Aust-One Investment Pty Ltd v New World Investments Pty Ltd

1. [1]

   The plaintiff, Aust-One Investment Pty Ltd (Aust-One), and the defendant, New World Investments Pty Ltd (New World), are the owners of adjoining retail buildings in a shopping centre in suburban Sydney.

2. [2]

   Both buildings front a main street in the shopping centre (the street) and run through to a lane at the back (the lane) adjacent to which is a multi-storey car park constructed by the local Council (the Council car park).

3. [3]

   In circumstances that are not now fully known, the prior owners of both properties agreed to redevelop their buildings in a way that gave the owner of Aust-One's property, which I will call either No 181 or the dominant tenement, a right of way and a right to use amenities in respect of an arcade and rest rooms constructed on the property by the owner of the property now owned by New World, which I will call either Nos 183-185 or the servient tenement. The easement was granted by a transfer apparently executed in registrable form by the owners of both properties on 30 September 1963 (the Transfer). The easement was granted on certain terms that included a covenant given by the prior owners of No 181 on behalf of themselves and their assigns that they would pay to the owners of Nos 183-185 and their assigns one quarter of the gross rentals received by them each calendar month in respect of four shops erected by the owners of No 181 on that property (the payment covenant).

4. [4]

   This arrangement was apparently honoured by the original owners of the dominant and servient tenements during their ownership. New World became the registered proprietor of Nos 183-185 in 1992. Aust-One was registered as the proprietor of No 181 on 15 August 2002. The arrangement continued to be honoured by New World and Aust-One for about 17 years from 24 July 2002 until 6 December 2019, when Aust-One ceased to pay the share of the gross rentals to New World. The total amount paid by Aust-One over the period was $577,094.37, or about $33,000 per annum.

5. [5]

   The primary issue in these proceedings is whether the payment covenant is enforceable by New World against Aust-One, which is an assignee of the dominant tenement and not a party to the Transfer.

6. [6]

   A subsidiary issue, which will only arise if the Court finds that the payment covenant is enforceable, concerns the meaning of the term "gross rentals" in the payment covenant. I will return to this issue at the end of these reasons.

7. [7]

   Aust-One initially made a claim for an order requiring New World to repay the total amount of gross rentals that Aust-One had paid to it, on the basis that the payments, made on the false assumption that the payment covenant was enforceable, had been made under a mistake of law, and that the operation of s 56 of the Limitation Act 1969 (NSW) permitted Aust-One to recover the payments made for the whole of the period during which they had been made. At the hearing, the Court was advised that Aust-One had revised its claim to the recovery of payments made during the six-year period prior to the commencement of these proceedings.

8. [8]

   The parties joined in asking the Court to decide the issues of whether the payment covenant is enforceable by New World against Aust-One, and whether the true meaning of "gross rentals" has the effect that Aust-One has underpaid New World. The parties will agree the amount to be inserted in any appropriate orders after these reasons for judgment have been published.

9. [9]

   It will be appropriate to say a little more about the initial state of the two properties and the circumstances that led to the transaction whereby the easement and supporting covenants were created. That will be done initially as background, given that there is an issue between the parties concerning the evidence that is admissible on the proper construction of the Transfer.

10. [10]

    The deposited plan that depicts No 181 and Nos 183-185 in their initial states shows that two-storey brick shops were erected on both properties fronting the street. The shops did not extend along the entire length of the properties to their boundaries with the lane at the rear. Slightly more than half of both properties was not covered by any buildings.

The Council deed

1. [11]

   On 16 February 1962, Nos 183-185 were owned by a Mr and Mrs Reich and No 181 was owned by a Mr and Mrs Perri. On that date, Mr and Mrs Reich and Mr and Mrs Perri entered into a deed (the Council deed) with the local Council (the Council).

2. [12]

   Aust-One objected to this deed being admitted into evidence on the ground that its existence and terms were not relevant to and could not properly be considered for the purpose of construing the Transfer.

3. [13]

   New World did not rely directly upon the Council deed for the proper construction of the Transfer, and only sought to tender the Council deed because it contained evidence of a number of objective background facts of which there was otherwise no evidence. I admitted the Council deed into evidence limited to the basis upon which New World sought to rely upon it.

4. [14]

   On that basis, the Council deed contains evidence to the following effect:

   1. (1)

      At the time the Council deed was made, Mr and Mrs Reich were in the process of erecting an arcade of 12 shops and offices with a passageway (the arcade) providing access from the street to the shops and offices and the lane at the rear.

   2. (2)

      Mr and Mrs Perri wished to erect four lock-up shops (the four shops) at the rear of the existing buildings on No 181 with access to the arcade on Nos 183-185.

   3. (3)

      Mr and Mrs Perri had applied to the Council for approval to develop No 181 by erecting the four shops, and the application had been approved by the Council subject to a condition that an agreement be entered into to ensure that a right of passageway and footway for access to the proposed shops was permanently provided. The access referred to is from the street and the lane to the four shops by means of the arcade.

   4. (4)

      The Council deed contained a covenant in clause 4 that Mr and Mrs Reich would grant to Mr and Mrs Perri an easement for support in respect of the walls and roof of the four shops to be erected by Mr and Mrs Perri on their land adjacent to the land of Mr and Mrs Reich.

   5. (5)

      Clause 6 of the Council deed contained an agreement by Mr and Mrs Perri to pay to Mr and Mrs Reich one quarter of the cost of erecting a footbridge over a stormwater canal immediately adjacent to the rear of the two properties in the lane so as to connect the lane to the Council car park.

5. [15]

   For completeness, it should be noted that the Council deed recited that Mr and Mrs Perri wished to erect the four shops "with access to the passage way to be provided in the Transferors' arcade of shops", and that a condition to the approval given by the Council was "a right of way for access to the proposed shops being permanently provided". Clause 1 of the Council deed provided that the right of passage way and footway should be granted by Mr and Mrs Reich "together with and excepting and reserving the rights and subject to the terms covenants and provisoes [sic] set out in the form of Memorandum of Transfer and Grant hereinafter annexed and marked with the letter "A", and the consideration payable thereunder shall be one-quarter (1/4) of the gross rentals received by the Transferees during the period for which such Right of Passage Way and Footway shall be created", and thereafter set out the requirements for the timing of payments. The draft Transfer at Annexure A simply provided for the easement to be “appurtenant to the land comprised in” the certificate of title for No 181.

6. [16]

   Clause 2 required that the Transfer be in the form of the draft annexed to the Council deed and marked with the letter "A".

7. [17]

   Thus, it was a term of the Council deed that the consideration payable by Mr and Mrs Perri for the grant of the right of passage way and footway would be one quarter of the gross rentals from the four shops.

8. [18]

   Clause 3 of the Council deed required the parties other than the Council to arrange for a surveyor to prepare an appropriate deposited plan as may be required by the Registrar-General for the purpose of the registration of the Transfer.

9. [19]

   Under clause 4, the easement for support was also to be created in the form set out in the draft Transfer annexed to the Council deed and marked with the letter "A".

10. [20]

    Clause 5 included the requirement that "the Transferors and Transferees for themselves executors administrators and assigns covenant and agree that they will execute and do all other necessary acts as may be necessary to give full effect to this Agreement and to enable registration of the said Memorandum of Transfer and Grant…"

The Transfer

1. [21]

   Mr and Mrs Reich (the transferors) and Mr and Mrs Perri (the transferees) executed the Transfer as a memorandum of transfer under the Real Property Act 1900 (NSW), apparently on 30 September 1963. The Transfer was materially the same as Annexure “A” to the Council deed, with minor variations necessary to accommodate the form of the registrable dealing. It appears that the Transfer was received by the Registrar-General on 27 April 1964 and entered into the Register on 9 November 1964. The Transfer was registered as Dealing J592560.

2. [22]

   As the determination of this dispute depends upon the proper construction of the Transfer, it will be necessary to set out the terms of the Transfer in full. It provided:

3. [23]

   Clause (a) created an easement of two parts. The first part was a right of way over the arcade and the second was a right to use amenities. Clause (b) created an easement for support. I will call clause 1 the repair covenant. Clause 2 is the payment covenant to which reference has already been made. I will call clause 3 the competition covenant.

