Lobanova v Morrish
[2023] SADC 17
•27 February 2023
District Court of South Australia
(Civil: Minor Civil Review)
LOBANOVA v MORRISH
[2023] SADC 17
Judgment of his Honour Judge Slattery
27 February 2023
REAL PROPERTY - BOUNDARIES OF LAND AND FENCING
REAL PROPERTY - BOUNDARIES OF LAND AND FENCING - FENCES AND FENCING
REAL PROPERTY - BOUNDARIES OF LAND AND FENCING - GENERALLY
CONTRACTS - PARTICULAR PARTIES - VENDOR AND PURCHASER - DISCLOSURE OF MATERIAL FACTS - HOW FAR CAVEAT EMPTOR APPLIES
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - COVENANTS
The appellant and the respondent owned adjoining contiguous blocks of land in a development at Mount Barker. Each block in that development was burdened with an easement in favour of an encumbrancee, Mount Barker Project Development Pty Ltd, which charged each block of land with a rent charge for the benefit of a common building scheme. Under that scheme, there are obligations and requirements which govern the development of each block of land within the development.
At the time of purchase of his block, the owner of the block of land adjacent to the respondents block was the development company. The respondent constructed a retaining wall and a fence on the common boundary. He sought contribution from the development company for half of the cost of the initial retaining wall and the initial fence. The developer refused to make any contribution.
Subsequent to the time of the appellant’s purchase of her block of land the respondent successfully brought an action against her for contribution to the cost of the construction of the initial retaining wall and fence.
The appellant seeks a review of that decision.
Whether the registered easement effectively burdens the land of the appellant and if so, with what obligation.
Whether there is any other form of obligation which burdens the land and which binds the appellant.
Whether the appellant made any contract with the respondent binding herself to make a contribution to the cost of the construction of the initial retaining wall and fence.
Held:
1.The registered easement does not burden the appellants land with any obligation to contribute to the cost of the initial retaining wall and fence.
2. There is no other form of obligation which burdens the land and which binds the appellant.
3.No contract exists between the appellant and the respondent requiring contribution by the appellant to the costs of the initial retaining wall and fence.
4. The judgment of the Learned Magistrate is rescinded.
5. The court will hear the parties further on consequential orders and costs.
Real Property Act 1886 (SA); Magistrates Act 1983 (SA), referred to.
Clem Smith Nominees Pty Ltd v Farrelly (1978) 20 SASR 227; Blacks Ltd v Rix [1962] SASR 161; Deguisa v Lynn (2020) 268 CLR 638; Frazer v Walker [1967] 1AC569; Breskvar v Wall (1971) 126 CLR 376; Netherby Properties Pty Ltd v Tower Trust Ltd [1999] 76 SASR 9, considered.
LOBANOVA v MORRISH
[2023] SADC 17
This is an application for minor civil review of a decision made by a learned Magistrate dated 14 September 2022.
The decision at first instance concerns the applicant and the respondent who are owners of adjoining allotments. The development in which the property exists is called Stage 1c in the Newenham Estate. This is a residential property development in Mount Barker.
The dispute before the learned Magistrate concerned fencing and retaining walls.
Initially there were two actions. Under the first action (CIV-21-007767), Ms Lobanova sought orders against Mr Morrish under the Fences Act for the removal of a section of fence and an alteration of the retaining walls on a shared boundary. The purpose was to allow concrete footings to be poured for the construction of a dwelling on her property and for the erection of a garage wall on that boundary. An additional amount of $12,000 was claimed as compensation for costs associated with construction delay said to have been caused by Mr Morrish withholding his consent to the removal of the fence and the alteration of the retaining wall. This action is not subject of any orders that I am required to review.
The second action (CIV-21-011728) concerned a claim by Mr Morrish against Ms Lobanova connected with an original fencing work and retaining wall work on a shared boundary. The claim was for $17,818.00, which was half of the share of the cost for the fence and the full cost of the retaining wall.
Both of the actions were heard together, and in the result, the learned Magistrate dismissed the first action with no order as to costs. In relation to the second action, the learned Magistrate held that there was an obligation upon Ms Lobanova to contribute to the original fencing work in the amount of $635.50 and an obligation to make contribution to the costs of the retaining wall which was constructed prior to Ms Lobanova becoming registered proprietor of the adjoining property. There are two aspects to the retaining wall claim. The first relates to the existing retaining wall constructed at the time that Ms Lobanova became registered proprietor of her property. The second concerned the extension of that retaining wall to the front of the property. During argument, Ms Lobanova acceded to the proposition that she should pay for half of the costs of the retaining wall to the front of the property.
