Applicant v First Respondent Second Respondent Third Respondent Fourth Respondent

The said Robert Padmore Greenshields hereby covenants with the said Kate Lynch and James Byrne and their transferees that any buildings (except outbuildings) now and hereafter to be erected on the said land transferred shall be built of brick or stone with roofs of tiles, slates or iron or any other material and ... will not erect on that part of the said land transferred fronting Mary Street any shop or detached dwelling house facing Mary Street only but this covenant shall not prevent the said Robert Padmore Greenshields or his transferees from erecting outbuildings and accommodation apertinent to any buildings erected in Glenferrie Road and it is intended that this covenant shall be set out as an encumbrance at the foot of the Certificate of Title to be issued in respect of the said land and shall run with the land.

3 The applicant owns the land and wishes to develop it for apartments. It sought a planning permit to remove the Covenant from the title to the land on the basis that the Covenant no longer had any work to do and was unenforceable.

4 The Boroondara City Council issued a permit modifying the terms of the Covenant, rather than permitting its removal. The applicant appealed to the Victorian Civil and Administrative Tribunal seeking the removal of the Covenant, rather than its variation.

5 On 16 December 2016, the Tribunal affirmed the decision of the Council and made no amendment to the planning permit that had been issued. Its key finding was that, on the proper interpretation of the terms of the Covenant, it was probable that there were still beneficiaries of the Covenant and this should have been fully investigated as part of the permit application.[1]

6 The applicant now seeks leave to appeal the Tribunal's decision on the ground that the Tribunal erred in law in holding that the Covenant was enforceable in circumstances where the land to benefit from the Covenant was not identified, either expressly or impliedly.

7 In the Tribunal it was common ground between the parties that the text of the Covenant did not specifically identify what land was benefited by the Covenant.[2] While the Council did not contest the proposition that no beneficiaries existed,[3] the Grace Park Residents Association submitted that it was possible to ascertain the beneficiaries of the Covenant by reference to the residual land in the area owned by the original vendors at the time the Covenant was created in October 1909.[4] The original vendors, Kate Lynch and James Byrne, had a very large local landholding transferred to them on 18 September 1908 and they then undertook a long-term program of gradually selling the holding in parts, selling off the final part in 1932.[5]

8 At the commencement of its analysis, the Tribunal acknowledged that there were several factors that created an arguable case that the Covenant did not run with the land, including that the text of the Covenant did not expressly identify the benefiting land. The Tribunal also made reference to several Tribunal decisions in which covenants similarly formulated were held not run with land because the benefiting land could not be identified: Costa v Glen Eira CC,[6] Herzog Group of Companies v Glen Eira CC[7] and Poulakis v Moreland CC[8].

9 The Tribunal then turned to a decision of this Court which it considered to be central to issue before it, Prowse v Johnston.[9] In Prowse, a landowner sought to establish that a 1909 restrictive covenant affecting her property in Malvern was not enforceable. There was a question as to whether certain handwritten amendments to the covenant had been validly made. The owner argued that even if the amendments were valid, the covenant did not run with the land since the text of the covenant did not overtly identify the benefited land. In the result, Ginnane J found the amendments to have been validly made and that the covenant did run with the land.[10]

Apart from it being a recent Victorian Supreme Court decision, I accept that this 2015 Prowse decision is an extremely strong precedent case for the Residents Association, given that Justice Ginnane:

● Found that the subject land was one of 63 lots subdivided out of the parent title, ie the relevant title history was established and this made it easier to infer an intention by the vendor that its residual landholding as at the day of sale would have the benefit of the covenant.

● At [155] sees the Re Dennerstein [[1963] VR 688] case as irrelevant, because that case '...dealt with the question of whether a building scheme existed'.

● At [159] places importance on the use of the words 'transferees' after the description of the vendor.

● At [159] also sees as important the fact that the final words of the covenant were 'and run with the land'.

11 The Tribunal proceeded to 'take these factors' and apply them to the key cases relied upon by the applicant,[12] concluding as follows:[13]

In summary, I find that the Covenant here does 'run with the land' and that it is probable that there are current beneficiary neighbours (or at the least this should have been properly investigated as part of this proposal). I make this finding on the strength of:

● It being clear enough that the Lots 79 and 80 being sold in 1909 were merely a small part of a much larger residual landholding of Kate Lynch and James Byrne in this area at that time. This provides some degree of counter-balance to the fact that the Covenant does not expressly identify the benefiting land. With a larger residual landholding by the vendor in this area, it is more straightforward to infer an intention by the vendors that this residual landholding as at the day of sale in 1909 would benefit from the Covenant.

