Aust-One Investment Pty Ltd v New World Investments Pty Ltd

ills [2014] NSWCA 202; 17 BPR 33,133 Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829 Halsall v Brizell [1957] Ch 169 Hare v Van Brugge (2013) 84 NSWLR 41; [2013] NSWCA 74 Midland Brick Co Pty Ltd v Welsh (2006) 32 WAR 287; [2006] WASC 122 Mount Cathay Pty Ltd v Lend Lease Funds Management Ltd [2013] 1 Qd R 528; [2012] QCA 274 Rhone v Stephens [1994] 2 AC 310 Rufa Pty Ltd v Cross [1981] Qd R 365 Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244 Ryan v Sutherland [2011] NSWSC 1397; (2011) 16 BPR 30,101 Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324 Tempe Recreation (D.500215 and D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449; [2014] NSWCA 437 Tito v Waddell (No 2) [1977] Ch 106 Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143 Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 Wilkinson v Kerdene Ltd [2013] EWCA Civ 44; [2013] 2 EGLR 163 Texts Cited: PJ Grimes, "The Conveyancer" (1957) 31 ALJ 22 EP Aughterson, "In Defence of the Benefit and Burden Principle" (1991) 65 ALJ 319 Category: Principal judgment Parties: Aust-One Investment Pty Ltd (Plaintiff) New World Investments Pty Ltd (Defendant) Representation: Counsel: A Macauley & S Murray (Plaintiff) P Greenwood SC & C Trahanas (Defendant)

Solicitors: Rutland's Law Firm (Plaintiff) Frank Low Yeung (Defendant) File Number(s): 2020/296043

judgment

1. The plaintiff, Aust-One Investment Pty Ltd (Aust-One), and the defendant, New World Investments Pty Ltd (New World), are the owners of adjoining retail buildings in a shopping centre in suburban Sydney.
2. Both buildings front a main street in the shopping centre (the street) and run through to a lane at the back (the lane) adjacent to which is a multi-storey car park constructed by the local Council (the Council car park).
3. In circumstances that are not now fully known, the prior owners of both properties agreed to redevelop their buildings in a way that gave the owner of Aust-One's property, which I will call either No 181 or the dominant tenement, a right of way and a right to use amenities in respect of an arcade and rest rooms constructed on the property by the owner of the property now owned by New World, which I will call either Nos 183-185 or the servient tenement. The easement was granted by a transfer apparently executed in registrable form by the owners of both properties on 30 September 1963 (the Transfer). The easement was granted on certain terms that included a covenant given by the prior owners of No 181 on behalf of themselves and their assigns that they would pay to the owners of Nos 183-185 and their assigns one quarter of the gross rentals received by them each calendar month in respect of four shops erected by the owners of No 181 on that property (the payment covenant).
4. This arrangement was apparently honoured by the original owners of the dominant and servient tenements during their ownership. New World became the registered proprietor of Nos 183-185 in 1992. Aust-One was registered as the proprietor of No 181 on 15 August 2002. The arrangement continued to be honoured by New World and Aust-One for about 17 years from 24 July 2002 until 6 December 2019, when Aust-One ceased to pay the share of the gross rentals to New World. The total amount paid by Aust-One over the period was $577,094.37, or about $33,000 per annum.
5. The primary issue in these proceedings is whether the payment covenant is enforceable by New World against Aust-One, which is an assignee of the dominant tenement and not a party to the Transfer.
6. A subsidiary issue, which will only arise if the Court finds that the payment covenant is enforceable, concerns the meaning of the term "gross rentals" in the payment covenant. I will return to this issue at the end of these reasons.

The Council deed

1. On 16 February 1962, Nos 183-185 were owned by a Mr and Mrs Reich and No 181 was owned by a Mr and Mrs Perri. On that date, Mr and Mrs Reich and Mr and Mrs Perri entered into a deed (the Council deed) with the local Council (the Council).
2. Aust-One objected to this deed being admitted into evidence on the ground that its existence and terms were not relevant to and could not properly be considered for the purpose of construing the Transfer.
3. New World did not rely directly upon the Council deed for the proper construction of the Transfer, and only sought to tender the Council deed because it contained evidence of a number of objective background facts of which there was otherwise no evidence. I admitted the Council deed into evidence limited to the basis upon which New World sought to rely upon it.
4. On that basis, the Council deed contains evidence to the following effect: 1. At the time the Council deed was made, Mr and Mrs Reich were in the process of erecting an arcade of 12 shops and offices with a passageway (the arcade) providing access from the street to the shops and offices and the lane at the rear. 2. Mr and Mrs Perri wished to erect four lock-up shops (the four shops) at the rear of the existing buildings on No 181 with access to the arcade on Nos 183-185. 3. Mr and Mrs Perri had applied to the Council for approval to develop No 181 by erecting the four shops, and the application had been approved by the Council subject to a condition that an agreement be entered into to ensure that a right of passageway and footway for access to the proposed shops was permanently provided. The access referred to is from the street and the lane to the four shops by means of the arcade. 4. The Council deed contained a covenant in clause 4 that Mr and Mrs Reich would grant to Mr and Mrs Perri an easement for support in respect of the walls and roof of the four shops to be erected by Mr and Mrs Perri on their land adjacent to the land of Mr and Mrs Reich. 5. Clause 6 of the Council deed contained an agreement by Mr and Mrs Perri to pay to Mr and Mrs Reich one quarter of the cost of erecting a footbridge over a stormwater canal immediately adjacent to the rear of the two properties in the lane so as to connect the lane to the Council car park.
5. For completeness, it should be noted that the Council deed recited that Mr and Mrs Perri wished to erect the four shops "with access to the passage way to be provided in the Transferors' arcade of shops", and that a condition to the approval given by the Council was "a right of way for access to the proposed shops being permanently provided". Clause 1 of the Council deed provided that the right of passage way and footway should be granted by Mr and Mrs Reich "together with and excepting and reserving the rights and subject to the terms covenants and provisoes [sic] set out in the form of Memorandum of Transfer and Grant hereinafter annexed and marked with the letter "A", and the consideration payable thereunder shall be one-quarter (1/4) of the gross rentals received by the Transferees during the period for which such Right of Passage Way and Footway shall be created", and thereafter set out the requirements for the timing of payments. The draft Transfer at Annexure A simply provided for the easement to be "appurtenant to the land comprised in" the certificate of title for No 181.

