Hosking & Anor v Haas & Anor

Application of Fox (1981) 2 BPR [97111] 9310 Baxter v Four Oaks Properties Ltd [1965] Ch 816 Elliston v Reacher [1908] 2 Ch 374 Elliston v Reacher [1908] 2 Ch 665 Osborne v Bradley [1903] 2 Ch 446 Phillip Arthur Hosking & Anor v Peter Haas & Anor [2009] NSWSC 624 CASES CITED : Pirie v Registrar-General (1962) 109 CLR 619 Re Dennerstein [1963] VR 688 Re Louis and the Conveyancing Act [1971] 1 NSWLR 164 Re Mack and the Conveyancing Act [1975] 2 NSWLR 623 Re Martyn (1965) 65 S.R. (N.S.W.) 387 Reid v Bickerstaff [1909] 2 Ch 305 Sutton v Shoppee [1963] S.R. (N.S.W.) 853 White v Bijou Mansions Ltd [1938] Ch 351

TEXTS CITED : P Butt, Lawbook Co, Land Law (5th ed, 2006) Sydney

Phillip Arthur Hosking (First Plaintiff) PARTIES : Dorothy Hosking (Second Plaintiff) Peter Haas (First Defendant) Evelyn Haas (Second Defendant)

COUNSEL : M Stirling (Plaintiffs) M Baird (Defendants)

SOLICITORS : Cosgriff Orchard Legal (Plaintiffs) David Geddes (Defendants)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1767 OF 2008 PHILLIP ARTHUR HOSKING & ANOR v PETER HAAS & ANOR (NO. 2) JUDGMENT 1 In this litigation, the plaintiffs were unsuccessful in their first claim of an entitlement to enforce a covenant over the defendants' land, which prohibited the defendants from building a detached shed on the boundary of their property: Phillip Arthur Hosking & Anor v Peter Haas & Anor [2009] NSWSC 624 (the first judgment). The plaintiffs now seek a declaration that a common building scheme (a Scheme) exists in relation to the Estate, with an entitlement to enforce the covenant over the defendants' land prohibiting the defendants from building a detached shed on the boundary of their property.

Further evidence and submissions 2 After the first judgment was delivered on 3 July 2009 the matter was adjourned to facilitate the giving of notice of the plaintiffs' claim in respect of a Scheme to the relevant Council and other registered proprietors of Lots in the Estate. The regime for that notice included the provision of the following options to the Lot owners: (1) to make application to become a party to the proceedings; and/or (2) to make submissions in the proceedings; and/or (3) to prepare and file an affidavit or otherwise call evidence in these proceedings. The regime also allowed the plaintiffs' solicitor to file an affidavit dealing with any communications with the other Lot owners in the Estate. 3 The matter was listed for further directions on 28 September 2009. On that occasion it was noted that: (1) the plaintiffs relied upon the affidavits of their solicitor, James Anthony Cosgriff, sworn 26 August 2009 and 9 September 2009; and (2) the defendants relied upon the affidavits of the first defendant, Peter Haas, affirmed on 22 August 2009 and that of Lindsay Vagg (the co-owner of Lot 14) affirmed on 3 August 2009. Directions were given for the parties to exchange written submissions by no later than 6 October 2009 and to file those submissions with my Associate by no later than 9 October 2009. There was then provision for judgment to be reserved from 9 October 2009. 4 The defendants filed their submissions dated 8 October 2009. The plaintiffs did not file any submissions. However on 22 October 2009 the plaintiffs' solicitors notified the Court that due to a failure in an email transmission, they only received the plaintiffs' counsel's submissions dated 9 October 2009 on that day. They then sought leave to file those submissions out of time. On 6 November 2009, after further correspondence between the parties and the Court, orders were made granting leave to the plaintiffs to file their submissions by no later than 10 November 2009 and for the defendants to file further submissions in reply by no later than 30 November 2009. The plaintiffs then filed the submissions dated 9 October 2009 and the defendants filed submissions in reply dated 30 November 2009. 5 Neither the plaintiffs nor the defendants sought to cross-examine the deponents to the further affidavits. There was no application by any of the Lot owners to take up options (1) or (2) referred to above. However a number of the Lot owners provided letters to the plaintiffs' solicitors, either directly or through their lawyers, in response to the notice of the plaintiffs' claim. One of the Lot owners (Lot 18) wrote directly to the Court. 6 The affidavit of the first defendant affirmed on 22 August 2009 suggests that the plaintiffs' solicitors may have provided a pro-forma letter to some of the Lot owners (par 12). Mr Cosgriff did not deal with this suggestion in his affidavits, however he annexed what he claimed to be the correspondence that he had with the Lot owners. That does not include a pro-forma letter. In any event, it is clear from the correspondence received from the Lot owners which is annexed to Mr Cosgriff's affidavit, that they addressed matters pertinent to their own property rather than simply submitting the terms of a pro-forma letter. However a number of those letters used the expression "common building standard". 7 Counsel for the defendants took no objection to the admission into evidence of the correspondence and his submissions of 8 October 2009 refer to the affidavits of Mr Cosgriff of 26 August 2009 and 9 September 2009 and deal specifically with the letters from the Lot owners in paragraphs [14] to [33]. 8 Twelve of the Lot owners claim that they purchased their properties in the belief that there was a common building standard to be maintained throughout the Estate (Lots 1 to 4, 6 to 11 and 20). The owners of Lot 18 claim that they purchased their property with a covenant but on the proviso that there was no common building scheme. The owners of Lot 14 (in reliance on Mr Vagg's affidavit) claim that although at the time they purchased their property they were aware of the covenant, they were not advised that there was a Scheme affecting the property. Two of the Lot owners (Lots 5 and 17) did not wish to put any views forward and three of the Lot owners (Lots 16, 19 and 21) have not made any response. The owners of Lot 13 responded through their lawyer that they wished "things stay as they are". The Council's position could reasonably be described as neutral. Background 9 It is convenient to set out some of the background contained in the first judgment that is relevant to this aspect of the case: 1 The properties, the subject of these proceedings, form part of the River Park Estate (the Estate), a residential sub-division, with a one-kilometre frontage to a public reserve and the Murray River (the River) in southern New South Wales about 2.5 kilometres from the town centre of Moama. On 5 June 1995, a company known as North Mitmac Pty Ltd (Mitmac), the original vendor, sub-divided the land comprising the Estate that was previously contained in two lots into Lots numbered 1 to 21 in Deposited Plan 849935 (the Deposited Plan). Some of the properties in the Estate, Lots 7 to 16, back onto the public reserve and the River. 2 The information brochure produced by Mitmac described the Estate as a place of "tranquility, security, covenant protection" and included the following: THE ESTATE COVENANTS A comprehensive range of protective covenants are in place for this subdivision. They incorporate the broad areas of residential status (i.e. single dwelling only, non commercial use) building quality, environmental protection and normal aesthetic features covering visual, sound standards to help maintain community harmony. 3 The Deposited Plan (Ex A) makes no mention of any covenants as described in the information brochure. It does disclose: (a) the intention to create Lot 22 (between the rear boundaries of Lots 7 to 16 and the River) as a public reserve; (b) the intention to dedicate McMahon Drive and River Park Drive (the two roads accessing the Lots in the Estate) as public roads; and (c) the intention to create easements under the Conveyancing Act 1919 for utilities.

