Sumervale Pty Ltd v Viva Energy Refining Pty Ltd [2024] VSCA 140

REAL PROPERTY - Restrictive covenants - Application for leave to appeal - Where respondent applied for discharge or modification of covenants - Where judge discharged covenants under s 84(1)(c) of the Property Law Act 1958 - Whether judge erred in assessment of substantial injury to applicants - No error in consideration of injury with respect to intended benefits of restrictions - Whether judge erred in identification of restrictions' purpose - No error shown - Whether judge erred in having regard to other restrictive covenants - Reference to other covenants in aid of assessment of substantial injury and not construing covenants - Leave to appeal granted - Appeal dismissed.

Sumervale Pty Ltd v Viva Energy Refining Pty Ltd [2024] VSCA 140 | Case summary | Zoe

[15]

I PERCY HAGUE HOLDEN of 28 Latrobe Terrace Geelong in the County of Grant Sub-Inspector of Customs being registered as the proprietor of an estate in fee simple in the land hereinafter described subject to the encumbrances notified hereunder in consideration of the sum of Five hundred pounds paid to me by DUNCAN INNES McQUEEN of Corio near Geelong Dealer DO HEREBY transfer to the said Duncan Innes McQueen All my Estate and interest ALL THAT piece of land being Lots seventy four and seventy five on Plan of Subdivision Number 12708 lodged in the Office of Titles and being part of Crown Portion eighty three at Cowies Creek Parish of Moranghurk County of Grant and being part of the land more particularly described in Certificate of Title entered in the Register Book Volume 5221 Folio 1044122 AND the said Duncan Innes McQueen with the intent that the benefit of this covenant shall be attached to and run at law and in equity with the other lots excepting Lots numbered one hundred and fifty four and one hundred and seventy five to one hundred and eighty six (inclusive) on the said Plan of Subdivision and on Plans of Subdivision Numbers 12706 and 12707 and that the burden of this covenant shall be annexed to and run at law and in equity with each of the said Lots hereby transferred DOTH HEREBY for himself and his heirs executors administrators and transferees COVENANT with the said Percy Hague Holden his heirs executors administrators and transferees registered proprietor or proprietors for the time being of so much of the land described in the said Certificate of Title and in Certificate of Title Volume 4090 Folio 817834 as comprises the whole of the Lots excepting the said lots one hundred and fifty four and one hundred and seventy five to one hundred and eighty six (inclusive) on the said Plan of Subdivision and Plans of Subdivision Numbers 12706 and 12707 (other than the said lots hereby transferred) that he the said Duncan Innes McQueen his heirs executors administrators and transferees will not at any time erect or construct or allow to be erected or constructed more than one dwelling house upon each of the said lots hereby transferred which dwelling house together with any outbuildings and fences appurtenant thereto shall cost not less than the sum of Six hundred pounds AND will not at any time excavate or remove or permit or suffer to be excavated or removed from each of the said Lots hereby transferred any soil or other material except such as building construction or the laying out of a garden may necessitate AND will not at any time erect or build or cause to be erected or built on each of the said Lots or any part thereof any building other than a dwelling house, church, school or hall and outbuildings thereto respectively and will not carry on or permit or suffer to be carried on upon the said Lots or any part thereof any trade or business whatsoever.[6]

[26]