The Transfer

1. Mr and Mrs Reich (the transferors) and Mr and Mrs Perri (the transferees) executed the Transfer as a memorandum of transfer under the Real Property Act 1900 (NSW), apparently on 30 September 1963. The Transfer was materially the same as Annexure "A" to the Council deed, with minor variations necessary to accommodate the form of the registrable dealing. It appears that the Transfer was received by the Registrar-General on 27 April 1964 and entered into the Register on 9 November 1964. The Transfer was registered as Dealing J592560.
2. As the determination of this dispute depends upon the proper construction of the Transfer, it will be necessary to set out the terms of the Transfer in full. It provided: I, WE, MENDEL REICH of [Suburb] Draper and ANNA REICH his wife being registered as the proprietor of an estate in fee simple in the land hereinafter described, subject, however, to such encumbrances, liens and interests as are notified hereunder, in consideration of the covenants and Agreements on the part of DOMENICO PERRI of [No 181] Shopkeeper and MARY ROSE PERRI his wife do hereby transfer and Grant to the said DOMENICO PERRI of [No 181] Shopkeeper and MARY ROSE PERRI his wife as joint tenants (herein called transferee) out of ALL such our Estate and Interest in ALL THE land mentioned in the schedule following: - [title reference to No 183-185 inserted] full and free right as appurtenant to the land comprised in [certificate of title reference for No 181] (a) For the said Transferees his her and their executors administrators and assigns and his her and their servants agents licensees invitees and all other persons authorised by him her or them in common with the Transferors his her and their executors administrators and assigns and his her and their servants agents licensees and all other persons authorised by him her or them from time to time and at all times hereafter and for all purposes to pass and repass on foot along and over all that part of the Arcade erected on that piece of land as shown in the plan hereunto annexed and therein coloured red and from time to time and at all times to use for the purposes for which they have been erected all stairs landings washrooms water closets and urinals erected upon or over the said piece of land. (b) For the said Transferees and his her and their executors administrators and assigns to use for the purpose of support of the wall erected on that part of the land comprised in [certificate of title reference for No 181] shown in the plan hereunto annexed and therein coloured blue the wall erected on that part of the land comprised in [certificate of title reference for Nos 183-185] shown in the plan hereunto and therein coloured brown. AND IT IS HEREBY AGREED AND DECLARED AS FOLLOWS: - 1. THAT the Transferors and his her and their executors administrators and assigns will at all times during the said term well and sufficiently repair maintain and keep the said Arcade stairs landings washrooms water closets and wall in good and substantial repair. 2. THAT the Transferees and his her and their executors administrators and assigns will during the said term on the first day of each calendar month commencing with the first day of May, 1962 next ensuing pay or cause to be paid to the Transferors or his her or their executors administrators or assigns one-quarter (1/4) of the gross rentals received by them during the then next preceding calendar month in respect of the shops erected by the transferees on that part of the land comprised in [certificate of title reference to No 181] shown in the plan hereunto annexed and therein coloured green. 3. THAT the transferees and his her and their executors administrators and assigns will not during the said term without the consent in writing previously obtained of the transferors or his her or their executors administrators or assigns let all or any of the shops erected by the transferees on that part of the land comprised in [certificate of title reference for No 181] shown in the plan hereunto annexed and therein coloured green to persons conducting or intending to conduct therein any business similar to any business being conducted in any of the shops erected on the land comprised in [certificate of title reference for Nos 183-185]. 4. THAT the rights hereby transferred and granted may be released varied or modified only with the consent of [the Council] by the transferors or his her or their executors administrators or assigns together with the transferees or his her or their executors administrators or assigns.

Construction of registered instruments creating easements

1. The parties made submissions concerning the rules that govern the construction of documents such as the Transfer that provide for the grant of easements.
2. It seems that the primary objective of Aust-One was to exclude the relevance of the Council deed to the proper construction of the Transfer. As mentioned, I do not understand New World to rely upon the terms of the Council deed for the purpose of construing the Transfer, other than to the extent that the Council deed may provide evidence of facts as they existed at the date of the Transfer that may be permitted to be taken into account for the purpose of construing the Transfer.
3. In Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45, the High Court said (footnotes omitted): 37 However, in the course of oral argument in this Court it became apparent that what was engaged by the submissions respecting the use of extrinsic evidence of any of those descriptions, as an aid in construction of the terms of the grant, were more fundamental considerations. These concern the operation of the Torrens system of title by registration, with the maintenance of a publicly accessible register containing the terms of the dealings with land under that system. To put the matter shortly, rules of evidence assisting the construction of contracts inter partes, of the nature explained by authorities such as Codelfa Construction Pty Ltd v State Rail Authority (NSW), did not apply to the construction of the Easement. … 39 ... The statement by McHugh J in Gallagher v Rainbow, that: "[t]he principles of construction that have been adopted in respect of the grant of an easement at common law … are equally applicable to the grant of an easement in respect of land under the Torrens system" is too widely expressed. 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.
4. The Court concluded by saying: 45 But none of the foregoing supports the admission in this case of evidence to establish the intention or contemplation of the parties to the grant of the Easement.

