Fitt v Luxury Developments Pty Ltd [2000] VSC 258

Supreme Court of Victoria|2000-06-20|Before: Gillard J

The applicant's land formed part of an estate known as the Como Estate which in 1911 was comprised in a Certificate of Title. The owners caused the land to be divided into 91 allotments but Lots 51-71 were deleted and never offered for sale. Five other lots though on the plan were never offered for sale. The balance of the lots, namely, 65, were offered for sale on 25 February 1911 and 51 were sold at auction. The remaining 14 were sold privately within the next two years.

It was a condition of the sale that each purchaser would enter into a covenant with the vendors and the covenant restrained a purchaser from erecting "on any one of the said lots more than one house or dwelling ... at a cost less than £800".

In accordance with the practice followed by the Office of Titles the Certificate of Title which issued noted the covenant contained in the transfer as an encumbrance.

Hudson J had no difficulty in concluding that there was a building scheme from the evidence before the court.

Having reached that conclusion he then passed to the second question that was argued. He summarised the argument at p.694. The applicant submitted that having regard to the provisions of the Transfer of Land Acts in force in 1911 when transfer No. 650684 was registered there was no power to notify as an encumbrance on the Certificate of Title issued to the transferee, who was the applicant's predecessor in title, a restrictive covenant depending for its existence on a building scheme. He further contended that even if there was power to do so then notification in the present case was ineffective to bind the subsequent transferees.

His Honour noted that Mr Vourmard QC based his arguments upon the provisions of the 1890 Transfer of Land Act.

His Honour following Sholl J in the case of Re Arcade Hotel Pty Ltd, supra, held that the practice followed by the Office of Titles in notifying restrictive covenants as encumbrances was justified and that when so notified such a covenant bound the land in the hands of subsequent transferees.

As I have said, the practice was given legislative approval in 1964 by the Transfer of Land (Restrictive Covenants) Act 1964, and the Registrar was deemed always to have had the power - see s.88(1).

But as Hudson J pointed out the real question was whether the covenant could bind a subsequent transferee if it be proved "to have been entered into pursuant to and as part of a building scheme to which no reference appears in the notification on the register, is a very different one".

In that case the notification on the Certificate of Title was to the effect that there was a covenant "by the transferee with his transferors their executors administrators and transferees".

"Upon the true construction this has been held to be a covenant which fails to identify any land in favour of which the benefit thereof is to be annexed. It is only when resort is had to an inquiry as to the circumstances under which the covenant was entered into, that it may be inferred that it was to give effect to a building scheme to which the owners of land affected by the scheme were parties; only when this has been done can it be postulated that the benefit and the burden of the restrictions were intended to pass to and bind subsequent registered proprietors. No reference to the existence or extent of such a scheme is contained in the covenant and for all that appears in it the covenant may have been intended to have no greater effect than what the law would give it."

"I have reached the conclusion that, even assuming there is power under the Act to notify as encumbrances on a Certificate of Title restrictions arising under a building scheme, such a notification will not be effective to bind transferees of the land unless not only existence of the scheme and the nature of the restrictions imposed thereunder, but the lands effected by the scheme (both as to the benefit and the burden of the restriction) are indicated in the notification, either directly or by reference to some instrument or other document to which a person searching the register has access. In the present case these requirements are not satisfied. The covenants contained in the instrument of transfer notified as an encumbrance, though they certainly set out the restrictions, gave no indication that they arose under a building scheme, nor of the land to which the benefit thereof was intended to be annexed, under such a scheme. The applicant therefore had no notice of the existence of the scheme or of the restrictions imposed thereby." (Emphasis added.)

That is not the position here as I have already found.

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

In my opinion the case of Re Dennerstein does not stand in the way of the plaintiffs in this proceeding.

Mr Uren QC submitted that the decision was wrong or and should not be followed. He also pointed out that by reason of s.88(1) of the Transfer of Land Act the doubt concerning the practice of noting the covenant as an encumbrance was no longer so.

I accept that s.88(1) did empower the Registrar to enter onto a Certificate of Title a memorandum of such covenant and of any instrument purporting to create or effect the operation of such covenant. The sub-section was amended subsequently to Re Dennerstein in 1964 and the present sub-section makes it clear that the Registrar always had the power to enter a notation of the covenant and any instrument purporting to create or effect the operation of such covenant.

But that does not in my opinion change the effect of Re Dennerstein. All it does is put beyond doubt that the practice which had been employed by the Registrar of Titles was a valid and lawful one.

