As Aust-One maintains its challenge to the admissibility of the Council Deed (Ground 1 of the Notice of Appeal), it will suffice to refer to his Honour’s summary at [14]:

“(1)   At the time the [Deed] was made, Mr and Mrs Reich [the owners of No 183-185] were in the process of erecting an arcade of 12 shops and offices with a passageway (the arcade) providing access from the street to the shops and offices and the lane at the rear.

(2)   Mr and Mrs Perri [the owners of No 181] wished to erect four lock-up shops (the four shops) at the rear of the existing buildings on No 181 with access to the arcade on Nos 183-185.

(3)   Mr and Mrs Perri had applied to the Council for approval to develop No 181 by erecting the four shops, and the application had been approved by the Council subject to a condition that an agreement be entered into to ensure that a right of passageway and footway for access to the proposed shops was permanently provided. The access referred to is from the street and the lane to the four shops by means of the arcade.

(4)    The [Deed] contained a covenant in clause 4 that Mr and Mrs Reich would grant to Mr and Mrs Perri an easement for support in respect of the walls and roof of the four shops to be erected by Mr and Mrs Perri on their land adjacent to the land of Mr and Mrs Reich.

(5)   Clause 6 of the [Deed] contained an agreement by Mr and Mrs Perri to pay to Mr and Mrs Reich one quarter of the cost of erecting a footbridge over a stormwater canal immediately adjacent to the rear of the two properties in the lane so as to connect the lane to the Council car park.”

17. The evidence established, and as was in any event apparent from the drawing reproduced above, that each of Shops 1A, 2A, 3A and 4A in No 181 could not access the Lane except through the arcade that formed part of No 183-185. The evidence also established that the only means of access to the two residences on the first floor of No 181 was through the restaurant or the arcade. Deliveries to the restaurant on No 181 could be made through the front door of the restaurant or the arcade; and rubbish was removed through the arcade into the Lane: [60].

18. There was evidence before the primary judge, in the form of part of a draft contract between the ultimate assignors of No 181 to Aust-One, which showed that Aust-One acquired No 181 with notice of the payment covenant: [37]. It was not clear to the primary judge from the evidence whether Aust-One had agreed with its assignors to comply with the payment covenant (at [37]), but from 24 July 2002 to 6 December 2019 Aust-One did comply, paying New World a total of $577,094.37, or almost $33,000 per year: [4]. There was also evidence from Mr Poon, a director of New World, concerning New World’s maintenance and repair of the arcade stairs, arcade restrooms and the arcade corridor. His Honour admitted evidence from New World as to the associated expenditure, along with evidence of expenditure on cleaning and waste disposal, maintenance and repair, and light and power rates, on the limited basis that it might ultimately be relevant to prove activities required of the servient tenement owner to comply with the repair covenant: [62].

19. On 15 October 2020, Aust-One filed a statement of claim seeking a declaration that the payment covenant was not a burden which ran with No 181 and, as such, it was not liable to pay New World (or any successor in title) any money pursuant to that covenant. New World filed a cross-claim, seeking declaratory relief to the opposite effect, and damages in the sum of $63,482.85 (for outgoings that the shops deducted from the “gross” rental payments).

20. The parties joined in asking the Court to decide two issues, the first of which was whether New World could enforce the payment covenant against Aust-One: [8]. His Honour would later put the question by reference to its potential consequences at [64]:

“The question in these proceedings is whether Aust-One is entitled to refuse to comply with the payment covenant but at the same time fully enjoy the benefit of the easements created by the Transfer and oblige New World to perform the repair covenant for its benefit.”

The admissibility of the Council Deed

21. The first issue his Honour dealt with was Aust-One’s objection to New World tendering the Council Deed. Aust-One contended that the Council Deed was irrelevant to the proper construction of the Transfer, relying on Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 (“Westfield”). In Westfield, the High Court held that material that was extrinsic to what was available on the Torrens Register was not admissible to establish the intention or contemplation of the parties to the grant of (relevantly) an easement: at [39], [45]. Aust-One also relied on the decision of Edelman J in Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281 (“Fermora”), in which his Honour held that an unregistered deed was inadmissible to construe an instrument registered under the Torrens system, even though the deed was referred to in the registered instrument.

22. The primary judge took the view that New World did not seek to rely upon the Council Deed for the purpose that the High Court in Westfield held was impermissible: [53]. His Honour also considered that the wording of the Transfer was sufficiently clear on its face and it was unnecessary to refer to the Council Deed to construe it: [53], [57]. His Honour did identify a distinction between the deed in issue in Fermora and the Council Deed, in that the latter was likely to have been retained on the Council’s file and thus be available for inspection, whereas the deed in Fermora may not have been readily attainable by a subsequent purchaser: [51]. However, his Honour held that it would in any event have been obvious to any purchaser of No 181, from the terms of the Transfer, that the Council had the right to veto any release of the rights granted thereunder: [51].

Enforceability of the payment covenant

23. It was common ground before the primary judge that the Transfer validly created easements for right of way and use of the amenities (Clause (a)) and for support (Clause (b)), once and for all, at the time of registration: [65]. It was also common ground that the competition covenant (Clause (3)) was a negative or restrictive covenant within the scope of the doctrine in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143, and was enforceable against Aust-One [66]. There was also no question that Aust-One could enforce the repair covenant (Clause (1)) against New World notwithstanding that it was positive in nature, having regard to the terms of s 88BA and s 88F of the Conveyancing Act 1919 (NSW): [67].

24. The payment covenant (Clause (2)) was in a different category. As it involved an obligation to pay money, it constituted a positive covenant and did not fall within the scope of Tulk v Moxhay: [68]. The primary judge also acknowledged the “general rule” that positive covenants are not enforceable against successors in title, as stated by Lord Templeman in Rhone v Stephens [1994] 2 AC 310 at 316-7 with the unanimous agreement of the other Law Lords: [70]. The primary judge identified two avenues by which the payment covenant may nonetheless be enforceable, “notwithstanding that it does not run with the land at common law or in equity against successors in title to the transferees”: [75]. The first avenue is relevant to the Notice of Contention, and the second is the focus of the Notice of Appeal.

Payment covenant as an essential part of the easement

25. His Honour described the first way in which the payment covenant may be enforceable as “somewhat exceptional and problematic as a matter of principle”. It involved “the concept that the burden of a positive covenant may be so intricately connected to the effectiveness of the easement that it is inextricably part of the easement”: [76].

26. This was New World’s primary submission in support of the enforceability of the payment covenant: that, read as a whole, the Transfer created one transaction or “deal”, in which all grants and covenants were “interwoven”: [77]; [180]. Aust-One submitted, on the other hand, that the payment covenant, as an obligation undertaken by the grantee, did not sufficiently relate to the rights granted by the easements and the repair covenant. It only required payment of one-quarter of the gross rentals received from the four shops; and it did not include rentals from the restaurant or the residences on No 181: [206].

27. The primary judge stated that the modern source of this so-called avenue of enforceability was the decision of Herdman J in Cameron v Dalgety [1920] NZLR 155. Without expressing a concluded view as to the correctness of that decision, the primary judge considered that even if what his Honour described as the “essential part” argument existed and was of the widest possible ambit, the payment covenant would not be enforceable on that basis against Aust-One: [81], [87].