This review concerns the decision by the learned Magistrate to make orders in favour of Mr Morrish that Ms Lobanova, as the new registered proprietor should make contribution to the costs of the existing fence and existing retaining wall. In this judgment, I will not again make a distinction between the existing fence and retaining wall and the fence to be built at the front of the property. Ms Lobanova, correctly in my view, conceded during the hearing that she was susceptible to a claim for half of the cost of the construction of that fence, it being for the benefit of her property and the property of Mr Morrish and required to be built under the terms of the encumbrance in any event. Implicitly, she accepted that she was at least contractually bound to make that payment; I will leave that issue to one side.
I turn to the circumstances connected with the action for the existing retaining wall.
There is no dispute that the applicant and the respondent are the registered proprietors of adjoining properties in this Mount Barker development. There is also no dispute that the properties exist within the Newenham Estate, there is a registered encumbrance in relation to the Newenham Estate which prescribes the way in which the properties are to be developed, the construction of retaining walls, fences and the like. No challenge was made to the terms of the operation or the binding effect of that encumbrance.
Before the learned Magistrate, the affidavit of the respondent Mr Morrish was admitted to evidence and marked exhibit R2. An exhibit to that affidavit was the encumbrance over the property owned by Mr Morris as encumbrancer. The encumbrancee was Mount Barker Project Development Pty Ltd. Mr Morrish (and every other registered proprietor of property within this development ) encumbered his property and interest in his land for the benefit of the encumbrancee with an annuity or rent charge of 10c per annum to be paid for a period of 99 years if demanded.
Within the terms of the encumbrance there are a number of matters that do not require elucidation here. There is an acknowledgement that Mr Morrish as encumbrancer charges the land with the payment of the rent charge and accepts that the encumbrance is for the benefit of the encumbrancee. He acknowledges that the encumbrance is for the benefit of the common building scheme and with the intent that the covenants of the encumbrance run with the land and are binding on any subsequent purchaser who becomes the owner of the land after the encumbrancer.
Within the encumbrance there are restrictions on the use of the land. They include restrictions on the development of the land unless that development complies with the design guidelines. There is an acknowledgement that the encumbrancer and the encumbrancee agree that the covenants in the encumbrance are entered into and undertaken for the purpose of the encumbrancee’s scheme of development of the land such that the covenants would run with the land and bind the land and each successive registered proprietor of the land. It also agreed that the covenants are for the benefit for each of covenantees and will be annexed to and pass to all current and future registered proprietors of the land and that the covenants are intended to be enforceable by the encumbrancee.
Attached as Appendix 1 to the encumbrance are the design guidelines. Those design guidelines are multifaceted and relevantly at item 5 deal with guidelines about site works including retaining walls and at item 9 deal with fencing and common boundaries. For example, at item 5, there are directions in relation to cutting and filling adjoining boundaries and the construction of retaining walls.
The terms of this encumbrance and the attached design guidelines for the Mount Barker property are drawn with a clear view to a number of decisions of the Supreme Court of South Australia and in particular, Clem Smith Nominees Pty Ltd v Farrelly; Adelaide International Raceway Pty Ltd and Mallala Racing Co Pty Ltd.[1]
[1] (1978) 20 SASR 227.
In that case, the plaintiff was the registered proprietor of an estate fee simple in land at Mallala which was acquired by Mallala Motor Racing Company Ltd in 1961 and was converted into a motor racing circuit. Control of Mallala Motor Racing Co Ltd passed into the hands of another company Adelaide International Raceway Pty Ltd which constructed a new site for motor racing at Virginia about 32 kms south of the Mallala site. The property at Mallala was transferred to Farrelly who executed a memorandum of encumbrance which was registered on the title. The question before the court was the validity of the encumbrance. The encumbrance was said to be part of the consideration for the transfer by Mallala Motor Racing Co Ltd to the defendants of the land and was expressed to be for the benefit of Adelaide International Raceway Pty Ltd.
The encumbrance upon the land burdened the land with a rent charge requiring a payment of an annual sum of $1 payable, if demanded on the 30th day of June each year for the observance of the covenants within the encumbrance. During the existence of the encumbrance, the owner of the property agreed not to use the land at Mallala for any form of motor racing or, without the consent of Adelaide International Raceway to improve the property in any way.
