Plaintiffs v Defendants

1 The plaintiffs are the registered proprietors of 55 Lesley Avenue, Point Leo, also known as the land in Plan of Consolidation 352654Y and more particularly described in Certificate of Title Volume 10001 Folio 287 (Land). The plaintiffs inherited this land from their mother, the previous registered proprietor. The Land is burdened by the restrictive covenant in Instrument of Transfer T485637G (Covenant). The Covenant, relevantly, restricts the owners of the Land from building more than one dwelling on the Land and from subdividing the Land.

2 The plaintiffs wish to subdivide the Land into two and build a dwelling on each subdivided lot. They have commenced this proceeding, asking the Court to make a declaration, pursuant to s 84(2) of the Property Law Act 1958 (Vic) (PLA) that the Covenant has no beneficiaries and is ineffective, and an order, pursuant to s 84(1)(c) of the PLA, discharging the Covenant.

3 Mr Anton Lindeman, Mrs Fiona Forrest and Mrs Angela Thorpe (the defendants) oppose the plaintiffs' application. They argue that the plaintiffs have no standing to bring the application, that two of the defendants own properties that carry the benefit of the Covenant, or alternatively, that the defendants are each entitled to enforce the Covenant because the Land is subject to a building scheme.

4 For the reasons below I will grant the plaintiffs' application. In short, I have found that no property carries the benefit of the Covenant and that the Land is not subject to a building scheme. I have also found that while a company, RSG Land Group Pty Ltd, is personally entitled to the benefit of the Covenant, the discharge of the Covenant will not cause RSG Land Group Pty Ltd substantial injury because that company does not maintain an interest in the area.

(a) the affidavit of Peter Luke English, the plaintiffs' solicitor, sworn 20 November 2023;

(b) the affidavit of Peter Luke English sworn 31 January 2024; and

(c) written preliminary submissions filed 28 November 2023.

(a) the affidavit of Anton Lindeman sworn 10 April 2024;

(b) the affidavit of Angela Thorpe sworn 5 April 2024;

(c) the affidavit of Fiona Forrest sworn 5 April 2024; and

(d) written submissions filed 12 April 2024.[1]

And the said Transferee does hereby...COVENANT with the said transferor and other registered proprietor or proprietors for the time being of lots 28-46, 51-53, 60, 61, 78, 83 and 84 on plan of subdivision no 13907, lots 163-168 on Plan of Subdivision No. 212778P and lots 1 and 2 on plan of subdivision no 300019G other than the land hereby sold -

(a) That he shall not erect or suffer to be erected on any lot more than one building being a private dwelling house together with the usual outbuildings.

(d) That he shall not subdivide or re-subdivide the land nor any buildings or buildings erected thereon.

8 The Covenant is expressed to burden 'the said Transferee... his transferees, executors, administrators and assigns...'.

9 The plaintiffs land is indicted in yellow and the lots named in the Covenant are indicated in red, blue and green in Lot Plan LP13907, reproduced below:[2]

10 The first defendant, Mr Lindeman is the registered proprietor of lot 103 on Lot Plan 13907. His lot is not one that is listed in the Covenant. Mr Lindeman seeks to enforce the Covenant on the basis that the Land is subject to a building scheme. The second defendant, Mrs Thorpe is, with her husband, the registered proprietor of lot 165 on Plan of Subdivision No. 212778P. Her lot is a named beneficiary of the Covenant. The third defendant, Mrs Forrest is, with her husband, the registered proprietor of lot 164 on Plan of Subdivision No. 212778P. Her lot is also a stated beneficiary of the Covenant.

11 The parties gave evidence by affidavit. No deponent was called for cross-examination. Accordingly, to the extent possible, I will set out the relevant facts in narrative form.

12 The Land is highlighted in red on the Land Victoria zoning and cadastral plan below:

13 The Land has an area of approximately 6,067m2 and contains a single dwelling and outbuildings.

14 The plaintiffs and defendants' land is part of a seaside residential subdivision, known by locals as the Point Leo Beach Estate. Point Leo Beach Estate comprises the land which had previously been part of a rural beef grazing property of some 400 acres known as the Point Leo Farm. Point Leo Farm historically occupied land on the southern side of Point Leo Road between the Finders-Hastings Road and the beach to the east of Western Parade, Point Leo. The southern boundary abutted a similar historical farm in Shoreham. The land occupied by the farm in Shoreham is now known as the Shoreham Coryule Estate, a residential subdivision that took place approximately ten years before the Point Leo Beach Estate subdivision.

15 In about 1985 there was a public auction of three lots of land that were part of the Point Leo Farm. Lot 2 became what is now known as the Point Leo Beach Estate.

16 Mr Lindeman, the first defendant, has been associated with the Port Leo Beach Estate for over thirty three years. He purchased his lot at 10 Yuille Avenue in 1990 as part of the first stage of the release of residential land in the subdivision. As mentioned above, Mr Lindeman's property is not one named in the Covenant. There is a covenant registered on Mr Lindeman's title that records the same restrictions as the Covenant on the plaintiff's title. Mr Lindeman's covenant was made with 'the said Transferor or other the registered proprietor of the land comprised in Plan of Subdivision No. 13907 and each and every part thereof'.

17 According to Mr Lindeman, registered restrictive covenants in common terms apply to all properties in the Point Leo Beach Estate. He said that there is a history of residents, including himself, building their dwellings based on the terms of restrictive covenants that they believed applied to all lots and taking actions to enforce the common covenants, particularly in respect to restrictions of the height of trees.