28. An obvious point of distinction between the repair covenant in issue in Cameron v Dalgety and the payment covenant was that the former “was made by the grantor of the easement and not by the grantee”: [88]. His Honour referred in this context to the decision of Kneipp J in Rufa Pty Ltd v Cross [1981] Qd R 365 (“Rufa v Cross”), who concluded that Cameron v Dalgety did not establish that a covenant by the grantee of an easement may be an essential part of the grant: [90]-[91]. His Honour observed that Kneipp J’s conclusion in Rufa v Cross was referred to with approval by Bryson J in Clifford v Dove (2003) 11 BPR 21,149; [2003] NSWSC 938 at [66]-[68], and by McMurdo J in Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244 (“Rural View Developments v Fastfort”) at [19]-[24]: [92].

29. In the present case, all of the easements in the Transfer could, in his Honour’s opinion, “operate effectively to the fullest of their intended effect whether or not the payment covenant is honoured by the owner of the dominant tenement for the time being”: [182]. Accordingly, performance of the payment covenant could not be said to be “essential to the operation of the easements and thus of the essence of those easements”: [183]. His Honour concluded at [184]:

“If New World’s argument is valid, all of the covenants would bind successors in title to the owners of the two properties, and the effect would be to circumvent all of the legal principles that limit the circumstances in which the burden of a positive covenant may be enforceable against successors in title to parties to dealing with freehold land, at least where the covenants are associated with the grant of easements. The success of New World’s argument would outflank all the law flowing from Rhone v Stephens.”

The conditional benefit principle

30. The second way his Honour considered the payment covenant may be enforceable relied on its performance being “a condition of the entitlement of the owner of No 181 to enjoy the rights created by the easements and the benefit of the repair covenant”: [78]. His Honour summarised the argument as follows at [78]:

“The law may hold it to be unjust that, if the owner of No 181 has a choice whether or not to enjoy a right that is made conditional upon the performance of a positive covenant, that owner can refuse performance of the covenant on the ground that it does not bind the owner, but then freely exercise the right and, in this case, enforce against the owner of Nos 183-185 a positive covenant made by a predecessor in title to that owner. This possibility is usually called the conditional benefit principle.”

31. The primary judge conducted a detailed review of the authorities concerning the development of this principle and its reception in courts of this country. I will refer to his Honour’s review in the course of considering the parties’ arguments on the appeal. For present purposes, however, it is sufficient to record his Honour’s conclusion at [147], that the principle was part of the law of Australia, a conclusion which his Honour considered was supported by the judgment of Kneipp J in Rufa v Cross and of Mullins J in Fanigun Pty Ltd v Woolworths Ltd [2006] 2 Qd R 366; [2006] QSC 28 (“Fanigun v Woolworths”). His Honour stated the principle, at [141] and [147], by reference to the following three propositions that Sir Andrew Morritt C identified in Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164 at [27] (Scott Baker LJ and Lewison J agreeing):

“(1)  The benefit and burden must be conferred in or by the same transaction. In the case of benefits and burdens in relation to land it is almost inevitable that the transaction in question will be effected by one or more deeds or other documents.

(2)  The receipt or enjoyment of the benefit must be relevant to the imposition of the burden in the sense that the former must be conditional on or reciprocal to the latter. Whether that requirement is satisfied is a question of construction of the deeds or other documents where the question arises in the case of land or the terms of the transaction, if not reduced to writing, in other cases. In each case it will depend on the express terms of the transaction and any implications to be derived from them.

(3)  The person on whom the burden is alleged to have been imposed must have or have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive the benefit.”

32. The primary judge described the purpose of the principle as being “to distinguish from the general case, where the burden of a positive covenant does not run with the land, those cases where, by reason of the successor in title to the covenantor having chosen to take the benefit of a right to which the performance of the covenant was intended to be reciprocal or upon which the enjoyment of the right is conditional, fairness requires that the positive covenant be enforceable”: [150]. His Honour further stated at [150] that the principle was not a technical one, “and it may not be remiss of the Court to be guided by the maxim to which Megarry VC referred in Tito’s Case, even though that maxim must not be treated as the basis of a general rule”. The “maxim” to which his Honour referred, by reference to the decision of Megarry VC in Tito v Waddell (No 2) [1977] Ch 106 ("Tito v Waddell”), can only be what was called the “pure principle of benefit and burden”. As I will return to below, the principle was rejected by the House of Lords in Rhone v Stephens [1994] 2 AC 310 and, before Rhone v Stephens, by the Victorian Court of Appeal in Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829 (“GIO v K A Reed”).

32. The primary judge noted that although the easements in the Transfer were created by registration of the Transfer under the Real Property Act 1900 (NSW), the parties had not made any submission that the fact that Aust-One had an indefeasible interest in the easements made any difference to the outcome of the dispute: [151]. Accordingly, his Honour made only brief comments on the effect, if any, of registration of the Transfer.

33. In that context, his Honour noted that the issue between the parties was whether the easements were conditional at all. If they were conditional, their conditionality related “to the entitlement [of the owner of the dominant tenement] to exercise the rights and not to the existence of the easement”: [157] (original emphasis). His Honour considered that a distinction could thus be drawn “between an easement whose existence is said to be conditional and an easement that continues indefinitely but creates rights that can only be lawfully exercised on the performance of particular conditions”. In the latter case, “the easement does not twinkle in and out of existence according to whether the condition is satisfied”: [161]. His Honour drew support for this proposition from the decision of Mullins J in Fanigun v Woolworths: [135], [157].

34. Turning to the terms of the Transfer, his Honour observed that the transferors did not receive a lump sum price for the grants in the Transfer. The part of the standard form transfer providing for the amount of consideration for the grants was crossed out and replaced with the words “the covenants and Agreements on the part of” the transferees inserted thereafter: [163]. As a matter of structure, his Honour considered that “the covenants and Agreements” constituted the consideration for the grants in Clauses (a) and (b), and the repair covenant: [173].

35. His Honour next considered the “commercial effect of the Transfer” and identified the following matters as obvious to an intending purchaser (at [175]):

1. It was the right of way that conferred on the four shops the benefit of passing traffic between the Street, the Lane, and the Car Park.

2. Without the benefit of the right of way, development of the dominant tenement would have been constrained, “as access to the lane would have to be provided through the wall of what is presently Shop 1A at the boundary with the lane”.

3. The right of way “had been designed (by reason of the dogleg) to create a common border between the arcade and all of the four shops on the boundary between the two properties”.

4. Access for the shopkeepers, assistants and customers to the washrooms by means of the right of way and right to use amenities meant that the four shops “would be more efficiently operated”.

5. The improved through traffic, the more efficient use of the dominant tenement by means of construction of four optimally sized shops, and the provision of conveniences to the operators and patrons meant that the benefit of the right of way “would materially increase the rental return from the operation of the four shops”.

37. Having regard to these features, the primary judge considered that any purchaser of No 181 “would have understood from the terms of the Transfer in the context of the physical relationship of the two properties that the right of way and the right to use amenities in this case had a more substantial practical and commercial significance than merely allowing access from the street and the lane to the four shops on No 181, and for persons using those shops to have the use of the restrooms”: [176] (emphasis added). His Honour described that significance as follows:

“The arrangement created by the Transfer had the exceptional feature of permitting the owner for the time being of No 181 to lease out four shops, which otherwise would only have an inefficient access to the lane, on the basis that they would operate as an integral part of a functioning retail arcade that would naturally draw custom to and from the street and the Council car park via the lane and the bridge over the stormwater drain. The Transfer created more than a right of way and right to use amenities that were required to be repaired and maintained. The creation of the easements as part of a single retail arcade permitted the owner for the time being of No 181 to derive a commercial return from the use of the rear of that property that otherwise would not be feasible.” [Emphasis added.]