4. [24]

   The Council was not joined as a party to these proceedings. It is arguable that the terms of the Council deed and clause 4 of the Transfer give the Council an interest in the subject matter of these proceedings sufficient to require it to have been joined in order to defend that interest if it chose to do so. It is also arguable that the Council deed has a greater relevance to the determination of the effect of the Transfer than the parties have suggested.

5. [25]

   The current auto consol for No 181 (no certificate of title has issued for the current edition of this folio) lists Aust-One as the registered proprietor. The notifications in the second schedule include:

6. [26]

   The certificate of title for Nos 183-185 notes New World as the registered proprietor of the property, notifications 4 and 5 in the second schedule contain references to the right of way and the easement for support in substantially the same terms as the auto consol for No 181.

7. [27]

   New World has not taken issue with Aust-One's submission that it is immaterial that the notifications in the title documents do not separately refer to the right to use amenities.

8. [28]

   The Transfer had the effect that the whole of Nos 183-185 was made the servient tenement although the easement granted only burdened the part of that property coloured red on the annexed plan.

9. [29]

   The dominant tenement was described as the whole of No 181. Clause 2 of the Transfer had the effect that the only significance of the four shops on No 181 being coloured green was that the owner of the dominant tenement only had to pay to the owner of the servient tenement one quarter of the gross rental received for those shops, and not the rental from any other part of the dominant tenement.

10. [30]

    The plan referred to in the Transfer was registered as DP 219753 on 29 January 1964. As the plan that is annexed to the Transfer that was tendered into evidence was not coloured, the parties agreed to provide the Court with a copy of DP 219753 that depicted the right of way in red and the four shops that were erected at the rear of No 181 in green. Because of the practical difficulty involved in reproducing the agreed plan for the purpose of inclusion in these reasons, I have prepared and appended to these reasons a sketch plan based on the agreed coloured copy of DP 219753.

11. [31]

    In conformity with the practice of the Court in not identifying relevant properties in judgments, I have referred only to the street and the lane. I have removed unnecessary details from the plan prepared by the surveyor. I have cross-hatched the area of the arcade on No 183-185 that is marked red on the original Deposited Plan. I have double cross-hatched the four shops that were constructed on No 181 that were intended to have the benefit of the right of way created by the Transfer. I have numbered the four shops on No 181 shops 1A to 4A, with the former the closest to the lane, as they are the numbers given to those shops by the parties. I have reproduced in sketch form Diagram ‘A’ on DP 219753, which depicts that part of the first floor on No 181 over which the right of way extends to the creation of a passage and what is described as the toilet block. I have also reproduced in sketch form Diagram ‘B’ on DP 219753, which depicts the stairs on the ground floor of No 183-185 over which the right of way runs to give access to persons to the toilet block on the first floor. I have marked on the sketch plan of the ground floor of the two properties the site of the stairs. I have not reproduced Diagram ‘C’ on DP 219753, which identifies the site of the easement for support. No issue arises in relation to the site of the easement for support.

12. [32]

    The evidence contained, at Court Book vol 2 tab 53 (Part Exhibit PD1), ground floor and first floor plans for what I understand to be the present 'as built' buildings on No 181 and Nos 183-185. Mr Patrick Shui Wo Poon, a director of New World, said in par 10 of his affidavit that he prepared the two plans, which are not to scale but are approximate. This evidence was not challenged by Aust-One. Mr Poon said that he prepared the plans using plans prepared by builders and architects during upgrades to the ground floor and external facade of Nos 183-185 in around 1993 and to the first floor in around 2014. The work on the ground floor was done after New World acquired Nos 183-185 but before Aust-One acquired No 181. The work on the first floor was done while Aust-One was the owner of No 181. There was no evidence concerning the nature of the works or the circumstances in which they were carried out. Mr Poon drew the layout of No 181 by hand. I have appended slightly edited versions of the two drawings prepared by Mr Poon to these reasons. For the purposes of these reasons, I have compiled the sketch plan based on the agreed coloured copy of DP 219753 and the two drawings prepared by Mr Poon and labelled them “Annexure A”.

13. [33]

    There appear to be some differences between the diagrams prepared by Mr Poon and the site of the right of way and right of use of amenities as depicted in the copy of DP 219753 that was annexed to the Transfer. Shop 4A in the 'as built' drawing of the ground floor of No 181 appears to be larger than the equivalent shop in DP 219753. The 'as built' drawing of the first floor appears to suggest that persons using the right of way to access the restrooms may use the whole of the arcade on that floor of Nos 183-185, rather than what appears to be a more limited area depicted on DP 219753. If these apparent differences are real, they are of no consequence for the purpose of these reasons.

14. [34]

    Deposited Plan 219753, as I read it, does not show a passageway through part of Shop 4A that gives access from the building that was already constructed on No 181 to the arcade on Nos 183-185. The evidence was that a restaurant business is conducted on the original shop on the street front on No 181. Behind the restaurant is a storage area and stairwell that gives access to two residences on the first floor of No 181. Without there being a passageway from the stairwell beside Shop 4A to the arcade on Nos 183-185, access to the restaurant and the residences could only be gained through the front door of the restaurant on the street. The 'as built' drawing of the ground floor shows a passageway beside Shop 4A that does give access from the back of the restaurant and the two residences to both the street and the lane by means of the arcade.

15. [35]

    As the right of way and right to use amenities were created by the Transfer by reference to DP 219753, it is arguable that the right to use those easements does not extend to persons associated with the restaurant or the two residences. If this apparent difference between the 'as built' drawings and DP 219753 is real, the evidence does not explain how the difference arose. The Court has not been asked by the parties to decide this issue, and New World apparently accepts that people using the restaurant and the two residences can use the right of way and right to use amenities.

16. [36]

    I have only mentioned this apparent difference between the 'as built' drawings and DP 219753 in this detail because, as will be seen, Aust-One put a submission in support of its argument that the payment covenant is unenforceable based upon the fact that clause 2 of the Transfer only obliges the owner for the time being of No 181 to pay one quarter of the gross rentals for the four shops, and not the gross rentals for the restaurant and the two residences.

17. [37]

    The evidence included part of a draft contract between the ultimate assignors of No 181 to Aust-One, at Court Book vol 2 tab 23 (Part Exhibit PD1). Special condition 42 of the contract for sale contained an acknowledgement by Aust-One "that the payments required by clause 2 of the agreement contained in J592560 are made periodically and will be adjusted with the rentals pursuant to clause 14 of this Contract". Clause 14 was not in evidence. This incomplete evidence shows that Aust-One acquired No 181 with notice of the payment covenant. It is possible that Aust-One agreed with its assignors to comply with the payment covenant, although that is not clear.

18. [38]

    Even though the burden of positive covenants respecting land does not run with the land at common law, the benefit of such covenants may. If Aust-One does not perform the payment covenant, it may be that New World has an action for breach of covenant against the transferees or their estates. The evidence does not show whether, when the transferees, or subsequent assignees of No 181, assigned that property, they sought to protect themselves against what is now Aust-One's refusal to perform the payment covenant by including in the contracts for sale promises by their own assignees to perform the payment covenant. New World has not sought in these proceedings to obtain an alternative remedy for breach of the payment covenant by the cumbersome process of suing the transferees, who were privy to the Transfer, and leaving it to the transferees to recover their loss by joining their own assignees, if their contracts for sale gives them a right to do so.

19. [39]

    In the present case, clause 4 of the Transfer gives to the Council a right of veto over any agreement by the other parties to the Transfer or their successors to release, vary or modify any of "the rights hereby transferred and granted", without providing any explanation of the source of the right of veto or the circumstances in which it might be exercised by the Council. The evidence proves the existence of the Council deed, and that instrument proves that it was a condition of the development approval for No 181 that an instrument in the terms of the Transfer be entered into as part of the development process.

Construction of registered instruments creating easements

1. [40]

   The parties made submissions concerning the rules that govern the construction of documents such as the Transfer that provide for the grant of easements.

