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[2005] VSC 169
Supreme Court of Victoria
2005-05-19
MORRIS, J
Original judgment source is linked above.
PROPERTY - Restrictive Covenants - Power to discharge or modify - Whether covenant ought to be deemed obsolete - Whether covenant impedes reasonable user of land - Whether modification would cause substantial injury - Property Law Act 1958, s84
1 of the empowers the Court to discharge or modify a restrictive covenant. The power is a long standing one, being first introduced in Victoria in 1918. However, since the decision of Farwell J in 1940 in the English case of Henderson's Conveyance there has been a tendency to severely restrict the ambit of the power. In the present case the plaintiff has invited the Court to construe the power amply, to give effect to what is said to be the real purpose of the power. Questions which must be resolved include the scope of the power in ; and whether the power should be exercised in the present case to modify the restrictive covenant in question.
2 The plaintiff became the registered proprietor of 6 Gellibrand Crescent, Reservoir on 22 May 2003. The land, which is described in Certificate of Title Volume 5569 Folio 704, is a parcel of 1,133 square metres containing a dwelling in fair condition. The land is unusual in that it has three road frontages: a frontage of 33.6 metres to Rodman Street, a frontage of 17.1 metres to Gellibrand Crescent, and a frontage of 34.4 metres to Sturdee Street.
3 The plaintiff's land is burdened by a restrictive covenant, which is contained in Instrument of Transfer No 1421721 dated 15 July 1929. The covenant contains a number of restrictions, including that no hoarding for advertisement purposes shall be erected on the land and that no quarrying operation shall be carried on. However the restriction which is relevant in the present context is as follows:
"(c) No shops laundries factories or works shall be erected on the said Lots and not more than one dwelling house shall be erected on any one Lot and the cost of constructing each house shall not be less than Four hundred pounds (inclusive of all architect's fees and the cost of erecting any outbuildings and fences); and it is intended that the above covenants shall be set out as encumbrances at the foot of the Certificate of Title to be issued in respect of the land hereby transferred and shall run with the land."
4 It would appear that in about 1919 two entrepreneurs, Thomas Michael Burke and Patrick Deane, purchased 1,119 acres of land at Reservoir and gradually commenced the process of subdividing the land into more than 3,000 lots. Initially the residential lots were transferred directly out of the original title. Later larger lots were transferred out of the original title, then these larger lots were further subdivided into residential lots. One of these larger lots, Volume 4984 Folio 717, was transferred from the original parcel on 10 February 1925. Subsequently this lot was divided into 145 residential lots, including the subject land.
5 The plaintiff's land was first transferred out of its parent title (Volume 4984 Folio 717) on 16 July 1929. By that time approximately one third of the residential lots had been transferred from that parent title. After that date the remaining two thirds of the lots (81 lots in total) were transferred out of the parent title. It is these 81 lots which have the benefit of the covenant affecting the plaintiff's land. The owners of some of these lots appeared as defendants in the proceeding to oppose the application.
6 By its amended originating motion the plaintiff seeks an order pursuant to section 84 of the Property Law Act that the restrictive covenant be modified by deleting the words "and not more than one dwelling house shall be erected on the said Lot hereby transferred and the cost of constructing such house shall not be less than 400 pounds (inclusive of architects fees and the cost of erecting any outbuildings and fences)." The purpose of such a modification is to allow the plaintiff to erect townhouses on the land. According to the plaintiff's town planning consultant it would be possible to erect five townhouses on the property. The precise number of townhouses that could be erected on the land would depend upon the exercise of discretion pursuant to the Darebin Planning Scheme, a planning scheme made under the Planning and Environment Act 1987. But in order to erect more than one dwelling, the restrictive covenant must be modified or discharged.[2]
7 The plaintiff's case for a modification is based upon paragraphs (a) and (c) of section 84(1) of the Property Law Act. Paragraph (a) has two distinct limbs. Thus the plaintiff's case is based upon it establishing one of the following propositions:
• since the creation of the covenant, there have been significant changes in the character of the neighbourhood such that the covenant ought to be deemed obsolete; or
• the continued existence of the covenant would impede the reasonable user of the land without securing practical benefits to other persons; or
• the proposed modification would not substantially injure the persons having the benefit of the covenant.
8 It is desirable to set out section 84(1) of the Property Law Act in full:
"(1) The Court shall have power from time to time on the application of any person interested in any land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon by order wholly or partially to discharge or modify any such restriction (subject or not to the payment by the applicant of compensation to any person suffering loss in consequence of the order) upon being satisfied -
(a) that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Court deems material the restriction ought to be deemed obsolete or that the continued existence thereof would impede the reasonable user of the land without securing practical benefits to other persons or (as the case may be) would unless modified so impede such user; or
(b) that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction whether in respect of estates in fee-simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed have agreed either expressly or by implication by their acts or omissions to the same being discharged or modified; or
(c) that the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction:
Provided that no compensation shall be payable in respect of the discharge or modification of a restriction by reason of any advantage thereby accruing to the owner of the land affected by the restriction unless the person entitled to the benefit of the restriction also suffers loss in consequence of the discharge or modification nor shall any compensation be payable in excess of such loss; but this provision shall not affect any right to compensation where the person claiming the compensation proves that by reason of the imposition of the restriction the amount of consideration paid for the acquisition of the land was reduced."
9 Since 1940 courts have generally approached section 84 with caution. In particular, the preconditions which must be satisfied to enliven the power have been interpreted narrowly. As I remarked in my introduction, the judgment of Farwell J in 1940[3] has proved influential. More accurately, certain sentences in that judgment have proved influential.[4] One such sentence, which is replicated in the headnote to the report of the case, has been particularly influential:
"Speaking for myself, I do not view this section of the Act as designed to enable a person to expropriate the private rights of another purely for his own profit."
10 It is difficult to see why this statement of Farwell J should have been so influential. The making of a profit is a normal, and appropriate, activity in a free market society. In one sense it can always be said that a person affected by a restriction will benefit - that is, profit - from the discharge or modification of a covenant. Hence a focus on the profit to be enjoyed by the party seeking discharge or modification is pointless. More significantly, potential profit is quite irrelevant to the criteria set out in section 84. This is reinforced by the compensation provision, which provides that compensation is not payable by reference to any advantage accruing to the person burdened by the restriction by the modification or discharge of that restriction.