38. Although his Honour rejected New World’s submission that the payment covenant was an essential part of the easement, his Honour did accept its submission that “all of the rights and obligations created by the Transfer are, both textually and in substance, part of the one transaction or ‘deal’”: [180]. His Honour found that “the true intention of the original parties to the Transfer, as discerned from its wording, was that all of the rights and obligations of the transferors and their successors were to be in return for all of the rights and obligations of the transferees and their successors”: [180]. His Honour returned to this subject at [190]. On the basis that the authorities appeared to make it clear that it was not necessary for the enjoyment of the right to be made conditional by express terms (at [191]), his Honour concluded that the performance of the payment covenant was “in the relevant sense a condition to the owner of No 181’s right to enjoy the right of way, the right to use amenities and to enforce the repair covenant”: [192].

39. In reaching this conclusion, the primary judge rejected the various arguments that Aust-One advanced, some of which remain the focus of its appeal. Aust-One submitted that the Transfer did not make performance of the payment covenant a condition to the entitlement of the owner of No 181 to enjoy the benefit of all easements and to enforce the repair covenant: [190]. In concluding, as I have noted above (at [38]) the payment covenant was a condition in the relevant sense, his Honour relied on the nature of the “deal” for which the Transfer made provision, stating at [193]:

“As is plain from a reading of the Transfer, the transferees obtained for their own benefit and for the benefit of their successors in title in perpetuity the right to participate in a single functioning retail arcade that required that they have the benefit of the easements and the repair covenant, without being required to pay any price to compensate the transferors for incurring the costs of building the arcade on Nos 183-185 or contributing to the costs of repair and maintenance, save only for the continuing performance of the payment covenant.”

40. Although the transferees would remain personally liable on the payment covenant to the transferors and their successors, his Honour considered that the possibility of an action against the transferees or their estates for breach of the covenant would cease to become valuable “after the transferees had assigned No 181 and spent the proceeds of sale”: [194]. In circumstances where, as Aust-One acknowledged, the transferees could have assigned No 181 the day after the Transfer was registered, his Honour considered that “[n]o intending purchaser of No 181 would reasonably understand the Transfer to have been intended” to have the effect that, upon assignment, the payment covenant was unenforceable against the transferee’s successors in title. On that construction, “the transferors would in effect have made a gift to those successors”: [194]. His Honour continued at [195]-[196]:

“In my view, it does not matter that the Transfer only states that the consideration to be provided to the transferors was the covenants and agreements on the part of the transferees. The Transfer was not signed as a deed and would only be deemed to be a deed under s 36(11) of the Real Property Act when it was registered. Consequently, consideration was necessary to support the Transfer in the period before registration, and it was sufficient that formally the consideration be provided by promises made by the transferees. That does not mean that, for the purpose of determining the effect of the Transfer on its true construction, the transferors should be treated as having accepted the promises made by the transferees as the only quid pro quo that they were entitled to receive for the rights granted by the Transfer to the transferees and their successors in title in perpetuity. In my view it is obvious that the objective intention of the Transfer was that the transferors and their successors in title would actually receive the specified share of the rental for the four shops as long as the easements were used.

Given that those rights are in substance a right to participate in a functioning retail arcade, the natural way to construe the Transfer is that the continuation of the entitlement to enjoy the rights depends upon performance of the payment covenant.” [Emphasis added.]

41. His Honour also rejected Aust-One’s reliance on the creation of the easements immediately upon registration of the Transfer: [197]. As noted above, his Honour considered that the timing of an easement’s creation might be relevant to the application of the conditional benefit principle “in a case where the existence of the easement is intended to depend upon the performance of the covenant by the owner of the dominant tenement” (original emphasis): [198]. By contrast, the present case involved easements which continued to exist indefinitely but by operation of the Transfer could “only be exercised on condition that some reciprocal obligation is performed by the dominant owner”: [198]. The creation of the easements once and for all upon the registration of the Transfer was, in his Honour’s opinion, “immaterial to the application of the conditional benefit principle to the enforceability of the payment covenant”: [199].

42. A further argument of Aust-One that his Honour rejected was that there was “no relevance, correlation, connection or relationship between the payment covenant and the rights (and the exercise of those rights) bestowed pursuant to the easements”: [200]. Aust-One had submitted that the payment covenant was not framed as an obligation to contribute to the cost of repair and maintenance. Nor was there any correlation between one quarter of the gross rental receipts for the four shops and the cost of repairing or maintaining the right of way and right to use amenities, with the owner of No 183-185 liable to perform the repair covenant even if the owner of No 181 did not lease any of those shops: [202].

43. The primary judge considered that this argument required “too great a monetary relationship between the reciprocal rights and obligations than is required by the conditional benefit principle, as expounded in the authorities”: [203]. Further, and in any event, his Honour considered that the payment covenant was not a form of contribution to repair and maintenance, but rather was “clearly intended to be a quid pro quo for the continuing enjoyment of the right to enhance the commercial value of No 181”, in the form of the single functioning retail arcade: [203]. His Honour stated in this respect at [205]:

“The inclusion of the payment covenant in the Transfer was, considered as a practical matter, a reasonable commercial solution to the provision by the transferees and their successors of consideration to the transferors and their successors for the benefit of the easements and the covenants created by the Transfer. That is because (a) the consideration was made proportional to the revenue received from the four shops, and would fluctuate in response to the actual benefits enjoyed; (b) it avoided the transferees having to pay a lump sum up front to the transferors; (c) it avoided the need to have to haggle over the size of the lump sum in circumstances where it would have been difficult to value the benefits properly; and (d) as the transferees and their successors were not obliged to continue to operate the four shops, the covenant to pay the one quarter of the gross rentals would abate in practice if any of the shops were not rented, whether by reason of circumstances or choice.”

44. As to the last point in this extract, Aust-One had submitted that it had no real choice as to whether or not to use the easements: [213]. The primary judge accepted that as a practical matter, “so long as Aust-One chooses to lease any of the four shops for retail purposes, it will by clear implication invite and authorise the lessees, their staff and all customers to use the right of way and the right to use amenities”: [214]. However, it did not follow, in his Honour’s opinion, that Aust-One had not had a relevant opportunity of rejecting or disclaiming the benefit of the easements: [215]. Relying on Halsall v Brizell [1957] Ch 169 and what Lord Templeman said of it in Rhone v Stephens, his Honour stated that the third proposition in Davies v Jones “may be satisfied if the dominant owner has a theoretical possibility of making the choice, even though it might be unreasonable to expect that owner to reject or disclaim the benefit”: [215]:

“If the owner of a residential allotment has a sufficient choice whether or not to use the roads and sewers upon which the allotment depends, then it is a sufficient right to choose for Aust-One to decide whether or not to lease any of the four shops. If Aust-One chooses to lease any of the four shops, the fact that it then cannot control who decides to use the easements does not mean that proposition (3) is not satisfied.”