● What I accept are the very similar circumstances before Justice Ginnane in the 2015 Prowse decision vis-vis those before me, where this is a recent Victorian Supreme Court decision.

...

● The precedent value of the Re Dennerstein and Poulakis/Costa decisions being weakened by the differences I have highlighted two paragraphs above.

● The possibility that DP Dwyer may have found that the covenant in Herzog ran with the land if the key words 'and transferees' had been used at all critical points of the text of that covenant. In our situation, it is critical that the words 'and their transferees' are used after the description of the vendors, as part of the most relevant text in the middle section of the quoted text which I have set out above.

● What I see as the game-changing role of the words '...and shall run with the land' at the end of the Covenant. The use of the words 'and shall run with the land' is in my view a strong indication of the more expansive intent of the draftsperson of the Covenant. I can indicate that but for these words, I would have accepted that the Covenant is personal in nature.

(a) in finding that the Covenant does 'run with the land';

(b) in finding that it is probable that there are 'current beneficiary neighbours';

(c) in failing to distinguish the decision in Prowse on the basis that the covenant there in issue as validly amended specified the land to be benefited;

(d) in failing to consider the decision of Deane J at first instance and the Full Court referred to in Re Dennerstein;

(e) in failing to follow the decision in Fitt v Luxury Developments Pty Ltd;

(f) in distinguishing the covenant considered in Hertzog from the Covenant;

(g) in finding that the Covenant does run with the land in the absence of 'the land being identified in the covenant';

(h) in finding that the Covenant does run with the land because it is expressed to run with the land and for the benefit of transferees notwithstanding that it does not identify the land to be benefited;

(i) in not finding that the Covenant was a personal covenant which applied to the new first owner of the relevant land but did not bind subsequent owners.

13 In substance, the applicant contends that the Tribunal erred in law in not holding that the Covenant was unenforceable against it because the Covenant did not identify the land to be benefited. The substantive question of law is whether a restrictive covenant that does not identify or define any land to be benefited 'runs with the land' in the sense that it is enforceable otherwise than by the original covenantee.

14 On the question of leave to appeal, the applicant contends that if the Covenant does not run with any land and there has been a substantive error of law, it would be unjust for its application for review to the Tribunal to be dismissed. It submits further that whether a restrictive covenant that does not identify land to be benefited can be enforced otherwise than by the original covenantees and whether any persons are 'affected' for the purposes of clause 52.02 of the Boroondara Planning Scheme are questions of general public importance justifying the grant of leave to appeal.

15 The principles to be applied in considering an application for leave to appeal against the decision of the Tribunal were established in Secretary to the Department of Premier and Cabinet v Hulls.[14] They were succinctly expressed by Garde J in Zumpano v Banyule City Council:[15]

The pivotal requirement is that an Applicant must identify a question of law for which there is a real or significant argument to be put that error exists. The Court will also have regard to the justice of the particular case, and whether the applicant has identified a question of law that is of general or public importance. The Applicant must show that there is sufficient doubt attendant the question of law to justify the grant of leave.

16 It is therefore necessary to consider the proposed grounds of appeal to determine whether the Tribunal's decision is attended by sufficient doubt to justify the grant of leave.

17 The Tribunal's decision turned upon the construction of the Covenant. The issue for the Tribunal was whether the Covenant contained a personal promise from Mr Greenshields to Kate Lynch and Robert Byrne, enforceable only by Ms Lynch and Mr Byrne, or whether it contained a promise intended to benefit land owned by them.

18 A restrictive covenant only runs with land to burden a successor in title if the following three elements are met:

(b) the burden of the covenant must be intended to run with the land; and

(c) the covenant must be given for the benefit of land, not simply for the benefit of the covenantee, and the covenant must touch and concern that land.[16]

19 The applicant submits that the third element is not met in this case, as it is not possible to identify land sought to be benefited.

