Stockfeld v Hendon
[2021] VSC 133
•26 March 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 01583
| SIMON ROBERT DAVID STOCKFELD & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| SHARON JOY HENDON & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Hetyey AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 November 2020 |
DATE OF JUDGMENT: | 26 March 2021 |
CASE MAY BE CITED AS: | Stockfeld & Anor v Hendon & Ors |
MEDIUM NEUTRAL CITATION: | [2021] VSC 133 |
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PROPERTY LAW – Restrictive covenant – Property Law Act 1958 (Vic) s 84(2) – Proper construction of covenant – Development on property limited to ‘a good and substantial double fronted dwelling house with necessary outbuildings’ – Minimum cost requirement – Requirement for plans to be approved by an agent nominated by vendor – Restriction on construction of more than one such building – Effect of death of agent on restrictions contained within covenant – Whether relevant restrictions became absolute or spent on death of agent – Whether only approval requirement spent on death of agent – Severance – Whether approval requirement can be severed from remainder of covenant – Whether covenant prevents development of more than one dwelling house on the property.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Townsend and Mr C Tran | MPW Lawyers |
| For the Defendant | Mr S Horgan QC and Mr W Rimmer | Rogers & Gaylard Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 1
Procedural history.............................................................................................................................. 5
Applicable Law................................................................................................................................... 6
Principles of construction................................................................................................... 7
Review of authorities on consent requirements in covenants...................................... 9
Nature of approval requirement................................................................................................... 15
Construction of covenant as a whole........................................................................................... 17
Textual analysis.................................................................................................................. 19
Other context...................................................................................................................... 20
Effect of death of Elliott Cairnes on operation of the covenant............................................. 21
Can the approval requirement be severed?................................................................................ 28
Availability of severance.................................................................................................. 28
Application of severance.................................................................................................. 31
Status of cost requirement.............................................................................................................. 34
Alternative contentions regarding the single building restriction........................................ 35
No restriction on number of dwellings?........................................................................ 35
No restriction on number of buildings?......................................................................... 38
Conclusion......................................................................................................................................... 39
HIS HONOUR:
Introduction
In this proceeding, Simon and Rachel Stockfeld (‘the plaintiffs’) seek declarations about a restrictive covenant that limits the development and use of their property located at 357-359 Wattletree Road, Malvern East (‘the property’).[1] The covenant was created more than a hundred years ago. It provides, amongst other things, that construction on the property is limited to ‘a good and substantial double fronted dwelling house with necessary outbuildings’, that plans be approved by an agent by the name of Mr Elliott Cairnes, and that there only be one such building on the property (‘the covenant’). However, Mr Cairnes is now deceased. The principal question before the Court is: what is the effect of the death of Mr Cairnes on the operation of the covenant? Does it mean the relevant development restrictions contained in the covenant have become absolute? Alternatively, are the restrictions now discharged and no longer in force? Or, is it only the requirement for approval by Mr Cairnes which is spent, so that the remaining restrictions in the covenant continue to operate?
[1]The property more specifically described in Certificate of Title Volume 4119 Folio 611.
For the reasons set out below, on a proper interpretation of the covenant, the death of Mr Cairnes only resulted in the discharge of the approval requirement but the remaining restrictions continue to have effect.
Background
The property, which is around 1042 square metres in size, was carved out of Certificate of Title Volume 3939 Folio 690 (‘the parent title’) in accordance with an Instrument of Transfer 853012 dated 10 May 1918 (‘the instrument transfer’) between Susannah Elizabeth Martin, the registered proprietor of the parent title, and Agnes Long. The plaintiffs became registered proprietors of the property on 25 January 2017.
The property is contained within Lot 1 on the Plan of Subdivision LP6797 (‘the plan of subdivision’). The plan of subdivision is extracted below with the property highlighted in yellow. The property faces Wattletree Road to the south and is situated on a neighbourhood block bounded by Erica Avenue to the east, Finch Street to the west and Hillside Avenue to the north. There is currently a single, large, double fronted house on the property which, I infer, was constructed by the original owner, Ms Long.
The covenant on the property was signed on 30 April 1918 and is found within the instrument of transfer. The operative words of the covenant are these:
…And I the said Agnes Long DO HEREBY for myself my heirs executors administrators and transferees registered proprietor or proprietors for the time being of the land hereby transferred or any part or parts thereof covenant with the said Susannah Elizabeth Martin her heirs executors administrators and transferees registered proprietor or proprietors of the land in Certificate of Title Volume 3939 Folio 787690 that I the said Agnes Long my heirs executors administrators and transferees will not at any time hereafter erect or permit or allow to be erected on the said land hereby transferred any building which shall not be a good and substantial double fronted dwelling house with necessary outbuildings and which shall cost not less than the sum of five hundred pounds (inclusive of all architects fees an [sic] and the cost of erecting any outbuildings and fences) such buildings to be in accordance with plans and specifications approved by Elliott Cairnes of Station Street Malvern Agent And will not erect or permit or allow to be erected upon the said land hereby transferred more than one such building and will not at any time hereafter carry away or remove any marl stone earth clay gravel or sand from the said land hereby transferred and will not at any time hereafter erect or permit or allow to be erected upon the said land hereby transferred any shop laundry factory works or hoarding for advertisement
And this covenant shall be noted on the Certificate of Title to issue for the land hereby transferred as an encumbrance affecting the same.
[emphasis added].
The burden of the covenant can be broken down into its constituent parts as follows:
(a) ‘will not at any time hereafter erect or permit or allow to be erected on the said land hereby transferred any building which shall not be a good and substantial double fronted dwelling house with necessary outbuildings’ (‘the building type restriction’);
(b) ‘and which shall cost not less than the sum of five hundred pounds’ (‘the cost requirement’);
(c) ‘such buildings to be in accordance with plans and specifications approved by Elliott Cairnes’ (‘the approval requirement’);
(d) ‘And will not erect or permit or allow to be erected upon the said land hereby transferred more than one such building’ (‘the single building restriction’);
(e) ‘and will not at any time hereafter carry away or remove any marl stone earth clay gravel or sand from the said land hereby transferred’ (‘the quarrying restriction’); and
(f) ‘and will not at any time hereafter erect or permit or allow to be erected upon the said land hereby transferred any shop laundry factory works or hoarding for advertisement’ (‘the use restriction’).
The benefit of the covenant extends to all the land remaining in the parent title at the time the covenant was signed by the original parties to the instrument (Ms Long and Ms Martin). The assignees of the properties to which the benefit of the covenant is annexed are therefore the beneficiaries of the covenant.[2]
[2]See Re Arcade Hotel Pty Ltd [1962] VR 274; Pirie v Register-General (1962) 109 CLR 619, 628-9 (Kitto J); Fitt v Luxury Developments Pty Ltd [2000] VSC 258 [87]-[89] (Gillard J).
In the diagram below, the beneficiaries of the covenant are marked in yellow and the property is shaded in blue.
The red cross hatching in the above diagram represents those beneficiaries who have objected to the plaintiffs’ application and who are defendants to the proceeding.
The parties agree that Elliott Cairnes is deceased. That conclusion is undoubtedly correct. Having regard to the date of the covenant and even assuming he was a young man at the time, Mr Cairnes would be approximately 120 years old today. Further, the plaintiffs’ solicitor has deposed to procuring a search of the Victorian Births, Deaths and Marriages archive which apparently records the death of a man by the name of Elliott Cairnes in 1949.[3]
[3]See affidavit of Miles Patrick Watson sworn on 7 April 2020 [10] and exhibit MPW-5 which appears to be an incomplete search extract.
Procedural history
The plaintiffs commenced their application by originating process on 31 March 2020. On 20 April 2020, I ordered that notice of the application be provided by way of pre-paid priority post to all beneficiaries of the covenant and that a sign be placed on the property to give notice of the application more generally. In my orders of 16 June 2020, I confirmed that notice had been properly given.
By way of letter dated 5 June 2020, the solicitors for the plaintiffs received via Rogers & Gaylard Lawyers 13 objections to the application (‘the objectors’). It appears that all of these objectors are beneficiaries of the covenant. Three of the objectors - Sharon Joy Hendon and Harry Holman Hendon III of 6 Hillside Avenue, Glen Iris and Janice Delsie Baird of 8 Hillside Avenue, Glen Iris - gave notice of their intention to be added as defendants to the proceeding. I made orders to that effect on 3 August 2020. Those orders also permitted the plaintiffs to amend their originating motion to clarify the precise relief sought and to make incidental changes to the title of the proceeding.
