Jessica Estates v Lennard

Supreme Court of NSW|2007-12-06|Before: Brereton J, Stamp J

CITATION : Jessica Estates v Lennard [2007] NSWSC 1434

JURISDICTION : Equity Division Expedition List

CATCHWORDS : REAL PROPERTY - Land under Torrens system - Interests in land - Restrictive covenant - enforcement - remedies - mandatory injunction - whether damages a sufficient remedy - whether injury to plaintiffs' rights slight - whether compensable by damages - where defendants proceed to construct after warnings - where defendants aware that risk involved - EQUITY - Remedies - Injunctions - mandatory injunctions - to enforce negative covenant - discretion - whether damages a sufficient remedy - defences - laches - where defendants did not and could not reasonably have inferred acquiescence - hardship - where defendants proceeded on legal advice subsequently shown to be erroneous - where defendants aware that issue was debatable

LEGISLATION CITED : (NSW) Environmental Planning & Assessment Act 1979, s 28 (NSW) Uniform Civil Procedure Rules 2005, r 28.2

Baxter v Four Oaks Properties Ltd [1965] Ch 816 Bowes v Law (1870) LR 9 Eq 636 Boyns v Lackey (1958) 58 SR (NSW) 395 Carpet Import Co Ltd v Beath & Co Ltd [1927] NZLR 37 Collum v Opie (2000) 76 SASR 588 Cowper v Laidler [1903] 2 Ch 337 Gafford v Graham [1999] 3 EGLR 75 Harrison v Good (1871) LR 11 Eq 338 Jaggard v Sawyer [1995] 1 WLR 269 Jessica Estates v Lennard [2007] NSWSC 1175 Kelsen v Imperial Tobacco Co (of Great Britain and Ireland) Ltd [1957] 2 QB 334 Krehl v Burrell (1878) 7 Ch D 551, 554; affirmed (1879) 11 Ch D 146, 148; Lamshed v Lamshed (1963) 109 CLR 440 Leader v Moody (1875) LR 20 Eq 145 Leeds Industrial Cooperative Society Ltd v Slack [1924] AC 851 Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 CASES CITED : Middleton v Arthur [2002] NSWSC 627 Mortimer v Bailey [2005] 2 BLR 85 Murphy v Hudson (1995) 6 BPR 14,061 Nelson v Rye [1996] 2 All ER 186 Owen v O'Connor [1964] NSWR 1312 Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598 Price v Hilditch [1930] 1 Ch 500 Sefton v Tophams [1965] Ch 1140, 1169ff (Stamp J)]. Sharp v Harrison [1922] 1 Ch 502 Shelfer v City of London Electrical Lighting Company [1895] 1 Ch 287 Smith v Smith (1875) LR 20 Eq 500 Trewin v Felton [2007] NSWSC 851 Wakeham v Wood (1982) 43 P&CR 40 Watson v Commercial Bank of Aust (1879) 5 VLR (<) 36 Wood v Conway Corporation [1914] 2 Ch 47 Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 All ER 483 Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, 3rd edn, [3601]

Jessica Estates Pty Limited (plaintiff) PARTIES : Tony John Lennard (first defendant) Laura Lennard (second defendant)

COUNSEL : J E Lazarus (plaintiff) G A Sirtes w J P Knackstredt (defendants)

SOLICITORS : Colin Biggers & Paisley (plaintiff) Curtis Delaney Gray (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST

4500/07 Jessica Estates Pty Limited v Tony John Lennard & anor JUDGMENT 1 HIS HONOUR: Between 2003 and 2007, the plaintiff Jessica Estates Pty limited - a member of the Monarch Investments group of companies - developed a subdivision comprising 121 lots near Singleton, known as Monarch's Hunterview Estate. Stage one of the subdivision, comprising 44 lots, was effected by DP1061723, which was registered on 5 January 2004, and in connection with which a s 88B instrument created a restriction as to user, providing inter alia as follows: (k) Unless the Registered Proprietor obtains the prior written consent of Jessica the Registered Proprietor shall not: (i) construct more than one dwelling on the Lot Burdened, (ii) construct any building of the nature known as semi - detached duplex on the Lot Burdened, (iii) use or permit to be used the Lot Burdened for any purpose other then as a private dwelling, (iv) alter a building on the Lot Burdened in such a way as to create a further dwelling on the Lot Burdened, (v) subdivide the Lot Burdened, and (vi) operate or permit to be operated upon or about the Lot Burdened a childcare centre, kindergarten or other similar activity. 2 The restriction is expressed to burden each lot in the plan and to benefit each other lot in the plan. Jessica no longer retains any of the lots in the plan, but the s 88B instrument contains the following provision: In addition to the lots benefited by these restrictions on the use of land, for a period of five (5) years from the date of registration of the Plan Jessica shall be entitled to the benefit of these restrictions and may bring proceedings to enforce these restrictions notwithstanding that at the time of commencement of any such proceedings it may not itself be the proprietor of any lot benefited by these restrictions.

