Mamfredas Investment Group Pty Limited (formerly known as MAM Marketing Pty Ltd) v PropertyIT and Consulting Pty Limited & Ors

The Vie and Alexandra Buildings at the Former Children's Hospital Site 7In or about 1998 the site of the former children's hospital in Camperdown, Sydney was acquired by a developer, Sterling Estates Pty Limited ("Sterling"). The site was a single lot of land. But to allow development for residential and commercial use it was later divided into a number of separate lots, including the two separate lots on which the Alexandra and Vie buildings now stand. 8Between 2001 and 2003 Sterling submitted development applications in relation to these two properties, the Vie and Alexandra properties. It proposed to build a residential building on the Vie property. This proposal was approved. And in December 2003 Sterling registered a strata plan for the Vie building, after the completion of building works. 9The situation of the Alexandra property was more complicated. It did not begin as an empty lot. A heritage building known as the Admissions Building stood on the site. Sterling's 2002 development proposal was for partial demolition of the Alexandra building, followed by alterations to the remaining structure to facilitate a strata subdivision, incorporating recreational space and a swimming pool. But this development did not proceed. 10In 2006 Sterling experienced financial difficulties and was placed in receivership. The receivers sold parts of the development to different entities. The Alexandra property was bought by Frasers City Quarter Pty Ltd ("Frasers"). And Mamfredas purchased the Vie building's 14 car-parking spaces, burdened by a restriction as to user to which these proceedings relate. Mamfredas also purchased 13 car-parking spaces in other buildings, which are irrelevant to the issues in these proceedings. 11Frasers wanted to develop the Alexandra property differently from Sterling's original proposal. In 2007 it submitted a new development application to convert the Admissions Building into a commercial/residential building. This proposal was approved. And a strata plan for the completed Alexandra building was registered in November 2008.

Parking Arrangements in the Vie and Alexandra Buildings 12As planned in Sterling's development proposal, the Vie building is a residential complex with 133 parking spaces serving its occupants and visitors. Its strata plan refers to a creation of a "restriction on the use of land". And this restriction is further specified in clause 2 of the plan of subdivision as follows: 2 Terms of restriction on the use of land number 1 in the Plan A Grantor must not: (a) subject to clause 2(b), permit their Lot Burdened to be used by a person who is not an owner or occupier of [the Alexandra property] (or a lot in any strata scheme into which [the Alexandra property] is subdivided); or (b) permit their Lot Burdened to be used other than in accordance with any development consent (or modification of a development consent) which applies to the Lot Burdened from time to time. "Lot Burdened" is each of the 14 car-parking spaces to which these proceedings relate. 13The Alexandra property was ultimately developed as a building with 11 units: 10 residential and 1 commercial. It includes 10 parking spaces, one allocated to each of the residential units, and 2 spaces for the commercial unit and also providing some space for visitors and for disabled parking. The Alexandra building's strata plan makes no mention of the unit owners' rights arising under the restriction over the Vie property. And no such rights were recorded on the register for any of the individual units of the Alexandra property. In the context of these proceedings it is important to understand how this came about. 14The development approval for Sterling's initial 2002 development application for Alexandra property described the proposed development as follows: Partial demolition, alterations, and additions, new recreation area and swimming pool, strata subdivision, car parking and landscaping. The development approval gave no further details of the "car parking" included in this description. 15The 2007 approval of Fraser's revised development application defined the proposed development of the Alexandra property as: Refurbishment and conversion of existing building (formerly known as Admissions Building) to part commercial/residential comprising 10 residential units, 4 commercial tenancies on the ground floor, 10 car spaces facing Pyrmont Bridge Road and use of part of the ground and first floor as a marketing office and display for a period of 24 months. 16The assessment of the Fraser's application, which accompanied the 2007 approval, provides more details of the 2007 development proposal and refers to the detail of Sterling's 2002 proposal. It notes that the Sterling approval included 9 car parking spaces "in accordance with the masterplan", and that: It has come to Council's attention that under [the Vie property's strata plan], 10 car spaces and 3 storage areas [14 car-parking spaces burdened by the restriction as to user] in the basement carpark has been dedicated to the exclusive use of occupant's of the subject site [the Alexandra property]. Notwithstanding this, Council records indicate that the owner of [14 car-parking spaces burdened by the restriction as to user] is not the owner of the subject site and therefore, the lots have not been included as part of this application. 17Thus, the development approval for the Alexandra property was not advanced in any way on the basis of the 14 carparking spaces in the Vie building.

Origins of the Restriction as to User 18Mr Andre Mamfredas, a sole director of Mamfredas, explained the origins of the rather puzzling restriction as to user over the 14 Vie building car spaces. Although Mamfredas did not own any properties in the development before 2006, it had provided sale and marketing services to Sterling from 1999. Mr Mamfredas' early familiarity with the origins of the site gave him knowledge of the restriction. 19I accept from Mr Mamfredas' evidence that it was Sterling's original intention to develop the Alexandra property as its head office, without internal car parking, and that Sterling envisaged that the head office staff would use the parking spaces in the nearby Vie property. And it gave effect to this plan by including a restriction as to user with which I am now concerned in the Vie property's subdivision plan it registered in 2003.

Mamfredas' Position 20Mamfredas bought all 14 Vie building car spaces in 2006. Mr Mamfredas was aware at the time of purchase of the restriction as to user. He expected that the eventual owners of the then-undeveloped Alexandra property would want to buy or lease those 14 parking spaces. 21Prior to the hearing Mamfredas sold some of the 14 burdened parking spaces. But each contract of sale was subject to a condition that the restriction be lifted prior to the settlement. I infer that this is the reason why Mamfredas was keen to remove the restriction through these proceedings.