4. The plaintiffs, Phillip Arthur Hosking and Dorothy Hosking, are the registered proprietors, as joint tenants, of Lot 15 in the Estate, and known as 7 Riverpark Drive, Moama in the State of New South Wales and described in Folio Identifier 15/DP849935 (the plaintiffs' property). The defendants, Peter Haas and Evelyn Haas, are the registered proprietors, as joint tenants, of Lot 12 in the Estate and known as 10 Riverpark Drive, Moama and described in Folio Identifier 12/DP849935 (the defendants' property). The plaintiffs seek an order that the defendants demolish a building at the rear boundary of the defendants' property allegedly constructed in breach of covenant (the Building). The plaintiff also seeks orders in respect of the felling of a substantial gum tree by the defendants. 5 In about late 1995 Mitmac transferred the plaintiffs' land to the plaintiffs' predecessors in title, Craig Alexander and Susanne Wendy Beehag (the Beehags) by Memorandum of Transfer Registered No. 910580B. The Beehags covenanted with Mitmac in terms that included the following: (a) The transferee for himself, his heirs, executors, administrators and transferee hereby covenants with the transferor its successors and transferee the registered proprietor or proprietors for the time being of all those pieces of land being Lot 1 to 21 (inclusive) on Deposited Plan No. 849935 (but excluding the land hereby transferred) and each and every part thereof and he shall not without the previous consent in writing of the transferor: …

(xiii) erect or cause or suffer to be erected or re-erected on the land hereby transferred a garage or storage area other than one attached to the main dwelling and of a similar building material and design to the main dwelling or a detached garage of similar building material and design to the main dwelling not more than five metres from any external wall of the house PROVIDED HOWEVER that nothing contained herein shall be construed as to preclude the erection of a garden shed of colourbond construction of no more than 2.44 metres (8 feet) in height or no larger than 3.00 metres (10 feet) by 3.00 metres (10 feet) in area and such garden shed shall be hidden from road access view ;

(xiv) erect or cause or suffer to be erected or re-erected on the land hereby transferred a carport other than a garage of the description herein particularised or a detached outbuilding whatsoever other than a carport which is hidden from road access views ;

… AND the Transferor reserves the right to sell lease or otherwise deal with any lot on the plan either subject to the conditions, stipulations and restrictive covenants hereinbefore set out or any one of them or not and subject to any waiver, modification, alteration or amendment or full release thereof as the Transferor thinks fit. The exercise of this right by the Transferor in relation to any lot shall not release the owner of any other lot from any of the conditions stipulations or covenants effected or imposed upon such other lots or lot or give to the owner of any lot any right or action against the Transferor any other person or persons.

The benefit of the foregoing covenant shall be appurtenant to the land being Lots 1-21 (both inclusive and excluding the land hereby transferred) in Deposited Plan 849935.

The burden of the foregoing covenant is upon the land hereby transferred.