But the point that was made by Hudson J was that in that case the notation was insufficient to provide the necessary information to a subsequent purchaser.

It is unnecessary for me to consider whether the decision in Re Dennerstein is correct. But in my opinion there is a strong argument that the decision is wrong in respect to a requirement that information in the Register must establish the building scheme's existence.

Hudson, J. found that there was a building scheme but held that it was necessary in the notification in the Register to identify the land to be benefited and the land which is burdened and also the existence of a building scheme and the nature of the restrictions imposed.

In normal circumstances there would be no difficulty in identifying the two pieces of land affected by the scheme. I do not wish to make any observation in respect to that requirement.

However, the requirement that the existence of the scheme and the nature of the restrictions imposed thereunder must be indicated in the recording of the encumbrance either directly or by reference to some instrument or other document to which a person searching the Register has access raises another question.

If a land owner wishes to have recorded on a Certificate of Title as an encumbrance the fact that a restrictive covenant binds that land, he makes application to the Registrar of Titles to record the encumbrance.

Section 88(1) of the Transfer of Land Act 1958 empowers the Registrar to record the restrictive covenant on the land subject to the burden of it. The Act is silent as to what investigation if any the Registrar should perform before recording the restrictive covenant.

The Registrar does have general powers to require the production of documents and information concerning land. See s.104(1), (2), (4) and (6).

But there is no requirement in the Act that the Registrar should make a decision as to the validity or otherwise of the restrictive covenant.

And it is made clear by s.88(3) that the recording of the restrictive covenant does not in any way affect its validity or invalidity.

The validity of a covenant and its enforcement is ultimately a question for the courts where there is a dispute between the parties.

But once the restrictive covenant is recorded then that is notice to any person seeking an interest in the burdened land that another person claims the benefit of a restrictive covenant which is enforceable against the owner of the burdened land.

As I have said, the recording of the restrictive covenant does not prove its validity and accordingly the owner of the burdened land is entitled to contest its validity.

The question of the validity or invalidity of a restrictive covenant and whether it is enforceable in certain circumstances must ultimately be a question for the court.

Section 84 of the Property Law Act 1958 provides a speedy and relatively inexpensive procedure to resolve questions concerning the validity of restrictive covenants.

When an application is made to the court then the party seeking to enforce the restrictive covenant would carry the burden of establishing the validity of it and the right to enforce it. The evidence which will be adduced in a particular case will depend upon the circumstances and may be of small compass or alternatively may require substantial proof. But in the end it is a matter for the court.

Hudson, J. in support of his conclusion reasoned that if a person purchasing land which was subject to a restrictive covenant had to look into the question outside the information in the Register then the object of the Act would be destroyed in large measure.

"To require a person interested in purchasing one of those allotments to make this determination (i.e. whether there was a common building scheme) after obtaining the necessary evidence perhaps years after the original sale if it is available would render conveyancing a hazardous and cumbersome operation, and, in the case of dealings in land under the operation of the Transfer of Land Act, would defeat the object of the Act and destroy in large measure the efficacy of the system sought to be established thereby."

In my respectful opinion the object of the Act is satisfied by the recording of the restrictive covenant which would record the nature of the restrictions. Notice is given to the proposed purchaser that the land is subject to a restrictive covenant. The recording does not establish the validity of it. What if the recording referred to the fact that there was a building scheme? Again, that notification does not establish the validity of either the building scheme or the restrictive covenant.

Indeed, according to Mr Currey's Titles Office practice written in 1933, the practice in those days was to require a developer prior to selling any lots to lodge a statutory declaration which asserted - "(2) That all the lots on the said plan of subdivision are subject to a definite scheme, in pursuance of which the respective purchasers are required to covenant that (here set out the covenants)."

Once lodged the encumbrance would note a building scheme. But that does not establish that there is a valid building scheme or that the restrictive covenant is valid and enforceable.

In my opinion it is strongly arguable that the burden which rests upon a plaintiff seeking to enforce a restrictive covenant on the question of notice is to have the restrictive covenant recorded as an encumbrance on the Certificate of Title which of course can incorporate other documents in the Register of Land. This recording does not establish validity or enforceability. Those are matters for the court.

It follows that in my opinion if it was necessary to apply the reasoning in Re Dennerstein in the present case, my provisional view is that it should not be followed.