In their originating motion dated 31 March 2020, the plaintiffs initially applied to the Court for an order pursuant to s 84(2) of the Property Law Act 1958 (Vic) (‘the Act’) that the covenant be discharged. In their amended originating motion dated 13 August 2020, the plaintiffs seek, among other things, an order pursuant to s 84(2) of the Act that upon its true construction, the covenant is spent, insofar as it states: ‘any building which shall not be a good and substantial double fronted dwelling house with necessary outbuildings and which shall cost not less than the sum of five hundred pounds (inclusive of all architects fees an [sic] and the cost of erecting any outbuildings and fences) such buildings to be in accordance with plans and specifications approved by Elliott Cairnes of Station Street Malvern Agent’. In other words, the plaintiffs seek a declaration that the building restriction, the cost requirement and the approval requirement are spent and no longer have work to do. In the alternative, the plaintiffs seek a declaration that the covenant, when construed as a whole, does not restrict the number of dwellings on the property.
The defendants, who have the benefit of the covenant, oppose the declarations sought by the plaintiffs on the basis that, on its proper interpretation, the covenant continues to operate, save for the approval requirement which was severed or discharged upon the death of Elliott Cairnes.
In submissions in reply dated 16 October 2020, the plaintiffs advanced the contention that following the death of Elliott Cairnes, the building restriction, the cost requirement, the approval requirement and the single building restriction (which they bundle together and collectively term, ‘the building restrictions’) no longer operate. The plaintiffs also developed a further alternative argument to the effect that if the approval requirement was severed or discharged upon the death of Mr Cairnes, then the single building restriction would also necessarily fall away and the number of dwellings or dwelling houses on the land would be unrestricted.
The matter was set down for trial on 17 November 2020 and was conducted by way of audio-visual link as a consequence of the restrictions imposed by the COVID-19 pandemic. The hearing proceeded on that day and the Court heard extensive submissions from the parties. The remaining objectors were also provided with a link through which they could observe the conduct of the hearing.
Applicable Law
Section 84(2) of the Act is in the following terms:
(2)The Court shall have power on the application of any person interested—
(a)to declare whether or not in any particular case any land is affected by a restriction imposed by any instrument; or
(b)to declare what upon the true construction of any instrument purporting to impose a restriction is the nature and extent of the restriction thereby imposed and whether the same is enforceable and if so by whom.
As is apparent, the power to make a declaration under this provision requires the construction of the covenant in question.
Principles of construction
In Prowsev Johnstone,[4] Cavanough J undertook a comprehensive review of the principles governing the construction of restrictive covenants. His Honour’s exposition can be summarised as follows:
[4][2012] VSC 4 (‘Prowse v Johnstone’) [52]-[58].
(a) the words of a restrictive covenant are to be given their ‘ordinary and everyday meaning’, to be interpreted in their ‘colloquial or ordinary sense, not in any technical or legal sense’;[5]
[5] Ferella v Otvosi (2005) 64 NSWLR 101, 107; Ex parte High Standard Constructions Limited (1928) 29 SR (NSW) 274, 278.
(b) the words of a restrictive covenant must always be construed in their context and upon reading the whole of the instrument;[6]
(c) great caution should be exercised in considering what, if any, use should be made of interpretations adopted in other cases in relation to distinct instruments.[7] Small differences of language can be critical;[8]
(d) the extent to which background material may be taken into account in construing a restrictive covenant affecting Torrens system land is more limited than for contracts generally. Reference to extrinsic material may be confined to the physical characteristics of the land, the recording of the covenant on the title and the plan of subdivision[9] (although it may be appropriate to also refer to surveying terms and abbreviations appearing on the register). In other words, the rules of evidence assisting the construction of contracts inter partes, of the type referred to in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales[10] do not apply.[11]
[6]Ibid.
[7] Citing Bradbrook and Neave’s Easements and Restrictive Covenants, AJ Bradbrook and SV MacCallum (3rd ed, 2011) [15.4] and the cases cited therein.
[8]Re Marshall and Scott’s Contract [1938] VLR 98, 100.
[9] Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 [16]; Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281 [33].
[10](1982) 149 CLR 337.
[11]Westfield Management Limited v Perpetual Trustee Company Limited (2007) 233 CLR 528; Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council [2010] NSWCA 64 [157] (Campbell JA). See also Suhr v Michelmore [2013] VSC 284 (‘Suhr v Michelmore’) and, more recently, the decision of the High Court in Deguisa v Lynn [2020] HCA 39 [80] (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ), which suggests that for the purpose of making inquiries about the existence of a restrictive covenant, a person is not required to make searches in relation to cancelled certificates of title such as grandparent titles or parent titles.
Additional guidance on the interpretation of restrictive covenants was recently provided by the Court of Appeal in Barport Pty Ltd v Baum[12] (citations included):
Plainly, the text of the covenant is crucial. As with any constructional exercise, context plays a role and the words should be construed by reference to the instrument as a whole[13] and not in the abstract, but by reference to the location of the physical characteristics of the properties which are affected by it.[14] However, context may not be used to ascertain or elucidate the subjective intentions or expectations of the covenantor. The purpose of the covenant will be important in so far as it can fairly be discerned from the instrument as a whole.
[12] [2019] VSCA 167 [68] (Kyrou, McLeish and Niall, JJA).
[13]Prowse v Johnstone [52].
[14]Brugge v Hare [2011] NSWSC 1364 [36] (Slattery J); Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528, 540 [42] (Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ); Clare v Bedelis [2016] VSC 381 [31] (Derham AsJ), which refers to ‘the location and the physical characteristics of the properties which are affected by [the covenant]’ (emphasis added).
In 196 Hawthorn Road Pty Ltd v Duszniak[15] Lansdowne AsJ encapsulated the Court of Appeal’s observations in this way:
These factors can be seen as a hierarchy of considerations, with the text as the starting point, in its factual context, and assisted by consideration of the purpose of the covenant, to the extent it can be ascertained.[16]
[15][2020] VSC 235 (‘196 Hawthorn Road’).
[16]Ibid [19].
In construing the meaning of a covenant, it is therefore necessary to objectively ascertain the intention of the parties at the time it was created, as revealed by the language used.[17] However, as with the interpretation of other written instruments and commercial contracts, the meaning of the terms of a covenant is determined by what a reasonable person would have understood those terms to mean, as distinct from the subjective intention of the parties themselves.[18] The court is entitled to approach the task on the basis that the parties intended to produce a result which makes commercial sense,[19] as opposed to a result which leads to commercial nonsense or commercial inconvenience.[20] Where a ‘detailed semantic and syntactical analysis of words in a commercial contract… [leads] to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.[21] Further, it is a tenet of contractual interpretation that, where possible, the court should be astute to adopt a construction which will preserve the validity of a contract.[22]
[17]Tonks v Tonks (2003) 11 VR 124, 125-6 [8] (Bongiorno J) (‘Tonks’); Blue Concept Pty Ltd v Farnan [2015] VSC 125 [9] (McDonald J) (‘Blue Concept’); Prowse v Johnstone [2015] VSC 621 [158] (Ginnane J).
[18]Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 35; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551 [16] (Kiefel, Bell and Gordon JJ) (‘Ecosse’); 196 Hawthorn Road [15] (Lansdowne AsJ).
[19]Ecosse 551 [17] (Kiefel, Bell and Gordon JJ).
[20]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ); Amcor Ltd & Ors v Barnes, Trevor Mark & Ors [2021] VSCA 6 [648] (Ferguson CJ, Beach and Whelan JJA).
[21]Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] AC 191, 201 (Lord Diplock), a principle adopted in construing a restrictive covenant in Crest Nicholson Residential (South) Ltd v McAllister [2003] 1 All ER 46, 60 [53] (Neuberger J) (‘Crest Nicholson’).
[22]Meehan v Jones (1982) 149 CLR 571, 589 (Mason J (as his Honour then was)); Suhr v Michelmore [15] (Pagone J).
There is one further proposition relating to the interpretation of restrictive covenants which is important to mention. If the meaning of a covenant remains in doubt after the other rules of interpretation have been applied, then, as a last resort, the covenant should be construed against the covenantor[23] (in this case, Ms Long, the purchaser).
[23]Ferella v Otvosi (2005) 64 NSWLR 101, 108 [21], [23] (Hamilton J); Suhr v Michelmore [15] (Pagone J); Clare v Bedelis [2016] VSC 381 [31] (Derham AsJ); Bradbrook and Neave’s Easements and Restrictive Covenants, AJ Bradbrook and SV MacCallum (3rd ed, 2011) [15.6].
Review of authorities on consent requirements in covenants
There are a number of English authorities which have considered the operation of a consent power in a restrictive covenant in circumstances where the person or entity vested with the consent power is no longer capable of exercising it. There are two lines of authority on the issue. The first and earlier line of cases support the proposition that the unavailability to provide consent removes the consent requirement or ‘dispensing power’, with the result that the restrictions in the covenant become absolute and the land in question is effectively rendered sterile. Neither the plaintiffs nor the defendants suggest the Court should follow these earlier English authorities.
