Sumervale Pty Ltd v Viva Energy Refining Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2023 0085

SUMERVALE PTY LTD (ACN 161 202 697)	First Applicant
AND
SUNYHILL PTY LTD (ACN 161 192 392)	Second Applicant
V
VIVA ENERGY REFINING PTY LTD (ACN 004 303 842)	Respondent

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JUDGES:	NIALL JA, RICHARDS and J FORREST AJJA
WHERE HELD:	Melbourne
DATE OF HEARING:	28 February 2024
DATE OF JUDGMENT:	25 June 2024
MEDIUM NEUTRAL CITATION:	[2024] VSCA 140
JUDGMENT APPEALED FROM:	[2023] VSC 396 (Matthews J)

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REAL PROPERTY – Restrictive covenants – Application for leave to appeal – Where respondent applied for discharge or modification of covenants – Where judge discharged covenants under s 84(1)(c) of the Property Law Act 1958 – Whether judge erred in assessment of substantial injury to applicants – No error in consideration of injury with respect to intended benefits of restrictions – Whether judge erred in identification of restrictions’ purpose – No error shown – Whether judge erred in having regard to other restrictive covenants – Reference to other covenants in aid of assessment of substantial injury and not construing covenants – Leave to appeal granted – Appeal dismissed.

Property Law Act 1958, s 84.

Deguisa v Lynn (2020) 268 CLR 638; Greenwood v Burrows (1992) V Conv R 54-444; Heaton v Loblay (1959) SR (NSW) 332; Jeshing Property Management Pty Ltd v Yang [2023] VSCA 185; Jiang v Monaygon [2017] VSC 591; Quadramain Pty Ltd v Sevastapol Investments Pty Ltd (1976) 133 CLR 390; Randell v Uhl [2019] VSC 668; Re Cook [1964] VR 808; Re Robinson [1972] VR 278; Re Stani (Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976); Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528, considered.

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Counsel
Applicants:		Mr SR Horgan KC with Mr BJ Murphy
Respondent:		Mr MR Scott KC with Mr MD Townsend
Solicitors
Applicants:	Slocombe Brand Lawyers
Respondent:	Davis Advisory

NIALL JA
RICHARDS AJA
J FORREST AJA:

Introduction

The respondent applied for the discharge or modification of four restrictive covenants burdening part of the land known as 90 Refinery Road, Corio, Victoria, more particularly described in Certificate of Title Volume 8866 Folio 943 (‘Land’). The covenants are single dwelling covenants and prevent any building being erected on the Land other than a dwelling house, school, church or hall and outbuildings thereto, prevent any trade or business being carried out on the Land, and prevent the excavation of the Land other than as part of the construction of a building.
The respondent intends to construct a service station on the Land that will dispense hydrogen, gasoline and diesel, and which will offer fast charging stations for battery electric vehicles. Unless modified or discharged, the covenants will prevent the respondent from doing so.
The applicants opposed the respondent’s application for discharge or modification of the covenants. The applicants are the registered proprietors of the land at 452-458 Princes Highway, Corio, Victoria (‘the applicants’ land’) on which they operate a service station business. The applicants’ land is benefitted by three of the relevant restrictive covenants.
On 9 August 2023, the trial judge discharged the covenants from part of the Land after finding that the Court’s jurisdiction to exercise the discretion under s 84(1)(c) of the Property Law Act 1958 was enlivened, no substantial injury would be caused to beneficiaries if the covenants were discharged or modified, and there was no reason why the Court’s discretion should not be exercised to discharge the covenants.[1]
[1]Viva Energy Refining Pty Ltd v Sumervale Pty Ltd & Anor (No 2) [2023] VSC 396 (Matthews J) (‘Reasons’).
The applicants now seek leave to appeal to this Court on four grounds, which may be summarised as follows:
(a)Ground 1: The trial judge misconstrued the benefits both intended and actually conferred by the restrictive covenants in question in assessing substantial injury and was wrong in finding that the benefit enjoyed by the applicants from having no commercial competitor on the Land was neither:
(i)a benefit initially intended to be conferred by the restrictive covenants sought to be modified or discharged; nor
(ii)a benefit actually conferred by the restrictive covenants sought to be discharged or modified.
(b)Ground 2: In finding that the applicants did not enjoy the benefits of a low density residential neighbourhood (and therefore the covenants), the judge wrongly focused on the benefits intended to be conferred by the covenants and wrongly conflated those benefits into a single purpose to the exclusion of the actual benefits conferred by the restrictions sought to be modified or discharged.
(c)Ground 3: The judge failed to apply the statute to assess the restrictions sought to be discharged or modified to assess injury, contrary to s 84(1)(c) of the Property Law Act which requires the Court to assess whether the discharge or modification of a restriction arising under covenant will not substantially injure the persons entitled to the benefit of the restriction. The judge should have found that a beneficiary of the restriction:
(i)against ‘trade or business’ on burdened land has the benefit that there will be no trade or business on that land;
(ii)preventing the erection or building on any lot of a building other than a dwelling house, school or hall (and outbuildings) has the benefit that those other buildings will not be erected on the burdened land;
(iii)against excavation of soil or other material (other than as part of the construction of a building) has the benefit that there will be no excavation (other than for the excepted purpose) on the burdened land,
and that the loss of those benefits would cause the applicants substantial injury.
(d)Ground 4: Despite the relevant Instruments of Transfer having an express restrictive covenant against ‘trade or business’, the judge wrongly found that there was nothing in the terms of the covenants to suggest an intention to confer a benefit of not having trade or business conducted on the Land.
(e)Ground 5: In the assessment of ‘substantial injury’, the judge wrongly took into account restrictive covenants discharged on other land in the parent title (including on the applicants’ land) that did not bear upon the question of existence or otherwise of substantial injury from the modification or removal of the restrictions in issue.
As will appear, the critical issue concerns the meaning of the words ‘substantial injury’ and their relationship to the initial or intended purpose of the covenants that are sought to be modified or removed. The judge concluded that the current benefit that the applicants enjoyed, which was that no competitor could operate on the Land, was not an intended benefit and was not a purpose of the restrictions contained in the Covenants.[2] Removal of the restrictions did not cause an injury of the relevant kind.
[2]Ibid [193]–[196].
For the reasons that follow, the judge was correct and we would grant leave to appeal but dismiss the appeal.