2. [41]

   It seems that the primary objective of Aust-One was to exclude the relevance of the Council deed to the proper construction of the Transfer. As mentioned, I do not understand New World to rely upon the terms of the Council deed for the purpose of construing the Transfer, other than to the extent that the Council deed may provide evidence of facts as they existed at the date of the Transfer that may be permitted to be taken into account for the purpose of construing the Transfer.

3. [42]

   In Westfield Management Ltd v Perpetual Trustee Company Ltd (2007) 233 CLR 528; [2007] HCA 45, the High Court said (footnotes omitted):

4. [43]

   The Court concluded by saying:

5. [44]

   In Sertari Pty Ltd v Nirimba Developments Pty Ltd [2007] NSWCA 324, Handley AJA, with whom Tobias and McColl JJA agreed, explained how the terms of the grant of an easement should be construed in the following way:

6. [45]

   In Currumbin Investments Pty Ltd v Body Corp Mitchell Park Parkwood CTS [2012] 2 Qd R 511; [2012] QCA 9, Margaret McMurdo P and Fraser JA substantially agreed with the judgment and orders proposed by Fryberg J. His Honour said, after setting out [37]-[39] of the reasons of the High Court in Westfield that I have extracted above, and emphasising that part of [39] in which the High Court said “and placing the third party (or any court later seized of a dispute) in the situation of the grantee” (footnotes omitted):

7. [46]

   In Hare v Van Brugge (2013) 84 NSWLR 41; [2013] NSWCA 74, Barrett JA, with whom Macfarlan JA and Tobias AJA agreed, said about the significance of evidence of the physical characteristics of the tenements:

8. [47]

   Aust-One made a specific submission as to why the Council deed was irrelevant to the proper construction of the Transfer, by relying upon the judgment of Edelman J in Fermora Pty Ltd v Kelvedon Pty Ltd [2011] WASC 281. His Honour held that, in relation to the issue of the proper construction of an instrument registered under the Torrens system, an unregistered deed was inadmissible for the purpose of construing the registered instrument, even though the unregistered deed was referred to in the registered instrument.

9. [48]

   The clause in the registered instrument granted to the owner of the dominant tenement a right to discharge a stated volume of treated water onto the servient tenement into pipes on the servient tenement that would be maintained in good order and repair by the grantor, subject to a condition subsequent that the easement would be surrendered upon the grantee, or its successors in title, ceasing to use the dominant tenement for the purpose requiring the discharge of water onto the servient tenement "or upon any of the other events mentioned in the Deed".

10. [49]

    The unregistered deed was between the same parties to the registered instrument and it purported to bind their successors in title. The unregistered deed contained a provision that the grant of the easement would be surrendered on the occurrence of additional events to those that were stated in the registered instrument.

11. [50]

    The concern expressed by the High Court in Westfield Management Ltd v Perpetual Trustee Co Ltd relates to the indefeasibility of the interest in the servient tenement vested in the registered proprietor of the dominant tenement by the registration of a transfer granting an easement. The effectiveness of that indefeasibility would be diminished if the rights associated with the easement were determined by the construction of the transfer based on extrinsic evidence not reasonably obvious or available from a search of the Register. That is essentially the reason why Edelman J held that the deed that was referred to in the registered instrument was not admissible for the purposes of its construction.

12. [51]

    In the present case, clause 4 of the Transfer was obvious from the registered dealing and would put any intending purchaser of No 181 on notice of the Council's right of veto. It may be that the circumstances of the Council deed should be distinguished from the circumstances of the general deed considered by Edelman J. The latter will have been left in the possession of the parties to it and may not have been readily attainable by a subsequent intending purchaser. As the Council deed was an instrument prepared in the development approval process, it is likely to have been retained on the Council's file and been available for inspection.

13. [52]

    Furthermore, planning authorities such as the Council exercise a statutory function in approving development applications subject to conditions, and it may be that continuing compliance with a condition is a statutory requirement. While the indefeasibility provisions in the Real Property Act may limit the extrinsic evidence admissible for the purpose of construing a registered instrument, it is arguable that the planning legislation may also require consideration in an appropriate case. That is an issue that remains open.

14. [53]

    It is not necessary to consider this question further, as New World has not relied upon the Council deed for the purpose of construing the Transfer, and, as will be seen, I have found that the wording of the Transfer is sufficiently clear on its face for the Court not to have regard to the Council deed.

15. [54]

    It is worth noting, however, that if there had been an issue in these proceedings as to whether persons using the restaurant and the two residences on No 181 had a right to use the right of way over the arcade and the right to use amenities, the terms of the Council deed may arguably have been relevant to the proper construction of the Transfer. On the face of the Transfer itself, the apparent fact that DP 219753 did not show a passageway connecting those parts of No 181 to the arcade may have suggested that the easement was not intended to benefit the users of any part of No 181 other than the four shops. However, additionally, as I have noted above, the recitals to the Council deed appear to state clearly that the easement was to be created for the benefit of users of the four shops on No 181.

16. [55]

    Finally, as will be seen, Aust-One relied upon the existence of the Council's right of veto in clause 4 of the Transfer in support of the argument that it should not be held bound to perform the payment covenant because it had no choice as to whether it would or would not take the benefit of the easements granted by the Transfer because of the existence of the right of veto. Arguably, this submission made the Council deed admissible, but that is not an argument put by New World.

17. [56]

    The only authority relied upon by New World relevant to the construction of the Transfer was Tempe Recreation (D.500215 and D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449; [2014] NSWCA 437. It relied upon the following observations made by Leeming JA:

18. [57]

    I respectfully agree with and adopt his Honour's statement of principle and have sought to apply it in construing the Transfer. However, the terms of the Transfer are relatively brief, and I consider that the wording of the Transfer is relatively clear and means what it says. The present case does not raise the sort of problems referred to by Leeming JA at [54].

Evidence of the implementation of the Transfer

1. [58]

   New World tendered evidence concerning the use of the right of way by Aust-One and the costs that New World had incurred in performing the repair covenant.

2. [59]

   The evidence on the first subject took the form of questions asked of Mr Roy Szu-Liang Lin, a director of Aust-One, in cross-examination. No objections were made to this evidence.

3. [60]

   The evidence established that there was no access to any of the four shops from the lane except through the arcade. The evidence also established that the only means of access to the two residences on the first floor of No 181 was through the restaurant or the arcade. Deliveries to the restaurant could only be made through the front door of the restaurant or through the arcade. Rubbish from the restaurant was removed through the arcade to the lane. Mr Lin gave evidence that there was a small toilet servicing the restaurant in the storage area behind the restaurant on No 181, but the toilet was not apparent in the photograph of the storage area where it was said to be located. Mr Lin suggested that the toilet was used primarily by the staff of the restaurant, which suggests that patrons of the restaurant may use the washrooms that are on the first floor of Nos 183-185 that are subject to the right of way and the right to use amenities.

4. [61]

   I have not treated this evidence as having any relevance to the construction of the Transfer. It is evidence of actual use of the right of way that post-dates its creation. It may in part be evidence of use of the right of way that is not permitted by the terms of the Transfer, but that is not an issue that arises in these proceedings.

5. [62]

   The second aspect of the evidence concerning the implementation of the Transfer was evidence given by Mr Poon in pars 33 and 34 and Annexure A to his affidavit, concerning the maintenance and repair by New World of the arcade stairs, the arcade restrooms and the arcade corridor. Mr Poon provided figures for the period July 2013 to December 2020. Separate figures were provided for cleaning and waste disposal, maintenance and repair, light and power and water rates. Aust-One objected to the admission of this evidence, primarily on the basis that it was evidence of events occurring after the date of the Transfer. I admitted the evidence on the limited basis that it might ultimately be relevant to prove the activities required of the owner of the servient tenement to comply with the repair covenant.

6. [63]

   I now appreciate that the evidence may not be relevant to that issue, and in any event should be given no weight for any purpose concerning the construction of the Transfer. I now appreciate more clearly that the evidence commences in 2013, some two decades after the date of the Transfer. In any event, the evidence of the costs incurred by New World extends beyond the repair and maintenance of the part of the servient tenement the subject of the repair covenant. It covers cleaning and waste disposal, lighting and water rates. That raises the collateral question whether the repair covenant imposes an obligation on the owner of the servient tenement that extends beyond strict repair and maintenance. That is an issue that does not arise in these proceedings.