The second and later line of English cases have found that if an exception to a prohibition can no longer operate and is discharged, and if the exception is intimately bound together with the prohibition itself, then the prohibition will also be discharged. That was the position adopted by the plaintiffs in this case. The defendants resisted that conclusion and, as earlier noted, contended that it was only the consent requirement that was discharged or severed but that the other restrictions in the covenant remained.
The decision of Bell v Norman C. Ashton, Ltd[24] exemplifies the first line of authority. The covenant in that case essentially stated that except with the written consent of the vendors, no building could be used for any other purpose than a private dwelling, and that no more than two houses of a stated minimum cost could be built on any one lot. The covenant also included a requirement that every dwelling house or other building on the land be erected according to an elevation and design to be approved by the vendors, their heirs or assigns. Justice Harman described the vendors’ power of consent as a dispensing power and held that because those vendors were not available, the dispensing power was also no longer available and the covenant was to be strictly applied.[25]
[24](1956) 7 P & CR 359 (‘Bell v Norman’).
[25]Ibid 365.
A similar conclusion to that in Bellv Norman was reached by the Court of Appeal in Re Beechwood Homes[26]. The restrictive covenant in that case specifically provided that no building could be constructed unless there was prior approval of plans and elevations by the vendors and that no road could be created without the vendors’ consent. Lord Dillon (with whom the rest of the Court agreed) characterised the power to give consent as a dispensing power attached to an otherwise absolute prohibition.[27] He held that when the vendors were no longer available to give their consent, the dispensing power had gone but the restrictions remained unmitigated.[28] It followed that the land could not be developed at all and was effectively sterilised.
[26][1994] 2 EGLR 178 (‘Re Beechwood’).
[27]Ibid 180.
[28]Ibid.
The reasoning in Re Beechwood was subsequently applied by the High Court in Briggs v McCusker.[29] In that case, the plaintiff sought an injunction to restrain the defendant from breaching a restrictive covenant which prevented the construction of any building on the land in question without the prior written approval of the vendor (or, at the discretion of the vendor, the approval of the owners of the adjoining property). Judge Rich QC, sitting as a judge of the High Court, found that once the vendor had passed away and the dispensing power was lost, the covenant itself would become absolute.[30] However, Judge Rich ultimately refused the plaintiff’s relief on the basis that they were not actually beneficiaries of the restriction.[31]
[29][1996] 2 EGLR 197 (‘Briggs’).
[30]Ibid 198-9.
[31]Ibid 200.
The decision of Neuberger J in Crest Nicholson[32] marks the commencement of the later line of English authorities concerning the operation of requirements for consent in restrictive covenants. The relevant covenant expressly prohibited the construction of any dwelling house or other building unless there had been prior approval of plans, drawings and elevations by a vendor company. However, that consent could no longer be obtained because the vendor company had eventually been dissolved and was incapable of being re-instated. His Honour considered that it would be perverse to attribute to the parties to the covenant an intention that, in the event the approving company ceased to exist, the covenant would prevent any development at all.[33] Instead, his Honour held that it was far more sensible, realistic and likely to accord with the intention of the original parties that the dissolution of the company rendered the covenant no longer enforceable as a matter of ‘business common sense’.[34] Critical to his Honour’s reasoning was that the prohibition on development and the exception to the prohibition (the consent of the vendor company) were so intimately bound together that, as a matter of construction, if one went, so did the other.[35] In arriving at his conclusion, Neuberger J declined to follow Bell v Ashton and Re Beechwood on the basis that they were distinguishable. It should also be noted that his Honour’s reasoning was upheld by the Court of Appeal, although the appeal succeeded on other grounds.
[32][2003] 1 ALL ER 46.
[33]Ibid 57 [40].
[34]Ibid 59 [47], 60 [53], 64 [68]-[69].
[35]Ibid 60-61 [53]-[56], 65-6 [73].
Justice Neuberger’s ‘business common sense’ approach to construction in Crest Nicholson was subsequently adopted in the later English cases of Margerison v Bates[36] and Churchill v Temple.[37] The covenant in Margerison prevented, amongst other things, the addition, enlargement or alteration of a dwelling already constructed on the subject land, without the approval of the vendor. Having regard to the covenant as a whole, Mr Edward Bartley Jones QC, sitting as a judge of the High Court, determined that the restriction was discharged on the death of the vendor.[38] He considered that a strict literal application of the restriction would flout common sense and not properly reflect the true intention of the parties.[39] In his view, it would be strange and perverse if, following the death of the vendor, the existing dwelling could not be added to, enlarged or altered in any way.[40] As with the covenant in Crest Nicholson, the exception was so fundamental to the prohibition that if one fell away, so did the other. In obiter, Jones QC expressed the view that other restrictions in the covenant (which included a prohibition against building anything on the subject land except one bungalow of a defined height and the use of that building for residential purposes only), would not similarly be discharged upon the death of the vendor and would continue.[41]
[36][2008] EWHC 1211 (Ch) (‘Margerison’).
[37][2010] EWHC 3369 (Ch) (‘Churchill’).
[38] Margerison [47]-[54].
[39]Ibid [51].
[40]Ibid.
[41]Ibid [54].
In Churchill, the relevant parts of the restrictive covenant were framed as follows:
3.NOT to erect or maintain on the land hereby conveyed any building other than a single private dwellinghouse with or without garages or other usual outbuildings and/or garden sheds and greenhouses
4.NO dwellinghouse shall be erected or maintained upon any part of the land hereby conveyed which shall not be in accordance as to situation character elevation workmanship materials sewers drains and other sanitary works with plans elevations and specifications which previous to the erection of such dwellinghouse shall have been submitted to and approved in writing by the Vendors or their surveyor such approval however not to be unreasonably withheld
5.NOT to make any structural alteration or addition to a permitted dwellinghouse without the written consent of the Vendors or their surveyor.[42]
[42]Churchill [8] (Strauss QC sitting as a deputy judge).
The plaintiff, who was a successor in title, wanted to demolish the existing dwelling on the property and rebuild. Mr N Strauss QC, sitting as a Deputy Judge of the High Court found that a reasonable person, equipped with the relevant background knowledge, and having regard to language used in the instrument, would read the covenant as applying only during the lifetime of the vendors.[43] Further, he held that the restrictions in the covenant did not operate as ‘absolute bars’ upon the deaths of the vendors, but had simply become ‘ineffective’.[44]
[43]Ibid [47]-[50].
[44]Ibid [49].
The English authorities referred to above were recently reviewed by Lansdowne AsJ in the case of 196 Hawthorn Road.[45] It is useful to extract the relevant parts of the covenant under consideration in that matter as follows:
AND the said James Sutherland Yorston DOTH HEREBY for himself his heirs executors administrators and transferees registered proprietor or proprietors for the time being of the land hereby transferred covenant with the said Sophie Sarah Annie Langdon her executors administrators and transferees registered proprietor or proprietors for the time being of the land now remaining in Certificate of Title Volume 3840 Folio 767998 not to erect on the land hereby transferred any building other than one private dwelling house such dwelling house not to cost less than One thousand pounds exclusive of outbuildings and fencing relative thereto without the consent in writing of the said Sophie Sarah Annie Langdon and hereby consents to this covenant as an encumbrance on title to issue in respect of the said land [emphasis added].
[45](2020) 61 VR 539, 542 [7].
Her Honour found that the power given to Ms Langdon to approve construction beyond the stated restrictions was properly construed as a dispensing power, rather than a ‘permissive condition’, ‘a conditional contract’ or a ‘control over development’ that allowed construction beyond the stated restrictions, conditional on the vendor’s consent.[46] Moreover, unlike the covenants in Crest Nicholson and Churchill, her Honour found that the covenant in 196 Hawthorn Road did not prevent any development and sterilise the burdened land; it merely limited development to one dwelling of a certain minimum cost unless that restriction was dispensed with.[47] For this reason, her Honour distinguished the covenant from the covenants under consideration in those English cases.[48] Her Honour further held that the limitation of the consent power to an individual, of a necessarily limited lifespan, meant that the parties to the covenant could be assumed to have understood that at some point in time, consent would no longer be possible.[49]
[46]Ibid 559 [58]-[59], 563-4 [78].
[47]Ibid 563-4 [78].
[48]Ibid.
[49]Ibid 561 [67]
Associate Justice Lansdowne identified two key textual indicators which supported her conclusion that the restrictions were intended to become absolute on the death of the vendor. The placement of the dispensing power at the end of the restrictions was seen to give greater prominence to the restrictions themselves and suggested that the lapsing of the dispensing power was not intended to cause the lapsing of the restrictions.[50] In addition, the language of the covenant made clear that its benefit was intended to run with the land then remaining in the parent title well into the future, after the vendor’s death.[51] Her Honour considered it to be inconsistent with the unambiguous words conferring that benefit for the benefit to simply expire on the death of the vendor.[52] Ultimately, her Honour held that the dispensing power (or the exception to the restrictions) subsisted during the vendor’s life, but lapsed upon her death, after which time the restrictions became absolute.[53]
[50]Ibid 561-2 [70].