The judge considered that the assessment of substantial injury relates to practical benefits enjoyed by the beneficiaries of the Covenants, and whether there is substantial injury must be assessed by comparing the benefits initially intended to be conferred and actually conferred by the Covenants with the benefits, if any, that would remain after the Covenants have been discharged or modified. If the difference between the two will not be substantial, then the applicant has established a case for the exercise of the Court's jurisdiction under s 84(1)(c).[16]
Her Honour considered that the difference between the parties' positions raised the question of whether the Court must look at the Covenants as a whole to discern their purpose, or whether the Court must look solely at the restrictions contained in the Covenants themselves.[17] The judge preferred the respondent's view, finding that it is necessary to have regard to the purpose of the Covenants as part of assessing the benefits initially intended to be conferred and actually conferred.[18]
The judge then turned to consider the purpose and benefits of the Covenants. She concluded that the purpose of the Covenants was 'to create a residential neighbourhood of low density, quality, and residential amenity'.[19] Consistent with that purpose, her Honour considered that the purpose of the restrictions on use (no trade or business) and types of buildings (only dwellings, schools, churches or halls and outbuildings thereto) was to ensure the residential amenity of the neighbourhood.[20]
By contrast, the judge did not consider that the intention of the Covenants was to confer a benefit of not having a trade or business conducted on the Land that competed commercially with businesses operating on benefitting land.[21] In reaching that conclusion, her Honour had regard to the fact that, when the Covenants were created, there was a network of covenants in the neighbourhood in similar (if not identical) terms so that the land of beneficiaries of the Covenant was subject to similar restrictions, which indicated in turn that the purpose of the 'no trade or business' restriction was to protect the residential amenity of the neighbourhood.[22]
The judge further observed that the benefits of a residential neighbourhood had not actually been conferred on beneficiaries because the neighbourhood was never developed as a residential neighbourhood. As a result of the discharge of many of the similar covenants burdening other land in the neighbourhood (including the applicants' land), the neighbourhood is not residential at all.[23] The judge observed that she was not using other covenants to construe the terms of the Covenants, but rather using the fact of their discharge or modification to aid in the consideration of whether the initially intended benefits remained.[24]
As a result, the judge concluded that the applicants did not continue to enjoy the benefits of the Covenants and, indeed, never enjoyed the benefits of the Covenants.[25] It was not to the point that the applicants experienced a practical benefit from not having a commercial competitor operating a service station on the Land (which evidence the judge accepted) because that was not a practical benefit intended to be conferred by the Covenants.[26]
Consequently, her Honour found that, comparing the benefits initially intended to be conferred and actually conferred by the Covenants with the benefits that would remain after the Covenants had been discharged or modified, the applicants would not suffer substantial injury.[27] She did not consider the case to give rise to any precedential effect because the precedent of discharging or modifying like covenants so as to enable commercial and industrial development had already occurred.[28]
Finally, the judge was satisfied that there was no reason to refuse to exercise the discretion to discharge the Covenants given her finding that it would have no precedential effect, that the evidence overwhelmingly established that the purpose of the Covenants had not been achieved, and that there was otherwise no reason not to exercise the discretion.[29]
Consequently, the judge exercised the discretion to discharge the Covenants.

[39]

The answer to these questions lies, in the first instance, in the construction of s 84(1)(c). It is necessary, therefore, to turn to the text of the provision, considered in light of its context and purpose, before considering the authorities that have examined it.
Obviously, before s 84(1)(c) can be engaged, it is necessary that there be a restrictive covenant affecting land. The requirement that a restrictive covenant benefit land is an important limitation on the scope of a covenant and serves to distinguish between a restrictive covenant that confers a proprietary entitlement and a personal covenant that does not run with land. In this respect, a rough distinction may be drawn between a covenant benefitting land and a covenant merely benefitting the owner of the land.
It will generally be possible to discern from the text of a restrictive covenant its purpose and intent. That is, it will be apparent from the text how the covenant affects the burdened land and the reason why it was imposed will also usually be obvious. Commonly, a restrictive covenant was imposed as an incipient form of planning control to regulate future development with an aim to preserve the use, character or amenity of the benefitted land and its surrounds.[42]
Although less common, and perhaps somewhat controversial, restrictive covenants on land have also been used to protect commercial interests by preventing competitors setting up on the burdened land. In Quadramain Pty Ltd v Sevastapol Investments Pty Ltd, a majority of the High Court concluded that the doctrine of restraint of trade did not apply to a restrictive covenant that runs with the land.[43] In that case, the owner of adjoining parcels of land transferred one lot subject to a restrictive covenant that the land would not be the subject of an application for a liquor licence. A hotel was conducted on the remaining land. In dissent, Jacobs J explored the boundary between a personal covenant for the purpose of benefitting a business and a covenant touching land and imposed for the benefit of, and with the effect that it would run with, the land.[44]
Although the two types of covenant may be in similar form in that, for example, each may restrict or prohibit trade on the burdened land, they have a different purpose and are designed to bring about a different benefit. Thus a covenant prohibiting any trade on the burdened land might be imposed in pursuit of a desire to retain a residential amenity, or it might be imposed for the purpose of protecting the trade carried out on the benefitted land.
As the applicants accept, the purpose of a covenant may be relevant to the ascertainment of its meaning.[45] The search for purpose or intent is subject to the limiting principle, which derives from the indefeasibility of registered instruments, that the title is an 'accurate and comprehensive statement of the state of the title to that land, as to both the title of the registered owner and the interests of others in that land' and a person dealing with the registered proprietor is entitled to rely on the title and interests notified on it without recourse to other extrinsic material.[46]
The principles to be applied in construing restrictive covenants were explained by this Court in Jeshing in the following way:

