PROPERTY - Restrictive covenant - Application to modify - Property Law Act 1958 (Vic) s 84(1)(c) - Modification sought to increase number of dwelling houses permitted on land - Burden on applicant to show that those with benefit of covenant will not be substantially injured - Oostemeyer v Powell

2 The plaintiffs are registered proprietors of the land, in their capacity as legal personal representatives of Giovanna Scicluna, deceased. Their solicitor deposes that they intend to sell the property with the restrictive covenant discharged or modified.[2] Their solicitor deposes that it was extremely urgent that the matter be finalised on 21 June 2017 because of issues concerning potential capital gains tax liability.

3 Orders were made on 21 June 2017, with a summary of reasons given in Court.

4 The restrictive covenant is contained in Instrument of Transfer No. A554128 dated 25 June 1958. It permits only one dwelling house to be erected on the land. The modification sought by the plaintiffs is to modify the restriction on construction from not 'more than one' dwelling house to construction of not 'more than three' dwelling houses.

5 The plaintiffs' application was opposed by Kevin and Dimmity O'Donnell. They jointly swore an affidavit on 5 June 2017. However, the O'Donnells do not have the benefit of the restrictive covenant and accordingly did not seek to be joined as defendants to the application. They were given leave to file an affidavit on limited terms by orders made on 1 June 2017. The terms related to their potential joinder as defendants. The affidavit addressed matters beyond that. Accordingly, their affidavit evidence has not been given any weight by the Court. There were no other objectors to the plaintiffs' application.

(a) affidavits of their solicitor, Mr David Anthony Natoli, sworn 2 December 2016, 26 May 2017, 31 May 2017, 19 June 2017 and 20 June 2017;

(b) affidavits of Andrew Robertson sworn 1 December 2016 and 26 May 2017, including Exhibit 'AR-1.1', being an expert planning report ('the Tract report'); and

(c) a letter dated 12 September 2016 from Feigl & Newell Pty Ltd, with annexures.

7 The written submissions of Mr Epstein of Counsel provided to Chambers on 20 June 2017 were considered, together with further oral submissions by Mr Epstein.

8 The plaintiffs rely on s 84(1)(c) of the Act. That provision grants the Court power to modify a covenant where it is satisfied that 'the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction'. The plaintiffs submit that this condition is satisfied. Their key submissions in support of the application are supported by the Tract report and are as follows:

(a) the land is large, at 1,546 square metres, with a long depth of 96 metres. It would normally be suited to a multi-dwelling environment in a metropolitan and local context;

(b) there is no evidence that modification of the restrictive covenant will expropriate the private rights of other land owners in the area;

(c) there have been no objections by beneficiaries;

(d) the properties which enjoy the benefit of the restrictive covenant are not nearby; the nearest is approximately 170 metres' 'walking distance' away;

(e) there are multiple developments in the area not dissimilar to the three dwellings proposed;

(f) existing planning controls should alleviate the Court's concern over the fact there is no evidence of what is proposed for the site if the restrictive covenant is modified;

(g) the land is appropriate for the development of two or more dwellings;

(h) beneficiaries may themselves wish to modify the restrictive covenants affecting their own land and then develop their own land; and

(i) the application is small and modest, bringing the maximum number of dwellings from one to three.

9 Section 84(1)(c) of the Act provides:

Power for Court to modify etc. restrictive covenants affecting land

(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....

10 I adopt the following summary of applicable principles outlined by Riordan J in Oostemeyer v Powell:[3]

1. The plaintiff only relies on s 84(1)(c) and therefore has the burden of proving, as a matter of fact, that the proposed discharge or modification will not substantially injure the relevant persons. This means that the plaintiff must prove the negative. As the person carrying the burden, the failure by a plaintiff to establish its plans with specificity may result in the Court not being satisfied that the conditions of the section have been fulfilled.
2. To determine whether persons, who are entitled to the benefit of the covenant, will not be substantially injured, the courts have established the following guiding principles:

(a) A substantial injury must be real and not a fanciful detriment. The requirement that the injury must be substantial was intended 'to preclude vexatious opposition cases where there is no genuineness or sincerity or bona fide opposition on any reasonable grounds'.

(b) The substantial injury relates to practical benefits, being any real benefits to the person entitled to the benefit of the covenant. It is not sufficient for a plaintiff to merely prove that there will be no appreciable decrease in the value of the property that has the benefit of the covenant.