18 Mr Lindeman said that the properties along the length of Yuille Avenue formed part of the first stage release of residential land in subdivision LP 13907. Stages two and three involved blocks of land located between the back of properties on the east side of Yuille Avenue and the Point Leo Foreshore Reserve. Stages two and three were adversely impacted by planning objections to proposed sewerage plant ponds for waste water treatment to the south-south-east of the Point Leo Beach Estate subdivision. The sewerage plant was to include open ponds for waste water treatment to accommodate numerous one-third acre blocks along Lesley Avenue and the north side of Murray Drive. That land is predominantly flat and subject to flood risk. As there were no off-site main sewerage drains to connect into, all blocks had to be consolidated into larger lots in order to meet environmental conditions for septic systems, which are still used throughout the Point Leo Beach Estate. This substantially reduced the number of available residential allotments within the Point Leo Beach Estate, preserving for some lots, excellent views of the Western Port Bay and Port Phillip Island.

19 Mrs Thorpe and her husband, Scott John Thorpe, are the registered proprietors of lot 165 of PS 212778P, a beneficiary of the Covenant. Mrs Thorpe said that there is a registered restrictive covenant on her title containing the same restrictions as the Covenant. She and her husband were attracted to purchase her property by the existence of the restrictive covenant conditions about which she and her husband received legal advice at the time they purchased.

20 The restrictive covenant on Mrs Thorpe's title was entered into on 18 April 1990 and is said to covenant with 'the said Transferor and other registered proprietor or proprietors for the time being of Lots 162-183 (both inclusive) comprised in Plan of Subdivision No. 212778P other than the lot hereby sold'.

21 Mrs Fiona Forrest and her husband, Andrew Ian Forrest, are the registered proprietors of lot 164 on PS212778P, being a lot named as having the benefit of the Covenant. Mrs Forrest deposed that she and her husband were attracted to purchase their property approximately thirty years ago by, among other things, the existence of complimentary restrictive covenant conditions on many lots in the Point Leo Beach Estate. She deposed that a covenant registered on her title contained the same restrictions as those contained in the Covenant and that the plaintiffs' land is a beneficiary of her restrictive covenant. Mrs Forrest believed that the majority of residents in the Point Leo Beach Estate think that the common registered restrictive covenants on all lots within the Estate are valid.

22 The restrictive covenant on Mrs Forrest's title was entered into on 22 May 1989 and is said to benefit every lot on Plan of Subdivision 212778P other than her lot. The covenant is with the 'transferor and other registered proprietor or proprietors for the time being of lots 162-183 (both inclusive) comprised in Plan of Subdivision no. 212778P'.

23 Each of the lots recorded in the plaintiffs' Covenant, other than Lots 51-53 are subject to a covenant. Each of these covenants appears to contain the same restrictions as the Covenant. However, the stated beneficiaries of the covenants are not, on the face of each covenant, uniform. Approximately eight of the seventeen covenants are in the same terms as the Covenant. Other than lots 51-53 which appear not to have restrictive covenants, the other covenants on the titles to the other lots appear, on their faces, to benefit various subsets of the stated beneficiaries of the Covenant, with several said to benefit only lots 163-168 on Plan of Subdivision No. 212778P.

24 Following notice of the plaintiffs' application, each of Mr Lindeman, Mrs Thorpe and Mrs Forrest canvassed their neighbours for their views about the plaintiffs' proposal to subdivide the Land. Each found overwhelming opposition among neighbours to the plaintiffs' proposal and that the plaintiffs' application was causing a degree of anxiety to local owners and residents. Each of the defendants speculated about the motives of the plaintiffs in bringing the application. As the plaintiffs' motivation is not relevant to the determination of their application, it is unnecessary to set out the defendants' views on this matter.

25 Mrs Forrest deposed that she believed the Covenant was valid, saying her belief was supported by the plaintiffs' planning consultancy, the Relevant Authority who named the Covenant as a reason for rejecting the plaintiffs' planning application (discussed further below) and the plaintiffs' previous correspondence which had been addressed to 'listed beneficiaries'.

26 Mr Lindeman said that if the plaintiffs' application were granted, those owners who developed in the expectation that the common covenants were permanent, would be prejudiced. Mr Lindeman also said that the Estate had only one vehicular entry and exit point and that if a subdivision was allowed, the existing Estate infrastructure would be placed under pressure.

27 Prior to commencing this application, the plaintiffs had pursued an application for a planning permit.

28 Under the Mornington Peninsula Planning Scheme (Planning Scheme) the plaintiffs' Land is in the General Residential Zone (GRZ) and is affected by the following planning overlays:

(a) the Bushfire Management Overlay (BMO);

(b) the Design and Development Overlay, Schedule 3;

(c) the Environmental Significance Overlay, Schedule 21;

(d) the Significant Landscape Overlay, Schedule 2; and

(e) the Vegetation Protection Overlay, Schedule 1.

29 The parent title of the Land is Certificate of Title Volume 09849 Folio 467. The Plan of Consolidation was registered on 22 January 1991, prior to which, the Land was lots 28, 29, 30 and 31 on Lodged Plan number 13907 (LP13907).

30 The Covenant is contained in Transfer 485637G (Transfer). The Transfer records the sale of the Land by Discount Factors Pty Ltd (ACN 004 061 465) (Discount Factors) to John Kenneth Martin and Gaye Elizabeth Martin and is dated 19 December 1994. Gaye Elizabeth Martin is the plaintiffs' mother.

31 John Kenneth Martin and Gaye Elizabeth Martin (Gaye) separated in around 2001. Following the separation Gaye became the sole proprietor of the Land. Gaye died in 2014, and pursuant to the terms of Gaye's Will, the plaintiffs inherited the Land as tenants in common.

32 After inheriting the Land, the plaintiffs made inquiries with a planning consultancy about obtaining the necessary permissions to subdivide the Land into two lots, intending that they would each build a house on the Land. The planning consultant advised the plaintiffs that under the terms of the GRZ and BMO the plaintiffs would require a planning permit to subdivide the Land. The consultant also advised the plaintiffs that under the Planning and Environment Act 1987 (Vic) (PEA), a planning permit must not be granted if it would authorise something which would result in a breach of the Covenant unless a permit had been granted or a decision made to allow the removal or variation of the Covenant. The plaintiffs were advised that the Planning Scheme allowed them to seek a planning permit to vary the Covenant.