3 The defendants Tony Lennard and Laura Lennard are the proprietors of Lot 122 in the subdivision, known as 122 Casey Drive, Singleton, on which they have, without Jessica's consent, constructed a semi-detached duplex, and obtained Council's approval for a subdivision of the lot into two strata lots. By Summons filed on 12 September 2007, Jessica claims a declaration that the Lennards have breached the restriction; an injunction restraining the Lennards from carrying out any further development or work on Lot 122 without Jessica's consent in writing; an injunction commanding the Lennards forthwith to take all necessary steps to remove the dwelling, and alternatively an injunction commanding them forthwith to take all necessary steps to convert the dwelling into a building that does not contravene the restriction. The Lennards oppose the injunctive relief sought. Background

4 Over the past 20 years Monarch has developed over 2830 residential lots throughout New South Wales, and in each case has imposed a restriction on user identical to that set out above. It regards this as an important aspect of its business, because it enables it to guarantee the quality and low density of its residential estates. Not infrequently, Monarch (or its relevant subsidiary) has acceded to requests for consent to erect a duplex, in circumstances where it has felt that a duplex will not detract from the quality of the development - for example, on large corner lots, appropriately configured.

5 Between 31 May 2003 and 8 March 2006, Jessica received enquiries or requests from purchasers and potential purchasers for consent in relation to duplexes at Hunterview. All those requests were refused.

6 On 23 February 2006, Mrs Lennard made an email inquiry in relation to Lot 102 in the Hunterview Estate, and was sent an information pack. In a follow up telephone conversation on the same day, initiated by Monarch, she asked for information on two other Monarch developments "with lots marked that might be suitable for duplexes"; she said that she was no longer interested in Hunterview, and only wanted to do duplexes.

7 The Lennards purchased Lot 122 by contract dated 24 July 2006. As Mrs Lennard admitted in cross-examination, they knew of the restriction when they purchased, and it was unambiguous in that it prohibited construction of a duplex without consent.

8 On 18 September 2006, the Lennards wrote to Jessica seeking consent to build a duplex, which they said was "the main reason we purchased this block" - which is somewhat remarkable given their knowledge of the existence of the restriction when they purchased. Jessica responded on 22 September 2006, refusing consent for a duplex and explaining its reasons, as follows: 1. The covenants must have been known to you when you purchased as they are part of the contract for sale in the section 88B instrument. Therefore you purchased in full knowledge of those covenants. With that knowledge you should not have purchased in this estate but rather in another one which allows duplexes if you wished to build a duplex.

How could we now retrospectively agree to vary a major covenant when every other purchaser has complied/

In view of the above we regret that we are unable to agree to your request.

9 The Lennards then consulted a builder, Noel McKinnon of Valley Homes, and apparently obtained legal advice that notwithstanding Jessica's refusal of consent, they were entitled to build a duplex. This advice apparently relied upon (NSW) Environmental Planning & Assessment Act 1979, s 28, and Singleton Local Environmental Plan, cl 6, as suspending the operation of instruments, including restrictive covenants, that prohibited development which was permitted under the LEP.

10 On 24 October 2006, Valley Homes, on behalf of the Lennards, lodged a development application with Singleton Council. The Lennards knew that this was contrary to the terms of the restriction. The development application was apparently advertised; however, the advertisement did not come to the notice of Jessica, and no objection was lodged to it. On 15 March 2007, the Council gave development consent for a duplex, and on 3 May 2007 issued a construction certificate. On 1 June 2007, Valley Homes notified the Lennards that they were ready to commence construction. On 20 June 2007, the Council gave development consent for the subdivision of Lot 122 into two strata lots.

11 On 28 June 2007, Carina Murray, the proprietor of a another lot in the estate, who had herself been refused consent for a duplex, sent an email to Mr Icklow at Jessica, drawing attention to apparent preparations for the construction of a duplex on Lot 122. Having ascertained the identity of the applicant for development approval, Jessica on 29 June 2007 wrote to Valley Homes, warning that the covenant did not allow duplexes, and that any attempt to build a duplex would be in breach of the covenant, would be vigorously opposed, and could result in considerable financial hardship.

12 Mr Icklow had a telephone conversation with Mr McKinnon on 30 June 2007. According to Mr Icklow, whose evidence in this respect was not challenged, Mr McKinnon told him "I will hold off building until you have resolved the matter with the owners". Mr McKinnon, to whom the conversation was put in cross-examination, did not think he had used those words, but may have said that he would get instructions from the owners. As Mr Icklow's version was not challenged, I prefer it.

13 The Lennards obtained legal advice, in accordance with which they say they acted. The content of the advice was not put into evidence. However, on 2 July 2007, the Lennards' solicitors, Curtis Delaney Brown, responded to Jessica, to the effect that development approval overrode the covenant because of clause 6 of the LEP and section 28 of the Act, and seeking written confirmation that construction of duplex would not be opposed, and that there would be no further action or threats.

14 On 4 July 2007, Mrs Lennard instructed Valley Homes to commence construction of the duplex, and construction commenced on 5 July 2007. Mrs Lennard explained that this was a considered decision, having regard to the legal advice they had obtained, and admitted that they understood that substantial risk was associated with this course. Mrs Lennard conceded that she understood that the legal issue was not clear-cut. Although in her affidavit of 29 November 2007, Mrs Lennard said that the instruction to proceed was given "as a result of my solicitor forwarding the letter and their being no satisfactory reply from the Plaintiff", only two days had elapsed since the letter was sent, and Mrs Lennard conceded that that was insufficient time to allow for a response; I am satisfied that the giving of the instruction to proceed had nothing to do with the absence of a response and would have been given regardless of what if any response Jessica made, because of the advice which the Lennards had as to the effect of EPA, s 28 on the restriction; the letter had sought written confirmation that Jessica would take no further action and no such confirmation had been given.

