Plaintiff v Defendants

2 The house is part of the historic Coonil Estate. In Prowse v Johnstone,[1] Cavanough J recently rejected an application for modification of a similar covenant applying to another house in the estate just four properties to the west at 191-193 Wattletree Road. In that judgment, his Honour gave the following description of the estate:

The Coonil Estate was originally owned by the Langmore family. In 1886 they constructed a mansion on the western portion of it. The Estate was subdivided into 63 allotments in 1910. Lot 1, a site of some three acres on which the mansion stood, was retained. In 1919 Lot 1 was acquired by the Sisters of Mercy and the mansion was used by them as a private hospital until 1948. Thereafter Lot 1 was taken over by another order of Sisters associated with the worldwide Cabrini Association. They founded a new hospital, Cabrini Hospital, which evolved and expanded and is now one of Melbourne's leading hospitals. There has also been a lawn bowling club within the Coonil Estate for many years. Otherwise, since its establishment, the Estate has generally consisted of good quality residential properties presenting as detached houses together with, from time to time, the odd vacant allotment.[2]

I gratefully adopt this description, which is consistent with the evidence in this case.

3 The estate is bounded by Thanet Street to the east, Wattletree Road to the south, the Cabrini Hospital to the west and an area near Parkside Street to the north. It is residential in character and contains many houses of significant heritage value of which the one at 201 Wattletree Road is typical (although it is not so listed). That property stands at the corner of that busy road and Thanet Street. The rest of the estate is quiet. The defendants are persons who own land in the estate and are beneficiaries under the covenant. Although Dr Freilich intends to preserve rather than change the residential character of the house, the defendants oppose his application because they do not want any trade or business to operate in their residential area.

4 Under s 84(1)(c), the court has a discretion to permit modification of a covenant where it would not 'substantially injure the persons entitled to the benefit of the restriction'. Whether the plaintiff has persuaded the court that the defendants would not be substantially injured by conversion of the house from a residence into specialist medical consulting rooms is the central issue for determination in this case.

Plaintiff's proposal for a specialist medical centre

5 Dr Freilich gave evidence that he was a medical practitioner who, for five years, has been an interventional cardiologist. He presently practises from a number of locations, including the Cabrini Hospital. He purchased the property at auction in 2011 because it was well located in relation to the hospital and the house was ideally suited for conversion into specialist medical rooms. He did not appreciate that the property was subject to a covenant preventing the house from being so used.

6 In his evidence, the plaintiff described his plans for the house and how the proposed specialist medical centre would operate. He was an impressive witness who, I am sure, would operate the centre in an entirely professional manner. Of course, when determining this application, the court has to bear in mind that the property might be sold with the benefit of any modification granted. I have no reason to think that any successor in title would operate the centre less than professionally.

7 After being subdivided in 1910, the Coonil Estate was developed block by block over time. Without going into unnecessary detail, a number of covenants apply to different lots of land in the estate. While the covenants are not uniform in content, it is fair to say that a network of covenants, of which the subject covenant is one, substantially protects the residential character of the area.

8 The covenant is contained in Instrument of Transfer No 738586 in the Register kept by the Registrar of Titles. It materially provides that the transferee

her heirs executors administrators or transferees will not at any time or times hereafter quarry on the said land or cart or carry away any stone gravel soil or sand therefrom or make any excavations therein except such as may be necessary for laying the foundation of any building on the said land AND FURTHER that she or they will not erect more than one house on the said land and that any house so erected shall be of stone or brick or brick and stone with roof of slates or tiles on the main portion thereof at a cost of not less than six hundred pounds exclusive of stables and outbuildings and that such building shall not be used for any trade or business AND FURTHER that [the Transferee] her heirs executors administrators and transferees will not subdivide the said Lot into smaller allotments nor reduce the frontage thereof to a smaller frontage than appears on the said Plan of Subdivision.

9 As the summary of the solicitor for the plaintiff states, the covenant:

(a) prohibits quarrying and removal of soil etc;

(b) prohibits excavations (except for foundations);

(c) prohibits the construction of more than one house;

(d) requires that house to be built of brick and, or stone;

(e) requires that house to have slates or tiles on the main portion of the roof;

(f) requires that house to cost not less than 600 pounds;

(g) prohibits trade or business uses of any building;

(h) prohibits subdivision and reduced frontages.

At issue here is only the prohibition on the use of any building on the land for a trade or business. While the prohibition applies to any building and not the land, in practical terms this does not much affect the outcome of the case.

10 As originally made, Dr Freilich's application included the ground specified in s 84(1)(a) that the covenant was 'obsolete'. That ground was abandoned at the start of the hearing. The application was confined to one ground - no substantial injury to the beneficiaries of the covenant (s 84(1)(c)).

11 Further, as originally made, the application requested approval for a modification which would have allowed any second storey of the house to be built of materials other than stone or brick. That part of the application was also abandoned.

12 The application was amended again in closing submissions to ensure that the covenant would be interpreted to mean that the house could not be demolished and to confine opening hours to 8 am to 6 pm Monday to Friday.

13 As finally put, the application for modification of the covenant, insofar as it burdened the land described in certificate of title volume 3775 folio 937 (on which the house is situated), sought the insertion after the words 'not to be used for any trade or business' of the following words:

other than as a medical consulting clinic providing health services by specialist medical practitioners to out-patients only and then only if:

(a) not more than two such practitioners are consulting at the clinic at any time;

(b) the clinic is not open to receive patients otherwise than between the hours of 8 am and 6 pm Monday to Friday; and

(c) no building works are undertaken to the building standing on the site in 1 January 2010 that would:

(i) result in the demolition of the building;

(ii) increase the footprint of the building by more than 10%; or

(ii) alter either of the Wattletree Road or Thanet Street facades of the building so that they cease to have a residential character or appearance.