The aforesaid covenant may be released varied or modified by or with the consent of the registered proprietor or proprietors for the time being of ALL THOSE pieces of land being Lots 1 to 21 (both inclusive) in Deposited Plan No. 849935. 6 On 5 December 1997 Mitmac transferred the defendants' property to the defendants by Registered Transfer No. 3710644R. The defendants covenanted with Mitmac in terms identical to the terms of the Beehags' covenant, except that the defendants' covenant did not include those parts that are italicised in the above extract. 7 On about 23 December 2003 by Registered Transfer No. 9253003D the Beehags transferred their property to the plaintiffs. There is no mention in that Transfer of any covenant, however it is agreed that covenant 0910580 (the Beehags' covenant) remains recorded in the Folio of the Register under the Real Property Act 1900 relating to the plaintiffs' property. The Covenants 10 The first judgment set out the detail of the covenants as follows: 24. The Property Searches and Transfers establish that there are no covenants registered on the titles of Lots 3, 4, 13 and 20 of the Estate. Three of those four lots (Lots 3, 4 and 20) do not back onto the public reserve. Lot 13 backs onto the public reserve with access to the River. 25 All covenants have a restriction as to the type of materials to be used in the construction of the dwelling house. There are two lots in which a "garden shed" is permitted, Lots 14 and 15. There is no restriction as to location of such a shed on Lot 15 (other than it must be hidden from road access view), however in Lot 14 the shed must be positioned beyond the building line of the main building. Lot 15 is also permitted a "carport" hidden from road access view. 26 Each of the covenants permits the construction of a garage proximate to the main dwelling. The covenants in respect of Lots 2, 6, 7, 8, 10, 11, 12, 15 and 21 require the garage to be not more than 5 metres from the main dwelling. The covenants in relation to Lots 1, 9, 18 and 19 require the garage to be not more than 20 metres from the main dwelling. The covenant on Lot 17 requires the garage to be not more than 8 metres from the main building. Although there is permission for a detached garage in Lot 14, the covenant does not restrict the distance from which such garage is to be from the main dwelling. 27 The covenants provide that Mitmac was entitled to sell any lot without the covenant and if it did so such sale did not release the covenantors from any of the conditions or covenants imposed on their Lots. Each of the covenants could not be released, varied or modified without the consent of the registered proprietors of all the Lots, purportedly including those Lots that were not restricted by any covenant. 28 The Lots in respect of which Transfers are in evidence (Lots 1, 2, 6 to 12, 14 to 19 and 21) were originally sold during the period 1995 to 1999; Lots 6, 15 and 17 in 1995; Lots 8 and 16 in 1996; Lot 12 in 1997; Lots 1 and 11 in 1998; and Lots 2, 7, 9, 10, 14, 18, 19 and 21 in 1999. The Property Searches in respect of the Lots in respect of which there is no Transfer in evidence (Lots 3, 4, 5, 13 and 20) establish that only Lot 5 is burdened with a covenant. Those searches do not disclose the date on which these Lots were transferred.

Building Scheme 11 The first judgment included the following: 36 … The plaintiffs relied upon the evidence of the Property Searches and the Transfers in support of their reliance upon the equitable doctrine of the scheme of development, also known as a common building scheme or a building scheme (a Scheme). This doctrine was developed to accommodate certain circumstances where it was intended that parties be bound by and have the benefit of restrictive covenants but by reason of certain circumstances such as the timing of their purchase such benefit did not enure. 37 If a Scheme exists, the benefit of a covenant can be annexed to all land in the Scheme, even land that Mitmac had disposed of at the time it contracted with the later purchaser. The requirements for establishing the existence of a Scheme were said by Parker J in Elliston v Reacher [1908] 2 Ch 374 at 384-385 to be: … (1.) that both the plaintiffs and defendants derive title under a common vendor; (2.) that previously to selling the lands to which the plaintiffs and defendants are respectively entitled the vendor laid out his estate, or a defined portion thereof (including the lands purchased by the plaintiffs and defendants respectively), for sale in lots subject to restrictions intended to be imposed on all the lots, and which, though varying in details as to particular lots, are consistent and consistent only with some general scheme of development; (3.) that these restrictions were intended by the common vendor to be and were for the benefit of all the lots intended to be sold, whether or not they were also intended to be and were for the benefit of other land retained by the vendor; and (4.) that both the plaintiffs and the defendants, or their predecessors in title, purchased their lots from the common vendor upon the footing that the restrictions subject to which the purchases were made were to enure for the benefit of the other lots included in the general scheme whether or not they were also to enure for the benefit of other lands retained by the vendors. If these four points be established, I think that the plaintiffs would in equity be entitled to enforce the restrictive covenants entered into by the defendants. 38 Parker J concluded that if these four points are established, "the community of interest imports in equity the reciprocity of obligation which is in fact contemplated by each at the time of his own purchase": at 385. 12 A most helpful analysis of the modern relaxation of the requirements in Elliston v Reacher is found in Professor Peter Butt's Land Law, Fifth Edition, (2006) Lawbook Co as follows (omitting footnotes):

[1794] The modern trend is to relax the stringency of the four Elliston v Reacher requirements and to look primarily for the intention between the common vendor and the respective purchasers to impose a "local law" under a mutually enforceable system of covenants. Equity then gives effect to this common intention "notwithstanding any technical difficulties involved" in creating the covenants. The central concept being reciprocity of obligations, the four requirements are a guide, not an inviolable formula to be strictly applied in all cases.

[1795] To illustrate this relaxation of stringency: it is not necessary that all the lots in the scheme be sold at the one time. A scheme of development can exist where the common vendor sells the lots over a period of time. … What is crucial is that each purchaser from the common vendor accepted that the covenants the purchaser gave were to enure for the benefit of the vendor and those deriving title from the vendor, and that the purchaser correspondingly would enjoy the benefit of similar covenants entered into by all other purchasers.

