Merrifield Corporation Pty Ltd v FAL Mickleham (No 2)
[2025] VSC 390
•3 July 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2022 00791
| MERRIFIELD CORPORATION PTY LTD (ACN 111 110 813) & Ors | Plaintiffs/Defendants by counterclaim |
| (according to the attached Schedule) | |
| v | |
| FAL MICKLEHAM PTY LTD (ACN 643 550 010) | Defendant/Plaintiff by counterclaim |
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JUDGE: | Harris J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17, 19, 20, 23, 24 and 26 September 2024; 2 April 2025 |
DATE OF JUDGMENT: | 3 July 2025 |
CASE MAY BE CITED AS: | Merrifield Corporation Pty Ltd v FAL Mickleham (No 2) |
MEDIUM NEUTRAL CITATION: | [2025] VSC 390 |
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PROPERTY LAW – Restrictive covenants – Subdivided land in large scale business park – Restrictive covenant imposed by developer on sale of significant lot – Restriction on subdivision of lot and on the creation of two or more occupancies on the lot without consent of owner of adjoining lot – Adjoining lot in the business park owned by the original developer – Whether restrictive covenant enforceable against subsequent purchaser – Whether restrictive covenant touches and concerns the benefitted land.
PROPERTY LAW – Restrictive covenants – Proper construction of restrictive covenant – Evidence admissible on construction of restrictive covenant – Evidence admissible to determine purpose or object of restrictive covenant – Evidence admissible on question of whether restrictive covenant touches and concerns the land.
PROPERTY LAW – Restrictive covenant prohibiting subdivision of land or creation of two occupancies without consent of proprietor of benefitted land – Whether requirement for consent is to be construed as ‘consent not unreasonably to be withheld’ – Whether restrictive covenant is subject to an implied term that consent is not to be unreasonably withheld – Consent not sought prior to creation of second occupancy – Lot burdened by restrictive covenant has two large existing buildings – Large commercial warehouse and separate very large commercial freezer – Creation of separate tenancy for commercial freezer in addition to existing tenancy for warehouse – Restrictive covenant breached.
COMPETITION LAW – Restrictive covenant said by plaintiff developer to have the purpose of protecting against competition in the sale or leasing of land in the business park – Pleading by plaintiff owner of the burdened land that if the restrictive covenant has that purpose, it is a contract, arrangement or understanding which has the purpose or effect of substantially lessening competition – Competition and Consumer Act 2010 (Cth), s 45 – Definition of ‘competition’ for purposes of s 45 – Whether competition in market for sale of land is the subject of s 45.
PROPERTY LAW – Application for modification of restrictive covenant pursuant to s 84(1)(a) and 84(1)(c) of the Property Law Act 1958 (Vic) – Whether continued existence of the restriction imposed by covenant would impede reasonable user of the land without securing practical benefits to other persons – Whether proposed modification of restriction will not substantially injure the persons entitled to the benefit of the restriction – Evidence admissible on questions of reasonable user, practical benefit and substantial injury.
PROPERTY LAW – Application for modification of restrictive covenant pursuant to ss 84(1)(a) and 84(1)(c) of the Property Law Act 1958 (Vic) – Whether the Court can be satisfied of conditions for modification of restrictive covenant to permit two or more occupancies – Modification of restrictive covenant to permit separate tenancies in freezer and in warehouse would not substantially injure the registered proprietor of the benefitted land or other persons – Application for modification under s 84(1)(c) granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S Horgan KC with Mr D Triaca | Colin Biggers & Paisley |
| For the Defendant | Mr J Slattery KC with Ms X Teo | King & Wood Mallesons |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
This proceeding and the pleadings................................................................................................ 2
Issues for determination................................................................................................................... 5
Amendment of the pleadings relating to proposed modification of the Restrictive Covenant 6
Jurisdictional issue arising from reliance on s 45 of the Competition and Consumer Act... 8
The evidence....................................................................................................................................... 9
Lay witnesses............................................................................................................................... 10
Expert evidence........................................................................................................................... 10
View of the Merrifield Business Park....................................................................................... 12
Factual context.................................................................................................................................. 14
Lot 301 – the land burdened by the Restrictive Covenant.................................................... 14
The development of the Merrifield Business Park................................................................. 17
Is the Restrictive Covenant effective and enforceable against FAL?..................................... 21
Legal principles relevant to effect of Restrictive Covenants................................................. 21
The legal principles relevant to enforcement of restrictive covenants against successors in title........................................................................................................................... 21
A covenant must ‘touch and concern’ the land............................................... 23
Principles of construction applicable to restrictive covenants............................................. 25
Does the Restrictive Covenant touch and concern Lot P, the Benefitted Land?................. 34
Preliminary issue – onus of proof of whether the covenant touches and concerns the land 34
The submissions on whether the Restrictive Covenant touches and concerns Lot P....... 41
Consideration – does the Occupancy Restriction in the Restrictive Covenant touch and concern Lot P?................................................................................................................................... 44
Focus is on the Occupancy Restriction component of the Restrictive Covenant..... 44
The terms and purpose of the Restrictive Covenant.................................................... 45
Conclusion – the Occupancy Restriction does touch and concern the land in its effects on amenity, not by reason of limiting competition............................................................................ 51
Does the Occupancy Restriction imposed by the Restrictive Covenant contravene s 45 of the Competition and Consumer Act?............................................................................................. 55
FAL’s argument based on s 45 and Merrifield’s position..................................................... 55
Section 45 of the Competition and Consumer Act and related provisions............................. 56
The parties’ submissions on s 45 of the Competition and Consumer Act............................... 58
Conclusion.................................................................................................................................... 59
Is the requirement for ‘consent’ in the Restrictive Covenant to be construed as ‘consent not to be unreasonably withheld’?.......................................................................................................... 63
The parties’ submissions on the interpretation of the consent requirement...................... 63
Conclusion – the reference to ‘consent’ in the clause is to be construed without the qualification proposed by FAL............................................................................................................... 64
Is there an implied term requiring that consent not be unreasonably withheld?............. 65
The parties’ submissions.................................................................................................. 65
FAL’s submissions............................................................................................... 65
Merrifield’s submissions..................................................................................... 66
A term is to be implied into paragraph (i) of the Restrictive Covenant that the consent is not to be unreasonably withheld by the registered proprietors of Lot P.................................. 67
Did FAL breach the Restrictive Covenant?................................................................................. 70
The evidence................................................................................................................................ 70
The alternative arguments as to why FAL did not breach the Restrictive Covenant....... 72
FAL’s first alternative defence – FAL did not create two or more occupancies...... 72
FAL’s second alternative defence – consent was unreasonably withheld................ 72
The parties’ submissions..................................................................................... 72
Conclusion – consent was not sought prior to leasing, as required, and was not unreasonably withheld....................................................................... 73
FAL’s third alternative defence – two occupancies for the Warehouse and Freezer had already been created by Kaufland and consented to by Merrifield............... 75
Conclusion – FAL did breach the Occupancy Restriction in the Restrictive Covenant... 75
Modification of the Restrictive Covenant pursuant to s 84 of the Property Law Act........ 76
The Property Law Act provisions relating to amendment of restrictive covenants............ 76
The four alternative modifications sought by FAL................................................................ 77
The principles as to exercise of the Court’s discretion to modify a restrictive covenant. 78
Onus of proof on s 84(1) application............................................................................... 78
Section 84(1)(c) – modification will not substantially injure the persons entitled to the benefit.................................................................................................................................. 78
Section 84(1)(a) – impediment to reasonable user without securing practical benefit 82
Impeding the reasonable user of land............................................................... 82
Without securing practical benefits to other persons..................................... 84
Discretionary considerations........................................................................................... 85
Notification of the application for modification of the Restrictive Covenant.......... 86
Principles as to evidence admissible on a modification application under s 84(1)........... 86
The evidence relied on by the parties in the s 84(1) application.......................................... 94
FAL’s expert witnesses..................................................................................................... 94
David Crowder..................................................................................................... 94
Nicholas Blakely................................................................................................... 98
Richard Bowman................................................................................................ 101
Charmaine Dunstan........................................................................................... 104
Merrifield’s lay evidence on the modification application........................................ 104
The evidence of Ben Perry................................................................................ 105
The evidence of Michael Martin....................................................................... 108
Merrifield’s expert valuation witness........................................................................... 109
The parties’ submissions on s 84(1)........................................................................................ 114
Section 84(1)(c) – no substantial injury if restriction modified................................. 114
FAL’s submissions............................................................................................. 114
Merrifield’s submissions................................................................................... 118
Section 84(1)(a) – impeding reasonable user without securing practical benefits. 120
FAL’s submissions............................................................................................. 120
Merrifield’s submissions................................................................................... 120
Conclusions on modification of the Restrictive Covenant.................................................... 122
Modification under s 84(1)(c).................................................................................................. 122
Amenity and design strategy related benefits if occupancy in existing buildings preserved................................................................................................................................ 124
Impact of the modification on amenity and design strategy benefits..................... 126
Second and Third Proposed Modifications not limited to the existing buildings, and Fourth Modification (three occupancies in existing buildings)............................................. 133
Whether modification would result in loss of value to Lot P................................... 137
Whether any precedential effect of granting the modification sought would create substantial injury................................................................................................. 141
Effect of the totality of evidence – the Fifth Proposed Modification will not substantially injure Merrifield.......................................................................................................................... 144
No substantial injury even if (contrary to the primary conclusion) the purpose is understood as being to limit competition.............................................................................................. 144
The practical benefits intended to be conferred by the Occupancy Restriction..... 145
No practical anti-competitive benefit in effect............................................................ 149
The limited evidence on Merrifield’s ‘develop to hold’ strategy................ 149
The expert witness opinion that the Restrictive Covenant did not materially protect Lot P from competition..................................................................... 151
No substantial prejudice relating to competition if the Occupancy Restriction was modified.............................................................................................. 154
Section 84(1)(a) – restriction impedes all reasonable user without practical benefit...... 157
Reasonable user............................................................................................................... 158
Practical benefits.............................................................................................................. 161
Discretionary considerations................................................................................................... 162
Purchase of Lot 301 with knowledge of the Covenant.............................................. 164
Late amendment to case to include modest alternative proposed modification and abandon extensive modification........................................................................................ 164
Failure to provide plans for future intended use if modification granted.............. 165
Enry into the second lease without seeking consent, and failure to provide information when seeking consent.................................................................................................... 166
FAL’s conduct in response to Merrifield’s queries about whether the Freezer was leased................................................................................................................................ 166
No discretionary reason to refuse to modify the Restrictive Covenant.................. 167
Conclusion....................................................................................................................................... 167
HER HONOUR:
Introduction
In 2004, the first plaintiff, Merrifield Corporation Pty Ltd, with related companies, purchased approximately 900 ha of land in Mickleham, Victoria, for the purpose of developing a mixed-use development. That land includes an area of approximately 415 ha to be used for commercial and industrial use, and known as Merrifield Business Park.[1]
[1]Witness Statement of Michael Martin dated 1 September 2023 (Exhibit P4),[11]-[12] (First Martin Statement).
The land earmarked for the Merrifield Business Park was subdivided and part of the land was a lot identified as Lot P, of approximately 70 ha in area. Another part of the land was a lot identified as Lot 301, of approximately 28 ha in area.[2]
[2]First Martin Statement, [13]. The Land is identified as Lot 301 on Plan of Subdivision PS 810904M, in Volume 12191, Folio 001 of the Register.