45. In his Honour’s view, there was no reason why the owner of No 181 could not choose “to cease to take advantage of the Transfer” if the payment covenant became onerous, and “to develop the property in some different way”: [216]. His Honour rejected Aust-One’s contention that it did not have that opportunity because of the clause in the Transfer conferring on the Council a right to veto any agreement to release rights and obligations in the Transfer. In circumstances where the evidence did “not establish that the Council has any interest in the issue whether the owner of No 181 continues to lease the four shops”, his Honour inferred “that the Council would permit the owner of No 181 to cease authorising persons to use the right of way, provided the four shops ceased to be used for retail purposes”: [219]. His Honour said in this context that the payment covenant was “as much a requirement of the Council deed and the Transfer as any other right that was created by those instruments”: [220]. Ceasing to rent the four shops and permanently shut their doors was “a relatively extreme commercial act”, but it was an act that could practicably be done, “leaving the owner to continue to enjoy the commercial benefit from renting the balance of the property, as was apparently the case before the Council deed”: [221].

46. Finally, Aust-One had relied on the easement for support as telling against the application of the conditional benefit principle to the Transfer. Assuming for the purposes of the argument that the building on No 181 made use of the easement for support, his Honour accepted that the third requirement of Davies v Jones was not satisfied in respect of that easement: [224]. It did not follow, however, that the principle did not apply in relation to other rights created by the Transfer. His Honour stated in this respect at [225]:

“Although the agreement contained in the Council deed, and thus the Transfer, was a single ‘deal’ that was intended to allow the owner for the time being of No 181 to participate in a single retail arcade, by means of being given rights over Nos 183-185 without which the commercial benefit that could be derived from the rear of No 181 would be severely limited, it does not follow that the application of the conditional benefit principle requires that all of the rights provided to the owner of No 108 [sic] must be conditional upon the performance of the payment covenant. It is necessary to look at each of the rights separately and it may be determined that some are conditional on the performance of the payment covenant, while others are not.”

47. His Honour distinguished the easement for support in its relationship to the payment covenant from the other rights granted to the owner of No 181 by the Transfer, stating at [227]-[228]:

“The effect of the payment covenant is that it requires the owner of No 181 to pay to the owner of Nos 183-185 a share of the commercial return from renting the four shops, which bears a relationship to the amount of ongoing custom enjoyed by the lessees of the four shops, in so far that customers will use the right of way and the right to use amenities, both of which are the subject of the repair covenant. In a real way the payment covenant relates to the right of way, the right to use amenities and the repair covenant in a manner that is not so for the easement for support.

It follows that, if the owner of Nos 183-185 sought an injunction to restrain the owner of No 181 from using the easement for support, on the ground that the payment covenant had not been performed, the application would fail, because the conditional benefit principle did not apply to the easement for support. That does not mean that an application for an injunction to prevent the use of the right of way or right to use amenities by persons using the four shops, or for damages for breach of the payment covenant, would fail for the same reason.”

48. For those reasons, his Honour dismissed Aust-One’s claim. On 6 April 2022, his Honour ordered Aust-One to pay New World $83,181.32 and declared that Aust-One was bound by the payment covenant for so long as New World enjoyed the right of way and right to use the amenities.

Ground 1 of the Notice of Appeal: admissibility of, and reliance on, the Council Deed

49. Aust-One contended that the primary judge erred in having regard to the Council Deed in construing the Transfer, “even for the limited purpose of gleaning facts objectively known by the parties” to the Transfer at the time it was executed and/or registered. Relying on Westfield and subsequent authorities, Aust-One submitted that his Honour was constrained in the evidence to which he could have regard in interpreting a registered dealing. Aust-One submitted that his Honour’s characterisation of a number of the rights granted could not have been gleaned from the terms of the Transfer or the Deposited Plan (both of which showed the four shops in existence), specifically:

1. the description of the payment covenant as relating only to “the new development on No 181”: at [209];

2. the suggestion that the making of the payment covenant was “as much a requirement of the Council deed and the Transfer as any other right that was created by those instruments”: at [220]; and

3. the assumption that it was the granting of the right of way that enabled Shops 1A to 4A to be developed and operate, thereby linking the benefit of, primarily, the right of way to the rent derived from leasing those shops to justify why the payment covenant was enforceable. In particular, Aust-One relied on his Honour’s statement that the creation of the easements enabled the owner of No 181 to derive a commercial benefit “that otherwise would not have been feasible”: at [176].

50. In response, New World submitted that the primary judge had not ascribed any weight to the “facts as they existed at the date of the Transfer”. Rather, it contended that his Honour had relied upon the terms of the Transfer, the Deposited Plan, and the physical layout of the properties, which was observable by third parties. Unlike Fermora, the present case was not one in which New World had submitted, or the primary judge had found, that the Council Deed was admissible for the purpose of construing the Transfer.

51. It is apparent from the reasons of the primary judge, to which I have referred at [22] above, that his Honour was cognisant of the limitations on the use he could make of the Council Deed in construing the Transfer. His Honour’s reasons indicate that his conclusions rested upon the terms of the registered documents, including the Transfer and the drawings that formed part of the Deposited Plan. True it is that his Honour referred to some of the terms of the Council Deed, and the development of No 181 and No 183-185, but his Honour’s primary focus was the operation of the two premises having regard to the terms of the Transfer alone. As his Honour observed, it was evident from its terms that Shops 1A to 4A derived a significant benefit from the right of way and use of amenities granted. Ground 1 should be dismissed.

The Notice of Contention: Was the payment covenant part of the essential fabric of the easements granted?

52. It is convenient to deal next with the Notice of Contention, as it related to the first of the ways in which his Honour considered that a positive covenant could bind successors in title notwithstanding the general rule in Rhone v Stephens. New World submitted that his Honour should have found that the payment covenant was part of the “essential fabric” of the right of way and the use of amenities. New World contended that a positive covenant may be essential to an easement “if the terms of the easement on its proper construction make it so”. It submitted that the Transfer, properly construed, indicated that the payment covenant was so essential to the easements for right of way and use of amenities that it could not be severed from them.

53. New World accepted that authority on the issue was “plainly limited”. It relied primarily on Cameron v Dalgety, which concerned a grant of water to the plaintiff’s property, by deed, from a source of water on the defendant’s adjoining estate. The water flowed through a water race on the estate, and the deed included an obligation imposed on the owner of the estate to keep the water-race properly cleaned out and its banks properly maintained and repaired. In allowing the plaintiff’s claim for damages for breach of the covenant of repair and maintenance, Herdman J found that the covenant to repair was part of the grant (at 163-164):

“It is part of the benefit conferred upon the grantee, for, after all, what benefit did the grantor undertake to give, and what benefit did the grantee stipulate for? Surely a right to water which might run in a race in a state of repair. Whether the covenant does or does not run with the land does not seem to me to matter. If the covenant is an easement or part of an easement, or is an incident to an easement, that, I think, is sufficient to bind the assigns of the grantor and to confer a benefit upon the assigns of the grantee.”

54. Apart from Cameron v Dalgety, New World relied on a decision of Newton DCJ, sitting in the District Court at Gunnedah, in Frater v Finlay (1968) 91 WN (NSW) 730. At issue in that case was whether the successor in title of the dominant tenement, which had a right to take water from bores on the servient tenement, was bound by a term of the grant to the effect that the cost of keeping the bores would be shared equally between the transferor and transferee. In agreeing with the reasoning of Herdman J in Cameron v Dalgety, Newton DCJ expressed the view that “if the grantor of an easement can bind himself and his assigns to repair by the grant then, a fortiori, the owner of the dominant tenement can bind himself and his assigns to repair or to contribute to the cost of repairs if the repairs are carried out by the owner of the servient tenement” (at 735; see also 736-737).