Legal principles

1. [64]

   The question in these proceedings is whether Aust-One is entitled to refuse to comply with the payment covenant but at the same time fully enjoy the benefit of the easements created by the Transfer and oblige New World to perform the repair covenant for its benefit.

2. [65]

   The parties have conducted the proceedings on the basis that the easements for right of way, use of amenities and support were validly created, once and for all, at the time of registration of the Transfer.

3. [66]

   Aust-One accepts that it is obliged to comply with the competition covenant in clause 3 of the Transfer, because that is a negative covenant which runs with the land in equity in conformance with the principle in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143, whereby a covenant is enforceable in equity if (a) it is negative in nature; (b) it benefits the land retained by the covenantee; and (c) the burden of the covenant was intended to run with the covenantor’s land: Midland Brick Co Pty Ltd v Welsh (2006) 32 WAR 287; [2006] WASC 122 at [154] (Hasluck J). A covenant may be negative in substance although its language is expressed in positive form, and “the applicable test is whether the covenant requires the expenditure of money (positive) or whether it can be complied with by doing nothing (negative)”: Ryan v Sutherland [2011] NSWSC 1397; (2011) 16 BPR 30,101 at [25], where Black J endorsed the test formulated by Professor Butt in these terms to discern whether a covenant is positive or negative. As Aust-One accepts that the competition covenant is enforceable against it, it is not necessary to consider the circumstances in which a covenant binding the owner of the servient tenement not to compete with the owner of the dominant tenement is enforceable in equity.

4. [67]

   There is no question that the repair covenant is enforceable by Aust-One against New World, even though the burden of the repair covenant is positive and obliges New World to expend money in its performance. The term "positive covenant" is defined in s 87A of the Conveyancing Act 1919 (NSW) as including "a covenant for maintenance or repair imposed under section 88BA". Section 88BA of the Conveyancing Act provides that a covenant may be imposed requiring the maintenance and repair of land that is the site of an easement by the person from time to time having the burden of the easement, provided that the covenant is imposed in the manner set out in the section. Section 88F has the effect that, if a positive covenant (as defined) is imposed on land, the covenant affects the land and persons from time to time having any estate or interest in the land in the same way as if it were a covenant imposing a restriction on the use of the land. As I understand it, New World accepts that the repair covenant is enforceable against it pursuant to these provisions.

5. [68]

   As the payment covenant is an obligation to pay money, it is clearly not a restrictive or negative covenant within the Tulk v Moxhay doctrine and is a covenant the burden of which is positive. That position is accepted by New World.

6. [69]

   Consequently, the issue for determination is whether, in the circumstances of this case, New World is entitled to enforce the positive payment covenant against Aust-One, at least so long as Aust-One continues to enjoy the rights granted to the owner of No 181 by the Transfer, which I infer Aust-One intends to do for the foreseeable future.

General rule as to the enforcement of positive covenants

1. [70]

   There was no issue between the parties that the general rule concerning the enforcement of positive covenants against successors in title by assignment from the original covenantor is as stated by Lord Templeman, with the unanimous agreement of the other Law Lords, in Rhone v Stephens [1994] 2 AC 310 at 316-7, as follows:

2. [71]

   At 321, Lord Templeman rejected an invitation to overrule the decision of the Court of Appeal in Austerberry v Corporation of Oldham (1885) 29 Ch D 750, which, among other things, had overruled earlier authority in which it had been held that the burden of positive covenants could be enforced against assignees of the original covenantor in circumstances where mutual covenants were made for the benefit of contiguous landowners who claimed title under grants from the same vendor, and some of the owners depended for the enjoyment of their land on another owner performing a positive covenant made by a predecessor in title; primarily being the decision of Malins VC in Cooke v Chilcott (1876) 3 Ch D 694.

3. [72]

   Lord Templeman expressed the following conclusion, at 321:

4. [73]

   Rhone v Stephens has been accepted in this country as correctly stating the law in Clifford v Dove [2003] NSWSC 938; (2003) 11 BPR 21,149 at [62] (Bryson J as his Honour then was); Rural View Developments Pty Ltd v Fastfort Pty Ltd [2011] 1 Qd R 35; [2009] QSC 244 at [15] (McMurdo J as his Honour then was) (Rural View Developments); Mount Cathay Pty Ltd v Lend Lease Funds Management Ltd [2013] 1 Qd R 528; [2012] QCA 274 at [9] (McMurdo J as his Honour then was); GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills [2014] NSWCA 202; 17 BPR 33,133 at [67] (Sackville AJA).

5. [74]

   The general common law rule confirmed in Rhone v Stephens is directed at the situation where a vendor by deed assigns or creates an interest in land and the deed contains a covenant, usually by the grantee, that the grantee and its executors, administrators and assigns will perform a covenant for the benefit of the vendor and its executors, administrators and assigns, where the covenant is positive in the sense that its performance requires the doing of some act that places a money burden on the covenantor and its successors in title. As the successor in title to the covenantor will not be privy to the covenant, it will not be enforceable against them by the covenantee and its successors in title. Were the rule otherwise, the original covenantee could diminish or stultify the utility of the land to the covenantor’s successors in title in perpetuity, and could attach burdens to the title to land in ways that could reduce its economic value, notwithstanding changes in circumstances and the fact that the successors of the covenantor had not agreed to be bound to perform the covenant. It is not difficult to see why the common law has developed the inflexible general rule and why equity has declined to enforce the burden of covenants affecting land against successors in title to the covenantor, except in particular circumstances where the covenant is a restrictive or negative one.

Possible ways that positive covenants may be enforced

1. [75]

   This case raises the question of whether the payment covenant may be enforceable against Aust-One notwithstanding that it does not run with the land at common law or in equity against successors in title to the transferees. The authorities suggest that there may be two ways in which the payment covenant may be enforceable against Aust-One notwithstanding that it does not run with the title to No 181.

2. [76]

   The first way is somewhat exceptional and problematic as a matter of principle and involves the concept that the burden of a positive covenant may be so intricately connected to the effectiveness of the easement that it is inextricably part of the easement. The suggestion is that the positive covenant may be of the essence of the easement. To the extent that a positive covenant may be of the essence of the easement, it will necessarily be enforceable as part of the easement. As the easement will run with the land, so will the positive covenant, even though otherwise it would not do so.

3. [77]

   In this case, the primary submission of New World was that the payment covenant is part of the essential fabric of the easements, and that the Transfer must be read as a whole, on the basis that it created one whole transaction or 'deal', in respect of which all of the grants and covenants were interdependent and interwoven. Aust-One rejected the argument that the payment covenant was enforceable against it on that basis.

4. [78]

   The second way that the payment covenant may be enforceable against Aust-One, if it is not in law an essential part of the easements and does not run with the title to No 181, relies on the proposition that performance of the payment covenant may be a condition of the entitlement of the owner of No 181 to enjoy the rights created by the easements and the benefit of the repair covenant. The law may hold it to be unjust that, if the owner of No 181 has a choice whether or not to enjoy a right that is made conditional upon the performance of a positive covenant, that owner can refuse performance of the covenant on the ground that it does not bind the owner, but then freely exercise the right and, in this case, enforce against the owner of Nos 183-185 a positive covenant made by a predecessor in title to that owner. This possibility is usually called the conditional benefit principle.

5. [79]

   As an alternative to its primary submission, New World argued that it has the benefit of the conditional benefit principle, and that Aust-One is obliged to perform the payment covenant as long as it exercises rights under the easements and enforces the repair covenant against New World. Aust-One did not deny the existence of a principle of law capable of having this effect but made detailed submissions as to why the principle did not apply in this case.

Covenant as an essential part of the easement

1. [80]

   The first possibility that will be considered is that the payment covenant is enforceable against all successors in title of the transferees of No 181 because it is an essential part of the easements.