11 In Re Truman, Hanbury Buxton & Co Ltd's Application[5] the English Court of Appeal considered an application under the equivalent of section 84 in relation to a lot in a residential estate which was subject to a restrictive covenant that the "trade of a hotel keeper, inn keeper, victualler of wines, spirits or beer is not to be carried on upon the said land". Along one of the roads of the estate a number of properties had been converted into shops. It was contended that these changes rendered the covenant obsolete insofar as allotments fronting this busy road were concerned. At that time the Lands Tribunal was responsible for determining applications under the English equivalent of section 84. It held that, although there had been a change in the character of the area, that did not render the covenant "obsolete". The landowner contended that the decision of the Lands Tribunal was wrong in law. It was said that the tribunal had applied the wrong test of what is obsolete, namely whether the covenant had become wholly valueless. It was argued that the appropriate meaning of the word was "fallen into disuse" or "out of date". Romer LJ, with whom the other members of the court agreed, said:
"It seems to me that the meaning of the term "obsolete" may very well vary according to the subject matter to which it is applied. Many things have some value, even though they are out of date in kind or in form - for example, motor cars or bicycles, or things of that kind - but here we are concerned with its application to restrictive covenants as to user, and these covenants are imposed when a building estate is laid out, as was the case here of this estate in 1898, for the purpose of preserving the character of the estate as a residential area for the mutual benefit of all of those who build houses on the estate or subsequently buy them.
It seems to me that if, as sometimes happens, the character of an estate as a whole or of a particular part of it gradually changes, a time may come when the purpose to which I have referred can no longer be achieved, for what was intended at first to be a residential area has become, either through express or tacit waiver of the covenants, substantially a commercial area. When that time has come, it may be said that the covenants have become obsolete, because their original purpose can no longer be served and, in my opinion, it is in that sense that the word "obsolete" is used in section 84(1)(a).
If the arbitrator did, in fact, ask himself whether the covenant had become absolutely valueless, it may be that he was applying rather too strict a test, but I doubt whether this criticism which was made is not in reality directed rather to the form of the matter than to the substance, for, if the original object of the covenant can no longer be achieved, it is difficult to see how the covenant can be of value to anyone.
Be that as it may, I am quite satisfied that nothing would be gained by remitting the case to the tribunal. Mr Erskine Symes [the member of the Lands Tribunal] saw the property, he heard the objectors and the evidence which was laid before him upon the matter as a whole, and he came to the conclusion that the discharge of modification of the covenant, so as to permit the erection of on-licensed premises on the land, would seriously injure persons admitted to be entitled to the benefits of the covenant; not one or two people, be it noted, but persons in general."[6]
12 The decision of the English Court of Appeal in Truman was followed in Driscoll v Church Commissioners for England.[7] It was also applied by Adam J of this court in Re Robinson, where Adam J commented:
"It appears from that, that if the restrictive covenant continues to have any value for the persons entitled to the benefit of it, then it can very rarely, if at all, be deemed obsolete. One really inquires into the purpose of the restrictive covenant." [8]
13 Hence the traditional approach to interpreting the first limb of paragraph (a) has been, in effect, to hold that the power to discharge or modify a restriction is only enlivened if, by reference to the original purpose of the covenant, the restriction is virtually valueless to the persons entitled to the benefit of it.
14 The case of Re Hendersons Conveyance[9] was essentially a case about the second limb of paragraph (a). The facts were that Dr Seligman had purchased a house in 1918 with a large and attractive garden facing Wimbledon Common. The house was conveyed to him with the benefit of a covenant not to erect any building upon an adjoining piece of land lying at the end of the garden. The covenant had been created in 1865. In 1938 the adjoining land had been purchased by a new owner who had sought the discharge or modification of the restriction so as to enable a house to be erected adjacent to Dr Seligman's garden. The official arbitrator, who was then responsible for applications under the English equivalent of section 84, modified the covenant on the condition that Dr Seligman be paid 500 shillings compensation. Dr Seligman was not happy with this outcome and appealed to the Chancery Division of the High Court of Justice of England and Wales.
15 Because of the significance of this case in development of the law, it is desirable that I set out a significant extract from the judgment of Farwell J. I have added emphasis to certain parts to illustrate that, taken as a whole, the judgment does not mean that a narrow approach is always justified. Rather the decision seemed to turn on what the judge regarded as the "proper" development of the land in question - a matter which surely involves a value judgment, with a strong town planning flavour. In particular, the judge seemed to distinguish between development that might serve some public interest (notwithstanding that it would also be profitable), and that which was devoid of any public interest element. After setting out background matters, Farwell J continued:
"It is, I think, noticeable that the application in this case is not quite of the usual order. Most of the cases under this section are cases in which there are in existence restrictive covenants which are likely to or actually do impede or prevent the proper development of adjoining property. In most cases they are covenants which, having regard to the present times and the changes which are required from time to time in the use of property, have become obsolete or are of such a hampering nature that they prevent any proper development of the adjoining property. In cases of that sort the Court has to consider whether the restrictions are such as can be properly and justly modified or released, and whether there is a real necessity, in order to enable the proper development of the neighbouring property, that there should be some modification or removal of the restrictions in question. This is not a case of that sort. This is purely a question between two private owners, one of whom desires to erect a house on a particular portion of his property, and the other of whom desires to keep that which he has long enjoyed and that for which presumably he paid when he acquired his house and grounds, namely, the benefit of having at the bottom of his garden an open space, a space which, so long as the covenant remains, will be always an open space, and one which, being an open space, will not have upon it a dwelling or dwellings from which his garden can be overlooked. It is not a case where the applicant before the official arbitrator was seeking to develop his land for some purpose such as erecting small houses thereon, or shops. It is a question whether the personal benefit which may result to him from being able to put his house on a particular part of his property is sufficient to justify him in asking that the benefit under the covenant which the appellant has long enjoyed shall be taken away from him.