Present Position of the Owners of Units in the Alexandra Building 22Out of 11 units in the Alexandra building 10 residential apartments are owned by individuals and the commercial space is owned by a company. Six of the apartments are owned by joint tenants, so in total there are 17 owners. 23It is not disputed that none of the Alexandra Building unit owners knew of the restriction as to user which benefited them until they were contacted by Mamfredas. They had never made any use of the Vie building car spaces. 24The first time the Alexandra building owners heard of the restriction was in July 2011 when Mamfredas' solicitors wrote to each of them. After some further correspondence, full details of which were not provided to the Court, 14 of the 17 owners executed releases of the restriction prior to commencement of the hearing. Mamfredas paid each consenting owner's legal costs of the execution of the release. It then commenced these proceedings joining the three remaining owners (being the joint owners of one of the residential lots and the company owning the commercial lot) as defendants. But at the hearing each of these defendants filed a Uniform Civil Procedure Rules 2005 r 6.11 ("UCPR") submitting appearance "save as to costs". 25The details of the negotiations between the defendants and Mamfredas are relevant to the question of costs and are explored later in these reasons. But first it is necessary to explain why the Court exercised its jurisdiction under Conveyancing Act s 89 to extinguish the restriction.

Current Access to the Burdened Parking Spaces 26There was limited information before the Court in relation to the current use of the burdened parking spaces. But the owners of the Alexandra building do not access any of them. They do not have a security swipe required to enter the Vie parking and pass the boom gate. The relevant parking spaces are currently leased out and privately used. This last fact, even if accepted, is not particularly relevant because before the order extinguishing the restriction as to use were made, any such use must have been in breach of the restriction. 27I was also taken to the by-laws of the Vie building strata scheme. By-law number 18 provides that the owners of eight parking spaces in the Vie building have rights to fence off those car spaces, together with the common property area between them, and create an additional boom gate, to ensure that they will be the only persons accessing them. The origins and purpose of this by-law, covering 8 out of the 14 car spaces to which the restriction as to user applies, were obscure. But the Vie building's strata scheme had developed inconsistently with any operation of the restriction as to user.

Extinguishment under Conveyancing Act s 89(1) 28The principles that apply to the exercise of the power conferred by Conveyancing Act s 89(1) to modify or extinguish an easement or a covenant are clear. The power conferred in Conveyancing Act s 89(1) creates an important statutory qualification to the common law rights of the beneficiary of a covenant/easement. Section 89(1) provides: 89 Power of Court to modify or extinguish easements, profits à prendre and certain covenants (1) Where land is subject to an easement or a profit à prendre or to a restriction or an obligation arising under covenant or otherwise as to the user thereof, the Court may from time to time, on the application of any person interested in the land, by order modify or wholly or partially extinguish the easement, profit à prendre, restriction or obligation upon being satisfied: (a) that by reason of change in the user of any land having the benefit of the easement, profit à prendre, restriction or obligation, or in the character of the neighbourhood or other circumstances of the case which the Court may deem material, the easement, profit à prendre, restriction or obligation ought to be deemed obsolete, or that the continued existence thereof would impede the reasonable user of the land subject to the easement, profit à prendre, restriction or obligation without securing practical benefit to the persons entitled to the easement or profit à prendre or to the benefit of the restriction or obligation, or would, unless modified, so impede such user, or (b) that the persons of the age of eighteen years or upwards and of full capacity for the time being or from time to time entitled to the easement or profit à prendre or to the benefit of the restriction, whether in respect of estates in fee simple or any lesser estates or interests in the land to which the easement, the profit à prendre or the benefit of the restriction is annexed, have agreed to the easement, profit à prendre, restriction or obligation being modified or wholly or partially extinguished, or by their acts or omissions may reasonably be considered to have abandoned the easement or profit à prendre wholly or in part or waived the benefit of the restriction wholly or in part, (b1) in the case of an obligation: (i) that the prescribed authority entitled to the benefit of the obligation has agreed to the obligation's being modified or wholly or partially extinguished or by its acts or omissions may reasonably be considered to have waived the benefit of the obligation wholly or in part, or (ii) that the obligation has become unreasonably expensive or unreasonably onerous to perform when compared with the benefit of its performance to the authority, or (c) that the proposed modification or extinguishment will not substantially injure the persons entitled to the easement or profit à prendre, or to the benefit of the restriction or obligation. 29The restriction as to user in this case was validly created pursuant to Conveyancing Act s 88B by registration of the Vie building strata plan. Mamfredas did not argue it was invalid. This was so, even though it had not been recorded in the strata plan of the Alexandra property which it benefits: Conveyancing Act ss 88(2)(d) and 88(3A). 30The case law suggests that a restriction of the type involved in this case, which restricts usage to a particular class of persons may, depending on the circumstances, be classified either as an easement or as a covenant: Ryan v Sutherland [2011] NSWSC 1397 by Black J at [7]. But this distinction does not matter here, and I will not explore it further. Conveyancing Act s 89 applies in the same way to easements and covenants. 31Conveyancing Act s 89(1) is to be applied according to its terms, read fairly and without disregarding the conventional approach to legislation affecting common law property rights. The starting point for the Court's consideration is the restriction itself, its terms and its objects derived from construing those terms in context and bearing in mind that the restriction was created for an indefinite future and destined to endure in a changing environment: Armishaw v Denby Horton (NZ) Ltd [1984] 1 NZLR 44 at [47]; Durian (Holdings) Pty Ltd v Cavacourt Pty Ltd [2000] 10 BPR 18,099; [2000] NSWCA 28 per Mason P at [4]. 32The power conferred by Conveyancing Act s 89(1) to modify or extinguish a restriction requires proof of one or more circumstances to the satisfaction of the Court coupled with the favourable exercise of judicial discretion: Durian (Holdings) Pty Ltd v Cavacourt Pty Ltd [2000] 10 BPR 18,099; [2000] NSWCA 28 per Mason P at [2]. The circumstances required to be proved are set out in Conveyancing Act s 89(1). 33Mamfredas submission in favour of extinguishment of the restriction only relied on Conveyancing Act s 89(1)(a). And the Court's powers under other subsections of Conveyancing Act s 89 will not be further analysed in these reasons.