In June 2018, Merrifield sold Lot 301 to Kaufland Australia Pty Ltd. Kaufland is associated with a German supermarket retailer, which at the time had plans to expand its operations into Australia.[3] Kaufland purchased Lot 301 with the intention of establishing a distribution centre from which Kaufland would distribute goods to a proposed new chain of supermarkets or ‘hypermarkets’ in Australia.[4] For that purpose it constructed two very large buildings on the land: a Warehouse of approximately 73,229 m2 in area, and a Freezer building approximately 12,559 m2 in area.[5]
[3]First Martin Statement, [29]-[31].
[4]Revised Statement of Agreed Facts filed 11 September 2024, [6]; CB 4133-4135.
[5]Statement of Agreed Facts, [6].
The contract of sale for the sale of Lot 301 by Merrifield to Kaufland contained a Restrictive Covenant.[6] That Covenant was recorded on the title, pursuant to s 88(1) of the Transfer of Land Act 1958 (Vic).[7] The effect of the Restrictive Covenant was that Kaufland covenanted ‘with and for the benefit of the registered proprietors of all or any part of the land in Lot P … (the Benefitted Land)’ to prevent certain uses of Lot 301 (an aspect of the restraint which is not in issue in this proceeding). The Covenant also constrained the proprietor of Lot 301 from subdividing that land, or from creating on the land:
… two or more separate occupancies without first obtaining the written consent of the registered proprietor or proprietors of the Benefitted Land.
[6]Contract of Sale of Real Estate from Merrifield to Kaufland dated 4 June 2018 (CB 3860) (Contract of Sale to Kaufland), Special Condition cl 23 (CB 3875).
[7]Certificate of Title Volume 12191 Folio 001; Revised Statement of Agreed Facts, [7].
This component of the Restrictive Covenant which places a restriction on creation of two or more separate occupancies was identified as the Occupancy Restriction throughout the proceeding.
In August 2020, after Kaufland decided that it would not proceed with its plans for expansion into Australia, it sold Lot 301 to FAL Mickleham Pty Ltd.[8] FAL became registered proprietor on 15 December 2020.[9] After originally leasing both the Warehouse and the Freezer to DHL Supply Chain (Australia) Pty Ltd between April and September 2021, FAL then entered into a lease of the Freezer to Laverton Cold Storage Pty Ltd on 13 September 2021 (Freezer Lease), while continuing to lease the Warehouse to DHL.
[8]First Martin Statement, [34]-[36].
[9]Revised Statement of Agreed Facts, [8]-[9].
Merrifield has continued to be the registered proprietor of Lot P to the time of this proceeding. However it has, by a contract made on 21 December 2018, agreed to sell Lot P to the second to sixth plaintiffs, who are related companies of Merrifield identified as holding companies. That contract has not yet been settled. Those plaintiffs were joined to the proceeding because of their interest in Lot P and the need for them to be bound by the outcome of this case.
This proceeding and the pleadings
In this proceeding, Merrifield contends that FAL is, by leasing the Warehouse and the Freezer to separate third parties, breaching the Occupancy Restriction in the Restrictive Covenant. Merrifield seeks an injunction to restrain FAL from continuing to do so. FAL, by its defence, denies that the Occupancy Restriction in the Restrictive Covenant is enforceable against it and denies having breached it. It also seeks an order from the Court pursuant to s 84 of the Property Law Act 1958 (Vic) modifying the Restrictive Covenant in one of three ways, all of which would have the effect of permitting the current situation of two tenants on the land.
The plaintiffs originally sought damages for the breach, whether as common law damages in addition to the injunction, or damages as an alternative to the injunction (Lord Cairns Act damages).[10] No evidence or submissions were directed to the question of damages, and no order was made for a split trial with damages to be addressed separately. At the end of closing submissions, I gave leave for further brief submissions to be filed directed to the question of damages and any related questions of relief.[11] However on 3 October 2024, by emails to my chambers following the trial, the plaintiffs informed the Court that their formal position was that they sought only nominal damages in respect of the defendant’s breach of the Restrictive Covenant.
[10]Amended Statement of Claim filed 2 February 2023, [19] and prayer for relief B. It was pleaded at [19] that full particulars of loss and damage would be provided prior to trial, however no further particulars were filed.
[11]Transcript 26/09/24, T494.27-T498.16.
FAL first says that the Restrictive Covenant does not touch and concern Lot P as the benefitted land, and so is ineffective and unenforceable against FAL as a subsequent purchaser of the burdened land.[12] It says further or alternatively that it did not breach the Restrictive Covenant, because:
[12]Amended Defence to Amended Statement of Claim and Second Further Amended Counterclaim filed 18 September 2024, [7(b)].
(a) the creation of a separate lease for the Freezer on Lot 301 does not constitute the ‘creation thereon of two or more separate occupancies’ within the meaning of paragraph (i) of the Restrictive Covenant;
(b) the reference to ‘consent’ in paragraph (i) of the Restrictive Covenant, properly construed, means consent is not to be unreasonably withheld, or alternatively it is an implied term of the Covenant that consent is not to be unreasonably withheld; and
(c) FAL requested consent to lease the Freezer to Laverton Cold Storage, which Merrifield unreasonably refused.[13]
[13]Amended Defence to Amended Statement of Claim and Second Further Amended Counterclaim, [14].
In its counterclaim, FAL contends that the Restrictive Covenant should be modified on the basis that it would impede the reasonable user of the land without securing practical benefits to other persons within the meaning of s 84(1)(a) of the Property Law Act. Alternative modifications were proposed, which are identified below.
It is also pleaded that such modification would not substantially injure Merrifield within the meaning of s 84(1)(c) of the Property Law Act.
The Merrifield parties, in their reply to the defence and defence to FAL’s counterclaim, plead, in support of the position that the Restrictive Covenant runs with Lot 301, that the Covenant:
(a) affects the mode of occupation of FAL’s land;
(b)gives effect to the MBP development strategy and allows for the strategic and efficient development of Merrifield’s land;
(c) limits sales competition within [the] MBP; and
(d) is concerned with and enhances the value of Merrifield’s land.[14]
[14]Reply to Amended Defence and Defence to Further Amended Counterclaim filed 27 November 2023, [3.2].
Merrifield rejects FAL’s interpretation of the consent requirement and denies that there is an implied term in the Restrictive Covenant to the effect alleged by FAL. It contends that even if paragraph (i) of the Restrictive Covenant was to be construed as FAL contends, it was still in breach as it leased the Freezer before seeking consent, and the implied term contended for did not provide for retrospective consent.[15]
[15]Reply to Amended Defence and Defence to Further Amended Counterclaim, [9]; Plaintiffs’ Outline of Argument filed 26 August 2024, [34]-[35].
FAL in its reply to Merrifield’s defence to counterclaim, and also by way of rejoinder to Merrifield’s reply, pleads that if the Restrictive Covenant limits sales competition as pleaded by Merrifield, it is a contract, arrangement or understanding within the meaning of s 45 of the Competition and Consumer Act 2010 (Cth), which has the purpose, or would be likely to have the effect of, substantially lessening competition in the market of buying, selling, developing, occupying, leasing and licensing the use of land in the Merrifield Business Park.[16]
[16]Amended Reply to Defence to Further Amended Counterclaim filed 18 September 2024, [2]; Amended Rejoinder filed 18 September 2024, [2].
Issues for determination
The parties agreed on a joint statement of issues in advance of the proceeding which reflect these issues and identify sub-questions to be addressed in determining the issues above.[17] Having regard to that document and the pleadings, the substantive issues which are to be resolved in this proceeding are:
[17]Joint Statement of Issues filed 11 September 2024.
(a) whether the Restrictive Covenant is enforceable against successors in title to Lot 301, including FAL, which includes a consideration of whether the Covenant touches and concerns Lot P in the sense required for a covenant to be enforceable as against third parties;
(b) whether the Occupancy Restriction is an unlawful restraint of trade in breach of s 45 of the Competition and Consumer Act and is therefore void or unenforceable on that ground;
(c) whether, if the Occupancy Restriction is enforceable, the requirement for consent should be construed as a requirement for consent, which consent is not unreasonably to be withheld, or alternatively there is an implied term to that effect;
(d) whether FAL breached the Occupancy Restriction by failing to seek consent in advance of entering into the Freezer Lease; and
(e) whether the Restrictive Covenant should be modified pursuant to ss 84 and 85 of the Property Law Act which provide that the Court has a discretion to vary a restrictive covenant, including on the application of a defendant in a proceeding to enforce a restrictive covenant.
My conclusions on those issues I have concluded as follows:
(a) The Restrictive Covenant is enforceable as against FAL. The Restrictive Covenant touches and concerns the land by restricting uses, configurations or development of Lot 301 that are incompatible with a business park and thereby providing an amenity benefit to the adjacent benefitted land, Lot P. It does not touch and concern the land by reason of any protection against competition in the sale and leasing of land.
(b) The Restrictive Covenant is not void or unenforceable by reason of s 45 of the Competition and Consumer Act.
(c) The Restrictive Covenant is subject to an implied term that the consent of the proprietor of Lot P to the creation or two or more tenancies is not to be unreasonably withheld.
(d) FAL breached the Restrictive Covenant by failing to seek consent prior to entering into a second lease.
(e) The conditions for modifying the Restrictive Covenant in the manner proposed in the Fifth Proposed Modification under s 84(1)(c) are satisfied.
(f) It is appropriate to exercise the discretion of the Court to modify the Restrictive Covenant in the manner proposed in the Fifth Proposed Modification.
Amendment of the pleadings relating to proposed modification of the Restrictive Covenant
FAL originally sought one of two alternative proposed modifications pursuant to s 84(1) of the Property Law Act. The proposed modifications were either to delete the reference to ‘or the creation thereon of two or more separate occupancies’ from paragraph (i) of the Restrictive Covenant which states the Occupancy Restriction (the First Proposed Modification). Alternatively it is proposed to replace the word ‘two’ in paragraph (i) with ‘three’ (the Second Proposed Modification).[18] On the first day of trial, an application was made to amend the counterclaim to identify three additional alternative modifications to paragraph (i) of the Restrictive Covenant which were to:
[18]Defence to Amended Statement of Claim and Amended Counterclaim filed 16 March 2023, [21].
(a) replace in the word ‘two’ with the word ‘four’ (defined in the pleading as the Third Proposed Modification); alternatively
(b) add the words ‘(other than up to three occupancies in total for the Warehouse and the Freezer located on the site as set out in the attached plans)’ after the words ‘two or more separate occupancies’ (the Fourth Proposed Modification); alternatively
(c) add the words ‘(other than one occupancy for the Warehouse and one occupancy for the Freezer located on the site as set out in the attached plans)’ after the words ‘two or more separate occupancies’ (the Fifth Proposed Modification).[19]
[19]Amended Defence to Amended Statement of Claim and Second Further Amended Counterclaim, [21]-[23].
In making the application FAL also stated that it would no longer rely on the First Proposed Modification.
I granted leave to amend the counterclaim for reasons identified at the hearing of the application on 17 September 2024, and in the orders I made that day.[20] Those reasons were primarily because the alternatives were narrower than the first modification originally identified (which removed the restrictions on occupancies completely) and that it had been confirmed by FAL that no further evidence in addition to that already identified would be led.[21] It was also relevant that the amendments, if allowed, would not prevent Merrifield from taking the point that the proposed uses which would be permitted under the modifications to the Restrictive Covenant had not been sufficiently clearly identified to enable the Court to be satisfied that the conditions for modification under s 84(1) of the Property Law Act were met.[22]
Jurisdictional issue arising from reliance on s 45 of the Competition and Consumer Act
[20]Ruling on 17/09/24 (Transcript 17/09/2024, T18-T19); Orders of Harris J dated 17 September 2024, Other Matters.
