Re Djurovic [2010] VSC 348 (17 August 2010)

2 One of the encumbrances noted on the applicants' title is covenant 1731111. The applicants' land (Lot 58) together with adjoining Lots 59 and 60 was transferred on 2 May 1939 to the applicants' predecessors in title and contained the following restrictive covenant (with my added underlining to show the relevant part) -

... COVENANT with the [transferor] and its successors and transferees registered proprietor or proprietors for the time being of the balance of the land comprised in the [parent title] that she or they will not at any time hereafter excavate dig carry away or permit to be excavated dug carried away or removed any earth clay gravel stone or sand from any of the said Lots hereby transferred except for the purpose of excavating for the foundations of any building or buildings to be erected on any of the said Lots or for the purpose of constructing entrances to any of the said Lots AND that the said Lots hereby transferred shall not be used for any purposes other than for residential purposes and that not more than one messuage or dwelling house with suitable outhouses shall at any time be erected on any of the said Lots hereby transferred ...

3 Out of the 178 original lots on the parent title, there are 57 original lots which have the benefit of that covenant.

4 The applicants wish to subdivide the land into two lots and construct one dwelling on each lot. The land is rectangular and has an area of approximately 1010 square metres. Their indicative plan of subdivision proposes that both subdivided lots would have an equal area of 505 square metres. I have attached to this judgment one sheet (out of four) of the plan of subdivision showing the applicants' Lot 58 and the immediate surrounds. The plan shows that Lot 58 has a street frontage on Liddesdale Avenue as well as Thames Street. There is an existing crossover on each frontage. The width of the street frontage is about the same as many of the blocks throughout both plans of subdivision.

5 The applicants now apply under s 84(1) of they Property Law Act to discharge the restrictive covenant as shown above. Alternatively, they seek a modification by replacing the expression "one messuage or dwelling house" with "two dwelling houses". The applicants rely upon each of the disjunctive grounds in s 84(1) (a) or (b) or (c). Relying on the report and opinion of an experienced town planning consultant, Robert Easton, they contend that the characteristics of the neighbourhood have altered substantially since 1939 to the extent that the restriction ought to be deemed obsolete. They also contend that it would be a reasonable and proper use of the land to enable it to be developed with up to two dwellings and that there is no practical benefit to other persons to be secured by the retention of the covenant. They also say that discharge or modification of the restrictive covenant will not substantially injury the persons entitled to the benefit of it.

6 Mr Easton's report informs that before 12 December 2000, properties that were encumbered by a restrictive covenant were able to obtain a planning permit from the responsible authority without the need to discharge or modify the covenant. Subsequent amendments to the Planning and Environment Act compelled the responsible authority to refuse to grant a permit unless a decision was made for the removal or variation of the covenant. This means that applications such as this are brought in the absence of specific development plans. But it also means that a discharge or variation of a covenant is only the first step for a land owner. The proposal is still subject to the requirements of the applicable planning scheme and the scrutiny of the planning process, including an evaluation of the suitability proposal and its effect on the amenity of the area, and the hearing of any objections.

7 In accordance with the usual legal process, on 11 June 2010 I ordered that notice of this application be published by advertisement, and that notice of the application be given to certain land owners and mortgagees in the near vicinity who have the benefit of the covenant. I identified seven lots of land which I regarded as most immediately affected by the application. By reference to the attached plan, they are Lots 57 (next door) and Lots 85 to 90.

8 On 23 July 2010, a Mr Eric Belcher, the owner and occupier of 12 Thames Street, Frankston South (Lot 90), appeared and addressed the Court. He is a senior citizen, and has lived there since 1957. He did not wish to be added as a party, but over Ms Harrison's objection, I allowed him to state his concerns. He conducted himself with decorum and in good faith. In essence, he said (and it was apparent) that he had nothing personal against the applicants, but was concerned about the prospect of increasing housing density in a neighbourhood which he adores and regards as a beautiful and most pleasing place to live. He is concerned that if this application is allowed then others may follow and the grant of the application would be the "thin end of the wedge." This is a not uncommon lament, and what he had to say was sincere.

