Xu v Natarelli

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S CI 2017 02339

IN THE MATTER of an Application pursuant to section 84 of the Property Law Act 1958 for the modification of a restrictive covenant

- and –

IN THE MATTER of an application for the modification of the restriction arising under
the covenant in a transfer of land registered No. U192765X affecting the land at 20-26 McGowans Rd, Donvale being the land in Certificate of Title volume 10271 folio 680 by:

ANTE XU and XIAO LI	Plaintiffs
v
MARIANNA NATARELLI AND OTHERS (according to the schedule)	Defendants

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JUDGE:	Ierodiaconou AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	4 September 2018, 5 September 2018
DATE OF JUDGMENT:	7 December 2018
CASE MAY BE CITED AS:	Xu v Natarelli
MEDIUM NEUTRAL CITATION:	[2018] VSC 759

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REAL PROPERTY – Restrictive covenant – Application to modify a restrictive covenant – Where fifth defendant’s land transferred out of parent title before covenant was made – Whether fifth defendant has benefit of the covenant – Whether covenant on subject land was part of development scheme that benefits all the land in the plan of subdivision – Whether benefit of a covenant attaches to land not owned by a transferor at date of transfer – Property Law Act 1958 ss 56, 84(1)(c) – Planning and Environment Act 1987 s 173 – Re Mack and the Conveyancing Act [1975] 2 NSWLR 623 – Re Dennerstein [1963] VR 688 – Fitt v Luxury Developments Pty Ltd [2000] VSC 258 – Doyle v Phillips (1997) 8 BPR 15,523 – Vrakas v Mills [2006] VSC 463.

REAL PROPERTY – Whether proposed modification will not substantially injure the persons entitled to the benefit of the covenant – Vrakas v Registrar of Titles [2008] VSC 281 – Jiang v Monaygon Pty Ltd [2017] VSC 591.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr D Lloyd	Aughtersons Solicitors
For the Defendants	Mr S Hopper, with Mr C Dawlings	Mahons with Yuncken & Yuncken Lawyers

TABLE OF CONTENTS

Summary.............................................................................................................................................. 1

Evidence............................................................................................................................................... 1

Restrictive covenant........................................................................................................................... 3

Is the covenant on the subject land part of a scheme of development that benefits all the land in the plan of subdivision?...................................................................................................... 5
By operation of s 56 of the PLA, does the benefit of a covenant attach to land not owned by a transferor at the date of transfer in circumstances where (a) it purports to do so, and (b) the transferor once owned the land?..................................................................................... 17
Applying s 84(1)(c) of the PLA, have the plaintiffs established that the proposed modification will not substantially injure the persons entitled to the benefit of the covenant?........... 26
Plan of Subdivision............................................................................................................ 28
Plaintiffs’ submissions...................................................................................................... 29
Defendants’ submissions.................................................................................................. 32
Analysis............................................................................................................................... 35

Conclusion......................................................................................................................................... 39

HER HONOUR:

The plaintiffs seek to modify a restrictive covenant affecting their property in McGowans Rd, Donvale. It prohibits the erection of more than one single dwelling house on their land. They wish to erect a second house on the land. Their application is opposed by the first to fourth defendants. They have the benefit of the covenant. The application is also opposed by the fifth defendant and there is an issue as to whether or not he has the benefit of the covenant.

The plaintiffs’ application is made pursuant to s 84(1)(c) of the Property Law Act 1958 (‘PLA’). To succeed in their application, they must establish the proposed modification will not substantially injure the persons entitled to the benefit of the covenant.

The first issue for determination is who has the benefit of the covenant. In particular, whether the fifth defendant has the benefit of the covenant in circumstances where his land was transferred out of the parent title before the covenant was made but the covenant purports to cover such land.

The second issue for determination is whether the orders sought by the plaintiffs pursuant to s 84(1)(c) of the PLA should be made.

Summary

Firstly, I find that the fifth defendant does not have the benefit of the covenant. Lots such as his that were transferred out of the parent title before the covenant was made do not have the benefit of the covenant.

Secondly, I find the plaintiffs have failed to establish that the proposed modification will not substantially injure persons entitled to the benefit of the covenant. Accordingly, their application is unsuccessful.

Evidence

The plaintiffs relied upon the following affidavits filed in this proceeding:

(a) affidavit of Glen Andrew Egerton, solicitor, sworn 15 June 2017 (‘the first Egerton affidavit’);

(b) affidavit of Robert Walter Easton, town planner, sworn 5 July 2017 (‘the first Easton affidavit’);

(c) affidavit of Ante Xu, plaintiff, sworn on 11 May 2018; and

(d) affidavit of Robert Walter Easton sworn 22 May 2018 (‘the second Easton affidavit’).

The plaintiffs rely on the expert report provided by Mr Easton, being Exhibit RWE-1 to the first Easton affidavit, and on his supplementary report, being Exhibit RWE‑2 to the second Easton affidavit.

The defendants rely on the following affidavits:

(a) affidavit of Victor Sandle, defendant, sworn 24 January 2018 (‘the Sandle affidavit’);

(b) affidavit of Robin Smith, defendant, sworn 24 January 2018 (‘the Smith affidavit’);

(c) affidavit of Janice Gooderham, defendant, sworn 25 January 2018 (‘the Gooderham affidavit’);

(d) affidavit of Rohan Alan Fanning, defendant, sworn 25 January 2018 (‘the Fanning affidavit’);

(e) affidavit of Marianna Natarelli, defendant, sworn 25 January 2018 (‘the Natarelli affidavit’); and

(f) affidavit of Lawrence Albert Wilson sworn 25 January 2018.

The defendants rely on the expert report of Robert Milner, planner, dated January 2018.

The following witnesses gave oral evidence during the proceeding: Mr Xu, Mr Easton, Mr Smith, Mr Sandle, and Mr Milner. They were all credible witnesses. Although I ultimately preferred the conclusion of Mr Milner compared to Mr Easton on the question of whether there was a substantial injury, this was on the basis of all the evidence before me rather than any adverse view as to his credibility. Indeed, the evidence given by both Mr Easton and Mr Milner was of assistance to the Court.

It is unnecessary to reiterate all the evidence here. Where necessary and relevant to the issues in dispute, I have referred to it below.

On 4 September 2018, I undertook a view of the plaintiffs’ land and neighbourhood, accompanied by legal practitioners and some parties.

Turning now to the covenant itself and the background to it.

Restrictive covenant

I shall refer to the plaintiffs’ land that is the subject of this application as ‘the subject land’.[1]
[1]20-26 McGowans Rd, Donvale, more particularly described as Certificate of Title Volume 10271, Folio 680.

Darnley Developments (Aust) Pty Ltd (‘the developer’) owned the parent title of the subject land.[2] It wished to develop the land by subdividing it.
[2]Volume 10187 Folio 139.

On 21 March 1995, an agreement was executed between Manningham City Council (‘Council’) and the developer pursuant to s 173 of the Planning and Environment Act 1987 (‘PEA’).[3] The recitals to the agreement indicate that the developer wished Council to amend the applicable planning scheme and that Council had agreed to do so on certain conditions. Clause 4.3 of the agreement contains a covenant by the developer that ‘not more than one dwelling together with associated outbuildings may be erected on any lot’. Clause 6 of the agreement provides that this obligation ‘will take effect as separate and severable covenants which shall be annexed to and run at law and equity with the Subject Land to bind [the developer] and each successor, assign [sic] or transferee of the [developer] the registered proprietor or proprietors for the time being of the Subject Land and every part of the Subject Land.’ In the agreement, the ‘Subject Land’ is defined as the land in the parent title.
[3]Court Book, 63–72.

On 9 January 1996, an amendment to the s 173 agreement was entered into between the developer and Council.[4] The amendment is contained in instrument U054769L and did not affect the clauses referred to above. The recital to the amendment agreement states that the parent title is being subdivided.
[4]Ibid 75–83.

On 21 February 1996, the subdivision of land in the parent title was registered. All lots on the plan of subdivision had titles issued, including the subject land.[5]
[5]Ibid 60.

Between 13 March 1996 and 15 April 1996, seven lots were transferred out of the parent title. One of these lots is land owned by the fifth defendant.[6] It was transferred out of the parent title on 27 March 1996.[7]
[6]Certificate of Title Volume 10271 Folio 679.
[7]Court Book, 104–5.

The restrictive covenant on the subject land was created on 23 April 1996 and registered on 30 April 1996.[8] Relevantly, it states:

…the said transferor and other the registered proprietor or proprietors for the time of each and every lot on the said Plan of Subdivision other than the said Lot hereby transferred that we will not erect or permit to remain erected on the said lot hereby transferred any building other than one single dwelling house (with or without a garage or other usual outbuildings having a habitable area of not less than 150 square metres including a exterior walls [sic] but not excluding verandahs, garages and outbuildings and having not less than 70% of all external walls of brick, brick veneer or glass).
AND IT IS INTENDED THAT this covenant shall be set out as an encumbrance on the Certificate of Title issued OR to issue for the said lot HEREBY transferred and shall run with the land.[9]

[8]Ibid 60-2.

[9]Ibid 61.

The question arises as to whether or not the land that was transferred out of the parent title prior to the restrictive covenant being made has the benefit of it. This includes the land of the fifth defendant. There are two bases upon which the defendants say the fifth defendant has the benefit of the covenant. They say, firstly, the land is part of a scheme of development. Secondly, that s 56 of the PLA is applicable.