55. New World submitted that when one had regard to the language and structure of the Transfer, the payment covenant was essential to the right of way and the use of amenities (which were to be maintained in usable form) “in part because of the repair covenant and to which the payment covenant contributes”. In that sense, the payment covenant was of the essence of the easement. Further, and contrary to the primary judge’s conclusion, it did not follow that all of the covenants in the Transfer needed to be treated as equivalent and as binding all successors in title. Senior Counsel for New World relied, by way of example, on the competition covenant, which was not supported in any way by the payment covenant.

56. In Clifford v Dove at [66], Bryson J described Newton DCJ’s conclusion in Frater v Finlay as involving “a marked extension of anything supported by Cameron v Dalgety”. His Honour referred to subsequent judicial consideration of the decision as “not uniformly favourable” (at [66]), including the reasons of Kneipp J in Rufa v Cross. Kneipp J described the analogy that Newton DCJ drew between Cameron v Dalgety and the circumstances before him as “difficult to accept”, in circumstances where the covenant was made by a grantee (at 370). DM Campbell J, whose view Lucas SPJ preferred (at 366), considered that the covenant in question was part of the essential fabric of the easement, albeit without referring to Cameron v Dalgety or Frater v Finlay (at 367).

57. Ultimately, decisions such as Cameron v Dalgety and Rufa v Cross (to which I will later return) highlight that whether a covenant or condition forms part of the essential fabric of an easement turns on the proper construction of the relevant instrument. As Aust-One submitted, Kneipp J’s criticism of Frater v Finlay in Rufa v Cross was well-made; but in any event the covenant in issue in Frater v Finlay was drawn more narrowly than the payment covenant. The present payment covenant is not formulated by reference to the easements; and the easements are, in the words of the primary judge, “completely effective” whether or not the payment covenant is performed: [183].

58. Aust-One submitted that the correctness of that characterisation could be tested by reference to the hypothetical scenario in which the proprietor of No 181 personally operated retail businesses from the shops, instead of leasing them out. In that circumstance, the right of way and right to use amenities would remain operative, and no monies would be payable. I accept that submission. The fact that the grant of the easements was expressed as “subject to” the covenants which follow does not call for a contrary conclusion: Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557 at 565 per Peter Gibson LJ (“Thamesmead”); Rural View Developments v Fastfort at [27] per McMurdo J.

59. The primary judge did not err in concluding that the payment covenant was not of the essence of the easements granted in the Transfer. I would dismiss the Notice of Contention.

Grounds 2 and 3 of the Notice of Appeal: conditional benefit

60. By Ground 2, Aust-One contended that the primary judge erred in holding that:

1. performance of the payment covenant was a condition of the right of way, the right to use amenities and to enforce the repair covenant in the same dealing; and that

2. the payment covenant bound the appellant as the successor registered proprietor of the dominant tenement for so long as it continued to enjoy the aforementioned rights.

61. By Ground 3, Aust-One contended that the primary judge should have reached the contrary conclusions to those referred to in Ground 2.

Parties’ submissions on Grounds 2 and 3

Application of the conditional benefit principle

62. As I noted above, both parties proceeded on the basis that what the primary judge referred to as the conditional benefit principle was available. They continued to support its availability in supplementary submissions filed on the question of whether the principle should be adopted in the Torrens system, although Aust-One sought to limit its scope in a manner that New World opposed.

63. Accepting that no intermediate appellate court in Australia had decisively adopted the conditional benefit principle in respect of Torrens title land, Aust-One submitted that its reception had been endorsed by Kneipp J in Rufa v Cross, by Emmett JA in GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills (2014) 17 BPR 33,133; [2014] NSWCA 202 at [29] (Gleeson JA agreeing) ("GM Amalgamated”), and by Sackville JA in the same case (at [68]). The latter case demonstrated, in Aust-One’s submission, “the place and justification for why certain positive covenants – tied to restoring the servient tenement – should run with the land”. New World endorsed Aust-One’s submissions on these cases and advanced a number of reasons why the principle should be adopted.

64. Although both parties proceeded on the correctness of the three propositions in Davies v Jones, Aust-One submitted that the conditional benefit principle was limited to positive covenants imposing obligations that were “no more than restorative in nature, namely, to repair (or contribute to the repair of) the easements themselves, or to repair or remedy damage caused to the servient tenement by the exercise of the rights granted”. The burden of such covenants was reciprocal “because the restorative action is tied to continuing the existence of the right or remedying the harm flowing from the exercise of that right”.

65. Aust-One submitted that the payment covenant was not of that nature but rather was a positive covenant that was designed to share the economic benefits that the dominant tenement derived from the existence or use of an easement. The conditional benefit principle did not, in its submission, extend to such a covenant, there being no decided cases which supported it and no criterion by which a court could determine whether such a covenant was genuinely sharing economic benefits (absent economic evidence (which would in any event be inadmissible, having regard to Westfield)). Further, such positive covenants could not be accommodated within the classical definition of an easement. In light of the uncertainty such covenants would generate, application of the principle would be contrary to the objectives of the Torrens system.

66. New World submitted that the law relating to easements precluded an approach whereby certain species of benefit (and reciprocal burden) were excluded a priori from the scope of the operation of the conditional benefit principle. It submitted that whether or not the requirement of conditionality or reciprocity was satisfied must depend on construing the terms of the easement and examining what, in substance, a person was receiving. The limitation for which Aust-One contended would limit the conception of benefit to the use of infrastructure, in circumstances where the categories of benefit received by the use or enjoyment of easements were inherently broader and, in any event, were not closed. It was possible, in New World’s submission, for a burden intended to share economic benefits derived by the dominant tenement to be relevant to the exercise of rights “where the burden is proportional to the economic benefit received and fluctuates in response to the actual benefits; as occurs here”.

Aust-One’s submissions on Grounds 2 and 3

67. Assuming that the conditional benefit principle applied, Aust-One’s central contention was that the primary judge had misapplied it in four key respects.

68. First, his Honour had misconstrued the payment covenant as being in exchange for the right to participate in a single functioning retail arcade. In Aust-One’s submission, the right of footway, the right to use amenities and the repair covenant, which it termed the “Conditional Rights”, did not meet the description of the right that the primary judge considered the Transfer conferred. Further, and significantly in its submission, the payment covenant was not properly construed as consideration for the “continuation” of the right to participate in a single functioning retail arcade.

69. Secondly, Aust-One submitted that the primary judge had wrongly focused on the intention of the original parties to the Transfer, when the critical question was “whether there is a sufficient connection, correlation, reciprocity or mutuality between the Payment Covenant and the exercise of the rights conferred by [the Transfer]” (original emphasis). That question was not answered affirmatively simply because the consideration for the grant of the rights was predicated on the payment covenant being observed in perpetuity.

70. Thirdly, Aust-One submitted that the primary judge erred in giving an affirmative answer to the critical question posed in the previous paragraph. It advanced five reasons in support of this submission, the first of which was that, as a matter of text, the payment covenant was not referable to the use or exercise of any easement, but rather was expressed to be consideration for the original grant. Next, the payment covenant did not operate by reference to the exercise of any of the easements, but by reference to the letting of the four shops referred to. The primary judge conflated the benefit flowing from the Transfer, which was enjoyment of the easements and the repair covenant, with the benefit flowing from leasing the four shops.