Torrens title land 13 In Pirie v Registrar-General (1962) 109 CLR 619 at 630-632 Kitto J expressed the view that building schemes cannot exist over Torrens title land, because their existence would depart from the policy of the Torrens system by giving the Registrar-General a discretionary power to detract from the indefeasibility of a registered title. 14 In Re Martyn (1965) 65 S.R. (N.S.W.) 387, the Full Court of the Supreme Court of New South Wales (Walsh and Asprey JJ; Hardie J dissenting) dealt with an appeal from an order made by the Equity Court declaring that restrictions on user on certain Torrens title land were unenforceable. The relevant covenant over the land required the buildings to be occupied and used as a private dwelling. The covenant did not identify the land to which the benefit of the covenant was or was to be appurtenant. There was evidence before the Court of the advertisements before and after the auction stating that, "moderate building covenant will protect buyers' interests". There was also reference to the contracts of sale in the subdivision containing similar covenants. The trial judge held that it was intended that there should be a building scheme. All purchasers had the nature of the covenant brought to their attention and knew that they would be bound by a building covenant and that they were entitled to a building covenant imposed on other lots to protect their interest. 15 The trial judge, Jacobs J, as his Honour then was (also the trial judge in Pirie) concluded that apart from the operation of the doctrine of the common building scheme there could not be a covenant capable of being annexed to land, unless the land intended to be benefited was stated in the instrument. On appeal, Walsh J referred to Pirie, both at first instance and in the High Court and concluded at 391:

Kitto J., with whom Owen J. agreed, thought that there was not sufficient evidence to establish the existence of a building scheme. So did Windeyer J. The other members of the Court were also of the opinion that the case could not be determined upon the information available. There was, therefore, no decision governing a case such as the present, in which there is a finding that there was a building scheme. In his judgement in the present case, Jacobs J. stated the opinion that he was not bound by the judgments in the High Court, to depart from the conclusion which he had reached in Re Pirie, namely that no covenant entered upon a certificate of title prior to 1920, which did not state the land to be benefited, was enforceable. 16 His Honour continued at 392 (footnotes omitted):

If the land had not been under the Real Property Act, the restrictions would be enforceable in accordance with the principles stated in cases of which Elliston v. Reacher ; Torbay Hotel Ltd. v. Jenkins and Lawrence v. South County Freeholds Ltd. may be mentioned as examples. In the latter case, Simonds J., after referring to other authorities, spoke of the doctrine as being based upon "an equity which is created by circumstances and is independent of contractual obligations". But this equity could not be enforced against a subsequent proprietor of land under the Real Property Act , because of the provisions of that Act, particularly s. 43. It would not matter that he had knowledge of the existence of the building scheme or of the restrictions which were part of it. It is here shown that S.H. Martyn was a purchaser for value and the respondents to the appeal derived their title from him. If it be assumed that he was not a purchaser without notice but was a purchaser with notice, this is immaterial, as it would not prevent him from relying on his title under the Real Property Act . 17 Walsh J concluded, at 394, that the registered proprietor of land under the Real Property Act was free from the equitable obligation or burden, which would have been imposed upon the land by the operation of the equitable principles relating to a common building scheme, a view his Honour said seemed to accord with the reasons given by Kitto J in Pirie. 18 Five years later, in Re Louis and the Conveyancing Act [1971] 1 NSWLR. 164 the majority of a differently constituted Full Court of the Supreme Court of New South Wales, (Jacobs JA and Helsham J; McLelland CJ in Eq dissenting) held that schemes of development can exist over Torrens title land. After concluding that the subject covenants could not be construed as being intended for the benefit of any land, Jacobs JA said of the equitable doctrine of the common building scheme, at 178-180 (footnotes omitted):

That doctrine was concerned with notice of a vendor's intention and not with the existence of a covenant in actual fact. It is possible to envisage a case where there was never one covenant contained in a conveyance and yet there might be a common building scheme, because purchasers purchased on the basis that there would be such covenants. If they did so then the obligations of the proposed covenants would be enforceable between all the parties concerned, including the common vendor. No such case, so far as I know, has ever existed. The usual and the significant case of the common building scheme is where equity permits an owner of land to have the benefit of a covenant of which he was intended to have the benefit, but of which under the principles of the common law he could not have the benefit. Under the common law the benefit could only enure for subsequent purchasers and an earlier purchaser would be bound by the burden of a covenant which he had entered into with the vendor and the various purchasers from the vendor but could not obtain a reciprocal benefit. Therefore, by the doctrine of the common building scheme, by way of extension of the rule in Tulk v. Moxhay … equity intervened in order to declare that, provided the intention existed at the time of the original sales from the common vendor, the earlier purchasers should not only be bound by the covenants of the common scheme vis-à-vis the later purchasers but should have the benefit of the covenants which the later purchasers would in the ordinary case or should in the rare case have entered into with the common vendor.

The doctrine of the common building scheme could also be applied where the form of the covenants was ineffectual to annex the benefit at common law. It is to this part of the doctrine that recourse would be had in respect of a covenant such as is found in the earlier transfers in the present application. These covenants would be ineffectual to create restrictions appurtenant to the land because the land to be benefited was not described. However, covenants to the like effect could create restrictions under a common building scheme provided that they were supplemented extrinsically by the additional matters necessary in order to constitute a good scheme. The land is then burdened with the restriction in favour of all the other land in the scheme, provided the original purchaser took with the requisite knowledge of the scheme and provided all subsequent purchasers took with notice of the scheme. The validity of any particular restriction would cease when the lot was acquired by the purchaser of a legal estate for value without notice of the scheme.