Is the covenant on the subject land part of a scheme of development that benefits all the land in the plan of subdivision?

The plaintiffs submit that the transferor cannot annex the benefit of a covenant to land that they do not own, ‘unless the covenant is given as part of a building scheme or development scheme’;[10] the rights of which are based in equity (‘arising from the community of interest of the lotholders’),[11] rather than contract.
[10]Outline of Submissions for the Plaintiffs dated 7 August 2018, [13(a)], citing Re Mack and the Conveyancing Act [1975] 2 NSWLR 623, 626 (‘Re Mack’).
[11]Re Mack [1975] 2 NSWLR 623, 623 (headnote).

The plaintiffs say there is no scheme of development. They say any such scheme could only bind successors in title if the information on the Register is sufficient to disclose its existence to purchasers. They say the certificate of title does not disclose any such scheme and in a Torrens land system it should.

The defendants submit that the lots that were transferred out of the parent title before the restrictive covenant was made have the benefit of the covenant because they are part of a scheme of development that benefits all the land in the plan of subdivision.

In response to the plaintiffs’ submission about notice of the building scheme being required on the title, the defendants say that it is satisfied. They say that the s 173 agreement refers to the restrictive covenant and it was a condition of that agreement that not more than one dwelling be erected. The restriction in the restrictive covenant is in the same form and exists on the certificate of title. The covenant says it applies to all the land in the parent title.

The defendants also refer to the transfer of land instruments in evidence. They evidence a restrictive covenant at the time of the original transfer out of the subdivision placed on about one third of the lots. They reason it can therefore be inferred that the rest of the titles transferred out have a similar covenant. They submit that is sufficient to infer an intention to lay out all lots subject to a restrictive covenant of like effect on everybody.

On the other hand, the plaintiffs say the s 173 agreements have no connection with the common law building scheme. They say the PEA provides for the agreements to be recorded on the title to the affected land and that the agreements have no relationship to a common law building scheme.[12]
[12]Transcript of Proceedings, Xu v Natarelli (Supreme Court of Victoria, S CI 2018 02339, Ierodiaconou AsJ, 4–5 September 2018) 132 (‘Transcript’); counsel for the plaintiffs referred to ‘one of the sections near s 179’ of the PEA, presumably this was a reference to s 181(1).

Turning now to the applicable principles.

At the outset, I refer to s 88(1) of the Transfer of Land Act 1958 (‘TLA’). It provides for the Registrar to record a restrictive covenant on the relevant folio of the Register.[13]
[13]‘(1) The Registrar may record on the relevant folio of the Register the following — (a) subject to subsection (1A), a restrictive covenant, if all of the registered proprietors of the land to be affected by the covenant agree to the creation of the restrictive covenant’.

In Re Mack, Wootten J states that ‘[t]he onus is on the person who seeks a declaration that a restriction is unenforceable to negative the existence of a common building or development scheme, if such a scheme would support the restriction’.[14]
[14]Re Mack [1975] 2 NSWLR 623, 626, citing Sutton v Shoppee [1963] SR (NSW) 853, 863, 870, 871; Re Redmond (1965) 82 WN (Pt 1) (NSW) 427, 434.

Wootten J asked the following questions:

(1)Can a common building scheme be created for an area by the collaboration of two or more owners, each of whom owns part of the area, and who each take a common form of covenant on the disposal of the lots in the area? (2) If so, is the fact that nine lots were nevertheless disposed of without such a covenant, or any relevant covenant, fatal to the validity of the building scheme and the enforceability of the covenants? If I were to answer the first question in the negative a third question would arise. (3) If regard cannot be had to the covenants taken by Epping Estates Ltd. because it was a different vendor, can the building scheme survive so as to make the covenants taken in respect of the seventy-one properties by Australian Securities Ltd. mutually enforceable, notwithstanding that these seventy-one properties are scattered through the subdivision, and at times separated by the twenty-three properties with covenants taken by Epping Estates Ltd. and the nine with no covenants?[15]

[15]Re Mack [1975] 2 NSWLR 623, 628 (emphasis added).

By way of response to the highlighted question, Wootten J stated:

I have already referred to the rule that a vendor cannot generally annex the benefit of a covenant to land which he does not own, but the case of a building or development scheme is an exception to that rule. It is well established that in such cases the vendor can annex the benefit of the covenant to land of which he has already disposed. But the reason for this is not that such land was formerly his, but that the land is part of a building scheme in which there is a mutual interest amongst the purchasers in increasing the value of their land, and in the vendor, in so far as he can obtain a higher price for the land he sells.[16]

[16]Ibid 630 (emphasis added), citing Nottingham Patent Brick & Tile Co v Butler (1885) 15 QBD 261, 269; Osborne v Bradley [1903] 2 Ch 446, 450.

As is the case here, in Re Dennerstein,[17] the covenant was recorded on the various certificates of title, but there was no reference to the covenant arising as part of a building scheme. Therefore the question to be determined was whether the covenant had been imposed under a building scheme, and could therefore be enforced. Hudson J framed the question as follows:

[W]hether a covenant contained in a specified instrument of transfer noted as an encumbrance but which, regarded merely as a covenant can have no binding effect on subsequent transferees, can nevertheless be treated as binding those transferees if it be proved to have been entered into pursuant to and as part of a building scheme to which no reference appears in the notification on the register, is a very different one.[18]

[17][1963] VR 688.

[18]Ibid 695.

Hudson J found that:

the objectors [had] established that there was a building scheme affecting the land of the applicant in favour of the owners of the other lands in the subdivision, imposing on the applicant’s land restrictions in the terms of the covenant contained in instrument of transfer No. 650684.[19]

[19]Ibid 694.

However, Hudson J observed, ‘[i]t is only when resort is had to an inquiry as to the circumstances under which the covenant was entered into, that it may be inferred that it was to give effect to a building scheme to which the owners of lands affected by the scheme were parties’.[20]
[20]Ibid 696.

In light of this aspect, Hudson J stated:

In my view, a purchaser of land under the Transfer of Land Act is not bound to prosecute inquiries and searches and make deductions such as would be involved if Mr Searby’s contentions were accepted [the reasonable inference approach]. Even when all the materials and evidence in relation to the circumstances under which an estate has been subdivided and sold are available it is not by any means easy to determine whether the sale of allotments in the estate has been made under or pursuant to a common building scheme. To require a person interested in purchasing one of those allotments to make this determination after obtaining the necessary evidence perhaps years after the original sale if it is available would render conveyancing a hazardous and cumbersome operation, and, in the case of dealings in land under the operation of the Transfer of Land Act, would defeat the object of the Act and destroy in large measure the efficacy of the system sought to be established thereby.[21]

[21]Ibid.

Hudson J then stated the requisites for notification to be binding on transferees:

[E]ven assuming there is power under the Act to notify as encumbrances on a certificate of title restrictions arising under a building scheme, such a notification will not be effective to bind transferees of the land unless not only the existence of the scheme and the nature of the restrictions imposed thereunder, but the lands affected by the scheme (both as to the benefit and the burden of the restriction) are indicated in the notification, either directly or by reference to some instrument or other document to which a person searching the register has access.[22]

[22]Ibid.

Applying this to the case before him, Hudson J stated:

In the present case these requirements are not satisfied. The covenants contained in the instrument of transfer notified as an encumbrance, though they certainly set out the restrictions, give no indication that they arose under a building scheme, nor of the land to which the benefit thereof was intended to be annexed, under such a scheme. The applicant, therefore, had no notice of the existence of the scheme or of the restrictions imposed thereby. She did have notice that the covenants contained in the instrument of transfer had been entered into by her predecessor in title but those covenants as she had no doubt been advised are no longer enforceable by any person and, therefore, she took her transfer free of the restrictions contained therein and is entitled to a declaration accordingly.[23]

[23]Ibid 696–7.

In Fitt v Luxury Developments Pty Ltd (‘Fitt’),[24] Gillard J stated that ‘[w]hether or not a building scheme exists is a question of fact’.[25] After approving of the requirements for establishing such a scheme laid down by Lord Parker in Elliston v Reacher,[26] his Honour identified the following five elements the plaintiff must prove:[27]
[24][2000] VSC 258.
[25]Ibid 24 [142].
[26][1908] 2 Ch 374, 384–5. Lord Parker outlined four requirements that must be proved: ‘(1) that both the plaintiffs and defendants derive title under a common vendor; (2) that previously to selling the lands to which the plaintiffs and defendants are respectively entitled the vendor laid out his estate, or a defined portion thereof (including the lands purchased by the plaintiffs and defendants respectively), for sale in lots subject to restrictions intended to be imposed on all the lots, and which, though varying in details as to particular lots, are consistent and consistent only with some general scheme of development; (3) that these restrictions were intended by the common vendor to be and were for the benefit of all the lots intended to be sold, whether or not they were also intended to be and were for the benefit of other land retained by the vendor; and (4) that both the plaintiffs and the defendants, or their predecessors in title, purchased their lots from the common vendor upon the footing that the restrictions subject to which the purchases were made were to enure for the benefit of the other lots included in the general scheme whether or not they were also to enure for the benefit of other lands retained by the vendors’: at 384.
[27]Fitt [2000] VSC 258, 25 [144].

(a) the plaintiff and defendant have derived title from a common vendor;
(b)prior to the sale, that is, the original sale, the vendor must have laid out the estate in lots subject to restrictions which were intended to be imposed on all of them and were consistent only with some general scheme of development;
(c)the common vendor must have intended the restrictions to be for the benefit of all lots sold;
(d)the plaintiffs' and defendants' lots must both have been bought from the common vendor on the footing that the restrictions were for the benefit of the other lots; and

(e) the area to which the scheme extends must be defined.