Evidence of the implementation of the Transfer

1. New World tendered evidence concerning the use of the right of way by Aust-One and the costs that New World had incurred in performing the repair covenant.
2. The evidence on the first subject took the form of questions asked of Mr Roy Szu-Liang Lin, a director of Aust-One, in cross-examination. No objections were made to this evidence.
3. The evidence established that there was no access to any of the four shops from the lane except through the arcade. The evidence also established that the only means of access to the two residences on the first floor of No 181 was through the restaurant or the arcade. Deliveries to the restaurant could only be made through the front door of the restaurant or through the arcade. Rubbish from the restaurant was removed through the arcade to the lane. Mr Lin gave evidence that there was a small toilet servicing the restaurant in the storage area behind the restaurant on No 181, but the toilet was not apparent in the photograph of the storage area where it was said to be located. Mr Lin suggested that the toilet was used primarily by the staff of the restaurant, which suggests that patrons of the restaurant may use the washrooms that are on the first floor of Nos 183-185 that are subject to the right of way and the right to use amenities.
4. I have not treated this evidence as having any relevance to the construction of the Transfer. It is evidence of actual use of the right of way that post-dates its creation. It may in part be evidence of use of the right of way that is not permitted by the terms of the Transfer, but that is not an issue that arises in these proceedings.
5. The second aspect of the evidence concerning the implementation of the Transfer was evidence given by Mr Poon in pars 33 and 34 and Annexure A to his affidavit, concerning the maintenance and repair by New World of the arcade stairs, the arcade restrooms and the arcade corridor. Mr Poon provided figures for the period July 2013 to December 2020. Separate figures were provided for cleaning and waste disposal, maintenance and repair, light and power and water rates. Aust-One objected to the admission of this evidence, primarily on the basis that it was evidence of events occurring after the date of the Transfer. I admitted the evidence on the limited basis that it might ultimately be relevant to prove the activities required of the owner of the servient tenement to comply with the repair covenant.

Legal principles

1. The question in these proceedings is whether Aust-One is entitled to refuse to comply with the payment covenant but at the same time fully enjoy the benefit of the easements created by the Transfer and oblige New World to perform the repair covenant for its benefit.
2. The parties have conducted the proceedings on the basis that the easements for right of way, use of amenities and support were validly created, once and for all, at the time of registration of the Transfer.
3. Aust-One accepts that it is obliged to comply with the competition covenant in clause 3 of the Transfer, because that is a negative covenant which runs with the land in equity in conformance with the principle in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143, whereby a covenant is enforceable in equity if (a) it is negative in nature; (b) it benefits the land retained by the covenantee; and (c) the burden of the covenant was intended to run with the covenantor's land: Midland Brick Co Pty Ltd v Welsh (2006) 32 WAR 287; [2006] WASC 122 at [154] (Hasluck J). A covenant may be negative in substance although its language is expressed in positive form, and "the applicable test is whether the covenant requires the expenditure of money (positive) or whether it can be complied with by doing nothing (negative)": Ryan v Sutherland [2011] NSWSC 1397; (2011) 16 BPR 30,101 at [25], where Black J endorsed the test formulated by Professor Butt in these terms to discern whether a covenant is positive or negative. As Aust-One accepts that the competition covenant is enforceable against it, it is not necessary to consider the circumstances in which a covenant binding the owner of the servient tenement not to compete with the owner of the dominant tenement is enforceable in equity.
4. There is no question that the repair covenant is enforceable by Aust-One against New World, even though the burden of the repair covenant is positive and obliges New World to expend money in its performance. The term "positive covenant" is defined in s 87A of the Conveyancing Act 1919 (NSW) as including "a covenant for maintenance or repair imposed under section 88BA". Section 88BA of the Conveyancing Act provides that a covenant may be imposed requiring the maintenance and repair of land that is the site of an easement by the person from time to time having the burden of the easement, provided that the covenant is imposed in the manner set out in the section. Section 88F has the effect that, if a positive covenant (as defined) is imposed on land, the covenant affects the land and persons from time to time having any estate or interest in the land in the same way as if it were a covenant imposing a restriction on the use of the land. As I understand it, New World accepts that the repair covenant is enforceable against it pursuant to these provisions.

General rule as to the enforcement of positive covenants

1. There was no issue between the parties that the general rule concerning the enforcement of positive covenants against successors in title by assignment from the original covenantor is as stated by Lord Templeman, with the unanimous agreement of the other Law Lords, in Rhone v Stephens [1994] 2 AC 310 at 316-7, as follows: At common law a person cannot be made liable upon a contract unless he was a party to it. In Cox v. Bishop (1857) 8 De G.M. & G. 815 a lease was assigned to a man of straw and it was held that the covenants in the lease could not be enforced against an equitable assignee of the lease who had entered into possession. The covenants were not enforceable because there was no privity of contract or estate between the lessee and the assignee. The rigours of the common law which do not allow covenants to be enforced by and against successors in title were relaxed first by the doctrines laid down in Spencer's Case (1583) 5 Co. Rep. 16a and then by statutory extensions of those doctrines introduced by the Grantees of Reversions Act 1540 (32 Hen. 8, c. 34), the Conveyancing Act 1881 (44 & 45 Vict. c. 41) and the Conveyancing Act 1911, now repealed and reproduced in sections 141 and 142 of the Law of Property Act 1925. In the result, as between landlord and tenant both the burden and the benefit of a covenant which touches or concerns the land demised and is not merely collateral run with the reversion and the term at law whether the covenant be positive or restrictive. As between persons interested in land other than as landlord and tenant, the benefit of a covenant may run with the land at law but not the burden: see the Austerberry case.
2. At 321, Lord Templeman rejected an invitation to overrule the decision of the Court of Appeal in Austerberry v Corporation of Oldham (1885) 29 Ch D 750, which, among other things, had overruled earlier authority in which it had been held that the burden of positive covenants could be enforced against assignees of the original covenantor in circumstances where mutual covenants were made for the benefit of contiguous landowners who claimed title under grants from the same vendor, and some of the owners depended for the enjoyment of their land on another owner performing a positive covenant made by a predecessor in title; primarily being the decision of Malins VC in Cooke v Chilcott (1876) 3 Ch D 694.