Farrelly transferred the property to new purchasers who sought declarations from the court about whether the memorandum of encumbrance or any part thereof was enforceable against them and whether a part of the encumbrance was void. For present purposes the decision is relevant only in to the extent that the court considered the effect of the encumbrance and whether it ran with the land. Bray CJ held at 235 as follows:-
‘.. In my view the law is now clear in Australia that the burden of restrictive covenants will only run with the land in equity against the subsequent holder of the land with notice of the covenant when the covenant is entered into for the benefit of some parcel of land, or possibly some interest in land. The burden of a covenant in gross will not so run; such a covenant only binds the original covenantors’
Bray CJ expressed some doubts about the decision of Napier CJ in Blacks Ltd v Rix.[2] Each of the members of the Full Court Bray CJ, Hogarth and Zelling JJ opined that in order for there to be an effective and enforceable restrictive covenant, it was necessary for there to be a dominant tenement and a servient tenement. In Clem Smith there was no dominant tenement because the restrictive covenants were intended only as covenants in gross for the protection of the business of the Virginia companies wherever they might carry on their raceway business. Therefore, the covenants were mere personal contracts binding on the purchasers but not on anyone who took from the purchasers and therefore, the subsequent purchasers were not bound by the encumbrance. In the case at Bar, the relevant encumbrance was drawn to identify the encumbrancer, the encumbrance, the dominant tenement (namely the encumbrancee) and the subservient tenement (namely the encumbrancer). The encumbrance is in the form of a rent charge and does not create merely a caveatable interest. The rent charge is for a set amount for a set period and therefore is not merely a personal covenant binding on the first owner of the land, namely Mount Barker Project Development Pty Ltd. It follows that the design guidelines, which are identified under the terms of the encumbrance, bind both the purchasers of the property and each successive purchaser of the property and are an effective restriction. It is in that background that it becomes necessary to identify the issues for determination before the learned Magistrate. I now turn to those matters.
[2] [1962] SASR 161. See discussion at page 235 of Clem Smith Nominees.
Ms Lobanova complains about the finding made by the learned Magistrate that Mr Morrish was entitled recover half of the costs of the fencing work on top of the original retaining wall together with 50% of the costs of the retaining wall reduced by 5 % based upon a total cost of $15,192.40.[3] The final figure in the amount of $14,327.90.
[3] T2.27-.38.
The complaint of Ms Lobanova is that Mr Morrish was suing her on the basis of an alleged contract to which she was not a party. She agreed that she was aware of the encumbrance, that in the Newenham Estate it was necessary for there to be retaining walls on sloping land and that the encumbrance determined how the relevant properties were to be developed. She said that when she had purchased the land, and when the contract for purchase was presented to her, there was no term within the contract of sale between herself and Mount Barker Project Developments Pty Ltd that she was required to make a payment towards the existing retaining wall and fence which divided her property from that of Mr Morrish. Mr Morrish was not a party to any contract of purchase that she signed; that is accepted by Mr Morrish.
When Mr Morrish purchased his property, he had a contract with the developer, the legal and beneficial owner of the block of land purchased and following which, Mr Morrish built the retaining wall and the fence. No contribution was made to the cost of that work by the developer. Therefore, all of this boundary work was completed prior to the purchase by Ms Lobanova of the adjoining block and now she has been visited with a bill of some $15,000 for work done on the common boundary. Mr Morrish had earlier enquired of the developers agent what contribution the developer would make to the cost of the work, it being the owner of the adjoining block that enjoyed the benefit of the work of Mr Morrish. It appears that the developer dissembled; its agent said that contribution should be sought from the first purchaser of the block from the developer.
Ms Lobanova said (and there is no dispute) that she was not a party to any dealings between Mr Morrish and the developer. The encumbrance in favour of the developers required Mr Morrish as a purchaser to negotiate with the actual builder or owner of the next door property about the creation of the retaining wall and the fence. Ms Lobanova contended that the encumbrance under the Newenham design guidelines makes no mention of any subsequent purchaser sharing costs of a retaining wall or a fence. She was aware of the requirement of those designs guidelines for an owner to construct a wall and a fence. However, that was done by Mr Morrish prior to her becoming a registered proprietor of the property. Therefore, when she purchased the block, she understood that the retaining wall and fence had been constructed between the previous owners and Mr Morrish. This was because the wall was there. She made no further enquiry about it. She therefore purchased the block from the developer at the time when the retaining wall and the fence was already built and she was not asked for any further contribution.