[21]Transcript 17/09/24, T10.21-T11.20, T15.31-T16.09.
[22]Transcript 17/09/24, T14.13-28.
Following the conclusion of the proceeding, I raised with the parties the question of whether this Court had jurisdiction to determine the issue, raised by FAL’s Further Amended Counterclaim and its Amended Rejoinder, as to whether the Restrictive Covenant was a contract or arrangement in restraint of trade within the meaning of s 45 of the Competition and Consumer Act, and therefore unenforceable or void. The parties had not addressed in submissions the source of, or any limits on, the Court’s jurisdiction to exercise that federal jurisdiction.[23]
[23]Email from chambers ‘Jurisdiction with respect to s 45 of the Competition and Consumer Act 2010 (Cth)’ dated 2 October 2024. The email sought submissions in particular with respect to s 86 of the Competition and Consumer Act, which deals with ‘Jurisdiction of Courts’.
The parties filed submissions to the effect that the Court could proceed to determine the issues relating to s 45. FAL submitted that the Court had jurisdiction to grant the declaratory relief sought by the Counterclaim in this proceeding. FAL acknowledged the ‘special federal matter’ regime under the Jurisdiction of Courts (Cross-vesting) Act 1987(Cth), under which the primary position is that special federal matters are to be transferred to the Federal Court. However it referred to this Court’s power to order under s 6(3) of that Act that the proceeding should be determined in this Court if there are special reasons for doing so. FAL did not seek such an order.[24] Merrifield stated that it did not take a jurisdictional point, and that the declaratory relief sought by FAL would be enabled by s 84(2) of the Property Law Act and s 36 of the Supreme Court Act 1986 (Vic).[25]
[24]Nor did it propose that the notices specifying the nature of the special federal matter be given to the Attorney-General of the Commonwealth or the Attorney-General of Victoria, which is a precondition to the making of an order under the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth), ss 6(3)-(4).
[25]Plaintiffs’ Submission on section 86 of the Competition and Consumer Act 2010 (Cth) filed 15 October 2024, [3].
In April 2025, I listed the matter for mention and requested the parties to address more fully the issue of the source of this Court’s jurisdiction. FAL sought leave to file further written submissions. In those submissions, FAL contended that the Court could rely on its inherent common law jurisdiction to determine whether the Restrictive Covenant was void on the basis that it contravenes s 45.[26] FAL submitted that there was also jurisdiction to hear the proceeding under the Jurisdiction of Courts (Cross-vesting) Act (Cth). It submitted that the proceeding was not a ‘special federal matter’ (which pursuant to s 6(1) must be transferred to the Federal Court), but that if it was, there were ‘special reasons’ within the meaning of s 6(3) of that Act[27] why this Court should determine the matter itself. FAL filed an affidavit confirming that it had taken the step of informing the Attorneys-General of the Commonwealth and of Victoria, of the proceeding, as required by s 6(4)(a) of the Act in any case where a party to seeks to have a special federal matter determined by a State court.[28]
[26]Submissions of the Defendant/Plaintiff by Counterclaim on Jurisdiction filed 17 April 2025, [6].
[27]And the Jurisdiction of Courts (Cross-vesting) Act 1987 (Vic), s 6(3), which is in the same terms.
[28]Affidavit of Peter Andrew Yeldham affirmed 17 April 2025.
Merrifield submitted that the only jurisdiction to determine arguments based on s 45 was pursuant to the Jurisdiction of Courts (Cross-vesting) Act (Cth), and that the matter was a special federal matter. It did however agree that there were special reasons why the matter should be heard in this Court.[29]
[29]Plaintiffs’ Submissions on Jurisdiction filed 28 April 2025.
On 13 May 2025, I determined[30] that the matter was a special federal matter by reason of the reliance on s 45 by FAL as defendant and plaintiff by counterclaim. I also determined that there were special reasons for the matter to remain in this Court and made orders accordingly. I gave separate reasons for that ruling.[31]
[30]After the Commonwealth Attorney-General confirmed that no submissions would be made and the Victorian Attorney-General did not make submissions after having been given notice.
[31]Merrifield Corporation Pty Ltd v FAL Mickleham(No 1) [2025] VSC 253.
The evidence
It will be necessary to return to the witnesses’ evidence in more detail below, in the context of the modification application pursuant to s 84(1) of the Property Law Act, however it is useful to refer to that evidence now as it forms the basis, with the Statement of Agreed Facts[32] and various documents tendered by agreement, of the factual context to the legal issues that arise for consideration. The evidence was largely uncontroversial, insofar as it related to the circumstances in which the relevant land was acquired and developed by Merrifield, the Restrictive Covenant was agreed, and FAL acquired and leased Lot 301. The parties did make objections to evidence which are relevant in the specific context of the modification application and are addressed below.
[32]Revised Statement of Agreed Facts filed 11 September 2024.
Lay witnesses
FAL did not call any lay witnesses. Merrifield’s lay witnesses were:
(a) Ben Perry, the General Counsel and Company Secretary at MAB Corporation, which is engaged by Merrifield as development manager for Merrifield’s operations.[33] Mr Perry joined MAB as General Counsel and Company Secretary in 2011.[34] His evidence primarily addressed the subdivision of land resulting in Lot 301 and Lot P, the sale of Lot 301 and the tender of documentary evidence relevant to those matters. He also gave evidence relating to the circumstances in which Merrifield became aware that FAL had entered into the Freezer Lease and FAL’s request for consent for that Lease, including as to a meeting with a representative of FAL on 25 November 2021; and
(b) Michael Martin, who was the General Manager Commercial and Industrial at MAB from some time in 2019, until a date which was not identified.[35] At the time of giving evidence, he was the Chief Development Officer at Hodgson Group, a property development company with no apparent relationship with Merrifield or MAB.[36] Mr Martin also gave evidence relating to the circumstances in which Merrifield became aware that FAL had entered into the Freezer Lease and FAL’s request for consent for that Lease, including as to the meeting on 25 November 2021.
[33]Witness Statement of Ben Perry dated 4 September 2023 (Exhibit P3), [3].
[34]Witness Statement of Ben Perry, [7].
[35]First Martin Statement, [3], [7].
[36]Transcript 20/09/24, T160.11-12.
Expert evidence
FAL relied on the evidence of five experts:
(a) David Crowder, a town planner who has practised in that discipline since 1987. His first expert report addressed questions relating to the benefit of the Occupancy Restriction to the owner of Lot P, reasonable uses of Lot 301, and whether FAL’s proposed modifications to the Occupancy Restriction would affect the enjoyment, mode of occupation, amenity or future development of Lot P.[37] His second expert report responded to Merrifield’s expert evidence;[38]
[37]Expert Report of David Crowder dated 2 June 2023 (Exhibit D3) (First Crowder Report).
[38]Second Expert Report of David Crowder dated 24 November 2023 (Exhibit D4) (Second Crowder Report).
(b) Nicholas Blakely, who has experience in ‘supply-chain dynamics, integrated logistics and industrial property’.[39] His expert report addressed questions relating to the ability to lease the whole of Lot 301 to a single tenant, the impact of a separate tenancy for the Freezer, and whether modification of the Occupancy Restriction would negatively affect the ability of the owners of Lot P to lease that site;
[39]Export Report of Nicholas Blakely dated 12 July 2023 (Exhibit D7), [3.2] (Blakely Report).
(c) Richard Bowman, a certified practising valuer and fellow of the Australian Property Institute with over 30 years’ experience in that discipline.[40] His report addressed questions relating to whether the Occupancy Restriction enhanced the value of Lot P, the impact of a separate tenancy for the Freezer, and whether modification of the Occupancy Restriction would negatively affect the value of Lot P;
(d) Charmaine Dunstan, a traffic engineer, and transport planning consultant, who gave evidence in response to Mr Martin’s statement and his view that the road network infrastructure has been designed to cater for one large occupier, where additional occupiers would add a significant volume of traffic and have a detrimental impact on that infrastructure.[41] The report also included her opinion as to whether the road network design of the Merrifield Business Park would be designed differently if there were two, three, four or more occupancies at Lot 301; and
(e) Dr Luke Wainscoat, an economist, who gave evidence on competition in the market in the sale or supply of land in the context of FAL’s pleadings based on s 45 of the Competition and Consumer Act.[42]
[40]Expert Report of Richard Bowman dated 12 July 2023 (Exhibit D8) (Bowman Report).
[41]Expert Report of Charmaine Dunstan dated 22 November 2023 (Exhibit D10) (Dunstan Report).
[42]Expert Report of Dr Luke Wainscoat dated 22 November 2023 (Exhibit D9) (Wainscoat Report).
Merrifield relied on one expert, Nicholas Moore, a valuer, who has practised in the valuation of residential, retail, commercial and industrial properties for over 20 years.[43] His first expert report addressed his opinions as to why ‘a developer, such as MAB, [would] have created a lot in the size and location of Lot P’ and the purpose of the Restrictive Covenant. His second expert report responded to the expert reports of Mr Bowman and Mr Blakely.[44]
[43]Expert Report of Nicolas Moore dated 31 August 2023, [32] (First Moore Report).
[44]Supplementary Report of Nicolas Moore dated 27 November 2023 (Exhibit P7) (Second Moore Report).
View of the Merrifield Business Park
The Court conducted a view of the premises on the second day of the hearing, in the presence of counsel and instructing solicitors.[45]
[45]I recorded my observations and provided them to the parties for any comment, with none received; see Memorandum of Observations on View dated 19 September 2024 (MFI-A).
Observations from that view as relevant to the issues to be determined are referred to below. In summary, my primary observations from the view were that:
(a) the Merrifield Business Park was a large, well maintained precinct with spacious sites, including the Dulux site and Lot 301;
(b) Lot 301 was separated from Lot P by a road, but Lot P was clearly visible as vacant land. Lot 301, Lot P and Lot R were visible to the west and the Merrifield ‘town centre’ location could be seen further in the distance. The visible buildings included a three-story childcare centre, an aquatic centre, and the Coles Merrifield store;
(c) smaller sites, although still of significant size, were on the land between Donnybrook Road and Titan Drive, south of Lot P and Lot 301, and a narrow landscaped wetland site bordered the Hume Highway;
(d) the internal roads in the precinct, including Titan Drive and the roads on Lot P, were large and well maintained; and
(e) the Warehouse and Freezer buildings were large features built on Lot 301, with multiple access points and roads surrounding them.
The following are schematic depictions of the Merrifield Business Park and the broader Merrifield Precinct as contained in the Merrifield Business Park Polaris Release Flyer 3.0, issued by MAB:[46]
[46]CB 843 (Merrifield Business Park Polaris Release Flyer 3.0); Transcript 20/06/24, T166.03-10.
Factual context
In addition to tendering a statement of agreed facts,[47] the parties called witnesses who gave evidence about the relevant land and the events leading up to this proceeding. Evidence was given by lay witnesses about matters relevant to the plans for the Merrifield Business Park, and the reasons why the Restrictive Covenant was imposed. Evidence was also given by expert witnesses on behalf of both parties as to the purpose and effect of the Restrictive Covenant.
[47]Revised Statement of Agreed Facts.