Extinguishment Pursuant to s 89(1)(a) 34Conveyancing Act s 89(1)(a) grounds the exercise of the power to extinguish a restriction as to user on two independent bases connected with changing circumstances. The first basis is that by reason of the change in use of the land having the benefit of the restriction or in the character of the neighbourhood, the easement ought to be deemed obsolete. The second is that the continued existence of the restriction would impede the reasonable user of the land subject to the easement without securing any practical benefit to the persons entitled to the easement. 35In relation to the first basis, to determine whether there has been a change in the neighbourhood, the Court identifies what the neighbourhood is in any given case and then analyses the evidence to see if there has been change between the date of grant and the date of the application: Cavacourt Pty Ltd v Durian (Holdings) Pty Ltd (1998) 9 BPR 16,833; [2000] ANZ ConvR 22; (1999) NSW ConvR 55-891 per Young J. 36The term "obsolete" has been explained in a number of authorities. Indeed obsolescence: (a) can be established in the sense that the original purpose of the restriction can no longer be served: In re Truman, Hanbury, Buxton & Company Ltd's Application [1956] 1 QB 261 at [272]; and (b) can also mean that the object of the restriction is incapable of fulfilment any longer or perhaps serves no presently useful purpose: Re Mason and the Conveyancing Act (1960) 78 WN (NSW) 925 at [927]; Durian (Holdings) Pty Ltd v Cavacourt Pty Ltd [2000] 10 BPR 18,099; [2000] NSWCA 28 at [3]-[6]. 37The second basis involves an assessment of whether or not the continued existence of the restriction would impede the reasonable user of the servient tenement without securing practical benefit to the persons entitled. 38To establish that a covenant impedes the reasonable user of the servient land, it must be shown that no reasonable use of the land is possible unless the restriction is modified or extinguished: Frasers Lorne Pty Ltd v Joyce Goldsworthy Burke & Ors [2008] NSWSC 743 per Brereton J at [14]. 39It is insufficient for a Conveyancing Act s 89(1) applicant to establish that its own proposal is a reasonable use of the servient land. The applicant must show that no reasonable use of the land is possible unless the restriction is extinguished or modified: Heaton v Loblay (1960) SR (NSW) 332, at 335 per Myers J. The applicant must also show that the continuance of the restriction unmodified "hinders, to a real and sensible degree, the land being reasonably used, having due regard to the situation it occupies, to the surrounding property, and the purpose of the [easement]": Re Ghey & Galton's Application [1957] 2 QB 650 at 663. 40Whether the continued existence of the covenant or the right of way secures a practical benefit to the beneficiaries requires assessment if the covenant/easement: is no longer necessary for any reasonable purpose of the person who is enjoying the benefit of it; is no longer enforceable; or has become of no value: Re Henderson's Conveyance [1940] Ch 835 at 846, applied in Castagna v Great Wall Resources Pty Ltd [2005] NSWSC 942 at [47]. If the evidence indicates that the purpose of the covenant/easement is still capable of fulfilment the onus of establishing that it secures no practical benefit has not been discharged: TZ Developments Pty Ltd v Rickman Pty Ltd 7 BPR 14,605 per Sheller JA. 41Finally, Conveyancing Act s 89(1)(a) allows the Court to take into account such "other circumstances of the case which the Court may deem material". These words permit the Court to take into account "the widest field of evidentiary material": Re Roseblade; Re Foenander [1964 -5] NSWR 2044 at [2046] and Markos v OR Autor Pty Ltd [2007] NSWSC 810 per Austin J at [90].

The Exercise of the Conveyancing Act s 89(1) Discretion 42The grant of relief established under s 89 grounds is discretionary: Pieper v Edwards [1982] 1 NSWLR 336. The facts relevant to the exercise of this discretion include matters such as the history of the property, the conduct of the owners of both the dominant and servient tenements, the acts of a prior registered proprietor and the state of the register. No one factor is decisive: Pieper v Edwards (1982) 1 NSWLR 336 at 340D-E. 43The question of who has the burden of showing that the discretion ought be exercised once jurisdiction is established will itself depend upon the circumstances. This is explained by Hutley JA in Pieper v Edwards (1982) 1 NSWLR 336 at 340 as follows: the burden may not always be on one side or the other. Where the acts of abandonment relied on are those of the dominant owner the burden of showing the order should not be made could reasonably be laid on him. Whereas here, the acts relied on are of a predecessor in title of the applicant, of which the respondent had no notice, the burden could well be thrown on the applicant. These observations were made in relation to exercise of the discretion under s 89(1)(b) which refers to abandonment of an easement or a covenant. But the general principle that the burden of proof will depend on the circumstances applies equally to s 89(1)(a) applications. 44Mamfredas accepts in the circumstances of this case that it has the burden of showing that the discretion ought be exercised in its favour. 45The Court will normally exercise caution in acceding to an application for the extinguishment or modification of an easement (or a covenant), which is a proprietary right: Frasers Lorne Pty Ltd v Joyce Goldsworthy Burke & Ors [2008] NSWSC 743 per Brereton J at [29].