Pausing, the defendants say the facts here satisfy the five elements set out above in Fitt. Further, those elements should not be applied stringently.

Applying Fitt, the defendants submit that the overriding element is that each purchaser accepted the covenants they gave were for the benefit of the vendor (the developer) and those deriving title from the vendor (that is, from the parent title owned by the developer), and that they would correspondingly enjoy the benefit of a similar restrictive covenant to other purchasers.

Returning to Fitt, Gillard J stated that ‘[i]f a building scheme existed and is proven the plaintiff does not have to establish that the covenant was annexed to particular land’.[28] This is contrary to Hudson J’s analysis above.
[28]Ibid 25 [145].

Gillard J found that the plan of subdivision lodged at the Titles Office ‘contained a statement to the effect that all the lots on the plan of subdivision were affected by a building scheme’.[29] Each sheet of the plan of subdivision contained the notation: ‘All Lots on P/S8402 are Affected by a Building Scheme.’[30] The plaintiffs say that distinguishes Fitt. Here, there is no such notation.
[29]Ibid 46 [263].
[30]Ibid 4 [29].

For completeness, I note that Gillard J stated that he would have been ‘strongly inclined’ to find notice of the existence of a restrictive covenant on the Register even if there had not been reference to a building scheme.[31]
[31]Ibid 56 [330]–[331].

Regarding notification on the register, Gillard J distinguished the facts in the case before him from those in Re Dennerstein, observing that:

The notification on the front of the Certificate of Title referred to the original instrument of transfer which was numbered and by reference to that instrument of transfer the nature of the restrictions imposed are clearly stated, the lands affected are set out and the plan of subdivision was stated and identified by number. A reference to that plan of subdivision clearly established that it was part of a building scheme. Both the original instrument of transfer and the plan of subdivision would be made available to anybody seeking to search the register.[32]

[32]Ibid 51 [299] (emphasis added).

Gillard J also observed that Re Dennerstein was decided prior to s 88(1) of the TLA empowering the Registrar to enter a memorandum of covenant or other instrument on the Certificate of Title.[33] Gillard J noted that amendments to that sub-section subsequent to Re Dennerstein did not change the effect of that case, but simply ‘put beyond doubt that the practice which had been employed by the Registrar of Titles was a valid and lawful one’.[34] Gillard J observed that in Re Dennerstein the notation on the Register was insufficient notification to the purchaser.
[33]Ibid 52 [302].
[34]Ibid 52 [303].

Although Gillard J did not think it necessary to consider whether the decision in Re Dennerstein was correct, his Honour did comment that: ‘[I]n my opinion there is a strong argument that the decision is wrong in respect to a requirement that information in the Register must establish the building scheme’s existence’.[35] Gillard J reasoned that the question of whether a restrictive covenant is valid is ultimately one for the Court.[36] Recording it on the Register does not establish its validity or enforceability.[37]
[35]Ibid 52 [305].
[36]Ibid 53 [314].
[37]Ibid 55 [326].

Gillard J stated:

It follows that in my opinion if it was necessary to apply the reasoning in Re Dennerstein in the present case, my provisional view is that it should not be followed.
In my opinion the object of the Act is not defeated and indeed is given effect to by the notation of a restrictive covenant which sets out the nature of the restrictions and identifies the land. In my opinion it is strongly arguable that it is not necessary to assert anywhere in the Register that the land is subject to a building scheme although it would be wise to do so. That is assuming that the present practice of the Titles Office permits that to be done.[38]

[38]Ibid 55 [327]–[328] (emphasis added).

Vrakas v Mills[39] concerned the following facts.

The certificate of title to the plaintiffs’ land records that it is subject to the restrictive covenant contained in two instruments of transfer. Those instruments of transfer are the initial instruments under which Lots 371 and 372 were transferred out of the Robinson head title.
At the time of the initial transfer of Lot 372, and the creation of the restrictive covenant burdening that lot, there were four remaining lots in the Robinson subdivision — Lots 311, 312, 340 and 342. All of these lots have since been transferred out of the Robinson head title and that title has been cancelled.[40]

[39][2006] VSC 463.

[40]Ibid 3–4 [15]–[16].

Hargrave J (as he then was) referred to the three ways in which a person, who is not one of the original covenantees, can establish an entitlement to enforce a restrictive covenant, as outlined in Re Arcade Hotel Pty Ltd:[41]

It has recently been laid down in a judgment generally accepted as accurately stating the law as it emerges from prior authority that where the person seeking to enforce the covenant is not the original covenantee there are only three possible ways in which he can become entitled to the benefit of the restrictive covenant, viz.,
(1) As an assign of land to which the benefit of the covenant is annexed.
(2)As an express assign of the benefit of the covenant and of some or all of the dominant land.
(3)That he and the defendant own lands subject to a scheme of development and that they are reciprocally affected by the covenant.[42]

[41][1962] VR 274.

[42]Ibid 276 (citations omitted), quoted in Vrakas v Mills [2006] VSC 463, 5 [19]. The ‘effect’ of the decision in Re Arcade Hotel has since been abrogated by s 79A of the Property Law Act 1958: ‘79A. Construction of covenants affecting land It is hereby declared that when the benefit of a restriction as to the user of or the building on any land is or has been annexed or purports to be annexed by any instrument to other land the benefit shall unless it is expressly provided to the contrary be deemed to be and always to have been annexed to the whole and to each and every part of such other land capable of benefiting from such restriction’: at [23].

In respect of a building scheme, or scheme of entitlement, Hargrave J referred to the relevant paragraphs in Fitt[43] which outline the requirements of a building scheme, and the characteristics as enunciated in Elliston v Reacher[44] and reproduced below.
[43]Fitt [2000] VSC 258, [249]–[254].
[44]Vrakas v Mills [2006] VSC 463, [27]–[28].

In Elliston v Reacher,[45] Parker LJ outlined four requirements that must be proven, namely:
[45][1908] 2 Ch 374.

(1)that both the plaintiffs and defendants derive title under a common vendor;
(2)that previously to selling the lands to which the plaintiffs and defendants are respectively entitled the vendor laid out his estate, or a defined portion thereof (including the lands purchased by the plaintiffs and defendants respectively), for sale in lots subject to restrictions intended to be imposed on all the lots, and which, though varying in details as to particular lots, are consistent and consistent only with some general scheme of development;
(3)that these restrictions were intended by the common vendor to be and were for the benefit of all the lots intended to be sold, whether or not they were also intended to be and were for the benefit of other land retained by the vendor; and
(4)that both the plaintiffs and the defendants, or their predecessors in title, purchased their lots from the common vendor upon the footing that the restrictions subject to which the purchases were made were to enure for the benefit of the other lots included in the general scheme whether or not they were also to enure for the benefit of other lands retained by the vendors.

If these four points be established, I think that the plaintiffs would in equity be entitled to enforce the restrictive covenants entered into by the defendants or their predecessors with the common vendor irrespective of the dates of the respective purchases.[46]

[46]Ibid 384 (formatting altered).

Hargrave J then considered Parker LJ’s elements and applied them to the facts in Vrakas v Mills. With no dispute concerning the first element (common vendor), his Honour moved on to the second element, stating:

The second element requires proof that Ms Robinson laid out her estate in the Robinson head title in lots subject to restrictions which she intended to impose on all of the lots, consistent only with some general scheme of development. … In my view, the evidence establishes that Ms Robinson laid out her land in lots for sale with the clear intention of imposing a restriction, in the form of the restrictive covenant, on the sale of each lot. The fact that 56 of the 60 lots were sold subject to the identical form of restrictive covenant, over a 20 year period, is strong evidence of this intention. It is consistent only with some general scheme of development.
The third element requires proof that Ms Robinson, and later her executors, intended the restrictions in the restrictive covenant to be for the benefit of all of the lots in the Robinson subdivision which were sold. … Wootten J [in Re Mack] reviewed the relevant authorities and concluded that the intention which is relevant is that of the vendor existing at the time of establishing the scheme.
The fourth element requires proof that the parties to the proceeding to enforce the covenant, or their predecessors in title, purchased their lots from the common vendor on the footing that the restrictions were to enure for the benefit of the other lots included in the general scheme. It was submitted on behalf of the plaintiffs that this element has not been established because the lots were sold over a period of 20 years and there was no proof of a contractual obligation on Ms Robinson to impose a restrictive covenant on any subsequent sale of lots by her. I accept these submissions.[47]

[47]Vrakas v Mills [2006] VSC 463, 9–10 [32]–[35] (citations omitted).

Hargrave J was not satisfied that the facts established the fourth element required for a scheme of development (as indicated above), nor was he prepared to infer that the purchasers had notice of the third element.[48] On this latter point, Hargave J stated:

In my view, the sale of the lots in the Robinson subdivision over a period of 20 years, combined with the lack of any suggestion that Ms Robinson was contractually obliged to impose a restrictive covenant in respect of any subsequent sale of lots by her, militates against an inference that the purchasers knew Ms Robinson’s intention was to benefit all of the lots in the subdivision which she intended to sell.[49]

[48]Ibid 10–11 [36]–[37].

[49]Ibid 11 [37].