Facts

The respondent is the registered proprietor of the Land, which is zoned Industrial 1 (‘IN1Z’) in the City of Greater Geelong Planning Scheme and falls within the larger plot of land known as 90 Refinery Road, Corio. The Land is presently undeveloped.[3] The respondent acquired the Land from The Shell Company of Australia Ltd in or around 2014 and it has remained vacant since that time.[4]
[3]Ibid [13]–[14].
[4]Ibid [24].
The Land is burdened by four restrictive covenants, contained in the following four Instruments of Transfer:
(a)1417550, dated 29 May 1929 (containing the ‘First Covenant’);
(b)1435176, dated 19 October 1929 (containing the ‘Second Covenant’);
(c)1503993, dated 15 June 1932 (containing the ‘Third Covenant’); and
(d)1806300, dated 14 February 1941 (containing the ‘Fourth Covenant’),
(together containing ‘the Covenants’).[5]
[5]Ibid [15].
The First Covenant is in the following terms:
I PERCY HAGUE HOLDEN of 28 Latrobe Terrace Geelong in the County of Grant Sub-Inspector of Customs being registered as the proprietor of an estate in fee simple in the land hereinafter described subject to the encumbrances notified hereunder in consideration of the sum of Five hundred pounds paid to me by DUNCAN INNES McQUEEN of Corio near Geelong Dealer DO HEREBY transfer to the said Duncan Innes McQueen All my Estate and interest ALL THAT piece of land being Lots seventy four and seventy five on Plan of Subdivision Number 12708 lodged in the Office of Titles and being part of Crown Portion eighty three at Cowies Creek Parish of Moranghurk County of Grant and being part of the land more particularly described in Certificate of Title entered in the Register Book Volume 5221 Folio 1044122 AND the said Duncan Innes McQueen with the intent that the benefit of this covenant shall be attached to and run at law and in equity with the other lots excepting Lots numbered one hundred and fifty four and one hundred and seventy five to one hundred and eighty six (inclusive) on the said Plan of Subdivision and on Plans of Subdivision Numbers 12706 and 12707 and that the burden of this covenant shall be annexed to and run at law and in equity with each of the said Lots hereby transferred DOTH HEREBY for himself and his heirs executors administrators and transferees COVENANT with the said Percy Hague Holden his heirs executors administrators and transferees registered proprietor or proprietors for the time being of so much of the land described in the said Certificate of Title and in Certificate of Title Volume 4090 Folio 817834 as comprises the whole of the Lots excepting the said lots one hundred and fifty four and one hundred and seventy five to one hundred and eighty six (inclusive) on the said Plan of Subdivision and Plans of Subdivision Numbers 12706 and 12707 (other than the said lots hereby transferred) that he the said Duncan Innes McQueen his heirs executors administrators and transferees will not at any time erect or construct or allow to be erected or constructed more than one dwelling house upon each of the said lots hereby transferred which dwelling house together with any outbuildings and fences appurtenant thereto shall cost not less than the sum of Six hundred pounds AND will not at any time excavate or remove or permit or suffer to be excavated or removed from each of the said Lots hereby transferred any soil or other material except such as building construction or the laying out of a garden may necessitate AND will not at any time erect or build or cause to be erected or built on each of the said Lots or any part thereof any building other than a dwelling house, church, school or hall and outbuildings thereto respectively and will not carry on or permit or suffer to be carried on upon the said Lots or any part thereof any trade or business whatsoever.[6]
[6]Ibid [16].
The other Covenants are in largely the same terms as the First Covenant and each contains the following restrictions:[7]
(a)no more than one dwelling shall be erected on any lot;
(b)the cost of construction shall be no less than six hundred pounds;
(c)soil or other material shall not be excavated (other than as part of the construction of a building);
(d)no building shall be erected on any lot other than a dwelling, church, school or hall (and outbuildings); and
(e)no trade or business whatsoever shall be carried out on any lots.
[7]Ibid [17].
On 19 August 2022, the respondent filed an amended originating motion by which it sought orders that the Covenants burdening part of the Land be discharged or, alternatively, modified. The modifications to the First Covenant sought by the respondent in the alternative were as follows (with the modifications sought to the remainder of the Covenants being in relevantly similar form):
…will not at any time erect or construct or allow to be erected or constructed more than one dwelling house upon each of the - said lots hereby transferred which dwelling house together with any outbuildings and fences appurtenant thereto shall cost not less than the sum of Six hundred pounds AND will not at any time excavate or remove or permit or suffer to be excavated or removed from each of the said Lots hereby transferred any soil or other material except such as building construction or the laying out of a garden may necessitate AND will not at any time erect or build or cause to be erected or built on each of the said Lots or any part thereof any building other than a dwelling house, church, school or hall or service station, industry and associated uses and outbuildings thereto respectively ~~and will not carry on or permit or suffer to be carried on upon the said Lots or any part thereof any trade or business whatsoever …~~[8]
[8]Ibid [19]. The struck-through text represents text proposed to be removed and the underlined text represents text to be added.
The respondent proposes to construct a service station that dispenses hydrogen, gasoline and diesel via a bowser system on the Land (‘the respondent’s proposal’). The respondent’s proposal will also offer fast-charging stations for battery electric vehicles, a public hydrogen refuelling facility, and an electrolyser as well as hydrogen compression, storage and dispensing infrastructure.[9] The part of the Land the subject of the respondent’s proposal is encumbered by the Covenants.[10]
[9]Ibid [20].
[10]Ibid [21].
The applicants’ land is more particularly described in Certificate of Title Volume 11538 Folio 907. The applicants purchased their land in or about February 2013 for the purpose of erecting a United Petroleum service station, which is its current use.[11]
[11]Ibid [25].
The respondent’s proposal would result in the development of a service station on land approximately 1.1 kilometres from the service station on the applicants’ land.[12] The applicants adduced expert evidence at trial to the effect that the respondent’s proposal would result in the service station on the applicants’ land facing commercial competition from the proposed service station, which would decrease the market value of a lease on that land and, as a result, reduce the market value of the land.[13] That evidence was unchallenged by the respondent at trial.[14]
[12]Ibid [27].
[13]Ibid [159].
[14]Ibid [195].
The land to the north of the Land, including the applicants’ land, was derived from the same parent titles as the Land and was encumbered by similar restrictive covenants as the Land, which have now been either modified or discharged to enable various industries and trades, including the applicants’ service station business.[15] This area (i.e. to the north of the Land) is now zoned IN1Z and no part of it has been developed into residential lots.
[15]Ibid [188], [190].