In relation to the front retaining wall, Ms Lobanova conceded that:
‘from bigger perspective I am happy to share the costs of what he has done when I became the owner, but he did do it on his own account but he didn’t ask for my consent as required…’[4]
[4] T19.15-.21.
I am satisfied that, the amount sought to be paid by Ms Lobanova in the sum of $3,600 is a reasonable amount for the cost of the completion of that work.
In his evidence Mr Morrish agreed that the retaining wall and fence (about which the sum of $14,327.90 is claimed) was built prior to Ms Lobanova becoming registered proprietor of the property.[5] He informed me that he built the retaining wall and the fence in order to finish the paving around his home and therefore he had to build the retaining wall.[6] He discussed the matter with the agent of the developer, Burke Urban, having regard to the extra work that he was taking upon himself to complete that retaining wall. He was told that he would need to seek a payment from the owner of the adjoining block, that the developer does not do retaining walls and that payment would await the resale of that block. He accepted that this was his risk.[7] Mr Morrish also agreed that he did not have any separate contract with Ms Lobanova concerning the payment for the existing retaining wall. He said that there was a discussion in relation to the front retaining wall, that she would not pay for the existing retaining wall because she did not think that she was required to contribute anything to that retaining wall.
[5] T21.23.
[6] T22.3.
[7] T22.8-.13.
Mr Morrish did not seek any payment from Mount Barker Project Developments Pty Ltd, the owner of the adjoining block because of what he was told by the representatives of Burke Urban. He would look to the owners of the new property, whoever that may be for recompense of half of the cost of that work.
A separate action has taken place between Mr Morrish and Burke Urban. A confidential settlement has been reached between them. The court is not privy to that settlement.
In her reasons the learned Magistrate focused her attention upon the Fences Act, the encumbrance and the benefit obtained by Ms Lobanova from the work done on the existing retaining wall by Mr Morrish. To the extent that the learned Magistrate did not discuss the relevant principles applicable under the Real Property Act as are now settled by a number of decisions including Clem Smith Nominees Pty Ltd v Farrelly[8] which I have discussed in detail above, and Deguisa v Lynn,[9] the learned Magistrate has fallen into error.
[8] [1978] 20 SASR 227.
[9] (2020) 268 CLR 638; [2020] HCA 39.
The Torrens System establishes a Torrens System of title, establishes a system of title by registration. It is not a system of title of registration.[10]
[10] Frazer v Walker [1967] 1AC569 at 584-585; see also Breskvar v Wall (1971) 126 CLR 376.
In the Deguisa decision, the High Court considered an appeal from the Full Court of the Supreme Court of South Australia, which by majority found that covenants within a common building scheme restricted the nature and extent of construction permitted on a block of land notwithstanding the absence of any registration of the building scheme upon the certificate of title. The appellants became the registered proprietors of the land and obtained building approval to subdivide their allotments to build two townhouses. The question on appeal was whether the appellants as owners, were bound by restrictive covenants when they had not been notified of the existence of those covenants under s 69 of the Real Property Act. The High Court held that:
‘…a person dealing with a registered proprietor of land is not to be regarded as having been notified of an encumbrance or qualification upon the title of the registered proprietor that cannot be ascertained by a search of the certificate of title or from a registered instrument referred to in a memorial entered in the register book by the Registrar General’[11]
[11] Deguisa at [9].
In Deguisa, the issue was whether or not a contractual obligation registered upon the certificate of title bound the appellants. It concerned what is described as a common building scheme. That was explained by the court at [11] as follows:-
‘[11] a common building scheme is constituted under the general law. It is sufficient for the purposes of this case to say there where a plaintiff and defendant each derive title to a lot from a common vendor of land laid out for sale in separate lots as part of the general scheme of the allotment, the lots are sold subject to a covenant containing restrictions imposed upon all of the lots for the benefit of all the lots, and the plaintiff and the defendant (or their predecessors in title) have purchased their lots on the footing that the restrictions were for the benefits of the other lots in the general scheme, the plaintiff will in equity be entitled to enforce the covenant against the defendant’.[12]
[12] Deguisa at [11].