9 But Mr Belchar did not wish to address the factual considerations that I am required to consider under s 84 (1) of the Property Law Act. His address to the Court however did give me pause to consider carefully the work and opinion of the applicants' town planning consultant. I was particularly concerned to re-examine the materials to see if it truly could be said, under s 84(1)(a) that there had been changes in the character of the neighbourhood or other circumstances which made the restrictive covenant obsolete. For that reason, even though this application was unopposed, I adjourned the matter for further argument to 10 August 2010.

10 Despite a submission to the contrary, I have proceeded on the basis that even though there were no objectors who were parties to this proceeding that does not necessarily mean that s 84(1)(b) has been satisfied. That sub-section permits me to discharge or modify the restrictive covenant if the persons entitled to the benefit of the restriction "have agreed either expressly or by implication by their acts or omissions to the same being discharged or modified."

11 In non legal terms, a restrictive covenant is a promise made privately between land owners about land usage. It could well be said that the absence of any of the immediately affected covenantees in Court to object to the application means that they have by implication agreed to have the covenant discharged or modified. Applications of this kind are frequently made in this Court and the absence of objectors in most of them creates a natural inclination to allow the application especially if, as here, there is an expert opinion in support of the application. But in this case, I would say three things.

12 First, I take leave to doubt whether the absence of any objectors means necessarily that the convenantees have "agreed". For one thing, as a matter of expedience, not all covenantees have been served with this application. Absence of those served may mean no more than the objector neither agrees nor disagrees, or does not care, and wishes to leave it to the Court to decide.

13 Secondly, courts have generally approached these applications with caution, so it was observed by Morris J in Stanhill v Jackson[1]. However, in that case, his Honour thought that Courts in the past had been influenced, pointlessly so in the light of compensation provisions, by a view that the statute ought not enable a person to expropriate the private right of another purely for his own profit. His Honour regarded the section as not calling for a narrow interpretation. And of course, there is the sense that an expanding population, greater housing needs, and rising prices makes the phenomenon of land subdivision a necessity, or at least a reasonable use of land by a landowner. So if there is no objection, why should not a Court just approve? For my part, the Court should not be seen as applying unthinkingly a processor's rubber stamp. It does not usually happen in the way that it has in this case, but the Court has been aroused to ensure that either the ground in (a) or (c) is properly made out despite the absence of objectors as parties.

14 Thirdly, the Court is not bound by the opinion of a town planning consultant. I do not for one moment suggest that Mr Easton lacks the knowledge, credentials or the experience to give an opinion on matters required under the statute. It is to the contrary. But in this case, there are features which led me to want to be satisfied about the facts underlying Mr Easton's opinion.

15 With that approach, here are my conclusions. Under s 84(1)(a), I am afraid to say I am not satisfied that there have been changes in the character of the property or the neighbourhood, or other circumstances, which make this covenant obsolete. Nor am I satisfied that the continual existence of the covenant would impede the reasonable user of the land without creating practical benefits to other persons. But, I have been persuaded by Ms Harrison, aided by Mr Easton's opinion, that under s 84(1)(c), the proposed discharge or modification will not substantially injure the persons entitled to the benefit of the restriction. Rather than discharge the restrictive covenant I would vary it to permit the construction of two dwelling houses, one facing Liddesdale Avenue and the other facing Thames Street so that each dwelling will have a street frontage.

17 The covenant says where relevant "that not more than one messuage or dwelling house with suitable outhouses shall at any time be erected". Mr Easton says that the term messuage is not defined or used in current planning control. It has a dictionary definition of being a dwelling with its outbuildings and the surrounding land that is used by the dwelling's occupants. The word dwelling house has been interpreted as meaning a building in which there is more than one residential unit depending upon the layout and structure of the building: Natraine Nominees Pty Ltd v Patton.[2] Each case turns on its own facts but according to the authorities in this Court, a dwelling could be a hostel or boarding house: see Downie v Lockwood[3] and Re Longo Investments[4]

18 I agree with Mr Easton that the expression "one messuage or dwelling house with suitable outhouses" does not suggest that any particular style or messuage or dwelling house is preferred, or that the occupancy of such dwelling house is to be restricted. Nor he says, and I agree, is there any control on the size of any dwelling house under this covenant. Thus, as things stand, and subject to planning controls, the applicants may build a substantial or imposing home or other dwelling on the block, perhaps not in keeping with the appearance and size of other homes in the area, or the natural surrounds or milieu of the area, and which gives their neighbours no aesthetic pleasure.