15 Any possibility that Jessica accepted the Lennards' position was put to rest the very next day when, on 5 July 2007, Jessica wrote to the Lennards' solicitor, stating that they did not accept what was asserted in Curtis Delaney Brown's letter of 2 July, taking strong objection to the conduct of the Lennards, threatening the immediate instigation of legal action to prevent the proposed construction, foreshadowing the potential costs consequences, and mentioning that the case law and LEP clause mentioned in Curtis Delaney Brown's letter had not in fact been enclosed. Curtis Delaney Brown responded by fax the same day, merely enclosing a copy of clause 6 of the LEP and relevant case law in support of the Lennards' position.

16 On 20 July 2007, Carina Murray informed Jessica that there had been further action on the lot, which had been "levelled ready for house". On 30 July 2007, Jessica's solicitors Lazarus Tomko wrote to Curtis Delaney Brown, maintaining that their client had not consented to a duplex, did not do so, and reserved its rights if the Lennards proceeded with the development in breach of the restrictive covenant. 17 The Lennards proceeded with construction of the duplex. Jessica subsequently consulted Colin Biggers & Paisley about the legal options. The next overt step taken by Jessica was a further letter, sent on 23 August 2007, by Colin Biggers & Paisley to the Lennards and to Curtis Delaney Brown, requesting that the Lennards immediately cease work, failing which proceedings for injunctive relief would be commenced. Curtis Delaney Brown responded on 27 August 2007, again relying on the development approval having overridden the restriction, and foreshadowing that any application would be strenuously defended and costs sought. 18 Jessica commenced these proceedings and obtained an abridgement of time for service on 12 September 2007, two months and one week after construction commenced. On 14 September 2007, the first return date, the parties agreed to join in seeking an early final hearing, with the consequence that Jessica did not press for interlocutory relief. On 25 September 2007, Austin J as Duty Judge made an order by consent pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 28.2, for the determination as a preliminary question whether the covenant was rendered void by EPA, s 28 and clause 6 of the Singleton LEP. On 22 October 2007, Austin J determined that question in the negative [Jessica Estates v Lennard [2007] NSWSC 1175].

The issues 19 There is no dispute that the restriction has been properly registered and is valid and effective, apart from the question of the impact on its operation of EPA, s 28, and clause 6 of the Singleton LEP. Nor is it in dispute that the construction of the duplex contravenes the terms of the restriction. As Austin J has determined as a preliminary question that the restriction was not overridden by EPA, s 28, and clause 6 of the LEP, the only remaining issue is whether as a matter of discretion the relief sought by Jessica should be granted. The declaration 20 The Lennards do not dispute that the building constructed on Lot 122 is a duplex, that the restriction prohibited its construction in the absence of the written consent of the plaintiff, and that such consent was not granted. Given Austin J's determination of the preliminary question, and while reserving their rights to appeal his Honour's decision, the Lennards do not oppose the granting of the declaration sought in prayer 1 of the Amended Summons. The injunction 21 Construction of the duplex is now practically if not entirely complete. In those circumstances, the prohibitory injunction sought in prayer 2 of the Amended Summons would have no utility. The question is whether some mandatory order should be made, requiring removal or rectification of the structure so that there is no contravention of the restriction.

22 Factors relevant to the exercise of the Court's discretion in this respect include the defendant's knowledge of the wrongful nature of his or her acts [Smith v Smith (1875) LR 20 Eq 500, 505; Baxter v Four Oaks Properties Ltd [1965] Ch 816, 829; Carpet Import Co Ltd v Beath & Co Ltd [1927] NZLR 37, 67 (FC, Skerrett CJ); Jaggard v Sawyer [1995] 1 WLR 269, 288-9 (Millett LJ)]; whether the defendant has hastened the completion of the wrongful acts so as to steal a march on the Court (or the plaintiff) [Price v Hilditch [1930] 1 Ch 500, 510]; the hardship which would be caused to the plaintiff by the refusal of an injunction; the hardship which would be caused to the defendant by the grant of an injunction; and the extent to which the injuries suffered by the plaintiff are compensable by an award for damages [Wood v Conway Corporation [1914] 2 Ch 47, 60]. The normal remedy for a threatened or actual breach of a restrictive covenant is an injunction, and the Court's power to award damages in lieu of an injunction is discretionary and exercised with caution [Leeds Industrial Cooperative Society Ltd v Slack [1924] AC 851, 861 (Viscount Finlay)]. Ordinarily, damages may be a sufficient remedy, only if (1) the injury to the plaintiff's legal rights is small, and (2) is one which is capable of being estimated in money, and (3) is one which can be adequately compensated by a small money payment, and (4) the case is one in which it would be oppressive to the defendant to grant an injunction [Shelfer v City of London Electrical Lighting Company [1895] 1 Ch 287, 322 (A L Smith LJ, CA); Kelsen v Imperial Tobacco Co (of Great Britain and Ireland) Ltd [1957] 2 QB 334; Owen v O'Connor [1964] NSWR 1312; Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 All ER 483]. 23 In Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598, Powell J (as he then was) observed that the grant of an injunction in this context lay in the discretion of the court, but that that discretion, being a judicial and not an unfettered one, must be exercised in accordance with accepted principle. His Honour referred to Wakeham v Wood (1982) 43 P&CR 40, in which Waller LJ said:- The authorities show that in the case of express negative covenants, that is where an agreement has been made that a particular thing is not to be done, an injunction will be granted to restrain a breach. And where a defendant commits a breach of a negative covenant with his eyes open and after notice the court will grant a mandatory order, although there is must be some limitation to this practice: eg, See per Astbury J and Sharp v Harrison and in that case the judge found reasons for awarding damages. ... The present case does not in my view qualify in any particular with paragraphs (1) to (4) mentioned by AL Smith LJ. Here is a man who had been living in his house for 33 years with a view of the sea protected by a restrictive covenant. The defendant purchased the land subject to the restriction with knowledge of it at the time of purchase. He did not make any inquiry of the plaintiff either directly or indirectly, he did not inform his architect of the restriction, he took no notice of his builder telling him of the plaintiff's objection and he put the roof trusses up in spite of letters from the plaintiff's solicitor. A more flagrant disregard of the plaintiff's rights it is difficult to imagine. As I have already indicated the judge concluded that there was a serious interference with the plaintiff's legal right to a view of the sea. I find it difficult to say that where one has a view protected by covenant, the denial of that view is capable of being estimated in money terms and therefore it seems to me it cannot be adequately compensated by a small money payment. Indeed in this case the judge awarded a substantial money payment. It no doubt will be oppressive to the defendant if a mandatory injunction is granted against him, but that is entirely his own fault for proceeding with the construction in breach of the covenant after warning.