It therefore appears that there are two different ways in which it may be necessary to invoke the doctrine of the common building scheme. One of these is when there were the requisite intention and the necessary steps taken and the necessary notice in the relevant parties but the documentation was either non-existent or inadequate. The second is where there were the necessary intention and the necessary steps taken and the necessary knowledge and where the documentation was quite adequate to give those entitled at law to the benefit of a restriction the right to enforce it, but where the benefit at law could not be enjoyed by the earlier purchasers in respect of land subsequently sold by the vendor. It was to meet the latter type of case that the doctrine of the building scheme in equity was primarily developed. Therefore, the ordinary case of a building scheme would involve covenants the benefit of which enured in favour of subsequent purchasers by operation of law but enured in favour of earlier purchasers by operation of the doctrine in equity of the common building scheme. Therefore, in any particular case it could not be said that a particular restriction was a restriction which took its validity only from a common building scheme or only by operation of law. Generally any particular restriction would be annexed to some of the land at law because the latter land was subsequently transferred by the vendor who had taken the original covenant and by operation of the common building scheme doctrine in equity in respect of the earlier transferees or conveyees from the vendor.

Where the situation is that of a building scheme, of necessity the restrictions are intended to bind the whole of the land and its several parts. The intention will be disclosed to give the benefit of the covenant to the whole of the land and to each and every part. If this intention were not disclosed then any extrinsic intention to create a building scheme would be of no avail so far as the application of s. 88 is concerned, because the requirements of s. 88 (1) would not be complied with. In the case of old system land this defect might not be fatal because a building scheme might have validity quite apart from s. 88 (1). But in the case of land under the Real Property Act the deficiency in form would be fatal because the restriction can only be effective by virtue of s. 88 (3). 19 His Honour expressed the following view at 182-183:

Equity, it is true, extended that law to comprehend building schemes where legal requirements as to the form of instrument had not been complied with. I see nothing in s. 88(3) which enables the notification upon the register of anything other than an instrument which complies with the law, even though the intrinsic validity of the instrument depends upon an equitable doctrine. 20 The defendants submitted that although Re Louis, and a line of first instance judgments allowed building schemes in relation to Torrens title land, I should prefer the decision in Re Martyn. The indefeasibility of title may seem to militate against the accommodation of building schemes in the Torrens title system, however in the present case, in line with the decision in Re Louis, I am going to proceed on the basis that such schemes may apply to Torrens title land. First requirement of Elliston v Reacher 21 Although the plaintiffs derived their title through the Beehags, it is common ground that the first requirement in Elliston v Reacher has been satisfied, that is, that the plaintiffs and the defendants "derived" their title from a common vendor, Mitmac. Second requirement of Elliston 22 The second requirement in Elliston v Reacher is that the vendor "laid out his estate" for sale in lots "subject to restrictions intended to be imposed on all" lots that were "consistent and consistent only with some general scheme of development". 23 The defendants submitted that the covenants are not "consistent", nor are they consistent only with some general scheme of development. It was submitted that the plaintiffs have been unable to show that the Lot owners in the Estate purchased their properties on the basis that the restrictions would apply equally to all Lots. The defendants also submitted that given the variations in the restrictive covenants, it would be difficult to discern any Scheme that was actually common to all Lots in the Estate. It was further submitted that the reservation in the covenants of Mitmac's right to vary covenants or otherwise not impose covenants is not "consistent only with some general scheme of development". I will deal with this last submission when dealing with the third requirement in Elliston v Reacher. 24 The plaintiffs submitted the second element in Elliston v Reacher is satisfied because Deposited Plan No 849935 lays out the twenty one Lots (and Lot 22, the Public Reserve) and the terms of the restrictive covenants establish the communal interests in prohibiting the construction of buildings (or buildings of a certain size) in the area towards the River. The plaintiffs submitted that in any event, the failure to establish the second element is not fatal to the claim of the existence of a Scheme: Baxter v Four Oaks Properties Ltd [1965] Ch 816 at 828.

25 It is not necessary that the covenants over the various Lots in the Estate be identical, so long as they remain consistent with an overall reciprocity of obligation: Reid v Bickerstaff [1909] 2 Ch 305 at 319; White v Bijou Mansions Ltd [1938] Ch 351 at 362. In Reid v Bickerstaff Cozens-Hardy MR addressed some of the essentials of a building scheme as follows (at 319):

Reciprocity is the foundation of the idea of a scheme. A purchaser of one parcel cannot be subject to an implied obligation to purchasers of an undefined and unknown area. He must know both the extent of his burden and the extent of his benefit. Not only must the area be defined, but the obligations to be imposed within that area must be defined. Those obligations need not be identical. For example, there may be houses of a certain value in one part and houses of a different value in another part. A building scheme is not created by the mere fact that the owner of an estate sells it in lots and takes varying covenants from various purchasers. There must be notice to the various purchasers of what I may venture to call the local law imposed by the vendors upon a definite area. 26 Sir Wilfred Greene MR expressed similar views in White v Bijou Mansions, Ltd at 362.

27 In Re Mack and the Conveyancing Act [1975] 2 NSWLR 623 Wootten J dealt with a case in which it had been argued that there was no building scheme because there were two vendors, as opposed to a common vendor as referred to in the first of the requirements in Elliston v Reacher. Wootten J concluded that the existence of two vendors did not negative the "possibility" of a valid building scheme. His Honour then said at 635:

Nor is the scheme negatived by the fact that some nine of the one hundred and fifteen lots are shown to have been sold without the restrictions. It has never been held necessary, for the existence of a valid building scheme, that the vendor should be bound to impose the same, or any, restrictions on all lots which he sells: Collins v. Castle [(1887) 36 Ch.D. 243]; Elliston v Reacher [[1908] 2 Ch. 665, at p.672], per Cozens-Hardy M.R. in the Court of Appeal.