Speaking for myself, I do not view this section of the Act as designed to enable a person to expropriate the private rights of another purely for his own profit. I am not suggesting that there may not be cases where it would be right to remove or modify a restriction against the will of the person who has the benefit of that restriction, either with or without compensation, in a case where it seems necessary to do so because it prevents in some way the proper development of the neighbouring property, or for some such reason of that kind; but in my judgment this section of the Act was not designed, at any rate prima facie, to enable one owner to get a benefit by being freed from the restrictions imposed upon his property in favour of a neighbouring owner, merely because, in the view of the person who desires the restriction to go, it would make his property more enjoyable or more convenient for his own private purposes. I do not think the section was designed with a view to benefiting one private individual at the expense of another private individual. At any rate, primarily, that was not, in my judgment, the object of this section. If a case is to be made out under this section, there must be some proper evidence that the restriction is no longer necessary for any reasonable purpose of the person who is enjoying the benefit of it, or that by reason of a change in the character of the property or the neighbourhood, the restriction is one which is no longer to be enforceable or has become of no value."[10] [My emphasis.]
16 The meaning of the second limb of paragraph (a) was further considered in England in Re Ghey and Galton's Application[11], where Lord Evershed MR commented that in order to satisfy this limb it must be shown that the continuance of the unmodified covenant "hinders, to a real, sensible degree, the land being reasonably used, having due regard to the situation it occupies, to the surrounding property, and to the purpose of the covenants". In Re Stani[12] the Full Court of the Supreme Court of Victoria adopted this passage - the whole of the passage, and not just part of it, as Menhennitt J explained in Re Alexandra.[13] Indeed, as Menhennitt J observed, the Full Court judgment makes it manifest that the application of the second limb of paragraph (a) will essentially be a question of fact.[14] Counsel for the defendants in the present case acknowledged that the decision in Re Stani does not stand in the way of the plaintiff's contentions.
17 There are at least three examples where this court has interpreted the second limb of paragraph (a) as requiring the applicant to show that the restriction will impede all reasonable uses of the subject land.[15] A similar approach was taken by the Privy Council in Stannard v Issa.[16] That case concerned land in Jamaica which was subject of a restrictive covenant. The relevant legislation paralleled section 84 in the Victorian legislation, although there were significant differences.[17] The trial judge who heard the application dismissed it. However this judgment was overturned by a majority of the Jamaican Court of Appeal. The Privy Council questioned whether all that had to be shown was that there was some use of the land which was (a) reasonable and (b) impeded to a sensible degree by the restriction sought to be modified. This conclusion seemed to be influenced by an amendment which had been made to the equivalent English provision in 1969, where, as a result of increasingly restrictive interpretations of the expression "impedes the reasonable user", the English provision had been altered by substituting the word "some" for the word "the".
18 Neither the decisions of single judges of this court nor the decision of the Privy Council are binding on this court, although they obviously must be accorded considerable respect.[18] But it is to be observed that the approach taken in these cases narrows the general words used by Lord Evershed in Re Ghey and Galton's Application; and, more importantly, seems to effect a departure from the plain words used in the statute itself.
19 By contrast, the decision of the Full Court of the Federal Court of Australia in Morpath Pty Ltd v ACT Youth Accommodation Group Inc[19] proceeds upon a much stronger grammatical and historical footing. The appellant had applied to the Supreme Court of the Australian Capital Territory for an order varying covenants as to purpose in leases held pursuant to the City Area Leases Ordinance 1936. The order sought would have deleted covenants restricting the use of the land to residential purposes only and allowed office uses. The provision which allowed the Supreme Court to vary the covenant was in similar terms to the second limb of paragraph (a) of the Victorian Property Law Act; and it required the court to be satisfied that circumstances existed to make it desirable to vary the covenant "in order that the reasonable user of the land should not be impeded". The Supreme Court had held that in order to satisfy this requirement it was not enough merely to show that a proposed use was reasonable; rather it was necessary to show that no reasonable use of the land was possible unless the change applied for was granted. The full Federal Court, consisting of five judges, overturned the Supreme Court decision.
20 The leading judgment of the Full Court in Morpath was delivered by Beaumont J. He observed that the origins of the provision the subject of that case were to be found in provisions such as section 84(1) of the Law of Property Act 1925 (in England) and in similar New South Wales legislation. He referred to the history of the legislation and the way it had been interpreted over the years. He contrasted the narrow interpretation which had been adopted in the context of the removal of restrictive covenants with a more liberal interpretation in other cases, particularly cases involving covenants in leases. More relevantly, he observed that the more liberal interpretation accords with the ordinary meaning of the words used.[20] Beaumont J noted that it was evident from the context, scope and purpose of the provision considered in that case that the discretion vested in the court was to be exercised in the public interest; and that ordinarily town planning aspects of the proposed new use would be prominent in such an inquiry.[21] The exercise of this discretion, he said, involved balancing society's interest in the fullest use of land against the interests of local occupants in their amenities.