24 After referring to that and other statements in the same case, Powell J concluded:- These observations, read against the background of the facts which I have set out above and the Master's view - which I share - that the defendants did not waive the benefit of the restrictions, would seem to indicate that unless - as is put - the defendants are disentitled, by reason of laches, acquiescence, and delay, to the exercise of the court's discretion in their favour, the injunction prayed must go.

25 Mr Sirtes for the Lennards submits that a mandatory injunction should be declined as a matter of discretion, by reason that the Lennards did not act in flagrant disregard of Jessica's rights, that Jessica's rights have not been seriously injured, that Jessica is disentitled to relief by laches, and that granting the relief sought would cause undue hardship to the Lennards.

No serious injury to Jessica's rights? 26 The Lennards submit that this case involves little more than a technical breach of the covenant that does not constitute any substantial or measurable interference with Jessica's rights, and that in those circumstances it is not open to the Court to make a finding that Jessica's rights have been seriously injured as a result of the breach of covenant. They contend that the wider Hunterview area (as distinct from Monarch's Hunterview estate) has not been exclusively developed by Jessica (that is, other developers have also been involved in developing the area); that there are other dwellings in the wider Hunterview area that are duplexes and blocks of units; that there are no signs in the Hunterview area that indicate which parts of the development were undertaken by Jessica; and that the covenant had the effect of depressing market interest in the lots developed by Jessica in the "Hunterview" estate.

27 The purpose of the covenant is to protect the amenity, and value of investments, of purchasers who buy lots in the development. Jessica has marketed its Hunterview Estate (as it has other similar developments) on the basis that no duplexes would be allowed without its consent, in order to minimise congestion and encourage low density development. The intent of the s 88B instrument, in giving Jessica the right to bring enforcement proceedings at any time within five years after registration of the plan of subdivision - irrespective of whether Jessica continues to own any of the lots in the development - is to protect the interests of Jessica by enabling it to enforce the covenant, thus preserving the conditions under which it marketed the lots. Jessica maintains the view that its commercial reputation will be adversely affected if it cannot insist on compliance with the restriction, and that view is a reasonable one. What has happened in other developments in other parts of Hunterview, not developed by Jessica and not subject to the covenant, is beside the point. While the covenant may make the lots in the estate less attractive for some potential purchasers, it increases its amenity and attraction for others. It was on the basis of the covenant that all the current proprietors purchased. It would work a substantial unfairness to all the other owners, who have complied with the covenant - and in particular those who sought and were refused consent to construction of a duplex - for the Lennards to be permitted to build a duplex on their land, particularly in view of their knowledge of the covenant when they purchased. The breach is not merely a "technical point", but a serious infringement of the rights of Jessica, and of the other owners.

28 In any event, mere absence of proof of substantial damage is not sufficient ground for refusing an injunction. If the Court grants damages in lieu of an injunction, it in effect licences the defendant's unlawful act for the future, subject to the payment of compensation to the plaintiff. This "compulsory acquisition" aspect of the power contributes to the conservatism with which it has been exercised [see, for example, Krehl v Burrell (1878) 7 Ch D 551, 554; affirmed (1879) 11 Ch D 146, 148; Shelfer v City of London Electrical Lighting Company, 315ff (Lindley LJ); Cowper v Laidler [1903] 2 Ch 337, 341 (Buckley J); Sefton v Tophams [1965] Ch 1140, 1169ff (Stamp J)]. As Lindley LJ said in Shelfer v City of London Electrical Lighting Company (at 315):- The Court has always protested against the notion that it ought to allow a wrong to continue simply because the wrongdoer is able and willing to pay for the injury he may inflict. … Without denying the jurisdiction to award damages instead of an injunction, even in cases of continuing actionable nuisances, such jurisdiction ought not to be exercised in such cases except under very exceptional circumstances. I will not attempt to specify them, or to lay down rules for the exercise of judicial discretion. No "flagrant disregard" of Jessica's rights? 29 The Lennards submit that Jessica gave insufficient grounds for refusing consent; that they acted in good faith, on advice that the covenant was ineffective by reason of EPA, s 28 and Singleton LEP, cl 6; that the Development Application was advertised and no objection was received and approved; and that Singleton Council's position was that the Covenant was ineffective by reason of clause 6 of the LEP and section 28 of the Act.

30 The Lennards knew of the covenant when they purchased Lot 122. They knew that a duplex would contravene the restriction when they sought development approval from the Council, and when they commenced building works.