Mamfredas submissions on extinguishment 46Mamfredas submitted that the restriction should be extinguished under each of the two independent limbs that may ground Conveyancing Act s 89(1)(a) relief. 47In relation to the first limb, Mamfredas said that given the change in the nature of the development of the Alexandra property the object of the restriction was incapable of being satisfied and its original purpose was obsolete. The alleged change in the nature of the development was that the original plan of the Alexandra property becoming Sterling's head office (and not featuring any car parking) was abandoned and that property was ultimately developed as an apartment complex with its own parking spaces. 48Mamfredas further submitted that the fact that the Alexandra building unit owners did not know about the restriction supported the conclusion that the restriction was "obsolete". 49In relation to the second limb, Mamfredas argued that that the continued existence of the restriction impeded its use of the car parking spaces, without securing a practical benefit to the Alexandra property unit owners. 50Mamfredas said that its use of the burdened land was impeded because it could not deal it, and specifically, could not sell it. And it submitted the restriction did not secure a practical benefit to the Alexandra property unit owners because: the restriction was not registered on their titles, they had no knowledge of it prior to the correspondence from Mamfredas; after benefiting from independent legal advice, most of them executed releases of the restriction; the ones who did not execute releases did not put any substantive arguments before the Court but instead filed a submitting appearance. 51The defendants put no submissions to the Court seeking to oppose extinguishment of the restriction.

Application of these Principles to the Facts 52I have found the plaintiff's arguments persuasive in this unusual case. In my view extinguishment can be justified on both the first and second limbs of Conveyancing Act s 89(1)(a). 53The use of the land having a benefit of the restriction, the Alexandra property, has changed. Relevant change is measured from 2003, the date of Sterling's original development proposal (and the creation of the restriction) and the present time, when the Conveyancing Act s 89 application is made. In that period the Alexandra building changed from an office building with no carparking spaces to a residential building fully served by car parking spaces, the development approval for which was secured without relying upon any external car parking spaces. Ordinarily reserving car parking spaces in one building for use in another would require some reasonable explanation. The rationale for the original restriction has disappeared. 54But whether the Court can infer the restriction is "obsolete" depends upon whether the object of the restriction is incapable of fulfilment any longer or perhaps serves no presently useful purpose. Had the defendants gone into evidence or put submissions to demonstrate a presently useful purpose, that may perhaps have been a debatable issue in this case. Despite at least twelve months of correspondence before proceedings were commenced, the defendants did not advance any reasonable hypothesis in the proceedings as to how they or the occupants of the Alexandra building or visitors to its common property would be likely to use the car parking in the Vie building. There was sufficient time to prepare and present such a case but none was advanced. All the persons with the benefit of the restriction here had either (1) agreed to release it, or (2) did not articulate to the Court any reasonable purpose they would have for continuing to enjoy the benefit of the restriction. From this I infer that the restriction no longer serves any reasonable purpose of theirs. This inference is strengthened by the period of time that the defendants have satisfactorily used the car parking spaces in the Alexandra building without the restriction. 55Moreover, the terms of the restriction as to user itself contain strong indications that the situation might arise that it would serve no useful purpose at a future time, and that indeed is what seems to have happened. Sub-paragraph (2)(a) of the restriction as to user is subject to sub-paragraph (2)(b), which allows for the restriction to be automatically overridden by any later development consent applying to the burdened lot from time to time. A later development consent may simply override the restriction as to user. This provision made sense when Sterling was developing both the Alexandra and Vie properties. Sterling could simply have adjusted the development consent for the Vie property in a way that would neutralise the restriction, if its plans for the Alexandra property were to change. All that seems to have happened in this case is that as a result of the properties falling into separate ownership such a simple strategy for accommodating changes in the proposed use of the Alexandra property - by modifying the development consent for the Vie property - was lost. It is still theoretically open for Mamfredas to neutralise the restriction in this way. But the inherent defeasibility of the restriction combined with the lack of any hypothesis now being advanced in evidence for its use, strengthens the inference that it is now obsolete. 56The second limb of Conveyancing Act s 89(1)(a) is another basis for relief. I do not accept the land is unsaleable with the restriction in place. After all Mamfredas purchased it in 2006 well aware of the restriction on title. But the curious feature of this case is that the plaintiff's evidence is that it cannot use the spaces consistently with the restriction but the defendants' case advances no use that is consistent with the restriction. I can infer in these circumstances that no reasonable use of the land is possible unless the restriction is extinguished, so the second limb would also be made out. No alternative case for modification, rather than extinguishment of the restriction, was advanced by either side.

Costs 57Mamfredas seeks an order that the defendants pay its costs of the proceedings on the indemnity basis; the defendants want Mamfredas to pay their costs on the ordinary basis. The defendants filed a UCPR r 6.11 submitting appearance "save as to costs", and made submissions only on the issue of costs. 58Mamfredas should pay the defendants costs, for the reasons that follow. But first, a more detailed account of the dealings between the parties before the hearing will better inform the exercise of the costs discretion.