The fact that some lots are in the event sold without the restrictions does not negative the existence of, or destroy, a building scheme: Sutton v Shoppee [[1963] S.R. (N.S.W.) 853]; Re Dennerstein [[1963] V.R. 688]. The intention which is material is that existing when the scheme was established: Nottingham Patent Brick and Tile Co v Butler [(1885) 15 Q.B.D. 261]… but it is clear that this is not the case if only a small proportion are affected by the unenforceability: Re Louis [[1971] 1 N.S.W.L.R. 164, at p. 183]. Only a small proportion are free of the restriction in this case.

28 The two authorities relied upon by Wootten J in support of the observation that the existence of a Scheme is not negatived by the fact that some of the lots in the relevant estate or subdivision were sold without restrictions are of relevance to the issues in the present case. In Sutton v Shoppee [1963] S.R. (N.S.W.) 853 the Full Court of the New South Wales Supreme Court (Sugerman and Else-Mitchell JJ; Richardson J dissenting) heard an appeal from Jacobs J in which a declaration was made that a particular restrictive covenant was not enforceable. The trial judge had concluded that the absence of restrictions upon six lots in the subdivision showed an intention that the restrictions were imposed on the sale of the other lots for the benefit of the vendor rather than with the intention of conferring reciprocal rights on all subsequent purchasers. 29 The land in question at Rose Bay had been the subject of subdivision and was known as the Knoll subdivision. A number of members of the Royal Sydney Golf Club (the Club) had established a company known as the Rose Bay Land Co Ltd, for the purposes of assisting the Club to purchase land for the golf links. Numerous lots to the east of the golf links were sold to individual purchasers to whom notice of restrictive covenants as to use and location was given. The main point argued against the existence of a building scheme was that six of the lots had no restrictions on them and thus it was not possible to conclude that such a scheme existed. 30 Sugerman J held, at 862, that the lack of restrictions imposed on some of the lots did not detract from the existence of an intention of common benefit. His Honour explained that the sale of the particular lots without restrictions was so that the trustees of the Club could use additional land in conjunction with other land for the golf links and said, at 865:

Many of the ingredients of a building scheme are present. Sufficient of them are present to show that some, at least, of the objectors had, and some, at least, of the appellants have, a potential interest in resisting a declaration that the restriction is unenforceable. But, as to one element, neither its existence nor its non-existence can be stated as the more probable. 31 Else-Mitchell J referred to the three exceptions to the continuing nature of a building scheme; firstly, where there is a reservation of a right of the common vendor to introduce variations in respect of subsequent sales; secondly, the cessation of the equitable obligation to bind any subsequent owner acquiring a lot in the subdivision from a purchaser, by purchase for value and without notice of the restriction; and thirdly, where restrictions are accidentally omitted. His Honour said, at 873:

Where in consequence of one of these events any lot or any purchaser is freed from or not bound by the scheme, it or he is likewise to be denied the benefit of the scheme and any right to enforce it as against the other lots or owners who remain bound; this is simply an illustration of the mutuality which a building scheme entails and of the rules relating to the exercise of equitable remedies. In each instance, however, there would seem to me to be no question that although the comprehensiveness of the scheme may have been prejudiced, it nevertheless remains valid and enforceable as between the other owners; their mutual rights and obligations are not affected and will continue to be enforceable inter se . This conclusion seems to me to be in conformity with principle for since the reciprocal rights and obligations which flow from a building scheme arise in consequence of an intention of the common vendor and all the purchasers from him, they attach to and enure for the benefit of the separate parcels of land as they are sold and bind the common vendor from the outset. Once the necessary common intention is manifested in respect of sales made by the common vendor, the scheme's binding force in respect of those sales cannot, it seems to me, be nullified by subsequent sales being made in breach of the original intention, nor by a subsequent purchaser acquiring a parcel without notice of the restriction, nor by the accidental omission to exact an identical restriction upon one or more sales.

32 In Re Dennerstein [1963] VR 688 Hudson J dealt with a question remitted from the Court of Appeal as to whether the applicant's Certificate of Title was affected by a building scheme. The applicant's land formed part of an estate at South Yarra in Victoria known as the "Como Estate". The original owners of the land had caused it to be subdivided into 91 allotments. The plan of subdivision was lodged with the Office of Titles and of the 91 lots shown on the plan, 21 were deleted and never offered for sale. Although still on the plan, 5 of the remaining 70 lots were not offered for sale. The 65 lots were offered for sale at an auction at which 51 were sold. The remaining 14 were sold privately on various dates subsequent to the auction. 33 The contract used at the auction was in evidence and included a condition that each purchaser would enter into covenants that they would not erect or allow to be erected any church, State school or building to be used for religious or charitable purposes of any kind or for public entertainment on the property. Purchasers of Lots 32 to 38 and 72 to 79 were to enter into covenants not to build or erect any more than one house or dwelling, constructed of specified materials at a specified cost. As to the balance of the lots each purchaser was to enter into a covenant that they would not build or erect more than one house, constructed of various materials at a different specified cost. All of the lots sold, whether sold at auction or privately had covenants on their title. There were differences between some of the covenants and in particular Lot 38 did not include the restriction prohibiting the erection of any church, State school or buildings to be used for religious, educational or charitable purposes. 34 The notification on the title to the applicant's land did not indicate that the restriction arose under a building scheme. Hudson J said at 696-697:

