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

Background to the issues arising on the appeal

1. The proceedings concern two retail buildings which are located in a shopping area in suburban Sydney. Rather than identify the respective addresses or Lot numbers, the primary judge described both buildings by reference to their street numbers: No 181 (owned by Aust-One) and No 183-185 (owned by New World). Both buildings have frontage to a main street in the shopping area (the Street), with a lane located at the rear (the Lane). Across the Lane from the buildings is a multi-storey car park that the local Council constructed (the Car Park): [2]. Access to the Car Park from the Lane is via a footbridge over a stormwater culvert.
2. No 181 is the dominant tenement: [3]. The two-storey building that is located on No 181 comprises five shops on the ground floor (one of which is a restaurant) and two residential units on the first floor. Aust-One has been the registered owner of No 181 since August 2002.
3. No 183-185 is the servient tenement: [3]. Like No 181, the building located on No 183-185 currently houses a number of retail shops. New World has been the registered owner of No 183-185 since 1992.
4. The covenant in issue was contained in an agreement that was executed in a registrable form on 30 September 1963, by the then owners of No 181 and of No 183-185. Like the primary judge, I will refer to this document as the Transfer: [3]. The Transfer is registered on the folios of both No 181 and No 183-185. Given its significance to the issues on the appeal it is convenient to set out its terms in full: "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."
5. As the primary judge summarised at [23] and [39], the Transfer includes the following easements: 1. An easement of two parts in favour of No 181: a right of way (on foot) over the arcade in No 183-185 and a right to use the amenities located in that building (Clause (a)). 2. An easement for support also in favour of No 181 (Clause (b)).
6. The grant of the easements was expressed to be "in consideration of the covenants on the part" of the then owners of No 181. The following covenants in the Transfer applied to the owners of No 181, and were expressed also to bind "his her and their executors administrators and assigns": 1. What his Honour, and the parties on this appeal, referred to as the "payment covenant" in Clause 2 of the Transfer; and 2. The "competition covenant" in Clause 3 of the Transfer.
7. In addition to the covenants binding the owners of No 181, the owners of No 183-185 were subject to the "repair covenant", in Clause 1 of the Transfer. Finally, Clause 4 required the Council's consent to any agreement by the other parties to the Transfer or their successors to release, vary or modify any of "the rights hereby transferred and granted".
8. A number of drawings were annexed to the Transfer, which were also registered. A sketch plan that the primary judge prepared using an agreed colour copy of the deposited plan is annexed to these reasons. The drawing of the deposited plan shows the right of way over No 183-185 created by Clause (a) of the Transfer, by reference to the cross-hatching of the path through the arcade. The double-cross-hatching shows the four shops forming part of No 181 which were intended to have the benefit of the right of way. The deposited plan also included two smaller diagrams. Diagram A depicts the part of the first floor of No 181 over which the right of way extended, to the creation of a passage and what was described as the toilet block. Diagram B depicts the stairs leading from the ground floor of No 183-185, over which the right of way ran (to give access to the toilet block).
9. Also annexed to the judgment of the primary judge, and annexed to this judgment, are the two 'as built' plans which a director of New World prepared. The as built plans indicated that by contrast to the deposited plan, there was in fact a passageway beside Shop 4A that provided access from the back of the restaurant and the two residences upstairs to both the Street and the Lane, by means of the arcade on No 183-185: [34]. The basic layout of the ground floor of the properties can be seen in the following drawing (which is not to scale):
10. As the primary judge observed, the Transfer had the effect that "the whole of No 183-185 was made the servient tenement", even though the easement granted only burdened the cross-hatched part of that property: [28]. By contrast, the payment covenant in Clause 2 of the Transfer applied only to the gross rental received from Shops 1A to 4A on No 181, which were marked with double cross-hatching: [29].
11. The Transfer and its registration followed the execution of a deed on 16 February 1962 by the then owners of No 183-185, the then owners of No 181, and the Council (the "Council Deed"). The primary judge admitted the Council Deed on the application of New World and over the objection of Aust-One, on the basis that "it contained evidence of a number of objective background facts of which there was otherwise no evidence": [13]. As Aust-One maintains its challenge to the admissibility of the Council Deed (Ground 1 of the Notice of Appeal), it will suffice to refer to his Honour's summary at [14]: "(1) At the time the [Deed] was made, Mr and Mrs Reich [the owners of No 183-185] 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 [the owners of No 181] 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 [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 [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."
12. The evidence established, and as was in any event apparent from the drawing reproduced above, that each of Shops 1A, 2A, 3A and 4A in No 181 could not access the Lane except through the arcade that formed part of No 183-185. 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 on No 181 could be made through the front door of the restaurant or the arcade; and rubbish was removed through the arcade into the Lane: [60].
13. There was evidence before the primary judge, in the form of part of a draft contract between the ultimate assignors of No 181 to Aust-One, which showed that Aust-One acquired No 181 with notice of the payment covenant: [37]. It was not clear to the primary judge from the evidence whether Aust-One had agreed with its assignors to comply with the payment covenant (at [37]), but from 24 July 2002 to 6 December 2019 Aust-One did comply, paying New World a total of $577,094.37, or almost $33,000 per year: [4]. There was also evidence from Mr Poon, a director of New World, concerning New World's maintenance and repair of the arcade stairs, arcade restrooms and the arcade corridor. His Honour admitted evidence from New World as to the associated expenditure, along with evidence of expenditure on cleaning and waste disposal, maintenance and repair, and light and power rates, on the limited basis that it might ultimately be relevant to prove activities required of the servient tenement owner to comply with the repair covenant: [62].
14. On 15 October 2020, Aust-One filed a statement of claim seeking a declaration that the payment covenant was not a burden which ran with No 181 and, as such, it was not liable to pay New World (or any successor in title) any money pursuant to that covenant. New World filed a cross-claim, seeking declaratory relief to the opposite effect, and damages in the sum of $63,482.85 (for outgoings that the shops deducted from the "gross" rental payments).
15. The parties joined in asking the Court to decide two issues, the first of which was whether New World could enforce the payment covenant against Aust-One: [8]. His Honour would later put the question by reference to its potential consequences at [64]: "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."