14 So it is that the plaintiff has placed his application on what must assuredly be its strongest foundation. If the covenant is modified as proposed, the house with its heritage character would be retained. From the outside, it would appear as it always has, although the back yard would be turned into a car park. As only two specialist practitioners would be allowed to provide health services at any one time and during confined weekday opening hours, the physical impact of the trade or business on the surrounding area should be relatively low. But a trade or business it would be and that is precisely what the covenant prohibits.

Discretionary modification of restrictive covenants

15 The restrictive covenant at issue here constitutes a proprietary interest in land which is legally enforceable by the defendants as the successors in title of the original covenantee against the plaintiff as the successor in title of the original covenantor.[3] As a proprietary interest in land, the covenant has legal force independently of any planning laws and regulations which might otherwise apply. The law may give effect to the rights of the beneficiaries under the covenant, subject to discretionary discharge or modification under the statutory provisions, as to which planning laws and regulations are not relevant except as to the exercise of the discretion when a specified ground is established.[4] I mention discharge for completion. Here only modification is at issue.

16 Section 84(1)(c) allows the court to modify a covenant (with or without compensation for loss)

(c) that the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction.

17 The application and interpretation of s 84(1)(c) was considered by Cavanough J in Prowse[5] when his Honour refused the application to modify the covenant applying to 191-193 Wattletree Road. With respect, I agree with his Honour's analysis. Like his Honour, I also agree with the summary of principles governing the application of s 84(1) which was given by Kyrou J in Vrakas.[6]

18 Because of the way that the case was conducted, I need to say something more about the town planning considerations. The court has long interpreted s 84(1) as conferring a power which can only be exercised when a specified ground is established and not according to town planning considerations. In Re Robinson,[7] Adam J stated:

in exercising this jurisdiction the Court is not a planning authority. Whether or not it would be advantageous as a matter of planning to permit of this development here seems to me quite beside the point.[8]

This statement has been oft-approved, including by Young CJ, Barber and Nelson JJ in Re Stani,[9] and this approach has been consistently followed.[10]

19 Town planning considerations are not relevant to whether a ground of modification is established because a restrictive covenant constitutes a proprietary interest in land which is private in character and therefore rests upon a different legal foundation to those rights and interests which may be created, and those powers which may be conferred, under planning laws and regulations. The power of modification in s 84(1) (including para (c)) implicitly recognises the proprietary nature of the benefits conferred by such a covenant and permits modification only in narrowly defined circumstances. Allowing planning considerations to be taken into account would be inconsistent with the premise of the power and permit modification by reference to a wider range of circumstances than the provision actually specifies. This would lead inevitably to a diminution of the value of a restrictive covenant as a propriety interest in land, without legislative warrant.

20 In the present case, as in some others, a lot of evidence of a planning character was presented on both sides. The plaintiff and the defendants virtually played the role of a permit applicant and objectors, with each having their own expert town planner and traffic engineer. On the plaintiff's side, in particular, there was inadequate separation of the planning issues from the modification issues in relation to the critical question of whether the ground of modification specified in s 84(1)(c) (no substantial injury) had been established.

21 That may be due in part to the controversy in the case regarding the purpose of the discretionary power in s 84(1)(c). In express reliance on Stanhill v Jackson,[11] it was submitted for the plaintiff that the power was broad and should not be narrowly applied. It was submitted for the defendants that Stanhill was incorrectly decided.

22 Stanhill contains an extensive analysis of the previous authorities in relation to the interpretation of s 84(1). There are valuable statements in that analysis with which I respectfully agree. For example, as the judgment states,[12] the words of s 84(1), including para (c), must be interpreted according to the established principles of interpretation as explained in such cases as Project Blue Sky Inc v Australian Broadcasting Commission[13] and Malika Holdings Pty Ltd v Stretton[14] and not according to preconceived notions about the purpose of the power.

23 However, it was held in Stanhill that the power in s 84 applies 'in broadly defined circumstances, so as to effect the better use and development of land in the public interest' (emphasis in original).[15] The idea here is that, by looking beneath the specified circumstances, it is possible to find and then apply that underlying public interest. With respect, this is clearly incorrect. The terms of s 84(1) reveal that the power to discharge or modify a covenant is dependent upon proof by the plaintiff[16] of narrowly defined, and not broadly defined, circumstances. According to the proper principles of interpretation which were identified in Stanhill, s 84(1) (including para (c)) is to be applied by reference to these circumstances and not according to some broad conception that the purpose of the power is to facilitate the use and development of land in the public interest. The legislative history of the provision provides no basis for doing otherwise.

24 As Cavanough J pointed out in Prowse, the analysis in Stanhill is contrary to long-standing authority.[17] It is the central contention of Stanhill that the previous authorities adopted an approach (termed the 'traditional' approach) which, on critical analysis, is mistaken.[18] With respect, it is the critical analysis in Stanhill which is mistaken. It is based on the broad conception that the purpose of the power in s 84(1) is to facilitate the use and development of land in the public interest. That broad conception cannot be derived from the language of the provision, properly interpreted. I do not accept that this approach has been supported in subsequent decisions in this court.[19]

25 The correct approach to the application of s 84(1)(c) was explained by Gillard J in Re Cook.[20] After noting that the emphasis in para (c) was on the injuries suffered by persons entitled to the benefit of the covenant, his Honour said:

From the nature of the proprietary right arising from the restrictive covenant clearly the injury must occur in relation to the person's enjoyment of his property.[21]

Having so identified the nature of the injury, his Honour went on to describe how it was to be assessed:

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.[22]

His Honour closed the ring by drawing attention to the critical question of the substantiality of the injury, as revealed by the comparison:

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).[23]

26 The decision of Gillard J in Re Cook was approved by the Full Court in Re Stani.[24] The reasons for decision of the Full Court are inconsistent with the analysis in Stanhill about the purpose of the power in s 84.