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

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 the existence of the scheme and the nature of the restrictions imposed thereunder, but the lands affected by the scheme (both as to the benefit and the burden of the restriction) are indicated in the notification, either directly or by reference to some instrument or other document to which a person searching the register has access. In the present case these requirements are not satisfied. The covenants contained in the instrument of transfer notified as an encumbrance, though they certainly set out the restrictions, give no indication that they arose under a building scheme, nor of the land to which the benefit thereof was intended to be annexed, under such a scheme. The applicant, therefore, had no notice of the existence of the scheme or of the restrictions imposed thereby. 35 In Sutton v Shoppee Else-Mitchell J referred to the fact that a number of the lots had been sold between 1904 and 1911, being Lots 1 to 12, of which Lots 1 to 3 had no restrictions on their title. Lots 13 to 33 were conveyed in the period 1920 to 1927. That included Lots 15 to 17 which had no restrictions on that title. His Honour's conclusion in relation to the existence of a valid building scheme in respect of those lots that were the subject of the restrictive covenants needs to be viewed in the light of both the chronology of the sales and the explanation given (by Sugerman J) that the six lots that were free of covenants were in quite a different category to the other lots in the subdivision, in that those lots were for use as golf links. 36 In the present case the title of all Lots in the Estate (except Lots 3, 4, 13 and 20) include covenants with the "registered proprietor or proprietors for the time being of all those pieces of land being Lot 1 to 21 (inclusive) on Deposited Plan No. 849935" that they would not without the previous written consent of the transferor, erect a "detached outbuilding whatsoever". Each of the covenants include the provision that the benefit of the covenants "shall be appurtenant to the land being Lots 1-21" in the Deposited Plan. They also include the provision that the covenant may be "released varied or modified by or with the consent of the registered proprietor or proprietors for the time being of ALL THOSE pieces of land being Lots 1 to 21" in the Deposited Plan. Each of the covenants also include the following provision: AND the Transferor reserves the right to sell lease or otherwise deal with any lot on the plan either subject to the conditions, stipulations and restrictive covenants hereinbefore set out or any one of them or not and subject to any waiver, modification, alteration or amendment or full release thereof as the Transferor thinks fit. The exercise of this right by the Transferor in relation to any lot shall not release the owner of any other lot from any of the conditions stipulations or covenants effected or imposed upon such other lots or lot or give to the owner of any lot any right or action against the Transferor any other person or persons. 37 The plaintiffs submitted that the nature and scope of the restrictions are perfectly apparent from the terms of the restrictive covenants: for example, a restriction on more than one dwelling; a further restriction on any further sub-division; a restriction on the erection of front fences or walls; a restriction on cutting down trees; and a restriction on the size and location of garages or storage areas. All owners of Lots that contain covenants would have been aware from a reading of their covenant, that they covenanted with all the other Lot owners in the Estate. In addition, each of those Lot owners would have been aware from a reading of the covenant that it provided that the benefit of the covenant was for each of the other Lots in the Estate and that it could only be released, varied or modified with the consent of all of the other Lot owners. 38 In my view reciprocity of obligation was clearly intended for this Estate. The fact that there are some differences in some of the covenants, as described in paragraphs [24] to [28] of the first judgment, does not negative the existence of or destroy a Scheme. Similarly the fact that four of the Lots were sold without covenants does not negative the existence of or destroy a Scheme. I will deal further with this latter matter when dealing with the fourth requirement in Elliston v Reacher. 39 Although there were some differences in the covenants as described in the first judgment, I am satisfied that the covenants are consistent and consistent only with the establishment of a Scheme.

Third requirement in Elliston v Reacher 40 The plaintiffs submitted that the evidence establishes the third requirement in Elliston v Reacher that the original vendor, Mitmac, intended that the covenants were for the benefit of all the Lots intended to be sold. 41 In Osborne v Bradley [1903] 2 Ch 446 a plaintiff sold certain land to the purchaser, subject to certain covenants that restricted the development on the land to private dwellings and prohibiting manufacture, trade or business on the land. The purchaser built two houses and subsequently sold the land and houses to the defendant, subject to the covenants. The defendant lodged plans with the local council to convert the houses into shops. When negotiations failed, the plaintiff commenced proceedings for an injunction to prevent the defendant from converting the houses into shops. 42 The plaintiff had owned much of the land on both sides of the street in which the subject property was located. Farwell J concluded, at 452, that the covenant was taken by the plaintiff for his own sole benefit, and said at 453:

In order to arrive at the inference to be drawn from the circumstances, that a building scheme was intended by the parties, I have to find that all the purchasers intended to contract one with another, as they purchased, to abide by the various stipulations or covenants which are made applicable to the whole estate; and also, in a case like this, where the vendor retained a number of plots, that he, the vendor, intended to enter into similar covenants. It is impossible for me to draw the latter inference because of the concluding clause in the conditions [that the vendor reserved the right of waiving or varying any of the conditions with regard to the unsold lots]. Nor would it be reasonable for me to draw the inference that a number of persons, or any one person coming in and buying intend or intends to be bound to an unknown number of unknown persons in respect of an estate which, so far as it has been sold, is undefined, and to undertake liabilities to them and to accept a corresponding benefit from them. 43 Farwell J refused to draw the inference that people who were not bound by covenants, nor aware of the existence of other covenants intended to enter into "an indeterminate number of covenants with unknown persons": at 455. 44 The covenant in Osborne v Bradley provided that the vendor reserved the right of waiving or varying any of the conditions with regard to the unsold Lots. In the present case each of the covenants contained a reservation of the vendors right to sell, or otherwise deal with any Lot on the plan "either subject to the conditions, stipulations and restrictive covenants" or not. In Osborne v Bradley Farwell J found it "impossible", by reason of the reservation of the right in that case, to draw an inference that the vendor intended to enter into similar covenants with all the purchasers. In the appeal in Elliston v Reacher [1908] 2 Ch 665, Farwell J referred to Osborne v Bradley and said, at 674 (footnotes omitted):