Section 84(1)(c) of the Property Law Act

It will be necessary to refer to the text of s 84(1)(c) of the Property Law Act and, in that respect, it is useful to set out the text of s 84(1) in full:
84 Power for Court to modify etc. restrictive covenants affecting land
(1)The Court shall have power from time to time on the application of any person interested in any land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon by order wholly or partially to discharge or modify any such restriction (subject or not to the payment by the applicant of compensation to any person suffering loss in consequence of the order) upon being satisfied—
(a)that 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 or that the continued existence thereof would impede the reasonable user of the land without securing practical benefits to other persons or (as the case may be) would unless modified so impede such user; or
(b)that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction whether in respect of estates in fee-simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed have agreed either expressly or by implication by their acts or omissions to the same being discharged or modified; or
(c)that the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction:
Provided that no compensation shall be payable in respect of the discharge or modification of a restriction by reason of any advantage thereby accruing to the owner of the land affected by the restriction unless the person entitled to the benefit of the restriction also suffers loss in consequence of the discharge or modification nor shall any compensation be payable in excess of such loss; but this provision shall not affect any right to compensation where the person claiming the compensation proves that by reason of the imposition of the restriction the amount of consideration paid for the acquisition of the land was reduced.
Section 84(1) confers a power on the Court — on the making of an application by a person, relevantly, interested in any land affected by any restriction arising under covenant — to discharge or modify any such restriction on being satisfied that one of three alternative conditions is satisfied. The relevant condition for the purposes of this proceeding is contained in s 84(1)(c). It entitles the Court to make such an order, on application by a person with the necessary interest, if the proposed discharge or modification ‘will not substantially injure the persons entitled to the benefit of the restriction’.
The respondent did not seek to rely on s 84(1)(a) of the Property Law Act in its application for modification or discharge of the Covenants.

The judge’s decision

The judge considered that the assessment of substantial injury relates to practical benefits enjoyed by the beneficiaries of the Covenants, and whether there is substantial injury must be assessed by comparing the benefits initially intended to be conferred and actually conferred by the Covenants with the benefits, if any, that would remain after the Covenants have been discharged or modified. If the difference between the two will not be substantial, then the applicant has established a case for the exercise of the Court’s jurisdiction under s 84(1)(c).[16]
[16]Ibid [180].
Her Honour considered that the difference between the parties’ positions raised the question of whether the Court must look at the Covenants as a whole to discern their purpose, or whether the Court must look solely at the restrictions contained in the Covenants themselves.[17] The judge preferred the respondent’s view, finding that it is necessary to have regard to the purpose of the Covenants as part of assessing the benefits initially intended to be conferred and actually conferred.[18]
[17]Ibid [181].
[18]Ibid [182].
The judge then turned to consider the purpose and benefits of the Covenants. She concluded that the purpose of the Covenants was ‘to create a residential neighbourhood of low density, quality, and residential amenity’.[19] Consistent with that purpose, her Honour considered that the purpose of the restrictions on use (no trade or business) and types of buildings (only dwellings, schools, churches or halls and outbuildings thereto) was to ensure the residential amenity of the neighbourhood.[20]
[19]Ibid [185].
[20]Ibid.

By contrast, the judge did not consider that the intention of the Covenants was to confer a benefit of not having a trade or business conducted on the Land that competed commercially with businesses operating on benefitting land.[21] In reaching that conclusion, her Honour had regard to the fact that, when the Covenants were created, there was a network of covenants in the neighbourhood in similar (if not identical) terms so that the land of beneficiaries of the Covenant was subject to similar restrictions, which indicated in turn that the purpose of the ‘no trade or business’ restriction was to protect the residential amenity of the neighbourhood.[22]
[21]Ibid [188].
[22]Ibid.
The judge further observed that the benefits of a residential neighbourhood had not actually been conferred on beneficiaries because the neighbourhood was never developed as a residential neighbourhood. As a result of the discharge of many of the similar covenants burdening other land in the neighbourhood (including the applicants’ land), the neighbourhood is not residential at all.[23] The judge observed that she was not using other covenants to construe the terms of the Covenants, but rather using the fact of their discharge or modification to aid in the consideration of whether the initially intended benefits remained.[24]
[23]Ibid [190].
[24]Ibid [197].
As a result, the judge concluded that the applicants did not continue to enjoy the benefits of the Covenants and, indeed, never enjoyed the benefits of the Covenants.[25] It was not to the point that the applicants experienced a practical benefit from not having a commercial competitor operating a service station on the Land (which evidence the judge accepted) because that was not a practical benefit intended to be conferred by the Covenants.[26]
[25]Ibid [191].
[26]Ibid [195]–[196].
Consequently, her Honour found that, comparing the benefits initially intended to be conferred and actually conferred by the Covenants with the benefits that would remain after the Covenants had been discharged or modified, the applicants would not suffer substantial injury.[27] She did not consider the case to give rise to any precedential effect because the precedent of discharging or modifying like covenants so as to enable commercial and industrial development had already occurred.[28]
[27]Ibid [198].
[28]Ibid [201].
Finally, the judge was satisfied that there was no reason to refuse to exercise the discretion to discharge the Covenants given her finding that it would have no precedential effect, that the evidence overwhelmingly established that the purpose of the Covenants had not been achieved, and that there was otherwise no reason not to exercise the discretion.[29]
[29]Ibid [205].
Consequently, the judge exercised the discretion to discharge the Covenants.