2. [81]

   I will not consider this possibility in depth, as I have concluded that, even if it exists as a matter of law and is given its widest possible ambit, it would not make the payment covenant enforceable against Aust-One in this case. I will give my reasons for this conclusion below when I consider the parties' submissions. It will be necessary, however, to consider the circumstances in which a positive covenant may be an essential part of an easement.

3. [82]

   I start by observing that the concept of a covenant being of the essence of an easement is an inherently imprecise one. It may be that contemplation of what is of the essence of a theoretical construct, like an incorporeal hereditament, of which an easement is an example, is a matter best left to scholars of divinity rather than trial judges. I will proceed on the basis that, if the expression “is of the essence” has any meaning in this context, it must mean “essential to”. That is, if a positive covenant may be enforceable notwithstanding that it does not run with the land, it must be a covenant the performance of which is in practical terms essential to the easement having any real meaning or effect.

4. [83]

   The modern source of the possibility that a positive covenant may be enforceable because it is of the essence of an easement appears to be the decision of Herdman J in Cameron v Dalgety [1920] NZLR 155. The plaintiff was a sheep farmer, who had acquired land with the benefit of an easement granted in a deed between the plaintiff's father, from whom the plaintiff had purchased the land, and the trustees of the estate of the deceased owner of a large estate known as the Balmoral Station. The deed contained a grant of water to the plaintiff's property from a source of water on the balance of the estate, which Herdman J described as being some miles in length. In the deed, the benefit of the grant of the use of water flowing through a water-race on the adjoining land was described in elaborate terms, but included obligations on the grantors to permit the free and uninterrupted flow of water down the water-race, to not divert or permit or allow the water in the water-race to be diverted, and to keep the water-race properly cleaned out and the banks properly maintained and repaired.

5. [84]

   The case may be an unsound basis for the principle that it is said to establish because the defendants were trustees of the estate of the deceased owner of the original Balmoral Estate in succession to the original trustees who executed the deed that granted the easement. They were not successors in title to the servient tenement by assignment. Herdman J said, at 157, that the water-race traversed other parts of the Balmoral Station that were then in the occupation of persons who either bought from the original trustees or who purchased from persons who bought from those trustees. Consequently, the defendants were not in the same position as Aust-One is in the present case. It is not necessary to explore why, but successor trustees may be liable on a covenant made by their predecessors on grounds that are different to successors in title by assignment. This point did not make much difference in the case because the plaintiff's claim was for damages for breach of the covenant for repair and maintenance. The plaintiff did not seek an order against the then present successors in title by assignment to the servient tenement, of which there may have been many, to require them to repair and maintain the water-race. Herdman J's attitude to enforcing the positive covenant for repair and maintenance against the then current owners of the servient tenements may have been different to his preparedness to enforce the covenant by an award of damages against the successors to the original trustees of the estate of the deceased.

6. [85]

   Referring to a statement by Lindley LJ in Austerberry v Oldham Corporation at 781, to the effect that a covenant which imposes a burden upon land does not run with the land “unless the covenant does, upon the true construction of the deed containing the covenant, amount to either a grant of an easement, or a rent charge, or some estate or interest in the land”, Herdman J said at 163-4:

7. [86]

   Before reaching this conclusion, Herdman J had considered earlier authority that established that, generally, an easement imposes no active obligations on the owner of the servient tenement, and that, even if the grantor does expressly or by implication covenant to maintain and repair the servient tenement for the benefit of the easement, that covenant is personal and does not run with the dominant tenement. His Honour considered earlier authority, which need not be addressed for present purposes, that led him to conclude that there may be circumstances surrounding the grant of an easement that result in an associated covenant being part of the grant. His Honour referred, at 162, to earlier authority which he understood had the effect that an obligation to repair the servient tenement could be attached to that land by prescription and said that "I cannot see why such an obligation cannot be cast upon him by the terms of the grant."

8. [87]

   It is not necessary for this Court to express a view about the correctness of the conclusion reached by Herdman J. In the ordinary case, there will be no reason for a covenant by the grantor of an easement to repair the servient tenement to run with the servient tenement, because the owner for the time being of the dominant tenement has an ancillary right at common law to enter upon the servient tenement to make such repairs as are necessary to cause the easement to be effective. However, perhaps circumstances can be conceived where the difficulty faced by the owner of the dominant tenement in repairing the servient tenement may make the right to do so impracticable so that, to make the easement effective, the grantor's covenant to repair the servient tenement should be treated as being essential to the existence of the easement, so that it is enforceable against successors in title to the grantor.

9. [88]

   That is a difficult conceptual question which must remain open, as the obvious point of distinction between Cameron v Dalgety and the present case is that, in that case, the repair covenant that was found to be of the essence of the easement was made by the grantor of the easement and not by the grantee. In the present case, the payment covenant was made by the transferees, as grantees of the easements.

10. [89]

    Notwithstanding that point of distinction, in Frater v Finlay (1968) 91 WN (NSW) 730, Newton DCJ found, on the basis of the decision in Cameron v Dalgety, that the grantor of an easement, who in the grant executed by him covenanted to repair, could bind his successors in title to perform that obligation, and that also the grantee could attach to and make part of the grant in a way that will bind his successors a covenant to contribute to the cost of repairs. Newton DCJ, at 735, explained his conclusion by the limited reasons that:

11. [90]

    If the development of the law proceeded on the basis of what made common sense, there would be much to be said for the conclusion reached by Newton DCJ. As Kneipp J said in Rufa Pty Ltd v Cross [1981] Qd R 365 (Rufa) at 370:

12. [91]

    However, also at 370, Kneipp J said that, while he could readily accept the basis of the decision of Herdman J: "I cannot see that a covenant by the grantee can be regarded as part of the grant." In fact, Kneipp J found that the covenant in issue was enforceable against a successor in title to the original grantee on the second basis that I have explained above; that is, the conditional benefits principle.

13. [92]

    The conclusion reached by Kneipp J that Cameron v Dalgety does not establish that a covenant by the grantee of an easement may be an essential part of the grant has been approved by Bryson J in Clifford v Dove at [66]-[68] and by McMurdo J in Rural View Developments at [19]-[24].

14. [93]

    While it may be possible to conceive of covenants made by the grantors of easements that are so essential to the easement being a useful right that the covenant can be treated as being essential to the existence of the easement, it is much more difficult to conceive of circumstances where a covenant made by the grantee, and therefore not part of the actual grant, could also be essential to the existence of the easement. A covenant by a grantee to reimburse the grantor for half the cost of repairing the servient tenement cannot realistically be treated as essential to the existence of the easement, even though it may obviously be unfair if the covenant by the grantor is enforceable against successors in title but the covenant by the grantee is not.

Covenant enforceable on conditional benefit principle

1. [94]

   I will now turn to the second possible way in which the burden of a positive covenant that does not run with the dominant tenement may be enforceable against the successors in title to the original grantee of the easement.

2. [95]

   In this context it will be convenient to complete the reference to Rhone v Stephens by setting out the following extract from the speech of Lord Templeman at 322-3, which is an introduction to the circumstances in which successors in title by assignment to an original covenantor may make themselves liable to perform a positive covenant at the suit of a party with the benefit of that covenant:

3. [96]

   In Rhone v Stephens the owner of a house divided it into two separate dwellings. The owner retained the larger dwelling, the house, part of the roof of which lay above a bedroom in the smaller dwelling, the cottage. The conveyance of the cottage contained what was in effect an easement for cross support. It also contained a covenant by the vendor, for himself and his successors in title, to maintain to the reasonable satisfaction of the purchasers and their successors in title such part of the roof of the house as a lay above the cottage in wind and watertight condition. The issue was whether the covenant for repair was enforceable by a successor in title to the cottage against a successor in title to the house.

4. [97]

   In the extract set out above, Lord Templeman found that the covenant in the conveyance for mutual support imposed reciprocal benefits and burdens of support, but the covenant for repair of the roof was an independent provision, and it was held not to be enforceable against the new owner of the house. Implicit in this decision is that, had there been an issue about the enforceability of the right of support, it may have been capable of falling within the principle discussed in Halsall v Brizell [1957] Ch 169, because there were reciprocal benefits and burdens of support, but that was not so for the covenant to repair.