In my opinion the object of the Act is not defeated and indeed is given effect to by the notation of a restrictive covenant which sets out the nature of the restrictions and identifies the land. In my opinion it is strongly arguable that it is not necessary to assert anywhere in the Register that the land is subject to a building scheme although it would be wise to do so. That is assuming that the present practice of the Titles Office permits that to be done.

A consideration of the Titles Office practice today shows that the Registrar does not record in the Register that a restrictive covenant is part of a building scheme or require extraneous evidence that it was created as part of a scheme. The application to record a covenant is a standard form and requires the following information to be provided, namely, full land description including Volume and Folio, reference of the burdened land, the full name of the applicant, the full land description including Volume and Folio of the benefited land, the instrument creating the covenant and signature by the applicant. Of course the terms of the covenant in the particular instrument may make reference to a building scheme. The requirement in the 1920s and '30s of lodging a statutory declaration has been discontinued.

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

It follows that if there had not been a reference to a building scheme on the Plan of Subdivision in the present matter, I would have nevertheless been strongly inclined to hold that there was sufficient notice to Luxury Developments on the Register of the existence of a restrictive covenant burdening its land and the nature of same.

Luxury Developments commenced building works on 14 February 2000 in the knowledge that the plaintiffs and particularly Mr Fitt had warned Mr Seiffert that if it commenced building works they would take legal proceedings.

The plaintiffs issued their originating motion on 6 March 2000 and Mr Seiffert continued with the building works to 31 March. Luxury Developments have spent approximately $75,000 on the works to date. A proportion of the cost was incurred after the proceeding was instituted.

The covenant in question is a restrictive one and as a general rule the court will grant an injunction and discretionary factors are of little moment. See Post Investments Pty Ltd v Wilson[56], Hawthorn Football Club v Harding[57].

I am satisfied that there are no discretionary factors which would preclude the plaintiffs enforcing their right. Luxury Developments proceeded with this development with full knowledge that it had been opposed at every step by the plaintiffs and others and with the knowledge that there was a substantial probability that a proceeding would be brought against it. Further, Luxury Developments did not take advantage of the course that was open to it to approach the court under s.84 of the Property Law Act to determine the question before commencing the building works.

I reject the submission that the plaintiffs have been guilty of laches. The defendant continued with the works for a substantial period after service of the proceeding. Its damage has been increased accordingly. Further taking into account the circumstances the granting of the injunction would not affront this court in its equitable jurisdiction.

In my opinion the plaintiffs have established the necessary requirements to enforce the benefit of the covenant in equity against Luxury Developments which purchased the land with full knowledge of the terms of the covenant and is bound by the burden.

This result accords with the justice of the situation. The covenant was entered into in 1927 by parties who intended that it should be binding not only them, but their successors in title and since that date to the present, successors in title of the relevant lots have proceeded on that assumption.

The lots were sold as part of a scheme which established the law of the subdivision aimed at preserving the value of the area and its amenities.

The decision gives effect to the philosophy which underlies the law of contract, namely, that the bargains of honest men should be upheld but also gives effect to the doctrine established in Tulk v Moxhay, namely, that if the covenant did not bind the land "it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless" - per Lord Cottenham in Tulk v Moxhay[58]. The same underlying philosophy applies to the Burke subdivision. The landowners wish to maintain the value of their land and that was the purpose of the restrictive covenant.

The law has recognised now for many years that some restrictive covenants have outlived their usefulness and should be extinguished or modified. That procedure was open to Luxury Developments and still is. It decided not to pursue it prior to commencing the building works.

Subject to submissions from counsel I propose to make the following orders -

(i) a declaration that the land at 270 Lower Heidelberg Road East Ivanhoe Victoria being the land more particularly described in Certificate of Title Volume 5344 Folio 793 is burdened by the restrictive covenant noted on the Certificate of Title;

(ii) a declaration that each of the plaintiffs is entitled to enforce the restrictive covenant referred to in paragraph (i) hereof against the defendant;

(iii) that the defendant by itself or its servants or agents or otherwise be restrained from erecting or causing or permitting to be erected on the land more than one dwelling house contrary to the terms of the restrictive covenant noted in Instrument of Transfer No. 1336298 referred to on the said Certificate of Title.

I will hear the parties on the question of costs.

[35] (1998) 1 WLR 1 at pp.8-10

"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" per Lord Templeman in Rhone v Stephens [1994] UKHL 3; (1994) 2 AC 310 at 317.

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (7)