31 The letter sent by Jessica to the Lennards on 22 September 2006, refusing consent for a duplex, set out sufficient grounds for refusing that consent. Preservation of the amenity of the Hunterview Estate by not consenting to duplexes in the estate (save where the location and the features of the lot justify it), and fairness and consistency in dealings with proprietors, are legitimate reasons for declining consent. Moreover, the Lennards did not seek to query the response, nor to complain about the reasons, but instead proceeded to seek development approval and commence construction without further notice to Jessica. In any event, even if the grounds were "insufficient", that does not justify defiance of the restriction where there is no proviso that consent is not to be unreasonably withheld.

32 There is no significance in the circumstance that Council approved the development, the approval having been obtained without notice to Jessica. Apart from EPA, s 28, a planning approval does not override a private covenant. There was a planning approval in Post Investments, and it was not thought relevant to the enforcement of the covenant. Council's attitude to the applicability of the covenant was not known to the Lennards until, at the earliest, 5 September 2007 (only one week before the commencement of proceedings), and could not be a relevant factor in assessing their conduct.

33 Although the evidence on this point is far from satisfactory, since evidence of the advice was never adduced, I am prepared to accept that the Lennards acted on legal advice - which by virtue of Austin J's judgment can now, for present purposes, be said to have been erroneous - to the effect that the covenant was suspended by operation of EPA, s 28 and Singleton LEP, cl 6. I am also prepared to accept that such advice, although it can be said in the light of Austin J's judgment to have been erroneous, was a tenable view. It follows that I accept that the Lennards were acting in the belief that they were lawfully entitled to take the course they did, and that it was not unreasonable for them to hold that view.

34 However, as Mrs Lennard accepted, they also knew that the issue was not clear-cut. Indeed, from 5 July 2007 at the latest, they were on notice that it was highly contentious. They knew that adoption of their chosen course was associated with risk. They knew (as Mrs Lennard conceded) that it would be sensible to wait until the issue was resolved, rather than to build first. Yet they did not even wait for Jessica's response to their solicitors' letter of 2 July. Their attitude is manifested in the conversation Mrs Lennard had with Mr McKinnon on about 4 July 2007, in which he asked her about the legal issue between the parties and whether it was all "Okay", to which Mrs Lennard replied: "We are going to proceed", without any reference to any resolution of the legal issue between the parties.

35 Fundamentally, the Lennards took their chances on the correctness of the advice they had received. In Mortimer v Bailey [2005] 2 BLR 85 [noted by Professor Butt in (2006) 80(1) ALJ 12], the Court of Appeal of England and Wales upheld the trial judge's decision to grant a mandatory injunction for demolition of an extension to an existing dwelling in breach of a restrictive covenant, which provided that certain works could not be built without the plaintiffs' consent, such consent not to be unreasonably withheld. The defendants took the view that the plaintiffs' refusal to consent to the proposed extension was unreasonable, and on legal advice proceeded to obtain planning permission from the local authority and, upon receipt of that permission, to commence construction. The most important factor in the Court's decision was the plaintiffs' solicitors' correspondence, after work had commenced, putting the defendants on notice of the breach of the covenant and threatening court proceedings. Once that occurred, the defendants "took a gamble that it was unreasonable for the claimants to have refused consent" and "they lost the gamble" (per Peter Gibson LJ at [35]). Jacob LJ agreed with Peter Gibson LJ, adding (at [41]): Where there is doubt as to whether a restrictive covenant applies or whether consent under a restrictive covenant is being unreasonably withheld, the prudent party will get the matter sorted out before starting building, as could have been done in this case. If he takes the chance, then it will require very strong circumstances where, if the chance having been taken and lost, an injunction will be withheld. 36 Accordingly, while I would not characterise the Lennards' conduct as being in "flagrant disregard" of Jessica's rights, it was highly imprudent. They knew there was doubt. They were well aware that risk was involved. They knew it would be sensible to wait, and get the matter sorted before commencing building works. They gambled, and lost.

Laches? 37 The Lennards next submit that Jessica is disentitled to the relief sought by reason of its delay in taking action to protect its rights. Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 established that the equitable defence of laches may be established where it is shown that the plaintiff has, by delaying the institution or prosecution of his or her case, either (a) acquiesced in the defendant's conduct, or (b) caused the defendant to alter its position in reasonable reliance on the plaintiff's acceptance of the status quo, or otherwise permitted a position to arise which it would be unjust to disturb [cf Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, 3rd edn, [3601]]. Relevant considerations include the length of any delay, the nature of the acts done in the interval, the nature of the right claimed and the property in which it is claimed [Boyns v Lackey (1958) 58 SR (NSW) 395 (Hardie J)].

38 The Lennards invoke the defence of laches on the basis that: · in reliance on Jessica's apparent acceptance of their position through its delay in responding to their solicitors' letter of 5 July 2007 and in commencing these proceedings, the Lennards acted to their detriment in expending moneys by causing the duplex to be constructed and continuing with that construction [cf Nelson v Rye [1996] 2 All ER 186; Murphy v Hudson (1995) 6 BPR 14,061; Lamshed v Lamshed (1963) 109 CLR 440; Watson v Commercial Bank of Aust (1879) 5 VLR (L) 36]; and · further and alternatively, granting the relief sought by Jessica would put the Lennards in an unreasonable situation, in that although Jessica's delay was at most only two and a half months, the nature of the Lennards' acts during that period (namely, the construction of the duplex) militates against the granting of relief [cf Lindsay Petroleum Co v Hurd ; Collum v Opie (2000) 76 SASR 588].