Grounds 1, 2 and 3: The submissions

On the application for leave to appeal, the parties dealt with Grounds 1, 2 and 3 together and it is convenient to do so here.
By these grounds, the applicants contend that the trial judge erred in three distinct but related ways:
(a)by construing s 84(1)(c) as requiring the demonstration that the lost benefits were both intended to be conferred and actually conferred (that is, as a cumulative assessment rather than involving two independently-sufficient elements);
(b)by identifying a singular purpose of the restrictions to limit the benefits protected by the Covenants rather than seeking to identify the purpose of the particular restrictions independently; and
(c)by considering the purpose of the Covenants in assessing whether the applicants would suffer substantial injury as a result of the discharge of the Covenants.
We set out the parties’ submissions on each of these issues in turn.

Must the relevant benefits be intended to be conferred?

The applicants contend that the test for substantial injury involves the identification of benefits intended to be conferred by the restrictive covenant and, separately, the identification of benefits actually conferred by the covenant. In oral submissions, counsel for the applicants emphasised that those inquiries are independent: that is, establishing that the covenant confers an intended benefit or that it confers an actual benefit is sufficient to establish substantial injury.
In the applicants’ submission, that conclusion follows from the terms of s 84(1)(c). The applicants observe that the chapeau to the provision provides that the Court’s jurisdiction to discharge or modify a restriction is enlivened by the making of an application of a person with an interest in land ‘affected by a restriction arising under covenant’. In their submission, it follows that, by making an application under s 84(1)(c), the respondent effectively conceded that the restrictions arising under the Covenants applied to the Land, and there is no separate inquiry into the object of a restriction for the purpose of determining whether there will be substantial injury to a person entitled to the benefit of the restriction.
In oral submissions, counsel for the applicants also argued that the construction contended for by the respondent was inconsistent with the Torrens system by requiring an inquiry into the intended benefits of a restriction in a covenant.
The applicants rely on the following passage of Gillard J’s reasons in Re Cook[30] in relation to the assessment of ‘substantial injury’ under s 84(1)(c) of the Property Law Act:
Such injury can only be properly assessed by a comparison between the benefits intended to be conferred and actually conferred by the covenant initially on the persons entitled thereto and the resultant benefits, if any, remaining to such persons after the covenant has been modified. If from the evidence it appears that the difference between the two will not be substantial, then the applicant will have established a case for the exercise of the Court’s discretion under paragraph (c). In order to make this comparison it is proposed to consider what benefits the covenant over the subject land may have conferred upon the persons entitled thereto, and then to assess whether the modification of such covenant would or would not substantially diminish the benefits so discovered.[31]
[30][1964] VR 808.
[31]Ibid 810–11.
The applicants say that it is clear from this passage that the inquiry is not limited to intended benefits. The applicants also rely on several other authorities, including Re Robinson,[32] Re Stani,[33] and Heaton v Loblay.[34]
[32][1972] VR 278.
[33](Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976).
[34](1959) SR (NSW) 332.
The respondent contends that the test for substantial injury does not involve two independently-sufficient elements. Rather, to establish substantial injury, the applicants must show both that they derive benefits intended to be conferred by the restrictive covenant and that those benefits were actually conferred by the covenant. In other words, and as it was put by the respondent’s counsel in oral submissions, the word ‘and’ that appears in the second line of the passage of Gillard J’s reasons in Re Cook extracted at paragraph 35 above is conjunctive, rather than disjunctive.
The respondent supports that submission by arguing that the applicants’ approach is not a correct application of constructional principles because an instrument cannot be determined by reference to facts that arise after that instrument was adopted as a formal record of the parties’ consensus.
Further, the respondent contends that, properly construed, the reasons of Gillard J indicate that the requirements are cumulative, as indicated by reference to the continuation of the words quoted by the applicants, namely ‘the benefits intended to be conferred and actually conferred by the covenant initially on the persons entitled thereto’.[35] According to the respondent, the reference to ‘benefits actually conferred’ simply means that the benefits conferred must be real and not abstract or hypothetical.
[35][1964] VR 808, 810–11 (emphasis added).
The respondent submits that none of the authorities cited by the applicants provide support for the applicants’ interpretation of Gillard J’s observations in Re Cook.

Identifying the purposes of the restrictions

The applicants contend that the trial judge fell into error by limiting the benefits protected by the restrictions in the Covenants to one sole purpose, whereas the restrictions in fact had various purposes and different benefits. The applicants rely on Greenwood v Burrows for the proposition that a restrictive covenant may pursue more than one objective.[36]
[36](1992) V Conv R 54-444, 65,197 (‘Greenwood’), citing Re Cook [1964] VR 808, 811 among other authorities.
The applicants contend that the ‘no trade or business’ restriction simply required that there be no trade or business, and that protecting the benefitting land from the competitive effect of the proposed service station was a benefit of the restriction. Similarly, the applicants contend that the beneficiary of the restriction preventing the erection or building on any lot of a building other than a dwelling house, school or hall (and outbuildings) has the benefit that those other buildings will not be erected on the burdened land, and the beneficiary of the restriction against excavation of soil or other material (other than as part of the construction of a building) has the benefit that there will be no excavation (other than for the excepted purpose) on the burdened land.
The respondent argues that the trial judge made no such error and that her Honour construed the purpose of the Covenants as threefold: creating a residential neighbourhood of low density, quality and residential amenity.[37]

Relevance of a covenant’s purpose in assessing substantial injury

[37]Reasons, [185].