19 Mr Easton says that the "neighbourhood" has experienced changes. One would expect changes to some degree since 1939 in an area which I think can now be regarded as part of outer metropolitan Melbourne. He regards the neighbourhood as being the whole area on the parent title and gives 19 instances where there have been subdivisions, or a change of orientation of the lots, or an alteration of the boundary between the lots. I will not refer to these in detail, but shall mention those that attract attention.

20 Lot 62, a slightly bigger block, which is five lots to the east of the applicants' land, has been subdivided into two lots each with a separate dwelling. This is the only example I can see of a regular block being split in two, with a dwelling on each part as is proposed by the applicants. On 23 April 1990 this Court gave its approval to the discharge of an identical restrictive covenant to enable that subdivision to occur. The Court order shows that that application was unopposed, and the Court was satisfied that the covenant would "impede the reasonable user of the land without securing practical benefits to other persons " under s 84(1)(a).

21 Lots 55 and 56 to the west are two large looking blocks which have been subdivided so as to create a third lot the smallest of which is 491 square metres.

22 Then, further up Liddesdale Avenue, Lots 70 and 71 (not shown on the attached plan) have been re-subdivided to create an additional narrow lot which became part of Lot 69.

23 The other subdivisions or changes to boundaries appear to me to be at the outer eastern and north western area of the parent title.

24 Apart from Lot 62, there is not in the nearby vicinity of the applicants' land an example where a block has been subdivided so as to have two dwellings on it. In other situations where boundaries have been re-drawn, there is no instance where a piece of land has been divided into two to enable two separate dwellings on it. Thus, as I said in argument, this area of Frankston South seems unlike other areas of metropolitan Melbourne where there is widespread subdivision, dual occupancy or multi unit developments in response to urban housing needs or property development activity.

25 The identification of the neighbourhood is a question of fact, and a general rule is difficult to conceive.[5] Authors in the field say that "Australian Courts often select a particular area as the relevant neighbourhood for the purpose of the application without explaining why the selection has been made": see Bradbrook and Neave, Easements and Restrictive Covenants in Australia. [6] I do not think this need be an issue in this case. Whether one regards the neighbourhood as being the greater area of the parent title or the immediate vicinity of the applicants' land, as I examine the plans of subdivision and the alteration of boundaries since 1939, I do not see change in this neighbourhood to a degree suggest that this restriction ought to be deemed obsolete.

26 Obsolete strikes me as a strong word with a good modern usage. Some cases have viewed the word in the present context as meaning the original purpose of the covenant could no longer be fulfilled: see Chatsworth Estates v Fewell[7] and Re Robinson[8]. More recently, Morris J in Stanhill took a different view and construed the word obsolete as carrying its ordinary meaning as outmoded or out of date, and not meaning that the obsolete thing is no longer suitable for its original purpose.[9]

27 Even on the Stanhill view, I could not be satisfied on the facts that this covenant was out of date if the basis for the application of that view was the extent of other subdivisions, or other subdivisions of the particular type as proposed by the applicants, in this neighbourhood. In my view, the changes under s 84(1)(a) leading to a conclusion of obsolescence have to be real and substantial or significant. I accept the statute does not include those words (whereas sub section (c) has the phrase "substantially injure") but I think the connotation of "obsolete" requires naturally such a qualitative measure of change. If there are not sufficient changes in the neighbourhood and the covenant continues to have any value for the purposes of those entitled to the benefit, then it truly cannot be said to be an obsolete covenant. There have been some real changes in this neighbourhood in the sense of actual changes, but I do not evaluate them as substantial or significant. These things involve a judgment call.