[41]

It follows that s 84(1) is predicated on the existence of a restrictive covenant on title and that it is necessary to construe the covenant, including if necessary having regard to its purpose, before turning to the operation of s 84(1). Purpose in this sense is objectively determined and fixed. The purpose of the covenant does not change over time with changes in land use or other variables but, as with a contract or deed, represents the objectively ascertained intent of the parties on the making of the covenant.
Once the relevant restriction is identified, s 84(1)(c) directs attention to whether the proposed modification or removal will 'substantially injure' the persons entitled to the benefit of the restriction. On the literal construction contended for by the applicants, the negative proposition within s 84(1)(c) is satisfied here because the applicants are entitled to the benefit of the Covenants (and each of their clauses) and, if those clauses are discharged from the title, the applicants will be substantially worse off because it would enable a competitor to operate from the Land. Indeed, the applicants point to the findings of the judge and the agreed summary in this Court as irrefutably establishing that the discharge of the Covenants would enable another competitor to operate and thereby lower the profits of the applicants' service station business and, as a result, reduce the market value of a lease of that land as well as the market value of the land itself.
The word 'injure' and its cognate 'injury' will take their meaning having regard to the context in which they are used. The word 'injure' in its ordinary sense means to cause harm of any kind to or to damage, hurt or impair and is apt to extend to any deleterious consequence sustained. As already noted, an important aspect of the context is that a restrictive covenant touches or concerns land, and its purpose will relate to the use and enjoyment of land. For that reason, the context strongly suggests that the relevant injury must be related to the use and enjoyment of the affected person's property.
In perhaps every case, the restrictive covenant will have been imposed to enhance or protect land. It might enhance the amenity of the land by preventing overcrowding of a lot or overlooking onto the benefitted land, or by limiting the use to which the land can be put. Such enhancement may or may not increase the value of the benefitted land in a given case and its removal may not be easily accounted for in monetary terms. The implicit premise, that a covenant will entail a favourable consequence for the remaining land, is reinforced by the notion of the 'benefit of the restriction' which is found in s 84(1)(c).
It is significant that s 84(1)(c) hinges on the existence of a substantial injury and not merely the loss of the benefit of the restriction. The concept of injury connotes some harm or detriment and its use in the subsection suggests that is not the same thing as the loss of the benefit of the restriction itself. Rather, it is something that arises as a consequence of the loss of the benefit of the covenant. In other words, it would be fallacious reasoning to say that, because the person has the benefit of the covenant and by reason of the modification or discharge the person will lose that benefit, they must thereby suffer an injury. It follows that a person entitled to the benefit of the restriction may lose that benefit yet not sustain an injury. On the other hand, because of the variable nature of the benefit and its relationship to the use of land, being something whose value is not easily measured in money, there is no reason to construe injury as being limited to an economic loss such as the loss of value of the land. A wide variety of tangible and intangible potential injuries are encompassed by the expression 'substantial injury' in s 84(1)(c).[48]