[51]Ibid 562 [71].
[52]Ibid.
[53]Ibid 562 [72], 578-9 [131].
Nature of approval requirement
The parties agree that the approval requirement contained in the covenant is spent and can no longer operate. However, they disagree as to the consequences of that conclusion. Before further considering the effect of the death of Elliott Cairnes and the operation of the covenant as a whole, it is important to have regard to the nature, characterisation and function of the approval requirement according to its objective construction.
In my view, it is clear that the approval requirement, when read together with the other building restrictions, is in a category altogether distinct from the covenants under consideration in the English authorities previously referred to and the covenant before the Court in 196 Hawthorn Road.
Unlike the restrictions found in a number of those cases, the approval requirement does not operate as an exception to a prohibition on development or a power to dispense with such a prohibition. Whilst the effect of the building type restriction is to prevent construction of any building on the property unless it is ‘a good and substantial double fronted dwelling house’, along with ‘necessary outbuildings’, the approval requirement did not allow Elliott Cairnes to dispense with the building type restriction. He was not authorised to grant an exception to the general prohibition on development or to relax the requirements of the type of building which was permitted to be built on the property. The building type restriction is self-contained and specifies both the prohibition (no development on the land) and the exception to that prohibition (a good and substantial double fronted dwelling house). Nor was Mr Cairnes granted the power to waive the cost requirement or to impose a different minimum cost to the £500 agreed between the covenantor and covenantee. In other words, there was nothing for Mr Cairnes to dispense with.
All Mr Cairnes was tasked with was the approval of plans and specifications submitted by the covenantor as part of the process of constructing the type of dwelling house and outbuildings stipulated by the building type restriction. Had the plans and specifications contemplated a dwelling house which did not answer the description of ‘good and substantial’ or ‘double fronted’, Mr Cairnes would likely have had the authority to requisition those plans and specifications and request any necessary amendments. However, his authority did not extend beyond this, according to the clear language of the covenant.
Further, the approval requirement did not operate as a control over development so that no development, or alteration to an existing building, could take place on the land without the approval of Mr Cairnes. The building type restriction independently provides that development on the property may take place within certain parameters. Moreover, the qualifying words ‘without’, ‘unless’ or ‘except’ are not used in the covenant when prefacing the operation of the approval requirement. By contrast, such words were variously present in the covenants discussed in the English authorities referred to above and in 196 Hawthorn Road. Instead, the approval requirement commences with the conjunctive ‘such’ to simply direct its application to the buildings specified in the building type restriction and the cost requirement which are ‘to be in accordance with plans and specifications approved by Elliott Cairnes.’
In my opinion, the proper characterisation of the approval requirement is that of a condition on development or a regulatory consent power. It conferred on Mr Cairnes the authority and power to approve the ultimate design of the dwelling house permitted by the covenant. It was a formal requirement of any development on the property but it did not have substantive effect. That is because Mr Cairnes was not afforded any discretion to waive, dispense with or ignore the requirements of the other building restrictions. I should point out in passing that there is no evidence about whether Mr Cairnes did in fact give his approval to any design submitted by Ms Long or a later proprietor of the property, but equally there is no evidence that he did not.
I agree with the plaintiffs that the purpose of the approval requirement and the oversight provided by Elliott Cairnes was to ensure the initial development of the neighbourhood to a consistent or high standard so as to develop built form quality housing.[54] This objective ostensibly having been served, and upon the death of Elliott Cairnes, the approval requirement was spent and no longer had any work to do. In other words, the approval requirement was time-limited. Tellingly, the approval requirement only refers to approval being granted by Mr Cairnes. It was not framed to refer to the granting of approval by the vendor or her successors in title. As in 196 Hawthorn Road, the confining of the consent power to a single person, of a necessarily limited lifespan, strongly suggests the parties must have understood that at some point in time, approval from Mr Cairnes would no longer be attainable. As senior counsel for the defendants observed at the hearing, Mr Cairnes was not Methuselah.
[54]Plaintiffs’ Submissions dated 24 August 2020 [78].
The above factors suggest that the parties to the covenant had in mind the conferring of a regulatory control over the design of the permitted development on the property in the short term in relation to the initial building of a house on the property, or for any subsequent rebuilding, during the life of Mr Cairnes.
It remains for consideration whether the parties to the covenant similarly intended for other restrictions in the covenant to also be temporally limited in this way.
Construction of covenant as a whole
To construe the covenant as prohibiting all building activity because Elliott Cairnes is no longer available to approve plans and specifications would result in no development at all and the sterilisation of the property. The parties agree that this would be an uncommercial outcome and unlikely to have been intended by the original parties to the covenant. I also hold that view. Nevertheless, the parties remain in disagreement about the ultimate effect of Mr Cairnes’ death upon the continued operation of the covenant.
The plaintiffs contend that the building restrictions (which, it will be recalled, encompass the approval requirement, the building type restriction, the cost requirement and the single building restriction) are cumulative in nature. They argue that the use by the original parties to the covenant of the words ‘which’ and ‘such’ create a broad prohibition subject to four interlinked restrictions or requirements which, they say, is an important indicator of the objective intention of the parties that none of the building restrictions apply upon Mr Cairnes’ passing. They submit that because the approval requirement is spent, all of the building restrictions in the covenant have ceased to operate. Whilst the defendants accept that the restrictions in the covenant are cumulative, they disagree that they are interlinking or interdependent. They also contend that, as a matter of construction, it is possible to disregard or sever the spent approval requirement whilst leaving the remainder of the covenant to function.
I also note that during the course of the hearing, the plaintiffs advanced the contention that whilst there are six discernible restrictions in the covenant (as set out earlier), the instrument ultimately devolves into four separate covenants, each of which are introduced by the words ‘will not’. They say the building type restriction, the cost requirement and the approval requirement constitute a single covenant. They also maintain that the single building restriction is its own covenant but that it is dependent on the earlier restrictions. They continue to maintain that the building type restriction, the cost requirement and the single building restriction all fall away as a consequence of the approval requirement no longer operating.
I accept the plaintiffs’ contention that the building restrictions are linguistically cumulative. That can be said of all the restrictions contained within the covenant. The use of the words ‘and’, ‘which’, and ‘such’ throughout the instrument supports that view. However, as I will explain further below, whilst the restrictions are cumulative, they are not interlinking or interdependent in nature. The restrictions build upon and complement one another but they do not necessarily rely on each other for meaning and effect. They are divisible and independent. That can be seen from a textual analysis of the covenant.
Textual analysis
As previously explained, the use of the term of indefinite reference ‘such buildings’ in the approval requirement is intended to direct its application to the buildings specified in the building type restriction and the cost requirement. It is simply a shorthand reference which avoids the need to repeat the characteristics and features of the permitted dwelling house which may be built on the property, the plans and specifications of which were required to be submitted to Elliott Cairnes for approval. But the building type restriction is not tethered to the approval requirement. It does not derive its meaning from the approval requirement. Nor is the building type restriction incapable of satisfaction by reason of Mr Cairnes’ death, as suggested by the plaintiffs. It has its own work to do by setting the essential design features and build quality of any dwelling house built on the property. As previously explained, Mr Cairnes was required to have regard to whether those essential features were present in any plans and specifications presented to him for approval.
There are also other grammatical devices used in the covenant for the sake of abbreviation. The words ‘which shall’ appear in the building type restriction as a way of introducing the exception to the general prohibition against development stipulated earlier in that clause. The same phrase prefaces the cost requirement and operates there to provide a shorthand reference to the permitted building set out in the building type restriction. Similarly, the use of the term ‘such buildings’ as it appears in the single building restriction is for the sake of brevity and the avoidance of repetition. Again, the operation of the single building restriction is not inextricably tied to the approval requirement, or any other restriction in the covenant. Instead, it serves to confirm that there cannot be more than one of the buildings of the type permitted to be built on the property. It performs its own function. By way of further example, throughout the covenant there is repeated reference to ‘the said land hereby transferred’ (it appears in four of the restrictions). The phrase does not render each component of the covenant interdependent but simply offers a shorthand way of referring to an earlier, more extensive, description of the property.
Further, the use of the word ‘and’ or ‘And’ throughout the covenant is a linguistic device to signify the commencement of a new restriction. It is a traditional legal drafting style used in the absence of formal paragraphs. But its use does not tend to suggest the restrictions contained in the covenant are necessarily interlinked.