21 The way courts have traditionally dealt with the second limb of paragraph (a) - that is, by focusing upon "the reasonable user of the land" - has led to less focus on whether a restriction secures "practical benefits" to other persons. However in Re Stani the Full Court observed that the test to be applied is similar to that to be applied under paragraph (c).[22]
22 In Re Ulman[23] McGarvie J observed that, when it comes to paragraph (c):
"The proper approach is to compare what the covenant before modification permits to be done on the land which it binds with what it would permit to be done after modification."[24]
In that case McGarvie J concluded that the modification sought would not substantially injure any of the persons entitled to the benefit of the restriction. It is apparent from the decision that his Honour treated the word "substantially" as being the equivalent of "significantly". He also observed, as the Full Court had in Re Stani, that whether the proposed modification would substantially injure the persons entitled to the benefit of the restrictions in the covenant is essentially a question of fact.[25]
23 In Re Cook[26] Gillard J expressed the view that, in order to succeed under paragraph (c), the applicant cannot establish his case by merely proving that there will be no appreciable injury or depreciation in the value of the property to which the covenant is annexed.[27] He said the emphasis in paragraph (c) is on the injury suffered by the persons entitled to the benefit, observing:
"Such injury can only be properly assessed by a comparison between the benefits intended to be conferred and actually conferred by the covenant initially on the persons entitled thereto and the resultant benefits if any remaining to such persons after the covenant has been modified. If from the evidence it appears that the difference between the two will not be substantial, then the applicant will have established a case for the exercise of the court's discretion under paragraph (c). In order to make this comparison it is proposed to consider what benefits the covenant over the subject land may have conferred upon the persons entitled thereto, and then to assess whether the modification of such covenant would or would not substantially diminish the benefits so discovered."[28]
24 As Adam J noted in Re Robinson[29] the Victorian legislation contains the word "substantially" before "injure" in paragraph (c) and in this respect it differs from the English legislation. Surprisingly, in the case before Adam J, he concluded that this made no difference. Perhaps Adam J was influenced by the pronouncement of Russell LJ in Ridley v Taylor that paragraph (c), on which most successful applicants in England had relied, was "intended only as a long stop against frivolous or vexation objections".[30]
25 It would be wrong of me to convey the impression that courts have universally adopted a conservative approach in interpreting the preconditions set out in section 84(1). Covenants have been modified, in contested circumstances, in a number of cases.[31] But the general approach to the section has been to place a substantial onus upon an applicant to demonstrate that the power is enlivened. Indeed, as the years have passed, there may have been a tendency to look for guidance, not so much to the words of section 84, but to the words used by judges over the years in explaining the meaning of the words used in section 84. One must question this practice. In Blazey v Beavis[32] Lush J of this court commented that he was unable to see the utility of paraphrasing the statutory expression "would not secure practical benefit to other persons". When plain words are used there is rarely much advantage in substituting other words. Further, there is a real danger that words used to explain a statutory expression can, like a Chinese whisper, attract an entirely different meaning following constant repetition and interpretation in different contexts.
26 In interpreting words, whether in a statute or otherwise, context is everything. This also applies to judgments. Far too often it is the colourful or pithy sentence which is quoted, thereby developing a life of its own, free from the original context in which it was uttered. This seems to have been the case with some of the statements of Farwell J in Re Henderson's Conveyance. Hence I believe it is necessary to go back to fundamentals and to look at section 84(1) through the prism of it being just another statutory provision, rather than as if it were some ancient principle of common law or a constitutional dictate. Adopting such an approach where does one start?
27 The duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have. As the High Court of Australia pointed out in Project Blue Sky Inc v Australian Broadcasting Authority[33] ordinarily that meaning (the legal meaning) will correspond with the grammatical meaning of the provision.
"But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning."[34]
"Speaking generally, a much surer guide to the legislative intention in areas of legislation dealing with ordinary rights or the general system of law is to construe the language of the enactment in its natural and ordinary meaning, having regard to its context - which will include other provisions of the enactment, its history and the state of the law - as well as the purpose which the enactment seeks to achieve."
28 Section 84(1) is long and cumbersome, but a start can be achieved by omitting words not immediately relevant in the present case in order to promote clarity; and, also, by adding additional punctuation indicated by the language used. Thus the sub-section could be re-expressed this way:
The Court may discharge or modify a restrictive covenant upon being satisfied:
(x) changes in the character of the property or the neighbourhood; or
(ii) that the continued existence of the restriction would impede the reasonable user of the land without securing practical benefits to other persons; or
(b) the beneficiaries of the restriction have agreed to it being discharged or modified; or
(c) that the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction.
29 This simplification of the language used in section 84 is intended as an aid and is subject to provisos. For example, only a person interested in the land affected by a restriction may make application to the court. Also, an order of the court may be subject to the payment by the applicant of compensation to any person suffering loss in consequence of the order. The simplification also assumes that the words "such user" at the end of paragraph (a) embrace, not only the reference to "the reasonable user of the land", but also the words "without securing practical benefits to other persons".
30 Perhaps the most difficult part of section 84 is the expression "ought to be deemed obsolete". The word "deem" often means "to form or have an opinion" or "to judge". Hence in modern parlance the word "deem" might be expressed as "consider" or "decide". But the word "deemed" is also used in the law to mean "to be treated as", which has different connotations. However, having regard to the era in which the words were first enacted (that is, in 1918) and the syntax, the ordinary, grammatical meaning of the word "deemed" would seem to be "considered".
31 The ordinary meaning of the word "obsolete" is "outmoded" or "out of date". The Shorter Oxford English Dictionary provides an example by reference to a quotation from Mr Tony Benn:
"The House of Lords should be abolished as an obsolete and unnecessary part of our constitution."
32 What is meant by "impede the reasonable user of the land"? And what is meant by "securing practical benefits"?
33 In my opinion, the ordinary, grammatical meaning of the expression "the reasonable user of the land" is simply a user of the land acting reasonably. What is reasonable will be gleaned from current attitudes and circumstances in relation to the use of land. So understood, it will usually be the case that the "reasonable user" might put land to a variety of different uses. For example, land in a business centre might be used for a shop, an office or a restaurant. Land in a residential district might be used for a house, a villa unit or an apartment. The reasonable user of land usually will not be confined to just one use of land which might be regarded as reasonable. Further it is inevitable that town planning issues will need to be considered in determining what is a reasonable use of land.[37]
34 The ordinary meaning of the word "impede" means to retard, obstruct or hinder. It does not mean "prevent". It follows that a restriction will impede the reasonable user of the land if it prevents the user of the land from undertaking any reasonable use of the land. Thus if land was reasonably suited to be used for a shop, office or restaurant - and the restriction only prevented the use of the land as a shop - the restriction would impede the reasonable user of the land.
35 "Practical benefits" are benefits which are adapted, or could readily be adapted, for actual use. They can be distinguished from benefits which are purely theoretical in nature. It might also be thought that a benefit would only be described as a "practical benefit" if it had some substance; and that a trifling benefit would be disregarded.