Lot 301 – the land burdened by the Restrictive Covenant
After Merrifield acquired the Mickleham land in 2004, it commenced a process of planning for the development of industrial, retail and residential areas, including for subdivision and sale of the land. On 28 February 2020, a plan of subdivision was registered, which included Lot 301 and Lot P, with Merrifield as registered proprietor.[48]
[48]Witness Statement of Ben Perry, [9]. That plan of subdivision was PS 810904M (CB 766).
Merrifield sold Lot 301 to Kaufland by contract of sale dated 4 June 2018. The sale price was $30,600,000 (Kaufland Contract). The land was identified as Lot 301 on the proposed plan of subdivision which had not yet been registered, and was conditional on the local council approving the subdivision.[49] The Kaufland Contract included a clause in which Kaufland acknowledged that the Merrifield Business Park development was subject to ‘design guidelines’ and that it agreed to comply with them in undertaking any development or improvement on the land. It was also acknowledged that the guidelines were not strictly binding, and that constructing buildings on the property in accordance with an annexed plan was deemed to comply with the guidelines.[50] The annexed plan showed the Warehouse and the Freezer, with accompanying loading bays and car parks.[51] The Kaufland Contract was also conditional on Kaufland obtaining the planning permits providing for construction of these facilities in accordance with the annexed plan and for truck access 24 hours a day, 7 days a week with a minimum of 300 movements per day.[52]
[49]Contract of Sale to Kaufland (CB 3860), Special Condition cl 17 (CB 3871).
[50]Contract of Sale to Kaufland (CB 3860), Special Condition cl 22 (CB 3874-3875).
[51]Contract of Sale to Kaufland (CB 3860), Annexure A, Draft Building Outline (CB 3887).
[52]Contract of Sale to Kaufland (CB 3860), Special Condition cl 4 (CB 3866).
The Kaufland Contract permitted construction to commence on the Warehouse and Freezer prior to settlement. Those buildings were constructed by the time the contract of sale to Kaufland settled on 30 March 2020.[53]
[53]First Martin Statement, [33]-[35].
The terms of the Kaufland Contract included the Restrictive Covenant, which is contained in the Memorandum of Common Provisions AA6062. It states:[54]
[54]Memorandum of Common Provisions AA6062 (CB 4184). It is also referred to in the Instrument of Transfer, Dealing Number AT115636A (CB 4186); First Martin Statement, [31]-[32].
The owner of Lot 301 on PS810904M (Burdened land) hereby for himself, herself or themselves, his, her, or their heirs, executors, administrators and transferees, the registered proprietor or proprietors (hereafter “covenantor”) covenants with and for the benefit of the registered proprietors of all or any part of the land in Lot P on PS810904M (Benefitted Land) that the covenantor will not and will not suffer, cause or permit:
(i)the subdivision of the Burdened Land or the creation thereon of two or more separate occupancies without first obtaining the written consent of the registered proprietor or proprietors of the Benefitted Land;
(ii)the use of the Burdened Land wholly or partly for the retail sale of food and/or beverages;
(iii) the use of the Burdened Land for any of the following purposes:
(A) brothel;
(B) concrete batching plant;
(C) concrete panel plant;
(D) recycling plant;
(E) vehicle wreckers;
(F) junk yard;
(G) panel beaters;
(H) place of worship;
(I) place of assembly;
(J) adult bookshop;
(K) agriculture;
(L) caretakers residence;
(M) circus;
(N) carnival;
(O) crop raising;
(P) animal husbandry;
(Q) mining,
(iv)the Burdened Land or any building on the Burdened Land to become unsightly or in a state of disrepair;
and it is intended that this covenant shall appear as an encumbrance affecting the same and every part thereof on the Certificate of Title to be issued in respect of the Burdened Land and further that this covenant shall forever run at law.[55]
[55]Contract of Sale to Kaufland (CB 3860), Special Condition clause 23, (CB 3875). Clause 23 refers to the registration of the covenant by way of registration of a memorandum of common provisions. The registered Memorandum of Common Provisions is AA6062 (CB 4184-4185).
The Restrictive Covenant was registered on the title of Lot 301, in favour of Lot P as the benefitted land.[56]
[56]Title search of Lot 301 on Plan of Subdivision 810904M (Volume 12191 Folio 001) (CB 4519); Witness Statement of Ben Perry, [13].
In December 2018, Merrifield sold the land the subject of Lot P to the five related companies who are the second to sixth plaintiffs. At this time, a new plan of subdivision had been approved and much of the land which was Lot P had been incorporated in a new Lot S.[57] The sale price was $23,224,812 (exclusive of GST)[58] and the sale was subject to a Memorandum of Understanding in which Merrifield states its intention to transfer its interest in that land to the five companies, which will become registered proprietors of the land as tenants in common.[59] That transfer has not yet occurred.
[57]Plan of subdivision PS 827435C (CB 4744); see evidence of Mr Perry Transcript 20/09/24, T139.28-T141. In a later plan of subdivision, PS835682N, some of the land which was formerly Lot S became Lot W; see evidence of Mr Perry Transcript 20/09/24, T141.19-T142.12.
[58]Witness Statement of Ben Perry, [14].
[59]Witness Statement of Ben Perry, [16(b)]; The memorandum referred to in the witness statement was not in evidence as a separate document involving a heads of agreement relating to different land was included in error (CB 4110-4128); Transcript 20/09/24, T143.07-T144.04.
Kaufland agreed to sell Lot 301 to FAL. The contract of sale, which was undated, was entered into around August 2020,[60] and the property was transferred for consideration of $95,500,000 on 15 December 2020.[61] The current registered title records that FAL was registered as proprietor of the land and that the land is subject to covenants including the Restrictive Covenant.[62]
[60]Contact of Sale from Kaufland to FAL (CB 774); Revised Statement of Agreed Facts, [8].
[61]Instrument of Transfer AT867891L, CB 4400; Witness Statement of Ben Perry, [13].
[62]Register Search Statement, Volume 12191 Folio 001 (CB 4519), referring to the Covenant in Instrument of Transfer AT115636A, the transfer from Merrifield to Kaufland, which refers to the Memorandum of Common Provisions AA6062 which sets out the Restrictive Covenant; see also Revised Statement of Agreed Facts, [9].
Since 1 April 2021, FAL has leased the Warehouse to DHL. On 13 September 2021, FAL leased the Freezer to Laverton Cold Storage for a term of five years.[63]
[63] Lease Agreement between FAL and Laverton Cold Storage undated (CB 4424).
On 3 February 2022, some months after entering into the Freezer Lease, FAL made a request to Merrifield that it consent for FAL to enter into that lease. That request was refused on 4 February 2022. FAL requested reasons from Merrifield for its decision to decline the consent to the Freezer Lease. Merrifield declined to provide reasons.[64]
[64]Revised Statement of Agreed Facts, [12]-[15].
The development of the Merrifield Business Park
It is relevant to understand the way in which Merrifield had approached the development of the Merrifield Business Park, in the period prior to the original sale of Lot 301 to Kaufland, in some detail.
Mr Martin, on behalf of Merrifield, gave evidence that the planning for the Merrifield Business Park had commenced in the early 2000s, and had involved having a number of strategic plans approved by the Victorian Government. The key planning documents were as follows and were referred to collectively as ‘the Planning Framework’:
(a) the Merrifield Structure Plan which set out in broad terms the urban design and planning structure, including the broad subdivision, of the land which was to form the Merrifield Business Park. That plan was approved in 2007. The plan broadly provided for large scale allotments in the centre of the Park, as major strategic sites, with smaller more visually pleasing allotments towards the more visible edges of the Park. This was described by Mr Martin as the ‘egg yolk’ model of developing a precinct.[65] A concept drawing of the park from the Merrifield Structure Plan is set out below:
[65]First Martin Statement, [25].
(b) the Merrifield Employment Area Development Coordination Plan which was approved in 2018; and
(c) the Polaris Precinct Concept Plan[66] (Precinct 1) which was approved in 2018. It established a more defined subdivision layout for the Merrifield Business Park. It involved large scale allotments intended to attract significant occupants offering employment opportunities, situated centrally within the Park, with smaller scale allotments around it. An image from the Polaris Precinct Concept Plan is shown above at [32], and is marked with the occupants of individual lots which were occupied by the time of the trial of the proceeding, as described below.
[66]CB 843-844.
Lot 301 was the largest of 28 lots subdivided by Merrifield and offered for sale in the first stage of development of the Merrifield Business Park titled the ‘Polaris Release’.[67]
[67] CB 4136.
On 8 December 2015, Lot 101, a site of 17 ha which adjoins Lot 301 on its eastern boundary, was transferred by Merrifield to DuluxGroup (Australia) Pty Ltd.[68] That transfer was subject to a restrictive covenant that prevented various uses, being the same prohibited uses referred to in paragraph (ii) of the Lot 301 Restrictive Covenant, but did not include any restriction on subdivision or multiple occupancies.[69] The restrictive covenant also provides that the covenant would expire on the date that the burdened land was no longer used for or in conjunction with the manufacturing, processing or distribution of paint.[70] The evidence was that this was because Dulux proposed to build another facility on the land for the manufacture of latex, which could potentially be owned by a different company. This would either involve subdivision of the Dulux site or dual occupancy.[71]
[68]Map Annotated by Ben Perry (Exhibit D2).
[69]Instrument of Transfer AM405394S dated 8 December 2015 (CB 3648-3649).
[70]CB 3649; see also evidence of Michael Martin, Transcript 20/09/24, T171-172.
[71]Evidence of Michael Martin, Transcript 20/09/24, T172.11-T173.03.
On 14 August 2020, Lot 401, a 8.764 ha lot, was transferred to Dexus Wholesale Management Limited for it to be leased to Ford Motor Company of Australia Pty Ltd.[72] That transfer was subject to a restrictive covenant expressed to be for the benefit of Lot P. It prevented subdivision up until 2040, but did not contain any occupancy restriction.[73] A second site, Lot 501, was acquired by Dexus in March 2021 with a restrictive covenant in the same terms as that applying to the land occupied by Ford.[74] That site was occupied by RMA Group, and was regarded by MAB as being a strategic site in combination with the Ford site.[75] The building on the RMA occupied site had two tenancies.[76]
[72]Instrument of Transfer AT513506U dated 14 August 2020, Supplementary Court Book (SCB) 5271-5273; see also evidence of Michael Martin, Transcript 20/09/24, T173.5-6.
[73]Memorandum of Common Provisions AA6485 (SCB 5274).
[74]Instrument of Transfer AU123117W dated 10 March 2021 (SCB 5365-5367).
[75]Evidence of Michael Martin, Transcript 20/09/24, T165.31-T166.02.
[76]Evidence of Michael Martin, Transcript 20/09/24, T181.18-T181.29.
On 17 August 2023, Lot 702 , a site of 3.658 ha, was transferred to Bunnings Properties Pty Ltd.[77] That transfer was subject to a restrictive covenant which did not restrict the number of occupancies that could be created on the site.[78]
[77]Instrument of Transfer AX164157B dated 17 August 2023 (SCB 5513-5515).
[78]Memorandum of Common Provisions AA9412 (SCB 5516-5517).