33 On 8 September 2021 the plaintiffs applied to the Mornington Peninsula Shire Council (Responsible Authority) for a planning permit to authorise the subdivision of the Land into two lots and a variation of the Covenant to enable that subdivision to lawfully occur.

34 On 7 October 2021 the Responsible Authority requested the plaintiffs provide further information, from a suitably qualified legal professional providing legal opinion, identifying the beneficiaries of the Covenant. On 11 October 2021 a licensed surveyor employed by the planning consultancy sent a letter to the Responsible Authority identifying the lots described in the Covenant as benefitting land.

35 Public notice of the plaintiffs' planning permit application was given on 30 November 2021, following which the Responsible Authority received twenty-one objections.

36 The Responsible Authority considered the planning permit application and, on 10 August 2023 the Responsible Authority issued a notice refusing to grant the plaintiff's planning permit.

37 On 28 September 2023 the planning consultancy, on behalf of the plaintiffs, applied to the Victorian Civil and Administrative Tribunal (VCAT) for a review of the Responsible Authority's decision to refuse to grant a planning permit. On 31 October 2023 the plaintiffs engaged the firm of DSA Law - Lawyers & Consultants (DSA Law) to act on their behalf. DSA Law act for the plaintiffs in this proceeding.

38 Following engagement, Mr English, a solicitor employed by DSA Law reviewed the documents and formed the view that the method applied by the licensed surveyor to identify the beneficiaries of the Covenant was flawed because it did not identify which land identified in the Covenant was owned by Discount Factors on 19 December 1994.

39 Mr English conducted his own analysis of the land taking the benefit of the Covenant which, in summary, revealed:

(a) Lots 32-35 on LP13907 was sold by Discount Factors to Leigh Morris Hudson and Glenys Faye Hudson (Hudsons) on 15 August 1994 and transferred to the Hudsons on 2 September 1994;

(b) lots 36-39 on LP13907 was sold by Discount Factors to Christopher Adrian Lake Mills and Jane Madeline Mills (Mills) on 27 June 1994 and transferred to the Mills on 18 July 1994;

(c) lots 40-43 on LP13907 was sold by Discount Factors to Trigger Brothers Surfboards Pty Ltd (Trigger Bros) sometime prior to 28 February 1994 and transferred to Trigger Bros on 28 February 1994;

(d) lots 44-46 on LP13907 was sold by Discount Factors to Peter Robert Lucas and James Francis Lucas (Lucases) on 21 December 1993 and transferred to the Lucases on 14 January 1994;

(e) lots 51-53 on LP13907 was sold by Discount Factors to Laurie Robert Cameron (Cameron) and Alison Ruth Simpson (Simpson) on 21 January 1994 and transferred to Cameron and Simpson on 10 February 1994;

(f) lots 60-61 on LP13907 was sold by Discount Factors to Christopher Kellam Bird (Bird) on 2 March 1992 and transferred to Bird on 27 November 1992;

(g) lot 78 on LP13907 was sold by Discount Factors to Colin Albert Clatworthy and Mary Elizabeth Clatworthy (Clatworthys) on 31 January 1994 and transferred to the Clatworthys on 8 February 1994;

(h) lot 83 on LP13907 was sold by Discount Factors to Matthew John Conroy and Kelly Anne Conroy (Conroys) on 21 February 1994 and transferred to the Conroys on 23 February 1994;

(i) lot 84 on LP13907 was sold by Discount Factors to Joseph Emile Briglia (Briglia) and Genda Joy Everett (Everett) on 23 March 1994 and transferred to Briglia and Everett on 12 April 1994;

(j) lot 163 on plan of subdivision 212778P was sold by Discount Factors to Stanton Charles Archer and Yang Ja Hwang Archer (Archers) on 26 November 1990 and transferred to the Archers on 7 December 1990;

(k) lot 164 on plan of subdivision 212778P was sold by Discount Factors to MBA Group Pty Ltd (MBA) on 22 May 1989 and transferred to MBA on 24 August 1989;

(l) lot 165 on plan of subdivision 212778P was sold by Discount Factors to Sixty Second Jabot Nominees Pty Ltd (Jabot) on 18 April 1990 and transferred to Jabot on 20 April 1990;

(m) lot 166 on plan of subdivision 212778P was sold by Discount Factors to Bruce Neil Doggett (Doggett) and Colleen Margaret Butler (Butler) on 22 September 1989 and transferred to Doggett and Butler on 29 September 1989;

(n) lot 167 on plan of subdivision 212778P was sold by Discount Factors to Paul Malcolm West (West) on 23 May 1989 and transferred to West on 31 May 1989;

(o) lot 168 on plan of subdivision 212778P was sold by Discount Factors to Lynda Madeline Wilson (Wilson) on 20 April 1990 and transferred to Wilson on 22 May 1990;

(p) lot 1 on plan of subdivision 300019G was sold by Discount Factors to Peter James Whiteley and Marion Whiteley (Whiteleys) on 7 July 1993 and transferred to the Whiteleys on 3 August 1993; and

(q) lot 2 on plan of subdivision 300019G was sold by Discount Factors to Grant Hilton Tucker and Angela Mary Tucker (Tuckers) on 20 March 1994 and transferred to the Tuckers on 16 June 1994.

40 In short Mr English's evidence was that his research revealed that at the time the Covenant was entered into, Discount Factors did not own any of the lots named in the Covenant.

41 Mr English also obtained an ASIC company search which revealed that Discount Factors is now named RSG Land Group Pty Ltd.

42 The plaintiffs told the Court that, having received the results of Mr English's analysis of the beneficiaries of the Covenant, they have decided to withdraw their application for a planning permit to vary the Covenant pursuant to the PEA and instead decided to commence this proceeding, seeking orders from the Court under s 84 of the PLA. The plaintiffs still require a planning permit under the Planning Scheme to subdivide the Land and intend to seek leave of VCAT to amend the planning permit application by deleting the application to vary the Covenant.