The admissibility of the Council Deed

1. The first issue his Honour dealt with was Aust-One's objection to New World tendering the Council Deed. Aust-One contended that the Council Deed was irrelevant to the proper construction of the Transfer, relying on Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45 ("Westfield"). In Westfield, the High Court held that material that was extrinsic to what was available on the Torrens Register was not admissible to establish the intention or contemplation of the parties to the grant of (relevantly) an easement: at [39], [45]. Aust-One also relied on the decision of Edelman J in Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281 ("Fermora"), in which his Honour held that an unregistered deed was inadmissible to construe an instrument registered under the Torrens system, even though the deed was referred to in the registered instrument.
2. The primary judge took the view that New World did not seek to rely upon the Council Deed for the purpose that the High Court in Westfield held was impermissible: [53]. His Honour also considered that the wording of the Transfer was sufficiently clear on its face and it was unnecessary to refer to the Council Deed to construe it: [53], [57]. His Honour did identify a distinction between the deed in issue in Fermora and the Council Deed, in that the latter was likely to have been retained on the Council's file and thus be available for inspection, whereas the deed in Fermora may not have been readily attainable by a subsequent purchaser: [51]. However, his Honour held that it would in any event have been obvious to any purchaser of No 181, from the terms of the Transfer, that the Council had the right to veto any release of the rights granted thereunder: [51].

Enforceability of the payment covenant

1. It was common ground before the primary judge that the Transfer validly created easements for right of way and use of the amenities (Clause (a)) and for support (Clause (b)), once and for all, at the time of registration: [65]. It was also common ground that the competition covenant (Clause (3)) was a negative or restrictive covenant within the scope of the doctrine in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143, and was enforceable against Aust-One [66]. There was also no question that Aust-One could enforce the repair covenant (Clause (1)) against New World notwithstanding that it was positive in nature, having regard to the terms of s 88BA and s 88F of the Conveyancing Act 1919 (NSW): [67].
2. The payment covenant (Clause (2)) was in a different category. As it involved an obligation to pay money, it constituted a positive covenant and did not fall within the scope of Tulk v Moxhay: [68]. The primary judge also acknowledged the "general rule" that positive covenants are not enforceable against successors in title, as stated by Lord Templeman in Rhone v Stephens [1994] 2 AC 310 at 316-7 with the unanimous agreement of the other Law Lords: [70]. The primary judge identified two avenues by which the payment covenant may nonetheless be enforceable, "notwithstanding that it does not run with the land at common law or in equity against successors in title to the transferees": [75]. The first avenue is relevant to the Notice of Contention, and the second is the focus of the Notice of Appeal.

Payment covenant as an essential part of the easement

1. His Honour described the first way in which the payment covenant may be enforceable as "somewhat exceptional and problematic as a matter of principle". It involved "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": [76].
2. This was New World's primary submission in support of the enforceability of the payment covenant: that, read as a whole, the Transfer created one transaction or "deal", in which all grants and covenants were "interwoven": [77]; [180]. Aust-One submitted, on the other hand, that the payment covenant, as an obligation undertaken by the grantee, did not sufficiently relate to the rights granted by the easements and the repair covenant. It only required payment of one-quarter of the gross rentals received from the four shops; and it did not include rentals from the restaurant or the residences on No 181: [206].
3. The primary judge stated that the modern source of this so-called avenue of enforceability was the decision of Herdman J in Cameron v Dalgety [1920] NZLR 155. Without expressing a concluded view as to the correctness of that decision, the primary judge considered that even if what his Honour described as the "essential part" argument existed and was of the widest possible ambit, the payment covenant would not be enforceable on that basis against Aust-One: [81], [87].
4. An obvious point of distinction between the repair covenant in issue in Cameron v Dalgety and the payment covenant was that the former "was made by the grantor of the easement and not by the grantee": [88]. His Honour referred in this context to the decision of Kneipp J in Rufa Pty Ltd v Cross [1981] Qd R 365 ("Rufa v Cross"), who concluded that Cameron v Dalgety did not establish that a covenant by the grantee of an easement may be an essential part of the grant: [90]-[91]. His Honour observed that Kneipp J's conclusion in Rufa v Cross was referred to with approval by Bryson J in Clifford v Dove (2003) 11 BPR 21,149; [2003] NSWSC 938 at [66]-[68], and by McMurdo J in Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244 ("Rural View Developments v Fastfort") at [19]-[24]: [92].
5. In the present case, all of the easements in the Transfer could, in his Honour's opinion, "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": [182]. Accordingly, performance of the payment covenant could not be said to be "essential to the operation of the easements and thus of the essence of those easements": [183]. His Honour concluded at [184]: "If New World's argument is valid, all of the covenants would bind successors in title to the owners of the two properties, and the effect would be to circumvent all of the legal principles that limit the circumstances in which the burden of a positive covenant may be enforceable against successors in title to parties to dealing with freehold land, at least where the covenants are associated with the grant of easements. The success of New World's argument would outflank all the law flowing from Rhone v Stephens."

The conditional benefit principle

1. The second way his Honour considered the payment covenant may be enforceable relied on its performance being "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": [78]. His Honour summarised the argument as follows at [78]: "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."
2. The primary judge conducted a detailed review of the authorities concerning the development of this principle and its reception in courts of this country. I will refer to his Honour's review in the course of considering the parties' arguments on the appeal. For present purposes, however, it is sufficient to record his Honour's conclusion at [147], that the principle was part of the law of Australia, a conclusion which his Honour considered was supported by the judgment of Kneipp J in Rufa v Cross and of Mullins J in Fanigun Pty Ltd v Woolworths Ltd [2006] 2 Qd R 366; [2006] QSC 28 ("Fanigun v Woolworths"). His Honour stated the principle, at [141] and [147], by reference to the following three propositions that Sir Andrew Morritt C identified in Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164 at [27] (Scott Baker LJ and Lewison J agreeing): "(1) The benefit and burden must be conferred in or by the same transaction. In the case of benefits and burdens in relation to land it is almost inevitable that the transaction in question will be effected by one or more deeds or other documents. (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."

