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

Aust-One Investment Pty Ltd sued New World Investments Pty Ltd in the Supreme Court of New South Wales, seeking to enforce a positive covenant. The covenant, contained within the registered title of the servient tenement, required the owner of the servient tenement to pay a quarter of the monthly gross rentals of four shops on the dominant tenement. The covenant arose from an easement over the servient tenement, which allowed for the construction of the shops on the dominant tenement. The primary issue was whether the positive covenant to pay the gross rentals was enforceable by the owner of the servient tenement.

The court had to determine if the covenant was enforceable because it was of the essence of the easement, or because of the conditional benefit principle. The conditional benefit principle is a doctrine that holds that a positive covenant can be enforceable where the benefit of the covenant is conditional upon the burden being performed. The court held that the conditional benefit principle was good law in Australia. The court found that the existence of the easement was ensured by the operation of the Torrens system, and the exercise of the rights of the easement was dependent on the performance of the condition. The court adopted the test in Davies v Jones to determine whether the conditional benefit principle applied, which required the benefit and burden to be conferred in or by the same transaction, and for the enjoyment of the benefit to be conditional on or reciprocal to the burden. The court found that the payment covenant was a benefit that was conditional on the burden, and therefore enforceable.

The court also considered the meaning of “gross rentals” and “net rentals”, finding that “gross rentals” referred to the total income from the shops before any expenses were deducted, whereas “net rentals” referred to the income after expenses were deducted. The court held that the covenant required the payment of gross rentals, not net rentals. Finally, the court considered whether information beyond the register could be used to interpret the easement, finding that an unregistered deed between the original owner of the servient tenement and the local council was admissible to prove the background to the transaction. The court found that the covenant was enforceable, and ordered New World Investments Pty Ltd to pay Aust-One Investment Pty Ltd a quarter of the monthly gross rentals of the four shops on the dominant tenement.