27 There is discussion in the decided cases about the meaning of the word 'substantially' in s 84(1)(c). In Re Robinson,[25] Adam J referred with approval to the comments of Russell LJ in Ridley v Taylor[26] that the purpose of para (c) was 'to preclude vexatious opposition cases where there is no genuineness or sincerity or bona fide opposition on any reasonable ground'. Young CJ, Barber and Nelson JJ said in Re Stani 'it may well be that this is the correct view'.[27] Citing Re Cook, their Honours went on to say that 'in other words any injury sufficient to prevent the Court modifying the restriction must be something more than unsubstantial, must be real and not a fanciful detriment'.[28] Illustrating the approach to be adopted, their Honours then stated:

In the long run the test to be applied is similar to that to be applied in determining under paragraph (a) whether the continued existence of the restriction would secure practical benefits to other persons.[29]

Of course, in stating that the substantiality test in para (c) was similar to the practical benefits test in para (a), their Honours were not equating the two. Rather, they were drawing attention to a common feature of the two tests, namely the need to consider the benefits enjoyed in fact (and not in theory) by the covenantee.

28 In Stanhill, by reference to the most appropriate dictionary definition the word 'substantially' was interpreted to mean 'of real significance or importance'.[30] Cavanough J was concerned in Prowse that this interpretation impermissibly weakened the test.[31] With respect, I can see no difference between Stanhill and Re Stani on this issue. An injury which is real and not fanciful will be of substantial importance. This directs attention to the impact of the modification sought upon the benefits conferred by the covenant.

29 When assessing that impact, it is clear from the purpose and terms of s 84(1)(c) that the issue is to be determined by the court objectively on the evidence in each individual case. In Prowse, Cavanough J made the point[32] that subjective views of beneficiaries were taken into account, as were intangible considerations such as preservation of the character of a neighbourhood. This statement, with which I respectfully agree, concerns the relevance of certain evidence and is consistent with the objective nature of the test.

30 That brings me to the application in the present case.

Benefits conferred by covenant and the defendants' evidence of injury

31 To repeat, it is necessary to compare the benefits intended to be conferred by the covenant with the injury which will be suffered by those entitled to the benefit. I consider here the benefits conferred.

32 As we have seen, the covenant confines buildings on the land to one house of brick and/or stone with a mainly slate or tile roof; the house cannot be used for any trade or business; and subdivision and reduction of frontages is prohibited. The evident purpose of the covenant and of other similar covenants which apply in the Coonil Estate is to ensure that the neighbourhood is residential in character, ie that the look and feel of the place is to be derived from houses of a certain minimum standard and from people occupying those houses as homes.

33 It is clear from the terms of the covenant that the intended purpose was to be achieved not only by ensuring that any building on a burdened property would be a house. The purpose was also to be achieved by prohibiting the use of the house for any trade or business. The requirement that any building be a house which is not to be used for any trade or business was intended to ensure the residential character of the estate.

34 When asked about the benefits conferred by the covenant, the defendants stressed this central purpose of protecting the residential character of the neighbourhood:

(a) Randy LaPorte of 2 Canberra Grove said that the covenant provided him with

a level of assurance and certainty that in my neighbourhood there would be some fairly strong restrictions preventing people from adjusting or making changes to that neighbourhood which would take away from the attraction that actually took us there, and that attraction is it is a very pretty neighbourhood.

a piece of paper that I purchased when I bought the house which adds value, in my mind, to the sanctity of the neighbourhood and to our living conditions by simply living there.

(b) Lorraine Bourke of 2/197 Wattletree Road said that she believed a benefit of the covenant was it protected the prices of the properties that had the benefit of the covenant.

(c) Neil Lahy of 7 Canberra Grove said that the covenant ensured that the vicinity of his property was a

lovely residential area which is great for raising a family, which I do with my wife there. It has produced an area of houses of great character, of fairly uniform character, with a lowish density of building there. It has attracted families to the area, which gives the neighbourhood a great family character.

Mr Lahy went on to say a benefit of the covenant was that it preserved the heritage nature of the area by preventing over-building, multi-dwelling buildings and commercial use of the area.

(d) Susan Sweet of 7 Grace Street said that the covenant maintained the residential feel of the whole neighbourhood and that it was a family-orientated area.

(e) Michael Wharton of 3/197 Wattletree Road said the covenant protected the residential and non-commercial character of the neighbourhood.

(f) Isobel Lucas of 8 Derril Avenue said a benefit of the covenant was that it maintained the character of a neighbourhood where no business or trade could be carried on and no major development could infiltrate the area, which gave it a nice uniformity with leafy gardens.

(g) Jayne Simonson of 9 Grace Street said that the covenant protected the neighbourhood in which she and her family had lived for nearly 40 years and which was characteristically residential.

35 Those being the benefits intended to be conferred by the covenant on the persons entitled, I turn now to the injury which would be suffered if the modification were to be approved, beginning with the defendants' evidence.

36 By reference to the protective benefit of the covenant and associated considerations, all of the defendants considered that they would be injured by modification:

(a) Mr LaPorte said that a business would bring associated effects such as people coming and going and looking for parking spaces. To his mind, that would be an erosion of the sanctity of the agreement that he had bought into.

(b) Mrs Bourke believed that the modification of the covenant would increase traffic flow and diminish the residential character of the area.

(c) Mr Lahy said a detriment would be the precedent that would be set if the covenant was varied to allow a trade or business to operate in the area.