Ground 1 of the Notice of Appeal: admissibility of, and reliance on, the Council Deed

1. Aust-One contended that the primary judge erred in having regard to the Council Deed in construing the Transfer, "even for the limited purpose of gleaning facts objectively known by the parties" to the Transfer at the time it was executed and/or registered. Relying on Westfield and subsequent authorities, Aust-One submitted that his Honour was constrained in the evidence to which he could have regard in interpreting a registered dealing. Aust-One submitted that his Honour's characterisation of a number of the rights granted could not have been gleaned from the terms of the Transfer or the Deposited Plan (both of which showed the four shops in existence), specifically: 1. the description of the payment covenant as relating only to "the new development on No 181": at [209]; 2. the suggestion that the making of the payment covenant was "as much a requirement of the Council deed and the Transfer as any other right that was created by those instruments": at [220]; and 3. the assumption that it was the granting of the right of way that enabled Shops 1A to 4A to be developed and operate, thereby linking the benefit of, primarily, the right of way to the rent derived from leasing those shops to justify why the payment covenant was enforceable. In particular, Aust-One relied on his Honour's statement that the creation of the easements enabled the owner of No 181 to derive a commercial benefit "that otherwise would not have been feasible": at [176].
2. In response, New World submitted that the primary judge had not ascribed any weight to the "facts as they existed at the date of the Transfer". Rather, it contended that his Honour had relied upon the terms of the Transfer, the Deposited Plan, and the physical layout of the properties, which was observable by third parties. Unlike Fermora, the present case was not one in which New World had submitted, or the primary judge had found, that the Council Deed was admissible for the purpose of construing the Transfer.
3. It is apparent from the reasons of the primary judge, to which I have referred at [22] above, that his Honour was cognisant of the limitations on the use he could make of the Council Deed in construing the Transfer. His Honour's reasons indicate that his conclusions rested upon the terms of the registered documents, including the Transfer and the drawings that formed part of the Deposited Plan. True it is that his Honour referred to some of the terms of the Council Deed, and the development of No 181 and No 183-185, but his Honour's primary focus was the operation of the two premises having regard to the terms of the Transfer alone. As his Honour observed, it was evident from its terms that Shops 1A to 4A derived a significant benefit from the right of way and use of amenities granted. Ground 1 should be dismissed.

The Notice of Contention: Was the payment covenant part of the essential fabric of the easements granted?

1. It is convenient to deal next with the Notice of Contention, as it related to the first of the ways in which his Honour considered that a positive covenant could bind successors in title notwithstanding the general rule in Rhone v Stephens. New World submitted that his Honour should have found that the payment covenant was part of the "essential fabric" of the right of way and the use of amenities. New World contended that a positive covenant may be essential to an easement "if the terms of the easement on its proper construction make it so". It submitted that the Transfer, properly construed, indicated that the payment covenant was so essential to the easements for right of way and use of amenities that it could not be severed from them.
2. New World accepted that authority on the issue was "plainly limited". It relied primarily on Cameron v Dalgety, which concerned a grant of water to the plaintiff's property, by deed, from a source of water on the defendant's adjoining estate. The water flowed through a water race on the estate, and the deed included an obligation imposed on the owner of the estate to keep the water-race properly cleaned out and its banks properly maintained and repaired. In allowing the plaintiff's claim for damages for breach of the covenant of repair and maintenance, Herdman J found that the covenant to repair was part of the grant (at 163-164): "It is part of the benefit conferred upon the grantee, for, after all, what benefit did the grantor undertake to give, and what benefit did the grantee stipulate for? Surely a right to water which might run in a race in a state of repair. Whether the covenant does or does not run with the land does not seem to me to matter. If the covenant is an easement or part of an easement, or is an incident to an easement, that, I think, is sufficient to bind the assigns of the grantor and to confer a benefit upon the assigns of the grantee."
3. Apart from Cameron v Dalgety, New World relied on a decision of Newton DCJ, sitting in the District Court at Gunnedah, in Frater v Finlay (1968) 91 WN (NSW) 730. At issue in that case was whether the successor in title of the dominant tenement, which had a right to take water from bores on the servient tenement, was bound by a term of the grant to the effect that the cost of keeping the bores would be shared equally between the transferor and transferee. In agreeing with the reasoning of Herdman J in Cameron v Dalgety, Newton DCJ expressed the view that "if the grantor of an easement can bind himself and his assigns to repair by the grant then, a fortiori, the owner of the dominant tenement can bind himself and his assigns to repair or to contribute to the cost of repairs if the repairs are carried out by the owner of the servient tenement" (at 735; see also 736-737).

Grounds 2 and 3 of the Notice of Appeal: conditional benefit

1. By Ground 2, Aust-One contended that the primary judge erred in holding that: 1. performance of the payment covenant was a condition of the right of way, the right to use amenities and to enforce the repair covenant in the same dealing; and that 2. the payment covenant bound the appellant as the successor registered proprietor of the dominant tenement for so long as it continued to enjoy the aforementioned rights.
2. By Ground 3, Aust-One contended that the primary judge should have reached the contrary conclusions to those referred to in Ground 2.