Possible ways that positive covenants may be enforced

1. This case raises the question of whether the payment covenant may be enforceable against Aust-One notwithstanding that it does not run with the land at common law or in equity against successors in title to the transferees. The authorities suggest that there may be two ways in which the payment covenant may be enforceable against Aust-One notwithstanding that it does not run with the title to No 181.
2. The first way is somewhat exceptional and problematic as a matter of principle and involves the concept that the burden of a positive covenant may be so intricately connected to the effectiveness of the easement that it is inextricably part of the easement. The suggestion is that the positive covenant may be of the essence of the easement. To the extent that a positive covenant may be of the essence of the easement, it will necessarily be enforceable as part of the easement. As the easement will run with the land, so will the positive covenant, even though otherwise it would not do so.
3. In this case, the primary submission of New World was that the payment covenant is part of the essential fabric of the easements, and that the Transfer must be read as a whole, on the basis that it created one whole transaction or 'deal', in respect of which all of the grants and covenants were interdependent and interwoven. Aust-One rejected the argument that the payment covenant was enforceable against it on that basis.
4. The second way that the payment covenant may be enforceable against Aust-One, if it is not in law an essential part of the easements and does not run with the title to No 181, relies on the proposition that performance of the payment covenant may be a condition of the entitlement of the owner of No 181 to enjoy the rights created by the easements and the benefit of the repair covenant. The law may hold it to be unjust that, if the owner of No 181 has a choice whether or not to enjoy a right that is made conditional upon the performance of a positive covenant, that owner can refuse performance of the covenant on the ground that it does not bind the owner, but then freely exercise the right and, in this case, enforce against the owner of Nos 183-185 a positive covenant made by a predecessor in title to that owner. This possibility is usually called the conditional benefit principle.

Covenant as an essential part of the easement

1. The first possibility that will be considered is that the payment covenant is enforceable against all successors in title of the transferees of No 181 because it is an essential part of the easements.
2. I will not consider this possibility in depth, as I have concluded that, even if it exists as a matter of law and is given its widest possible ambit, it would not make the payment covenant enforceable against Aust-One in this case. I will give my reasons for this conclusion below when I consider the parties' submissions. It will be necessary, however, to consider the circumstances in which a positive covenant may be an essential part of an easement.
3. I start by observing that the concept of a covenant being of the essence of an easement is an inherently imprecise one. It may be that contemplation of what is of the essence of a theoretical construct, like an incorporeal hereditament, of which an easement is an example, is a matter best left to scholars of divinity rather than trial judges. I will proceed on the basis that, if the expression "is of the essence" has any meaning in this context, it must mean "essential to". That is, if a positive covenant may be enforceable notwithstanding that it does not run with the land, it must be a covenant the performance of which is in practical terms essential to the easement having any real meaning or effect.
4. The modern source of the possibility that a positive covenant may be enforceable because it is of the essence of an easement appears to be the decision of Herdman J in Cameron v Dalgety [1920] NZLR 155. The plaintiff was a sheep farmer, who had acquired land with the benefit of an easement granted in a deed between the plaintiff's father, from whom the plaintiff had purchased the land, and the trustees of the estate of the deceased owner of a large estate known as the Balmoral Station. The deed contained a grant of water to the plaintiff's property from a source of water on the balance of the estate, which Herdman J described as being some miles in length. In the deed, the benefit of the grant of the use of water flowing through a water-race on the adjoining land was described in elaborate terms, but included obligations on the grantors to permit the free and uninterrupted flow of water down the water-race, to not divert or permit or allow the water in the water-race to be diverted, and to keep the water-race properly cleaned out and the banks properly maintained and repaired.

Covenant enforceable on conditional benefit principle

1. I will now turn to the second possible way in which the burden of a positive covenant that does not run with the dominant tenement may be enforceable against the successors in title to the original grantee of the easement.
2. In this context it will be convenient to complete the reference to Rhone v Stephens by setting out the following extract from the speech of Lord Templeman at 322-3, which is an introduction to the circumstances in which successors in title by assignment to an original covenantor may make themselves liable to perform a positive covenant at the suit of a party with the benefit of that covenant: Mr. Munby also sought to persuade your Lordships that the effect of the decision in the Austerberry case had been blunted by the "pure principle of benefit and burden" distilled by Sir Robert Megarry V.-C. from the authorities in Tito v. Waddell (No. 2) [1977] 1 Ch. 106, 301 et seq. I am not prepared to recognise the "pure principle" that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Sir Robert Megarry V.-C. relied on the decision of Upjohn J. in Halsall v. Brizell [1957] Ch. 169. In that case the defendant's predecessor in title had been granted the right to use the estate roads and sewers and had covenanted to pay a due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v. Brizell was just such a case and I have no difficulty in wholeheartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor's successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v. Brizell there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers. In the present case clause 2 of the 1960 conveyance imposes reciprocal benefits and burdens of support but clause 3 which imposed an obligation to repair the roof is an independent provision. In Halsall v. Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money. In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.

Conclusion as to operation of conditional benefit principle

1. I consider that the analysis of the relevant authorities that I have made above justifies the conclusion that what has been called the conditional benefit principle is a part of the law of Australia, and may be stated essentially in the form of the three propositions made by Sir Andrew Morritt C in Davies v Jones, which are set out above. His Lordship distilled those principles from Rhone v Stephens and related authorities, and the propositions have been accepted in subsequent English decisions.
2. That conclusion is supported by the judgment of Kneipp J in Rufa and by Mullins J in Fanigun.
3. In saying that I accept the propositions as stated by Sir Andrew Morritt C I do not mean to say that those propositions should be treated as if they specifically and exhaustively state the law, or that they introduce any significant differences from the conditional benefit principle as stated by Lord Templeton in Rhone v Stephens. It may also be that, depending upon the circumstances of future cases, the last word has not been said on the operation of the conditional benefit principle. Although I accept that it is proper to approach the determination of the present case by applying the propositions established in Davies v Jones, I consider that that must be done with the guidance of all of the authorities that have applied the principle where that assists the Court in understanding the real meaning of the propositions.
4. The purpose of the conditional benefit principle is to distinguish from the general case, where the burden of a positive covenant does not run with the land, those cases where, by reason of the successor in title to the covenantor having chosen to take the benefit of a right to which the performance of the covenant was intended to be reciprocal or upon which the enjoyment of the right is conditional, fairness requires that the positive covenant be enforceable. This is not a technical principle and it may not be remiss of the Court to be guided by the maxim to which Megarry VC referred in Tito's Case, even though that maxim must not be treated as the basis of a general rule.