Other large lots included Lot 601, of 3.02 ha, sold to Crafty Properties Pty Ltd and occupied by Lincraft Australia Pty Ltd. That sale was subject to a restrictive covenant expressed to be for the benefit of Lot P which prohibits subdivision and also prohibits two or more occupancies without written consent.[79] Lot 203, a 2.97 ha lot, was transferred to Merrifield Property (Vic) Pty Ltd on 31 December 2018 and is leased to a smallgoods company called D’Orsogna.[80] That sale was subject to a restrictive covenant which is expressed to be for the benefit of Lot G, not Lot P, and prohibits subdivision, two or more separate occupancies without written consent, and applications for the development of the site which will have, or will have a reasonable likelihood of resulting in, a materially adverse impact on the use and development of Lot G.[81]
[79]Instrument of Transfer AV546884G (SCB 5463-5465); Memorandum of Common Provisions AA7457 (CB 4517-4518).
[80]Instrument of Transfer AR808594T dated 31 December 2018 (CB 4129-4130).
[81]Memorandum of Common Provisions AA4687 (CB 4049-4050).
There were a range of other smaller lots in the Merrifield Business Park which had been sold or leased at the time of the proceedings.[82] All sales involved restrictive covenants restricting subdivision of the land, and the creation of more than one occupancy. However, one of the covenants was, like the D’Orsogna site referred to above, not in favour of Lot P as the benefitted land,[83] and one covenant prohibited more than one occupancy but permitted the occupier and related parties to create unlimited ‘shared’ occupancies.[84]
[82]These included the following: Lot 105, 2.024 ha, sold to Sterilassets Pty Ltd and subject to a restrictive covenant for the land in PS818702G other than Lot 105, which prohibits subdivision and two or more occupancies without written consent. Lot 302, 1.46 ha, transferred to McAndrew Vic Investments Pty Ltd and registered 17 December 2021, and occupied by Tasman KB, with a restrictive covenant expressed to be for the benefit of Lot P and which prohibits subdivision or two or more separate occupancies without written consent. Lot 303A, 1.46 ha, was sold to VTH Australia Pty Ltd and occupied by Aeroklas, and had a restrictive covenant for the benefit of Lot P which prohibits subdivision or two or more separate occupancies without written consent, subject to the proviso ‘that the Burdened Land may be used as shared occupancy by the occupier of the Burdened Land from time to time and its Related Entities and or Related Body Corporates (as those terms are defined in the Corporations Act 2001)’. Lot 602A, 2.13 ha, was sold to Pearson Enterprises Pty Ltd on 29 June 2022, subject to a restrictive covenant for the benefit of Lot P, which prohibits subdivision or two or more separate occupancies without written consent. Lot 603, 4.57 ha, was registered as transferred to CMV 1 Pty Ltd on 23 August 2024, subject to a restrictive covenant for the benefit of Lot P, which prohibits subdivision or two or more separate occupancies without written consent. See Polaris Release in Merrifield Business Park (MF1-D2) and transfer instruments from Court Book referred to therein.
[83]Lot 105, occupied by Steritech.
[84]Lot 303A, occupied by Aeroklas.
Is the Restrictive Covenant effective and enforceable against FAL?
FAL identifies two bases on which the Restrictive Covenant is said to be unenforceable. First, it is said that the Covenant does not ‘touch and concern the land’, which is a requirement for any covenant to be enforceable as against third parties to the transaction by which the land was alienated. Secondly, it is said that the Restrictive Covenant, insofar as it imposes the Occupancy Restriction, is said to contravene s 45 of the Competition and Consumer Act, which prohibits arrangements which restrict trade.
Legal principles relevant to effect of Restrictive Covenants
The legal principles relevant to enforcement of restrictive covenants against successors in title
A covenant, in the sense of a promise made in a contract or a deed, is enforceable by the covenantee against the covenantor pursuant to the general principles of contract law. However, covenants which satisfy certain conditions may run with the land at common law or in equity. In Tulk v Moxhay it was recognised that a covenant affecting land could be enforced in equity against successors in title who took with notice of the covenant.[85] The principles subsequently developed as to the circumstances in which restrictive covenants will be enforceable against successors in title are to the effect that:
[85]TulkvMoxhay (1848) 41 ER 1143 (Lord Cottenham LC).
(a) the covenant must be a negative covenant;
(b) the burden of the covenant is intended to run with the land; and
(c) the covenant benefits the land of the covenantee (the benefitted land), rather than simply conferring a benefit on the covenantee, and the covenant ‘touches and concerns’ that land.[86]
[86]Rogers v Hosegood [1900] 2 Ch 388, 395 (Farwell J); Clem Smith Nominees Pty Ltd v Farelly (1978) 20 SASR 227, 235 (Bray CJ); McGuigan Investments Pty Ltd v Dalwood Vineyards Pty Ltd [1970] 1 NSWR 686, 690-691 (Hope J); Deguisa v Lynn (2020) 268 CLR 638, 647 [13], 663 [72], 665 [78] (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ).
Under the Torrens system of recognising title by registration, for a restrictive covenant to run with the land and be enforceable against third parties, it is also essential that the covenant be notified in a way capable of identification from the certificate of title or instruments incorporated in the certificate by reference and available for inspection on the Register.[87] Section 88(1) of the Transfer of Land Act specifically provides for the recording or notification of a covenant on the title in the Register. Such recording in the Register does not give the restrictive covenant any greater operation than it had under the instrument creating it.[88] It was undisputed that in this case the Restrictive Covenant was recorded on the title to Lot 301.[89]
[87]Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528, 539 [38]-[39] (Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ); Deguisa v Lynn, 646 [9], 663-664, [73]-[74]; Langdale Pty Ltd v Sollas [1959] VR 634, 638 (Adam J); Re Dennerstein [1963] VR 688, 696 (Hudson J); Clem Smith, 237; Adrian Bradbrook and Susan MacCallum, Easements and Restrictive Covenants, (LexisNexis, 3rd ed, 2010) [14.19].
[88]Transfer of Land Act, s 88(3).
[89]Amended Defence to Amended Statement of Claim and Second Further Amended Counterclaim, [5].
The requirement that the covenant is a negative covenant is not in issue, as it is plain that the Occupancy Restriction in the Restrictive Covenant is a negative restriction on how the owner of Lot 301 may use the land. The intention that the burden of this restriction is to run with the land is also not in issue in this case, given that the language of the Restrictive Covenant expressly states that ‘it is intended that this covenant shall appear as an encumbrance affecting the same and every part thereof on the Certificate of Title to be issued in respect of the Burdened Land and further that this covenant shall forever run at law’.
A covenant must ‘touch and concern’ the land
It is the third requirement, that a restrictive covenant ‘touch and concern’ the benefitted land, which is in issue in this case. It is necessary to consider closely the authorities applicable to this requirement.
The central focus of the requirement is that the restrictive covenant must benefit the covenantee’s land.[90] In assessing the question of benefit to the land, the authorities focus on two modes of benefit:[91]
(a) the restrictive covenant beneficially affects the land with respect to its mode of occupation, including as to its amenity; or
(b) the restrictive covenant otherwise beneficially affects the value of the land.[92]
[90]Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154, 170 [32] (Gaudron, McHugh, Gummow, Kirby and Hayne JJ).
[91]Rogers v Hosegood, 395 (Farwell J).
[92]Forestview Nominees 170-171, [34]-[35], referring with apparent approval to the assessment of the primary judge Carr in the Federal Court that a covenant preventing use of the burdened land for retail use touched and concerned the benefitted land because it enhanced its value (see Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1995) 133 ALR 465, 497-498); McGuigan, 690 (Hope J).
In P & A Swift Investments (a firm) v Combined English Stores Group plc,[93] an authority relied on by Merrifield, these alternatives of establishing the requirement that the covenant touches and concerns the land were reiterated, in the context of additional considerations. Lord Oliver of Aylmerton observed:
[T]he following provides a satisfactory working test for whether, in any given case, a covenant touches and concerns the land: (1) the covenant benefits only the reversioner [covenantee] for time being, and if separated from the reversion [the relevant land] ceases to be of benefit to the covenantee; (2) the covenant affects the nature, quality, mode of user or value of the land of the reversioner; (3) the covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations only of a specific tenant); (4) the fact that a covenant is to pay a sum of money will not prevent it from touching and concerning the land so long as the three foregoing conditions are satisfied and the covenant is connected with something to be done on, to or in relation to the land. [94]
[93][1989] AC 632.
[94][1989] AC 632, 642 (the other Lords agreeing: Lords Keith, Roskill, Templeman and Ackner), cited with approval in Pendal Nominees Pty Ltd v Lednez Industries (Australia) Pty Ltd (1996) 40 NSWLR 282, 293-294 (Cohen J).
It is also important in considering the question of benefit to distinguish between a benefit enuring to the covenantee, and a benefit touching and concerning the land. While it is open to accept that the covenantee, if imposing a restrictive covenant in a land transaction, has done so because it provides a benefit, it may be a benefit which, properly understood, is personal to the covenantee, rather than a benefit touching and concerning the land. This is a particularly significant issue where a covenant is intended to protect a business enterprise conducted by the covenantee on the benefitted land. Such a covenant may benefit the covenantee in their personal capacity as the business owner, however properly construed, it may also benefit the land itself.
In Newton Abbot Co-operative Society Ltd v Williamson & Treadgold Ltd, Upjohn J, as his Lordship then was, held that a covenant which prevented competition with the covenantee’s business did not have that as its sole object, and that it was open to conclude that it would benefit the land and future purchasers of the land or the business operating on the land.[95] However that conclusion has been doubted in subsequent cases including Quadramain Pty Ltd v Sevastapol Investments Pty Ltd.[96] There, Justice Jacobs doubted the correctness of Upjohn J’s conclusion, noting that Upjohn J had referred to the possibility that the benefit of the covenant could be assigned to a purchaser of the business who was not also a purchaser of the land. In Jacobs J’s view, that possibility raised a question of whether the covenant was indeed for the benefit of the land, or simply for the covenantee as the owner of the business.
[95][1952] Ch 286, 293-294.
[96](1976) 133 CLR 390, 411-414. Justice Jacobs was in dissent, but not on this issue. The majority determined the case without consideration of Newton Abbot or the question of whether the relevant covenant touched and concerned the land.
In McGuigan Investments Pty Ltd v Dalwood Vineyards Pty Ltd,[97] Hope J in the New South Wales Supreme Court considered the effect of a covenant in a sale by Dalwood to McGuigan of a vineyard in the Hunter Valley called Dalwood. The covenant stated that neither the land or any part of it would at any time thereafter ‘be used for the purposes of a business or undertaking carried on under a name of which the word “Dalwood” formed the whole or part, or the sale or production of wine products under any name including the word “Dalwood”. It also said that if the purchaser conveyed the land the purchaser would require the proposed conveyee to enter into covenants on the same terms.[98] The covenant was expressed to benefit land called Penfold Vale which was 17 miles away in the Hunter Valley.
[97][1970] 1 NSWR 686.
[98][1970] 1 NSWR 686, 689.
Justice Hope construed the restrictive covenant as only prohibiting the purchaser McGuigan from using the land for the sale or production of wine products under any name including the word ‘Dalwood’. He held, so construed, the covenant neither touched nor concerned the Penfold Vale land. His Honour considered that a restriction on the use of the name Dalwood on a single property in the Hunter Valley, 17 miles away from the benefitted land in a region with numerous wineries, would not in any way enhance the value of the Penfold Vale land.[99] The annexation of the covenant to the land was therefore ineffective.[100]
[99][1970] 1 NSWR 686, 690-691.
[100][1970] 1 NSWR 686, 691.