Application of the conditional benefit principle

1. As I noted above, both parties proceeded on the basis that what the primary judge referred to as the conditional benefit principle was available. They continued to support its availability in supplementary submissions filed on the question of whether the principle should be adopted in the Torrens system, although Aust-One sought to limit its scope in a manner that New World opposed.
2. Accepting that no intermediate appellate court in Australia had decisively adopted the conditional benefit principle in respect of Torrens title land, Aust-One submitted that its reception had been endorsed by Kneipp J in Rufa v Cross, by Emmett JA in GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills (2014) 17 BPR 33,133; [2014] NSWCA 202 at [29] (Gleeson JA agreeing) ("GM Amalgamated"), and by Sackville JA in the same case (at [68]). The latter case demonstrated, in Aust-One's submission, "the place and justification for why certain positive covenants - tied to restoring the servient tenement - should run with the land". New World endorsed Aust-One's submissions on these cases and advanced a number of reasons why the principle should be adopted.
3. Although both parties proceeded on the correctness of the three propositions in Davies v Jones, Aust-One submitted that the conditional benefit principle was limited to positive covenants imposing obligations that were "no more than restorative in nature, namely, to repair (or contribute to the repair of) the easements themselves, or to repair or remedy damage caused to the servient tenement by the exercise of the rights granted". The burden of such covenants was reciprocal "because the restorative action is tied to continuing the existence of the right or remedying the harm flowing from the exercise of that right".
4. Aust-One submitted that the payment covenant was not of that nature but rather was a positive covenant that was designed to share the economic benefits that the dominant tenement derived from the existence or use of an easement. The conditional benefit principle did not, in its submission, extend to such a covenant, there being no decided cases which supported it and no criterion by which a court could determine whether such a covenant was genuinely sharing economic benefits (absent economic evidence (which would in any event be inadmissible, having regard to Westfield)). Further, such positive covenants could not be accommodated within the classical definition of an easement. In light of the uncertainty such covenants would generate, application of the principle would be contrary to the objectives of the Torrens system.

Aust-One's submissions on Grounds 2 and 3

1. Assuming that the conditional benefit principle applied, Aust-One's central contention was that the primary judge had misapplied it in four key respects.
2. First, his Honour had misconstrued the payment covenant as being in exchange for the right to participate in a single functioning retail arcade. In Aust-One's submission, the right of footway, the right to use amenities and the repair covenant, which it termed the "Conditional Rights", did not meet the description of the right that the primary judge considered the Transfer conferred. Further, and significantly in its submission, the payment covenant was not properly construed as consideration for the "continuation" of the right to participate in a single functioning retail arcade.
3. Secondly, Aust-One submitted that the primary judge had wrongly focused on the intention of the original parties to the Transfer, when the critical question was "whether there is a sufficient connection, correlation, reciprocity or mutuality between the Payment Covenant and the exercise of the rights conferred by [the Transfer]" (original emphasis). That question was not answered affirmatively simply because the consideration for the grant of the rights was predicated on the payment covenant being observed in perpetuity.
4. Thirdly, Aust-One submitted that the primary judge erred in giving an affirmative answer to the critical question posed in the previous paragraph. It advanced five reasons in support of this submission, the first of which was that, as a matter of text, the payment covenant was not referable to the use or exercise of any easement, but rather was expressed to be consideration for the original grant. Next, the payment covenant did not operate by reference to the exercise of any of the easements, but by reference to the letting of the four shops referred to. The primary judge conflated the benefit flowing from the Transfer, which was enjoyment of the easements and the repair covenant, with the benefit flowing from leasing the four shops.
5. Aust-One further submitted that a covenant to pay a quarter of the gross rentals from the four shops was not a proxy for the exercise of the Conditional Rights. It supported this contention by reference to the operation of the payment covenant during the "said term" of the easements granted by the Transfer. On this construction, if only the easement for support remained, the payment covenant would be unaffected notwithstanding that it did not, on the primary judge's findings, condition that easement. In that respect, Aust-One sought to emphasise the absence of relevance, correlation and reciprocity between the benefit and the burden, in the sense that the burden of the payment covenant would remain undiminished even where discrete benefits were relinquished. On this aspect of the alleged error, Aust-One finally contended that even if the primary judge correctly characterised the Conditional Rights as constituting, in substance, a right to participate in a functioning retail arcade, enjoyment of that benefit could readily be had without incurring the purported correlative or reciprocal burden in the payment covenant, by the proprietor of No 181 personally operating the four shops.

New World's submissions on Grounds 2 and 3

1. New World endorsed the primary judge's observation at [101] that the Court's task was "to determine what the true meaning and effect of the conditional benefit principle is, and having done that, to apply the principle to the current facts". In contrast to counsel for Aust-One's "formal" analysis that the Transfer "merely" granted the Conditional Rights to the owner of No 181, counsel for New World submitted that his Honour was correct to consider what, in substance, the Conditional Rights gave to the owner of No 181 and what, in substance, the owner was paying for.
2. New World submitted that the primary judge was correct to conclude that, as a matter of substance, Aust-One was paying for a right to participate in, or the benefit of participating in, a functioning retail arcade. The structure and language of the Transfer supported that finding, as did the physical layout of the properties. In response to Aust-One's argument that the owner of No 181 could personally operate retail businesses from the four shops, New World submitted that the Transfer contemplated, and only contemplated, the letting of those shops. A decision on the part of the owner to operate them would defeat the operation of the payment and competition covenants, with such a radical shift in operations requiring Council's approval pursuant to the consent covenant. In any event, New World contended, Aust-One should not be permitted to raise this aspect of the argument for the first time on appeal.

The principle of conditional benefit

1. Given that the principle of conditional benefit is said to constitute an exception to the general rule, it is important to acknowledge the general rule and its rationale. It has long been established that the burden of a positive covenant is not enforceable against successors in title of the covenantor: Austerberry v Corporation of Oldham (1885) 29 Ch D 750 ("Austerberry") at 773-774 per Cotton LJ, 781 per Lindley LJ, 784 per Fry LJ. In declining to overrule Austerberry in Rhone v Stephens, Lord Templeman summarised the position at common law (at 316-317): "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. Lord Templeman acknowledged that restrictive covenants are enforceable in equity. However, enforcement of a positive covenant in equity would "flatly [contradict]" the common law rule "that a person cannot be made liable upon a contract unless he was a party to it" (at 318): "Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property. As Lord Cottenham L.C. said in Tulk v Moxhay, at p. 778: 'if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased'."