The applicants object to her Honour’s acceptance of the respondents’ submission that the test of substantial injury must be seen through the prism of a covenant’s purpose.[38] The applicants argue that the authorities provide no support for that proposition.
[38]Reasons, [90], [182].
In oral submissions, counsel for the respondent referred the Court to several authorities which he said supported the submission that the purpose of a covenant is relevant to the assessment of substantial injury for the purposes of s 84(1)(c). These included Greenwood,[39] Re Robinson[40] and Re Cook[41] which, when read in conjunction with the other authorities, it is said, support the respondent’s case rather than that of the applicants.
[39](1992) V Conv R 54-444.
[40][1972] VR 278.
[41][1964] VR 808.

Grounds 1, 2 and 3: Decision

The critical question that separates the parties is whether the scope of the ‘injury’ for the purposes of s 84(1)(c) is confined by the purpose or intent of the restrictive covenant. There is a subsidiary question as to the relevant purpose of the restrictive covenant in this case and whether its purpose should be assessed separately for each of the restrictions coming within it.

The construction of s 84(1)(c)

The answer to these questions lies, in the first instance, in the construction of s 84(1)(c). It is necessary, therefore, to turn to the text of the provision, considered in light of its context and purpose, before considering the authorities that have examined it.
Obviously, before s 84(1)(c) can be engaged, it is necessary that there be a restrictive covenant affecting land. The requirement that a restrictive covenant benefit land is an important limitation on the scope of a covenant and serves to distinguish between a restrictive covenant that confers a proprietary entitlement and a personal covenant that does not run with land. In this respect, a rough distinction may be drawn between a covenant benefitting land and a covenant merely benefitting the owner of the land.
It will generally be possible to discern from the text of a restrictive covenant its purpose and intent. That is, it will be apparent from the text how the covenant affects the burdened land and the reason why it was imposed will also usually be obvious. Commonly, a restrictive covenant was imposed as an incipient form of planning control to regulate future development with an aim to preserve the use, character or amenity of the benefitted land and its surrounds.[42]
[42]See Adrian Bradbrook and Susan MacCallum, Bradbrook and Neave’s Easements and Restrictive Covenants (LexisNexis Butterworths, 3^rd ed, 2011) 287–8.
Although less common, and perhaps somewhat controversial, restrictive covenants on land have also been used to protect commercial interests by preventing competitors setting up on the burdened land. In Quadramain Pty Ltd v Sevastapol Investments Pty Ltd, a majority of the High Court concluded that the doctrine of restraint of trade did not apply to a restrictive covenant that runs with the land.[43] In that case, the owner of adjoining parcels of land transferred one lot subject to a restrictive covenant that the land would not be the subject of an application for a liquor licence. A hotel was conducted on the remaining land. In dissent, Jacobs J explored the boundary between a personal covenant for the purpose of benefitting a business and a covenant touching land and imposed for the benefit of, and with the effect that it would run with, the land.[44]
[43](1976) 133 CLR 390, 396–7 (McTiernan J), 402 (Gibbs J), 405 (Stephen J), 405 (Mason J); [1976] HCA 10.
[44]Ibid 410–11.
Although the two types of covenant may be in similar form in that, for example, each may restrict or prohibit trade on the burdened land, they have a different purpose and are designed to bring about a different benefit. Thus a covenant prohibiting any trade on the burdened land might be imposed in pursuit of a desire to retain a residential amenity, or it might be imposed for the purpose of protecting the trade carried out on the benefitted land.
As the applicants accept, the purpose of a covenant may be relevant to the ascertainment of its meaning.[45] The search for 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.[46]
[45]Jeshing Property Management Pty Ltd v Yang [2023] VSCA 185, [63] (Niall, Osborn and Hargrave JJA) (‘Jeshing’); Barport Pty Ltd v Baum [2019] VSCA 167, [68] (Kyrou, McLeish and Niall JJA).
[46]Deguisa v Lynn (2020) 268 CLR 638, 644 [2]; [2020] HCA 39 (‘Deguisa’); Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528, 531 [5], 539 [39]; [2007] HCA 45.
The principles to be applied in construing restrictive covenants were explained by this Court in Jeshing in the following way:
[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, and the judgment of this Court in Barport Pty Ltd v Baum. On this basis, the principles stated by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd, 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.
(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 Mrs Buckley [the beneficiary] and Mr McDonald [the covenantor] 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.
(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.[47]
[47]Jeshing [2023] VSCA 185, [63] (Niall, Osborn and Hargrave JJA) (citations omitted) (emphasis added).
It follows that s 84(1) is predicated on the existence of a restrictive covenant on title and that it is necessary to construe the covenant, including if necessary having regard to its purpose, before turning to the operation of s 84(1). Purpose in this sense is objectively determined and fixed. The purpose of the covenant does not change over time with changes in land use or other variables but, as with a contract or deed, represents the objectively ascertained intent of the parties on the making of the covenant.
Once the relevant restriction is identified, s 84(1)(c) directs attention to whether the proposed modification or removal will ‘substantially injure’ the persons entitled to the benefit of the restriction. On the literal construction contended for by the applicants, the negative proposition within s 84(1)(c) is satisfied here because the applicants are entitled to the benefit of the Covenants (and each of their clauses) and, if those clauses are discharged from the title, the applicants will be substantially worse off because it would enable a competitor to operate from the Land. Indeed, the applicants point to the findings of the judge and the agreed summary in this Court as irrefutably establishing that the discharge of the Covenants would enable another competitor to operate and thereby lower the profits of the applicants’ service station business and, as a result, reduce the market value of a lease of that land as well as the market value of the land itself.
The word ‘injure’ and its cognate ‘injury’ will take their meaning having regard to the context in which they are used. The word ‘injure’ in its ordinary sense means to cause harm of any kind to or to damage, hurt or impair and is apt to extend to any deleterious consequence sustained. As already noted, an important aspect of the context is that a restrictive covenant touches or concerns land, and its purpose will relate to the use and enjoyment of land. For that reason, the context strongly suggests that the relevant injury must be related to the use and enjoyment of the affected person’s property.
In perhaps every case, the restrictive covenant will have been imposed to enhance or protect land. It might enhance the amenity of the land by preventing overcrowding of a lot or overlooking onto the benefitted land, or by limiting the use to which the land can be put. Such enhancement may or may not increase the value of the benefitted land in a given case and its removal may not be easily accounted for in monetary terms. The implicit premise, that a covenant will entail a favourable consequence for the remaining land, is reinforced by the notion of the ‘benefit of the restriction’ which is found in s 84(1)(c).
It is significant that s 84(1)(c) hinges on the existence of a substantial injury and not merely the loss of the benefit of the restriction. The concept of injury connotes some harm or detriment and its use in the subsection suggests that is not the same thing as the loss of the benefit of the restriction itself. Rather, it is something that arises as a consequence of the loss of the benefit of the covenant. In other words, it would be fallacious reasoning to say that, because the person has the benefit of the covenant and by reason of the modification or discharge the person will lose that benefit, they must thereby suffer an injury. It follows that a person entitled to the benefit of the restriction may lose that benefit yet not sustain an injury. On the other hand, because of the variable nature of the benefit and its relationship to the use of land, being something whose value is not easily measured in money, there is no reason to construe injury as being limited to an economic loss such as the loss of value of the land. A wide variety of tangible and intangible potential injuries are encompassed by the expression ‘substantial injury’ in s 84(1)(c).[48]
[48]Webster v Bradac (1993) 5 BPR 12,032, 12,035; Frasers Lorne Pty Ltd v Joyce Goldsworthy Burke (2008) 14 BPR 26,131, 26,138 [27]; [2008] NSWSC 743.