43 On 7 December 2023 the Court made orders that the plaintiffs provide notice of their application to each person who maintained an objection to the plaintiff's VCAT proceeding and to RSG Land Group Pty Ltd. As a result of that notice a number of people contacted the plaintiffs' solicitor to indicate their objection to the plaintiffs' application. Mr Lindeman, Mrs Thorpe and Mrs Forrest were among those objectors and, on 8 February 2024, they indicated their intention to be made defendants to this proceeding. Accordingly, on that day I made orders joining them as defendants.

44 The plaintiffs' application raises the following issues for determination:

(a) Do the plaintiffs have standing to bring the application?

(b) Does any land carry the benefit of the Covenant?

(c) Is the Land subject to a building scheme?

(d) Will the modification of the Covenant substantially injure the persons entitled to the benefit of the restriction?

45 The plaintiffs' application is brought pursuant to ss 84(2) and 84(1)(c) of the PLA.

46 Section 84(2) of the PLA provides:

(2) The Court shall have power on the application of any person interested -

(a) to declare whether or not in any particular case any land is affected by a restriction imposed by any instrument; or

(b) to declare what upon the true construction of any instrument purporting to impose a restriction is the nature and extent of the restriction thereby imposed and whether the same is enforceable and if so by whom.

47 Section 84(1)(c) of the PLA states:

(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 -

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

Do the plaintiffs have standing to bring the application?

48 The defendants contended the plaintiffs do not have standing to bring their application.

49 While not always easy to follow, the defendants framed their submissions on this issue as follows. The plaintiffs inherited the Land from their mother, who was a signatory to the Covenant, along with their father. The plaintiffs' parents no doubt received legal advice and understood the legal effect of the Covenant. It is a well-known general rule that a testatrix cannot confer an interest in property greater than that which the testatrix herself possessed. The plaintiffs therefore inherited the Land subject to their mother's covenant. Any challenge to the validity of the Covenant was for the plaintiff's mother to bring during her lifetime or for her executors to raise after her death.

50 I am unable to accept the defendants' submission that the plaintiffs lack standing to bring the application. The basis for the defendants' assertion that it was only for the testatrix or her executor to bring the application is not clearly explained. There was no dispute that the plaintiffs are the current registered proprietors of the Land and that the Covenant touches and concerns the Land. Section 84(1) of the PLA empowers the Court to discharge or modify a restrictive covenant on the application 'of any person interested in any land affected by any restriction arising under covenant'. The plaintiffs, as the registered proprietors of the Land, clearly have standing to bring the application.

Is the benefit of the Covenant annexed to any land?

51 As the authorities well recognise, there are three ways in which a person may enforce the benefit of a restrictive covenant:

(a) first, they are or become the owner of land to which the benefit of the covenant has annexed, either expressly or by implication;

(b) second, the benefit of the covenant has been assigned to the person in respect of land the person owns; or

(c) third, that the person seeking to enforce the covenant and the owner of the land burdened by the covenant sought to be enforced, both own land which was subject to a form of scheme which imposed reciprocal rights and obligations (commonly called a building scheme).[3]

52 Discount Factors and the plaintiffs' parents entered into the Covenant on 19 December 1994. At the time the Covenant was entered into, Discount Factors was not the registered proprietor of any of the lots named in the Covenant. Neither of these facts was in dispute.

53 In Re Mack and the Conveyancing Act (Re Mack),[4] Wooten J considered a covenant stated to be for the benefit of the whole of the land comprised in a deposited plan, not all of which the vendor owned at the time of entering into the covenant. Wooten J stated:[5]

The covenant clearly states the land to which the benefit of the restriction is intended to be appurtenant, and the only question is whether the benefit is in law so appurtenant, i.e. whether the restriction is validly created. There is ample authority that a vendor of land in respect of which he takes a restrictive covenant cannot, by the covenant, annex the restriction to land which he does not own, unless the covenant is given as part of a building scheme or development scheme: Re Barry and the Conveyancing Act;[6] Sutton v Shoppee; [7] Kerridge v Foley;[8] Re Redmond and the Conveyancing Act;[9] Re New South Wales Aged Pensioners Hostel and the Conveyancing Act;[10] Re Louis and the Conveyancing Act;[11] to name only authorities in this State.

54 In Xu v Natarelli (Xu v Natarelli),[12] Ierodiaconou AsJ explained the reason why a vendor cannot purport to annex the benefit of a restrictive covenant to land the vendor does not own:

However, contractual principles of privity exclude the registered proprietors of the lots transferred out of the parent title before the restrictive covenant was made. Equity does not extend the benefit of the covenant to them although it does extend the benefit to proprietors (and their successors in title) of the lots transferred out of the parent title, that is subdivided and sold, after the restrictive covenant was made.[13]

55 The decisions in Re Mack and Xu v Natarelli have been applied in other cases in Victoria.[14] In Randall v Uhl (Randall v Uhl),[15] Derham AsJ referred to Re Mack and Xu v Natarelli as authority for the principle that:

...the original covenantee and his successors cannot enforce a restrictive covenant against a successor in title of the covenantor unless they retain land which is benefited by the covenant. Thus, a vendor of land in respect of which he takes the benefit of a restrictive covenant cannot, by the covenant, annex the restriction to land which he does not own at the time of the covenant, unless the covenant is given as part of a building scheme.

56 The defendants submitted that the case of Xu v Natarelli should be distinguished from the present case. That submission was put in different ways, including:

(a) While the proposition in [Xu v Natarelli extracted above] may be true for other cases based on the same facts as Xu v Natarelli, what is submitted to be a critical factual difference for this case is that it was not the vendor/covenantee but rather the purchaser/covenantor, ie the plaintiffs' parents, who made the promises/restrictions for the benefit of the beneficiaries of their said covenant.