Initial Dealings Between Mamfredas and the Unit Owners 59On 5 July 2011 Mamfredas solicitors wrote to each of the Alexandra units owners informing them about the existence of the restriction, explaining its nature and origins and noting that Mamfredas "wishes to have the redundant Restriction as to user removed from the titles of its 14 lots". The solicitors suggested that they were ready to prepare the required documentation to effect the removal, and offered that Mamfredas would bear all reasonable costs of doing so. The letter included the following comments: The removal of this Restriction as to User will not in any way affect your property or the value of your property. The reference to the Restriction is not placed on or noted on the title to your property. We confirm that this Restriction has never had any operative effect, is redundant and is required to be removed by our client as a matter of urgency. 60The July 2011 letter applied strong pressure. It explained Mamfredas intentions if each owner does not consent to the removal: If, however, you do not consent to the removal of the Restriction as to User, then proceedings will need to be taken in the Supreme Court for removal of the covenant and you will be joined to those proceedings. As our client has offered to attend to the matters necessary to remove the covenant totally at its costs, if proceedings become necessary, then our client will seek indemnity for costs of the Supreme Court proceedings from those parties against whom the orders need to be sought. Obviously, our client would prefer to work with all lot owners co-operatively and avoid litigation but will undertake litigation as necessary to ensure that the covenant is removed and that this occurs without any undue delay. However, our client reiterates that it is suffering significant losses by virtue of the restriction remaining on it titles and will take proceedings if necessary to seek orders for removal of the Restriction from the titles, and also seek general damages and costs. We look forward to your cooperation, assistance and early reply in this matter. In the event your consent as requested herein is not forthcoming within 14 days of the date of this letter, our client will have no alternative other than to commence legal proceedings against you as outlined above without further notice. 61After this letter, in late July 2011, Mamfredas' solicitors corresponded with the Land and Property Management Authority ("LPMA") in relation to the release of the restriction. They suggested to the LPMA that the restriction is invalid because it lacks instructions on who "has the power to release, vary or modify" it. LPMA disagreed. But the solicitors also wanted to clarify with LPMA whose consents they would need to obtain the release. LPMA confirmed that consent of each unit owner was necessary, but not the consent of the registered lessees; the Owners Corporation of the Alexandra Building; or the Community Association which owned a lot that was part of the initial Alexandra property lot, but did not become part of the Alexandra Property strata scheme. LPMA also waived the requirement for consents from the mortgagees of the unit owners. 62The lot owners of the Alexandra building units and the Mamfredas' solicitors continued to communicate. But, apart from the particular correspondence with the defendants, details of this correspondence were not disclosed to the Court. Between August 2011 and March 2012 all the owners, except for the defendants, executed releases of the restriction. Each of them obtained independent legal advice in relation to the execution of the release, paid for by Mamfredas.

Negotiations Between Mamfredas and the Defendants 63In August 2011 Mamfredas' solicitors again wrote to the defendants: to Mr Lutman and Ms Game, who were co-owners, and, separately, to PropertyIT and Consulting Pty Limited ("PropertyIT"). They referred to their July letter and asked for confirmation that the defendants will consent to the release and the details of the legal advisors to whom the proposed release documentation could be provided. They warned: If this matter is not resolved in the immediate future, then our clients will be forced to take proceedings in respect of which it will be seeking indemnity costs. 64After the August 2011 letter Mamfredas' solicitors and the defendants communicated by email and by phone. It is obvious from this correspondence that: Mamfredas was keen to obtain releases from all the owners as soon as possible, presumably because of its plans to sell the parking spaces. 65In contrast, the defendants were unsure what they should do and did not want to hurry. The defendants enquired what the other owners had done. They also wanted to know to what extent Mamfredas was prepared to pay for any legal advice they might need. Mamfredas offered to pay for the same type of legal advice that it offered to the other owners: the costs of a solicitor reviewing the proposed release documentation and explaining its effect. 66Frequent but unresolved correspondence in the second part of 2011 and early 2012 on the subject of the release led to a rise in mutual tension. The correspondence included repeated warnings from Mamfredas' solicitors in the vein of those set out above. The defendants felt pressured. Ms Game said in her correspondence with the solicitors that she felt harassed. She indicated that she did not want to communicate with the solicitors, unless she contacted them. PropertyIT informed Mamfredas that it had referred this matter to PropertyIT's legal advisors. And the defendants view was justified: an objective reading of the course of this correspondence reveals a theme of persistent pressure on the defendants. 67The parties began to negotiate a possible settlement. PropertyIT initiated these discussions in late 2011. In early 2012 PropertyIT, Mr Lutman and Ms Game all retained a single legal advisor to represent them all in these discussions. Between December 2011 and May 2012 several offers of settlement were exchanged. Under each of those offers the defendants would execute a release of the restriction in exchange for: a payment of a specific sum, or Mamfredas selling to each of them one of the burdened parking spaces at a discount. It is unnecessary to record the full substance of the offers exchanged. But the positions taken on each side took the following course. (a)Mamfredas offered to pay PropertyIT $990; (b)PropertyIT offered to execute the release on payment of $5,000; (c)Mamfredas offered to sell to each defendant one parking space affected by the restriction (valued by it at between $74,000 to 59,000) at a discount of $2,500; (d)Defendants offered to execute the release on sale of one car space each for $35,000; (e)Mamfredas offered to sell to each defendant one parking space at a discount of $5,000. 68The Mamfredas' settlement correspondence included repeated warnings of the immediacy of litigation and potential for indemnity costs orders. It reiterated that the restriction as to user is of no "commercial value nor any practical benefit for the defendants". 69On 19 September 2012 Mamfredas filed the Summons commencing these proceedings. Within 8 days, on 27 September, each of the defendants filed a submitting appearance 'save as to costs'. After 19 September the parties exchanged six more offers, embodying slight variations on the proposals summarised above. 70The Summons referred to the restriction being "redundant and liable to be released pursuant to section 88 of the Conveyancing Act 1919". Initially, it did not rely on Conveyancing Act s 89. An Amended Summons seeking Conveyancing Act s 89 extinguishment was filed on 5 November 2012, when this matter was first before the Court for directions.