71. Aust-One further submitted that a covenant to pay a quarter of the gross rentals from the four shops was not a proxy for the exercise of the Conditional Rights. It supported this contention by reference to the operation of the payment covenant during the “said term” of the easements granted by the Transfer. On this construction, if only the easement for support remained, the payment covenant would be unaffected notwithstanding that it did not, on the primary judge’s findings, condition that easement. In that respect, Aust-One sought to emphasise the absence of relevance, correlation and reciprocity between the benefit and the burden, in the sense that the burden of the payment covenant would remain undiminished even where discrete benefits were relinquished. On this aspect of the alleged error, Aust-One finally contended that even if the primary judge correctly characterised the Conditional Rights as constituting, in substance, a right to participate in a functioning retail arcade, enjoyment of that benefit could readily be had without incurring the purported correlative or reciprocal burden in the payment covenant, by the proprietor of No 181 personally operating the four shops.

72. Finally, Aust-One submitted that the primary judge erred in concluding, at least in relation to the right of footway, that Aust-One had any real or theoretical choice whether to use or exercise that right. So long as the right of footway existed, Aust-One could not realistically prevent licensees or invitees of No 181 using the right. Further, by reason of the consent covenant, Aust-One had no unilateral ability to decide whether to reject or disclaim the right. In so far as his Honour reached the contrary conclusion by reference to Halsall v Brizell, his Honour had wrongly formulated the choice as being between leasing the four shops and avoiding the payment covenant. That approach correlated the burden of the payment covenant to the wrong benefit, which was in fact the right of footway.

New World’s submissions on Grounds 2 and 3

73. New World endorsed the primary judge’s observation at [101] that the Court’s task was “to determine what the true meaning and effect of the conditional benefit principle is, and having done that, to apply the principle to the current facts”. In contrast to counsel for Aust-One’s “formal” analysis that the Transfer “merely” granted the Conditional Rights to the owner of No 181, counsel for New World submitted that his Honour was correct to consider what, in substance, the Conditional Rights gave to the owner of No 181 and what, in substance, the owner was paying for.

74. New World submitted that the primary judge was correct to conclude that, as a matter of substance, Aust-One was paying for a right to participate in, or the benefit of participating in, a functioning retail arcade. The structure and language of the Transfer supported that finding, as did the physical layout of the properties. In response to Aust-One’s argument that the owner of No 181 could personally operate retail businesses from the four shops, New World submitted that the Transfer contemplated, and only contemplated, the letting of those shops. A decision on the part of the owner to operate them would defeat the operation of the payment and competition covenants, with such a radical shift in operations requiring Council’s approval pursuant to the consent covenant. In any event, New World contended, Aust-One should not be permitted to raise this aspect of the argument for the first time on appeal.

The principle of conditional benefit

75. Given that the principle of conditional benefit is said to constitute an exception to the general rule, it is important to acknowledge the general rule and its rationale. It has long been established that the burden of a positive covenant is not enforceable against successors in title of the covenantor: Austerberry v Corporation of Oldham (1885) 29 Ch D 750 (“Austerberry”) at 773-774 per Cotton LJ, 781 per Lindley LJ, 784 per Fry LJ. In declining to overrule Austerberry in Rhone v Stephens, Lord Templeman summarised the position at common law (at 316-317):

“At common law a person cannot be made liable upon a contract unless he was a party to it. In Cox v. Bishop (1857) 8 De G.M. & G. 815 a lease was assigned to a man of straw and it was held that the covenants in the lease could not be enforced against an equitable assignee of the lease who had entered into possession. The covenants were not enforceable because there was no privity of contract or estate between the lessee and the assignee. The rigours of the common law which do not allow covenants to be enforced by and against successors in title were relaxed first by the doctrines laid down in Spencer's Case (1583) 5 Co. Rep. 16a and then by statutory extensions of those doctrines introduced by the Grantees of Reversions Act 1540 (32 Hen. 8, c. 34), the Conveyancing Act 1881 (44 & 45 Vict. c. 41) and the Conveyancing Act 1911, now repealed and reproduced in sections 141 and 142 of the Law of Property Act 1925. In the result, as between landlord and tenant both the burden and the benefit of a covenant which touches or concerns the land demised and is not merely collateral run with the reversion and the term at law whether the covenant be positive or restrictive. As between persons interested in land other than as landlord and tenant, the benefit of a covenant may run with the land at law but not the burden: see the Austerberry case.”

76. Lord Templeman acknowledged that restrictive covenants are enforceable in equity. However, enforcement of a positive covenant in equity would “flatly [contradict]” the common law rule “that a person cannot be made liable upon a contract unless he was a party to it” (at 318):

“Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property. As Lord Cottenham L.C. said in Tulk v Moxhay, at p. 778: ‘if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased’.”

77. Lord Templeman determined that overruling Austerberry would “destroy the distinction between law and equity and … convert the rule of equity into a rule of notice”(at 321). His Lordship also dismissed the plaintiffs’ alternative argument, which was described as relying on “the doctrine of benefit and burden in Tito v Waddell (No. 2)” (at 314).

78. As I noted above, in Tito v Waddell, Megarry VC was prepared to accept what has been subsequently referred to as the “pure principle”, namely, that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Megarry VC gave two examples of this principle’s application, the first of which was Halsall v Brizell (at 294ff). That case concerned a building scheme that was entered into when a plot of land was sold off in some 174 lots, leaving the roads, underlying sewers and a promenade along the sea wall vested in the owners of the original plot. Each purchaser of a lot entered into a number of what Upjohn J described as “building covenants”, which were repeated in a deed of 19 August 1851. The principal object of the 1851 deed “was to declare trusts concerning the roads and the promenade for the benefit of the purchasers and to provide for payment of the necessary expenses proportionately by the owners in respect of the upkeep and maintenance of the roads and promenade, and also of the sewers, which had been placed under the road” (at 651).

Should the conditional benefit principle be accepted as law in Australia?

246. The following strands emerge from the analysis above:

1. Leaving aside the recent English case law, the general law has been reluctant to allow covenants to run with land so as to bind successors in title. The common law has not allowed the burden of a covenant to run with the land; equity’s intervention has been carefully limited by the identification of three requirements; and this area of the law has been significantly modified by statute (a point discussed further below).

2. The influential decision of Upjohn J in Halsall can be understood as akin to the recognition of an implied contract, enforceable in equity, rather than an acceptance of the ability of positive covenants to run with land. The defendants in that case had no rights to use of the roads or sewers in the common area, but if they chose to make use of them, they effectively took the rights as found in the deed entered by their predecessor in title.

3. The mining cases present no very clear principle. The judgments of Bramwell B and Cleasby B in Aspden can be argued to support the modern English view, but the other judgments do not appear to go that far and arguably were limited to mining rights. That being said, these cases do illustrate the justice of upholding against successors in title at least conditions on grants which require the person exercising the right to compensate the landholder for damage done by exercise of the right.

4. The decision in Rhone is not necessarily limited to property rights and is substantially based on Halsall. The decision requires that there be a right held by the defendant to which the condition which is sought to be enforced against the defendant is attached; that the condition be “relevant to the exercise of the right”, which is a notion Lord Templeman did not develop; and, arguably, that the defendant has at least a legal, if not necessarily a practical, choice as to whether to enjoy (in the sense of exercise) the right to which the condition is attached.