(b) In Xu v Natarelli, the covenant was made by a developer and thus fell into a class of covenants described in the Victorian Law Reform Commission's (VLRC) Easements and Covenants Consultation Paper[16] as a covenant to ensure that the owners of lots complete building works in accordance with the developer's master plan and within a specified time.

(c) That Tulk v Moxhay (Tulk v Moxhay)[17] created an exception to the doctrine of privity and established that the court would enforce a covenant "against a party purchasing with notice of it; for if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation form the party from whom he purchased."

57 The defendants further submitted that this proceeding was distinguishable from Randall v Uhl because:

(a) None of the plaintiffs or the defendants in Randall v Uhl was an original covenantee but in this case the plaintiffs' parents were the original purchasers/covenantors of the burdened land and Mrs Forrest and other objectors were the original owners of the benefitted land.

(b) This case cannot be characterised as involving a vendor of land in respect of which he takes the benefit of a restrictive covenant not being able, by the covenant, to annex the restriction to land which he does not own at the time of the covenant.

58 To the extent the plaintiffs seek to argue that the principle that a vendor of land in respect of which he takes the benefit of a restrictive covenant cannot, by the covenant, annex the restriction to land which he does not own at the time of the covenant, unless the covenant is given as part of a building scheme has no application in this case, I reject that argument. The principle in Re Mack is well established, as is the explanation of the basis of the principle given by Ierodiaconou AsJ in Xu v Natarelli. The correctness of the principle itself is not reliant on the particular facts of any case, however its application will be dependent on the particular circumstances of the case to which it must be applied.

59 I cannot accept the defendants' submission that the principle does not apply because it was the plaintiffs' parents who agreed to provide the benefit of the Covenant to land not owned by Discount Factors at the time the transfer was executed, rather than Discount Factors purporting to annex the benefit of the Covenant to the specified lots. The normal conception of a restrictive covenant is that the purchaser of the land who gives the promise, or covenantor, agrees to the restriction and the vendor of the land to whom the promise is given, or covenantee, takes the benefit of the restriction. The law recognises that the restriction may be enforced by owners of land not owned by the vendor at the time the covenant was entered into only where a building scheme is in place. Whether or not the plaintiffs' parents or Discount Factors believed at the time they signed the Covenant that they bound the benefit of the Covenant to land neither owned is not to the point. In order to give effect to what the defendants' submitted, ie to attach the benefit of the Covenant to land not owned by Discount Factors at the time the Covenant was executed, the Land must have been part of a building scheme. Similarly, notice of the Covenant, if its benefit is not attached to any land, does not somehow create that missing attachment so as to make the Covenant enforceable by the owners of the lots named in the Covenant.

60 In 2010 the VLRC prepared a consultation paper on easements and covenants, calling for submissions. The VLRC's paper was prepared following receipt of terms of reference from the Attorney-General of Victoria which asked the VLRC to review and report on the desirability of changes to Victoria's property laws in relation to the PLA and easements and covenants. Chapter 10 of the consultation paper sets out the role of covenants. The paper distinguishes between three types of covenants found in common law jurisdictions and the different functions each serve. The VLRC identified the following types of covenant:

The first type are building covenants imposed by developers to ensure that the owners of lots complete building works in accordance with the developer's master plan and within a specified time. For example, a covenant may require the lot owner to complete the front landscaping within six months of the certificate of occupancy being issued. Since building covenants mainly impose positive obligations, they can be enforced only in contract. It is difficult for the developer to enforce the covenants if the purchaser sells the lot to someone else before completing the works.[18] This problem has led to calls for a change in the law to allow positive covenants to run with land.

The second type are covenants which are intended to preserve neighbourhood character and amenity against inconsistent use or development in the subdivision. For example, covenants may provide that the covenantor will not subdivide the land, build more than one dwelling on it, or erect a building which exceeds a specified height. Covenants of this type are intended to maintain the value of the benefitted lots,[19] by assuring purchasers that the attractiveness of the neighbourhood will be maintained.[20] Such covenants are enforceable in Victoria as restrictive covenants if they are recorded.

The third type are covenants which effectively impose rules of communal living on lot owners relating to the use of the land. Examples are covenants which prohibit parking of a commercial vehicle, boat or trailer in open view on a lot, or require lot owners not to allow weeds or rubbish to accumulate. Covenants of this type are sometimes created in Victoria, but they are unenforceable if they purport to impose positive obligations. There is an alternative mechanism for making both positive and negative rules of communal living, by rules made under the Owners Corporations Act 2006....

61 It is immediately apparent from the above that it is the nature of the covenant rather than the identity of the transferor that is critical in identifying the type of covenant involved. The first type of covenants impose mostly positive obligations, ie, they require someone to do something. The second type of covenants impose negative obligations, ie they require someone not to do something. The third type impose rules on communal living.

62 I do not accept that the principle in Xu v Natarelli has no application to this case because it involved a covenant of the first type identified by the VLRC. Xu v Natarelli involved an application to amend a restrictive covenant. The covenant under consideration in that case imposed a restriction on erecting more than one single dwelling, having a habitable area of not less than 150 square metres and having not less than 70% of all external walls of brick, brick veneer or glass.[21] The covenant in that case, like the Covenant in this case, falls into second type of covenant identified by the VLRC.

63 The defendants sought to rely on Tulk v Moxhay to argue that because the plaintiffs inherited the property from their mother who was one of the original covenantors, the plaintiffs are fixed with their mother's knowledge of the covenant. The defendants argued that the plaintiffs therefore took ownership of the Land with notice of the Covenant. In Fitt & Anor v Luxury Developments Pty Ltd,[22] Gillard J noted that the law has developed rapidly since Tulk v Moxhay was decided, 'and what was a simple legal principle has become somewhat complicated. Later cases show that the Tulk v Moxhay doctrine does not just rest on notice.'[23] After considering developments in the law since that time, Gillard J stated:[24]

There are three ways and only three ways in which a plaintiff not being the original covenantee can have the right to the benefit of a restrictive covenant.