Easements created under the Torrens system

1. Before I address the parties' submissions, I should briefly deal with the significance of the fact that the easements have been created by the registration of the Transfer under the Real Property Act. The parties did not make any submission that, in the present case, the fact that Aust-One has an indefeasible interest in the easements under s 42 of the Real Property Act makes any difference to the outcome of the dispute. I agree that in this case it does not, and that may be the reason why the parties did not raise the issue.
2. Consequently, I will limit my treatment of this issue to the following brief observations.
3. As I have noted above, Mullins J did not refer in Fanigun to any significance of the easement in that case having been created by a registered instrument. However, at [25] of Rural View Developments (which is extracted above) McMurdo J observed that there was no consideration in Rufa of the question of whether the conditional benefit principle could be applied to a covenant over Torrens land.
4. If this issue were to be considered comprehensively, it would be necessary to focus on the effect of the particular instrument and the manner in which that instrument made the relevant rights conditional. As is notorious, the concept of a condition can have quite different meanings in different legal contexts.
5. There may, perhaps, be circumstances in which, on its proper construction, the relevant instrument grants an easement that is intended to be conditional in the sense that its very existence will depend upon the occurrence of a condition precedent or a condition subsequent. For example, land might be conveyed subject to the grant of an easement in favour of an adjoining dominant tenement conditionally upon a particular development application being approved and a building constructed. In Fermora Pty Ltd v Kelvedon Pty Ltd, which is referred to above, the easement was made subject to a condition subsequent that the easement would be surrendered upon the grantee, or its successors in title, ceasing to use the dominant tenement for the purpose that required the easement.
6. By parity of reasoning with the ground upon which the High Court decided Westfield Management Ltd v Perpetual Trustee Co Ltd, it might be problematic that an easement could be created by the registration of a transfer, where the easement was made conditional on the occurrence of events that could not be discovered by a search of the Register or perhaps instruments referred to in the Register. It might be particularly problematic if the condition was capable of failing intermittently, as it would be inimical to the objective of the Torrens system for a registered easement to twinkle in and out of existence as a result of events not discoverable from the Register.

Consideration

1. It will be convenient to consider the effect of the wording of the Transfer, before attention is given to the parties' submissions as to the legal effect of that instrument.

Construction of the Transfer

1. As New World noted in its submissions, the part of the standard form transfer that provided for a statement of the amount of the consideration for the grants in the transfer, and an acknowledgement of receipt, was crossed out and "the covenants and Agreements on the part of" the transferees inserted instead. Thus, the transferors did not receive a lump sum price for the grants in the Transfer.
2. Clause (a) is an immediate grant of a permanent right of way and right to use amenities to the transferees and their executors, administrators, and assigns and all persons authorised by them.
3. These easements attach to the part of the arcade on the servient tenement (as depicted on DP 219753) and permit use of the stairs landings washrooms water closets and urinals for the purpose for which they have been erected.
4. Clause (b) is an immediate grant of a permanent right of support for the identified part of the wall and roof constructed on the dominant tenement by the identified part of the wall on the servient tenement.
5. The easement for support is not mutual, in the sense that the wall on the dominant tenement is not required to support the wall on the servient tenement.
6. The right of way is a right of footway only and does not extend to other uses.
7. The right of way is appurtenant to the whole of No 181, although a possible issue as to whether it only extends to the four shops on the dominant tenement, because of the structural configuration of No 181 at the date of the Transfer, as depicted on DP 219753, has not arisen for determination.
8. By clause 1 of the Transfer, the transferors and their successors covenant to repair and maintain the arcade stairs landings washrooms water closets and urinals and wall in good and substantial repair. The question of whether that obligation extends to the cleaning of those areas and the provision of consumables has not arisen in these proceedings.
9. By clause 2, the transferees and their successors covenant in perpetuity to pay to the transferors and their successors one quarter of the gross rentals "received by them" on a monthly basis in respect of the four shops. Even though clause 2 refers to the gross rentals, the inclusion of the words "received by them" probably has the effect that the payment covenant only requires payment of one quarter of the rentals received in respect of the four shops after all allowances and returns of rental made in performance of the various COVID-19 Regulations. However, that is not an issue that arises in these proceedings.

Commercial effect of the Transfer

1. The transferors incurred the cost of building the arcade, the stairway, the passage and the washrooms, as well as the wall providing support for the wall and roof on the dominant tenement, without contribution by the transferees. The transferors and their successors are required to repair and maintain the arcade, the stairs, the landings, the washrooms, the water closets and the urinals without separate contribution from the transferees or their successors. There is no textual or practical basis for apportioning the covenant by the transferees and their successors to pay the one quarter of the gross rentals received for the four shops to any of the costs incurred by the transferors, either initially or on an ongoing basis, by the transferees and their successors.
2. It would have been obvious to any intending purchaser of No 181 from an inspection of (a) DP 219753 in Transfer J592560, as recorded in the folios for the dominant and servient tenements, and (b) the physical layout of both tenements and their environs, that:

• The four shops would not have had the benefit of passing traffic between the street and the lane and the Council car park without the benefit of the right of way.
• Any development of the dominant tenement without the benefit of the right of way would have constrained the layout of the shops that could be constructed on it, as access to the lane would have to be provided through the wall of what is presently Shop 1A at the boundary with the lane.
• The configuration of the right of way had been designed (by reason of the dogleg) to create a common border between the arcade and all of the four shops on the boundary between the two properties.
• The four shops would be more efficiently operated by reason of shopkeepers, assistants and customers having access to the washrooms by means of the right of way and the right to use amenities.
• The benefit of the right of way would materially increase the rental return from the operation of the four shops because (a) of improved through traffic between the street and the Council car park via the lane and the footbridge over the stormwater canal; (b) the more efficient usage of the dominant tenement by means of the construction of four optimally sized shops; and (c) the provision of conveniences to the operators and the patrons of the shops by means of access to the washrooms by the right of way and the right to use amenities.