In summary, the textual indicators in the preceding paragraphs do not suggest the parties to the covenant intended for the building restrictions to be interlinking or interdependent. Instead, they reinforce the divisible and distinct nature of the restrictions. A plain reading of the covenant suggests that each of the restrictions operate independently. It follows that I do not accept the plaintiffs’ contention that the building type restriction, the cost requirement and the approval requirement are intertwined so as to constitute a single covenant.
Other context
In construing the covenant, it is appropriate to briefly examine aspects of the location and the physical characteristics of the property and the properties which have the benefit of the covenant. I have already made mention of the location of the property and the surrounding geographic features. It can be seen from the earlier enclosed diagram that the property is substantially larger than the other properties which have the benefit of the covenant. It is Lot 1 within the plan of subdivision. As already noted, the property is currently developed with a single, large, double fronted dwelling. Having regard to the number of benefitted lots relative to the total lots within the subdivision, it is apparent that a considerable number of lots remained unsold at the time the property was conveyed away by Ms Martin and the covenant was entered into. In this context, it is possible to draw an inference that the property, being the largest within the plan of subdivision, was intended to operate as a display property to induce other persons to purchase the remaining lots. The building type restriction, the cost requirement and the approval requirement may have cumulatively worked together for the purpose of promoting the prestige of the subdivision.
However, there is ultimately nothing about these features of the property and the benefitted lots which evinces an intention on the part of the original parties to the covenant that all of the building restrictions were intended to lapse upon the death of Mr Cairnes.
Effect of death of Elliott Cairnes on operation of the covenant
I have already indicated that the passing of Elliott Cairnes did not result in the building restrictions ossifying and there being a complete prohibition on development. The parties to the covenant would not have intended the land to be sterilised in this way. As Neuberger J reasoned in Crest Nicholson, such an outcome lacks business common sense and would be perverse in the circumstances. Further, no party contends that the sterilisation of the property would be an appropriate result.
On the plaintiffs’ construction of the covenant, all of the building restrictions collapse like a house of cards following the death of Elliott Cairnes. I do not accept that analysis. In my view, the structure and integrity of the covenant survives even though the approval requirement is spent and is discharged. The plaintiffs’ construction cannot be reconciled with the plain meaning of the words contained in the covenant which suggest the original parties did not objectively intend for the building restrictions to lapse upon the death of Mr Cairnes. I will elaborate on my reasons for disagreeing with the plaintiffs’ construction below.
First, as already set out, there are numerous textual indicators which demonstrate that the restrictions in the covenant are discrete and divisible as opposed to being interlinking and interdependent. Further, the building type restriction, the cost requirement and the approval requirement are not interlinked so as to constitute a single covenant.
Secondly, as I have explained, the approval requirement was time-limited and designed to confer regulatory control over the design of the permitted development on the property in relation to the initial building of a house on the property, or for any subsequent rebuilding, during the life of Mr Cairnes. In other words, this regulatory consent power was confined to a single person, of a strictly limited lifespan. By contrast, the covenant is clearly expressed to extend its respective benefits to the vendor, Ms Martin, and to ‘her heirs executors administrators and transferees registered proprietor or proprietors’ of the land then remaining in the parent title. The covenant is also given by Ms Long and on behalf of her ‘heirs executors administrators and transferees registered proprietor or proprietors’ of the property (a phrase which is later abbreviated to ‘heirs executors administrators and transferees’). Further, the words ‘will not at any time hereafter’, which preface various restrictions, suggest it was the objective intention of the parties that the restrictions contained within the covenant should have ongoing operation subject, of course, to any application for modification or discharge under s 84(1) of the Act. This interpretation is reinforced by the last sentence of the covenant which reads: ‘And this covenant shall be noted on the Certificate of Title to issue for the land hereby transferred as an encumbrance affecting the same.’[55]
[55]See also Prowse v Johnstone [2015] VSC 621 [159] (Ginnane J).
Reading the instrument objectively, and as a whole, I consider that the parties to the covenant clearly intended that its burden would run with the property. There is nothing to suggest the covenant, or any aspect of it, was personal in nature. A covenant which runs with land binds the successors in title to the original parties to the transfer.[56] Had the original parties intended for the remaining building restrictions to have only a limited operation, they might have specified an expiry date in the covenant itself. But they did not. It would directly contradict the clear language of the covenant for the restrictions to lapse upon the death of Elliott Cairnes.
[56]Blue Concept Pty Ltd v Farnan [2015] VSC 125 [10] (McDonald J).
Thirdly, the building type restriction and the single building restriction confer rights and benefits upon the intended beneficiaries of the covenant who include successive purchasers of the benefitted lots. For example, the building type restriction ensures the use of attractive and functional design elements and a high build quality to enhance the amenity and aesthetic of the subdivision. The cost requirement also served as a form of quality control at a time when planning controls were limited or non-existent.[57] It set a minimum cost to build a home on the property to contribute to the overall appeal of the subdivision and to avoid the construction of a low quality dwelling which diminished that appeal. The benefits of a single dwelling restriction were confirmed by the Full Court of the Supreme Court of Victoria in Re Stani[58] to entail ‘a reasonable density of population giving a reasonably quiet residential atmosphere, attractive in that it would provide a tranquil, quiet existence’.[59] More recently, in 196 Hawthorn Road, Lansdowne AsJ held that the purpose of a single dwelling restriction is ‘to afford the benefits of low density with the consequential benefits of greater spaciousness, less noise, traffic and general activity than in more densely populated residential areas.’[60]
[57]196 Hawthorn Road [75] (Lansdowne AsJ).
[58](Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976).
[59]Ibid 8.
[60]196 Hawthorn Road [75]. Her Honour cited recent decisions to support that view including: Oostemeyer v Powell [2016] VSC 491, citing earlier authority; Re Morihovitis [2016] VSC 684; Jiang v Monaygon Pty Ltd [2017] VSC 591; Re Sanders [2019] VSC 217; Re Eape (Holdings) Pty Ltd [2019] VSC 242.
The effect of the plaintiffs’ construction is to neutralise the value of the benefits referred to above. Such an interpretation is not only inconsistent with the objectively ascertained intention of the original parties that the burden of the covenant should run with the property, but is also a construction that is prejudicial to the beneficiaries of the covenant who would be deprived of its benefits. For example, it is conceivable that since the creation of the covenant, successive beneficiaries have purchased their respective lots in reliance upon the ongoing application of the restrictions and their attendant benefits. Those who benefit from the covenant also have associated rights, including the right of enforcement and the right to object to an application to modify or discharge the covenant. For such rights and benefits to simply evaporate upon the death of the agent Elliott Cairnes, at an unascertainable point in time, is nonsensical. I favour an interpretation of the covenant that results in the preservation, as opposed to the extinguishment, of rights and benefits.
Fourthly, the plaintiffs’ construction lacks commercial common sense because it could lead to outcomes as perverse and absurd as that which was avoided in Crest Nicholson, namely the sterilisation of the property. Suppose immediately after the original conveyance of the property, Elliott Cairnes prematurely passed away before plans and specifications for the original dwelling on the property could be submitted for his approval. On the plaintiffs’ construction, the building restrictions would have dissolved at that point in time and the only restrictions remaining on the land would have been the quarrying restriction and the building use restriction. The owner of the property could therefore have erected multiple dwelling houses, or a block of apartments, of variable design and build quality. That would be a surprising outcome and no doubt would have defeated the intention of the subdivider, Ms Martin, having regard to the benefits conferred by the covenant. By way of further hypothetical, what if the original dwelling on the property burnt down shortly after its construction and plans for its replacement could not be approved because Mr Cairnes was deceased? Again, it seems illogical that all of the building restrictions would lapse in that scenario. Had it been widely known that Mr Cairnes was gravely ill at the time, the owner of the property would have a perverse incentive to simply delay submitting plans for Mr Cairnes’ approval in anticipation of his death. An interpretation which defies common sense and permits these uncommercial scenarios cannot properly reflect the true intention of the parties to the covenant.
Fifthly, I do not accept the plaintiffs’ submission that their construction avoids a redundancy in the text of the covenant. To the contrary, the plaintiffs’ interpretation renders the majority of the instrument redundant. The plaintiffs argue that the quarrying restriction and the use restriction would be otiose if the building restrictions operated in perpetuity because they would effectively be subsumed within the building restrictions. Instead, they say that during the life of Elliott Cairnes, development in accordance with the building restrictions was possible, subject to the quarrying restriction and the use restriction but that after his death, only these latter restrictions operated. The plaintiffs suggest that this demonstrates the restrictions in the covenant ‘operate harmoniously over different periods of time’ with ‘different temporal spheres of operation’.[61]
[61]Plaintiffs’ Submissions in reply dated 16 October 2020 [17].