Nor, Hargrave J continued, was there evidence ‘that the purchasers were ever informed that the restrictive covenant was imposed on them for the benefit of other purchasers of lots in the Robinson subdivision, or that they would be the beneficiary of a reciprocal covenant in their favour’.[50] On this point, Hargrave J refers to Buckley LJ’s comments in Reid v Bickerstaff:

There can be no building scheme unless two conditions are satisfied, namely, first, that defined lands constituting the estate to which the scheme relates shall be identified, and, secondly, that the nature and particulars of the scheme shall be sufficiently disclosed for the purchaser to have been informed that his restrictive covenants are imposed upon him for the benefit of other purchasers of plots within that defined estate with the reciprocal advantage that he shall as against such other purchasers be entitled to the benefit of such restrictive covenants as are in turn to be imposed upon them. Compliance with the first condition identifies the class of persons as between whom reciprocity of obligation is to exist. Compliance with the second discloses the nature of the obligations which are to be mutually enforceable. There must be as between the several purchasers community of interest and reciprocity of obligation.[51]

[50]Ibid 11 [38].

[51][1909] 2 Ch 305, 323.

Hargrave J considers the point of disagreement between Hudson J in Re Dennerstein and Gillard J in Fitt. Hudson J found that the absence of notice on the Register of a scheme of development was fatal to the objectors’ claim, notwithstanding that he found there was a scheme of development. Relevant to the present case, Hudson J was of the view that a purchaser was ‘not bound to prosecute inquiries and searches and make deductions’ to determine whether an allotment was ‘made under or pursuant to a common building scheme’, as this would otherwise ‘render conveyancing a hazardous and cumbersome operation’.[52]
[52]Re Dennerstein [1963] VR 688, 696, referred to in Vrakas v Mills [2006] VSC 463, 13 [44].

On this point, Hargrave J referred to the following principles, which I adopt.

It is apparent from the above passage[53] from Re Dennerstein that, in order to bind a transferee of land registered under the Transfer of Land Act with a restrictive covenant arising under a scheme of development, it is necessary for the notification in the Register to give notice of:
(1) the existence of the scheme;
(2) the nature of the restrictive covenant; and
(3)the identity of the lands affected by the scheme, both as to the benefit and the burden of the restriction.

Further, it is necessary that this notice is given in the certificate of title, either directly or by reference to some instrument or other document to which a person searching the Register has access.[54]

[53]Specifically Re Dennerstein [1963] VR 688, 696–7.

[54]Vrakas v Mills [2006] VSC 463, 14 [45] (emphasis added).

Hargrave J then considered the facts in Vraskas v Mills, stating:

In this case, there is no issue that the plaintiffs were on notice of the nature of the restrictive covenant. The restrictive covenant is contained in the two instruments of transfer which are recorded as encumbrances on the certificate of title to the plaintiffs’ land. However, the form of the restrictive covenant does not make any reference to the existence of a scheme of development or as to the lands affected by it. Notwithstanding this, it was submitted on behalf of the defendants that the plaintiffs had sufficient notice of a scheme and of the lands affected by it. It was submitted that there are numerous documents indicating the existence of a scheme available from a search of the Register … Further, reliance was placed upon other extrinsic evidence … I do not accept these submissions. They are to the same effect as the submissions made in Re Dennerstein on behalf of the objectors, which were rejected. For the reasons stated in Re Dennerstein, they should be rejected here also.[55]

[55]Ibid 14–15 [46].

A similar analysis applies here. The restrictive covenant is not in issue. It does not refer to a scheme of development (although it does make reference to affected land). Re Dennerstein also applies here.

Hargrave J dealt with an alternative argument, which relied upon Gillard J’s comments in Fitt, in seeming opposition to the position taken by Hudson J in Re Dennerstein. His Honour noted that:

In these circumstances [in Fitt], it was clear that the Register contained full notice of both the fact that a building scheme was asserted and of the lands affected thereby, being all of the lands comprised in the plan of subdivision. In these circumstances, it was unnecessary for Gillard J to decide whether he was bound to follow Re Dennerstein, because the notice required by it had been given.
However, by way of obiter dicta, Gillard J expressed some disapproval of Re Dennerstein. In my opinion, when analysed for their full effect, Gillard J’s criticisms of Re Dennerstein do not assist the defendants in this case. This is because those criticisms are limited to the necessity for giving notice of the existence of a building scheme. On my reading, Gillard J’s comments do not contain any criticism of the requirement stated in Re Dennerstein that notice must be given of the identity of the lands affected by the building scheme. Indeed, Gillard J reaffirmed the need to give notice of the lands affected. First, Gillard J expressed the view that “there is a strong argument that the decision [in Re Dennerstein] is wrong in respect to a requirement that information in the Register must establish the building scheme’s existence.” Second, in respect of the requirement to identify the lands affected by a building scheme, Gillard J said: “I do not wish to make any observation in respect to that requirement.” Third, Gillard J expressed his conclusion in the following way:

In my view there is a very strong argument that the recording must make it clear that there is a restrictive covenant, identify the land to be benefitted and set out the restrictions and other questions concerning the basis upon which it is said to be valid and enforceable are matters for the Court and not required to be part of the information in the Register of Land.

As I have said, the restrictive covenant affecting the plaintiffs’ land does not contain any notice that the covenant is for the benefit of all of the owners of the land previously comprised in the Robinson subdivision. As a result, there is no notice of the lands affected by the building scheme contended for by the defendants. Accordingly, whether or not Gillard J’s criticisms of the requirement to give notice of the existence of a scheme are correct, the plaintiffs are unaffected by the scheme relied upon by the defendants.[56]

[56]Ibid 15–16 [48]–[50] (citations omitted).

In Westfield Management Limited v Perpetual Trustee Company Limited,[57] the High Court referred to a principal feature of the Torrens land system:

The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee.[58]

[57](2007) 233 CLR 528.

[58]Ibid 539 [39].

I do not consider that the requirements of a common building scheme have been satisfied. In particular, I do not consider that adequate notice of the building scheme has been given for the following reasons.

Firstly, there is no evidence of any notation of a common law building scheme on any certificate of title.

Secondly, there is no evidence of any notation of a common law building scheme on any other instruments on the Register that may be evident from a search of the Register.

Thirdly, notice of a common law building scheme should not be inferred from reference to the s 173 agreements on the certificates of title. Those agreements do not state that there is a common law building scheme. Whilst they refer to restrictive covenants being placed on lots transferred from the subdivision, that does not of itself evidence a common law building scheme. They reflect an agreement between the developer and Council made pursuant to a statute. Notice of common law building schemes should not be inferred solely from such agreements.

Finally, and for completeness, I will address the evidence from the Register. Mr Easton has given evidence that it ‘appears that the original developer followed the provisions of the s 173 agreement by attempting to place covenants on all of the individual lots in the subdivision’ and the covenants are the same form irrespective of lot size.[59] Mr Easton identifies two lots where the restrictive covenant is not on the certificate of title despite being on the original transfer of land.[60] Given that, it must be concluded that the restrictive covenant is not on all certificates of titles. Further, only some certificates of title are in evidence. None of the certificates of title of the seven lots transferred out (including the fifth defendant’s land) are in evidence. I am not prepared to simply rely upon historical transfers of land to conclude the restrictive covenants are on all certificates of title, particularly given that two titles are identified where it is not. I reject the defendants’ suggestion that in Fitt an inference was drawn on less material. In that case, Gillard J had in evidence eight certificates of title with corresponding transfers and no evidence to the contrary that there was a common form of restrictive covenant.[61]
[59]Court Book, 54 [9.3].
[60]Certificate of Title Volume 10271, Lots 24 and 51.
[61]Fitt [2000] VSC 258, 45–6 [262].

Turning now to the second basis upon which the defendants submit the fifth defendant has the benefit of the restrictive covenant.

By operation of s 56 of the PLA, does the benefit of a covenant attach to land not owned by a transferor at the date of transfer in circumstances where (a) it purports to do so, and (b) the transferor once owned the land?

Section 56 of the PLA provides that:

56 Persons not named as parties may take interest in land etc.
(1)A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he is not named as a party to the conveyance or other instrument.
(2)A deed between parties, to effect its objects, shall have the effect of an indenture though not indented or expressed to be an indenture.

Sections 78 and 79A of the PLA are relevant to the construction of covenants.

Section 78 (Benefit of covenants relating to land) states:

(1)A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and his successors in title and the persons deriving title under him or them, and shall have effect as if such successors and other persons were expressed.
…

Section 79A of the PLA (Construction of covenants affecting land) states:

It is hereby declared that when the benefit of a restriction as to the user of or the building on any land is or has been annexed or purports to be annexed by any instrument to other land the benefit shall unless it is expressly provided to the contrary be deemed to be and always to have been annexed to the whole and to each and every part of such other land capable of benefiting from such restriction.

Returning to s 56 of the PLA; the defendants say it should be read literally and that it extends the benefit of the covenant beyond the parties to all registered proprietors of the land over which it purports to apply. It has the effect as if the restrictive covenant is made with those persons. In other words, third parties (including owners of lots transferred out before a restrictive covenant was made) would benefit from a covenant containing a promise regarding their land.

The defendants say that each case depends upon a close reading of the text of the individual covenant. In particular, whether it purports to be made with the person seeking to enforce it, or with the person through whom the person seeking the benefit of the covenant derived their title.

On the other hand, the plaintiffs say that s 56 of the PLA only applies to identifiable persons. They say that no such persons were identified at the time the covenant was entered into in respect of land that had previously been transferred out of the parent title. They say s 56 does not extend the benefit of the covenant to permit mere third parties to enforce a contract. It applies to a ‘covenant’, meaning a promise by deed which is enforceable in equity.