(d) Mrs Sweet said she would suffer from the increase in traffic flow, making the exit onto Wattletree Road more difficult. She was concerned about more strangers coming into the area. She also expressed concern about the precedential effect of any modification of the covenant.

(e) Mr Wharton expressed concern about the increase in traffic and the erection of street signage that would be against the character and amenity of the residential neighbourhood.

(f) Mrs Lucas expressed concern that, if the covenant was modified, this would set a precedent for other covenants to be removed which would destroy the residential character of the neighbourhood. She said another detriment would be a change in the character of the neighbourhood, pointing to the erection of signs and increased traffic, both pedestrian and motor vehicle.

37 In my view, this and other evidence plainly establishes that the defendants would be injured by the modification. The plaintiff did not seriously challenge most of this evidence. It was not submitted that the defendants would suffer no injury by reason of the modification. The plaintiff sensibly contended that, when objectively examined, any injury would not be substantial. That critical question is best considered by reference to the consequences for the defendants of permitting the house to be used for the proposed business purpose. To those consequences I now turn.

38 The modification of the covenant would enable the use of the house for a medical clinic by two specialist practitioners operating at any one time. I accept the expert traffic evidence that, by converting the backyard of the land into a car park, sufficient space would exist to accommodate nine or ten cars. That will satisfy, if not exceed, the planning requirement.

39 Although the number of parking spaces to be provided on-site would appear to be adequate, this is not the only consideration. A residential backyard would be converted into a car park. As it is, the backyard represents a contribution to the residential character of the neighbourhood. As a car park, it would not. That lost contribution would be felt by the defendants as an injury to the residential character of the neighbourhood. As the defendants' expert town planner deposed, it would diminish one of the valued attributes of the neighbourhood. I do not see this consideration as minor. It is connected with the overall injury which would be constituted by the use of the house for a trade or business. Further, ordinary human experience tells us that some people attending the clinic would park in the local streets despite the availability of spaces on site. Whilst this is not a significant planning issue, it cannot be overlooked when assessing the injury to the defendants, especially (but not only) those living close by.

40 I would adopt a similar approach in relation to the issue of traffic. That issue can legitimately be examined, as in planning cases, by reference to the relative increase which is to be expected above the current base level. On the expert evidence, there would not likely be a significant increase in traffic above that level. Further, the overwhelming proportion of traffic generated by the clinic will use Wattletree Road, High Street and Thanet Street. The experts were agreed on this point, indeed on all the main points in relation to parking and traffic.

41 But the traffic issue can also legitimately be examined by reference to the absolute increase which is to be expected, ie by comparing the traffic which is presently generated by the house occupied as a home with the traffic which would be generated by the house operating as a specialist medical centre. It is not to the point that traffic issues are not examined in this way in town planning cases. This is a case about whether the plaintiff has established that the defendants would not be substantially injured by the modification sought. The court should not deny itself the benefit of evidence which may be relevant when determining that question.

42 The experts were agreed that, on the accepted empirical evidence, the operation of the house as a specialist medical centre would introduce ten times the traffic movements of a single residence and the equivalent traffic movements of 20 apartments. Clearly the clinic would become a location of some commercial traffic activity, which is not presently the case. That activity would not be negligible. This is simply a reflection of the ordinary comings and goings of doctors, staff, patients and commercial visitors to and from the specialist medical practice which would be conducted at the clinic. Very reasonably, this would be negatively perceived by the defendants, for it is the kind of thing which maintaining a prohibition on using the house for a trade or business would prevent from happening.

43 In my view, despite the adequacy in planning terms of the proposed parking and traffic arrangements, the conversion of the backyard of the house into a car park for the business, as well as the commercial traffic activity of the clinic (when compared with the residential traffic activity generated by the house), would contribute to the injury suffered by the defendants should the covenant be modified. Taken with other detriments, this injury would be substantial.

44 I accept the plaintiff's submission that the use of the house for a specialist medical clinic for two specialist practitioners would not injure (or substantially injure) any beneficiary by reason of any direct adverse amenity impact, such as noise, dust, odour or the like.

45 It is a definite advantage of the proposed use that the existing house would be retained. As already noted, the house (although not heritage listed) is typical of the heritage housing in the Coonil Estate. It makes a contribution to the character of the area in terms of built form. On the evidence, the house is not covered by any heritage planning overlay and could be demolished without a permit. Presently, the covenant does not prohibit such a demolition. As modified, retention of the residential character of the house would be required and demolition would be prohibited. Hence the advantage.

46 It is not the case that there will be no adverse change to the residential character of the land should the covenant be modified. There will be a business sign of 0.2 square metres (or larger with planning approval) and the backyard would be turned into a car park. But as regards the house, the plaintiff gets full credit in my mind for putting forward a proposal which respects its residential character and positively contributes to its likely retention. The defendants cannot realistically complain that the modification would cause them injury (or substantial injury) in relation to the built form of the house. This helps to focus attention on the primary basis of their complaint, which is that the house would be used to carry on a trade or business. To that issue I now turn.

47 As we have seen, the property concerned lies on the southern boundary of but within a built-up residential area in the suburb of Malvern known as the Coonil Estate. It contains a house which is typical of the heritage housing of the area. But, unlike the great majority of those in the estate, the property is located on Wattletree Road, a busy main road, on the corner of Thanet Street. The estate was principally developed in the streets to the north of Wattletree Road which are relatively quiet and free of traffic. On the opposite side of Wattletree Road there is mainly residential housing and also a park. On the opposite side of Thanet Street (which is not part of the estate) there is residential housing.