Application of the principle

1. Each of the cases to which I have referred above are instructive in understanding the content and application of the principle that Sackville AJA succinctly summarised in GM Amalgamated. Ultimately, however, as his Honour stated, the application of the principle rests on construction of the terms of the relevant instrument.
2. I have set out the terms of the Transfer in [9] above. The subject matter of the Transfer is the grant of two easements over No 183-185. The right conferred by the first grant was twofold: "to pass and repass on foot along and over all that part of the Arcade … as shown in the plan hereunto annexed", 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". The right conferred by the second grant was one of support in relation to a wall along the boundary between No 181 and No 183-185. It was common ground that these rights took effect upon registration of the easement. Pursuant to the consent covenant, the rights could only be released, varied, or modified by the parties to the Transfer jointly, and only with the consent of the Council.
3. The grant of the easements was expressed to be "in consideration of the covenants and Agreements on the part of" the then owners of No 181 that are set out in the clauses following the grant of the easements. The payment covenant was the first of the obligations and is positive in its terms, and is to operate "during the said term". It required the owners of No 181 "and his her and their executors administrators and assigns" to pay, each month, one-quarter of the gross rentals they received "in respect of the shops erected by the transferees" on an area of No 181 defined by green shading on the annexed plan.
4. Neither the terms of grant of the easements nor the terms of the payment covenant expressly condition the exercise of the rights conferred by the easements on compliance with the payment covenant. There is also no reference in the payment covenant to the purpose for which the payment which it requires is made. The only description of purpose is in the chapeau of the Transfer, to which I have referred above.
5. The terms of the Transfer are thus distinguishable from the terms of the agreements in issue in cases such as Aspden (see above at [89]), Fanigun v Woolworths (see above at [118]) and Rufa v Cross (see above at [92]-[94]). The transferee's right to exercise the right of footway and to use the amenities is not expressly qualified by reference to compliance with the payment covenant.

Conclusion

1. The appeal should be allowed. By way of relief, the appellant sought a series of orders, the effect of which was to obtain repayment of the monies it had paid to New World, pursuant to the payment covenant and pursuant to the orders of the primary judge. The respondent did not raise any issues with the orders the appellant sought in the event that the appeal was allowed.
2. Accordingly, I propose the following orders: 1. Appeal allowed. 2. Set aside the Order made on 18 February 2022 insofar as it dismissed the Statement of Claim filed on 15 October 2020 along with Orders 1 to 5 of the Orders made on 7 April 2022 and in lieu thereof: 1. Declare that covenant 2 in the Memorandum of Transfer registered on 9 November 1964 with the designated dealing number J592560 (the payment covenant) is not a covenant the burden of which runs with the land comprised in Auto-Consol 12356-1 (the Property) or binds the plaintiff as a subsequent registered proprietor of the Property. 2. Declare that the plaintiff, being the registered proprietor of the Property, is not liable, or obliged to pay, any money to the defendant, being the registered proprietor of the land comprised in Lot 2 in DP 103524, or any successor in title thereto, pursuant to the payment covenant. 3. Judgment for the plaintiff against the defendant in the amount of $270,626.05 (comprising the principal sum of $219,762.85 plus interest of $50,863.20 pursuant to s 100 of the Civil Procedure Act 2005 (NSW)). 4. Order the defendant/cross-claimant to pay the plaintiff/cross-defendant's costs of the proceedings, being both the plaintiff's Statement of Claim and the defendant's Amended Statement of Cross Claim. 1. The respondent is to make restitution to the appellant of: 1. the sum of $83,181.32 paid by the appellant to the respondent on 26 April 2022 pursuant to Order 3 of the Orders made on 7 April 2022, along with interest on that sum from 26 April 2022 pursuant to s 101 of the Civil Procedure Act 2005 (NSW); and 2. the further payments that the appellant has made to the respondent pursuant to the payment covenant since March 2022 in accordance with the declaration made on 7 April 2022, along with interest on those sums pursuant to s 101 of the Civil Procedure Act 2005 (NSW). 1. The respondent pay the appellant's costs of the appeal.
3. KIRK JA: I have had the benefit of reading the reasons of Mitchelmore JA. I agree with the orders her Honour proposes. I also agree with her Honour's reasons for rejecting ground 1 of the appeal along with the notice of contention. As regards grounds 2 and 3, relating to the "conditional benefit principle", my reasons are as follows. In light of her Honour's judgment I will not repeat the facts nor seek to summarise the judgment of the primary judge except to the extent necessary.

The nature of the issue

1. In February 1962, 61 years ago, the predecessors in title of the parties entered a deed (Deed). The local council was also a party to the Deed. It records that at that time the owners of the land at Nos 183-185 (now owned by the respondent New World ) were erecting an arcade of 12 shops in the Sydney suburb of Eastwood. The owners of the land next door at No 181 (now owned by the appellant Aust-One), wished to erect four shops at the rear of their existing building, with access to those shops being through a passageway in the arcade at Nos 183-185. They had applied to the local council for planning approval for the erection of the shops. That application had been approved by the council subject to a condition that an agreement be entered to ensure a right of way for access to the proposed shops "being permanently provided".
2. The Deed sought to fulfil that condition. It relevantly provided for the creation of a right of way through Nos 183-185 in favour of No 181 as set out in the terms of a proposed transfer which was annexed to the Deed.
3. The transfer was required to be registered on the Torrens register in this State, pursuant to the Real Property Act 1900 (NSW). Until that occurred, the owners of each of the properties covenanted that in the event of either of them mortgaging, selling, transferring or otherwise alienating their land they would procure a covenant from the person on the other side of that transaction that they would be bound by the terms of the Deed, including as to any further alienation down the line. That obligation ended once the right of way was registered.
4. A transfer in accordance with the terms of the Deed was registered in 1964 (Transfer). It is set out in full above at [9].
5. The Transfer also provided for other rights beyond the right of way. There was to be an easement of support for a wall, in favour of No 181. The owners of No 183-185, and their successors, were bound by a repair covenant in relation to certain facilities. The owners of No 181 subjected themselves and their successors to a competition covenant, restricting what businesses could be conducted in the four shops at the back. Critically, the owners of No 181 promised in a payment covenant that they, "and their executors administrators and assigns", would pay the owners of Nos 183-185 one quarter of the gross rentals received by them each month in respect of the four shops. In the Transfer the grant of the property rights in favour of the owners of No 181 was said to be "in consideration of the covenants and agreements" on the part of the owners of No 181. The payment condition is clearly a positive, not negative, covenant.