Turning now to the interpretation of s 56 of the PLA.

In 2010, the Victorian Law Reform Commission (‘VLRC’) released a report on the PLA[62] following an extensive review of the Act, which included consideration of s 56.
[62]Victorian Law Reform Commission, ‘Review of the Property Law Act 1958’ (Final Report No 20, 2010) (‘VLRC Report No 20’).

The VLRC report’s recommendation on amending s 56 states:[63]

10.Section 56(1) should be amended to confirm its meaning as interpreted by the courts, namely that:
(a) It does not apply to an interest in personal property.
(b)It provides that a covenant under an instrument made inter partes may be enforced by a person who, although not named, is a person to whom the conveyance or other instrument purports to grant something, provided that the person was in existence and identifiable at the time the covenant was made.

[63]Ibid 43 [3.88] (emphasis added).

Regarding the approach to covenants made under an instrument inter partes, the VLRC report states:

It is now settled that section 56(1) does not modify the common law privity rule. It enables a covenant under an instrument made inter partes to be enforced by a person who is not named in the instrument but is a person to whom that instrument formally purports to grant something. It does not allow enforcement of a covenant by any person who may benefit from it.[64]
It follows that a covenant made with ‘the owners for the time being’ of identified land can be enforced by any person who falls within that general description. However, the person must have existed and be identifiable at the date the covenant was made. For instance, a positive covenant that purports to grant a benefit to future owners of specified land, such as a promise to make repairs, cannot be enforced by a future owner.[65]

[64]Beswick v Beswick [1968] AC 58, 76 (Lord Reid).

[65]VLRC Report No 20, 42 [3.79]–[3.80] (citations omitted; emphasis added).

In its consultation paper, the VLRC recommended that s 56(1) of the PLA might be amended ‘to allow a third party beneficiary who was not identified or in existence when the relevant instrument was made to enforce a covenant’ which, it acknowledged, would involve some modification to the doctrine of privity.[66]
[66]Ibid 42 [3.81]. See VLRC, ‘Review of the Property Law Act 1958’ (Consultation Paper, April 2010) 69 [10.23]–[10.26], which would accord with the Queensland and Northern Territory legislation.

The submissions received by the VLRC expressed ‘mixed but generally cautious views’ regarding its recommendation.[67] In its final report, the VLRC concluded that it would be ‘unwise to expand the scope of section 56(1) independently of a more comprehensive review of the benefits and shortcomings of the law of privity and the need for reform’.[68]
[67]VLRC Report No 20, 42 [3.82].
[68]Ibid 43 [3.83].

In Doyle v Phillips,[69] Young J considered s 36C(1) of the Conveyancing Act 1919 (NSW), the New South Wales equivalent of s 56(1) of the PLA.
[69](1997) 8 BPR 15,523.

In that case, the benefit of the covenant was for all the land in a named deposited plan. However, similar to the facts here, the transferor did not own all of the land under the relevant plan at the time that the covenant was created. At least one lot had already been transferred. The defendants submitted that the benefit under a covenant could not be annexed to land not owned by the transferor.[70] Young J approved that submission.
[70]Ibid 15,524.

Relevant to the facts here, Young J held that s 36C(1) did not operate to extend the benefit of a covenant to land previously owned by the transferor.[71]
[71]Ibid 15,525–6.

Young J referred to Street J’s summary of the law in NSW Aged Pensioners Hostel and Conveyancing Act,[72] in which he stated:

It is stated in the transfer of the subject land that the benefit of this covenant is appurtenant to the whole of the land in the deposited plan. The authorities establish that the benefit of a covenant such as this cannot be regarded as apportionable amongst each of the subdivided lots [authorities listed] … These cases are also authority for the proposition that the disposal by the transferor of 180 lots of the total of 185 marked out on the deposited plan prior to the transfer of the land which is the subject of this application will render the covenant unenforceable within the first head of possible validity. … that is to say, the covenant cannot be regarded as one which is valid for the reason that its benefit has been expressly annexed to the land to be benefited. The fact that the transferor had disposed of part of the land expressed to be benefited prior to the imposition of the restrictions upon the subject land will preclude this basis of validity from supporting the covenant.[73]

[72][1967] 1 NSWR 332.

[73]Ibid 333 (Street J), quoted in Doyle v Phillips (1997) 8 BPR 15,523, 15,525 (Young J) (emphasis added) (citations omitted).

Young J also cites Kerridge v Foley,[74] which expresses the same principle. In this case, Jacobs J observed that:

[T]he benefit of the restriction in the covenant can only be appurtenant to land owned by the covenantee or, possibly, if a building scheme is proved, to land which had previously been owned by the covenantee. It is quite clear to me from the various conveyances that there was no building scheme; there was no intended mutuality of rights and obligations since different lots were delineated on each different plan.[75]

[74]82 WN (Pt 1) 293.

[75]Ibid 296–7 (emphasis added), cited in Doyle v Phillips (1997) 8 BPR 15,523, 15,525.

In Doyle v Phillips, Young J states that ‘[i]t is commonly accepted that [s 36C(1)] cannot operate in favour of a person not in existence at the date of the instrument and that it does not permit a mere third party to enforce a contract made for his or her benefit.’[76]
[76]Doyle v Phillips (1997) 8 BPR 15,523, 15,525.

Section 56(1) of the PLA replicates s 56(1) of the Law of Property Act 1925 (UK) (‘UK LPA’). It states:

56 Persons taking who are not parties and as to indentures.
(1)A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument.
(2)A deed between parties, to effect its objects, has the effect of an indenture though not indented or expressed to be an indenture.[77]

[77]Reproduced in the context of the full section. Current up to and including 7 October 2018, according to the UK Legislation website. According to Westlaw UK, this version has been in force since 1 January 1926.

The VLRC report summarises the relationship between s 56(1) of the UK LPA and s 5 of the Real Property Act 1845 (UK) as follows (s 56 of the PLA also traces its heritage back to s 5):

Section 56(1) should be construed consistently with its predecessor provision, section 5 of the English Real Property Act 1845, which was enacted solely to reverse a narrow technical rule of common law. The rule was that an immediate interest in land could not be granted by a deed made inter partes unless the grantee was named as a party to the deed. Only a person expressly named as a party to a deed made inter partes could sue on that deed. This rule is distinct from the doctrine of privity.[78]

[78]VLRC Report No 20, 42 [3.78] (footnote omitted).

The VLRC report states that Lord Denning interpreted s 56(1) as ‘abrogating the doctrine of privity of contract, according to which only a party to a contract may enforce an obligation made under that contract’.[79] The report points to his judgments in the following cases in this respect: Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board;[80] Drive Yourself Hire Co (London) Ltd v Strutt;[81] Beswick v Beswick.[82] The report states that this interpretation of the section ‘enables a conveyance or other instrument granting someone an interest in property to be enforced by someone who was not a party to that instrument’.[83]
[79]Ibid 42 [3.77].
[80][1949] 2 KB 500.
[81][1954] 1 QB 250.
[82][1966] Ch 538.
[83]VLRC Report No 20, 42 [3.77].

The VLRC report states that Lord Denning’s interpretation was rejected by the House of Lords in Beswick v Beswick,[84] and in the following Australian cases: Bird v Trustees Executors & Agency Co Ltd;[85] Doyle v Phillips;[86] Re Estate of Bristow.[87]
[84][1968] AC 58.
[85][1957] VLR 619.
[86][1997] NSW ConvR 55–822.
[87][2005] NSWSC 1252; VLRC Report No 20, 42 [3.78].

Turning to some more recent authority on s 56(1) of the UK LPA.

In Re Ecclesiastical Commissioners,[88] Luxmoore J states that:

The alteration which has been made in the verbiage of s 5 of the 1845 Act by s 56 of the 1925 Act, has not in my opinion affected the position so as to limit the right of a person not a party to the deed to enforce covenants affecting land to those which run with the land. [His Honour then quotes section wording] It seems to me that the effect of these words is to enlarge the scope of the earlier words, for it extends the rights of a person not a party to a deed to covenants affecting every kind of property personal as well as real. … [now applies this to the facts of the case under consideration] What it is necessary to consider is the true construction of the conveyance of April 21, 1887, in order to ascertain whether any persons, not parties thereto, are described therein as the covenantees, and whether such covenants are expressed to affect any and what hereditaments. To determine what is the true construction of that document it is necessary to consider the surrounding circumstances as they existed at the date when it was executed.[89]

[88]Re Ecclesiastical Commissioners for England’s Conveyance [1936] Ch 430 (‘Re Ecclesiastical Commissioners’).

[89]Ibid 438.

The ‘enlargement’ underlying this discussion is directed at the type of property which might be captured by the relevant section (ie, to include personal property), rather than to the benefit of a covenant. The VLRC report notes that s 56(1) has ‘been construed to mean only interests in real property’; an interpretation that was ‘influenced by the operation of section 5 of the English Real Property Act 1845’.[90]
[90]VLRC Report No 20, 43 [3.85].