20 In Fitt v Luxury Developments Pty Ltd,[17] Gillard J considered the passing of a benefit under a covenant and the need for the benefit of the covenant to be annexed to some land. His Honour said:

Whether or not the benefit of the covenant is annexed to some land is a question depending upon the common intention of the original parties to the covenant. It is necessary to construe the words of the covenant in their natural and ordinary meaning to determine the intention of the parties and whether they intended that the covenant was to be annexed to some land and run with it. In carrying out this exercise the court may take into account the surrounding circumstances objectively known to the parties at the time.[18]

21 As to how precisely the land must be identified, his Honour said:

Often the land to be protected is fully and accurately defined in the terms of the restrictive covenant. However sometimes the covenant is expressed in general terms and refers to an area by a particular name. It is well established that extrinsic evidence is admissible to explain the context in which the words were used.

It is not essential that the land to which the covenant is annexed should be expressly identified in the words of the covenant ... It is sufficient if the words define the land so as to make it open and 'easily ascertainable'.[19]

22 In Clem Smith Nominees Pty Ltd v Farrelly,[20] Bray CJ in the Full Court of the Supreme Court of South Australia sounded a warning about the use of extrinsic evidence to identify land entitled to the benefit of a restrictive covenant. The Chief Justice opined that:

under the Torrens system it is essential before the burden of a restrictive covenant can be held to run with the land that the land entitled to the benefit of the covenant shall be capable of identification in some way from the registered document containing the covenant or, at least, from other related documents which can be discovered by a search in the Land Titles Office. A prospective purchaser of land subject to a burden should be able to find out by a search whether the covenant is a covenant in gross, which will not be binding on him if he purchases, or a covenant the benefit of which is attached to some parcel or parcels of land, which may be binding on him.[21]

23 In the Tribunal, the Grace Park Residents Association submitted that it was possible to identify the beneficiaries of the Covenant by reference to the residual land in the area owned by Kate Lynch and James Byrne that still formed part of their landholding at the time the Covenant was created in October 1909. The Tribunal accepted this submission, holding that the fact that the land sold in 1909 was a smaller part of a much larger residual landholding provided 'some degree of counter-balance to the fact that the Covenant does not expressly identify the benefiting land' and that this made it 'more straightforward'[22] to infer that the residual landholding as at the date of sale in 1909 would benefit from the Covenant.

24 In my view, the Tribunal erred in law in holding that the benefiting land had been sufficiently identified by this means.

25 It is necessary to carefully consider the words in the Covenant to ascertain whether the benefiting land is identified, either expressly or by necessary implication. The difficulty with the Covenant is that it does neither, even if surrounding circumstances are taken into account.

26 The Covenant, pared back to its essentials, provided that Mr Greenshields covenanted with Kate Lynch and James Byrne and 'their transferees' that certain things would be done on the land that was being transferred to him (the building materials covenant). It also provided that certain things would not be done on that land (the Mary Street covenant) but granted Mr Greenshields and his transferees permission to do certain other things. It then expressly recorded the parties' intention that the Covenant be set out as an encumbrance at the foot of the Certificate of Title for Mr Greenshields' land and that it would run with that land.

27 In my view, the words in the Covenant make it clear that the parties intended to burden the land acquired by Mr Greenshields. As a result, the Covenant satisfies the first two elements of a restrictive covenant identified above. Furthermore, the parties intended at least the first part of the Covenant to benefit persons taking title from Kate Lynch and James Byrne - 'their transferees'. However, even with the express acknowledgement that the Covenant (or at least the building materials covenant) was intended to benefit the transferees of Kate Lynch and James Byrne, the third element of a restrictive covenant remains unmet because it is unclear who are the relevant 'transferees' of Kate Lynch and James Byrne and therefore what land is to benefit from the Covenant. The transferees of Kate Lynch and James Byrne might be persons to whom land was transferred by Kate Lynch and James Byrne prior to the date of the Covenant or they might be transferees to whom land was transferred after the date of the Covenant. Indeed, they might be both.

28 The Tribunal accepted the submission that the 'transferees' in question were the transferees of the residual land in the area owned by Kate Lynch and James Byrne that still formed part of their main landholding at the time the Covenant was created in October 1909. That may have been a reasonable assumption, having regard to the likelihood that Kate Lynch and James Byrne would seek to protect the value of the land that they continued to hold and would have had less interest in the value of the land that they had already sold off. However, there is no compelling reason to limit the intended beneficiaries of the Covenant in this particular way. The words of the Covenant, construed in context, do not require any such a conclusion.