The resistance of the general law to covenants burdening land

1. At common law (in the stricter sense), at least by the middle of the 19th century, it was established that the burden of a covenant did not "run" with the land, leaving aside certain circumstances in the law of landlord and tenant and, historically, save in respect of covenants as to title. However, the benefit of a covenant could do so. This meant that the successors of the dominant tenement (the covenantee) could enforce a covenant, but they could only do so as against the original owner of the servient tenement (the covenantor) and not the successive owners. The High Court explained the position in Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1998) 193 CLR 154; [1998] HCA 15 at [25] (citations omitted): At common law, save as between landlord and tenant, where special rules apply, the burden of covenants did not run with the covenantor's land. In some circumstances, the benefit might run with the land but, in particular, when the covenant was taken, the covenantee was required to have an estate in the land to which the covenant was intended to attach. A successor of the covenantee could not enforce the covenant unless that party held the same estate in that land or in some portion of that land.
2. This approach embodies the common law's general aversion to long-term clogs on the use of property, which one finds manifest elsewhere in the law, for example in the rule against perpetuities. In Forestview Nominees, at [15], the High Court referred to "the common law being wary of long-term inhibitions to the realisation of the full potential of the servient tenement". Such clogs impede the efficient use of property, to the detriment of subsequent owners and the community.
3. The rigidity of the common law position in the mid-19th century provoked equity's intervention. In Tulk v Moxhay (1848) 2 Ph 776; 41 ER 1143 at 1144, Lord Cottenham explained: It is said that, the covenant being one which does not run with the land, this Court cannot enforce it; but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Of course, the price would be affected by the covenant, and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken.

The English development of the conditional benefit principle

1. In seeking to assess the nature and legal merits of the conditional benefit principle as it has evolved in England it is useful to review the key cases from which it is said to have emerged. The pivotal decision was that of Lord Templeman, speaking for the House of Lords, in Rhone v Stephens [1994] 2 AC 310. In that decision his Lordship referred to the decision of Megarry VC in Tito v Waddell (No 2) [1977] 1 Ch 106, but adopted a more limited view than the "pure" principle articulated by Megarry VC. It is not necessary to review Tito here, noting that Mitchelmore JA discusses it in her Honour's judgment.
2. Lord Templeman did expressly approve the decision of Upjohn J in Halsall v Brizell [1957] Ch 169. It is appropriate to start there. It is then also illuminating, before turning to Rhone v Stephens, to refer to a line of mining cases which was referred to in Tito at 296-298 (see also the judgment of the primary judge in this case at [103]-[111]).

Halsall v Brizell and the taking of benefits under a deed

1. Halsall concerned a building scheme. In 1851, the owners in fee simple of 40 acres of land subdivided it, selling 174 separate house parcels to a number of other parties. The original owners retained their fee simple interest in a promenade, a sea wall and the roads and sewers, but by a deed entered into with the purchasers declared that they held those on trust for the owners of the 174 parcels of land. The plaintiffs were the successors in title of the original owners as trustees of the common land. The deeds contained a covenant requiring the grantees to "pay a due and just proportion" for the upkeep of the roads, sewers, promenade and sea wall. Levies were set annually. Some of the house owners, being successors in title to the original purchasers, refused to pay the levy after the manner of calculation was changed. Two questions arose: whether the defendant owners were bound by the covenant, and whether the new method of calculation of the levies was authorised by the deed in question.
2. The case was heard by Upjohn J, who delivered judgment on the same day as the case was heard. He held that the defendants were bound, but that the levies were not authorised by the deed. On the first issue, he stated as follows at 182: [A] positive covenant in the terms of the seventh covenant [being the covenant to pay upkeep] does not run with the land. … But it is conceded that it is ancient law that a man cannot take benefit under a deed without subscribing to the obligations thereunder. If authority is required for that proposition, I need but refer to one sentence during the argument in Elliston v. Reacher [(1908) 2 Ch 665, 669], where Lord Cozens-Hardy M.R. observed: "It is laid down in Co. Litt. 230b, that a man who takes the benefit of a deed is bound by a condition contained in it, though he does not execute it." If the defendants did not desire to take the benefit of this deed, for the reasons I have given, they could not be under any liability to pay the obligations thereunder. But, of course, they do desire to take the benefit of this deed. They have no right to use the sewers which are vested in the plaintiffs, and I cannot see that they have any right, apart from the deed, to use the roads of the park which lead to their particular house, No. 22, Salisbury Road.
3. Upjohn J's decision was the subject of an insightful analysis in a case note by HWR Wade: Case and Comment: Real Property - Positive Covenant - Deed - Perpetuity (1957) 15 Cambridge Law Journal 35. As to the authority relied on by the judge, Wade had this to say (at 37): The only precedent cited by Upjohn J is a reference to Co.Litt. 280b interjected by Lord Cozens-Hardy M.R. in argument in Elliston v Reacher [1908] 2 Ch. 665, but the principle played no part in the Court of Appeal's decision. Stray references to the doctrine always lead directly back to this text of Littleton, which Coke illustrated by some cases from the year-books. Those cases deal with the problem of suing a person who has been made party to a deed, but has omitted to execute it; and the doctrine is, that if one of the parties to a deed takes the benefit of it, he can be sued upon it even though he did not execute it.