Re Shaw’s Application[91] is a UK Lands Tribunal decision, and an example of where the construction of the covenant enabled the objectors to use s 56(1) of the UK LPA to bring them ‘within the scope and benefit of the covenant’.[92] The plaintiff, Mrs Shaw, applied as freehold owner, for discharge of a restrictive covenant over her property. Mr and Mrs Snowdon objected to Mrs Shaw’s application. The Tribunal held that Mr and Mrs Snowdon had the benefit of the covenant via operation of s 56(1) of the UK LPA. Despite not being named in the conveyance creating the covenant, it found that a reference to ‘adjoining properties’ in the covenant could only have intended to refer to property owned by them, being 1 and 2 Crimbles Court.
[91](1994) 68 P & CR 591.
[92]Ibid 591 (headnote).

Marder P then made the following determination:

The benefit of the covenant was not expressly annexed to Nos 1 and 2 by the … conveyance and Snowdons are not successors in title…. Nor can Snowdons point to any assignment of the benefit to them. There remain only two possibilities, first, that there was a scheme of mutually enforceable rights and obligations; secondly, that Snowdons are entitled to benefit by virtue of the operation of section 56(1) of the Law of Property Act 1925.
…
Sir Wilfred Greene MR said [in White v Bijou Mansions]:
… whatever else section 56 [of the UK LPA] may mean it is I think confined to cases where the person seeking to take advantage of it is a person within the benefit of a covenant in question, if I may use that phrase … Before he can enforce it he must be a person who falls within the scope and benefit of the covenant according to the true construction of the document in question.[93]

It is clear, however, that a covenant properly drawn may in certain circumstances by operation of section 56 achieve the result of conferring a benefit on the owner of land who is not party to the deed as covenantee and who is not an assignee from the covenantee. The case of Re Ecclesiastical Commissioners is such an example. In that case, which was considered and distinguished in the later case of White v Bijou Mansions the covenantor covenanted with his vendors ‘and their successors and also as a separate covenant with their assigns owners for the time being of the lands adjoining or adjacent to the said land …’ to observe and perform certain restrictive covenants. Luxmoore J held that once the identity of the land intended to be benefited was established, the owners of that land were entitled to the benefit by virtue of section 56 notwithstanding that they were not party to the deed and had acquired their land before the relevant conveyance to the covenantee.

The distinction between Re Ecclesiastical Commissioners on the one hand and White v Bijou Mansions on the other appears to me to be this: that in the former case, there was a clearly expressed intention to bind the covenantor not only as against the vendor/covenantee but also as a separate covenant with readily identified owners who could have been made parties to the deed. Thus section 56 operated. In the latter case, there was no such clarity of intention or of identity of the land or owners intended to be benefited and the covenant was construed not to include previous assigns of the covenantee (see Greene MR).[94]

[93]White v Bijou Mansions Ltd [1938] Ch 351, 365.

[94]Re Shaw’s Application (1994) 68 P & CR 591, 596, 598 (footnotes omitted) (emphasis added).

Marder P found that the objectors were entitled to the benefit of the restriction and, approving the words of Greene MR in White v Bijou Mansions, assessed them as having ‘[fallen] within the scope and benefit of the covenant according to the true construction of the document in question’.[95]
[95]Ibid 599.

More recently, the UK case of Churchill v Temple[96] concerned an application for declarations ‘relating to the enforceability, meaning and effect of a restrictive covenant in a Conveyance dated 6^th March 1967 … which first transferred this land as a separate building plot’.[97] Mr Strauss QC (sitting as a deputy judge) stated:

It may be arguable, on the basis of what was said by the Court of Appeal in Beswick v Beswick [1966] Ch 538, that a 3^rd party to a contract relating to real property can enforce a promise made for his benefit, although this is doubtful: see Megarry and Wade 7^th ed. paragraph 32-007. But the provisions of paragraphs 4 and 5 of the 1^st Schedule are not expressed to be for the benefit of the then owners of 3 Loom Lane. Therefore section 56 does not assist Ms. Azam, and she has no right to enforce these covenants.[98]

[96][2010] EWHC 3369 (Ch) (‘Churchill’).

[97]Ibid [1].

[98]Ibid [14] (emphasis added).

To the extent there is tension between the Australian and English authorities, I prefer and am bound to follow the Australian authorities. Doyle v Phillips is applicable.

Turning now to the text of s 56 of the PLA. Section 56 provides that a person may take an interest in a covenant although not named as a party to it. This section does not create a separate right. The rights must already be in existence. It provides that persons not named in a covenant may have an interest in those rights. The circumstances in which a person may have an interest are not specified but must be considered consistently with the nature of the rights. The covenantee could not create an enforceable right in respect of land they no longer owned by simply purporting to covenant with the registered proprietors of that land. There was no enforceable right at law or in equity for the owners of that land at the time the covenant was created. Accordingly, their successors cannot now claim that right.

Section 56 does no more than extend the right to persons in existence and readily identifiable at the time the covenant is made. This includes persons described in a generic manner, such as ‘registered proprietors of lots x and x’.

The weight of authority supports the construction above.

I do not consider that the fifth defendant can rely on s 56 of the PLA for the following reasons.

The restrictive covenant purports to be with ‘the said transferor and other the registered proprietor or proprietors for the time [being] of each and every lot on the said Plan of Subdivision’. That is, it purports to affect all lots in the subdivision. On its face, this includes the proprietors of lots transferred out of the subdivision prior to the restrictive covenant. I accept that the registered proprietors of the lots transferred out of the parent title were in existence and identifiable at the time the restrictive covenant was made.

However, contractual principles of privity exclude the registered proprietors of the lots transferred out of the parent title before the restrictive covenant was made. Equity does not extend the benefit of the covenant to them although it does extend the benefit to proprietors (and their successors in title) of the lots transferred out of the parent title, that is subdivided and sold, after the restrictive covenant was made.[99]

Applying s 84(1)(c) of the PLA, have the plaintiffs established that the proposed modification will not substantially injure the persons entitled to the benefit of the covenant?

[99]Tulk v Moxhay (1848) 41 ER 1143.

Section 84(1)(c) of the PLA provides as follows:

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—
…
(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.

It is common ground that the principles outlined by Riordan J in Oostemeyer v Powell[100] are applicable. Those principles, and others, were summarised by Derham AsJ in Jiang v Monaygon Pty Ltd[101] as follows.
[100][2016] VSC 491, [47]–[51].
[101][2017] VSC 591, [31]–[36].

The plaintiff relies on s 84(1)(c) of the PLA, and therefore has the burden of proving as a matter of fact[102] that the proposed discharge or modification will not substantially injure those with the benefit of the covenant. As the person carrying the burden, the plaintiff must prove the negative[103] and the failure by the plaintiff to establish its plans with specificity may result in the Court not being satisfied that the conditions of the section have been fulfilled.[104]
[102] Vrakas v Registrar of Titles [2008] VSC 281, [40] (Kyrou J) (‘Vrakas’) and the cases cited.
[103]Ibid [42].
[104]Ibid.
The following guiding principles apply to determine whether those entitled to the benefit of the covenant will not be substantially injured:
(a)a substantial injury must be a detriment that is real and not fanciful.[105] The requirement that the injury must be substantial was intended ‘to preclude vexatious opposition cases where there is no genuineness or sincerity or bona fide opposition on any reasonable grounds’;[106]
[105]Ibid [36].
[106]Ridley v Taylor (1965) 1 WLR 611, 622 (Russell LJ), referred to with approval in Re Stani (Unreported, Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976) 10.
(b)the substantial injury relates to practical benefits, being any real benefits to the person entitled to the benefit of the covenant.[107] It is not sufficient for a plaintiff to merely prove that there will be no appreciable decrease in the value of the property that has the benefit of the covenant;[108]
[107]Vrakas [2008] VSC 281, [30], [34] and the cases cited.
[108]Re Parimax (SA) Pty Ltd (1956) 56 SR (NSW) 130, 133 (Myers J).
(c)substantial injury may consist of the order for modification of the covenant being ‘used to support further applications resulting in further encroachment and in the long run the object sought when the covenant was imposed [being] completely defeated’.[109] This consideration is referred to as the ‘precedent value’;[110] and
[109]Re Stani (Unreported, Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976) 11.
[110]Vrakas [2008] VSC 281, [39] and the cases cited.
(d)whether there will be substantial injury is to be assessed by comparing:
(i)the benefits initially intended to be conferred and actually conferred by the covenant; and
(ii)the benefits, if any, which would remain after the covenant has been discharged or modified.[111]
[111]Ibid [35].

If the evidence establishes that the difference between the two will not be substantial, the plaintiff has established a case for the exercise of the Court’s discretion under s 84(1)(c) of the PLA.[112]
[112]Re Cook [1964] VR 808, 810–11 (Gillard J), approved in Freilich v Wharton [2013] VSC 533, [25] (Bell J).
In Prowse v Johnstone,[113] Cavanough J considered that in assessing the benefits actually conferred by the covenant, the Court should have regard to ‘the realistic probabilities of the plaintiff actually bringing about the worst that could be done under the existing covenant.’[114] His Honour was prepared to ‘assume, without deciding’ that in assessing the benefits which would remain, if the covenant is removed or modified, the Court could consider the protections afforded to neighbouring properties by statutory planning provisions. It is relevant to consider evidence of statutory planning provisions to the extent it shows what realistically will be the result of the removal or modification of the covenant because ‘it would be artificial and wrong to pay no heed at all to the reality of the situation’.[115]
In considering whether the plaintiff has satisfied the Court that there will not be substantial injury:
(a) town planning principles and considerations are not relevant;[116]
(b)the absence of objectors to the discharge or modification of a covenant will not necessarily satisfy the onus of proof;[117] and
(c)each case must be decided on its own facts,[118] and each covenant should be construed on its own terms and having regard to the particular context in which it was created.[119]

If the plaintiff satisfies the Court that there will be no substantial injury to the relevant persons, the Court has a residual discretion to refuse the application.[120] The Court in exercising its discretion, may consider town planning principles and the precedent value.[121]
[113][2012] VSC 4 (‘Prowse’).
[114]Ibid [104].
[115] Ibid.
[116]Vrakas [2008] VSC 281, [41] and the cases cited.
[117]Ibid [43].
[118]Ibid [44].
[119]Prowse [2012] VSC 4, [52].
[120]Re Cook [1964] VR 808, 810; Re Robinson [1972] VR 278, 285-6; Re Stani (Unreported, Full Court of the Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976) 7; Greenwood (1992) V ConvR 54-444, 65,192, 65,200; Stanhill (2005) 12 VR 224, 239.
[121]Vrakas [2008] VSC 281, [45]–[46].