5. [98]

   It will be necessary to review the authorities that both precede and follow Rhone v Stephens to determine whether the principle in Halsall v Brizell approved of by Lord Templeman has application in Australia, and if so what the true effect of that principle is.

6. [99]

   Before I pass from the consideration of Rhone v Stephens, I should note the following significant aspects of his Lordship's reasoning:

7. [100]

   The most convenient way to determine the current effect of these principles will, I believe, be to review the relevant authorities chronologically, with particular attention being given to the light that those authorities throw on the explanation of the principle in Halsall v Brizell given by Lord Templeton.

8. [101]

   That approach is also made necessary by the submission made by Aust-One that the circumstances of the present case are novel and substantially removed from the circumstances in which the conditional benefit principle has been applied in the past. For what it is worth, that submission is substantially true. However, the task of the Court is not to judge whether the circumstances of the present case are sufficiently similar to those in which the conditional benefit principle has been applied in the past to justify the principle being applied in the present case. The task of the Court is to determine what the true meaning and effect of the conditional benefit principle is, and having done that, to apply the principle to the current facts. That will require the Court to look carefully at the development of the principle and to ascertain the true nature of that principle from the guidance of how it has been developed.

9. [102]

   I will start with the decision of the Court of Appeal in Aspden v Seddon (1876) 1 Ex D 496. The claim was an action on the case at common law. The owner of an estate sold a portion of it to a predecessor in title of the plaintiff. The owner reserved out of the grant the minerals under the land sold and the right to work them. The owner subsequently granted to the defendants' predecessor in title the minerals, rights and liberties so reserved. The defendants took with notice of the agreement of the original owner, for himself and his successors, that he would pay compensation for all damage that should be done to any buildings erected on the land sold as a result of the mining of the minerals by the owner and his successors in title.

10. [103]

    The defendants resisted the plaintiff's claim for breach of the covenant as a result of the subsidence of the land caused by the defendants' mining of the reserved minerals.

11. [104]

    The Court of Appeal, without much ado, unanimously affirmed a judgment of the trial judge that required the defendants to compensate the plaintiff. The reasons of the Court of Appeal appear briefly but most clearly from the judgment of Mellish LJ, at 509-10, as follows:

12. [105]

    The effect of this decision appears to be that the defendants, as successors in title to the original owner, who reserved title to the minerals and the right to mine them on the basis of a covenant on behalf of himself and his successors to pay compensation for damage done by the mining process, had no right to mine under the surface of the plaintiff's land except by relying upon the authority given in their favour by the original conveyance. The defendants could not exercise that right without being subject to the reciprocal obligation created by the conveyance to pay compensation for any damage done.

13. [106]

    The decision of the House of Lords in Chamber Colliery Company Ltd v Twyerould, decided in 1893, and unusually reported as a note at [1915] 1 Ch 268n, also concerned a covenant regarding compensation for damage caused by mining. By a deed of grant in 1807, a predecessor in title of the plaintiff had granted to a predecessor in title of the defendant the right to mine coal lying under the land subsequently owned by the plaintiff. In the deed of grant, the predecessor in title to the defendants had made a covenant to compensate the owner and his successors in title for damage caused by the mining process in two ways. First, the covenantor agreed to pay an annual amount at a rate per acre specified in the conveyance for all unavoidable damage and spoil of the ground. Secondly, they covenanted that, in respect of any damage to any building erected upon the land, they would pay compensation over and above the annual sums payable for unavoidable damage.

14. [107]

    It is of some relevance that the original grantees of the right to mine covenanted to pay compensation annually based on a per acre rate for damage that was unavoidably caused by the mining process. The enforceability of that covenant was not in issue, but the House of Lords did not suggest that, by reason of the annual nature of the payment calculated on a rate per acre basis, the covenant could not be enforced against a successor in title to the covenantor, who elected to exercise the right to mine the coal under the surface of the plaintiff's land.

15. [108]

    The plaintiff commenced an action for an injunction to restrain the defendants from mining in a way that caused subsidence to the surface of its land and for damages.

16. [109]

    The unanimous decision of the House of Lords was given by Lord Watson, who relevantly said at 272-3:

17. [110]

    Although the defendant had title to the coal by reason of the grant by the original owner to the defendant's predecessor in title, it was found to have no right to conduct the mining operation in a way that caused subsidence to the surface of the plaintiff's land, save for the licence in the original conveyance. As the licence to cause subsidence was conditional on the payment of compensation, the defendant could not exercise the licence without paying the compensation.

18. [111]

    It is significant that the House of Lords held that the licence was subject to a condition that compensation be paid, even though the compensation obligation took the form of a covenant in the original conveyance and was not expressed as a condition. Lord Watson had earlier said, at 272:

19. [112]

    The next authority is Halsall v Brizell, which was considered by Lord Templeman in the extract set above in relation to the conditional benefit principle. Owners of land sold it off in 174 allotments, but retained the roads and sewers built under the land, a park, a promenade and a seawall. By a deed made in 1851 between the owners and the owners of the individual allotments, the owners of the allotments, for themselves and their assigns, covenanted from time to time to contribute and pay a due and just proportion of all costs, charges and expenses of maintaining and keeping in good repair the roads, sewers, promenade and seawall “for the common use and advantage of the owners for the time being of the several plots of land”. The deed gave the original owners a right to distrain in the same manner as landlords are authorised to do for rent in arrears, if individual owners or their successors refused to pay their proportionate share of the costs charges and expenses.

20. [113]

    The defendant was a successor by assignment of one of the original allotment owners, who had paid his proportion of the costs, charges and expenses of the successors to the original owners, but who had declined to pay an additional sum levied upon him that was calculated on the basis of the number of tenants he had in the building on his land, rather than by reference to the share that was proportionate for his allotment. The defendant had acquired his allotment by a conveyance under which he took subject to the covenants contained in the 1851 deed in so far as they related to and affected his allotment and were subsisting and enforceable and capable of taking effect. Upjohn J held that, on the proper construction of the deed, the defendant was not liable for the additional levy. Consequently, what his Lordship said concerning the enforceability of the covenant in the original deed to pay the levy was not necessary for his decision.

21. [114]

    However, at 182-3, Upjohn J said (footnote omitted):

22. [115]

    One aspect of this decision that is relevant to the present case concerns what it says about the freedom of choice that the successor in title must have as to whether or not to take the benefit of the right, before the successor will be obliged to perform the covenant that is a condition to the exercise of the right. The defendant, through his tenants, had little practical choice about using the roads and sewers, whatever the practical position may have been concerning the promenade and the seawall. This appears to have led to Lord Templeman observing in Rhone v Stephens that “the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up his right and saving his money” (emphasis added).

23. [116]

    In E R Ives Investment Pty Ltd v High [1967] 2 QB 379, the Court of Appeal was concerned with the enforceability of a simple contract, initially made orally between adjoining landowners, and subsequently confirmed in correspondence, whereby the owner of one lot, whose building foundations had been constructed in a way that trespassed over the boundary into the neighbour’s lot, agreed with the neighbour to permit the neighbour to use a right of way over the rear of the trespassing owner’s lot in return for being permitted to maintain the trespass. The neighbour then constructed a dwelling on his land in a way that had the effect that the only means of access to a garage on his land was by means of the right of way. The land over which the right of way ran was subsequently sold to the plaintiff, who acquired the land with notice of the agreement. The plaintiff sought damages for trespass against the defendant and an injunction restraining him from using the right of way. The issue was whether the defendant was entitled to use the right of way as long as the plaintiffs permitted their building foundations to trespass on the defendant’s land.

24. [117]

    Lord Denning MR, in a judgment that was consistent with those of the Lords Justices who sat with him, said, at 394 (footnotes omitted):

25. [118]

    Halsall v Brizell and E R Ives Investment Pty Ltd v High were considered by Megarry VC in Tito’s Case in 1977. His Lordship concluded that the two authorities established that there was a general principle that any party who took the benefit of a transaction, in whatever form, became liable to any burden placed upon that party as a result of the transaction. His Lordship said that there must be some limit to any such principle and discussed what some of those limits might be. It is not necessary to consider this aspect of his Lordship's reasons in detail, as the pure principle of benefit and burden has been rejected by subsequent authority.