They are -

(a) that he becomes the owner of land to which the benefit of the covenant has been annexed, either expressly or by implication;

(b) that the benefit of the covenant has been assigned to him in respect of land which he owns;

(c) that both he and the defendant own land which was subject to a form of scheme which imposed reciprocal rights and obligations.[25]

64 In this case none of the defendants are the original covenantee of the Covenant. The defendants argue that they are entitled to enforce the benefit of the Covenant because the benefit of the Covenant has been annexed to their land or because both they and the plaintiffs own land the subject of a building scheme. I will consider the defendants claim regarding the existence of a building scheme below. It is not, however, enough for the defendants to assert that the plaintiffs had notice of the Covenant to establish that the benefit of the Covenant has annexed to the defendants' land. As the principle in Re Mack establishes, in order to annex the benefit of a covenant to land, the transferor must own the land to which he seeks to annex the benefit. In this case the evidence establishes that Discount Factors did not own the defendants' land at the time it entered into the Covenant.

65 I find that the benefit of the Covenant is not annexed to any land.

66 The defendants claim standing to enforce the Covenant on the basis that the Land is part of a building scheme in place that covers the Point Leo Beach Estate.

67 In Randall v Uhl,[26] Derham AsJ summarised the principles relevant to the establishment of a building scheme:

Where the lots in a subdivision of land are all (or substantially all) sold subject to a restrictive covenant, the Court may find that there has been a building scheme. Where a building scheme is established, all purchasers and their assigns are bound by, and entitled to the benefit of, the restrictive covenant.[27]

In Elliston v Reacher[28] Parker J stated the requirements in terms 'that have since been universally accepted',[29] as follows:

[I]t must be proved (1) that both the plaintiffs and defendants derive title under a common vendor; (2) that previously to selling the lands to which the plaintiffs and defendants are respectively entitled the vendor laid out his estate, or a defined portion thereof (including the lands purchased by the plaintiffs and defendants respectively), for sale in lots subject to restrictions intended to be imposed on all the lots, and which, though varying in details as to particular lots, are consistent and consistent only with some general scheme of development; (3) that these restrictions were intended by the common vendor to be and were for the benefit of all the lots intended to be sold, whether or not they were also intended to be and were for the benefit of other land retained by the vendor; and (4) that both the plaintiffs and the defendants, or their predecessors in title, purchased their lots from the common vendor upon the footing that the restrictions subject to which the purchases were made were to enure for the benefit of the other lots included in the general scheme whether or not they were also to enure for the benefit of other lands retained by the vendors. If these four points be established, I think that the plaintiffs would in equity be entitled to enforce the restrictive covenants entered into by the defendants or their predecessors with the common vendor irrespective of the dates of the respective purchases.[30]

Counsel for the defendants pointed out, quite correctly, that there is an addition requirement that almost goes without saying, namely, that the area to which the building scheme extends must be defined.[31]

In addition, because the Land is under the operation of the TLA, the decision in Dennerstein[32] establishes, as Hargrave J put it in Vrakas v Mills, that:

...in order to bind a transferee of land registered under the Transfer of Land Act with a restrictive covenant arising under a scheme of development, it is necessary for the notification in the Register to give notice of:

(1) the existence of the scheme;

(2) the nature of the restrictive covenant; and

(3) the identity of the lands affected by the scheme, both as to the benefit and the burden of the restriction.

Further, it is necessary that this notice is given in the certificate of title, either directly or by reference to some instrument or other document to which a person searching the Register has access.[33]

After the above oft quoted extract from Elliston v Reacher, Parker J went on to observe:

I may observe, with reference to the third point, that the vendor's object in imposing the restrictions must in general be gathered from all the circumstances of the case, including in particular the nature of the restrictions. If a general observance of the restrictions is in fact calculated to enhance the values of the several lots offered for sale, it is an easy inference that the vendor intended the restrictions to be for the benefit of all the lots, even though he might retain other land the value of which might be similarly enhanced, for a vendor may naturally be expected to aim at obtaining the highest possible price for his land. Further, if the first three points be established, the fourth point may readily be inferred, provided the purchasers have notice of the facts involved in the three first points; but if the purchaser purchases in ignorance of any material part of those facts, it would be difficult, if not impossible, to establish the fourth point. It is also observable that the equity arising out of the establishment of the four points I have mentioned has been sometimes explained by the implication of mutual contracts between the various purchasers, and sometimes by the implication of a contract between each purchaser and the common vendor, that each purchaser is to have the benefit of all the covenants by the other purchasers, so that each purchase is in equity an assign of the benefit of these covenants. In my opinion the implication of mutual contract is not always a perfectly satisfactory explanation. It may be satisfactory where all the lots are sold by auction at the same time, but when, as in cases such as Spicer v Martin,[34] there is no sale by auction, but all the various sales are by private treaty and at various intervals of time, the circumstances may, at the date of one or more of the sales, be such as to preclude the possibility of any actual contract. ... It is, I think, enough to say, using Lord Macnaghten's words in Spicer v Martin,[35] that where the four points I have mentioned are established, the community of interest imports in equity the reciprocity of obligation which is in fact contemplated by each at the time of his own purchase.

There is often only limited circumstantial evidence available to assist in establishing the existence of a building scheme. Sometimes there is evidence of an auction of many or most of the lots in a subdivision and of a contract that is the source of the covenant in question, as was the case in Dennerstein. On other occasions there is little more than the registered instruments and what may be inferred from the terms of the covenant.[36] Nevertheless the court can draw the inference from the documentation and will readily do so where it is proven that there was a large subdivision of building blocks and which were sold over a relatively short period by a common vendor and a common form of restrictive covenant.[37]

68 The defendants submitted that the onus is on the plaintiffs to negate the existence of a building scheme. Further the defendants argued that the plaintiffs must prove the negative of each of the five elements of a building scheme, being:

(a) the plaintiff and defendant have derived title from a common vendor;

(b) prior to the sale, that is, the original sale, the vendor must have laid out the estate in lots subject to restrictions which were intended to be imposed on all of them and were consistent only with some general scheme of development;

(c) the common vendor must have intended the restrictions to be for the benefit of all lots sold;

(d) the plaintiffs' and defendants' lots must have both been bought from the common vendor on the footing that the restrictions were for the benefit of the other lots; and

(e) the area to which the scheme extends must be defined.[38]

69 I do not agree that the plaintiffs are required to negate all elements of the existence of a building scheme in order to succeed. It appears to me that the elements identified in the authorities are cumulative, such that it is only necessary for the plaintiffs to negate the existence of one of the elements. In this proceeding the relevant element is the requirement of notice.