48 In this setting, a question arose in the case about the nature and extent of the neighbourhood. In short, the plaintiff submitted that no defendant lived close enough to the property to be much affected by what happened there and those living further away would be affected, if at all, even less so. It was on this main basis that the plaintiff sought to distinguish this case from the decision of Cavanough J in Prowse.[33] The defendants' submissions were to the contrary.

49 On the plaintiff's expert evidence, a narrow concept of neighbourhood is applied in suburban planning cases where the neighbourhood would usually be confined to a few houses either side and opposite. As most of the defendants live a few streets away, they would not be treated as belonging to the relevant neighbourhood. Consideration of the south side of Wattletree Road would be precluded. The plaintiff submitted that I should apply this narrow concept of neighbourhood when assessing the substantiality of the defendants' injury.

50 The defendants' planning expert supported a wider concept of neighbourhood. In his view, the neighbourhood encompassed an area with soft boundaries extending from Canberra Grove to the north and some distance beyond Wattletree Road to the south (including the park). It was approximately bounded to the east by Dixon Street and the Cabrini Hospital to the west. While this is wider than the concept of neighbourhood which was employed by the expert of the plaintiff, it does not include about half of the Coonil Estate and leaves out a good many of the defendants' properties.

51 I do not accept the plaintiff's submission that I should apply the narrow concept of neighbourhood which is used in planning cases. Nor do I find that the relevant neighbourhood is to be confined as the defendants' expert said it should be, albeit on a wider basis. In my view, the neighbourhood is constituted by the Coonil Estate, for three related reasons: first, in cases under s 84(1), the court does not apply a preconceived concept of neighbourhood; second, where relevant, the court should have regard to the concept of neighbourhood which is reflected in the benefits conferred by the covenant; and third, a broader concept of neighbourhood is demanded by the evidence in the case.

52 Turning to the first reason, the task of the court under s 84(1)(c) is to determine whether someone entitled to the benefit of restrictions specified in a particular covenant would be substantially injured by its modification. Depending on the benefits conferred and the injury which might be suffered, in performing this task it may be necessary for the court to identify the nature and extent of the neighbourhood in which the land is situated. This is done by reference to the evidence in the individual case and not by reference to a preconceived notion of neighbourhood. The court is not confined to the narrow concept of neighbourhood which is applied in planning cases. Because cases may vary infinitely, it is not possible and certainly not desirable to be prescriptive about the evidence which may be relevant. But, typically, the court receives evidence of the physical conditions of the area in question, the presence of any defining boundaries, the character of the housing and such other facts and circumstances as may be relevant.[34] Here, as we will see, those considerations point to the Coonil Estate as a whole being the neighbourhood.

53 As to the second reason, the covenant in question confines buildings on the land to one house of brick and/or stone with a mainly slate or tile roof. It prevents the house from being used for any trade or business. Subdivision and reduction of frontages is prohibited. The interest protected by this and the other like covenants is the creation and preservation of a neighbourhood within the whole of the Coonil Estate which is residential in character, ie one that has a look and feel which is derived from houses of a certain minimum standard (now called heritage) and occupied as homes. This covenant protects the residential character of the whole estate as a neighbourhood understood in that sense. That gives all of the defendants, including those living in the northern part of the estate, a legitimate interest in whether the subject house is to be used for non-residential purposes. It would injure them in terms of that interest if it were to be so used.

54 As to the third reason, I would accept that the evidence in this case establishes that only those defendants living close to the property, and not those living streets away, would be much affected in the physical sense by approval of the modification. The specialist medical centre would be relatively low-impact and would not significantly diminish the physical amenity of defendants living to the north of the estate.

55 But this case is about a lot more than physical amenity. As the terms of the covenant reveal and the evidence of the defendants emphasises, the purpose of the restrictions in the covenant is to protect the residential character of the Coonil Estate. That estate has clearly delineated historical boundaries which are well known and understood. The intention behind the restriction, and behind like restrictions in other covenants in the network, is ensuring that houses in the estate are to be used solely for residential purposes and not for trade or commerce; that most lots are to have only one building, being a house occupied as a home; and that each such house so occupied will contribute to the residential character of the estate by the conduct of the ordinary domestic life of the person or family concerned.

56 On the evidence, the network of covenants applying to the Coonil Estate, including the instant one, has contributed to the development of a neighbourhood having substantial residential amenity. This is a considerable social achievement. It has been obtained despite the presence of non-residential use restrictions in some covenants, including the instant one, which apply to the houses on the land rather than the land. The people who live in this neighbourhood, including the defendants, form a local community who share a love of the estate and its special heritage and residential character. They interact together and use the streets for all manner of social purposes, including visiting each others' homes, walking past the subject property to the park on the south side of Wattletree Road, having street parties and other similar purposes.

57 The subject property presently makes a contribution to the residential character of the Coonil Estate because the house is used, and can only be used, as a residence. If the modification is approved, that contribution would be lost and the use of the house for business purposes would detract somewhat from the residential character of the neighbourhood. Every defendant would experience a sense of injury in consequence.

58 Attempting to even up the injury calculus, the plaintiff pointed to the potential social benefits of having a specialist medical centre operate from the house. The staff would form social contacts with residents, having people around would be good for security and so on. All of this may be true. However, in relation to the residential character of the neighbourhood, there would be a clear difference between the occupancy of the house for trade or commerce and the occupancy of the house as a home. The latter contributes to neighbourhood character; the former would not, and would detract from it somewhat.

59 For these reasons, use of the house for a specialist medical centre would injure the defendants as persons entitled to the benefit of the covenant and this injury would be substantial.

60 The plaintiff relied on evidence of past breaches of covenant in various respects and of business activities being conducted in or near the Coonil Estate. His submission was that the residential character of the area had survived intact and would do so if the covenant were to be modified. The network of protective covenants was robust and could withstand such an insult.