26. [119]

    After considering Halsall v Brizell in some detail, Megarry VC said at 295:

27. [120]

    The Vice-Chancellor then considered E R Ives Investment Pty Ltd v High, which he treated as being an example of the pure principle of benefit and burden, before he reviewed the authorities that he understood had been based upon the conditional benefit principle.

28. [121]

    As I have already explained above, in Rhone v Stephens the House of Lords declined to recognise the pure principle of benefit and burden as espoused by Megarry VC in Tito’s Case. The Full Court of the Supreme Court of Victoria had already done the same in Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1988] VR 829. Brooking J, who gave the leading judgment, said at 834 that he found the “pure principle” was “altogether too general and uncertain to be accepted”. His Honour observed at 840 that: “The ‘pure principle’ is beginning to creep into the books on contract law and real property, although its reception there has not been altogether enthusiastic…” He continued that he was unable to accept that there exists a principle of benefit and burden, whether as formulated by Megarry VC or as laid down by Lord Denning MR. Brooking J concluded, at 841, with the observation that he had dealt at some length with the law on this subject because of his “impression that the ‘pure principle’ now bids fair to entrench itself in our jurisprudence and because of my clear view that it must, in the interests of certainty and sound doctrine, be repelled.”

29. [122]

    In an article, “In Defence of the Benefit and Burden Principle” (1991) 65 ALJ 319, Professor EP Aughterson provided a reasoned defence of the pure principle of benefit and burden and a rebuttal of the reasoning of Brooking J, but the learned author’s views have been superseded by the decision in Rhone v Stephens, which soundly rejected the principle.

30. [123]

    In its submissions, New World placed substantial reliance upon a maxim that Megarry VC considered, at 290, in the reasons leading up to the acceptance of the pure principle, which his Lordship expressed as “… if you take something that has a burden annexed to it, you have to take it as it is, burden and all. Again, you cannot pick out the good and leave the bad.”

31. [124]

    As Lord Templeton in Rhone v Stephens characterised the decision of Upjohn J in Halsall v Brizell as being correct, but based upon the principle of conditional benefit, I will henceforth direct my attention solely to the application of that principle. His Lordship did not refer to E R Ives Investment Pty Ltd v High, but presumably he would only have treated it as being correct in so far as it could be explained on the basis of that principle.

32. [125]

    Meanwhile, the application of the conditional benefit principle had been considered by Kneipp J, when sitting as part of the Full Court of the Supreme Court of Queensland in Rufa. In that case, a party wall was in existence on the common boundary between shop premises on adjoining allotments of land. The centre of the wall coincided with the boundary line. In 1959, then owners of the two allotments by mutual deeds granted to each other and the owners and occupiers for the time being of the grantee’s land an easement over the area occupied by the wall for the purpose of using, in common with the grantor and the owners and occupiers for the time being of the grantor’s land, that party wall and any extension thereof. The deeds provided that either party was at liberty on notice to extend the wall longitudinally at his expense and that, if the other party later desired to use any part of the extension, he was to pay a rateable amount. Thereafter, the predecessor in title of the plaintiff (the respondent on appeal) extended the party wall, and, later, the defendants (the appellants on appeal), as successor in title to the other party to the deeds, used part of the extension, but refused to pay the amount required by the covenant in the deed.

33. [126]

    D M Campbell J (with whom Lucas SPJ agreed) determined the appeal in favour of the plaintiff on the basis that both the right to extend the existing party wall and the right to use the extended portion of the wall were rights capable of forming the subject-matter of grants of easements, the benefit and burden of which were enforceable by and against successors in title to the parties to the original deeds.

34. [127]

    Kneipp J found, at 370-1, that the plaintiff was entitled to succeed on the following basis:

35. [128]

    In Gallagher v Rainbow (1993-1994) 179 CLR 624, McHugh J (in dissent) accepted the treatment of Halsall v Brizell by Lord Templeman in Rhone v Stephens, but, at 647-8, put what he called the benefit and burden principle on the basis that “… a successor in title to a person bound by a deed may be bound by obligations in the deed if the successor in title takes a benefit conferred by the deed. However, a person who is not a party to or named in a deed is not bound by every one of its obligations merely because that person takes a benefit under the deed… (footnotes omitted)”.

36. [129]

    In Thamesmead Town Ltd v Allotey (2000) 79 P & CR 557, Peter Gibson LJ (with the agreement of Butler-Sloss and Hobhouse LJJ) made the following observations, at 565, concerning the effect of Lord Templeman’s explanation of Halsall v Brizell:

37. [130]

    The significance of the last sentence in this extract is that the transfer to the predecessor in title to the respondent contained positive covenants by them or their successors in title to contribute a fair proportion of the plaintiff’s costs of maintaining and repairing the roads, footpaths, sewers, cables, landscaped and communal areas on the estate of which the defendant’s allotment formed part. The defendant was not given a right to use the landscaped or communal areas and the plaintiff was not required to maintain those areas. The Court of Appeal disallowed the part of the plaintiff’s claim for contribution to its costs that related to the landscaped or communal areas.

38. [131]

    His Lordship continued at 565-6:

39. [132]

    The significance of this last extract appears to be that the issue is not whether or not the successor in title to the covenantor has a choice whether or not to acquire the interest in the land that is burdened by the positive covenant. The issue is whether the successor in title, having acquired the land, has a choice whether to exercise the right that is conditional upon the burden of the covenant being performed. As the latter is the true position, that gives rise to the consideration that some successors in title to the land to which the covenant relates may choose to exercise the right and some may not, and individual successors in title to the land may choose to exercise the right intermittently. The conditional benefit principle appears to have the effect that, if the successor in title to the covenantor chooses to exercise the right from time to time, the condition that is attached to the exercise of that right must be performed in some way that is proportional to the exercise.

40. [133]

    In Fanigun Pty Ltd v Woolworths Ltd [2006] 2 Qd R 366; [2006] QSC 28 (Fanigun), at 367-8, Mullins J (as her Honour then was) had to consider the effect of a registered easement that granted

41. [134]

    The servient tenement was leased to the defendant, Woolworths Ltd, which was therefore a successor in title to the party in whose favour the easement was created. The easement was subject to an express condition. It was also registered against the title to the dominant and servient tenements. The issue was whether the condition was enforceable against the defendant. Mullins J held:

42. [135]

    This is an important decision for the purposes of the present case, as the subject easement had been registered in the Queensland Torrens Register. I will return to this issue when I consider below the significance of the conditional benefit principle in the context of a registered easement. However, it is important to note that her Honour found that the condition to which the easement was subject was breached whenever the defendant permitted its customers, who were using their cars to cross the servient tenement over the area of the easement, by having to stop their cars for relatively short intervals because of the queue of vehicles, blocked the area of the easement on the servient tenement. Consequently, the condition to the enjoyment of the easement was not satisfied for numerous, recurrent short intervals. It is implicit in her Honour's judgment that the failure of the condition did not have the effect that the registered easement ceased to exist when the condition was not satisfied. It did not twinkle in and out of existence according to whether at the time the condition was satisfied. The easement was not conditional in respect of its existence. It continued to exist subject to a condition concerning the manner of its exercise.

43. [136]

    The decision of Mullins J is also helpful in respect of the issue of Aust-One's responsibility for what would be the trespass on to the servient tenement by persons using the dominant tenement, were it not for the rights granted by the Transfer to the owner of the dominant tenement for the time being. Her Honour said:

44. [137]

    The principles explained by her Honour should apply in the present case, even though the defendant in that case was the lessee of the dominant tenement rather than the owner, as is Aust-One. I would infer that, as the owner of the dominant tenement, Aust-One, by the leases that it has granted to the lessees of the four shops, the restaurant and the two residences, has authorised or instigated the lessees and their customers, where relevant, to use the arcade and the rest rooms on the servient tenement.