The distinction between benefit and injury is reinforced by the use of the word ‘entitled’ in the phrase ‘persons entitled to the benefit of the restriction’. The concept of entitlement serves to identify the person who, by reason of title, stands to benefit from the covenant. Satisfying that aspect does not necessarily say anything about the practical benefit of the restriction or whether, at the time of an application under s 84(1)(c), the person enjoys any particular advantage by reason of the subsistence of the restriction. For example, the intended benefits that animated the imposition of the covenant in the first place may be immaterial to a later title holder. That may be so for a variety of reasons, including a change in land use or regulation or a change in use by the title holder.
The textual distinction between injury and the loss of the benefit of the restriction also directs attention to the practical consequences that the removal or modification of the restriction might produce. The need for an up-to-date practical inquiry about injury is unsurprising in the context of covenants which run with the land and bind succussive title holders, potentially over generations.
The concepts of injury and benefit are different but related. The injury with which s 84(1)(c) is concerned is injury that would be caused by removal or modification of the restriction. Since the relevant injury is one that arises as a consequence of the loss of the benefit, the logic of the section requires some connection, justifying the retention of the restriction, between the covenant and the injury.
In our view, a consequential or causal connection is not enough. A covenant confers a proprietary right to prevent the particular use of the burdened land for the benefit of the title holder of the benefitted land. In looking at whether the person will be harmed by its modification or removal, it is necessary to determine the nature of the benefit the restriction was designed to confer, and whether the injury is one that the restriction was intended to protect. Section 84(1)(c) does not prevent the removal of a restriction where the injury is unrelated to its intended benefit. To construe the section in that way would produce an entirely adventitious benefit and have the effect of extending the covenant to a circumstance that was never in contemplation. It would give an operation or effect that the covenant, properly construed, was not intended to have.
Moreover, to construe the concept of injury as tantamount to the loss of any benefit still being enjoyed would, in effect, compel the refusal of an application unless the restriction was obsolete. Given the application of s 84(1)(a) in cases of obsolescence, that construction would leave s 84(1)(c) with very little, if any, work to do. This is unlikely to have been intended. It is noteworthy that, in relation to s 84(1)(a), Eames J in Greenwood concluded that a covenant will not be obsolete if it produces a practical benefit even if the purpose for which it was designed has become obsolete.[49] It is unnecessary to decide whether that is correct for the purposes of this case. But assuming it is correct, it tends to suggest a very substantial, if not complete, overlap between the circumstances in which paragraphs (a) and (c) would apply, so that the applicants’ construction would largely deprive paragraph (c) of any distinct operation.
[49]Greenwood (1992) V ConvR 54–444, 65,197–65,198; Vrakas [2008] VSC 281, [26] (Kyrou J).
Contrary to the submission of the applicants, using the purpose of the covenant as a means of limiting the scope of a relevant injury for the purpose of s 84(1)(c) does not offend the Torrens system. Nor does it require a departure from the plain and ordinary words of the covenant. As the applicants accepted, purpose is a legitimate tool in the construction of covenants,[50] and it does no further violence to use the ascertained purpose to identify an injury for the purpose of removing a restriction. Purpose is not subjective, and can only be discerned by reference to the text of the covenant having regard to the title and other instruments referred to in the title.[51]
[50]Jeshing [2023] VSCA 185, [63] (Niall, Osborn and Hargrave JJA).
[51]Ibid.
For these reasons, the purpose of the covenant constrains the kind of injury that might be occasioned by the modification or removal of the restriction. That construction produces a more harmonious result between the restriction and its purpose and the power of the Court to order its modification or removal based on substantial injury.