Plan of Subdivision

The plan of subdivision follows.[122] On it, the subject land is Lot 2 on McGowans Rd.

[122]Court Book, 86.

Plaintiffs’ submissions

The plaintiffs submit that there will be no substantial injury if the proposed modification is allowed. Their key submissions, relying primarily on Mr Easton’s evidence, are as follows.

Firstly, the development proposal is modest and has only a limited impact, if any, on the benefitted lots. The evidence is that the subject land has an area of approximately 1,000 square metres, with a frontage of 60 metres. The proposed new dwelling will be constructed on part of the subject land that is currently cleared of all trees, and vacant. The proposed dwelling will be single storey with a maximum overall building height of six metres. It will not be seen from lots to the South other than those immediately behind. The building bulk will be modest. It is building bulk rather than lot size which determines the sense of space and openness in a subdivision. Foliage will provide a shield along common boundaries. There will be no increase to the total number of cross-overs on the subject land. There is already a second existing cross-over on it. The proposed new dwelling will have a frontage of approximately 30 metres and be set back approximately 10 metres from the road, with landscaping along the street frontage. There will be no increased noise nor any additional traffic movements.

Secondly, the restrictive covenant does not affect height or building bulk. Therefore the land could be redeveloped by construction of a new single dwelling that might be significantly larger than the current one and centrally located on the parcel or Eastern side of it. Authorities indicate this is a relevant factor.

Thirdly, the lots with the benefit of the covenant are oriented towards the internal streets of the subdivision (except Lot 4 on the corner of Mulsanne Way and McGowans Rd). Those lots are smaller and some have large double-storey dwellings. The sense of spaciousness and tranquillity is limited by the relatively small areas of most of these lots (mostly on blocks of between 450 and 700 square metres), the large number of double-storey houses on most of them, the subjective experience of building density experienced while travelling through the internal streets, the relatively small space on most lots for gardens and trees and the absence of significant public open space, trees and other foliage in the streets used by the occupiers of the lots. Spacious gardens are not a feature of the subdivision and accordingly there are no overlooking or overshadowing issues. The plaintiffs say there is consequently already a certain subjective sense of crowded houses and gardens as compared to living in an area with a building density, for example, of one home and garden on lots that are mostly around 2,000 square metres.

Fourthly, Mr Easton’s evidence is that the design of the subdivision to include four large lots on McGowans Rd (including the subject land) occurred as part of an extensive planning approval process at the time, and was in response to a significant stand of pine trees which then existed and submissions made by third parties living outside the subdivision at the time. The pine trees have now been all removed. This effectively removes the need for some of the controls in the s 173 agreement, which includes the single dwelling restriction.

Fifthly, any benefit to the ‘estate’ as a whole is irrelevant to this application. Further, the owners and occupiers along McGowans Rd, other than the three lots which front McGowans Rd (excluding the subject land) are not the beneficiaries of the restrictive covenant.

Sixthly, the preservation of the ‘character’ of land along other parts of McGowans Rd is not one of the benefits conferred by the single dwelling restriction in the covenant. To the extent it also exists for occupiers of land within the subdivision, that benefit has been achieved for them in the same way as for others in the broader ‘estate’ who do not benefit from the restrictive covenant. Namely, by Council’s implementation of a specific planning objective reflected in the s 173 agreements.

Seventh, the plaintiffs reject the evidence in Mr Milner’s report that there is a special benefit conferred by the restrictive covenant that is the manner in which the subdivision presents to the broader neighbourhood and local community. They say it is irrelevant as the wider community are not beneficiaries to the restrictive covenant. Further, there are only two points of entry into the subdivision, and no height restriction on the lots located on either side. The subject land is not adjacent to either entrance and even the most intense development on it would have no impact on the entrances to the subdivision.

Eighth, the plaintiffs reject the defendants’ submission that this case will set a precedent that other lot owners in the subdivision will rely upon to modify the restrictive covenants burdening them. This is the first application to modify. If granted, it will be the first modification of the restrictive covenant since 1996. The question then is whether there is any basis to anticipate future applications. Mr Easton’s evidence is that only the three other lots fronting McGowans Rd are capable of subdivision into two lots of 1,000 square metres. It could not be said to provide a precedent for increasing the density of houses and gardens in the area to any greater degree than one per 1,000 square metres. It can only be a precedent for the other 2,000 square metre lots along McGowans Rd. Further, the subdivision plan creates two distinct areas with different characters. The large lots and the smaller lots on the interior of the subdivision. Modification to the restrictive covenant on the large lot cannot therefore be a precedent for modification of the restrictive covenant on the smaller lots.

Ninth, there is no realistic prospect of applications being made to modify the restrictive covenants by the owners of the three other large McGowans Rd lots. Lot 1 has mature trees and vegetation on the part of the site that does not contain a dwelling. It is owned by the fifth defendant who is passionate about the tree on his block that is more than 100 years old and gave evidence he built his house on the other side of the block because of it. Realistically he is therefore unlikely to seek to modify the covenant. It is conceded that, in theory, an application by a subsequent owner could be made. Lot 3 has a house centrally located on the block and would require removal were two dwellings to be constructed. The owners did not participate in this proceeding. Lot 4 has a large house extending across most of the site. It is owned by the first defendant and realistically an application to modify is unlikely to be made as this proceeding is defended.

Defendants’ submissions

The defendants say that the plaintiffs have failed to establish that the proposed modification will not substantially injure the beneficiaries of the restrictive covenant. They rely primarily on their own evidence and that of Mr Milner, and point to concessions made by Mr Easton under cross-examination. Their key submissions are as follows.

Firstly, the distinct character of the subdivision, being semi-rural and on the edge of town, will change. Modifying the restrictive covenant on Lot 2 would break up the connection of Lots 1–4 together. The defendants say that during cross-examination Mr Easton conceded that Lots 1–4 created a sense of being on the edge of town.

The single dwelling covenants on Lots 1–4 along McGowans Rd (including the subject land) create a buffer between the lower density housing on McGowans Rd, and the higher density housing in the interior of the subdivision.

It is also submitted that the lower density residences along McGowans Rd are intended to create a sense of progression from the larger blocks on the North side of McGowans Rd, to the half-acre blocks on the South side, then finally to quarter acre blocks in the interior of estate. This transition effect enhances the sense of openness at the boundaries of the estate and gives the lots in the interior of the estate a ‘pocket’ effect. That is, a pocket of urban development within a semi-rural context. The restrictive covenant on Lot 2 is integral to maintaining the coherence of the system. The plaintiffs’ proposal would intensify the rhythm of the streetscape when travelling along McGowans Rd. It would impact on the perception of the entrance to the ‘estate’.

Secondly, beneficiaries with lots abutting the subject land are entitled to expect that they abut a property with a much greater sense of openness and space than other lots in their immediate environs. Consequently, they can expect to feel they are at the edge of a conventional residential estate rather than in its midst.

Thirdly, beneficiaries have a reasonable expectation that because of the size of the lots, together with the covenant, they have less prospect of being overlooked and overshadowed by development. They may expect a greater abundance of landscape and garden with relatively little development on Lot 2. A second two-storey dwelling requiring variation of the s 173 agreement would significantly compromise and diminish these reasonable expectations.

Fourthly, there is a risk of ‘floodgates’ being opened by the modification because of its precedential value. This would directly affect the character of Lots 1–4. It would occur indirectly by justifying the removal of other covenants outside the subdivision. This would then allow removal of restrictive covenants affecting the subdivision on the basis that the neighbourhood had already changed. Mr Milner’s evidence is that the precedential effect extends to Lots 1, 3 and 4, and also to large lots located within the subdivision (Lots 17, 18, 19). Mr Easton conceded during cross-examination that development on Lots 1, 3 and 4 was possible, some with demolition of existing properties, some without. He also conceded a second dwelling on Lot 2 could create a future precedent for Lots 1, 3 and 4.

Fifthly, the contention by Mr Easton that the restrictive covenant protects trees should be rejected because it does not mention trees, the s 173 agreement affects that purpose more directly and effectively, and Lots 1–4 each have two cross-overs. During cross-examination Mr Easton conceded that the restrictive covenant does not in any way protect or seek to protect the line of trees that used to be there.

Sixth, the defendants reject Mr Easton’s suggestion that the owners of the subject land could replace the current dwelling with a single large dwelling up to 11 metres in height without a planning permit, with a three or four car garage, substantially impacting the views and privacy of the residents of Lots 14 and 15. This is not realistic. There is no evidence that the plaintiffs intend to build such a dwelling. There is no evidence as to what the plaintiffs intend to do if their application is refused. At any rate, a large dwelling would not have the same impact on the character of the neighbourhood because Lot 2 would remain a large block with a significant backyard and the sense of space would be retained.