Parties' Submissions on Costs 71Mamfredas submits that the Court should apply the usual rule in UCPR 42.1 that costs follow the event and therefore the defendants should pay its costs. The defendants disagree. They seek recovery of their costs on the ordinary basis. 72None of the parties seeks to recover the legal costs of the negotiations before the proceedings were commenced. Mamfredas seeks costs from the commencement of the proceedings. The defendants seek reasonable costs of considering Mamfredas' application, and costs of appearing at the hearing to put submissions on costs. 73The substance of the submissions on each side may be shortly stated: Mamfredas says that defendants should pay its costs because: they have not given a release when they could have done so, thereby causing Mamfredas to have to come to Court rather than lodging a consent extinguishment through LPMA, nor did they put forward any substantive defence to the Conveyancing Act s 89 application. The defendants say: that Mamfredas joined them as defendants to the proceedings for improper purposes; that if the application proceeded ex parte they would not have taken any part in it; and, that once joined they behaved reasonably in not opposing the application but leaving it to the Court's discretion. Some more details of those submissions are necessary. 74Mamfredas submits that because UCPR 6.11 submitting appearances are permitted to be on a "save as to costs" basis that it is clear that a cost order may generally be made against a submitting party, and that the onus lies on the defendants to prove that the usual "costs follow the event" rule should not be followed. 75Mamfredas then points to circumstances which establish that no such departure is justified here. The circumstances relied upon may be divided into two groups: acts of Mamfredas and acts of the defendants. Mamfredas highlights that it: engaged in settlement negotiations with the defendants (both before and after the proceedings were commenced); offered to pay all reasonable costs of executing releases; put the defendants on notice that if any proceedings were necessary it would seek to recover its legal costs on the indemnity basis. And it criticises the defendants: for being unreasonable and making the proceedings necessary by not executing the releases; for being opportunistic and perceiving the negotiations as an chance to secure a financial windfall; and for admitting that there were no legal basis on which the extinguishment application may be opposed by filling submitting appearances. Mamfredas also points out that defendants did not know, and had no means of learning about the restriction until it told them. Mamfredas relies on the same circumstances to establish that any cost order should be on the indemnity basis. 76The defendants resist an indemnity costs order. They submit that Conveyancing Act s 89 applications are usually made ex parte, without the joinder of any defendant but after hearing any objectors. And they point out that if this usual procedure had been followed they could, after receiving notice of the proceedings, have decided not to take part in the proceedings. They say further that, once joined they had no choice but to participate, so their reasonable costs should now be paid by the applicant. They highlight that their stance in the proceedings did not put Mamfredas to unnecessary or unreasonable costs because, in the absence of releases from all the owners, Mamfredas' application would have had to come to Court in any event. And they contend that Mamfredas really joined them as parties to intimidate them and to ensure that there was a party against which it might seek a costs order. Lastly, they say that their position was partly influenced by the fact that until the Amended Summons was filed they did not know the jurisdictional basis of Mamfredas' application. 77In its oral submissions Mamfredas replied to the defendants' contention that the proceedings should have been commenced ex parte. It accepted that this would be the ordinary procedure. But it submitted that relevant caselaw still does not require it to proceed ex parte and; that the ordinary procedure may be departed from in appropriate circumstances. Mamfredas distinguished these proceedings from an ordinary application because, after the lengthy negotiations, "the plaintiff anticipated a real opposition to this application, given it was not articulated". Mamfredas recognised that no such real opposition in fact eventuated, as the defendants filed a submitting appearance. But it said that the ultimate lack of such opposition further supports its argument that these proceedings should be distinguished from an ordinary application where the objectors put arguments before the Court. 78In further justification of its choice not to proceed ex parte, Mamfredas says that joining the defendants to the proceedings was more cost and time effective; the real persons affected were brought before the Court; and Mamfredas had already executed contracts to sell the parking spaces.

Usual Procedure in s 89 Conveyancing Act Applications 79These proceedings did not take the usual course of Conveyancing Act s 89 applications. The usual procedure has been usefully summarised by Gzell J Manfred Paul Radandt & Anor v Gary Daniel O'Toole [2006] NSWSC 721 at [4] ("Manfred"): There are no relevant rules of Court that govern the operation of the Conveyancing Act 1919, s 89(4), but the precedent sets out, in detail, a suggested procedure. In essence, it states that the usual way of proceeding in an application under the section is to approach the Court twice. On the first occasion, an Associate Justice determines the notice to be given and settles its form. A precedent is given of such a notice at the foot of the precedent. The notice indicates to the recipient what they may do if they wish to oppose the application and if they wish to be heard. The second approach is when the matter is dealt with by an Associate Justice. 80This comment was made in the context of the application of s Conveyancing Act s 89(4) which provides: Notice of any application made under this section shall, if the Court so directs, be given to the council of the area (within the meaning of the Local Government Act 1993) in which the land is situated, and to such other persons and in such manner, whether by advertisement or otherwise, as may be prescribed by rules of Court or as the Court may order. 81No directions in relation to service of notices were asked for or given before the hearing. But as each of the unit owners in the Alexandra building had either executed a release or filed a submitting appearance and the grant of relief did not obviously raise any further issue for the local Council there was no need to direct the issue of Conveyancing Act s 89(4) notices. Gzell J's reference to Conveyancing Act s 89 applications being heard by Associate Justices of this Court clearly applies to whatever judicial officer hears the applications. 82The usual procedure to which Gzell J referred in Manfred is further explained in practice texts. Court Forms, Precedents & Pleadings NSW, LexisNexis, Sydney, 1989 (online at 28 June 2013), "Easements and Restrictive Covenants" at [27,145] ("Court Forms NSW") says: Usually proceedings are commenced ex parte. On the return of the summons the court considers the evidence, which should include the transfer imposing the restriction and the relevant certificate of title (in the case of Torrens title land), the conveyance or instrument of transfer (in the case of old system land), the deposited plan showing the dominant and servient tenements and any contract of sale, lease or mortgage. The Registrar-General should be subpoenaed to produce necessary documents before the return of the summons. Directions will then be given as to who should be served with notice of the application. These directions are given by the associate judge or registrar. For example, if the order sought is a modification of the covenant to allow a house of unauthorised materials to remain, only those persons with a view of the house would need to be joined. By contrast, if the order sought was that the restriction was unenforceable, all persons with the benefit of the restriction should be joined. The usual direction is that notice be given by service of a circular on the relevant persons. Only if a very large number of persons were involved would advertising be required. In an urgent case, a plaintiff may seek to anticipate the order to be made regarding service of a notice of the application and on the return of the summons provide evidence that service of a notice has already been effected. The risk is that the court's directions may not have been anticipated correctly and further service will be directed after the return date. [references omitted] 83Why was the application not made ex parte? It is clear from the correspondence between the parties, including the very first letter Mamfredas wrote to the defendants on 5 July, that it was always Mamfredas' intention to join any non-consenting unit owners as defendants to the proceedings. That letter also reveals Mamfredas intended to keep open the option of claiming indemnity costs against any non-consenting unit owners.