The mining cases

1. In Aspden v Seddon (1876) 1 Ex D 496 the plaintiff brought an action seeking damages for injury to the plaintiff's land caused by mining undertaken by the defendants on the plaintiff's land. A previous holder of the fee simple in the land, who also owned the surrounding lands, had divided his lands, and granted the piece of land held by the plaintiff to a predecessor in title of the plaintiff. The grantor had reserved to himself rights to the minerals in the land and the access thereto, subject to a covenant to: make and pay full and reasonable compensation … for all damage, spoil, injury, or loss that shall or may from time to time be sustained by the owner, tenant, or occupier, tenants, or occupiers for the time being … by reason in respect or in consequence of the searching for, getting, working, or carrying away any of the hereinbefore excepted mines, minerals, or substances lying within or under the same land or any part thereof.
2. The mineral rights were subsequently acquired by the defendants. The defendants' mining caused subsidence on the plaintiff's land. The defendants contended at first instance and on appeal that the plaintiff could not sue on the covenant because there was no privity between the parties and the covenant did not run with the land.
3. Neither the judges of the Exchequer Division nor the judges in the Court of Appeal could cite any firm authority in support of the plaintiff's argument, and indeed remarked on the absence of authority. They nonetheless all found in his favour. At first instance, after describing what would be the "utter unreasonableness" of not finding for the plaintiff, Bramwell B explained (at 504): I do not know that one could gain much by putting examples, but I put this case to Mr Crompton, who argued for the defendants: if a right of way be granted, the grantee paying a penny for each time of user, - and in order that no difficulty be made about it, we will say such payments to be made quarterly or yearly, - the grantee cannot be challenged for trespass, because he could shew the grant of the right of way. Is there to be no remedy for the agreed price of the user? It seems to me impossible that that could be so.
4. He said that if the common law gave no remedy in these types of case, "it seems to me it would be much more defective than I have been accustomed to consider it ever since I have had acquaintance with it" (at 504). It is strange that his Honour speaks only of grantors and grantees, and not of their successors in title. The approach of Bramwell B appears broad. His example of charging a penny for each use of a right of way is not linked, expressly at least, to remedying any harm caused by the use. It is, however, an example of a grant of a right that is qualified in the sense that if and when exercised it is subject to a condition.

Rhone v Stephens

1. Rhone concerned an adjoining house and cottage which were separated into two dwellings when the cottage was sold in 1960. Clause 2 of the original conveyance of the cottage had the effect of conferring and confirming mutual rights of support between the house and cottage. The house's roof also constituted part of the roof of the cottage. By clause 3 the vendor covenanted that he and his successors would keep that part of the roof windtight and watertight. The issue in the case was whether that covenant was enforceable against a successor in title owning the house. The House of Lords held that it was not.
2. Lord Templeman, speaking for the Lords, rejected a "pure principle of benefit and burden" in favour of a narrower approach which has come to be called the "conditional benefit principle". The relevant discussion was brief (at 322-323): [The cottage owner] 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 VC 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 VC 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.

Subsequent English Court of Appeal authority

1. The decision in Thamesmead Town Ltd v Allotey (2000) 79 P & CR 557 concerned a subdivision where the plots were subject by deed to an obligation to pay for janitorial services, maintenance of communal (including landscaped) areas, and maintenance of services including paving, sewers, lighting and roads. A successor owner of one of the plots declined to pay the fees. The trial judge held the defendant liable for some of the janitorial and service-maintenance fees, but not for the maintenance of the communal areas. The issue in the Court of Appeal was as to the defendant's liability for such maintenance. It held that he was not.
2. Peter Gibson LJ, speaking for the Court, considered that Lord Templeman had set out "two requirements for the enforceability of a positive covenant against a successor in title to the covenantor" (at 563-4): The first is that the condition of discharging the burden must be relevant to the exercise of the rights which enable the benefit to be obtained. ... The second is that the successors in title must have the opportunity to choose whether to take the benefit or having taken it to renounce it, even if only in theory, and thereby to escape the burden and that the successors in title can be deprived of the benefit if they fail to assume the burden.
3. As to the first, he indicated at 565 that: There must be a correlation between the burden and the benefit which the successor has chosen to take. Lord Templeman plainly rejected the notion that taking a benefit under a conveyance was sufficient to make every burden of the conveyance enforceable.
4. As to the second, he emphasised that the defendant must have a choice whether to exercise the right to which the burden was attached, saying as follows (at 565-566): [Counsel for the defendant] submits that once a successor in title enters into the transaction by which he takes title he is liable regardless of whether he has actually chosen to enjoy a benefit. ... He suggests that any other construction would lead to an impractical result requiring the plaintiff to monitor the exercise of rights by persons living in Thamesmead. For my part, I see considerable force in the common sense of that argument, but in the light of the authorities the argument seems to me impossible. … Lord Templeman in distinguishing Halsall v Brizell, expressed himself in terms which indicated that the successors in title had to have a choice whether to exercise the right or, having taken the right, whether to renounce the benefit. Lord Templeman was not expressing himself in terms that the successors in title had to have a choice whether to acquire the rights at all.

Is the doctrine legal or equitable?