36 The last part of the second limb namely "or (as the case may be) would unless modified so impede such user" presents some difficulties, as it is unclear whether the statute requires the "practical benefits" test to be applied in the case of a modification of a covenant. This may depend upon whether the expression "such user" means "a reasonable user" or "a reasonable user that does not secure practical benefits to other persons". But I need not pursue this in the light of my final conclusions and as the plaintiff did not press the point.
37 Section 84(1)(c) turns upon the expression "substantially injure". The ordinary, grammatical meaning of "injure" means to harm. The adverb "substantially" has different shades of meaning, depending upon the context. Sometimes the word simply means "real" or "actual"; whereas in other contexts it means "of ample or considerable amount, quantity, size, etc".[38] In my opinion, the language used in paragraph (c) does not require a case to be made that the proposed discharge or modification of a restriction will not harm the persons entitled to the benefit of the restriction. The hurdle is not this high. Rather it is sufficient to show that the proposed discharge or modification will not cause harm to the persons entitled to the benefit of the restriction which could be regarded as being of real significance or importance. This will require a judgment call in the particular circumstances being considered; it does not admit some universal answer based upon the attitude of the beneficiary, the original purpose of the covenant or any other similar factor.
38 It has been said that "practical benefits" in the second limb of paragraph (a) and "substantially injure" in paragraph (c) largely overlap. Whether this is so or not, it is not appropriate to interpret one by reference to the other. For my part, I can envisage that a single dwelling covenant may provide a person with a practical benefit (such as the likelihood of increased setbacks or greater landscaping), yet the discharge of the covenant may not involve a substantial injury to that person. This may be the case because the additional dwellings were likely to be newly constructed with high quality materials, with fresh and handsome landscaping. I cannot accept the submission that if the plaintiff succeeds under (c) it will necessarily follow that the restriction would not have secured any practical benefits to other persons.
39 An important part of the context of paragraphs (a) and (c) is that the court has power to award compensation to any person suffering loss in consequence of an order that a restriction be discharged or modified. Compensation is limited to the loss actually suffered by a beneficiary, but this limitation does not alter the importance of the provision. The inclusion of a power to provide compensation to beneficiaries strongly suggests that the Parliament intended that circumstances would exist under paragraphs (a) and (c) in which the power to discharge or modify a covenant would be enlivened where beneficiaries would suffer a real loss. If the word "obsolete" is to be interpreted as only applying if the original purpose of a covenant can no longer be served it is difficult to see how the compensation provision has any relevance. Similarly if "practical benefits" are to embrace all benefits a similar conclusion follows. And if "substantially injure" is to extend to all injuries, however minor, the compensation provision is pointless. In this respect I note there is an important difference between a legislative provision which enables the taking of private property without compensation and a provision which enables private property to be taken but only with compensation.[39]
40 Another factor which ought to be borne in mind is that the existence of any of the preconditions in paragraphs (a), (b) or (c) only enlivens a power to discharge or modify a restriction; it does not require the exercise of that power. Words which confer discretionary power on a court should be read giving the words full amplitude as this is more likely to advance the intention of Parliament.[40] For example, in Owners of "Shin Kobe Maru" v Empire Shipping Co Inc the High Court of Australia said:
"It is quite inappropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations which are not found in the express words."[41]
41 This analysis suggests that the court's power to discharge or modify a restrictive covenant is a broad power; and that some of the restrictions adopted in earlier cases are without justification.
42 The history of section 84 reinforces the ordinary, grammatical meaning set out above. It shows that section 84 was always intended to operate in a robust manner, vesting a broad discretion in the court. It does not support the narrow approach taken in cases such as Robinson.
43 On 11 December 1918, by Act No 2962, the Victorian Parliament passed a law relating to property. Section 10 of that Act is in remarkably similar terms to section 84 of the Property Law Act 1958 and is its original ancestor. In its original form it did not include what is now section 84(1)(c); nor did it then include provisions in relation to the payment of compensation. [The predecessor to section 84(1)(c) and the provisions concerning the payment of compensation were added in 1928.]
44 In moving the Second Reading of the Bill in the Legislative Assembly Mr Mackey MLA said:
"This Bill, which relates exclusively to the law of real property, is a Bill that was drafted in England, and brought in in the Imperial Parliament in pursuance of the recommendations of a very important Royal Commission appointed to inquire into the state of our real property law. That Royal Commission consisted of the most eminent equity and conveyancing men in the Old Country, including Lord Buckmaster, the late Chancellor of England."[42]
45 Between 1908 and 1911 a Royal Commission in England on the Land Transfer Acts had recommended that restrictive covenants affecting registered land be registered by reference to the instrument creating them, and as part of this reform the High Court be empowered to discharge or modify obsolete restrictive covenants affecting land, whether they be registered or unregistered.[43] An initial draft of what is now our section 84 appears to have been penned by Sir Benjamin Cherry and introduced into the United Kingdom parliament by Lord Haldene in 1913, but then shelved on account of the war.[44] In 1919, in the Fourth Report of the Acquisition and Valuation of Land Committee on the Transfer of Land in England and Wales ("the Scott Committee"), more widespread reforms were recommended. The Scott Committee reported:
"We have considered the best method of dealing with restrictive covenants which continue to bind land after they have become obsolete. As we stated in our Second Report (para.22), 'this question is one of considerable importance, as a large amount of land is bound by restrictive covenants. In many cases such covenants were originally imposed for the protection of vendors who have long since ceased to have any interest in enforcing such covenants, and in other cases land is bound by covenants which were originally designed to ensure that the neighbourhood should continue to enjoy a residential or other special character, and such covenants continue to be in force long after the neighbourhood has ceased to enjoy the special character, to preserve which the covenants were imposed. In some such cases the covenants are, no doubt, ignored, but in others the owners of the land which is subject to such restriction are in doubt as to their position, and are debarred from making the fullest use of their property, or are compelled to purchase the release of the covenants.'
"It is, in our view, very desirable that there should be a power vested in an appropriate authority, on the application of any person interested in any land affected by any restriction arising under covenant or otherwise, by order to discharge or modify any such restriction, on being satisfied that the restriction ought to be deemed obsolete, or that its continued existence would impede the reasonable user of the land for public or private purposes, or that the persons of full age and capacity entitled to the benefit of the restriction have agreed expressly or impliedly to the restriction being discharged or modified, subject to payment of compensation to the persons entitled to the benefit of such restrictions, if such persons are, in fact, damaged by the discharge or modification of such restrictions.