Costs of s 89 Conveyancing Act Applications 84But claiming costs against the persons who objected to the extinguishment of an easement or a covenant, although not impossible, is certainly not the usual procedure. Court Forms NSW further explains (at [27,145]): If the objectors fail, they are still usually entitled to costs, since they held a legal right which was attacked. Usually only one set of costs is payable. If, however, the matter falls into the realm of full inter partes litigation and, for example, the objectors entirely refuse to consider any modification, costs may follow the event. The court has a discretion whether to make an order even if a statutory ground for modification has been made out. [references omitted] 85This paragraph suggests that s 89 Conveyancing Act applications are one of the exceptions to the usual rule that costs follow the event. Such exceptions have sometimes been explained on the basis they are applications seeking a privilege from the Court: Australian Securities and Investments Commission (ASIC) v Krecichwost (2008) 72 NSWLR 498 ("Krecichwost") at 501. But the existence of an overarching principle requiring a plaintiff to pay the defendants costs every time "an indulgence" is sought from the Court, is not clear: Fordham v Fordyce [2007] NSWCA 129 ("Fordham") at [50] per Young CJ in Eq. 86The specific principles relating to costs in s 89 Conveyancing Act applications may be shortly stated. Ordinarily the applicant should pay all costs reasonably or necessarily incurred by reason of the application, including the proper costs of the objectors: Re Rose Bay Bowling & Recreation Club Ltd (1935) 52 WN (NSW) 77 at 79 ("Rose Bay"); Brown v STA of NSW [2000] NSWSC 802 ("Brown") at [9]; Marian Walker v Brian Bridgewood and Ors (No 2) [2006] NSWSC 284 at [5] ("Walker"). 87But when are costs reasonably or necessarily incurred by reason of a s 89 Conveyancing Act application? It has previously been suggested, by reference to the rather quaintly described "old two guinea rule", on which Rose Bay relied by analogy (at 78), that such costs are the costs of obtaining a solicitor's advice whether or not to consent to the proposed extinguishment/modification of a covenant/easement: Castagna v Great Wall Resources Pty Ltd [2005] NSWSC 942 ("Castagna") at [57]; Krecichwost at 501. 88But it seems that in appropriate circumstances the costs payable by the applicant are not limited only to the costs of the initial advice. Rose Bay itself was a case in which a successful applicant was required to pay the objectors costs of putting their views before the Court (at 79). Costs orders against the successful applicant were also made in Re Withers [1970] VR 319 at 320 ("Withers") and in Stanhill Pty Ltd v Jackson [2005] VSC 355 ("Stanhill") at [6]. 89But the applicant will not be required to pay the objectors' costs of putting their views before the Court in all circumstances. The Court retains a discretion to adjust the cost orders to the circumstances of the proceedings: Withers at 319. 90In exercising its discretion the Court may make no order as to costs: Brown at [18] and Walker at [13]. It may require the objectors to pay the applicant's costs, for example, if: the objectors' conduct in defending their rights was "frivolous" (Withers at 319) or "irresponsible" (Stanhill at [6]); the applicant's case was "overwhelming" (Brown at [16] - [21])); or, the objectors run fully adversary proceedings and failed (Rose Bay at 78-79). 91Distinguishing between simple assertion of a threatened right by the objector and running adversary litigation is a value judgment and may be difficult: Brown at [9]. This distinction has been described by Young J in Hardie v Cuthbert (No 2) (unreported, Supreme Court of NSW, 31 May 1988, Young J) in the context of neighbourhood disputes generally as follows: The defendant's conduct of the case was not merely one of seeking a neighbourly resolution to a problem that had been caused by predecessors in title but rather one of resisting to the best of her counsel and solicitor's ability. Indicative of this attitude was that although a view was held, the defendant's counsel insisted that the view only be used to explain the evidence and not as most commonly happens in this class of case, that it be used to supplement the evidence. It was the defendant's right to do this, but where a person insists that the case be tried in accordance with their strict legal rights, the Court will do so but will classify the proceedings as adversary proceedings in the strict sense rather than a statutory summons to adjust rights. 92In exercising its discretion in relation to the costs of Conveyancing Act s 89 applications the Court may take into account any offers of compromise made by the successful applicant to the objectors. But such offers are not necessarily decisive: Walker at [14]-[15].