In summary, it is necessary to closely consider the terms of the restrictive covenant to ascertain whether the restrictive covenant truly benefits the benefitted land in its mode of occupation or in enhancing its value, or whether it is simply a restriction which will have benefit to the covenantee in their own capacity.
Principles of construction applicable to restrictive covenants
Before considering the parties’ positions on the enforceability against FAL of the Restrictive Covenant it is necessary to understand the state of legal authority on the question of how restrictive covenants are to be construed, and what evidence is admissible in the process of construction and in considering the effect of a restrictive covenant.
In the context of the construction of easements on Torrens system land, the High Court held in Westfield Management Limited v Perpetual Trustee Company Limited[101] that the meaning of the terms of the easement were to be ascertained from what appeared on the Register, and not by reference to extrinsic material. The High Court observed that:
The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee.[102]
[101](2007) 233 CLR 528.
[102](2007) 233 CLR 528, 539 [39].
In Deguisa v Lynn[103] the proceeding involved a certificate of title to land registered in South Australia which contained a memorandum of encumbrance to the effect that the land was part of a ‘common building scheme’ and which imposed restrictions including a single dwelling restriction. Neither the certificate of title, nor the memorandum of encumbrance referred to the other lots intended to be benefitted by the encumbrance. The principal issue in the case was whether the common building scheme was sufficiently notified on the title to the land for the purposes of s 69 of the Real Property Act 1886 (SA). The unanimous view of the High Court was that it was necessary for the identity of the other lots in the common building scheme which were benefitted by the restrictions to be identified in the certificate of title or in the memorandum of encumbrance for the notification to be sufficient. The Court referred to Westfield as having established the proposition that ‘unless reference to an interest is endorsed on the certificate of title or incorporated by reference in a registered instrument notified on the certificate of title, the interest has not been notified on the certificate of title’.[104] As the other lots which were part of the common building scheme were not identified, the land was not encumbered by the restrictions in the memorandum of encumbrance.
[103](2020) 268 CLR 638.
[104](2020) 268 CLR 638, 662-663 [71].
The Court of Appeal in Jeshing Property Management Pty Ltd & Bao v Yang & Ors, considered Westfield, Deguisa, and subsequent authorities, in affirming the specific principles as to construction of restrictive covenants.[105] In a passage later cited with express approval by the Court of Appeal in Sumervale Pty Ltd v Viva Energy Refining Pty Ltd[106], the Court in Jeshing observed:[107]
[T]he principles to be applied in construing restrictive covenants are the same ‘established principles’ as apply to the construction of contracts, except the rules of evidence as to the admissibility of extrinsic evidence of surrounding circumstances are constrained by the decisions in Westfield and Deguisa. This is evident from the judgment of the Court of Appeal in New South Wales in Phoenix,[108] and the judgment of this Court in Barport Pty Ltd v Baum.[109] On this basis, the principles stated by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[110] with such adaptions as are necessary to reflect the decisions in Westfield and Deguisa, should apply to the construction of the Covenants, as follows:
(1)The meaning of the phrase at issue is to be determined objectively, by reference to its text, context (the entire text of the Covenants as well as any registered instrument or statutory provision referred to in the text of the Covenants) and purpose.[111]
(2)In determining the meaning of the relevant terms of the Covenants, it is necessary to ask what a reasonable person in the position of [the transferor and transferee of the land] would have understood those terms to mean. That enquiry requires consideration of the language used by the parties in the Covenants, the circumstances addressed by the Covenants and the commercial purpose or objects of the Covenants.[112]
(3)A construction of the relevant words in the Covenants which accords with commercial sense and commercial convenience should be preferred over one which does not.[113]
[105][2023] VSCA 185, [63] (Niall, Osborn and Hargrave JJA). See also, as to the limitation on the uses of extrinsic materials external to the title and the register in construction of easements and restrictive covenants, Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 (Handley AJA, with whom Tobias and McColl JJA agree); Prowse v Johnstone [2012] VSC 4, [57]-[58] (Cavanough J).
[106][2024] VSCA 140, [53] (Niall JA, Richards and J Forrest AJJA).
[107]Jeshing, [63].
[108][2010] NSWCA 64, [158].
[109][2019] VSCA 167, [68].
[110]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104.
[111]Mount Bruce Mining, 116 [46].
[112]Mount Bruce Mining, 116 [47].
[113]Mount Bruce Mining, 117 [51].
The primary issue in Jeshing was whether the relevant restrictive covenants continued to burden the land as against subsequent successors in title to the original covenantor.[114] It was contended in the appeal that the trial judge had erred when determining that the covenants did continue to burden the land, in considering other covenants in other instruments of transfer arising out of a great-great-grandparent title from which the relevant land derived. In that case, however, the language of the covenants themselves referred to the covenantor ‘for himself his heirs executors administrators and transferees’ covenanting with the covenantee ‘and her heirs executors administrators and transferees the registered proprietor or proprietors for the time being’ of the land.[115] The question of whether the covenant continued to burden the land was one connected directly with the language of the covenant. The Court of Appeal’s observations did not, therefore, strictly address a question which arises in this case. That is whether the principles in Westfield and Deguisa, limiting reference to extrinsic material in the construction of covenants, would also extend to the question of whether a covenant has, properly understood, the quality of touching and concerning the land.
[114][2023] VSCA 185, [1]-[4].
[115][2023] VSCA 185, [14]-[15].
In Sumervale,[116] the Court of Appeal considered the issue of construction of restrictive covenants not in the context of the question of whether a covenant touches and concerns the land, but in the context of an application for modification of a covenant pursuant to s 84(1)(c) of the Property Law Act. The Court considered in particular the relevance of the purpose of a covenant in construction, and how that purpose is to be ascertained. The Court held that the purpose or intent of the covenant may be relevant to ascertaining its meaning and the nature of the injury that may be occasioned by modification of the covenant or removal of the restriction for the purposes of s 84(1)(c).[117] The Court observed that identification of that purpose or intent is:
subject to the limiting principle, which derives from the indefeasibility of registered instruments, that the title is an ‘accurate and comprehensive statement of the state of the title to that land, as to both the title of the registered owner and the interests of others in that land’ and a person dealing with the registered proprietor is entitled to rely on the title and interests notified on it without recourse to other extrinsic material.[118]
[116][2024] VSCA 140.
[117]Sumervale, [52], [62], [65] (Niall JA, Richards and J Forrest AJJA).
[118]Sumervale, [52], citing Deguisa at 644, [2] and Westfield at 531 [5]; 539 [39].
The Court noted that ‘purpose’ in the sense relevant to construction of the restrictive covenant is ‘objectively determined and fixed’ and does not change over time with changes in land use, and ‘represents the objectively ascertained intent of the parties on the making of the covenant’.[119] The Court also observed that an important consideration in understanding restrictive covenants is that they must touch and concern the land, and the ‘purpose will relate to the use and enjoyment of [that] land’.[120]
[119]Sumervale, [54].
[120]Sumervale, [56].
The discussion in Sumervale does not bear directly on the question of the relevance of the purpose of a restrictive covenant in understanding whether it touches and concerns the land. However the acknowledgement of the relationship between the purpose of the covenant and the use and enjoyment of the benefitted land suggests that the ascertainment of whether a covenant touches and concerns the land should be consistent with the principles as to how the purpose of the covenant is to be ascertained. That is, at least in land held in the Torrens system, it should be determined by the terms of the covenant and other documents available on the title and incorporated documents on the Register, without recourse to extrinsic materials.
In Fitt v Luxury Developments Pty Ltd,[121] a judgment delivered in 2000, Gillard J did consider the specific question of what the Court may take into account in determining whether the benefit of a covenant is annexed to the land, and whether it touches and concerns the land. His Honour referred to observations of Farwell J in Rogers v Hosegood to the effect that the question of whether the covenant touches and concerns the land is ‘a question of intention ... to be determined on construction’, but one on which ‘the surrounding circumstances’ can be considered to establish the intention.[122] Justice Gillard observed:
Whether or not the benefit of the covenant is annexed to some land is a question depending upon the common intention of the original parties to the covenant. It is necessary to construe the words of the covenant in their natural and ordinary meaning to determine the intention of the parties and whether they intended that the covenant was to be annexed to some land and run with it. In carrying out this exercise the court may take into account the surrounding circumstances objectively known to the parties at the time.
…
It is necessary to find an intention within the wording of the covenant and the surrounding circumstances, to benefit the particular property in the sense that the owners acquire the benefit as part of their ownership of the land.[123]
No substantial prejudice relating to competition if the Occupancy Restriction was modified
FAL tendered evidence to the effect that modification of the Occupancy Restriction would not cause injury to Merrifield’s ability to sell or lease Lot P.
(a) Mr Blakely expressed the view that the existence of a separate tenancy for the Freezer would not have any impact on the ability of the owner of Lot P to lease some or all of its land at a reasonable commercial rate.[542] Mr Moore agreed with that opinion.[543] Mr Moore agreed that it was unlikely that a developer would speculatively build a highly specialised and costly asset such as a freezer facility to attract a tenant, so it was unlikely that a separate tenancy for the Freezer would impact Lot P.[544]
(b) Mr Bowman’s opinion was that a separate tenancy for the Freezer would not negatively impact the value of Lot P. That very large facility was such a specialised asset that it had a limited market demand. Merrifield retained a strategic advantage with respect to Lot P in that it could build to specific tenant requirements, whilst Lot 301 could only offer what was already built.[545]
(c) Mr Bowman also expressed the opinion that modification of the Occupancy Restriction to permit multiple occupancies[546] would not negatively affect the value of Lot P because the modification would not in his view alter the supply and demand equilibrium in Melbourne’s industrial market to the extent that it would alter the value of Lot P.[547]
[542]Blakely Report, [9.1]-[9.2].
[543]Second Moore Report, [60].
[544]Second Moore Report, [61]. Transcript 23/09/24, T258.12-T259.22.
[545]Bowman Report, [35].
[546]Expressed in his report in terms of the ‘First Proposed Modification’, defined in the same way as the Counterclaim to mean the deletion of the words ‘or the creation thereon of two or more separate occupancies’, with the effect that there would be no limit on the number of occupancies on Lot 301. Appendix B to the Bowman Report, Letter of Instruction dated 24 March 2023,[22]; SCB 5482-5487.
[547]Bowman Report, [36].
Merrifield submitted that modification of the Occupancy Restriction to permit two or more tenancies on Lot 301 would substantially injure Lot P. It did not in its closing written submissions identify exactly why this would be the case. It emphasised the ‘real benefits to Merrifield by protecting it from competition in relation to the ongoing development of the Merrifield land’[548] but did not articulate why a modification of the Occupancy Restriction to permit two or more tenancies would impair that benefit or cause substantial injury in that context.
[548]Plaintiffs’ Outline of Closing Submission, [96].
Merrifield’s expert Mr Moore was not asked to express an opinion as to whether one or more of the proposed modifications to the Occupancy Permit would cause injury to Merrifield’s interests as proprietor of Lot P. However, he did express the opinion that the Restrictive Covenant on Lot 301 and covenants on other lots in the Merrifield Business Park had likely been introduced to protect against another developer creating competing supply of land in the Park, that:
Whilst it is difficult to quantify the likely or precise reduction in value or lost revenues to the first plaintiff if the Covenant(s) were removed, it is clear, in my view, that the removal of any such covenant could cause rise to an increase in supply within the Estate.[549]
[549]First Moore Report, [219].