61 Under cross-examination, it was conceded by the plaintiff's main witness on this subject that there had been no breach in many of the cases relied upon and that all of the breaches were historical. It was common ground that there was no current breach involving the use of burdened land for non-residential purposes.

62 I am prepared to assume that there have been particular instances of breach of covenant and non-residential uses of houses in the Coonil Estate in the past with no evident long-term harm to the residential character of the area. It appears that enforcement proceedings have never been instituted. However, that is a far cry from accepting that the beneficiaries were not injured by these breaches, which I do not assume.

63 If there was evidence of toleration of significant and ongoing breaches of covenant, particularly as regards the current use of houses for trade or business purposes, this would be a material consideration when assessing the injurious consequences of the modification proposal. There is no such evidence. The defendants strongly oppose the proposal and point to the current intact residential character of the neighbourhood as evidence of what they are seeking to protect. In the scheme of things, the evidence of some past breaches does not contribute much to the injury assessment.

64 In relation to the possible precedential effect of granting modification of the covenant, the plaintiff relied on a number of authorities.[35] He submitted that, in any future planning or modification application, particular regard would be paid to the individual facts and circumstances of the application. The present application was exceptional for a number of reasons. The plaintiff particularly relied on the decision of Else-Mitchell J in Re Roseblade; Re Foenander[36] where that distinguished judge said:

it is not safe to generalize and each case will have to be determined on its own merits in the light of the evidence and, in particular, whether the evidence shows that the modification will not substantially injure the persons entitled to the benefit of the restriction.[37]

65 By reference to the authorities, the plaintiff also submitted that the court would distinguish between good and bad precedents and between major[38] and minor modifications to a covenant. The present application fell into the good and minor category because it was for modest and conditional modification of use of a house which was to be preserved. A specialist medical centre for two practitioners operating at the one time would operate in the house during modest opening hours and with adequate on-site parking. Finally it was submitted that a finding that a covenant was obsolete under s 84(1)(a) was more powerfully precedential than the approval of a modification under s 84(1)(c).[39] The present application is not based on obsolescence.

66 I accept the legal principles as stated in the authorities on which the plaintiff relied.

67 It was submitted for the defendants that, in some cases, the precedential value of a modification may, without more, demonstrate that those entitled to the benefit of a restriction would be substantially injured by the approval.[40] I accept that submission. They particularly relied on Re Stani where Young CJ, Barber and Nelson JJ said:

The learned trial Judge ultimately concluded that in the instant case the modification sought did involve a real and substantial injury because the resident in the subdivision had the benefit of a restriction which assumes a limited density of population and protected them from the detrimental effect of increased density. This benefit would be eroded by the modification sought in this instance. We are disposed to agree that, if the covenant were modified as sought, this might well be used to support further applications resulting in further encroachment and in the long run the object sought when the covenant was imposed would be completely defeated. An examination of the subdivision shows that there are a number of allotments in respect of which an application such as this could be made, supported by the same arguments as were used to justify this application.[41]

68 In my view, these observations apply equally to the present case. Granting the modification sought by the plaintiff would set a real precedent in favour of permitting the commercial uses of houses within the Coonil Estate on land which is some distance from the Cabrini Hospital. Judged against the interests protected by the covenant, this counts as substantial injury to those entitled to its benefit.

69 In coming to this conclusion, I acknowledge that the property is located on Wattletree Road, which is a main road, at the corner of Thanet Street. That places the property on the south-east corner of the Coonil Estate. There are no other main roads in the estate. The area along Wattletree Road to the west has a somewhat different character to the rest of the estate. For example, the lots closest to the hospital have become car parks. The traffic in the area is busy while the traffic in the interior of the estate is quiet. To the west of the property along Wattletree Road there is not the same quiet residential look and feel as the streets to the north in the main body of the estate.

70 Being of the opinion that these distinguishing features of the property made it likely that planning approval would be given for use of the house as a specialist medical centre, both under the present planning rules and even more so under the proposed revised rules, the plaintiff's expert town planner was confident that the precedent set, if any, would be a narrow one. I do not accept that proposition. It was common ground that there is demand for specialist consulting rooms close to the Cabrini Hospital. The opinion of the plaintiff's town planner about the narrow precedential value of approving the modification does not take sufficient account of that demand. Nor does it take sufficient account of the similarities between the house on the property and other houses in the estate, especially those nearby.

71 If approved, this would be the only specialist medical centre in a residence in the Coonil Estate and the only one established after approval of modification of a covenant by the court. As the house stands at the corner of Wattletree Road and Thanet Street, permitting a specialist medical centre to operate there would increase demand for other houses in Thanet Street and nearby streets in the estate to be so used. While Wattletree Road is different to the interior of the estate in significant respects, those wanting to build on the precedent would seek to compare the plaintiff's house with other houses in Thanet Street and the nearby streets and distinguish them from houses in the deep interior of the estate. The house stands as a soldier guarding the residential character of the Coonil Estate against commercial encroachment from the south. I accept the evidence of the defendants' expert town planner that, for those and other reasons, approval of the proposed modification of the covenant, and subsequent planning approval of the proposed commercial use, would have real precedential value.

72 As the plaintiff submitted, some might regard certain features of the modification as creating a good precedent. For example, the house is to be retained and the proposed commercial use would be relatively low-impact. But the defendants have much more to fear than the loss of an unprotected house with heritage character and some other business use with higher impact. On the evidence, approving the modification would make significantly more likely the happening of the very thing which the covenant seeks positively to prevent, namely the diminution of the residential character of the Coonil Estate by the use of houses not as residences but for trade or business. When this central purpose of the covenant is considered, the precedential value of the modification would be bad indeed.