(c) Substantial injury may consist of the order for modification of the covenant being 'used to support further applications resulting in further encroachment and in the long run the object sought when the covenant was imposed [being] completely defeated'. This consideration is referred to as the 'precedent value'.

(d) Whether there will be substantial injury is to be assessed by comparing:

(i) the benefits initially intended to be conferred and actually conferred by the covenant; and

(ii) the benefits, if any, which would remain after the covenant has been discharged or modified.

If the evidence establishes that the difference between the two will not be substantial, the plaintiff has established a case for the exercise of the court's discretion under s 84(1)(c).

1. In Prowse v Johnstone,[4] Cavanough J considered that, in assessing the benefits actually conferred by the covenant, the Court should have regard to 'the realistic probabilities of the plaintiff actually bringing about the "worst" that could be done under the existing covenant.' His Honour was also prepared to 'assume, without deciding' that in assessing the benefits which would remain, if the covenant is removed or modified, the Court could consider the protections afforded to neighbouring properties by statutory planning provisions. In my opinion, it is relevant to consider evidence of statutory planning provisions to the extent it shows what realistically will be the result of the removal or modification of the covenant because 'it would be artificial and wrong to pay no heed at all to the reality of the situation'.
2. In considering whether the plaintiff has satisfied the Court that there will not be substantial injury:

(a) town planning principles are not to be taken into account;

(b) the absence of objectors to the discharge or modification of a covenant will not, in itself, necessarily satisfy the onus of proof; and

(c) each case must be decided on its own facts; and each covenant should be construed on its own terms and having regard to the particular context in which it was created.

1. If the plaintiff satisfies the Court that there will not be a substantial injury to the relevant persons, the Court has a residual discretion to refuse the application. In the exercise of its discretion, the court may take into account town planning principles and the precedent value.

1. In my opinion, the purpose of the imposition of the single dwelling covenant in this case is substantially identical to that found to be the purpose in respect of similar single dwelling covenants in previous applications under s 84(1)(c) of the Act being:

(a) to ensure for its beneficiaries a 'reasonable density of population giving a reasonably quiet residential atmosphere, attractive in that it would provide a tranquil, quiet existence';

(b) to prevent the erection on the subject land of more than one dwelling house, and 'thereby to preserve the area in question as an area of spacious homes and gardens'; and

(c) 'the maintenance of reduced population numbers in the area'.

11 The plaintiffs have not provided any plans with specificity. This is unsurprising, as they seek the modification in order to sell the property. Nevertheless, as Riordan J stated in Oostemeyer, they have the burden of proving, as a matter of fact, that the proposed discharge will not substantially injure the relevant persons. That is, those with the benefit of the restrictive covenant. They must prove the negative.

12 In my view, they have failed to do so. The absence of objectors does not vitiate this conclusion. Nor does the fact that the land size is large with considerable depth, that the Tract report identifies the land as suitable for development, or that the plaintiffs are seeking to build up to three dwelling houses.

13 Without any plans with specificity, I do not accept the conclusion in the Tract report that there can be no substantial injury if the modification is made.

14 Indeed, if the land is modified, those with the benefit of the restrictive covenant may be injured, in the future, by the precedent created by the modification. There is no evidence to suggest anything other than the restrictive covenant remaining largely intact and unmodified on affected land, so that beneficiaries being able to enjoy its benefits. I do not accept the plaintiffs' submission that the Court can rely upon planning controls or zoning to ensure that there is no substantial injury in modification of the restrictive covenant. The burden of proof lies with the plaintiffs.

15 There is no evidence to support the plaintiffs' contention that those with the benefit of the restrictive covenant may be looking to the development potential of their land.

16 I do not accept that the distance of other properties with the benefit of the restrictive covenant means that they are unlikely to be substantially injured. Those properties are within the neighbourhood. I observe also with some concern, although it is not determinative, the reference to calculating distances by 'walking distance' rather than simply by 'distance'. It makes properties appear to be a further distance than they actually are.

17 Orders have been made dismissing the plaintiffs' application.

[1] More particularly described in Certificate of Title Volume 8285 Folio 503.

[2] Affidavit of David Anthony Natoli sworn 20 June 2017.

[3] [2016] VSC 491, [47]-[51], [53] (citations omitted).

[4] [2012] VSC 4.