This opinion is limited in relevance and utility, in that it did not quantify, even in any approximate way, loss of value or lost revenue arising out of removal of the covenants on land in the Merrifield Business Park. It is also expressed to be related to the effect if the ‘Covenant(s)’ on land in the Merrifield Business Park were removed, rather than being directed at the effect of removal or modification of one aspect (the Occupancy Restriction) of one restrictive covenant, the Restrictive Covenant on Lot 301. For these reasons, Mr Moore’s opinion does not constitute evidence to support the proposition that modification of the Occupancy Restriction to permit two or more occupancies on Lot 301 would cause substantial injury to Merrifield as proprietor of Lot P.
Mr Martin accepted that permitting multiple occupancies would not take away Merrifield’s ability to develop Lot P and attract a buyer or a tenant. He said it would make it a ‘little bit harder’ to do so and would be ‘taking away our ability to do it as we would choose and as our preference’.[550] Mr Martin referred to the example of Merrifield having sought to service a ‘40,000m2 requirement’ for the company Regent Caravans, which FAL ‘were also submitting on’. Mr Martin gave evidence that Merrifield was still able to pursue that opportunity but having ‘two landowners that are next door to each other chasing the same tenant’ made it a little bit more difficult.[551]
[550]Transcript 20/09/24, T179.27-T180.03.
[551]Transcript 26/09/24, T178.27-30.
I do not regard this evidence as supporting the proposition that modification of the Occupancy Restriction to permit an additional tenant on Lot 301 would substantially injure Merrifield as proprietors of Lot P. The evidence was inconclusive as to why Regent Caravans did not pursue any occupancy on Lot P. The evidence may suggest existence of a potential alternative source of land in Lot 301. However the absence of evidence as to whether Regent Caravans had any interest in Lot 301, and Mr Martin’s acceptance that the existence of Lot 301 as a potential competitor made the process only a ‘little bit more difficult’, means that that the available evidence does not establish that Merrifield would be substantially injured if the proprietors of Lot 301 were able to offer an additional occupancy on the land.
FAL has in my view established not only that the Occupancy Restriction does not have in effect any practical benefit of limiting competition for Lot P in sale or leasing or land, but also that there would be no adverse change in that respect if the Occupancy Restriction was altered to permit two (or more) tenancies. In those circumstances, if it was permissible to take into account any benefit involving protection against competition in sales and leasing of land arising from the Occupancy Restriction, I conclude that the modification of the Restriction to permit two occupancies would not substantially injure Merrifield as proprietor of Lot P.
Section 84(1)(a) – restriction impedes all reasonable user without practical benefit
I have concluded that the modification of the Occupancy Restriction to permit one occupancy in each of the existing buildings on Lot 301 (the Fifth Proposed Modification) will not substantially injure Merrifield, so that the conditions for the exercise of the discretion to modify the Restrictive Covenant under s 84(1)(c) are satisfied. There is utility in considering whether the conditions of s 84(1)(a), also relied on by FAL, are satisfied. The first basis is in the event that I am wrong in my conclusions as to the application of s 84(1)(c). The second is in the event that any of the alternative more extensive modifications to the Restrictive Covenant, which I have found do not meet the requirements of s 84(1)(c) could be authorised pursuant to the s 84(1)(a) power.
Section 84(1)(a) requires FAL to establish that:
(a) all reasonable uses of Lot 301 are impeded by the continuance of the restriction without modification, in the sense that the restriction hinders, retards or obstructs to a real sensible degree the reasonable use of the land; and
(b) the restriction does not secure practical benefits to other persons, in particular the proprietor of Lot P.[552]
[552]See paragraph [453] above.
Reasonable user
FAL contends that the Occupancy Restriction will impede all reasonable uses of Lot 301 because it impedes being able to use all of the infrastructure on the site fully and reasonably.[553] It emphasises that the requirement of s 84(1)(a) is not that the restriction prevents the reasonable user, rather that it impedes or makes harder that reasonable use.[554]
[553]Transcript 26/09/24, T418.13-419.02.
[554]Transcript 26/09/24, T418.04-16.
Merrifield submitted that the very fact that Lot 301 had been leased to DHL without initial contravention of the Occupancy Restriction established that it did not impede the reasonable user of the land.[555]
[555]See paragraph [342] above.
Mr Blakely’s evidence, relied on by FAL, was that leasing both the Warehouse and the Freezer to a single tenant at a commercially viable rate is and will be extremely difficult because:
(a) The current tenant of Lot 301 is the largest third party logistics company in the world and was not using the Freezer, and also was not using significant parts of the Warehouse, including a temperature controlled component, at all.[556]
(b) The main occupiers of temperature controlled warehouses who would also require a large scale ambient warehouse are the major grocery retailers being Woolworths, Coles, Aldi and Metcash. Those users typically have specialised requirements and specifically design sites to accommodate their specific storage, handling and transport profiles. Upgrading or retrofitting a site such as Lot 301 would be costly and inefficient for a major occupier who has not been involved in the design and construction.
(c) Neither Mr Blakely nor his colleagues at the firm Resolve XO had ever been tasked with sourcing on behalf of a tenant an existing 70,000sqm warehouse with additional temperature controlled facilities.[557]
[556]These were the instructions to Mr Blakely. FAL did not call lay witnesses to establish these facts, but they were not contentious. It was implicit in Mr Martin and Mr Perry’s evidence that DHL was not using the Freezer: First Martin statement,[38]-[43]; Perry Statement at [20].
[557]Closing Outline of Argument of the Defendant/Plaintiff by Counterclaim, [103], referring to the Blakely Report, [7.1], [7.2], [7.5]; see also Transcript 23/09/24, T308.
Mr Martin gave evidence in his second witness statement that, in his view, there were other major grocery retailers which were potential occupiers for Lot 301, Woolworths, Coles, Aldi and Metcash.[558] However he accepted, when it was put to him in cross-examination, that Metcash was in the process of building a new 115,000 m2 distribution centre, Woolworths had recently opened a new 38,000 m2 distribution centre and Coles was currently constructing a 30,000 m2 centre (all in Truganina). Nevertheless he maintained the position that the companies may be a potential occupier of Lot 301.[559] He also accepted that he had not discussed with the companies he named whether they would or would not be interested in an occupancy of Lot 301.[560] He also gave evidence that large supermarket retailers had multiple distribution centres.[561]
[558]Second Martin Statement, [5].
[559]Transcript 20/09/24, T202.07-18; T204.01-11.
[560]Transcript 20/09/24, T200.09-T201.09.
[561]Transcript 20/09/24, T203.04-07.
Mr Martin gave evidence that in his view there would be other potential sole occupant tenants for the warehouse structure, being logistics occupants such as Australia Post, Fed-Ex and TSL Australia; e-commerce occupants such as Amazon, Kogan or Catch, and retail occupants such as Big-W, K-mart, Target or Bunnings. He did not identify any basis on which he held those views or any evidence as to whether any of those entities were in fact seeking to lease a large warehouse.[562]
[562]Second Martin Statement, [5(b)].
Noting the extreme generality of Mr Martin’s observation that other major grocery retailers might be potential occupiers for Lot 301 or Lot P, and his acknowledgement that most of the identified retailers had recently opened or were constructing warehousing and distribution facilities, his evidence does not enable a conclusion that any of the major grocery retailers would realistically be tenants for Lot 301 at any time in the foreseeable future. His other evidence is of his view that there are other potential occupants in the market for the Warehouse only, rather than the Freezer and Warehouse.
I find that there is no reasonable likelihood in the near future of a single entity seeking to rent a site with both a large warehouse of the size of the Warehouse, and large industrial freezer facility. The only identified potential occupants were the large retail grocery retailers and it was accepted in the evidence of Mr Martin that three of those four identified retailers had recently constructed or were in the process of constructing large warehouse facilities. There was no evidence that any of the four retailers were seeking new warehouse premises.
The fact that Kaufland had intended to occupy the site and use both the Freezer and the Warehouse is not evidence that the land was capable of being used to its full potential, as it ultimately did not enter the Australian retail grocery market and did not ever occupy the site. Although FAL was able to lease the entirety of the site to DHL, the evidence is that DHL did not use the Freezer and so was not able to use the entirety of the site. The evidence as to the circumstances of that lease, and the subsequent Freezer Lease, were limited. However it is clear that the lease of Lot 301 to DHL as a single occupant was of relatively short duration (from April to September 2021).
I accept Merrifield’s submission that ‘reasonable user’ of the land does not mean optimal use, nor use at the best commercially available profit. However I also consider that reasonable use on a site such as this (the features of this land being an essential aspect of the consideration of what is reasonable use)[563] would entail some use of both major pieces of infrastructure on the site, the Freezer and the Warehouse. To have occupancy of the Lot (whether as an owner or a lessee) but be unable to use the Freezer for any commercial use, is not a commercial use of the lot as a while. It is not a reasonable use for the commercial landlord of the property to be able to lease the large property with two significant pieces of infrastructure to an entity that can only make use of one of those pieces of infrastructure, and thus only part of the land. It is not likely to result in a sensible rental reflective of the scale and original cost of the property.
[563]Re Stani, 8 (Young CJ, Barber and Nelson JJ).
The evidence is that there is an extremely limited market for one user to use both the Warehouse and the Freezer. I accept that there is in fact no current demand in the market for land featuring facilities of both of those kinds. Taking into account that the relevant question is whether the reasonable user is impeded, I accept that the Occupancy Restriction, the effect of which is to prevent any more than one occupant of the land, does impede the reasonable user of Lot 301 to a material extent.
Practical benefits
The question is then whether the continuance of the unmodified Occupancy Restriction, in impeding the reasonable user of Lot 301, does so without securing practical benefits to the proprietor of Lot P, or other persons.
I have found above that the Occupancy Restriction secures practical benefits in terms of amenity to Lot P, and other users of Merrifield Business Park, and consistency of use of Lot 301 with the design strategy for the Park.[564] Those practical benefits would remain available to Merrifield, in my view, if there are two separate occupancies of Lot 301 – one occupancy for the Warehouse, and one for the Freezer. However that is not the question. The issue is whether the continued existence of the unmodified Occupancy Restriction would impede the reasonable user without securing any practical benefit to Merrifield. As it does secure some practical benefit, it follows that s 84(1)(a) does not provide a secondary basis in addition to s 84(1)(c) on which the Occupancy Restriction may be modified.
[564]See above at paragraphs [135]-[136], [138], [394].
I have also found that it is not established by FAL that there would be no adverse effect on amenity if more than two occupancies were permitted on Lot 301.[565] More particularly, I accept that it has not been established by FAL, which bears the burden of proof, that no practical benefit is secured to the proprietor of Lot P (and other users of the Merrifield Business Park) from the Occupancy Restriction to the extent that it prevents more than two occupancies on Lot 301. Section 84(1)(a) does not, therefore, support the modifications of the Occupancy Restriction sought by FAL.
[565]See above at paragraphs [394]-[396].
Discretionary considerations
If the Court is satisfied of the matters identified in one of the subparagraphs of s 84(1), the discretion to grant a modification or to discharge a restrictive covenant is enlivened. The Court retains discretion to decline to modify a restrictive covenant even if satisfied of the relevant matters.[566] The discretion is to be exercised having regard to the terms of s 84, and the broader statutory context in the Property Law Act.
[566]Re Stani, 7 (Young CJ, Barber and Nelson JJ); Vrakas [45], [48] (Kyrou J).