The distinction between benefit and injury is reinforced by the use of the word 'entitled' in the phrase 'persons entitled to the benefit of the restriction'. The concept of entitlement serves to identify the person who, by reason of title, stands to benefit from the covenant. Satisfying that aspect does not necessarily say anything about the practical benefit of the restriction or whether, at the time of an application under s 84(1)(c), the person enjoys any particular advantage by reason of the subsistence of the restriction. For example, the intended benefits that animated the imposition of the covenant in the first place may be immaterial to a later title holder. That may be so for a variety of reasons, including a change in land use or regulation or a change in use by the title holder.
The textual distinction between injury and the loss of the benefit of the restriction also directs attention to the practical consequences that the removal or modification of the restriction might produce. The need for an up-to-date practical inquiry about injury is unsurprising in the context of covenants which run with the land and bind succussive title holders, potentially over generations.
The concepts of injury and benefit are different but related. The injury with which s 84(1)(c) is concerned is injury that would be caused by removal or modification of the restriction. Since the relevant injury is one that arises as a consequence of the loss of the benefit, the logic of the section requires some connection, justifying the retention of the restriction, between the covenant and the injury.
In our view, a consequential or causal connection is not enough. A covenant confers a proprietary right to prevent the particular use of the burdened land for the benefit of the title holder of the benefitted land. In looking at whether the person will be harmed by its modification or removal, it is necessary to determine the nature of the benefit the restriction was designed to confer, and whether the injury is one that the restriction was intended to protect. Section 84(1)(c) does not prevent the removal of a restriction where the injury is unrelated to its intended benefit. To construe the section in that way would produce an entirely adventitious benefit and have the effect of extending the covenant to a circumstance that was never in contemplation. It would give an operation or effect that the covenant, properly construed, was not intended to have.
Moreover, to construe the concept of injury as tantamount to the loss of any benefit still being enjoyed would, in effect, compel the refusal of an application unless the restriction was obsolete. Given the application of s 84(1)(a) in cases of obsolescence, that construction would leave s 84(1)(c) with very little, if any, work to do. This is unlikely to have been intended. It is noteworthy that, in relation to s 84(1)(a), Eames J in Greenwood concluded that a covenant will not be obsolete if it produces a practical benefit even if the purpose for which it was designed has become obsolete.[49] It is unnecessary to decide whether that is correct for the purposes of this case. But assuming it is correct, it tends to suggest a very substantial, if not complete, overlap between the circumstances in which paragraphs (a) and (c) would apply, so that the applicants' construction would largely deprive paragraph (c) of any distinct operation.
Contrary to the submission of the applicants, using the purpose of the covenant as a means of limiting the scope of a relevant injury for the purpose of s 84(1)(c) does not offend the Torrens system. Nor does it require a departure from the plain and ordinary words of the covenant. As the applicants accepted, purpose is a legitimate tool in the construction of covenants,[50] and it does no further violence to use the ascertained purpose to identify an injury for the purpose of removing a restriction. Purpose is not subjective, and can only be discerned by reference to the text of the covenant having regard to the title and other instruments referred to in the title.[51]
For these reasons, the purpose of the covenant constrains the kind of injury that might be occasioned by the modification or removal of the restriction. That construction produces a more harmonious result between the restriction and its purpose and the power of the Court to order its modification or removal based on substantial injury.