With reference to the power of the vendor to vary the conditions, I pointed out in Osborne v. Bradley that it was one element to consider and assist the Court in arriving at the conclusion of fact whether there was or was not a scheme, and nothing more than that. I never intended to suggest that it was fatal to the existence of a scheme. 45 The factual position in the present case is distinguishable from Osborne v Bradley. In addition to the Deposited Plan laying out the various Lots in the Estate, the vendor's intention was also recorded in the Information Brochure that was produced by Mitmac. In addition to the reference in the first judgment [par 2], the Brochure also contained the following:

The overall garden landscape environment will be enhanced by the quality of envisaged residential architecture. (sic) Complemented by suitable covenant protection. 46 Mitmac described the Estate as a place of "tranquillity, security, covenant protection." The paragraph of the Brochure headed "Estate Covenants" referred to a comprehensive range of protective covenants being in place for the subdivision. The letters in evidence from the other Lot owners in the Estate, including from three of the Lot owners (Lots 3, 4 and 20) that do not have covenants on their title, do not refer expressly to the Information Brochure, however they do refer to the Lot Owners' respective understandings in relation to the existence of a "common building standard". As I have already said, there was no objection to this evidence and although the weight to be given to this type of evidence is slight, it is evidence which combined with the evidence of the covenants on the other Lots, leads me to the conclusion that the intention was that the covenants were for the benefit of all Lots in the Estate. 47 I am satisfied, notwithstanding the reservation of Mitmac's rights to deal with the land without the imposition of a covenant, that the intention was that the covenants were for the benefit of all the Lots intended to be sold.

Fourth requirement in Elliston v Reacher 48 The plaintiffs also submitted that the fourth requirement of Elliston v Reacher has been admitted by the defendants in their Amended Defence. It was submitted that this is the end of the matter but even if proof is required, the fourth requirement is satisfied because both the plaintiffs and the defendants (or the predecessor in title in the case of the plaintiffs) purchased their Lots from the common vendor on the footing that the restrictions would enure for the benefit of the other Lot owners. 49 The plaintiffs submitted that the properties with boundaries onto the River or the Public Reserve, including the properties of the plaintiffs and the defendants, are subject to a general scheme to prevent, inter alia, the erection of garages or sheds of certain sizes in certain locations, so as to preserve the views of the Lot owners towards the River and the amenity that those views provide. It was submitted that it is simply not to the point for the defendants to point to the absence of covenants (or identical covenants) in respect of a minority of allotments. The purpose of a Scheme is to enforce restrictions where properties have been purchased with restrictions which enure for the benefit of the other Lots in the general scheme. 50 The plaintiffs emphasised that, as was pointed out by Wootten J in Application of Fox (1981) 2 BPR [97111] 9310 at 9317, the Scheme creates a local law which may well impinge differently on different parts of the area "but overall works to give a particular character and amenity to the area. To endeavour to pick it to pieces and examine the relationship between a lot in one corner and a lot in another corner is to miss the point of a building scheme".

51 The defendants referred to the three Lots that do not have covenants on the titles and do not back onto the Public Reserve (Lots 3, 4 and 20) and submitted that in circumstances where a number of people purchased properties without covenants, it is difficult to hold that the covenants or restrictions were to be consistent with a general scheme of development. As I have said, notwithstanding an absence of covenants on their title each of those Lot Owners have claimed they had an understanding that a common building standard applied to all of the Lots in the Estate. The only other Lot without a covenant on title is Lot 13. In response to the notice regime, the owners of Lot 13 submitted a letter from their lawyer, PG Haberle, which states that the Lot owners "wishes are simply that the status quo be preserved, or in their words, that 'things stay as they are'". The fact that Lot 13 was sold without a covenant does not mean that a Scheme was not intended. 52 It was also submitted that it is difficult to identify precisely any common scheme due to the variation of the restrictions, although it can be said that the type of building material for the primary dwelling seems to be common throughout. I disagree. The variations are in my view insignificant.

Conclusion 53 Notwithstanding the relaxation of the requirements in Elliston v Reacher referred to by Professor Butt, I am satisfied that the plaintiff has satisfied each of the requirements in Elliston v Reacher. I am satisfied that there is a "local law" in the Estate consisting of a mutually enforceable system of covenants. It is not necessary in these proceedings to decide whether Lot 13 is excluded from the common building Scheme. The plaintiffs are entitled to enforce the defendants' covenant prohibiting the defendants from erecting the detached building no more than five metres from the defendants' dwelling. 54 The defendants have accepted that they are in breach of the covenant. Accordingly, the plaintiffs are entitled to an order that the defendants demolish the detached building on the boundary of their property. A reasonable time-frame within which that is to occur is 1 February 2010. There was also a claim in relation to the felling of a tree, which appears not to be pressed. If that is wrong then the parties should deal with that issue when the matter is next listed. The parties are to bring in Short Minutes of Order reflecting these findings, together with an agreed costs order. If the parties are unable to reach agreement I will hear argument on costs when the matter is listed for the filing of the Short Minutes of Order on 15 December 2009 at 9.30am **********

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