Effect of Filing a Submitting Appearance 93The defendant's rapid filing of a submitting appearance is also relevant to the exercise of the costs discretion. UCPR r 6.11 provides: 6.11 Defendant may submit to judgment by notice of appearance (cf SCR Part 11, rule 4 (3), (4) and (5)) (1) A defendant who intends to take no active part in proceedings may include in the defendant's notice of appearance a statement to the effect that the defendant submits to the making of all orders sought and the giving or entry of judgment in respect of all claims made, to which may be added the words "save as to costs". (2) Except by leave of the court, a defendant who has filed a notice of appearance containing a statement referred to in subrule (1) may not file a defence or affidavit or take any other step in the proceedings. Note: See rule 20.34 which allows the defendant in proceedings on a liquidated claim to file a statement acknowledging the whole of the amount of the claim. 94Costs will usually not be ordered against a party, usually an inferior court or tribunal subject to judicial review, where the party files a submitting appearance under UCPR r 6.11 and thereby submits itself to any order of the reviewing court: El Deeb v Magistrates Court of South Australia (1999) 72 SASR 596 at 598, per Doyle CJ, Bleby J and Martin J concurring. This is the usual rule except in a clear case of serious misconduct or where the decision reviewed was perverse in the sense of revealing obstinacy in error: Willesee v Willesee (1974) 2 NSWLR 275 and Cummins v Mackenzie (1979) 2 NSWLR 803 at 810-812. Analogous principles apply to administrative decision makers such as local government authorities: Develtor Property Group Pty Ltd v Newcastle City Council [2001] NSWLEC 47 at [42]. This really follows from the effect of filing a submitting appearance; that the submitting party cannot take any step to contest the plaintiff's claim: Filter v Public Trustee [2007] NSWSC 1487, and Sahab Holdings Pty Limited v Registrar-General and Castle Constructions Pty Limited [2009] NSWSC 1143 at [79], (2009) 75 NSWLR 629, at 646. 95The position developed in judicial review cases applies equally in other circumstances, as White J confirmed in proceedings to set aside a statutory demand: Takchi Bros Constructions Pty Ltd v Woods [2010] NSWSC 115 ("Takchi"). His Honour summarised the position as follows (at [13]): Prima facie, as the plaintiff obtained the relief it sought in the originating process, it is entitled to its costs (Uniform Civil Procedure Rules, r 42.1). Prima facie, a defendant who files a submitting appearance except as to costs is liable for the costs up to the time of the service of the appearance but not thereafter (Develtor Property Group Pty Ltd v Newcastle City Council [2001] NSWLEC 47; LexisNexis, Ritchie's Uniform Civil Procedure NSW at [6.11.10]). Both parties argued that I should depart from this prima facie position. 96But in Takchi White J found that the prima facie position, that the submitting party is not liable for costs after its appearance was filed, may be displaced (at [18]). The defendant in that case, whilst serving a submitting appearance, told the plaintiff that it was obliged to explain to the Court the arguments the defendant raised in correspondence as to why the statutory demand should not be set aside. This contention was incorrect, and warranted a departure from the prima facie position.

Application of These Principles to the Facts 97Although the usual order would be for the proper costs of the objectors (here the defendants) to be paid by the Conveyancing Act s 89 applicant, any other cost order may be appropriate depending on the circumstances, including the outcome of the proceedings and the conduct of the objectors. 98But the circumstances strongly point here to an order for costs in the defendants' favour. The usual Conveyancing Act s 89 notification procedure was not followed and instead the defendants were made parties to the proceedings from the very beginning, so they did not have the practical choice of not appearing to answer the summons. But they used the closest equivalent: they filed submitting appearances, save as to costs. And they only participated in the hearing to make submissions in relation to the costs issue. They were conspicuously careful not to adduce any evidence or make any submissions on the substantive Conveyancing Act s 89 issues. They said, and I accept, that they only came to Court because of the threat of costs orders being made against them. 99Other parts of the defendants' submissions are persuasive. If the ordinary Conveyancing Act s 89 procedure had been followed, after receiving full notice of the proceedings including the proper communication of its true jurisdictional basis under Conveyancing Act s 89, potential objectors such as the defendants would have been in a position to decide whether or not to take part in the proceedings. In these circumstances the usual practice in s 89 applications would infer that Mamfredas should pay their costs of considering the Mamfredas application before the hearing. 100But their position at the hearing is equally strong. They only came to the hearing to defend their costs position and the integrity of their submitting appearances. They took a reasonable position, having filed submitting appearances to come and maintain before the Court what would been the ordinary result of those appearances, an indemnity costs order having been threatened against them. The threatened indemnity costs orders were serious. Their appearance was entirely justified. 101Ms Berberian, with her usual persuasiveness, put the plaintiff's costs case at its highest. But except in one respect I do not find it compelling. The defendants' attempts to negotiate were not unreasonable, particularly in the face of the high pressure correspondence emanating from Mamfredas. The defendants should not have held against them the fact they did not execute releases; it is up to the plaintiff to establish the circumstances for the exercise of Conveyancing Act s 89(1)(a) discretion. It has now done so; but in circumstances that do not allow it to have any order for costs in its favour. 102But consistent with authority the order for costs in the past should be limited to the legal costs of considering Mamfredas' application. Ms Berberian's argument is correct to the extent she contends that the defendants should not have all their costs of conducting the negotiations with the plaintiffs. These costs were the result of a commercial decision that went well beyond just considering the plaintiff's application. And the defendants should have their costs of defending these proceedings.

Conclusions and Orders 103In the result the defendants have been successful in their claim that the plaintiff pay their costs of these proceedings. The final orders of the Court, including order (1) made on 30 November 2012 therefore are as follows: (1)An order that Restriction 1 affecting lots [title details not published] be wholly extinguished pursuant to section 89(1)(a) of the Conveyancing Act 1919 (NSW). (2)An order that the plaintiff pay the defendants' costs: (i)since the commencement of these proceedings; and (ii)before commencement of the proceedings, but only in respect of the costs of considering the plaintiff's application.

Amendments 23 July 2013 - Correction to name of Counsel Amended paragraphs: Name of Counsel DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 July 2013