73 In conclusion, the approval of the modification of the covenant sought by the plaintiff would substantially injure the defendants as persons entitled to the benefit of the restrictions. The application will therefore be dismissed.

74 The court has a discretion to refuse to grant approval of a modification even where a statutory ground has been established.[42] As a ground has not been established, it is strictly unnecessary to consider the discretionary issues. However, since there was full argument on the subject and I have considered the matter, I will express my conclusion that there are no discretionary reasons for refusing to grant the approval sought. If a ground of modification had been established, I would have granted approval. My reasons for that conclusion follow.

75 While town planning considerations are not relevant when determining whether a ground of modification has been established, such considerations may be relevant to the exercise of the court's discretion.[43]

76 Against the submissions of the defendants, I would conclude from the evidence of the plaintiff's expert town planner that, but for the covenant, the plaintiff would be likely to obtain planning permission for the use of the house as a specialist medical centre. This use of the house is supported by the owner of the next door property at 199 Wattletree Road. The house is on a main road which is a favoured location under the present residential zone rules and would be even more favoured under the proposed revised rules (if adopted). Along Wattletree Road, the Coonil Estate is not covered by a heritage overlay (although the other side of that road is).

77 Moreover, there is demand for specialist consulting rooms close to Cabrini Hospital which this use of the house would help meet. As already noted, the parking arrangements and expected traffic would likely pass muster in planning terms. Applying the particular concept of neighbourhood which is relevant in planning cases, the operation of a specialist medical centre in this location would probably not be seen to be inconsistent with the residential character of the neighbourhood. The retention of the house would be welcomed.

78 Finally, the use of the house as a specialist medical centre would likely be seen as consistent with the evolving pattern of development along the north side of Wattletree Road to the east of the hospital. It would be noticed that, with planning approval, 185-189 Wattletree Road has recently been converted into an open air car park serving the hospital. The property at 191-193 Wattletree Road is burdened by the covenant which was the subject of the proceeding before Cavanough J in Prowse,[44] but this may not prevent it being used as a car park. There is a proposal for a mixed-use building of four storeys to be constructed at 195 Wattletree Road (which is not burdened by a covenant) with the property at 191-193 Wattletree Road having an open air car park. I am prepared to assume (only for the purpose of this case) that something like this proposal might be approved.

79 It therefore appears that the plaintiff's proposal would likely be approved by the responsible authority. There is nothing in the behaviour of the plaintiff, which has been exemplary throughout, or in the circumstances generally, which would have justified discretionary refusal of the modification sought.

80 The central issue for determination in this application was whether the modification of the covenant sought by the plaintiff would substantially injure the defendants as persons entitled to the benefit of the restriction. In order to determine that question, it was necessary to compare the benefits intended to be conferred by the covenant with the resultant benefits, if any, remaining for those persons after the covenant has been modified.

81 The main benefit intended to be conferred by the covenant is ensuring the residential character of the Coonil Estate by prohibiting the construction of buildings other than houses on covenanted land and also by prohibiting the use of those houses for trade or business. The covenant applying to the plaintiff's land at 201 Wattletree Road, Malvern, which is part of the estate, forms part of a network of covenants which were intended to confer that benefit.

82 The plaintiff's proposal was to establish a specialist medical centre in the house on the property. After examining the evidence, I have concluded that the defendants would be substantially injured by the consequences of approving a modification of the covenant in those terms.

83 In my view, the house used as a home makes a contribution to the residential character of the Coonil Estate. Permitting the house to be used for a specialist medical centre would result in the loss of that contribution and detract somewhat from the residential character of the estate. The backyard of the property would be turned into a car park and the property would become associated with business traffic activity. Lastly, allowing the house to be used for business purposes would set a precedent which would likely be used in subsequent modification or planning applications in relation to other houses in the area. For those and the other reasons more fully explained in the judgment, the plaintiff's application will be dismissed.

84 I make clear in the judgment that the application has failed only because the plaintiff has not established that the defendants would not be substantially injured by the modification sought. If he had established that ground, I would have approved the modification. His proposal would likely have been given planning approval, his conduct has been exemplary and nothing would have led me to refuse his application on discretionary grounds.

85 The order of the court will be that the application of the plaintiff is dismissed. I will hear the parties in relation to the issue of costs.

[1] [2012] VSC 4 (11 January 2012) ('Prowse').

[3] On the characteristics and enforcement of restrictive covenants, see generally Fitt v Luxury Developments Pty Ltd [2000] VSC 258 (20 June 2000) [54]-[195] (Gillard J); Adrian Bradbrook and Susan MacCullum, Bradbrook and Neave's Easements and Restrictive Covenants (Lexis Nexus Butterworths, 3rd ed, 2011) 279-83 [12.2]-[12.10]; Victorian Law Reform Commission, Easements and Covenants, Final Report No 22 (2010) 74-5 [6.1]-[6.13].

[4] Re Robinson [1972] VicRp 28; [1972] VR 278, 285 (Adam J) ('Robinson'); Re Stani (Unreported, Full Court of Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976) 6 ('Re Stani'); Greenwood v Burrows (1992) V ConvR 54-444, 65,198 (Eames J) ('Greenwood'); Bevilacqua v Merakovsky [2005] VSC 235 (30 June 2005) [22] (Ashley J) ('Bevilacqua'); Vrakas v Registrar of Titles (2008) V ConvR 54-753, 65,408, [2008] VSC 281 (28 July 2008) [41] (Kyrou J) ('Vrakas').

[5] [2012] VSC 4 (11 January 2012) [97]-[98].

[6] (2008) V ConvR 54-753, 65,406-8; [2008] VSC 281 (28 July 2008) [23]-[46].

[7] [1972] VicRp 28; [1972] VR 278.