39 The Lennards complain that Jessica did not take its earliest opportunity of objecting to construction of the duplex, when the development application was advertised. However, Jessica had already refused consent to a duplex. The Lennards did not notify Jessica of the development application, and Jessica was unaware of it, and would have objected had it been aware, as would have Carina Murray also. Jessica was not aware until 29 June 2007 of the violation of its rights, and time before then does not count for the purposes of laches.

40 The Lennards next submit that after their solicitors' letters to Jessica dated 2 July 2007 and 5 July 2007, there was no further correspondence until 30 July 2007, and that in those circumstances, they assumed that Jessica had accepted the strength of the Lennards' position set out in the letter of 2 July, and in reliance on that assumption, proceeded with construction of the duplex. The difficulties with this submission are manifold. They commence with the circumstance that not only is there no evidence whatsoever that the Lennards entertained any such assumption or relied on it, but Mrs Lennard accepted - inevitably, given Jessica's letter of 5 July - that they knew at all times that Jessica was implacably opposed to construction of a duplex and never modified that position. No reasonable person in the Lennards' position could possibly have entertained the impression that Jessica had accepted the strength of their position, and the Lennards did not do so. It would have been entirely unreasonable to make any such assumption as at 4 July, only two days having elapsed from the letter of 2 July, and Mrs Lennard acknowledged as much. Even if the Lennards had in fact relied upon the "lack of response" when deciding to commence construction on 4 July 2007, they would have been disabused of that notion the very next day, when they received the strongly worded letter of 5 July 2007, threatening the immediate commencement of legal proceedings. They were well aware that Jessica opposed their development.

41 The Lennards next argue that it was not until a month later, on 30 July 2007, that they were made aware of Jessica's continuing opposition to construction of the duplex, and as Jessica's solicitors' letter dated 30 July 2007 did not advance the issue any further than what had already been ventilated in correspondence in early July 2007, they did not consider it necessary to halt construction. However, the Lennards knew at all times that Jessica opposed the duplex; their evidence simply does not support the submission. And if they perceived no need to respond to Lazarus Tomko's letter of 30 July 2007 because it raised no new issues, then they chose to ignore a further warning at their peril. It matters not that the letter raised no new issues: the purpose of such a letter of 30 July 2007 is to put the covenantor on notice of the breach and the risk if, despite the warning, they proceed with contravening work; and the intent is to avoid litigation if possible.

42 Next, the Lennards submit that it was not until 23 August 2007, almost two months after construction of the duplex had commenced, they first became aware that Jessica seriously intended to protect its position by commencing proceedings for an injunction, and that such proceedings were not ultimately commenced until 12 September 2007, two months and a week after construction of the duplex had commenced. This is nonsense; they had been told as much by the letters of 29 June and 5 July, and the letter of 30 July while not containing an explicit threat of an application for an injunction did state that "our client's rights are reserved".

43 Mr Sirtes invoked Gafford v Graham [1999] 3 EGLR 75, in which Nourse LJ (with whom Pill and Thorpe LJJ agreed) said (at 79):- As a general rule, someone who, with the knowledge that he has clearly enforceable rights and the ability to enforce them, stands by while a permanent and substantial structure is unlawfully erected, ought not to be granted an injunction to have it pulled down.

44 In Mortimer v Bailey, the trial judge's decision to grant a mandatory injunction was upheld, even though there had been a delay of some weeks between the threat to commence proceedings once construction had commenced, and the actual commencement of proceedings. Peter Gibson LJ concluded (at [37]): The conduct of the claimants [in delaying the commencement of proceedings] cannot in my judgment be said to have been unconscionable, having promptly put the defendants on notice, as they did, of their intention to take proceedings. That conduct in no way disentitled them from obtaining the equitable relief of a mandatory injunction to enforce their rights. 45 Gafford v Graham was distinguished on the basis that in it, the decisive matter was that it was a case in which damages were a sufficient remedy. It was also observed that these are all cases about the exercise of a discretion, and do not constitute binding authority on how that discretion is to be exercised in a particular case.

46 The Lennards submit that Mortimer should be distinguished or not followed for several reasons, namely that: · The rights affected in that case were those of a neighbour and not a third party developer, and the interference with the plaintiff's rights was substantial, in that the construction in question seriously affected enjoyment of the plaintiff's property (in particular in relation to its access to light and loss of enjoyment of views from the kitchen) and directly led to a decline in its value, whereas there is no evidence of an adverse impact on the value of the neighbouring properties in the present case. However, Mortimer was not decided on the basis of the seriousness of the interference of the plaintiff's rights, but on the question of delay. In any event, for reasons given above, there is in this case a substantial interference with the rights of Jessica, and of all the other owners in the estate.

· The English Court of Appeal in Mortimer considered that whether or not a plaintiff had sought interim relief pending a final hearing was a relevant (although by no means determinative) consideration. However, the only reason why Jessica did not press a claim for interlocutory relief was that the parties had agreed to facilitate the early final determination of the matter. Moreover, once a defendant is on notice that its actions are opposed, I am unpersuaded that to avoid an accusation of laches a plaintiff must claim interlocutory relief - at the price of an undertaking as to damages, so that the plaintiff would be compelled to bear the risk. I do not see why, in a disputable case, the plaintiff should be compelled to assume the risk though an undertaking as to damages, when the defendant could avert risk by waiting until the matter is resolved.

· Proceedings were taken in Mortimer within two months of construction commencing. However, the time lapse in the present case is similar, and in this case the Lennards were warned not just once, but four times, and each time they chose to ignore the warning.