New World's submissions

1. I will now deal with the parties' arguments concerning the enforceability of the payment covenant. I will first explain my reasons for not accepting New World's argument that the payment covenant is enforceable because it is an essential part of the easements granted by the Transfer, notwithstanding that the payment covenant does not run with the dominant tenement.
2. In considering the relevant legal principles above, I have attempted to explain why I find it conceptually difficult to justify aspects of the proposition that the burden of a positive covenant associated with an easement can be enforceable because it is an essential part of the easement, particularly where the covenant is made by the grantee of the easement. It is not however necessary in these reasons to express a final opinion on that subject.
3. That is because, even allowing the validity of the proposition for the full scope that could be justified, I would not find the payment covenant to be an essential part of the easements in this case.
4. I accept New World's submission that all of the rights and obligations created by the Transfer are, both textually and in substance, part of the one transaction or 'deal', so that the true intention of the original parties to the Transfer, as discerned from its wording, was that all of the rights and obligations of the transferors and their successors were to be in return for all of the rights and obligations of the transferees and their successors.
5. However, the issue is not whether the payment covenant was an essential part of the 'deal', but whether it was an essential part of the easements. I have explained that the only way that I can conceive of the meaning of "essence" in this context is that the particular covenant is in some way truly essential to the rights granted by the easement being real and meaningful.
6. In the present case, all easements can operate effectively to the fullest of their intended effect whether or not the payment covenant is honoured by the owner of the dominant tenement for the time being.
7. All of the right of way, the right to use amenities, and the easement for support were created once and for all with the registration of the Transfer, and will be able to be used by the owner of the dominant tenement from time to time, provided that the relevant parts of the servient tenements are repaired and maintained. Not only does the owner of the dominant tenement have an ancillary right at common law to enter upon the servient tenement to repair and maintain the land subject to the easements, but in this case the repair covenant binds the owner of the servient tenement to repair and maintain the relevant parts of the land. All the easements will be completely effective whether or not the payment covenant is performed, so that it cannot be said that performance of the payment covenant is essential to the operation of the easements and thus of the essence of those easements.

Aust-One's submissions

1. I will now turn to consider the arguments put by Aust-One in support of its claim that it is not bound by the payment covenant, even though it is entitled to enjoy the easements and the benefit of the repair covenant.
2. As I understand Aust-One's position, it in substance accepts the existence of the conditional benefit principle on a basis that is substantially in accordance with the conclusions that I have set out above in my consideration of the legal principles that apply. Aust-One submits, however, that, when the relevant propositions are properly applied, it will be determined that the payment covenant is not enforceable against it. Aust-One relied in particular on the reasons for judgment of the McMurdo J in Rural View Developments.
3. As, in this case, all the rights and obligations were created in the one transaction by the Transfer, proposition (1) as stated by Sir Andrew Morritt C in Davies v Jones is plainly satisfied.
4. The question is whether his Lordship's propositions (2) and (3) have been satisfied. For convenience, I will repeat the statement of those propositions from his Lordship's reasons: (2) The receipt or enjoyment of the benefit must be relevant to the imposition of the burden in the sense that the former must be conditional on or reciprocal to the latter. Whether that requirement is satisfied is a question of construction of the deeds or other documents where the question arises in the case of land or the terms of the transaction, if not reduced to writing, in other cases. In each case it will depend on the express terms of the transaction and any implications to be derived from them. (3) The person on whom the burden is alleged to have been imposed must have or have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive the benefit.
5. Aust-One made several submissions as to why these propositions were not satisfied in the present case. The sub-headings encapsulate the arguments put by Aust-One.

Easements and repair covenant not conditional on or reciprocal to payment covenant

1. Aust-One submitted that the Transfer does not make performance of the payment covenant a condition to the entitlement of the owner of No 181 to enjoy the benefit of all easements and to enforce the repair covenant because textually neither the easements nor the repair covenant are expressed to be conditional upon the payment covenant being performed.
2. It is true that performance of the payment covenant is not an express condition of the right to enjoy the easements and enforce the payment covenant. However, the authorities appear to make it clear that it is not necessary for the enjoyment of the right to be made conditional by express terms, and the real question is whether, having regard to the substance of the transaction as a whole and the construction of the relevant instrument, the intent of the parties to the instrument was that the covenantor and its successors could only enjoy or enforce some reciprocal right or benefit created by the instrument if the covenant was performed. That was made clear by the House of Lords in Chamber Colliery Company Limited v Twyerould, and reinforced by the Court of Appeal of England and Wales in Wilkinson v Kerdene Ltd at [27], where it was pointed out that Halsall v Brizell was an example of a case where the conditional relationship between the performance of the covenant and the enjoyment of the right was implied.
3. In my view, the performance of the payment covenant is in the relevant sense a condition to the owner of No 181's right to enjoy the right of way, the right to use amenities and to enforce the repair covenant. I will explain below my view that the same result does not apply to the easement for support.
4. As is plain from a reading of the Transfer, the transferees obtained for their own benefit and for the benefit of their successors in title in perpetuity the right to participate in a single functioning retail arcade that required that they have the benefit of the easements and the repair covenant, without being required to pay any price to compensate the transferors for incurring the costs of building the arcade on Nos 183-185 or contributing to the costs of repair and maintenance, save only for the continuing performance of the payment covenant.
5. Although the transferees would remain personally liable on the payment covenant to the transferors and their successors in title, the possibility of an action against the transferees or their estates for breach of covenant may have ceased to become valuable after the transferees had assigned No 181 and spent the proceeds of sale. As Aust-One acknowledged in response to a question from the Bench, the transferees could have assigned No 181 the day after the Transfer was registered. If the payment covenant was not enforceable against the transferees' successors in title, then the transferors would in effect have made a gift to those successors. No intending purchaser of No 181 would reasonably understand the Transfer to have been intended to have that effect.