"There are some grounds for thinking, as was recommended by the Royal Commission on the Land Transfer Acts, that the authority to exercise such a power should be the Court. But, in our opinion, questions of policy rather than of law would often be involved in the consideration of such a proposal, and for this reason we do not regard a court as the most suitable authority. It is not for judges either to make new contracts for parties, or to invent new rules of public policy.
"In paragraph 22 of our Second Report above quoted, we advised that the modification or extinction of restrictive covenants should be entrusted to the Sanctioning Authority recommended in our First Report. To that advice we still adhere, and trust that steps may be taken to set up the Sanctioning Authority there recommended. But, in the meantime, we think that jurisdiction to extinguish or modify restrictive covenants, and to assess compensation (if any) in connection therewith should be entrusted to the official arbitrators appointed under the Acquisition of Land (Assessment of Compensation) Act, 1919. This recommendation is embodied in Section 86 or Mr Cherry's Law of Property Bill."[45]
46 It was not until 1925 that the law in England was changed to give effect to the recommendation of the Royal Commission and the Scott Committee concerning restrictive covenants.[46] The power was not vested in a court but in an authority outside the court system, but without prejudice to any concurrent jurisdiction of the Court. [47] The drafting of the section included the ability to discharge or modify a restriction subject to the payment of compensation.
47 No doubt by reason of the form of section 84 of the English Law of Property Act 1925 the Victorian Act was amended in 1928 to introduce the power to discharge or modify a restriction subject to the payment of compensation and, also, by introducing the provision which is now section 84(1)(c).[48]
48 As Jude Wallace has observed[49], the processes of reform of land law in England are uniquely relevant to Victoria. English historian, Patrick Polden, has explained that section 84 of the English Act was always intended to provide a practical remedy to discharge or remove "live" restrictions.[50] He explains that the Scott Committee was seeking to develop a method of dealing with the legal straitjackets that often constrained land use and prevented a flexible response to changes in society or the economic function of a particular locality. The inclusion of a provision to compensate - and the vesting of the power in a body other than a court - emphasised that the exercise of the power necessarily involved town planning and compensation questions.
49 Polden analysed the approach taken by arbitrators hearing applications for the discharge or modification of covenants prior to the judgment of Farwell J in Henderson in 1940. He observed that arbitrators adopted a robust approach, largely discounting legal niceties, and routinely modified covenants subject to the payment of compensation. According the Polden, the hearings tended to resemble a planning enquiry rather than a conventional law suit, with the arbitrator taking a very active part in the proceeding. Many of the applications involved the construction of flats. The attitude taken by the arbitrators is illustrated by the statistics that only 7% of applications resulted in the discharge of the covenant; but only 10% were dismissed outright. The overwhelming number of applications resulted in the modification of the covenant, sometimes subject to the payment of compensation.
50 In 1950 the jurisdiction under the English version of section 84 was transferred to the Lands Tribunal. According to Polden, this led to a decisive shift in the nature of the enquiry, from one having a planning character to a law suit. Further, partly as a result of cases such as Henderson, the approach of the tribunal was far more cautious than that of the arbitrators. In 1969 the English law was further modified, including a change to the second limb of paragraph (a) which refers to "some" reasonable user instead of "the" reasonable user. Other changes were made at this time, which have moved the English law away from the Victorian law.
51 This brief historical analysis demonstrates that, at least since 1928, the purpose of section 84 of the Victorian Act has been to empower the court to vary restrictions, subject to the payment of compensation, in broadly defined circumstances, so as to effect the better use and development of land in the public interest. The mischief at which the provision was directed was the restriction of the use or development of land by private treaty, often of ancient origin, which inhibited the achievement of reasonable current needs. Hence this history does not support a narrow construction of the empowering provisions in section 84; rather it is consistent with the grammatical meaning I have set out above.
52 The discussion of the history of section 84 also reveals the policy underpinning the section. This policy is concerned with circumstances where the use or development of land is restricted in a manner that is contrary to the public interest. In carefully defined circumstances, the court is given power to discharge or modify a private restriction in order to serve this public interest. So understood, it is difficult to justify a narrow interpretation of the various circumstances which would enliven the power of the court to make an order discharging or modifying a restriction. On the contrary, the ordinary grammatical meaning of section 84(1), set out above, is reinforced by reference to the policy basis of the section.
53 In support of its contention that the covenant was obsolete the plaintiff argued that the original purpose of the covenant could no longer be fulfilled. As I have explained, this is an unnecessarily narrow interpretation of the word "obsolete"; but I acknowledge that a covenant will nearly always be obsolete if its original purpose can no longer be fulfilled. Essentially the plaintiff contended that the original purpose of the covenant was to provide for a residential area free from hoardings, extractive industry, shops, laundries, factories or similar works. It said that the restriction that prevented more than one dwelling house being erected on each lot was not directed at controlling residential density, measured in dwellings per allotments, but was more directed towards overall residential character. Utilising the evidence given by Mr Robert Easton, a town planner, to the effect that household sizes had substantially reduced since the 1920s, it was said that the real purpose related more to residential density measured in persons. Alternatively, if the purpose of the covenant was to control residential density measured in dwellings per allotments, the plaintiff contended that this aspect of the covenant had become obsolete.
54 The specific language used in the covenant reveals an intention to promote the development of the subdivision (of which the subject lot formed part) not just as a residential area but as a residential area having the character of separate houses, with one dwelling per allotment. Hence I cannot accept the primary argument advanced by the plaintiff about the original purpose of the covenant. Further, there is no basis to construe the original purpose of the covenant as intended to regulate density of persons, as opposed to the density of dwellings.