28 To the same effect, I would interpret and apply the same facts to the expression "impede the reasonable user" in sub section (a) to be connected to the original purpose of the covenant. Although the question is not settled, I proceed on the basis that the first part of s 48(1)(a) up to "obsolete" is not a precondition of the second part concerning reasonable user. One asks: does the covenant hinder the land being used having regard to the surrounding area and the purposes of the covenant? It is not enough that the covenant gets in the way of the owner doing what he wants to do with the land. Rather, it is necessary to show that no reasonable use of the land is possible unless the restriction is extinguished or modified: see generally Bradbrook and Neave, Easements and Restrictive Covenants.[10]

29 Turning to s 84(1)(c) the question is whether the proposed discharge of modification "will not substantially injure" the covenantees. In Stanhill Pty Ltd v Jackson,[11] Morris J interpreted that provision in this way:

In my opinion, the language used in para (c) does not require a case to be made that the proposed discharge or modification of a restriction will not harm the persons entitled to the benefit of the restriction. The hurdle is not this high. Rather, it is sufficient to show that the proposed discharge or modification will not cause harm to the persons entitled to the benefit of the restriction which could be regarded as being of real significance or importance. This will require a judgment call in the particular circumstances being considered; it does not permit some universal answer based upon the attitude of the beneficiary, the original purpose of the covenant or any other similar factor.

30 His Honour went on to make the point, valid here I think, that something like a single dwelling covenant may provide the covenantee with a practical benefit (such as peace and quiet) , yet the discharge of the covenant may not involve a substantial injury to the covenantee. And this is how Ms Harrison puts her case here. She says, and there is support for this from Mr Easton's opinion, that the planning controls that apply to this part of Frankston are far more stringent than the covenant itself. Removal of the covenant will not change the operation of the overlay controls that apply in this area. He says that -

(a) when subdivided, both lots would have an area of 505 square metres which is substantial;

(b) each dwelling would have a separate frontage, that is one frontage to Liddesdale Avenue and another frontage to Thames Street, thus, there is no aesthetic alteration to the streetscape and the frontage is the same as adjoining lots;

(c) the topography of the land is such that two dwellings would be less imposing than one monolithic construction, and reduce the visual impact;

(d) the subdivision of Lot 58 into two lots will give it a block-to-street configuration similar to, albeit smaller than, all lots to the west of this area in plan of subdivision 12937;

(e) Thames Street is wide, and the impact will be minimal

31 In assessing whether there will be substantial injury, the task is to compare the benefits intended to be conferred under the covenant with the resultant benefits, if any, after the covenant has been modified; and if it there is no detrimental difference that is substantial, then the applicants will have established a case for the exercise of the Courts discretion. That was the approach of Gillard J in Re Cooke[12] and since applied by other Judges of this Court: see Stanhill [13]; Re Longo Investments Pty Ltd [14] and Re Milbex Pty Ltd [15]

32 The above facts or features of the area satisfy me that a variation of the covenant in the way I propose will not substantially injure the covenantees. This land has been vacant for some time and I think it right to say that the proposal is modest. The course I have in mind and one thing which I am told the applicants will agree is to vary this covenant so as to permit the construction of two dwellings but that one dwelling must face or have a street frontage on Liddesdale Avenue (where there is an existing cross over) and the other dwelling must face south and have a street frontage to Thames Street (where there is an existing cross over).

33 I would ask counsel to bring in proposed orders for me to sign giving effect to these reasons.

I certify that the 9 preceding pages and the attached plan are a true copy of the judgment of the Honourable Associate Justice Mukhtar of the Supreme Court of Victoria delivered on 17 August 2010.

[1] [2005] VSC 169 at [9]

[2] [2000]VSC 303 at [11] to [21].

[3] [1965] VicRp 38; [1965] VR 257.

[4] [2003] VSC 37.

[5] See Re Miscambles' Application [1966] VicRp 81; [1966] VR 596.

[8] [1972] VicRp 28; [1972] VR 278.

[11] [2005] VSC 169 at [37].

[12] [1964] VicRp 106; (1964) VR 808.

[13] [2005] VSC 169.

[14] [2003] VSC 37 (Osborn J).

[15] [2006] VSC 298 (Byrne J)