· In Mortimer, the question of delay was not ventilated at trial and no oral evidence was adduced on it, and the case may have been decided differently had evidence of the delay been adduced and tested. However, although the issue of delay was not ventilated before the trial judge, it plainly was in the Court of Appeal. The appeal was decided on the question of delay, and the facts as found by the Court of Appeal (at [35]) bear a striking similarity to the facts in the present case. It is difficult to see what evidence could have affected the outcome.

47 Mr Sirtes submitted that, knowing that the Lennards were proceeding with construction, Jessica stood by while the duplex was erected, "brick-by-brick", without taking action. I disagree; Jessica acted with appropriate vigilance. As soon as it became aware of the potential infringement, from Ms Murray's email of 28 June 2007, it wrote to Valley Homes, the builders, the very next day, 29 June. It stated its position and intended course of action clearly in the letter of 5 July 2007. Jessica was not bound to do more at that stage, as it was at least conceivable that the Lennards would act prudently and not proceed, at least until the matter was resolved. That is all the moreso in the absence of a substantive response to Jessica's 5 July letter and in the light of Mr McKinnon's statement that the builder would hold off until the matter was resolved. When informed by Ms Murray on Friday afternoon, 20 July 2007, that work was continuing, Jessica sought legal advice on Monday, 23 July 2007, and its lawyers sent another letter one week later, on 30 July 2007, and yet another on 23 August 2007.

48 The objection that proceedings were not commenced until almost two and a half months after the commencement of construction is not a substantial one. Jessica's position was made manifest by its letters of 29 June 2007 and 5 July 2007. Jessica was entitled to wait to see whether the Lennards heeded the warnings. The Lennards could not possibly have been under the impression that Jessica was not going to take any action, in light of the four clear warnings they were given; Mrs Lennard conceded as much, and there was not a word in their evidence to the effect that they believed that Jessica had accepted their position, or would not take action. I reject the proposition that Jessica acted as if it accepted the Lennards' position by reason of its silence between 5 July 2007 and 30 July 2007 and its failure to act in bringing the present proceedings until 12 September 2007; and I reject the submission that the Lennards relied upon the lack of response by Jessica when deciding to proceed with construction of the Duplex. They decided to proceed on 4 July, on the basis of the legal advice they had. I do not accept that there was unreasonable delay in instituting proceedings in the circumstances, but even if there was, the defence of laches fails because on no view could the Lennards have been under the impression that Jessica acquiesced in construction of the duplex.

Hardship? 49 The Lennards finally submit that granting the relief sought would cause them undue and disproportionate hardship. In this regard, they submit that they intended, when purchasing and ever since, to construct a semi-detached duplex on Lot 122; that they intend let each side of the duplex for rent before selling after some years; that the rent generated for each side of would be up to $260 more per week than if the building were let as a single dwelling; that the resale value would be reduced by up to $180,000 if the duplex were converted into a single dwelling; that rectification work to convert the duplex into a single dwelling would require Council approval, would be extremely difficult and require a substantial amount of building modification; and would cost up to $40,000; and that the alternatives to rectification - removal of the building and resale of the unimproved land or construction of an alternative dwelling - would be even more inequitable.

50 While hardship is a relevant consideration in the exercise of the discretion to grant or withhold injunctive relief, the mere circumstance that the grant of final relief will occasion great hardship to the defendant is insufficient reason to decline to enforce a plaintiff's rights (different considerations prevail at the interlocutory stage, where it is not yet established that the defendant is a wrongdoer). It is not mere hardship, but unnecessarily disproportionate hardship, that may inform the discretion to decline relief: usually hardship will justify refusal of a final injunction only if the benefit of an injunction to the plaintiff is so slight as not to justify the hardship that an injunction would inflict on the defendant. But it is necessary to remember that prima facie the plaintiff is entitled to have its rights enforced against the defendant which has been established to be a wrongdoer.

51 In Sharp v Harrison [1922] 1 Ch 502, Astbury J held that where a defendant committed a breach of a negative covenant after warning, the plaintiff was, generally speaking, entitled to a mandatory injunction without proving damage, but if the defendant proved that no damage had been occasioned and offered undertakings that effectively prevented any future damage from the continuing breach, and the granting of a mandatory injunction would inflict damage on the defendant out of all proportion to the relief it would give the plaintiff, the Court ought refuse it. His Lordship said (at 509): This is a difficult case to deal with, because no damage or injury of any sort or kind has been or can be inflicted upon the plaintiff; but there is a distinct breach of covenant by the defendant with full knowledge of the covenant and of the plaintiff's objections to the particular breach. 52 His Lordship referred to Bowes v Law (1870) LR 9 Eq 636, in which James VC had refused a mandatory injunction in a case where there was a clear breach of a covenant, but having regard to the circumstances of the case, held that there was a discretion to refuse injunctive relief where to grant it would inflict an unnecessary injury upon the defendant and give no benefit to the plaintiff. James VC had said: I am of the opinion, having regard to all the circumstances, and considering that no substantial annoyance has been occasioned to the plaintiff, and no substantial injury done to any right of property of his, that a declaration will be sufficient for the purpose of protecting the title, and I do not think it necessary to give the plaintiff the power of doing such an unreasonable and unneighbourly act as that of taking down this vinery, which is a great convenience to the defendant, and taking down of which would not confer on the plaintiff himself any benefit. 53 Astbury J also referred to another dictum of James VC, in Harrison v Good (1871) LR 11 Eq 338, 352: We all know that, although the Court of Chancery interferes, when it thinks it right, by way of injunction to prevent the violation of a covenant, yet, if the violation is so slight, formal and unsubstantial, that the plaintiff can have no ground in conscience to complain of it, the Court will not grant an injunction.