One of the problems with this argument is that it suffers from inconsistency. The plaintiffs accept that all of the restrictions operated concurrently during the life of Mr Cairnes. But they have not put forward any convincing reason why the restrictions (putting to one side the approval requirement) cannot continue to operate in tandem and in a complementary way following his death. The restrictions do not suddenly come into conflict or no longer serve an independent purpose. For example, the building type restriction prevents construction on the property unless it meets the description of ‘a good and substantial double fronted dwelling house’, along with ‘necessary outbuildings’ whereas the building use restriction emphasises that any building on the land must be used for residential and not commercial purposes. There is some overlap but no redundancy. Another problem with the plaintiffs’ argument is that it involves an overly technical and convoluted construction of the covenant. In doing so, it avoids a plain reading of the text.
Further, where possible, a court should seek to adopt a construction which preserves the validity of a contract.[62] In my view, a reasonable reader of the covenant would more likely favour an interpretation which sees as many of the restrictions having continuing effect as are purposeful and capable of ongoing operation.
[62]Meehan v Jones (1982) 149 CLR 571, 589 (Mason J (as his Honour then was); Suhr v Michelmore [15] (Pagone J).
Sixthly, there is another internal inconsistency arising from the plaintiffs’ submissions. As previously mentioned, in their written submissions the plaintiffs grouped the first four restrictions, including the single building restriction, under the rubric of ‘the building restrictions’. However, at trial they argued that the building type restriction, the cost requirement and the approval requirement constitute a single and indivisible covenant, whereas the single building restriction, the quarrying restriction and building use restriction were three additional and separate covenants. In other words, the plaintiffs argued there were four different covenants within the instrument. If, as the plaintiffs now contend, the single building restriction is a separate covenant, this undermines their argument that the single building restriction, along with the other building restrictions, would expire upon the death of Mr Cairnes.
The plaintiffs’ attempt to reconcile this inconsistency is unpersuasive. In particular, I do not accept the argument that the reference to ‘such building’ in the single building restriction indicates that it is intimately connected to the first four restrictions. I have already explained that this phrase was simply used as a grammatical device to avoid unnecessary repetition. Nor do I consider that the phrase ‘And will not’, which commences the single building restriction, is materially different from the phrase ‘will not at any time hereafter’, which appears in connection with other restrictions in the covenant, so as to signify that the single building restriction is tethered to the building type restriction, the cost requirement and the approval requirement. That appears to be a forced reading of the provisions contained within the instrument.
Regardless of whether the single building restriction is best characterised as a standalone covenant, its operation is not inextricably tied to the approval requirement, or to any other restriction in the covenant. It performs its own function and serves its own purpose.
Lastly, the plaintiffs’ construction accords a primacy to the approval requirement which is unjustified. Instead, the placement of the approval requirement after the building type restriction and the cost requirement indicates that the approval requirement performed a subsidiary function as opposed to a dominant one. In my view, the building type restriction and the single building restriction are the dominant restrictions within the group of building restrictions. They confer substantive rights, whereas the approval requirement is more regulatory in nature.
As I have previously observed, the purpose of the approval requirement was to ensure the initial development of the neighbourhood to a consistent or high standard so as to develop built form quality housing. Following the death of Elliott Cairnes, this purpose had likely been established and the restriction fell away. However, the remaining restrictions endure and have ongoing vitality. In practical terms, further development may occur on the property having regard to contemporary design principles. However, the built form, residential character, and density requirements specified in the remaining building restrictions contained within the covenant must still be observed.
The construction I have adopted results in a different practical outcome to that which arose in each of Crest Nicholson, Margerison, Churchill and 196 Hawthorn Road. However, as I have already noted, the approval requirement in this matter, which is a condition on development or a regulatory consent power, is distinguishable from the provisions under consideration in those cases. Each provision was either an exception to a prohibition on development, the power to dispense with such a prohibition, or a control on development. Whilst the plaintiffs have relied on Crest Nicholson to avoid the restrictions in the covenant becoming absolute, they have also sought to extend the reasoning in that case so as to nullify a substantial portion of the covenant. However, simply because one provision of a covenant is ineffective or unenforceable, this does not necessarily render other parts of the instrument so. Here, the approval requirement is not intimately bound together with the other restrictions so that, as a matter of construction, the restrictions should be discharged along with the approval requirement. Similarly, in Margerison, Jones QC was of the view that whilst one building restriction was discharged upon the death of the approving vendor, other building restrictions in the covenant would not be similarly affected.
Having regard to the language of the covenant and the objectively ascertained intention of the original parties, I do not consider there is real doubt about its true construction. However, in the event I am wrong and the meaning and operation of the covenant is ambiguous then, as a matter of last resort, the covenant should be construed against the covenantor and, by extension, the plaintiffs as current proprietors of the property.
Can the approval requirement be severed?
I have already found that, as a matter of construction, the approval requirement lapsed upon the death of Elliott Cairnes but the remaining building restrictions contained in the covenant did not. However, the case was also argued on the alternative basis of whether the approval requirement could be severed from the balance of the covenant.
Whilst the defendants suggest that severance is available, the plaintiffs contend that it is not. The plaintiffs principally say that because the approval requirement is not a provision which is uncertain, incomplete or illegal, it does not fall within the category of cases where severance has previously been utilised. The plaintiffs also maintain that even if severance was available as a matter of law, it is not possible here because the approval requirement is so connected with the other building restrictions that it forms part of an indivisible whole.
Availability of severance
Severance is a technique of interpretation used in determining the meaning of contracts and other instruments. The essence of the concept involves the removal or ignoring of part of a contract which is, for one reason or another, invalid, unenforceable, or ineffective.[63] For example, severance may apply to part of a contract which is incomplete or too uncertain to be enforced or to a term which is illegal or contrary to public policy. Where severance is available, the contract operates on the basis that it does not include the ineffective provision.[64]
[63]See J W Carter, Contract Law in Australia (7th ed, 2018) LexisNexus Butterworths, 2018 [4-15].
[64]Ibid.
The plaintiffs submit that because it is possible to make literal sense of the meaning of the approval requirement, it is not uncertain in terms of there being an unformed contract. In other words, the approval requirement was not uncertain in 1918 when the covenant was entered into. It is true that the approval requirement is not an example of a term which is unable to be given a sufficiently precise and clear meaning in order to identify the rights and obligations of the parties. Nor is it an essential term of a contract or bargain which is incomplete or was not agreed. However, that is not the limit of the concept of uncertainty. Clauses that are impossible to perform and which are meaningless may also be regarded as a species of uncertainty.
The case of Nicolene Ltd v Simmonds[65] concerned a contract for the sale of reinforcing steel bars which was expressed to be subject to ‘the usual conditions of acceptance’. The seller of the steel contended that the contract was not concluded because there was no consensus about those conditions. The Court of Appeal of England and Wales held that because there were no usual conditions of acceptance, the impugned condition was meaningless and could be ignored, but the contract itself was complete and enforceable. Lord Denning said this:
[A] distinction must be drawn between a clause which is meaningless and a clause which is yet to be agreed. A clause which is meaningless can often be ignored, whilst still leaving the contract good; whereas a clause which has yet to be agreed may mean that there is no contract at all, because the parties have not agreed on all the essential terms.
I take it to be clear law that if one of the parties to a contract inserts into it an exempting condition in his own favour, which the other side agrees, and it afterwards turns out that that condition is meaningless, or what comes to the same thing, that it is so ambiguous that no ascertainable meaning can be given to it, that does not mean that the whole contract is a nullity.[66]
[65][1953] 1 QB 543 (‘Nicolene’).
[66]Ibid 551.
Lord Denning’s reasoning in Nicolene was adopted by this Court in Bosaid v Andry,[67] which concerned an agreement for the sale of a property in St Kilda. One issue which arose in that case was whether the contract was uncertain because of a clause by which the defendants agreed to execute a further contract in the form purportedly prescribed by the Estate Agents Act 1956 (Vic). Justice Sholl held that because there was no such prescribed form, the clause ‘was simply void as impossible to perform and meaningless in the circumstances’ but the rest of the contract was unaffected.[68] Similarly, in the earlier High Court case of Fitzgerald v Masters,[69] Dixon CJ and Fullager J held that a clause of a contract, which referred to a non-existent document, did not result in the entire contract being void but was severable.[70]
[67][1963] VR 465.
[68]Ibid 477.
[69](1956) 95 CLR 420 (‘Fitzgerald v Masters’).
[70]Ibid, 427.