70 In Deguisa v Lynn,[39] the High Court considered what was necessary to provide notice of an interest in land under the Torrens system. The High Court referred to its earlier decision in Westfield Management Ltd v Perpetual Trustee Co Ltd[40] stating,[41]

In Westfield, this Court held that it is contrary to the purpose of the Torrens system to seek to establish the intention or contemplation of the parties to an instrument registered under the NSW Act by reference to material extrinsic to the instrument. In a unanimous judgment, Gleeson CJ, Gummow, Kirby, Hayne and Heydon JJ said:

"Together with the information appearing on the relevant folio, the registration of dealings manifests the scheme of the Torrens system to provide third parties with the information necessary to comprehend the extent or state of the registered title to the land in question."[42]

The simplification of land title and the assurance of transparency of land ownership that are the objects of the Act are not able to be accommodated in relation to a common building scheme unless all of the lots benefited by the restrictive covenant can be identified by a potential purchaser from information on the certificate of title. Such identification ensures that a potential purchaser is able to make fully informed decisions in relation to the concerned land. It is not to be supposed that the only legitimate concern of a potential purchaser of land in seeking to ascertain the nature and extent of qualifications upon the potential vendor's title to land is to enable the potential purchaser to make a binary choice as to whether to proceed with the purchase or to decline to do so. Knowledge of the nature and extent of qualifications upon the potential vendor's title would also enable a potential purchaser to bargain for a reduction in price to reflect the burden of any qualification upon the potential vendor's ability to convey a clear title to the land. In cases such as the present, a potential purchaser who knows what other lots are benefitted by the restrictive covenant burdening the potential vendor's lot may seek to negotiate for a release of that burden from the other lot owners. That can occur only if the potential purchaser is able to identify each and every such other lot. In functional terms, the notification of which s 69 speaks can be effective only if a person dealing with the registered proprietor of land is informed by memorials on the certificate of title of the identity of each of the other lots in the common building scheme. Anything less falls short of fulfilling the function that notification on the certificate of title serves within the scheme of the Act.[43]

A person who seeks to deal with the registered proprietor in reliance on the State's guarantee of the title of the registered proprietor disclosed by the certificate of title in the Register Book (or its electronic equivalent) is not to be put on inquiry as to anything beyond that which is so notified. A common building scheme can operate consistently with the scheme of the Act in relation to the enforceability of the benefit of a restrictive covenant only if those rights are notified on the certificate of title of the burdened land, or by express reference in a memorial on the certificate of title to other registered instruments which contain that information. Anything less is inconsistent with the natural and ordinary meaning of the text of s 69 and the purpose of the Act.[44]

73 The defendants submitted that the plaintiffs must be taken to have the same knowledge of the Covenant and that similar covenants were in place across the Point Leo Beach Estate that their mother had. The legal basis for this submission was not readily apparent. Nor is there any direct evidence that the plaintiffs' mother had knowledge of the network of covenants said to cover the Point Leo Beach Estate. Rather the defendants asked the Court to infer that the plaintiffs' mother and father would have been informed of the covenants at the time they purchased the Land from Discount Factors and would have received legal advice about the nature and effect of their own Covenant and the network of covenants. There is no identified evidentiary basis for the Court to make that inference in so far as it relates to the network of covenants.

74 In any event, the existence of a building scheme is not established by demonstrating that, even in the absence of notice of the scheme on the certificate of title or in another registered instruments noted on the certificate of title, the plaintiffs' parents were aware of the network of covenants said to constitute the scheme. If that were all the notice required, the purpose of the Torrens system would, over time as lots were transferred, be undermined. High Court authority makes clear that, in order to enforce a covenant as part of a building scheme, notice of the scheme and its extent must be present on the certificate of title itself or on an instrument noted on the certificate of title. This is still required even if all other elements of a building scheme are established.

75 In this case, the evidence demonstrated that there is no notice of the building scheme on any document discoverable on the face of the register. There is no indication of a building scheme on the register search statement for the Land. There is no indication of a building scheme on the Certificate of Title for the Land, nor on Plan of Consolidation 352654Y, the parent title (Certificate of Title volume 09849 Folio 467), or the Covenant.

76 Accordingly, I find that the Land is not subject to a building scheme.

Will the modification of the Covenant substantially injure the persons entitled to the benefit of the restriction?

77 I have found that the benefit of the Covenant is not annexed to the lots named in the Covenant and that the defendants cannot enforce the Covenant as part of an existing building scheme. The covenant may nevertheless endure as a personal covenant to the covenantee, Discount Factors.

78 The evidence before the Court was that Discount Factors is now an entity named RSG Land Group Pty Ltd, who retained none of the land purporting to take the benefit of the Covenant. RSG Land Group were notified of the plaintiffs' application. RSG Land Group have not sought to be heard on the plaintiffs' application.

79 The plaintiff seeks an order under s 84(1)(c) of the PLA discharging the Covenant. In order to obtain such an order the plaintiffs need to prove as a matter of fact that the proposed discharge will not substantially injure those with the benefit of the covenant. The principles relevant to determining whether those entitled to the benefit of the Covenant will not be substantially injured were summarised by Derham AsJ in Randall v Uhl.[45] Those principles are well established and it is unnecessary to set them out again here. I have followed them in determining this aspect of the plaintiffs' application.