[9] Unreported, Full Court of Supreme Court of Victoria, 7 December 1976, 6 ('It is of course true that the Court was not concerned with town planning considerations ...').

[10] See Greenwood (1992) V ConvR 54-444, 65,198 (Eames J); Bevilacqua [2005] VSC 235 (30 June 2005) [22] (Ashley J); Vrakas (2008) V ConvR 54-753, 65,408, [2008] VSC 281 (28 July 2008) [41] (Kyrou J).

[11] [2005] VSC 169; (2005) 12 VR 224, 239 [41], 242 [51]-[52] (Morris J) ('Stanhill').

[13] [1998] HCA 28; (1998) 194 CLR 355, 384 [78] (McHugh, Gummow, Kirby and Hayne JJ).

[14] (2001) 204 CLR 290, 299 [30] (McHugh J).

[15] [2005] VSC 169; (2005) 12 VR 224, 242 [51] (Morris J).

[16] As Kyrou J stated in Vrakas, the 'applicant has the onus of establishing the matters set out in ... s 84(1)(c), which 'means that the applicant must effectively prove a negative': (2008) V ConvR 54-753, 65,408, [2008] VSC 281 (28 July 2008) [42] (footnotes omitted).

[17] [2012] VSC 4 (11 January 2012) [99].

[18] [2005] VSC 169; (2005) 12 VR 224, 230 [9]-236 [25] (Morris J).

[19] Of the decisions relied upon by the plaintiffs, in Re Milbex Pty Ltd [2006] VSC 298; (2007) V ConvR 54-726, 62,765 [12]-[13] Byrne J said that he had the 'considerable benefit' of Stanhill in relation to the substantial injury test. Of the power to modify in s 84(1)(c), his Honour was 'mindful of the caution which should be brought to bear in order to protect the objectives of the covenant'. Dissanayake v Hillman [2007] VSC 426; (2008) V ConvR 54-745, 65,251-2 [19]-[20] (Lasry J) follows Stanhill only in relation to the substantial injury test. In Fraser v Di Paolo (2009) V ConvR 54-751, 65,378 [26]-[28], 65,378-9 [32]-[36] ('Fraser'), Coghlan J referred to but did not find it necessary to express a view about the approach adopted in Stanhill. Koller v Rice (2011) V ConvR 54-796, 64,466 [29] (Dixon J) follows Stanhill only in relation to the substantial injury test. Cf Vrakas [2008] VSC 281 (28 July 2008) [48] where Kyrou J applied the 'longstanding principles' but noted that, if his Honour had applied the interpretation expounded in Stanhill, 'which has much to commend it, the result would have been the same'.

[20] [1964] VicRp 106; [1964] VR 808.

[24] Unreported, Full Court of Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976,10.

[25] [1972] VicRp 28; [1972] VR 278, 284.

[26] [1965] 1 WLR 611, 622; cf Greenwood (1992) V ConvR 54-444, 65,199 (Eames J).

[27] Unreported, Full Court of Supreme Court of Victoria, 7 December 1976, 10.

[30] [2005] VSC 169; (2005) 12 VR 224, 238 [37] (Morris J).

[31] [2012] VSC 4 (11 January 2012) [100]-[102].

[33] [2012] VSC 4 (11 January 2012).

[34] Re Miscamble's Application [1966] VicRp 81; [1966] VR 596, 602 (McInerney AJ), applying Alliance Economic Investment Co Ltd v Berton (1923) 92 LJKB 750, 752-3 (Bankes LJ); Greenwood (1992) V ConvR 54-444, 65,196 (Eames J); Vrakas [2008] VSC 281 (28 July 2008) [25] (Kyrou J).

[35] Including Bevilacqua [2005] VSC 235 (30 June 2005) [31] (Ashley J) ('the plaintiff's property has a particular geographical location which distinguishes it from the bulk of the lots in the subdivision'); Re Forgacs' Application (1976) 32 P&CR 464, 468 (JH Emlyn Jones Esq) (no 'thin end of wedge ... [because] the circumstances of the present application are almost unique'); Fraser [2008] VSC 117; (2008) V ConvR 54-751, 65,380 [43] (Coghlan J) ('[e]ach of these cases has to be decided on its own facts'); Re Callanan [1970] 2 NSWR 127, 133 (Helsham J) (modification 'was moulded so as to ensure that the development would not substantially injure the persons entitled to the benefit of the restrictions').

[36] [1964-5] NSWR 2044.

[38] One reason which Cavanough J gave for rejecting the modification sought in Prowse was that it would establish a precedent in favour of a 'major modification': [2012] VSC 4 (11 January 2012) [117]. The modification sought was for the erection of a three-storey building (replacing a house to be demolished) comprising 18 residential apartments, together with a basement car park for 36 cars. As we have seen, the covenant was similar to the one in issue in the present case, but the modification sought is much more modest.

[39] Re Forgacs' Application (1976) 32 P&CR 464, 468 (JH Emlyn Jones Esq).

[40] Greenwood (1992) V ConvR 54-444, 65,196, 65,200 (Eames J); Vrakas (2008) V ConvR 54-753, 65,408 [39]; [2008] VSC 281 (28 July 2008) [39] (Kyrou J); Fraser [2008] VSC 117; (2008) V ConvR 54-751, 65,381 [49]-[56] (Coghlan J).

[41] Re Stani (Unreported, Full Court of Supreme Court of Victoria, Young CJ, Barber and Nelson JJ, 7 December 1976) 10-11.

[42] See the authorities collected in the judgment of Kyrou J in Vrakas (2008) V ConvR 54-753, 65,408, [2008] VSC 281 (28 July 2008) [45].

[43] See ibid 65,408 [46] where the authorities are collected.

[44] [2012] VSC 4 (11 January 2012).