5. Subsequent English Court of Appeal decisions have articulated a further requirement that the benefit and burden must be conferred in or by the same transaction. This statement encompasses the requirement that there must be a property right held by the defendant to which the condition which is sought to be enforced is attached. The decision in Thamesmead takes a relatively confined approach to the conditional benefit principle recognised in Rhone. Arguably a somewhat more relaxed approach was taken in subsequent cases, including as to the need for the benefits to correlate to the burdens obtained by the dominant owner.

6. Recent English cases have indicated that the conditional benefit principle is equitable, although there has been no clear exposition of the point.

7. There has been little consideration of the extent to which the conditional benefit principle as it has evolved in England is good law in Australia, and there is no binding authority on point.

247. In this case, both parties accepted the tripartite formulation of the conditional benefit principle set out in Davies as the starting point. As addressed above at [162], that acceptance does not bind the Court. In its supplementary written submissions, after the Court gave the parties a further opportunity to address on whether the principle should be accepted in Australia, Aust-One invoked Rufa and GM Amalgamated. Neither of those cases determines the issue, although it may be accepted that in Rufa Kneipp J did accept and apply Halsall. That being said, Aust-One did seek to characterise the second Davies condition in a particular way, which I shall address shortly.

248. In its supplementary submissions, the one positive argument which the respondent New World made for recognising the principle was that it “protects against circumvention of bargains” (its other two arguments were addressed to why the principle is not incompatible with the Torrens system). It said:

Absent the principle, the grantee of an easement could enter into an agreement for an easement and, immediately thereafter, or once the easement is registered, transfer their interest in land to a third party to circumvent any conditions on the easement … In such a circumstance, the grantee could avoid complying with conditions to the easement, even though, if it continued to be a party to the underlying agreement, it would continue to be bound by those conditions. As Dixon CJ observed in a different context: “[i]t is a time-honoured principle that you cannot do indirectly what you are forbidden to do directly”: Wragg v State of New South Wales (1953) 88 CLR 353 at 387-388.

249. Yet that is precisely the problem with which equity has grappled since Tulk v Moxhay. Lord Cottenham there observed (at 1144):

And it is now contended, not that the vendee could violate that contract, but that he might sell the piece of land, and that the purchaser from him may violate it without this Court having any power to interfere. If that were so, it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless.

250. In full awareness of the objection to allowing circumvention of bargains, equity still took a limited approach, in particular such as generally only to intervene to uphold the promise against successors where it is a negative one. As noted above, that limited acceptance reflected the general aversion of the common law (in the broader sense) to long-term clogs on the use of property, which inhibit realisation of the full potential and efficient use of land, to the detriment of subsequent owners and the community.

251. That aversion does not mean that the law cannot evolve, particularly as society, living conditions and land use change. I have noted the sense of justice that emerges from the mining cases in recognising that where a person has a right over the land of another which may cause significant harm to that land, then the rightholder should be held to a requirement of compensation even if it was not party to the original promise. Recognising a right in such cases is also consonant with preservation of, and continued ability to realise the potential of, the land which is subject to the right.

252. There is also obvious good reason to allow the sharing of burdens in addressing the sort of issue that arose in Halsall and the subsequent English Court of Appeal decisions, namely enabling the sharing of the cost of burdens in maintaining and providing infrastructure or services in the common interest of surrounding landholders. Peter Gibson LJ in Thamesmead called for legislative change. In Rhone Lord Templeman noted the forceful argument that was put challenging the Austerberry limitation that only negative covenants would burden subsequent owners, an argument that drew on an article by Sir William Wade, together with reports by a committee headed by Lord Wilberforce and a report by the Law Commission (see at 321). Nevertheless, his Lordship considered such a significant change to be a matter for Parliament.

253. The article by Wade referred to there is forceful: HWR Wade, “Covenants – A Broad and Reasonable View" (1972) 31 Cambridge Law Journal 157. He said at 160-161 (citation omitted):

In developing the new proprietary interest which Tulk v. Moxhay brought into being, it was natural for them to proceed with caution, and to bear in mind the time-honoured policy of limiting the kinds of incumbrance which can be imposed upon the freehold. But the conditions of modern life, particularly city life, demand more complex interests in land. The property law of the nineteenth century was highly individualistic, and it is not surprising that it made little provision for freeholders living like battery hens in urban developments where as much as 70 per cent of the land area may consist of drives, lawns, gardens and playgrounds – assets which belong to none of them personally but are socially necessary for them all.

254. Another relevant point emerges from the article. He notes that the Wilberforce committee made out a case for legislative reform. Wade then said (at 158, citation omitted):

But what sort of legislation should it be? Many other countries have enacted elaborate laws for regulating property rights in multiple developments. A typical example is the Conveyancing Strata Titles Act 1961 of New South Wales, recommended in the Wilberforce Report as a good model for Britain and epitomised in one of its appendices.

255. The sort of problem with common property and services that arose in Halsall and such cases has, for some time now, largely been capable of being addressed by strata title schemes in Australian jurisdictions. The imperative for reform raised by Wade and others is thus not so pressing here as it was when the relevant comments were made. That is not to say that there is no case for some further evolution here, taking account of the steps in England.

256. There have been other legislative developments of note. As mentioned above, imposing restrictions on land can manifest a desire to protect the amenity, utility and value of surrounding land. But the limited restrictions imposed by the common law on the use of land (in particular through the law of nuisance) have been greatly expanded by the development of statutory environmental and planning regimes.

257. Moreover, Australian legislatures have provided for some positive covenants to be registered and to run with the land. In the Northern Territory the distinction between negative and positive covenants has been overridden, on a prospective basis: Law of Property Act 2000 (NT), Pt 9 Div 4. In New South Wales, positive covenants can be imposed at the instigation of prescribed (in particular, governmental) authorities: ss 88D and 88E, Conveyancing Act 1919 (NSW). More generally, positive covenants can be imposed if they concern maintenance or repair: s 88BA. Modifications to the general law position have also been made in Victoria (see, eg, ss 173 and 182 of the Planning and Environment Act 1987 (Vic)), in Queensland (see, eg, s 97A of the Land Title Act 1994 (Qld)), and in Western Australia (see, eg, s 15 of the Lands Administration Act 1997 (WA).

258. These changes as regards positive covenants cut a bit each way. On the one hand they might be seen to encourage the evolution of the general law, including because the Court can have regard to what legislatures have determined to be the appropriate balance between competing claims and policies: note Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126; [2001] HCA 45 at [33] per Gleeson CJ, Gummow, Kirby and Hayne JJ. On the other hand, given the lack of uniformity “there is no consistent pattern of legislative policy to which the common law in Australia can adapt itself”: Esso Australia Resources v Commissioner of Taxation (1999) 201 CLR 49; [1999] HCA 67 at [23]. This case turns on the common law of Australia; there is no separate common law of New South Wales. It might also be argued that the legislative changes reduce the force of imperatives for the general law to evolve. On balance, the particular legislative changes as regards positive covenants are a neutral factor.

259. In my view there are sufficient imperatives to accept some variant of the conditional benefit principle as a matter of equity. To do so recognises the justice to be served in the sorts of examples addressed in the analysis above. But, reflecting the manner of development of the common law, any such development should be careful, evolutionary and so far as possible harmonious with broader legal principle. In what follows I will focus on any such principle as it applies to land and as regards easements. It is not necessary to consider how much further, if at all, the principle would apply.