55 But even if the original purpose of the covenant was to require land in the subdivision to be developed as a residential area, with one dwelling per allotment, it may still follow that the covenant is obsolete, in the sense of being outmoded. The plaintiff pointed to a number of circumstances which, it said, ought lead the court to consider the single dwelling covenant obsolete. These included:
• the change in the character of the area since 1929;
• an increase in the number of dwellings in the neighbourhood on small lots or as multi-units;
• the change in the size and composition of typical households, with smaller households, and families without children, becoming far more common;
• the development of planning laws that now seek to strike a balance between the development of land and the protection of local amenity; and
• the public policy need for increased housing diversity and choice.
56 In order to assist my assessment of the character of the neighbourhood, and to better understand how this may have changed, I conducted an inspection of the subject land and its environs. By agreement between the parties, this was done in the absence of the parties. The inspection essentially reinforced evidence given at the hearing, but was nonetheless valuable in better understanding the character of the neighbourhood.
57 There have been extensive changes in the relevant neighbourhood since the covenant was imposed in 1929. Development did not occur in any significant form until after the Second World War; and then it took a substantial time for infrastructure to be constructed. For example, streets were not constructed until between 1956 and 1966. However I do not regard the changes up to the 1970s as particularly relevant, as they were changes anticipated by the covenant. It is the changes from the 1970s to today that are more relevant.
58 One change relied upon was the closure of the Keon Park Technical School in the 1990s. This has led to the creation of additional residential lots, smaller in size than the original lots, and this has modified the character of the neighbourhood to some degree. Further, it was said that various lots have had units erected upon them, notwithstanding the covenant, with the result that there has been some change in the character of the neighbourhood away from being uniformly of single dwellings.
59 Mr Easton gave evidence of a number of specific instances where units had been developed on lots forming part of, or near, the original subdivision. Some of these, such as those at 993 and 995 High Street, are outside the parent title relevant to the present application. However, units at 1029, 1039, 1041, 1049, 1065 and 1067 High Street have been constructed on lots within the original subdivision of which the subject land forms part. In most of these cases the construction followed a variation of the covenant by the court or by planning permit. If the subject land was in High Street, this pattern of development would have been very relevant; but this land is functionally and visually separated from the subject land.
60 The plaintiff relied upon the use of the land at 4 Asquith Street as a pathology centre. But, as Mr Finanzio pointed out, this is not prohibited by the covenant. In any event, it has little relevance to the question of obsolescence. Similarly, the plaintiff relied upon the development of land at 10 Asquith Street with 13 single storey units. Mr Finanzio pointed out that this development utilised a reserve, which was not affected by the covenant, as well as a lot which was affected; and only three of the 13 units were erected on the lot to which the covenant applied. (The covenant was varied by the court, without opposition, in 1985 to allow this development to proceed.) I am not convinced this history matters as the focus is upon changes in the neighbourhood, not the extent to which the covenant has been broken, discharged or modified. However I find that, as this land is on the outer edge of the neighbourhood relevant to the subject land, the 13 unit development has little bearing upon the matter.
61 The former Keon Park Technical School, which was created from 60 of the original residential lots (together with part of a road), was re-subdivided into 82 lots in the 1990s. These lots are not subject to the covenant applicable to the subject land, but are subject to a freshly imposed covenant which seeks to achieve a residential character consisting of single dwellings. The 82 lots have been developed with modern single dwellings of a slightly different form to those on the original lots. The dwellings appear to be larger, on lots of a smaller area, thus creating the impression of greater building bulk and site coverage. But the impact of this development on the character of the wider area is not to change it away from that of separate dwellings on individual lots.
62 There have been three developments in Sturdee Street which were said to be relevant. The original lot 160, a triangular area of about 2 acres, was re-subdivided in about 1960 to create 12 lots. It is likely that this land was originally set aside for a church, but was not actually required for that purpose. The subdivision of the land into 12 lots has not changed the character of the area from that of single dwellings on separate lots; in fact, it has reinforced that pattern. The land at 34 Sturdee Street has been redeveloped to comprise two dwellings, one behind the other. It is not clear whether the covenant was varied to allow this to occur. In any event, this redevelopment has had little, if any, impact on the character of the area. The third development, at 12 Sturdee Street, is more relevant, not only because it is a three unit development, but also because it is relatively close to the subject land. It would appear that this development took place without the covenant being first discharged or modified. A subsequent application to modify the covenant was rejected by O'Bryan J of this court. Later a planning permit was granted allowing the covenant to be varied. The development is different in form to other lots in the vicinity, although the extent of this difference is minimised by its single storey form.
63 Taking these various factors together, my conclusion is that the neighbourhood in the vicinity of the subject land still has the character of a residential area consisting of detached housing. The developments at 12 and 34 Sturdee Street are not sufficient to effect a significant change in this character. If the neighbourhood is defined to include the land formerly occupied by the Keon Park Technical School (which I doubt is appropriate) the answer would be the same, as this land is developed with detached housing, albeit on smaller allotments than the original subdivision. As I have mentioned, there are numerous unit developments in High Street (an arterial road), on land that formed part of the original subdivision the subject of the covenant, but I do not regard this land as part of the "neighbourhood", as it is functionally and visually separated from the subject land and other lots facing residential streets nearby to the subject land.
64 What of the other matters relied upon to show that the covenant is obsolete? I find that there has been a fundamental change in society, and the nature of demand for housing, since this covenant was put in place in 1929. For example, in 1933 the Australian household occupancy rate was 4.39 persons per household; whereas in 2001 the occupancy rate in the Darebin West area was 2.6 persons per household. In 1929 the villa unit and the townhouse, as we now know them, were not common. But I am not persuaded that these factors, alone, lead to the conclusion that the covenant should now be regarded as outmoded or out of date. Rather the covenant can still fulfil the purpose - which is a relevant current purpose - of maintaining a low density residential environment consisting of single dwellings on separate lots. Such an environment might be thought to produce benefits such as a low level of traffic, less building bulk, greater opportunities for landscaping and a lower level of noise from every day living. I accept that an appropriate unit development might not substantially diminish these qualities. I also accept that it would be a legitimate use of town planning powers to override such a covenant in the public interest. However it is going too far to conclude, as the plaintiff would have it, that changes in society alone have rendered the single dwelling covenant outmoded.