29 This stands in contrast to the words used in the covenants in Prowse and Fitt.

30 In Prowse, the covenant had been amended - validly - to add the words 'registered proprietor for the time being of the un-transferred part of the land in the said certificate of title', to describe the beneficiaries of the covenant. Prior to the amendment, the covenant did not identify the land to benefit from the covenant. Following amendment, it did. The un-transferred part of the land in the certificate of title was readily ascertainable and the covenant was held to be binding.

31 In Fitt, the covenant referred to 'the registered proprietor or proprietors for the time being as so much of the land described in Certificate of Title Volume 4480 folio 895831 as is represented by the Lots on the said plan of subdivision other than the land hereby transferred and every part thereof that the land hereby transferred shall not'. Justice Gillard held that the wording of the covenant established that it was the common intention of the parties that the covenant was to be annexed to land being the land not transferred out of the parent title 'and every part thereof' and was intended to run with it.[23]

32 In this case, had the Covenant described the benefiting land as the un-transferred part or parts of the land owned by Kate Lynch and James Byrne on the relevant date, it may have served to create a restrictive covenant enforceable by the landowners from time to time of the previously un-transferred part or parts of the original parcel. In in the absence of some such specification, however, while it might be possible to speculate with a level of confidence about which land the parties intended should benefit from the Covenant, the benefited land is not 'easily ascertainable'.

33 Hence, notwithstanding that the Covenant expresses the intention that it 'run with the land' the subject of the transfer and records that the buyer, Mr Greenshields, covenants with Kate Lynch and James Byrne 'and their transferees', it does not satisfy the third element identified above: it does not specify which land held or previously by Kate Lynch and James Byrne 'and their transferees' is to benefit from the Covenant.

34 In these circumstances, the words 'and shall run with the land' at the end of the Covenant are not 'game-changing'. They do not solve the problem of identifying the land to benefit from the Covenant.

35 The applicant has identified a vitiating error of law. Leave to appeal is granted and the appeal is deemed to have been instituted and heard.

36 The appeal is allowed and the Order of the Tribunal is set aside.

37 The question remains as to whether the proceeding should be remitted to the Tribunal to be determined according to law or whether the Court can and should make an order disposing of the proceeding in lieu of the Tribunal.

38 I consider that there would be no purpose in remitting the proceeding to the Tribunal. If the Court declared, as it could, that the Covenant was unenforceable, the Tribunal would be obliged to order the variation of the planning permit to allow for the removal of the Covenant. There are no 'affected parties' for the purpose of cl 52.02 of the Planning Scheme if the Covenant has no legal effect.

39 Accordingly, the Court will order that Planning Permit PP15/01107 be varied to allow for the removal of Restrictive Covenant 606242 in the Preamble and in Conditions 1 and 2 of the Planning Permit.

[1] Beman Pty Ltd v Boroondara CC [2016] VCAT 2020 ('Beman').

[6] [2013] VCAT 563 ('Costa').

[7] [2010] VCAT 44 ('Herzog').

[8] [2016] VCAT 1017 ('Poulakis').

[9] [2015] VSC 621 ('Prowse').

[10] Ibid as discussed in Beman [2016] VCAT 2020 [49].

[11] Beman [2016] VCAT 2020 [50].

[12] Ibid [51] citing Re Dennerstein [1963] VicRp 93; [1963] VR 688; Poulakis [2016] VCAT 1017; Costa [2013] VCAT 563; and Herzog [2010] VCAT 44. The Tribunal held that Re Dennerstein was of limited use as the language was very closely tied to 'building scheme' issues and it distinguished Poulakis, Costa, Herzog and Afifoglou v Stonnington CC (VCAT Ref P188/2003).

[13] Beman [2016] VCAT 2020 [53] (underlining and emphasis in original).

[14] [1999] VSCA 117; [1999] 3 VR 331.

[15] [2016] VSC 420 [10].

[16] See Adrian J Bradbrook and M A Neave, Easements and Restrictive Covenants in Australia (Butterworths, 2nd ed, 2000) [1419].

[17] [2000] VSC 258 ('Fitt').

[20] (1978) 20 SASR 227.

[22] Beman [2016] VCAT 2020 [53].

[23] Fitt [2000] VSC 258 [236].