The authorities

None of the relevant authorities suggest a different construction of s 84(1)(c).
Some time was spent in argument debating whether, in the passage from Re Cook[52] extracted at paragraph 35 above, Gillard J was intending to refer cumulatively or disjunctively to benefits, namely those intended to be conferred and those actually conferred. As already observed, the applicants say that his Honour was referring to two kinds of benefits and that an injury may arise from the loss of a benefit actually conferred even if it was not an intended benefit. We do not accept that submission.
[52][1964] VR 808, 810–11.
The covenant considered in ReCook was imposed in the context of a subdivision and provided that only one dwelling could be erected on each lot. Justice Gillard discerned the ‘object of the subdivider’ who had imposed the restriction as reducing, if not overcoming, ‘the monotony of a symmetrical and even subdivision on a grid plan’ and providing area and space to the smaller allotments, giving the whole area ‘grace and an air of expansiveness’.[53] The judge held that, if they were the objects of the subdivision and of the restrictive covenant, they would be completely lost by the further subdivision of the relevant lot. His Honour went on to say that, even without regard to the subjective intention of the subdivider, the object or purpose of having a large allotment would be defeated if the applicant were permitted to divide the lot into two. It is tolerably clear that Gillard J made the comparison between the existing benefit and that which would subsist if the covenant were removed by reference to the intended benefit, objectively discerned, of the covenant. He was not directing himself to a benefit that was not in contemplation at the time the covenant was made. The decision provides no support for the applicants’ case.
[53]Ibid 811.
Re Robinson concerned an application under s 84(1)(a) of the Property Law Act.[54] An issue arose as to whether the continued existence of a restriction in the negative covenant requiring no building other than a private dwelling house to be erected would secure ‘practical benefits’ to other persons. Justice Adam relevantly concluded that a person may derive a practical benefit from a right to the preservation of amenities, and that that benefit may manifest in, for example, the habits of birds to frequent the area and the prevention of litter and noise.[55] The applicants contend that Adam J’s reasoning supports their view of the substantial injury test since, although these benefits might not have been the intended purpose of the single dwelling house restriction, they were accepted nonetheless as benefits actually conferred.
[54][1972] VR 278.
[55]Re Robinson [1972] VR 278, 281, 283.
Although Re Robinson concerned an application under s 84(1)(a), the applicants contend that it is relevant for present purposes given that this Court has elsewhere observed that the inquiry as to practical benefits under s 84(1)(a) is similar to the substantial injury test under s 84(1)(c).[56] However, it does not support the applicants’ submission. It is clear that the benefits to the objectors associated with wildlife, litter and noise considered in Re Robinson were simply particular aspects of (or incidental to) the broader benefit of preserving the residential amenity of the area. It was not a case in which there was any unintended but actual benefit conferred by the restrictive covenant.
[56]Re Stani (Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976), 10, citing Re Ghey and Golton’s Applicants [1957] 2 QB 650, 659–60 and Re Robinson [1972] VR 278, 284.
In Re Stani, this Court considered an application to discharge or modify a restrictive covenant preventing the erection of more than one dwelling house. The purpose of that restriction was to assure limited density of population and protection from the detrimental effect of increased density.[57] However, it is another case in which there was no divergence between the intended and actual benefit conferred by the covenant: limiting the burdens of garbage collection, traffic density, noise level and crowd gathering[58] — broadly speaking, improvements to residents’ ‘quality of living’[59] — were all particular examples of the benefits of limited population density, the provision of which being the intended purpose of the covenant. Contrary to the applicants’ submission, reducing the prospect of ‘further applications of a similar nature’[60] if the restriction of the covenant were relaxed was not a practical benefit for its own sake, but rather because it would prevent ‘in the long run the object sought when the covenant was imposed [being] completely defeated’.[61]
[57]Re Stani (Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976), 10–11.
[58]Ibid 6.
[59]Ibid 9.
[60]Ibid.
[61]Ibid 11.
Heaton v Loblay concerned a restrictive covenant that prevented the erection of a balcony on the burdened land.[62] Justice Myers refused an application to modify or remove the restriction. The judge held that the removal of the restriction would substantially injure the benefitted land. In so concluding, the judge rejected a submission that, because the erection of the balcony would not decrease the value of the benefitted land, there could be no injury. On that point, Myers J said that he did not ‘pause to consider that point because loss of value is not necessarily a decisive factor and where, as in this case, the covenant was not exacted to preserve the value of the covenantee’s land but for another and different purpose, value is not a factor at all’.[63] It seems plain from that observation that the purpose of the covenant was relevant in assessing the scope of relevant injury for the purpose of considering the modification or removal of the restriction under the equivalent provision to s 84(1)(c).
[62](1959) SR (NSW) 332, 335 (Myers J).
[63]Ibid 335–6.
By contrast, in Jiang v Monaygon, Monaygon sought to argue that a proposed modification to a covenant containing a single dwelling restriction would cause substantial injury to its leases for mobile telecommunications, even though those benefits were unrelated to the purpose of the covenant in preserving the residential amenity of the area.[64] Associate Justice Derham observed that Monaygon’s submission showed a misunderstanding of the ‘injury’ against which the covenant provided protection, and then rejected the proposition that if the modification of a covenant would injure Monaygon’s current use of the land in any substantial way, that would amount to a substantial injury.[65] The decision tends to suggest that the substantial injury test is directed at benefits originally intended to be conferred, and not merely any benefit actually conferred by a covenant.

The application of s 84(1)(c)

[64][2017] VSC 591, [52], [38].

[65]Ibid [53]–[54].