65 I also accept the plaintiff's contention that the last 75 years has seen the development of planning laws that are now the primary means by which society seeks to strike a balance between the development of land and the protection of local amenity. I further accept that current planning policy favours increased housing diversity and choice. Whilst these matters will be relevant to an assessment of whether a single dwelling covenant is obsolete, they are not sufficient in themselves to be determinative. And, when taken together with all other factors, they do not mean that the present covenant is obsolete.
66 I accept the defendant's submission that a reasonable use of the subject land is the continued use of the land as a single detached dwelling. However, based upon Mr Easton's evidence, I also find that a reasonable use of the subject land is to accommodate more than one dwelling. Whether the land is suitable for five dwellings - or even four dwellings - may be a matter of debate; but I have no doubt that land with three street frontages, and an area of 1,133 square metres, could easily accommodate two or three dwellings and, in the absence of the covenant, this would be a reasonable use of the land.
67 The restriction contained in the covenant impedes the use of the land for more than one dwelling. It follows that the discretion of the court to discharge or modify the covenant is enlivened if it can also be said that the single dwelling restriction does not secure "practical benefits" to other persons. In this case, the issue can satisfactorily be considered in the context of the persons occupying properties abutting, or close to, the subject land. However, having regard to my findings in relation to section 84(1)(c), it is unnecessary to further explore whether the continued existence of the covenant secures practical benefits for these persons. Nevertheless I would tentatively find (for the same reasons as those set out in relation to section 84(1)(c)) that, provided the development was limited to only two dwellings, the restriction (as modified) would not secure practical benefits to persons occupying properties abutting, or close to, the subject land.
68 I am not satisfied that the proposed modification of the restriction - which may allow the plaintiff to erect up to four or five dwelling houses - will not substantially injure persons entitled to the benefit of the restriction. The erection of four or five dwellings on the land would involve a substantial change in the built form and density of the subject land. Such a change would be likely to substantially increase the site coverage of buildings on the land, the appearance of visual bulk, the number of visible garage doors and the number of street cross-overs.[51] It is also likely to substantially decrease the area available for landscaping. Further, four or five dwellings are likely to generate more activity in the neighbourhood - no doubt, both positive as well as negative. But it is possible that some of this increased activity (for example increased traffic[52] or the greater frequency of loud music being played) may substantially injure neighbouring occupiers.
69 The present application is brought in the absence of specific development plans. This does not mean that if the modification sought is granted the plaintiff would have carte blanche; it would still be subject to the requirements of the Darebin Planning Scheme. However, unlike the situation facing Osborn J in Longo Investments Pty Ltd[53], the lack of specific plans makes it more difficult for the plaintiff to discharge the onus of showing that a modification of a restriction will not substantially injure persons entitled to the benefit of the restriction.
70 It is open for me on this application to consider whether some other modification to the covenant, if made, would not substantially injure persons entitled to the benefit of the restriction. I regard this as a case where the subject land could be developed with two dwellings without substantially injuring persons entitled to the benefit of the restriction. I may have come to a similar conclusion in relation to a three dwelling proposal which demonstrated that all relevant amenity issues could be satisfactorily resolved. However in the absence of plans demonstrating this, and relying only on the provisions of the relevant planning scheme, I am not prepared to go beyond two dwellings.
71 In forming my conclusion that a modification of the restriction, so as to permit the erection of no more than two dwellings, will not substantially injure the persons entitled to the benefit of the restriction I rely upon the following factors. First, it is likely that the erection of two dwellings will result in one dwelling facing Rodman Street and one dwelling facing Sturdee Street. Similarly the erection of two dwellings is likely to result in just one cross-over onto each of Rodman Street and Sturdee Street. This outcome will be compatible with the existing development form in the area. It will avoid the appearance of a multi-dwelling development, even if the two dwellings share a common boundary. The construction of two dwellings, whether single or double storey, is also likely to leave an area available for landscaping purposes which is comparable with existing detached dwellings. The level of activity associated with two dwellings, especially traffic activity, is unlikely to be significantly different than that associated with a single dwelling.[54] It is true that the difference between four or five dwellings, on the one hand, and two dwellings, on the other hand, is a matter of degree. But it is within this degree that substantial injury to the beneficiaries of the restriction commences to operate.
72 Mr Finanzio submitted that in determining the question of substantial injury, I must have regard to the precedent that would be created. He argued that, even if more than one dwelling might be acceptable for the subject land, the flow-on effect would be unacceptable. There are two distinct answers to this submission. First, the nature of the lot in the present case is unique by reason of its larger than normal area and three street frontages; and, hence, may not be a precedent in future cases. Second, in order to rely upon a precedent effect, it is not enough to say that a decision will create a precedent; it is also necessary to explain why it would be a bad precedent. Based upon my finding that the erection of two dwellings on this particular lot would not substantially injure other persons, it is difficult to see why such a decision would create a bad precedent.
73 It follows that the court has a discretion as to whether or not to modify the restriction so as to allow two dwellings to be erected on the land. It is appropriate that the court exercise this discretion to make the modification. The construction of two dwellings on the land will enhance the use of the land, not only by replenishing the building stock on the land, but also by adding to it. Such an outcome is consistent with the objectives and policies contained in the Darebin Planning Scheme.
74 Although I contemplated making an award of compensation to some of the persons entitled to the benefit of the restriction, I am not satisfied that any such loss suffered by such persons is sufficient to warrant such a course. It is possible that if I had approved a modification of the restriction so as to allow three dwellings, as described in a specific plan, this may have warranted some monetary compensation being payable to an abutting owner.[55]
75 Subject to any submissions made by counsel as to the form of orders, I propose to order that the restrictive covenant contained in Instrument of Transfer No 1421721 in the Register Book at the Office of Titles be modified by substituting the expression "not more than two dwelling houses" for the expression "not more than one dwelling house" in paragraph (c) therein.
Stanhill Pty Ltd
Jackson [2005] VSC 169
(1986) 5 NSWLR 109
(1987) 16 FCR 325
(1998) 194 CLR 355
(2001) 204 CLR 290
(1994) 181 CLR 404