Easements were created immediately upon registration

1. It was apparently of significance to McMurdo J in Rural View Developments that, in that case, the relevant easement was created once and for all by the registration of the relevant instrument, while in Rufa the relevant instrument gave the defendant a right to choose to extend the wall and rely upon a wall extended on the servient tenement for support. Aust-One relied upon this distinction in the present case as a reason why the payment covenant was not enforceable against it.
2. For reasons that I have considered above when dealing with the decision in Fanigun and the significance of the Transfer having been registered under the Real Property Act, I consider that the timing of the creation of the easement might be relevant to the application of the conditional benefit principle in a case where the existence of the easement is intended to depend upon the performance of the covenant by the owner of the dominant tenement. I will not repeat my view as to the difficulties that may arise in a case where the existence of an easement may depend upon the performance of some covenant by the owner of the dominant tenement. In my view, these difficulties do not arise where the easement, once granted, continues to exist indefinitely, but it is a term of the instrument creating the easement that some right inherent in it can only be exercised on condition that some reciprocal obligation is performed by the dominant owner.
3. Consequently, the fact that all the easements were created once and for all upon the registration of the Transfer is in my view immaterial to the application of the conditional benefit principle to the enforceability of the payment covenant.

Payment covenant is not relevant to the exercise of rights under the easements

1. Aust-One submitted that the payment covenant is not enforceable against it because there is no relevance, correlation, connection or relationship between the payment covenant and the rights (and the exercise of those rights) bestowed pursuant to the easements.
2. Whereas Lord Templeman in Rhone v Stephens said that: "[t]he condition must be relevant to the exercise of the right" and that there must be "reciprocal benefits and burdens" (a requirement repeated by Sir Anthony Morritt C in Davies v Jones), Aust-One seems to be submitting that there must be some proportionate relationship between the right or benefit and the condition required to be satisfied that can be measured at least broadly in money terms or the equivalent.
3. Aust-One submitted that it was significant that the payment covenant is not framed as an obligation to contribute to the cost of the repair and maintenance of the areas the subject of the easements, and that, if it had been the purpose of the payment covenant that it be sufficiently connected with the easements, it would have been framed as an obligation to contribute towards that cost. Further, there is no correlation or relationship between one quarter of the gross rentals received from leasing the four shops and the cost of repairing or maintaining the right of way and the right to use amenities. Aust-One submitted that rental yields and repair and maintenance costs are not proxies for one another. One quarter of the gross rentals could be far more or far less than the cost of repair and maintenance. If the owner of No 181 did not lease any of the four shops, the owner of Nos 183-185 would remain liable to perform the repair covenant.
4. I do not accept that the payment covenant is unenforceable against Aust-One on this ground for the following reasons. First, the argument requires too great a monetary relationship between the reciprocal rights and obligations than is required by the conditional benefit principle, as expounded in the authorities. Rights and obligations may be sufficiently relevant and reciprocal even though the burdens involved are not equivalent measured in money. Secondly, Aust-One's argument assumes that the payment covenant was included in the Transfer as some form of contribution to the obligation of the owner of Nos 183-185 under the repair covenant. In fact, it is clearly intended to be a quid pro quo for the continuing enjoyment of the right to enhance the commercial value of No 181 by participating in what was in practical terms a single functioning retail arcade, and enjoying the rights under the easements and the repair covenant necessary to enable that participation to be effective.

Payment covenant does not apply to rentals from the restaurant or the residences

1. Aust-One submitted that the payment covenant did not sufficiently relate to the rights granted by the easements and the repair covenant because it only required payment of one quarter of the gross rentals received from the four shops and did not include rentals from the restaurant or the residences on No 181.
2. There are several reasons why this submission should be rejected as a ground for finding that the payment covenant is not enforceable against Aust-One.
3. First, it assumes that, when the terms of the Transfer were agreed at the time that the Council deed was entered into, it was a part of the agreement that the right of way and the right to use amenities would be made available to persons using the restaurant and the residences. I have explained above why that proposition is doubtful because of the apparent absence of a passageway beside Shop 4A from the storage area and stairwell behind the restaurant to the arcade on Nos 183-185 (and possibly also the fact that the Council deed recited that the easements were to benefit the four shops). It is not necessary to decide the issue, but the explanation for the payment covenant only covering the gross rentals from the four shops may well be that the expectation of the parties to the Council deed, and thus the Transfer, was that the rentals from the restaurant and the residences would be irrelevant to the use of the easements.
4. Secondly, although the evidence is scant, it appears that the restaurant and the residences formed part of the existing building on No 181 at the time the terms of the Council deed were negotiated. Even if it was understood by the parties that persons using the restaurant and the residences might also use the easements, the rentals from those parts of No 181 may well have been excluded from the payment covenant because that covenant was understood to relate only to the new development on No 181.
5. Finally, the argument that the exclusion from the payment covenant of the gross rentals from the restaurant and the residences means there is insufficient relationship between the payment covenant and the enjoyment of the rights under the easements and the repair covenant substantially overstates the degree of equivalence that is required between the payment covenant and the rights to be enjoyed for all of those rights to be sufficiently relevant or reciprocal to each other.

Payment covenant is a recurrent obligation and not an isolated one

1. In Rural View Developments, McMurdo J distinguished Rufa on the basis that, in that case, the defendant was entitled to exercise a right created in the original deed to extend the building on its property and to then pay a single amount as its share of the cost of taking advantage of an easement for support. Aust-One submitted that as the Transfer required it to make monthly payments to New World, that is a valid reason for the Court to find that the payment covenant is not enforceable against it.
2. As a general proposition, I do not accept that the conditional benefit principle can only make a covenant to pay money enforceable against a successor in title to the original covenantor if the covenant is to pay a single sum of money. There seems to be no reason why that should be so, and in a number of the authorities the covenant has been found to be enforceable against the successor even though it may be required to be performed on multiple occasions. Halsall v Brizell was one such case.