80 I have found that the Covenant remains effective as a personal covenant, enforceable by RSG Land Group. RSG Land Group no longer maintains an interest in the area.

81 The purpose of single dwelling restrictions in covenants has been considered by the Court. In Jiang v Monyagon Pty Ltd,[46] Derham AsJ noted that single dwelling restrictions can be for the purposes of:

(a) providing an attractive and quiet area for tranquil living;

(b) preserving an area of spacious homes and gardens; and

(c) maintaining reduced populations in the area.

82 I find that the purpose of the single dwelling restriction in the Covenant serves these purposes.

83 The plaintiffs submitted that each of these purposes is confined to maintenance of the amenity of the area and so the covenantee, RSG Land Group, could only be affected by the modification or discharge of the Covenant if it maintained some interest in the area. The evidence is that it does not and, so the plaintiffs submitted, the discharge of the Covenant will not cause substantial injury to RSG Land Group. I accept that submission. RSG Land Group will not be substantially injured if the Covenant is discharged because it holds no interest in the area capable of being affected.

84 Accordingly, I am satisfied that it is appropriate to discharge the Covenant.

85 For the reasons given above, I have found that there is no land to which the benefit of the Covenant is annexed. I have also found that the plaintiffs have negatived the existence of a building scheme such that the defendants are not entitled to enforce the benefit of the Covenant. I will make the declaration sought by the plaintiffs.

86 I have also found that the discharge of the Covenant will not cause significant injury to RSG Land Group, the covenantee, because the covenantee maintains no interest in land in the area. Accordingly, I will make the orders sought by the plaintiffs discharging the Covenant.

[1] Each of the defendants filed written submissions which appeared to be identical in substance. For convenience, I have accordingly not distinguished between the individual defendant's submissions.

[2] Lots 32-46, 51-53, 60, 61, 78, 83 and 84 are shown marked red; Lots 163-168 on Plan of Subdivision 212778P are shown marked blue; and Lots 1 and 2 on Plan of Subdivision 300019G are shown in green.

[3] Fitt & Anor v Luxury Developments Pty Ltd [2000] VSC 258, [88].

[4] [1975] 2 NSWLR 623.

[6] (1961) 79 W.N. (N.S.W.) 759.

[7] [1963] S.R. (N.S.W.) 853; 80 W.N. 1550.

[8] (1964) 82 W.N. (Pt. 1) (N.S.W.) 293.

[9] (1965) 82 W.N. (Pt. 1) (N.S.W.) 427.

[10] [1967] 1 N.S.W.R 332.

[11] [1971] 1 N.S.W.L.R 164.

[12] [2018] VSC 759, [105].

[13] Ibid quoting Tulk v Moxhay (1848) 41 ER 1143.

[14] Re Pomroy [2021] VSC 739, [73]; Re EAPE (Holdings) Pty Ltd [2019] VSC 242, [9]; ROJ Property Group Pty Ltd & Anor v Eventpower Property Pty Ltd [2023] VSC 239, [5].

[15] [2019] VSC 668, [57].

[17] (1848) 41 ER 1143.

[18] Sharon Christensen and W Duncan, 'Is it Time for a National Review of the Torrens System? The Eccentric Position of Private Restrictive Covenants' (2005) 12 Australian Property Law Journal 104, 113-5.

[19] Adrian Bradbrook and Marcia Neave, Easements and Restrictive Covenants in Australia (2nd ed) (2000) [12.8].

[20] Susan French, 'Design Proposals for the New Restatement of the Law of Property Servitudes' (1988) 21 UC Davis L Rev 1213, 1215.

[22] Fitt & Anor v Luxury Developments Pty Ltd (n 3).

[25] Gillard J was no doubt drawing from the same three bases upon which a person might enforce a covenant as articulated by Lowe J in Re Arcade Hotels Pty Ltd [1962] VicRp 41; [1962] VR 274, 276.

[26] Randall v Uhl (n 15), [58]-63].

[27] Fitt & Anor v Luxury Developments Pty Ltd (n 3), [249]-[254].

[28] [1908] 2 Ch 374.

[29] Re Dennerstein [1963] VicRp 93; [1963] VR 688, 692 (Hudson J) ('Dennerstein'). The principles stated by Parker J have been cited with approval in many Australian cases, including Cobbold v Abraham [1933] ArgusLawRp 55; [1933] VLR 385, 391; Langdale v Sollas (1959) VR 637, 641; Cousin v Grant (1991) 103 FLR 236; Fitt v Luxury Developments Pty Ltd (n 3), [255]; Vrakas v Mills [2006] VSC 463, [28].

[31] Reid v Bickerstaff [1909] UKLawRpCh 73; [1909] 2 Ch 305, 323; Dennerstein (n 29), 693; Fitt v Luxury Developments Pty Ltd (n 3), [144].

[36] Re Dolphin's Conveyance [1970] Ch 654; Re Texaco Antilles Ltd v Kernochan [1973] AC 609; see Fitt v Luxury Developments Pty Ltd (n 3), [146].

[37] Fitt v Luxury Developments Pty Ltd (n 3), [146]-[148]; Vrakas v Mills (n 29), [29].

[38] Submissions filed by the first defendant on 12 April 2024 quoting Fitt v Luxury Developments Pty Ltd (n 3), 25 [144].

[39] [2020] HCA 39; (2020) 268 CLR 638.

[40] [2007] HCA 45; (2007) 233 CLR 528.

[41] Deguisa v Lynn (n 39) 661 [66] quoting Westfield Management Ltd v Perpetual Trustee Co Ltd (n 40), 531-532 [5].

[42] Westfield Management Ltd v Perpetual Trustee Co Ltd (n 40), 531-532 [5].

[43] Deguisa v Lynn (n 39), 663 [72].

[45] Randall v Uhl (n 15), [84]-[85].

[46] [2017] VSC 591.