In Maio v City of Stirling [No 2],[71] Le Miere J considered the enforceability of a number of covenants given by the owner of land for the apparent benefit of owners of adjoining lots. Whilst his Honour ultimately did not consider that there was uncertainty about the meaning of the relevant clauses, he explained that:
The question whether the inclusion of a meaningless clause, or part of a clause, vitiates the contract or can be ignored depends on the importance which the parties may be considered to have attached to it. If it is simply verbiage, not intended to add anything to an otherwise complete agreement, or if it relates to a matter of relatively minor importance, it can be ignored.[72]
[71][2015] WASC 189.
[72]Ibid [108].
It is common ground that on the death of Elliott Cairnes the approval requirement was spent. Because Mr Cairnes has passed away, the requirement to obtain his approval is impossible to perform and is meaningless in the circumstances. It is therefore uncertain within the broader meaning of the concept. Put differently, the approval requirement has become ineffective and unenforceable. It is not unenforceable for illegality or want of public policy but because it has become incapable of performance and practical operation. The plaintiffs cannot be held to the requirement to submit plans and specifications to Mr Cairnes for approval because he is no longer available to perform this function. Just as Neuberger J held in Crest Nicholson, the approval requirement is unenforceable as a matter of business common sense.[73] Alternatively, it is ineffective in the same way as Strauss QC characterised the relevant covenant in Churchill, where the approving vendors had passed away.[74] For a restriction in a covenant to be valid, it must be capable of operation.[75]
[73]Crest Nicholson 59 [47], 60 [53], 64-65 [68]-[69].
[74]Churchill [49].
[75]Suhr v Michelmore [14] (Pagone J).
I am prepared to proceed on the basis that the principle of severance is available here. The approval requirement is either unenforceable, ineffective, impossible to perform, meaningless, or all of these things. It is therefore necessary to consider whether the clause is practically capable of being severed from the remainder of the covenant.
Application of severance
Whether a clause in a contract or instrument is severable depends upon the objective intention of the parties, gathered from the instrument as a whole.[76] Severance cannot occur if it is clear that the intention of the parties was not to enter into the contract unless the impugned part was effective.[77] If the contract is divisible, the part which is void or ineffective may be separated from the rest of the document and does not affect its validity.[78] Relevant considerations include: the independence or interdependence of the impugned part relative to the rest of the document; the effect of severance on the operation and meaning of the remainder of the document; the relative importance of the term in the context of the entire arrangement; and whether the term is a material or important part of the total consideration or merely subordinate.[79]
[76]Life Insurance Company of Australia Ltd v Phillips (1925) 36 CLR 60, 72 (Knox CJ) (‘Life Insurance Co v Phillips’); Brew v Whitlock (No 2) [1967] VR 803, 807-8 (Winneke CJ, Little and Gowans JJ) (‘Brew v Whitlock’), affirmed on appeal Whitlock v Brew (1968) 118 CLR 445, 461 (Taylor, Menzies and Owen JJ).
[77]Fitzgerald v Masters 427 (Dixon CJ and Fullager J); Brew v Whitlock 807-8 (Winneke CJ, Little and Gowans JJ).
[78]Life Insurance Co v Phillips 72 (Knox CJ).
[79]Brew v Whitlock 808 (Winneke CJ, Little and Gowans JJ).
In McFarlane v Daniell,[80] Jordan CJ stated:
When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature…
… If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable…[81]
[80](1938) 38 SR (NSW) 337.
[81]Ibid 345.
In Just Group Ltd v Peck,[82] the Victorian Court of Appeal (comprising Beach JA, Ferguson JA (as her Honour then was) and Riordan AJA), in considering the enforceability of a restraint of trade in a contract of employment, relevantly held:[83]
[82](2016) 344 ALR 162.
[83]Ibid 177-8 [39].
If a restraint clause is ‘not really a single covenant but is in effect a combination of several distinct covenant’s [sic], (Attwood v Lamont [1920] 3 KB 571, 593 (Younger LJ) (Attwood). Also see Wallis Nominees (Computing) Pty Ltd v Pickett (2013) 45 VR 657, 676 [92] (Warren CJ and Davies AJA)) some of which are too wide, the invalid covenants may be severed subject to the following conditions:
(a) The impugned covenants must be capable of simply being removed – as if crossed out with a blue pen. A court can only remove words from a restraint clause; it cannot rewrite the restraint clause. (Lindner v Murdock’s Garage (1950) 83 CLR 628, 648 (Webb)J; Attwood, 593 (Younger LJ); Wallis, [94] (Warren CJ and Davies AJA, with whom Redlich JA agreed)).
(b) The restraint clause contains several distinct covenants, one of which is valid. The covenant to be severed must be an independent covenant capable of being removed without affecting the remaining part. ‘The only change should be to the sphere of operations of the clause’. ( Wallis [94] (Warren CJ and Davies AJA, with whom Redlich JA agreed) and the cases cited therein: SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, 531 [46] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ); Attwood, 588-9 (Lord Sterndale MR), 593 per Younger LJ; Rentokil Pty Ltd v Lee (1995) 66 SASR 301)).
…
Here, the approval requirement is capable of being severed from the remainder of the covenant for the following reasons:
(a) no inference can be drawn that the original parties to the covenant did not intend to enter into the covenant unless the approval requirement would have ongoing operation and effectiveness. Instead, the approval requirement was intended to be time-limited. In functioning as a regulatory control over the design of the permitted development on the property, it was intended to operate in the short term in relation to the initial building of a house on the property, or for any subsequent rebuilding, during the life of Elliott Cairnes. By contrast, the original parties to the covenant did not objectively intend for the other restrictions to expire upon the death of Mr Cairnes;
(b) the textual analysis I have undertaken demonstrates that although the restrictions in the covenant are cumulative, they are nevertheless discrete and divisible as opposed to being interlinking and interdependent. The restrictions build upon and complement one another but they do not rely on each other for meaning and effect. In particular, the building type restriction, the cost requirement and the approval requirement are not interlinked so as to constitute a single covenant. Nor are all of the building restrictions intertwined so as to prevent the severance of the approval requirement;
(c) the approval requirement does not appear to be a material or important part of the total consideration for the covenant but was subordinate to the building type restriction and the single building restriction which were the dominant restrictions within the four building restrictions. The approval requirement operated as a form of regulatory machinery but it is now inoperable;
(d) the approval requirement can be removed, as if crossed out with a blue pen (or blue pencil[84]), without affecting or modifying the remaining provisions of the covenant. Its removal would have the effect of altering only the extent of the covenant. But the nature of the covenant would remain unchanged; and
(e) the approval requirement can be severed or ignored without adding any additional words to the covenant. The remaining restrictions are capable of meaning and operation in the absence of the approval requirement.
[84]The term used by Younger LJ in British Reinforced Concrete Engineering Co Ltd v Schelff [1921] 2 Ch 563, 573 who said ‘…the effect of severing by striking out with a blue pencil the obnoxious part of a covenant is not to alter or affect the construction of what is left. That must be construed as if the portion struck out still remained…’. By way of historical note, the reference to a ‘blue pencil’ stems from the traditional editing of text with a blue pencil prior to publication.
For the approval requirement to be severed or ignored from the balance of the covenant is unremarkable given it is now ineffective, unenforceable, meaningless and impossible to perform. The technique of severance produces the same outcome as that which results from the construction of the covenant having regard to its text, context and purpose, that is: on the death of Mr Cairnes, the approval requirement is rendered inoperable and falls away but the balance of the restrictions in the covenant continue to function.
The severance of the approval requirement is also a result which is consistent with a mechanism contained within the Act itself. Section 84(1)(a) of the Act allows the Court to wholly or partially discharge or modify a restriction arising under a restrictive covenant where ‘by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Court deems material the restriction ought to be deemed obsolete…’ The traditional meaning of ‘obsolete’ was explained by Kyrou J in Vrakas v Registrar of Titles[85] as follows:
A covenant is “obsolete” if it can no longer achieve or fulfil any of its original objects or purposes or has become “futile or useless”. A covenant is not obsolete if it is still capable of fulfilling any of its original purposes, even if only to a diminished extent. The test is whether, as a result of changes in the character of the property or the neighbourhood, or other material circumstances, the restriction is no longer enforceable or has become of no value. [citations omitted].[86]
[85][2008] VSC 281 [26].
[86]This can be contrasted with a more robust interpretation of the term in Stanhill Pty Ltd v Jackson [2005] VSC 169 where Morris J held that ‘obsolete’ meant ‘outmoded’ or ‘out of date’ rather than something that is futile or unable to achieve its original purpose.
Although I do not express any concluded view in this regard, it is conceivable that the approval requirement may be deemed obsolete for the purpose of s 84(1)(a) and is capable of being discharged or modified under the terms of that provision. It seems to me that the severance of the restriction operates in a similar way.