1. The issue of whether the doctrine was legal or equitable is not clearly addressed in the English cases. Aspden was a common law claim. In the Chamber Colliery case, both an injunction and damages were sought, but on the basis of a trespass. Halsall was a case which concerned the validity of a resolution. Upjohn J did not refer to the type of claim the successors in title to the covenantees would have had, but the principle referred to in Coke on Littleton is a common law principle. That said, as noted, Wade equates Halsall to recognition of an implied contract, enforceable in equity. Lord Templeman did not discuss the point in Rhone.
2. In Tito v Waddell, Megarry VC reasoned as follows as regards his "pure principle" (at 309): it seems to me that whether the liability under the pure principle is legal or is merely equitable must primarily depend on whether the burden itself is legal or equitable. If the burden is merely equitable, so will be the liability. If the burden is legal, then I do not see why the liability should not also be legal. Whether the process that requires the burden to be assumed is legal or equitable, and whether it is based on acceptance or operates as a rule of law, what has been assumed should retain its quality of being legal if it is legal and equitable if it is equitable. If you take a burden, you must take it as you find it. If it be assumed that the pure principle operates only in equity (an assumption that I would not readily make), I do not see why equity should not say to the person seeking to take the benefit: "Unless you assume the burden at law, you will be restrained by injunction from taking the benefit."
3. That approach reflects the encompassing breadth of the "pure principle". Lord Justice Patten labelled the conditional benefit doctrine equitable, without exposition: Wilkinson at [10]; Elwood v Goodman at [2] and [4].
4. On one view, the question whether the conditional benefit principle that has developed in England well after the passing of the Judicature Acts is legal or equitable is an artificial one. However, if may have some relevance to the character of the principle. If the doctrine is to be accepted in Australia then seeing it as equitable is not only consistent with the recent English statements but coheres with equity's careful and limited recognition of the enforcement of negative covenants.

Australian authority on the principle

1. There has been very limited consideration of the conditional benefit principle at an intermediate appellate level or above in Australia.
2. Rufa Pty Ltd v Cross [1981] Qd R 365 concerned the extension of an existing common wall, the subject of mutual easements. Each side had a right to extend the wall at their own expense, but the other side was obliged to pay half the cost of doing so if they made use of the wall. One side, being successors in title, did make use of an extension but sought to avoid paying for it. The Full Court of the Queensland Supreme Court held them liable. One of the three judges, Kneipp J, decided the case by application of the conditional benefit principle. He did so by reference to Aspden, Westhoughton and Halsall. There was little analysis of the principle.
3. In Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829 (GIO), Brooking J, with whom O'Bryan J (at 830) and Nicholson J (at 856) agreed, engaged in an extensive refutation of the pure principle identified in Tito v Waddell. He also rejected, at 840, a narrower approach raised by Lord Denning MR in ER Ives Investment Ltd v High [1967] 2 QB 379: Lord Denning did … go on to advance the less general proposition that when adjoining owners of land make an agreement to secure continuing rights and benefits for each of them in or over the land of the other, neither of them can take the benefit of the agreement and throw over the burden of it, and that their successors are in the same position. But even this is too wide. It confounds the law relating to covenants affecting land. For Lord Denning's reference to Halsall v Brizell shows that his proposition embraces positive covenants; I have already drawn attention to some of the learned comments that have been made on that earlier decision. In the second place, Halsall v Brizell does not seem to me to support a proposition couched in terms of an agreement between owners of adjoining land to secure continuing rights and benefits for each of them in or over the land of the other, quite apart from the special circumstance that there the agreement was by deed and that Upjohn J invoked a rule relating to deeds. In that case the owners were, on the one hand, the trustees of the roads, promenade and sea wall and, on the other hand, the lot-holders. The trustees certainly gave the lot-holders "continuing rights and benefits ... in or over" the common parts that were vested in the trustees, but what was sought to be enforced against the lot-holders was not a continuing right or benefit in or over their lots but an obligation to contribute to the expenses of maintaining the common parts of the housing estate. In the third place, Lord Denning does not deal with the question of the sense in which the burden of a positive covenant may not be thrown over. Where the obligation is to pay money, can this be enforced by action and is this so even if the principle on which a successor is liable is purely equitable?

Should the conditional benefit principle be accepted as law in Australia?

1. The following strands emerge from the analysis above: 1. Leaving aside the recent English case law, the general law has been reluctant to allow covenants to run with land so as to bind successors in title. The common law has not allowed the burden of a covenant to run with the land; equity's intervention has been carefully limited by the identification of three requirements; and this area of the law has been significantly modified by statute (a point discussed further below). 2. The influential decision of Upjohn J in Halsall can be understood as akin to the recognition of an implied contract, enforceable in equity, rather than an acceptance of the ability of positive covenants to run with land. The defendants in that case had no rights to use of the roads or sewers in the common area, but if they chose to make use of them, they effectively took the rights as found in the deed entered by their predecessor in title. 3. The mining cases present no very clear principle. The judgments of Bramwell B and Cleasby B in Aspden can be argued to support the modern English view, but the other judgments do not appear to go that far and arguably were limited to mining rights. That being said, these cases do illustrate the justice of upholding against successors in title at least conditions on grants which require the person exercising the right to compensate the landholder for damage done by exercise of the right. 4. The decision in Rhone is not necessarily limited to property rights and is substantially based on Halsall. The decision requires that there be a right held by the defendant to which the condition which is sought to be enforced against the defendant is attached; that the condition be "relevant to the exercise of the right", which is a notion Lord Templeman did not develop; and, arguably, that the defendant has at least a legal, if not necessarily a practical, choice as to whether to enjoy (in the sense of exercise) the right to which the condition is attached. 5. Subsequent English Court of Appeal decisions have articulated a further requirement that the benefit and burden must be conferred in or by the same transaction. This statement encompasses the requirement that there must be a property right held by the defendant to which the condition which is sought to be enforced is attached. The decision in Thamesmead takes a relatively confined approach to the conditional benefit principle recognised in Rhone. Arguably a somewhat more relaxed approach was taken in subsequent cases, including as to the need for the benefits to correlate to the burdens obtained by the dominant owner. 6. Recent English cases have indicated that the conditional benefit principle is equitable, although there has been no clear exposition of the point. 7. There has been little consideration of the extent to which the conditional benefit principle as it has evolved in England is good law in Australia, and there is no binding authority on point.

Conclusion

1. For the above reasons, the conditional benefit principle does not support the claim made by New World. Aust-One was not liable to pay 25% of its gross rentals from the four shops benefitting from the right of way. The appeal should be upheld.

Amendments 21 February 2023 - 21 February 2023 - minor typographical amendment to orders 22 February 2023 - Counsel for appellant updated 24 February 2023 - Amendment to representation on cover sheet 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: 24 February 2023