There has been no real choice about whether to use the easements

1. Aust-One submitted that there has been no real choice (nor any opportunity for real choice) as to whether to use the easements. As I understand this submission, it is made on the basis that, once Aust-One became the owner of No 181, including as it does the four shops, it was not realistic as a practical matter to expect Aust-One to cease renting the four shops, and once it did so, it could not control the use of the easements by the persons who will do so, given that those persons include its "servants, agents, licensees and all other authorised persons authorised by him or her" in the terms of the Transfer.
2. It is obviously true as a practical matter that, so long as Aust-One chooses to lease any of the four shops for retail purposes, it will by clear implication invite and authorise the lessees, their staff and all customers to use the right of way and the right to use amenities.
3. However, I do not accept that this submission establishes, for the purpose of proposition (3), that Aust-One has not had a relevant opportunity of rejecting or disclaiming the benefit of the easements. As the consideration of Halsall v Brizell that is set out above, and Lord Templeman's acceptance that it is sufficient that the owner of the dominant tenements be able to choose whether to enjoy the right "at least in theory", show, proposition (3) may be satisfied if the dominant owner has a theoretical possibility of making the choice, even though it might be unreasonable to expect that owner to reject or disclaim the benefit. If the owner of a residential allotment has a sufficient choice whether or not to use the roads and sewers upon which the allotment depends, then it is a sufficient right to choose for Aust-One to decide whether or not to lease any of the four shops. If Aust-One chooses to lease any of the four shops, the fact that it then cannot control who decides to use the easements does not mean that proposition (3) is not satisfied.
4. It may well generally be the case that it will be to the commercial advantage of the owner of No 181 to continue to lease the four shops, but if the payment obligation became onerous, or the combined arcade ceased to be commercially viable, there is no reason why that owner could not choose to cease to take advantage of the Transfer, and to develop the property in some different way. [The condition in the development approval removes any choice Aust-One submitted that the existence of the Council's right to veto any agreement that the rights and obligations created by the Transfer be released, varied or modified, in association with the inclusion of the condition in the development approval that No 181 have the benefit of the right of way, had the effect that Aust-One did not have the opportunity of rejecting or disclaiming the benefits granted to it by the Transfer.

The building on No 181 physically requires the easement for support

1. Aust-One submitted that, once it acquired No 181, it had no choice about taking advantage of the easement for support, as long as the existing physical structure of the building on No 181 was retained.
2. I will assume that the building on No 181 actually makes use of the easement for support at the place indicated in Diagram C on DP 219753, although there was no evidence to support any particular finding about the dependence of the building on No 181 on the continuing existence of the easement for support. New World did not suggest that the easement for support was not needed.
3. In these circumstances, I would accept that the requirement of the conditional benefit principle that Aust-One must have or have had the opportunity of rejecting or disclaiming the benefit of the easement for support, not merely the right to receive the benefit, is not satisfied in respect of the easement for support.
4. However, it does not follow from a conclusion that the conditional benefit principle does not apply to the easement for support that the principle does not apply in respect of any of the other rights created by the Transfer, in so far as the enjoyment by Aust-One of those other rights may be conditional in the relevant sense upon performance of the payment covenant. Although the agreement contained in the Council deed, and thus the Transfer, was a single 'deal' that was intended to allow the owner for the time being of No 181 to participate in a single retail arcade, by means of being given rights over Nos 183-185 without which the commercial benefit that could be derived from the rear of No 181 would be severely limited, it does not follow that the application of the conditional benefit principle requires that all of the rights provided to the owner of No 108 must be conditional upon the performance of the payment covenant. It is necessary to look at each of the rights separately and it may be determined that some are conditional on the performance of the payment covenant, while others are not.
5. I am satisfied that the easement for support may be distinguished in its relationship to the payment covenant from the other rights granted to the owner of No 181 by the Transfer. First, as I have noted above, mutual easements for support were not granted by the Transfer. I will infer that, in some way the building on Nos 183-185 provides passive support for the building at the rear of No 181. That support will be necessary for the continuing physical competence of the structure. But it will have little relevance to the commercial return enjoyed by the owner of No 181 from renting the four shops. There is no evidence that the transferors incurred any substantial cost in constructing the wall on Nos 183-185 so that the wall would be able to provide support for part of the building on No 181.

Meaning of "gross rentals" in the payment covenant

1. The final issue to consider is the claim made by New World in its cross claim for a declaration that the payment covenant is enforceable on the basis that the amount required to be paid is "one quarter of the net rent and outgoings" received by Aust-One in the preceding calendar month from letting the four shops.
2. To date, and for the whole of the period in which the payment covenant has been performed by the owner of No 181, the amount payable has been calculated and accepted on the basis that it was to be one quarter of the monthly amount of rent received by the owner of No 181, before taking into account any amounts paid by the lessees of the four shops in compensating the owner for the costs of outgoings referable to the shops.
3. New World's case is that the use of the expression "gross rentals" in clause 2 of the Transfer requires Aust-Aust to pay to New World one quarter of the total of the rent and the outgoings.
4. The source of this argument on New World's part appears to be a long-standing and well-known practice in the commercial and retail leasing market in this country whereby the obligation of the lessee as defined in the lease is either to pay gross rent or net rent. As defined in Butterworth's Australian Legal Dictionary, "gross rental" means: "a rental paid for the premises, usually commercial premises, which includes an allowance for all the outgoings attributable to the premises."
5. The same source defines "net rentals" in the following way: A rental paid under a lease which does not include an allowance for the outgoings attributable to the premises. A lease that reserves a net rental usually requires the lessee to pay a separate amount for outgoings of the building of which the premises is part, proportional to the lettable area of the building…
6. Thus, for commercial reasons, a lessor and a lessee may agree that the lessee will pay a gross rental. In that case, the lessor will be required to absorb any costs attributable to outgoings for the leased premises. Ordinarily, the lessor will have calculated the amount of the gross rental in a sum that will automatically compensate the lessor for the cost of outgoings incurred. Alternatively, the parties may agree that the lease will include a term requiring the lessee to pay a net rental. In that case, the lessor will have to beer the cost of outgoings, but, as the above definition of net rentals shows, it is usual for the lease in that circumstance to include a specific term requiring the lessee to compensate the lessor on some appropriate basis for the cost of outgoings incurred.

Conclusion

1. The result is that orders will be made dismissing both Aust-One's claim and New-World's cross claim.
2. In principle, each party is entitled to be paid the costs by the other party of its successful defence of the relevant claim.
3. As I have noted above, it will be necessary for the parties to agree on the amount payable by Aust-One to New World in performance of the payment covenant, and I invite the parties to submit appropriate short minutes of order to my Associate.

ANNEXURE A (552191, pdf) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 February 2022