Status of cost requirement
During the course of argument on the topic of severance, the parties made a number of submissions about the status of the cost requirement. Senior counsel for the defendants suggested that the cost requirement was inutile and superseded because nothing could be built now for £500. He also suggested that similar restrictions could be found in covenants throughout subdivisions in suburban Melbourne, although none of them have ongoing operation and are practically ignored without affecting the balance of the restrictions in the covenant. Counsel for the plaintiffs argued in reply that such cost restrictions are often ignored, not because they are severed, but because they are always capable of being practically complied with. That point was also made by Lansdowne AsJ in 196 Hawthorn Road who observed that ‘parties to a contract relating to land can be assumed to know that over time the minimum cost requirement would likely be overtaken by increases in the cost of building.’[87]
[87]196 Hawthorn Road [69].
In my view, although the cost requirement has clearly been overtaken by changes in currency and inflation, there is no need to sever it from the covenant. The clause does not suffer from being invalid, unenforceable, or uncertain. It simply sets a floor on the minimum expenditure for construction on the property but represents no practical barrier to compliance. It can be ignored without difficulty.
Alternative contentions regarding the single building restriction
I turn now to the alternative contentions put forward by the plaintiffs about the single building restriction. Firstly, the plaintiffs argue that although the covenant restricts development to one building, it does not restrict the number of dwellings within that building. Secondly, the plaintiffs say that if the Court accedes to the defendants’ case and ‘deletes’ or severs the approval requirement, the single building restriction must also be deleted because it refers to ‘one such building’, being one of the buildings approved by Elliott Cairnes. I will deal with each alternative contention in turn.
No restriction on number of dwellings?
The first of these alternative contentions was briefly mentioned in passing in the plaintiffs’ written submissions dated 24 August 2020,[88] but was further developed in oral submissions at the trial itself. The plaintiffs contend it is instructive that the single building restriction does not refer to ‘one such dwelling house’ (‘dwelling house’ being the term found in the building type restriction) but rather ‘one such building’. They say there is a necessary distinction to be drawn between a ‘dwelling house’ and a ‘building’. For these reasons, they argue that the single building restriction does not limit the number of dwelling houses which may be built on the property but only the number of buildings. According to this interpretation, one single building containing multiple dwelling houses would therefore be permitted by the covenant. Presumably, this would encompass, for example, a large block of self-contained apartments within a single building structure.
[88]See Plaintiff’s submissions dated 24 August 2020 [72].
In support of this contention, the plaintiffs rely on the decision of Bongiorno J in Tonks,[89] who was considering a covenant in the following terms:
… (the registered proprietor for the time being) will not erect or cause or permit to be erected on the land hereby transferred or any part thereof any building other than a dwelling house. [emphasis added][90]
[89]Tonks (2003) 11 VR 124.
[90]Ibid 125 [2].
His Honour construed the covenant in this way:
If the parties to the original covenant had wished to restrict the number of dwelling houses built on each of these lots they could have done so very simply and definitively by replacing the word “a” in the covenant with the word “one”, or by making some similar simple amendment. The true construction of the covenant is that it prohibits the placing of any building on the land unless that building is a dwelling house. Provided that any building constructed can be properly described as a dwelling house there would be no breach of the covenant. The covenant says nothing, in my opinion, as to the number of dwelling houses which might be built.[91]
[91]Ibid 127 [17].
The decision in Tonks was recently applied by Senior Member Michael Wright QC in the Victorian Civil and Administrative Tribunal in Berenyi v Moreland CC[92] who came to a similar conclusion about the language of the covenant in that case.
[92][2016] VCAT 1471.
As a matter of construction, I cannot read the covenant in the way the plaintiffs suggest. In my view, the arrangement of words in the covenant works to reinforce the singularity of the dwelling house permitted to be erected on the property. The ‘one such building’ stipulated by the single building restriction can only be a reference to ‘a good and substantial double fronted dwelling house’ referred to in the building type restriction. Further, the indefinite article ‘a’ in the building type restriction, coupled with the singular ‘one’ in the single building restriction, would convey a distinct impression to a reasonable reader that there must only be one building on the property, namely a single dwelling house.
Moreover, the covenant in this case is distinguishable from that in Tonks in a critical respect. The covenant in that case did not contain a separate single building covenant but only a reference to ‘a dwelling house’. In any event, the interpretation of ‘dwelling house’ arrived at by Bongiorno J in Tonks is not the only meaning assigned to the term by other judges in this State. For example, in Downie v Lockwood,[93] Smith J held that although the term ‘dwelling house’ was capable of wider meaning to include any building or part of a building used as the place of abode of one or more persons, including a public building, the more common meaning of the term covered ‘only those places of abode which are either separate structures or else divided from other buildings by vertical walls, and which, in addition, are occupied, or adapted for occupation, by persons living in one household.’[94] This narrower and colloquial meaning of ‘dwelling house’ was also adopted by Osborne J in Longo Investments Pty Ltd.[95] In that case, his Honour held that a hostel providing residential accommodation for the aged would be embraced by the term ‘dwelling house’ because the hostel was designed and intended to operate as one household. In Prowse v Johnstone,[96] Cavanough J extensively reviewed the authorities on the question and was ultimately ‘not in any real doubt’ that a proposed development of a three storey building, containing 18 apartments and a basement carpark for 36 cars, could not properly be characterised as ‘one house’ within the meaning of the restrictive covenant before him.[97] Further, in Crest Nicholson Neuberger J held that, as a matter of ordinary language, the term ‘a private dwelling house’ conveyed singularity as opposed to plurality.[98]
[93][1965] VR 257 (‘Downie v Lockwood’).
[94]Ibid 262.
[95][2003] VSC 37 (‘Longo’).
[96][2012] VSC 4.
[97]Ibid [86].
[98]Crest Nicholson 51-52 [15].
In the result, I favour the narrower and colloquial meaning of the term ‘a dwelling house’ which was adopted in Downie v Lockwood and Longo, and which was supported by the decision in Prowse v Johnstone. Those decisions on the point are not plainly wrong and I respectfully prefer them over the decision reached in Tonks which stands for a broader and more extensive definition of the phrase. In my view, the natural and ordinary meaning of the term ‘a good and substantial dwelling house’, as it appears in the covenant, means there can only be one dwelling house on the property.
No restriction on number of buildings?
The second alternative contention put forward by the plaintiffs assumes the defendants are successful in their argument that the approval requirement should be severed (which they have been). According to the plaintiffs, the single building restriction follows sequentially from the approval requirement. The plaintiffs contend that the reference in the single building restriction to ‘one such building’ incorporates the content of the approval requirement and cannot survive the severance of that restriction. They say that, by contrast, the cost requirement is drafted differently and does not pick up the words ‘one such building’ with the result that it is not also susceptible to being severed. They argue that if the single building restriction is severed along with the approval requirement, the covenant would be pared back to the type considered by Bongiorno J in Tonks.
This aspect of the plaintiffs’ submissions can be dealt with relatively briefly. I have already found that the use of the term ‘such building’ within the single building restriction is an abbreviated reference to the building allowed by the building type restriction and that the operation of the single building restriction is not inextricably tied to the approval requirement, or to any other restriction in the covenant. It performs its own function by confirming there cannot be more than one of the buildings of the type permitted to be built on the property. I have also held that although the restrictions in the covenant are cumulative they are, as a matter of construction, nevertheless discrete and divisible as opposed to being interlinking and interdependent.
Further, just because the approval requirement must go, does not mean that the single building restriction should also be severed. There is nothing about it that is invalid, unenforceable, ineffective or incomplete. Nor is it uncertain, meaningless or impossible to perform. Its meaning is unaffected by the severing of the approval requirement. It would do violence to the text of the covenant to require the single building restriction to be removed simply because the approval requirement must be.
Because the single building restriction remains, it is therefore unnecessary for me to consider whether the covenant has been reduced to the type considered in Tonks. In any event, as already stated, I respectfully prefer other single judge decisions on the meaning of ‘a dwelling house’ over the interpretation arrived at in Tonks.
Conclusion
By reason of the foregoing, the restrictions contained within the covenant continue to have effect, except for the approval requirement. Upon the death of the agent, Elliott Cairnes, the approval requirement ceased to operate and was discharged. Alternatively, it can be severed from the remainder of the covenant or ignored. Further, the covenant should be construed in such a way as there can only be one good and substantial double fronted dwelling house (and necessary outbuildings) on the property.
I will ask the parties to prepare appropriate orders to give effect to these reasons. I will hear the parties on the question of costs.
SCHEDULE OF PARTIES
| S ECI 2020 01583 | |
| BETWEEN: | |
| SIMON ROBERT DAVID STOCKFELD | First Plaintiff |
| RACHEL STOCKFELD | Second Plaintiff |
| - v - | |
| SHARON JOY HENDON | First Defendant |
| HARRY HOLMAN HENDON III | Second Defendant |
| JANICE DELSIE BAIRD | Third Defendant |
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