It follows that the judge was correct in concluding that the injury was to be discerned by reference to the purpose of the Covenants. It is necessary then to turn to the question whether the judge correctly applied s 84(1)(c) and, in particular, whether she correctly identified the purpose and benefits of the Covenants.
The judge concluded that the purpose of the Covenants was to create a residential neighbourhood of low density, quality and residential amenity. The restrictions on use (no trade or business) and types of buildings (limited to dwellings, schools, churches or halls and outbuildings thereto) were considered by the judge to be designed to ensure the residential amenity of the neighbourhood.
The first question of principle is whether it is appropriate to isolate each element of a covenant in order to discern its individual purpose. The applicants say that this is the correct approach based on the text of s 84(1)(c), with its focus on ‘any restrictions arising under covenant or otherwise’, the reference to ‘restriction’ being functional and designed to separately isolate each qualification or restriction on title.
Reading s 84(1)(c) in that way, the applicants submit that the restriction that the covenantor would not carry on, or permit to be carried on, ‘any trade or business whatsoever’ is a particular restriction the purpose of which is to prohibit trade or business on the burdened land.
The answer to this submission lies in what has been said earlier about the construction of covenants. Like any instrument, a covenant has to be read as a whole. In construing a particular restriction, it is appropriate to have regard to its context within that instrument, as well as the purpose of the restriction and the instrument more generally. As the applicants contend, a restrictive covenant may pursue more than one objective.[66] But that does not mean that a court cannot have regard to the purpose of a covenant in so far as it sheds light on the meaning and purpose of a particular restriction.
[66]Greenwood (1992) V Conv R 54-444, 65,197, citing Re Cook [1964] VR 808, 811, among other authorities.
This approach is consistent with the authorities in this Court. For example, Randell v Uhl concerned an application to modify a restrictive covenant which contained a restriction allowing the development of more than one dwelling house on the relevant lots.[67] Modification was sought to enable the construction of two dwelling houses. Associate Justice Derham considered that allowing the modification of the covenant so as to enable the proposed development would maintain the reasonably-low density of housing and population and the quiet residential atmosphere, so as not to affect substantially the ‘purpose of the Covenants of ensuring one residence only can be erected on each lot in the subdivision’.[68] As the trial judge correctly observed, Derham AsJ considered the covenants’ purpose in the context of assessing whether modification would result in substantial injury.[69]
[67][2019] VSC 668.
[68]Ibid [119].
[69]Reasons, [182].
Turning to the Covenants in this case, we agree with the judge that, although the operation of the restrictions in relation to trade or business are clear in their terms, their purpose was to preserve the residential amenity of the area. While it is true that the presence of a shop, or even a service station, may not deny residential character to the locale, that is beside the point. The point is that, read as a whole, the Covenants do not demonstrate an intent to protect any businesses that might operate on the benefitted land. Regulation of commerce or commercial dealing in that way was not a purpose or object of the Covenants.
The applicants submit that, because the effect of the restriction was to prevent trade or business operating from the Land, its purpose must be to restrict those activities. In our opinion, the judge was correct in observing that this merely restates the restriction. Of course, the purpose of a restriction will often be found in its effect. However, that is not always the case. Giving colour to the relevant restriction by reference to each Covenant as a whole, it is impossible to discern an intention or purpose to protect the business or trade conducted on the benefitted land from competition.
A similar analysis applies to the restrictions that prevent the erection of a building other than a dwelling house, school or hall (and outbuildings) and the excavation of soil or other material (other than as part of the construction of a building). Again, the presence of such buildings and the excavation of material do not necessarily deprive a neighbourhood of its residential character. But it remains the case that, reading the Covenants as a whole, there is no basis to discern an intention to protect businesses operating on the benefitting land.
Both the intended and practical benefit of the restrictions, which together comprise the Covenants, on the benefitted land was to allow for a residential use in a congenial environment. The loss of that benefit is not productive of injury to the applicants. The disconnect between the injury relied on by the applicants and the restrictions on title is also demonstrated by the fact that to allow multiple dwellings (such as a large residential development) or non-competing businesses (such as a hardware store) would strike at the heart of the Covenants yet not injure the applicants. This reinforces the point that the injury complained of by the applicants does not directly follow from the removal of the restrictions but rather from the identity of the business that might take advantage of its removal.

Ground 4

By this ground, the applicants submit that, despite the relevant Instruments of Transfer having an express restriction against ‘trade or business’, the judge wrongly found that there was nothing in the terms of the Covenants to suggest an intention to confer a benefit of not having a trade or business conducted on the Land.
The applicants submit that one of the practical benefits it enjoyed as a result of the restriction against trade or business was that it would not have a commercial competitor operating a service station on the Land.
The substance of this ground has already been addressed. There was no error in the method adopted by the judge, which was to discern the purpose from the text, nor was there error in the application of the test, in that each of the restrictions was directed to achieving the purpose identified by the judge.
For the reasons already given, Ground 4 must be rejected.

Ground 5: The submissions

By this ground, the applicants submit that, in the assessment of ‘substantial injury’, the judge wrongly took into account restrictive covenants discharged on other land in the parent title that did not bear upon the question of the existence or otherwise of substantial injury from the modification or removal of the restrictions in issue.
As already noted, in her reasons the judge observed that, at the time the Covenants were created, there was a network of covenants in the neighbourhood in similar (if not identical) terms, such that beneficiaries of the Covenants had similar restrictions applicable to their own land.[70] The judge considered it to be relevant that many of the similar covenants burdening other land in the neighbourhood, including land owned by the applicants, had been discharged with the effect that the neighbourhood was not residential in character.[71] The judge noted the evidence that there were at least three existing service stations along the Princes Highway in that vicinity, as well as other stores. The judge considered to be ‘particularly telling’ that similar covenants on the applicants’ land were discharged by the Court so as to permit the applicants to operate a petrol station on their land, including on the basis that to do so would not substantially injure the beneficiaries of those covenants.[72]
[70]Reasons, [188].
[71]Ibid [190].
[72]Ibid [192].
The applicants contend that it was not legitimate to take that matter into account because the discharge of other restrictions arising from other Instruments of Transfer on other land transferred out of the parent title has nothing to do with whether the applicants have a benefit from restrictions currently encumbering the Land.

The respondent argues that, in making those observations, the judge was considering the purpose of the Covenants rather than assessing ‘substantial injury’.

Ground 5: Decision

It is established that, in construing a covenant on title, it is not permissible to refer to extrinsic material because the title is the exhaustive statement of the proprietary rights conferred.[73]
[73]Jeshing [2023] VSCA 185, [44]–[45] (Niall, Osborn and Hargrave JJA), citing Deguisa (2020) 268 CLR 638, 644 [2]; [2020] HCA 39.
The judge did not offend that principle. As the judge correctly observed, the purpose of looking at the surrounding area was to assess whether, as a matter of fact, the applicants would be substantially injured if the restrictions imposed on the Land were removed or modified. Ultimately, for the reasons already given, the critical issue was the construction of s 84(1)(c). The purpose of the restrictions was to preserve the residential amenity of the neighbourhood. The removal of the restrictions would remove an impediment to the development of the Land for a non-residential purpose. But, having regard to the characteristics of the Land and the surrounding area, it was plain that the initial intended benefits were and would remain unachievable. It followed that there was no injury of the relevant kind because the benefitted land and, for that matter, all of the surrounding land was not used for residential purposes.

Conclusion

None of the grounds have been made out. We would grant leave to appeal but dismiss the appeal.

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[2024] VSCA 140

25 June 2024