54 After reviewing the authorities, Astbury J declined to grant an injunction in the case before him, expressing the basis of his decision in the following terms: The reason is this, that if there is really no damage of any sort or kind suffered by a plaintiff by reason of the breach of a negative covenant of this character, and if the granting of a mandatory order would inflict damage upon the defendant out of all proportion to the relief to which the plaintiff ought to obtain the Court will, in my opinion, and ought in my judgment, to refuse it. 55 In Leader v Moody (1875) LR 20 Eq 145, Sir George Jessell MR declined to grant an injunction to enforce a covenant, saying: By granting an injunction I should be inflicting a great injury on the defendants, and should be giving no benefit to the plaintiff, because it appears from the evidence, which is not contradicted, that there is no reasonable prospect of letting the theatre for operatic purposes during the six weeks which have now to elapse, and considering also the power which has been given me by the Act commonly called Lord Cairns' Act of substituting damages for injunction ...

56 It is inevitable that the Lennards will be worse off, compared to their desired position, if a mandatory order is made. However, as Waller LJ said in Wakeham v Wood (at 45): It no doubt will be oppressive to the defendant if a mandatory injunction is granted against him, but that is entirely his own fault for proceeding with the construction in breach of the covenant after warning.

57 And Eastham J in the same case said (at 47): Substantial personal and financial hardship will undoubtedly be suffered by the defendant by the grant of the injunction but in my judgment by his conduct in acting with a total disregard for the plaintiff's rights, he had disentitled himself from asking that damages should be assessed in substitution for an injunction, and for that situation he has only himself to blame.

58 Those passages, together with those previous cited from Mortimer v Bailey, show that hardship is usually entitled to little weight where the defendant has taken a calculated risk, knowing of the other party's opposition, and lost [see also Middleton v Arthur [2002] NSWSC 627 (Palmer J), [88] - [92]; Trewin v Felton [2007] NSWSC 851, [90]].

59 Moreover, it will be apparent that I do not accept that the injury to Jessica is slight, nor that an injunction would be of little practical benefit. While it might be said that having one duplex in the estate will not materially affect density, if every house were a duplex there would plainly be a material impact, and it is impossible to say at precisely what point the impact would become material. But knowledge that the covenant would not be enforced against an owner who purchased with knowledge of it, intending to build a duplex, was refused consent, and was repeatedly warned not to build a duplex, would impact on "the law of the estate" established by the covenant.

60 The injury to Jessica's legal rights is not small. The breach is not merely a technical one, but a serious infringement of the rights of Jessica, and of the other owners. Jessica has a legitimate interest in preserving the amenity of the estates it develops and in being seen to be fair and even-handed in its dealings with purchasers. It would work a substantial unfairness to all the other owners, who have complied with the covenant, for the Lennards to be permitted to build a duplex on their land, particularly in view of their knowledge of the covenant when they purchased.

61 Damages are not a sufficient remedy. The injury to Jessica's rights is not readily capable of being estimated in money; nor is it one which can be adequately compensated by a small money payment. The loss of amenity and effect on Jessica's reputation is not readily compensable in monetary terms.

62 While the Lennards' conduct is not accurately characterised as having been in "flagrant disregard" of Jessica's rights, it was highly imprudent. Having been refused consent, they sought and obtained development approval without any further correspondence with or notice to Jessica. Despite warnings, they persisted with the building, when they knew there was doubt, and they were well aware that risk was involved. They knew it would be sensible to wait, and get the matter sorted before commencing building works. They gambled, and lost.

63 I do not accept that there was unreasonable delay in instituting proceedings in the circumstances, but even if there was, the defence of laches fails because on no view could the Lennards have been under the impression that Jessica acquiesced in construction of the duplex, and no evidence suggests that they were.

64 Having regard to the injury to Jessica's rights, the inadequacy of damages as a remedy, and the imprudent conduct of the Lennards in the face of repeated warnings - in particular that they took the calculated risk of proceeding, knowing that their own position was not clear-cut, and aware of Jessica's opposition and intentions - I am unpersuaded that the hardship that an injunction will necessarily occasion them justifies its refusal as a matter of discretion.

65 Subject to any submissions as to their form, my orders are: 1. Declare that by constructing the duplex residential building which currently stands on Lot 122 in DP1061723, situate at and known as 122 Casey Drive, Singleton in the State of NSW the defendants have contravened the restriction as to user contained in the s 88B instrument referred to in DP1061723 by, without written consent of the plaintiff, constructing more than one dwelling and constructing a building of the nature known as a semi-detached duplex on the said lot.

Order that the defendants be restrained from, by themselves their servants and agents, contravening the restriction as to user contained in the s 88B instrument referred to in DP1061723 by, without the written consent of the plaintiff: 2.1 permitting or suffering to remain on Lot 122 in DP1061723, situate at and known as 122 Casey Drive, Singleton:

(a) more than one dwelling, (b) any building of the nature known as a semi-detached duplex; 2.2 subdividing Lot 122, including by registering any strata subdivision. 3. Declare that in the event that the building which currently stands on Lot 122 is modified so that it contains only one dwelling and is no longer a semi-detached duplex adapted for two separate occupancies, there will no longer be a contravention of the said restriction.

Order that enforcement of Order 2 be stayed until 31 March 2008.

Reserve liberty to apply in the event of any difficulty arising in the implementation of these orders and for further orders to give effect to this judgment and for any variation of the stay contained in order 4.

Order that the defendants pay the plaintiff's costs of the proceedings.

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.

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Cases Cited (6)