Merrifield submits that even if the grounds for the exercise of the discretion in s 84(1) are made out, the Court should refuse to exercise the discretion on the basis of FAL’s conduct prior to making the application. The key features of FAL’s conduct relied on by Merrifield are:[567]
[567]Plaintiffs’ Outline of Closing Submission, [102].
(a) It purchased the property with full knowledge of the Restrictive Covenant by operation of the Torrens system, with the Covenant having been recorded on title, and effectively took a calculated commercial risk. It is said that they are effectively authors of their own misfortune.[568]
[568]Plaintiff’s Outline of Closing Submission, [104]; relying on Vrakas, [68].
(b) On the eve of trial FAL sought and was granted leave to amend its pleading to seek what FAL described as an ‘extremely modest’ modification,[569] and then abandoned its First Proposed Modification which would have removed the Occupancy Restriction in its entirety.
[569]Transcript 17/09/24, T58.05-07.
(c) It pressed its claim for modification without any plans identifying what future uses were proposed, relying on the observation of Kyrou J in Vrakas that a lack of specific plans makes it more difficult for an applicant to show that there will be no substantial injury to persons entitled to the benefit of a covenant.[570]
(d) It entered into the lease for the second occupancy without any disclosure to Merrifield, and without first seeking consent, thereby breaching the Restrictive Covenant. FAL has also not remedied the breach.
(e) FAL did not supply any information, explanation or proposed lease to Merrifield when it did seek consent.
[570]Vrakas [38], [70] (Kyrou J).
Merrifield also submits that it is relevant to the Court’s discretion that FAL had been ‘misleading’ in its dealings with Merrifield.[571] It refers to Mr Martin’s evidence that Marty Bourke, an officer of FAL, had told him on 19 October 2021, in response to Mr Martin’s query as to whether FAL was separately leasing the Freezer, that it was not doing so.[572] Merrifield also relies on a discussion at a subsequent meeting on 25 November 2021 between Mr Martin and Ben Perry MAB’s general counsel, with Ben Fife of FAL. In that conversation, according to Mr Perry:
Mr Fife said that FAL had no intention of competing with MAB and just wanted to lease the site to a single tenant (even though FAL was not doing that).[573]
[571]Merrifield initially, in its closing submissions, characterised Mr Fife as having been ‘dishonest’ (Plaintiffs’ Outline of Closing Submissions, [103]) but ultimately did not press that submission in the hearing and said it relied on FAL having been ‘misleading’: T439.04-T444.14.
[572] First Martin Statement, [43].
[573]Perry Statement, [20].
FAL submits that there is no basis for a finding of dishonesty or similar conduct. It says it was not competing with Merrifield and that in any case the issue is irrelevant to the exercise of the discretion to modify the Restrictive Covenant.[574] It also submits that there is no other discretionary reason to refuse the relief sought. FAL acknowledges that if a proposal was inconsistent with planning considerations, this may be a factor weighing against the exercise of the discretion. However there is no submission that the proposed change would be inconsistent with the planning scheme, and Mr Crowder’s evidence was that two or three occupancies would be consistent with the scheme, even if there was some redevelopment to the site.[575]
[574]Transcript 26/09/24, T420.05-T421.22.
[575]Closing Outline of Argument of the Defendant/Plaintiff by Counterclaim, [112]-[114].
Purchase of Lot 301 with knowledge of the Covenant
It is submitted by Merrifield that the fact of FAL having made the application notwithstanding its awareness of the Restrictive Covenant shows it was simply taking a calculated commercial risk, and that this is a reason why the Court should not grant the proposed modification, notwithstanding that it has established a factual basis under s 84(1) for a modification to be granted.
In most cases involving an application under s 84(1) of the Property Law Act, the owner of the burdened property would be aware of a restrictive covenant, either having agreed to it as a condition of sale (as Kaufland did in this case) or having been put on notice of it when purchasing (which is a matter fundamental to the principles of enforceability of covenants against successors in title). In the case of applications to modify or discharge covenants over Torrens system land, the restrictive covenant must be registered on title so will be readily able to be ascertained. Taking into account the principles of construction of restrictive covenants on Torrens system land, the scope and effect of the covenant should also be able to be ascertained.
In these circumstances it could be assumed that most if not all applicants for a modification are aware of a registered restrictive covenant when purchasing the relevant property. If awareness of the existence of a restrictive covenant was a factor in favour of declining to exercise the discretion to modify or discharge, it could limit the operation of s 84(1) in a way that would significantly restrict its utility. For that reason I do not regard it as a material factor against the exercise of the discretion to modify the Occupancy Restriction.
Late amendment to case to include modest alternative proposed modification and abandon extensive modification
As set out at [18] to [20] above, FAL made an application on the Friday prior to the trial to amend its pleadings to add two further alternative proposed modifications sought under s 84(1), the Fourth and Fifth Proposed Modifications. Both of these limited the effect of the alternative modifications to providing for occupancies in the existing building footprint on Lot 301. Further, on the first day of trial, FAL abandoned the First Proposed Modification by which it sought removal in full of the Occupancy Restriction.[576] Merrifield submits these matters favour refusing to exercise the discretion.
[576]Transcript 19/09/24, T16.23-26.
In an application under s 84(1) for modification or discharge of a restrictive covenant, it is appropriate that the Court be directed to the most appropriate modification having regard to the conditions for any modification to be made. It is also appropriate that the modification sought be consistent with any evidence provided in support of it. Here, expert evidence was provided which in many respects favoured only a very limited modification and it was appropriate for FAL’s application to reflect this.
The timing of the addition of the alternative modification and the abandonment of the broader proposed modification is a matter that may be relevant to costs. I do not regard it as a matter which weighs against the exercise of my discretion under s 84(1).
Failure to provide plans for future intended use if modification granted
Merrifield relies on FAL’s failure to provide details of the proposed plans for a burdened property if the Restrictive Covenant is modified. The authorities dealing with s 84(1) applications are to the effect that such a failure would go to whether or not the grounds in s 84(1) are made out, rather than being a discretionary factor. That is apparent from the comments of Justice Kyrou in Vrakas, in which his Honour observed that if plaintiffs ‘do not produce to the Court any specific plans but base their case on a general desire to optimise their options in relation to their property… [they] face the risk the Court will not be satisfied, on the evidence, that they have made out their case’.[577] Although Justice Kyrou made that observation in the context of the relevance of the plaintiffs’ conduct to the discretion,[578] his Honour considered that the failure to provide plans was primarily relevant to whether the basis for relief under s 84(1) had been established. His Honour had in that case already determined that the discretion had never been enlivened.[579]
[577]Vrakas, [70].
[578]Vrakas, [69].
[579]Vrakas, [71].
In this case, the absence of plans or clear information as to how three occupancies would be accommodated in the two buildings on Lot 301, or how those occupants would use the land, was a matter which was relevant to my determination that the Fourth Proposed Modification was not supported by s 84(1)(c). It was not possible, without that information, to discount the real potential for substantial injury. I do not regard it as appropriate to take that matter into account again as a reason to refuse the more limited modification constituted by the Fifth Proposed Modification.
Enry into the second lease without seeking consent, and failure to provide information when seeking consent
FAL’s conduct in entering into the Freezer Lease without first seeking Merrifield’s consent showed a disregard of the obligations imposed by the Restrictive Covenant, and of Merrifield’s rights arising from it.
Those facts have been material to my conclusion that FAL breached the Restrictive Covenant. It could have given rise to an order for payment of damages, but Merrifield did not seek any such order and had not put on any evidence of any loss or damage it incurred by reason of the breach. I do not consider it a reason why the modification of the Occupancy Restriction sought by FAL, the grounds for which it has established by its evidence, should be refused.
FAL’s failure to provide information when seeking consent after the Freezer Lease was entered into is also not in my view a reason to decline to exercise the discretion to modify the Occupancy Restriction. It may have been something that would be regarded as relevant to the gravity of the breach of the Restrictive Covenant but it does not in my view weigh against the exercise of the s 84(1) discretion to modify the Occupancy Restriction.
FAL’s conduct in response to Merrifield’s queries about whether the Freezer was leased
I have considered the evidence that Merrifield relies on to suggest that FAL had been misleading in its response to Merrifield’s inquiries as to whether the Freezer was being separately leased. Mr Martin’s evidence was that a representative of FAL, Marty Bourke, had told him that FAL was not leasing the Freezer in October 2021. The following month, in a meeting between Mr Marin, Mr Perry of MAB and Mr Fife of FAL, Mr Fife explained that the Freezer had been leased to Laverton Cold Storage since 13 September 2021[580]
[580]First Martin Statement, [41]-[43]; Revised Statement of Agreed Facts, [11].
No evidence was called from Mr Bourke with respect to the conversation about whether FAL was leasing the Freezer, as referred to in Mr Martin’s statement. However, this may have been because Merrifield had not pleaded that it would rely on any allegation of misleading conduct, nor identified that it would rely on Mr Martin’s evidence as a discretionary reason to refuse orders under s 84(1). Its intention to do so was first raised in closing submissions at the end of the trial, after evidence had concluded.
This would be a sufficient reason to decline to take this issue into account in the exercise of the discretion. However, even if Mr Martin’s account is correct, and there was an incorrect and misleading initial response to Merrifield’s queries about whether the Freezer was being leased, I would not regard it as a reason to decline to modify the Restrictive Covenant. As with the other matters relating to FAL having failed to seek consent to lease the Freezer prior to it being leased, it is relevant to the claim that the Restrictive Covenant was breached. It has little relevance to the application to modify the Restrictive Covenant.
No discretionary reason to refuse to modify the Restrictive Covenant
There is in my view no reason why the Court should refuse, in its discretion, to modify the Restrictive Covenant in the manner proposed in the Fifth Proposed Modification.
Conclusion
For the above reasons, I have concluded that:
(a) The Restrictive Covenant touches and concerns the land by restricting uses, configurations or development of Lot 301 that are incompatible with a business park and thereby providing an amenity benefit to the adjacent benefitted land, Lot P.
(b) The Restrictive Covenant is not void or unenforceable by reason of s 45 of the Competition and Consumer Act.
(c) FAL breached the Restrictive Covenant by failing to seek consent prior to entering into a second lease.
(d) The conditions for modifying the Restrictive Covenant in the manner proposed in the Fifth Proposed Modification under s 84(1)(c) are satisfied.
(e) It is appropriate to exercise the discretion of the Court to modify the Restrictive Covenant in the manner proposed in the Fifth Proposed Modification.
I will hear the parties on the appropriate orders to give effect to these reasons, and on costs.
SCHEDULE OF PARTIES
S ECI 2022 00791
| BETWEEN: | |
| MERRIFIELD CORPORATION PTY LTD | First Plaintiff/First Defendant by counterclaim |
| MERRIFIELD BUSINESS PARK HOLD 1 PTY LTD | Second Plaintiff/Second Defendant by counterclaim |
| MERRIFIELD BUSINESS PARK HOLD 2 PTY LTD | Third Plaintiff/Third Defendant by counterclaim |
| MERRIFIELD BUSINESS PARK HOLD 3 PTY LTD | Fourth Plaintiff/Fourth Defendant by counterclaim |
| MERRIFIELD BUSINESS PARK HOLD 4 PTY LTD | Fifth Plaintiff/Fifth Defendant by counterclaim |
| MERRIFIELD BUSINESS PARK HOLD 5 PTY LTD | Sixth Plaintiff/Sixth Defendant by counterclaim |
| AND | |
| FAL MICKLEHAM PTY LTD (ACN 643 550 010) | Defendant/Plaintiff by counterclaim |
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