Seventh, there is evidence from the defendants that the limitation to single dwellings improves the serene quiet natural environment with a wonderful ambience, the feelings of spaciousness, benefits of bird life and plant life, and the nearby ‘country lane’ feel. It encourages plenty of light and air.

Eighth, Mr Milner gives evidence that the effect of the modification is likely to be greater building presence, more overlooking and a loss of privacy, a diminished sense of spaciousness and openness, a diminished prospect of more vegetation, increased noise and disturbance associated with two households on the subject land and the potential for overshadowing.

Ninth, the defendants give evidence of detriment if the proposed modification occurs. This detriment concerns the visual impact on the streetscape, amenities, privacy, and security.

Analysis

For convenience, I shall refer to ‘the subdivision’ below. The subdivision comprises of land which was part of the original subdivision (shown above). It includes some properties with the benefit of the restrictive covenant.

Applying s 84(1)(c) of the PLA, the question is whether there will be substantial injury to beneficiaries to the restrictive covenant if it is modified. Self-evidently, the question of whether there will substantial injury to non-beneficiaries, such as the fifth defendant, is irrelevant.

In addition to the oral and documentary evidence, my findings below are informed by the view which I undertook of the subject property.

The plaintiffs have failed to establish there will be no substantial injury if the restrictive covenant is modified. I disallow their application for the following reasons.

Firstly, Lots 1–4 of McGowans Rd, including the subject land, are integral to the spacious character of the subdivision in which the benefitted land is located. The blocks are extremely large (1,000 square metres), and there are four of them adjacent to one another. They are on the Northern border of the subdivision and near to an ‘entrance’ to the subdivision. Lot 4, the property of the first defendant, is adjacent to the entrance, being on the corner of McGowans Rd and Mulsanne Way. The other entrance is further away, and from Mitcham Road.

The proposed subdivision would break up the row of four spacious lots into two spacious lots, then the subject land with two dwellings, followed by another spacious lot.

I reject the plaintiffs’ submission that the proposed modification would have little, if any impact on the benefitted lots. I accept the following evidence.

Ms Natarelli, the first defendant, is a registered proprietor of one of the four large lots along McGowans Rd (Lot 4) and lives ‘2 doors’ away from the subject land. She gives the following evidence.

We appreciate the aesthetic benefits of living in this very natural area and we regularly walk down McGowans Rd and enjoy the serenity, spaciousness, trees, birdlife and lack of traffic. We wake up to a chorus of bird life and the greenery of neighbouring properties including 100-year-old gum trees and native trees.
We want that to remain protected from unplanned and/or inappropriate development. The Plaintiffs’ proposed modification is completely out of character with the area, and in my opinion would be detrimental to the general landscape.
For the past 20 years all four properties have been maintained to give a spacious streetscape appearance to coincide with the neighbouring properties.[123]

[123]Natarelli affidavit, [11]–[13].

Ms Gooderham, the third defendant, gave evidence of McGowans Rd having:

a country lane feel, being tree lined and having no footpaths or curb and channel along the roadway, and the low density development zoning enhances that characteristic by the spacious gardens and open space areas between neighbouring houses. This rural ambience and amenity is a huge part of the appeal of living in the area.[124]

[124]Gooderham affidavit, [10].

Mr Sandle, the fourth defendant, gave evidence that there would be an adverse visual impact due to substantial changes to the current streetscape.[125] During his oral evidence, he clarified that he was referring to the streetscape along McGowans Rd. Mr Sandle gave evidence of its therapeutic value, by which he meant:

When I drive down that road, I feel.. I'm privileged that I'm in – in that area… and it makes it feel so good as a stress release to see that one minute you're in the city, next minute you're in – you know – away from – yeah, secluded. It's amazing – road.[126]

[125]Sandle affidavit, [7].

[126]Transcript, 76.

During his oral evidence, Mr Milner stated:

The defining attributes of – or distinguishing attributes of those four lots [Lots 1-4 on McGowans Road], is their substantial size but frontage; which regardless of the size of the house on it, would be a distinguishing feature that separates that from what you would ordinarily anticipate, say, in a more suburban context. So if we look at the lots to the south of the four big lots, we can see narrow frontages. We will see houses much closer together. I’d even say that on one boundary you might have a house of one lot that is relatively close to the other on the bigger lots. But this sense of space is one of almost undeniable fact, insofar as you’ll appreciate it as a big lot – even if there’s a big house on it. And if you go up McGowans Road you’ll see some pretty large houses on some lots – particularly where they’re single storey, where they tend to spread out and take up a fair bit of that. But nonetheless you have a – I’ll call it a sense of spaciousness, which is a distinct feature.[127]

[127]Ibid 85–6.

I also accept Mr Milner’s evidence that the ‘distinctive character of the subdivision will change, impacting upon the perception of the entrance’ to the subdivision, if the proposed modification to the restrictive covenant is allowed.[128]
[128]Exhibit ‘A’: Robert Milner, ‘20–26 McGowans Road, Donvale: Restrictive Covenant’ (Expert Report, IO Consulting Group, January 2018) 25 [69] (‘Milner Report’).

Mr Milner describes Lots 1–4 (including the subject land):

The four existing lots on the southern side of McGowans Road east of Mulsanne and within the Covenanted Area consistently accommodate a low-rise single detached home, set in a generous and spacious landscaped garden setting, including private open space provision to the rear and sides of the dwellings and a circular driveway within the front setback.[129]

[129]Ibid 21.

Mr Milner’s report refers to the special role of Lots 1–4 and their benefit to ‘beneficiaries who place value and a special amenity on the manner in which their subdivision presents to the broader community and local community.’[130]
[130]Ibid 26 [76].

The spacious character of Lots 1–4 along McGowans Rd was evident during my inspection. There is indeed a sense of being on the ‘edge of town’ at the McGowans Rd entrance to the subdivision. So much was conceded by Mr Easton under cross-examination.[131]
[131]Transcript, 47.

Permitting modification would be inconsistent with the spacious character of the subdivision provided by Lots 1–4. It would be inconsistent with the sense the subdivision is on the edge of town.

Secondly, I accept the evidence of Mr Milner that Lots 1–4 (including the subject land) creates a sense of graduation between the smaller lots to the South and the larger lots along the North of McGowans Rd. Mr Milner’s evidence follows.

Whether it was the original subdivider or Manningham City Council or both, the Covenant, in conjunction with the proposed plan of subdivision, intended two different intensities of subdivision; two different sizes of lots; and with two different implications for both the character of the area and the impact upon neighbours to its rear and other beneficiaries of the Covenant.[132]

[132]Milner Report, above n 128, 24 [58].

Further, Mr Milner says that what has been created is ‘a distinctive pattern of subdivision with the expressed purpose of having larger lots each with a single dwelling on the McGowans Road frontage’.[133]
[133]Ibid 27 [81].

Under cross-examination, Mr Easton accepted there was a semi-rural area to the North of McGowans Rd and a higher density area to the South.[134]
[134]Transcript, 43.

Mr Easton accepted that Lots 1–4 created a sense of graduation between the smaller blocks to the South and larger blocks to the North of McGowans Rd.[135] He accepted Lots 1–4 created a sense of integration with the blocks across McGowans Rd, and a key part of that sense of integration was their large size.[136] Mr Easton also accepted that even if there was a large house built on the subject land, there would still be a sense of a buffer between the smaller and larger lots.[137]
[135]Ibid.
[136]Ibid.
[137]Ibid 44.

Permitting the modification would disrupt the distinctive character of the subdivision. It provides for the larger lots on the McGowans Rd border with a pocket of smaller lots on the interior of the subdivision. It would disrupt the sense of graduation provided by Lots 1–4 between the different lower and higher density lots to the North and South of McGowans Rd.

Thirdly, permitting modification would create a precedent for modification of the restrictive covenants on Lots 1, 3 and 4. Whilst there is currently a house centrally located on Lot 4,[138] gardens on Lots 1 and 3 (where the houses do not appear centrally located), and the owners of Lots 1 and 4 objected to this application, that does not overturn the fact that the proposed modification will create a precedent. Property ownership changes over time. Houses are demolished or renovated. Under cross-examination, Mr Easton conceded that ‘in theory’, Lots 1, 3 and 4 could be developed.[139] I reject the suggestion that there is no real prospect of future applications being made to modify or discharge the restrictive covenants applicable to Lots 1, 3 and 4.
[138]The plaintiffs initially submitted that the house on Lot 3 was centrally located but later conceded it was on the Western side of the lot, with vegetation on the Eastern side of the lot: Ibid 104.
[139]Ibid 54–5.

Fourthly, I reject the plaintiffs’ submission that a single large dwelling on the plaintiffs’ land could be erected that might be significantly larger than the existing dwelling. A large single dwelling under existing planning controls, would not alter the sense of spaciousness afforded by the large lot size.

Fifthly, the plaintiffs’ submission that the restrictive covenant no longer has work to do, because it was made to protect an existing stand of pine trees, must be rejected. The restrictive covenant makes no reference to them. Mr Easton gave evidence that it was not the purpose of the restrictive covenant to protect them.[140]
[140]Ibid 38.

Conclusion

I will make orders disallowing the plaintiffs’ application and hear the parties on the question of costs.

[2018] VSC 759

7 December 2018