[42]

None of the relevant authorities suggest a different construction of s 84(1)(c).
Some time was spent in argument debating whether, in the passage from Re Cook[52] extracted at paragraph 35 above, Gillard J was intending to refer cumulatively or disjunctively to benefits, namely those intended to be conferred and those actually conferred. As already observed, the applicants say that his Honour was referring to two kinds of benefits and that an injury may arise from the loss of a benefit actually conferred even if it was not an intended benefit. We do not accept that submission.
The covenant considered in Re Cook was imposed in the context of a subdivision and provided that only one dwelling could be erected on each lot. Justice Gillard discerned the 'object of the subdivider' who had imposed the restriction as reducing, if not overcoming, 'the monotony of a symmetrical and even subdivision on a grid plan' and providing area and space to the smaller allotments, giving the whole area 'grace and an air of expansiveness'.[53] The judge held that, if they were the objects of the subdivision and of the restrictive covenant, they would be completely lost by the further subdivision of the relevant lot. His Honour went on to say that, even without regard to the subjective intention of the subdivider, the object or purpose of having a large allotment would be defeated if the applicant were permitted to divide the lot into two. It is tolerably clear that Gillard J made the comparison between the existing benefit and that which would subsist if the covenant were removed by reference to the intended benefit, objectively discerned, of the covenant. He was not directing himself to a benefit that was not in contemplation at the time the covenant was made. The decision provides no support for the applicants' case.
Re Robinson concerned an application under s 84(1)(a) of the Property Law Act.[54] An issue arose as to whether the continued existence of a restriction in the negative covenant requiring no building other than a private dwelling house to be erected would secure 'practical benefits' to other persons. Justice Adam relevantly concluded that a person may derive a practical benefit from a right to the preservation of amenities, and that that benefit may manifest in, for example, the habits of birds to frequent the area and the prevention of litter and noise.[55] The applicants contend that Adam J's reasoning supports their view of the substantial injury test since, although these benefits might not have been the intended purpose of the single dwelling house restriction, they were accepted nonetheless as benefits actually conferred.
Although Re Robinson concerned an application under s 84(1)(a), the applicants contend that it is relevant for present purposes given that this Court has elsewhere observed that the inquiry as to practical benefits under s 84(1)(a) is similar to the substantial injury test under s 84(1)(c).[56] However, it does not support the applicants' submission. It is clear that the benefits to the objectors associated with wildlife, litter and noise considered in Re Robinson were simply particular aspects of (or incidental to) the broader benefit of preserving the residential amenity of the area. It was not a case in which there was any unintended but actual benefit conferred by the restrictive covenant.
In Re Stani, this Court considered an application to discharge or modify a restrictive covenant preventing the erection of more than one dwelling house. The purpose of that restriction was to assure limited density of population and protection from the detrimental effect of increased density.[57] However, it is another case in which there was no divergence between the intended and actual benefit conferred by the covenant: limiting the burdens of garbage collection, traffic density, noise level and crowd gathering[58] - broadly speaking, improvements to residents' 'quality of living'[59] - were all particular examples of the benefits of limited population density, the provision of which being the intended purpose of the covenant. Contrary to the applicants' submission, reducing the prospect of 'further applications of a similar nature'[60] if the restriction of the covenant were relaxed was not a practical benefit for its own sake, but rather because it would prevent 'in the long run the object sought when the covenant was imposed [being] completely defeated'.[61]
Heaton v Loblay concerned a restrictive covenant that prevented the erection of a balcony on the burdened land.[62] Justice Myers refused an application to modify or remove the restriction. The judge held that the removal of the restriction would substantially injure the benefitted land. In so concluding, the judge rejected a submission that, because the erection of the balcony would not decrease the value of the benefitted land, there could be no injury. On that point, Myers J said that he did not 'pause to consider that point because loss of value is not necessarily a decisive factor and where, as in this case, the covenant was not exacted to preserve the value of the covenantee's land but for another and different purpose, value is not a factor at all'.[63] It seems plain from that observation that the purpose of the covenant was relevant in assessing the scope of relevant injury for the purpose of considering the modification or removal of the restriction under the equivalent provision to s 84(1)(c).
By contrast, in Jiang v Monaygon, Monaygon sought to argue that a proposed modification to a covenant containing a single dwelling restriction would cause substantial injury to its leases for mobile telecommunications, even though those benefits were unrelated to the purpose of the covenant in preserving the residential amenity of the area.[64] Associate Justice Derham observed that Monaygon's submission showed a misunderstanding of the 'injury' against which the covenant provided protection, and then rejected the proposition that if the modification of a covenant would injure Monaygon's current use of the land in any substantial way, that would amount to a substantial injury.[65] The decision tends to suggest that the substantial injury test is directed at benefits originally intended to be conferred, and not merely any benefit actually conferred by a covenant.