260. As discussed above at [165]-[171], it is well-established that equity will enforce covenants where they are negative, benefit the land of the covenantee, and were intended to run with the land. These issues are to be assessed as a matter of substance and not form: note Forestview Nominees at [30]. The first requirement is at issue here. But the second and third can offer some guidance.

261. The first requirement that emerges, appropriately, from Rhone and the subsequent English authorities as to the conditional benefit principle is that there be a right held by the defendant to which the condition which is sought to be enforced against the defendant is attached. The Court of Appeal decisions have also articulated a requirement that the benefit and burden must be conferred in or by the same transaction. The significance of that variant of the requirement is not clear, and does not appear necessary. An imperative to maintain or rebuild a right of way may, for example, only become apparent subsequently to its creation. That the agreement to provide for the sharing of the cost of doing so only arose subsequently to and separately from creation of the easement does not undermine the reasonableness of the agreement.

262. It is implicit but not express in the English cases that the benefit and burden were intended to run with the land. Consistently with the approach taken to negative covenants, it is appropriate to spell that out as a second requirement.

263. The next requirement found in Rhone was that the burden be “relevant to the exercise of the right”. What Lord Templeman meant by that was not developed, though it is apparent that he accepted that at least one way of being relevant to the exercise of the right is if the condition is part of a bundle of “reciprocal benefits and burdens”. In my view this requirement should be accepted as a third necessary element. But what it means requires some further explanation.

264. The burden on the dominant tenement should be conditional or reciprocal in the sense that it can be characterised as benefiting the servient land by ameliorating the effects or sharing the costs of being subject to the correlative burden in favour of the dominant tenement. That would extend to a duty to compensate for maintenance and repair of common infrastructure. But it would not extend to being an ongoing obligation to pay a price for gaining the access per se, including by way of sharing economic benefits or profits. This view is broadly consistent with Aust-One’s submission that the role for the conditional benefit principle is limited to “obligations that are no more than restorative in nature”. It does not rule out imposition of a fee per use, or the like, so long as that fee could be characterised as ameliorating the effects or sharing the costs of the burden on the servient tenement.

265. The English cases set out above do not support or invoke any notion of sharing of economic benefits or the like, at least in terms of what was actually decided. The mining cases were about compensating for harm. As discussed above at [204], an obligation to pay compensation for damage is rather a different thing from an obligation to pay a fee for use. Most of the other modern English cases were about sharing of the cost of shared infrastructure.

266. Such an understanding reflects the equitable principle that for a negative covenant to be enforced it must benefit the dominant tenement rather than just confer a personal benefit on the owner of the dominant tenement. Similarly, “an easement must ‘accommodate’ and serve the dominant tenement and be reasonably necessary for the better enjoyment of that tenement”: Stolyar v Towers (2018) 19 BPR 38,287; [2018] NSWCA 6 at [39].

267. Applying the principle here recognises that on both sides of the relationship there is an interest in preserving the amenity, utility and value of neighbouring land. That includes, for the servient tenement, avoiding or limiting the harm to the land caused by the property right held by the dominant owner. Such a limit reflects the principle that the law should be reluctant to allow permanent clogs on land, and such burdens as are permitted should be tailored to the recognised legitimate object of preserving the amenity, utility and value of neighbouring land. Sharing of economic benefits does not fall within that notion. An ongoing economic burden on the dominant tenement can become a significant restriction on the use that may be made of that land, not least because it may tend to require continuation of the activity which led to creation of the right over the servient tenement even if that activity no longer represents the best, or preferred, use of the land.

268. It cannot be assumed, incidentally, that bargaining power lies with the dominant owner when the original easement (or other such right) is negotiated. In the case at hand, it may well have been that the original owner of No 181 needed to negotiate the right of way in order to make use of the back part of its block but was not in a position to pay a capital sum upfront. The result is that a significant burden remains indefinitely on that land.

269. New World submitted that “an easement may be found to accommodate the dominant tenement where it enhances the commercial value of that tenement or accommodates a business carried out therein, and is connected with the normal enjoyment of the tenement”. In support of this proposition it cited cases which included Re Ellenborough Park [1956] Ch 131. Lord Evershed MR said there that the fact that the right did, in some degree, enhance the value of the property could not “be dismissed as wholly irrelevant”, but he added that “it is not sufficient to show that the right increased the value of the property conveyed, unless it is also shown that it was connected with the normal enjoyment of that property”: at 173; see also Casuarina Rec Club Pty Ltd v Owners - Strata Plan No 77971 (2011) 80 NSWLR 711; [2011] NSWCA 159 at [75]-[78]. That line of authority does not support New World’s position. It is one thing to accept that an easement may be found sufficiently to benefit the dominant tenement taking account of the fact that it enhances the ability to carry on a business there. It is another to say that the servient owner should be able to treat the easement itself as a matter of permanent profit by way of profit-sharing or quasi-rental. Such arrangements may of course be made by way of contract, but it is a very large step to treat them as permanent property rights.

270. Mitchelmore JA expresses the view at [133] that, whilst not necessary to decide, treating the requirement as directed to “restorative” burdens, as submitted by Aust-One, could prove a distraction from the central task of construing the relevant instrument. I respectfully disagree. For the reasons given, I consider it is a key feature of the requirement. More generally, to my mind it is a more satisfactory resolution of the need to balance competing interests than to focus on construction in the manner adopted by her Honour.

271. Part of the balancing undertaken by Mitchelmore JA involves not placing “too much reliance on matters of substance” (at [144]) in order that the exception not undermine the general rule. It can be accepted that the general rule should not be subverted, but that can achieved in the manner I have set out. To seek to effect that end by downplaying matters of substance conflicts not only with the recent English emphasis on substance (noted above at [226]-[228]) but with the equitable approach to this area more generally. It also leads to rather unsatisfactory and formalistic results. The transfer at issue here granted the easement and other rights “in consideration of the covenants and agreements” in the document, which included the payment covenant, making it clear that the payment covenant was part of the quid pro quo for the grant. It would have been possible for the transfer to be expressed in terms stating that exercise of the right of way depended on ongoing fulfilment of the payment covenant. If it had been so expressed, in my view the law should still not uphold such a clog on the land.

255. This third requirement – of the benefit being relevant to the burden by way of being ameliorative or cost-sharing – is sufficient to dispose of this case. New World made no attempt to characterise the obligation of Aust-One to pay one quarter of the gross rentals of the four shops as falling within such a notion. Unsurprisingly, there is no evidence indicating that such a significant and ongoing fee was a reasonable proxy of the cost of maintaining the right of way.

256. This conclusion makes it unnecessary to consider whether there is a fourth requirement relating to the person on whom the burden is alleged to have been imposed must having had the opportunity of rejecting or disclaiming the benefit. That point is not without its complexities, as the cases show. For example, as noted above and discussed in Thamesmead, Upjohn J did not address the issue of the seawall in Halsall, where it is difficult to see how the benefit of such a common piece of protective infrastructure could be disavowed. The common law evolves step by step. It is neither necessary nor appropriate to seek to resolve whether this requirement applies, and if so how, in Australia.

Conclusion

274. For the above reasons, the conditional benefit principle does not support the claim made by New World. Aust-One was not liable to pay 25% of its gross rentals from the four shops benefitting from the right of way. The appeal should be upheld.

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Annexures (811722, pdf)

Amendments

21 February 2023 - 21 February 2023 - minor typographical amendment to orders

22 February 2023 - Counsel for appellant updated

24 February 2023 - Amendment to representation on cover sheet

Decision last updated: 24 February 2023