The High Court held that under the Torrens Title Legislation, restrictive covenants in common building schemes cannot be registered and they are therefore contractual in nature. In Deguisa, the argument accepted by the High Court was that:-
‘…If the benefit and burden of mutual restrictive covenants (contractual) are to affect the registered title of a purchaser of a parcel of land subsequent to the original covenantors (by registration) steps must be taken to ensure the notification on the certificate of title of each parcel of land burdened by a restrictive covenant and the other lots intended to be benefited by that covenant as part of the common building scheme…’
By analogy this is the position in the current case. The Newenham Estate, by the existing restrictive covenant, requires a number of things to be done by registered proprietors of land. These include the method and extent of the improvement of the land, the construction of retaining walls and fences and the rules in relation to the improvement of the land itself. There are obviously other rules which may be found within the terms of the restrictive covenant. That covenant does not contain any evidence of any registered obligation under which, for example, a person such as Mr Morrish who builds a retaining wall and a fence may, at a time at which he chooses, seek a contribution from the future owner of an adjoining block of land for the cost of that retaining wall.
A covenant can therefore only operate against Ms Lobanova if she became an owner of the land (and so she was not an original covenantor with the developer) and by some registered interest on the title she was fixed with notice of an enforceable right of Mr Morrish under which an obligation in the form of an enforceable covenant might exist. If it were otherwise, then, under s 69 of the Real Property Act, it would have been necessary for the title of Ms Lobanova, as registered proprietor upon purchase to be subject to such encumbrances, liens, estates or interests as are notified on the original certificate of title.
In the Deguisa decision from [18], the High Court discussed the operation of sections 10, 11, 49, 51, 57, 65, 128, 129(1), 129(2) and 51B of the Real Property Act. The court reaffirmed the essential principle of the Torrens System, namely a system of title by registration rather than one of registration.
The High Court held at [73] that an intending purchaser such as Ms Lobanova, if she was to be bound by any obligation arising from the development of the land, must be notified by entry on the certificate of title of a particular encumbrance or some other obligation under the terms of an instrument which required her to make payment for the cost of the retaining wall. Here there was no notification on the certificate of title. Also, Ms Lobanova was not put on notice on enquiry about the costs of the construction of that retaining wall and fencing even though she knew of the obligations under the restrictive covenant. In Deguisa at [83], the High Court said:-
‘[83] in Netherby Properties Pty Ltd the Tower Trust Ltd[13] Perry J held that the restrictive covenants upon which the defendant in that case relied were not enforceable against the plaintiff because the registered memorandum of encumbrance did not identify the lots intended to benefit from the covenants. Perry J said: …‘Details must appear in the encumbrance or on the certificate of title upon which the encumbrance is registered from which the nature and extent of the scheme and identity of the land to be benefited must clearly appear’.
[13] [1999] 76 SASR 9 at (21)- (22) [71] – [72].
By analogy, if there was to be any obligation upon any purchaser such as Ms Lobanova, the encumbrance in relation to the Newenham Estate would be required to identify the nature and extent of the scheme and the identity of the land (owned by Mr Morrish) to be benefited by the encumbrance. Those rights and obligations must clearly appear. None exists. If it were otherwise, High Court held that it would be impossible for someone in the position of Ms Lobanova to ever understand and comprehend what obligations she may be entering into at the time of which she purchased the property. At [85] in Deguisa, the Court held as follows:-
‘[85] … If generalised searches beyond that of the current certificate of title of a property were required, it would be difficult to draw a line as to when ‘prudent’ searching might cease. This is the sort of complexity and uncertainty that the act sought to eradicate. More importantly, the scheme of the act would be reduced to incoherence if the operation of s 69 of the Act were to vary with the surname of the owner of the land referred to in the certificate of title that is no longer a folio of the Register Book…’
In this context, the court was referring to the decision of Peek J in the Full Court that a purchaser, acting upon expert evidence should, in observance of the obligations of s 69 RPA search for the surname of an original vendor in a common building scheme which is not otherwise registered. The High Court held that if that were correct, the scheme of s 69 of the Real Property Act and the whole basis of a registration system would be reduced to incoherence.
So also, unless the encumbrance upon the property purchased by Ms Lobanova informed her of her obligations, for example to make contribution to the costs of the fence and the retaining wall, then in the absence of any contractual obligation, Ms Lobanova could not be called upon to make a contribution to the costs of that retaining wall and fence.
This minor civil review was conducted pursuant to s 38 of the Magistrates Court Act. Under s 38(7)(d) in determining the matter I may affirm the judgment, or rescind the judgment and substitute a judgment that I consider appropriate.
For the reasons stated, I would rescind the judgment of the learned Magistrate insofar as it required a contribution by Ms Lobanova to the costs of the original fence or the costs of the original retaining wall.
In accordance with the concession properly made by Ms Lobanova that she would make contribution to the further retaining wall at the front of the property, I will hear the parties further in relation to that matter. I will also hear the parties further in relation to interest and costs.
0
4
0