[44]

It follows that the judge was correct in concluding that the injury was to be discerned by reference to the purpose of the Covenants. It is necessary then to turn to the question whether the judge correctly applied s 84(1)(c) and, in particular, whether she correctly identified the purpose and benefits of the Covenants.
The judge concluded that the purpose of the Covenants was to create a residential neighbourhood of low density, quality and residential amenity. The restrictions on use (no trade or business) and types of buildings (limited to dwellings, schools, churches or halls and outbuildings thereto) were considered by the judge to be designed to ensure the residential amenity of the neighbourhood.
The first question of principle is whether it is appropriate to isolate each element of a covenant in order to discern its individual purpose. The applicants say that this is the correct approach based on the text of s 84(1)(c), with its focus on 'any restrictions arising under covenant or otherwise', the reference to 'restriction' being functional and designed to separately isolate each qualification or restriction on title.
Reading s 84(1)(c) in that way, the applicants submit that the restriction that the covenantor would not carry on, or permit to be carried on, 'any trade or business whatsoever' is a particular restriction the purpose of which is to prohibit trade or business on the burdened land.
The answer to this submission lies in what has been said earlier about the construction of covenants. Like any instrument, a covenant has to be read as a whole. In construing a particular restriction, it is appropriate to have regard to its context within that instrument, as well as the purpose of the restriction and the instrument more generally. As the applicants contend, a restrictive covenant may pursue more than one objective.[66] But that does not mean that a court cannot have regard to the purpose of a covenant in so far as it sheds light on the meaning and purpose of a particular restriction.
This approach is consistent with the authorities in this Court. For example, Randell v Uhl concerned an application to modify a restrictive covenant which contained a restriction allowing the development of more than one dwelling house on the relevant lots.[67] Modification was sought to enable the construction of two dwelling houses. Associate Justice Derham considered that allowing the modification of the covenant so as to enable the proposed development would maintain the reasonably-low density of housing and population and the quiet residential atmosphere, so as not to affect substantially the 'purpose of the Covenants of ensuring one residence only can be erected on each lot in the subdivision'.[68] As the trial judge correctly observed, Derham AsJ considered the covenants' purpose in the context of assessing whether modification would result in substantial injury.[69]
Turning to the Covenants in this case, we agree with the judge that, although the operation of the restrictions in relation to trade or business are clear in their terms, their purpose was to preserve the residential amenity of the area. While it is true that the presence of a shop, or even a service station, may not deny residential character to the locale, that is beside the point. The point is that, read as a whole, the Covenants do not demonstrate an intent to protect any businesses that might operate on the benefitted land. Regulation of commerce or commercial dealing in that way was not a purpose or object of the Covenants.
The applicants submit that, because the effect of the restriction was to prevent trade or business operating from the Land, its purpose must be to restrict those activities. In our opinion, the judge was correct in observing that this merely restates the restriction. Of course, the purpose of a restriction will often be found in its effect. However, that is not always the case. Giving colour to the relevant restriction by reference to each Covenant as a whole, it is impossible to discern an intention or purpose to protect the business or trade conducted on the benefitted land from competition.
A similar analysis applies to the restrictions that prevent the erection of a building other than a dwelling house, school or hall (and outbuildings) and the excavation of soil or other material (other than as part of the construction of a building). Again, the presence of such buildings and the excavation of material do not necessarily deprive a neighbourhood of its residential character. But it remains the case that, reading the Covenants as a whole, there is no basis to discern an intention to protect businesses operating on the benefitting land.
Both the intended and practical benefit of the restrictions, which together comprise the Covenants, on the benefitted land was to allow for a residential use in a congenial environment. The loss of that benefit is not productive of injury to the applicants. The disconnect between the injury relied on by the applicants and the restrictions on title is also demonstrated by the fact that to allow multiple dwellings (such as a large residential development) or non-competing businesses (such as a hardware store) would strike at the heart of the Covenants yet not injure the applicants. This reinforces the point that the injury complained of by the applicants does not directly follow from the removal of the restrictions but rather from the identity of the business that might take advantage of its removal.

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Judgment (76 paragraphs)

Sumervale Pty Ltd v Viva Energy Refining Pty Ltd [2024] VSCA 140 (25 June 2024)

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Legislation Cited (1)

Cases Cited (3)