45. [138]

    Halsall v Brizell, Rufa and Fanigun were distinguished by McMurdo J in Rural View Developments. His Honour made an order for specific performance of a contract for the sale of land. He rejected a defence raised by the purchaser that the land had been made subject to a registered easement that was inconsistent with the requirements of the contract. The easement was for access and drainage for the dominant tenement that was the subject of the contract. The grant of the easement was subject to an express covenant in the following terms:

46. [139]

    In finding that this easement would not bind the defendant, if it was ordered to perform the contract, McMurdo J said at 43-4 (footnotes omitted):

47. [140]

    As Aust-One made detailed submissions as to why the payment covenant is not enforceable against it based upon the reasoning of McMurdo J in distinguishing the cases referred to in which the conditional benefit principle had been applied, I will defer my consideration of his Honour's reasons until I deal with the parties' submissions.

48. [141]

    In Davies v Jones [2010] 1 P & CR 22; [2009] EWCA Civ 1164, Sir Andrew Morritt C, with the agreement of Scott Baker LJ and Lewison J, held at 434 [27]:

49. [142]

    In Wilkinson v Kerdene Ltd [2013] EWCA Civ 44; [2013] 2 EGLR 163, Patten LJ, with the agreement of Arden and Rix LJJ, said:

50. [143]

    This case is important because of the light that it throws on the immediacy and the degree of the connection that is required between the nature of the right that the successor in title to the covenantor has chosen to exercise and the burden that has been made a condition to the exercise of the right. It may be sufficient if the burden of the covenant is to pay a fixed annual amount that is not directly referrable to the cost incurred by the covenantor in making the right available. It is necessary to look beyond the express terms of the instrument that creates the right and the condition and consider what in substance the covenantor is paying for. It may be sufficient to make the burden of the covenant enforceable if there is some sufficient link to the provision of the benefit of the rights.

51. [144]

    Again, in Elwood v Goodman [2014] Ch 442, Patten LJ, this time with the agreement of Beatson and Arden LJJ, repeated at 450-1 [24] his acceptance of the three-part explanation of the conditional benefit principle in Davies v Jones, and continued:

52. [145]

    This case suggests that the application of the conditional benefit principle is not to be subject to an excessively technical analysis of the relationship between the right that is enjoyed by the successor in title to the covenantor and the performance of the condition to which the enjoyment of the right is a condition.

53. [146]

    Finally, in GM Amalgamated Investments (Dulwich Hill) Pty Ltd v Mills, Sackville AJA said:

Conclusion as to operation of conditional benefit principle

1. [147]

   I consider that the analysis of the relevant authorities that I have made above justifies the conclusion that what has been called the conditional benefit principle is a part of the law of Australia, and may be stated essentially in the form of the three propositions made by Sir Andrew Morritt C in Davies v Jones, which are set out above. His Lordship distilled those principles from Rhone v Stephens and related authorities, and the propositions have been accepted in subsequent English decisions.

2. [148]

   That conclusion is supported by the judgment of Kneipp J in Rufa and by Mullins J in Fanigun.

3. [149]

   In saying that I accept the propositions as stated by Sir Andrew Morritt C I do not mean to say that those propositions should be treated as if they specifically and exhaustively state the law, or that they introduce any significant differences from the conditional benefit principle as stated by Lord Templeton in Rhone v Stephens. It may also be that, depending upon the circumstances of future cases, the last word has not been said on the operation of the conditional benefit principle. Although I accept that it is proper to approach the determination of the present case by applying the propositions established in Davies v Jones, I consider that that must be done with the guidance of all of the authorities that have applied the principle where that assists the Court in understanding the real meaning of the propositions.

4. [150]

   The purpose of the conditional benefit principle is to distinguish from the general case, where the burden of a positive covenant does not run with the land, those cases where, by reason of the successor in title to the covenantor having chosen to take the benefit of a right to which the performance of the covenant was intended to be reciprocal or upon which the enjoyment of the right is conditional, fairness requires that the positive covenant be enforceable. This is not a technical principle and it may not be remiss of the Court to be guided by the maxim to which Megarry VC referred in Tito’s Case, even though that maxim must not be treated as the basis of a general rule.

Easements created under the Torrens system

1. [151]

   Before I address the parties' submissions, I should briefly deal with the significance of the fact that the easements have been created by the registration of the Transfer under the Real Property Act. The parties did not make any submission that, in the present case, the fact that Aust-One has an indefeasible interest in the easements under s 42 of the Real Property Act makes any difference to the outcome of the dispute. I agree that in this case it does not, and that may be the reason why the parties did not raise the issue.

2. [152]

   Consequently, I will limit my treatment of this issue to the following brief observations.

3. [153]

   As I have noted above, Mullins J did not refer in Fanigun to any significance of the easement in that case having been created by a registered instrument. However, at [25] of Rural View Developments (which is extracted above) McMurdo J observed that there was no consideration in Rufa of the question of whether the conditional benefit principle could be applied to a covenant over Torrens land.

4. [154]

   If this issue were to be considered comprehensively, it would be necessary to focus on the effect of the particular instrument and the manner in which that instrument made the relevant rights conditional. As is notorious, the concept of a condition can have quite different meanings in different legal contexts.

5. [155]

   There may, perhaps, be circumstances in which, on its proper construction, the relevant instrument grants an easement that is intended to be conditional in the sense that its very existence will depend upon the occurrence of a condition precedent or a condition subsequent. For example, land might be conveyed subject to the grant of an easement in favour of an adjoining dominant tenement conditionally upon a particular development application being approved and a building constructed. In Fermora Pty Ltd v Kelvedon Pty Ltd, which is referred to above, the easement was made subject to a condition subsequent that the easement would be surrendered upon the grantee, or its successors in title, ceasing to use the dominant tenement for the purpose that required the easement.

6. [156]

   By parity of reasoning with the ground upon which the High Court decided Westfield Management Ltd v Perpetual Trustee Co Ltd, it might be problematic that an easement could be created by the registration of a transfer, where the easement was made conditional on the occurrence of events that could not be discovered by a search of the Register or perhaps instruments referred to in the Register. It might be particularly problematic if the condition was capable of failing intermittently, as it would be inimical to the objective of the Torrens system for a registered easement to twinkle in and out of existence as a result of events not discoverable from the Register.

7. [157]

   That is not, however, an issue that arises in the present case. There is an issue between the parties as to whether the easements are conditional at all, but if they are, they are conditional in the same sense as was the easement in Fanigun Pty Ltd v Woolworths Ltd. That is, the easements, once granted, will continue to have effect indefinitely, but, as New World would submit, the entitlement of the owner of the dominant tenement to exercise the rights is conditional upon the owner satisfying the covenant contained in the Transfer that is intended to be performed by the owner of the dominant tenement. The condition relates to the entitlement to exercise the rights and not to the existence of the easement.

8. [158]

   In the present case, all the relevant rights and obligations are contained in the Transfer, which is a registered instrument and referred to in the title documents to both the dominant and the servient tenements. The rights and obligations are therefore easily to be found by an inspection of the Register.

9. [159]

   The indefeasibility of the title to the easements created by s 42(1) of the Real Property Act are "subject to such other estates and interests and such entries, if any, as are recorded in that folio". The Transfer is recorded in the folio for the dominant and the servient tenements, and, by reason of s 31B(2)(b) of the Real Property Act, the Transfer itself is, as a registered dealing, part of the Register. I think this view is consistent with the majority decision of the High Court in Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1970-1971) 124 CLR 73; [1971] HCA 9, concerning the searches that should be made by an intending purchaser in respect of notifications in a folio of the Register.

10. [160]

    In the extract from the judgment of McMurdo J in Rural View Developments referred to above, his Honour cited a note published by PJ Grimes in “The Conveyancer” section of the Australian Law Journal at (1957) 31 ALJ 22. In that note, the author referred to the judgment of Upjohn J in Halsall v Brizell and described the rights created as being "equivalent in effect to a grant of conditional easements to the purchasers. The purchasers were not bound to contribute, but they were not entitled to the benefit of the easements unless they did so." The author then made some brief observations concerning whether such a conditional easement could exist when created by an instrument registered under the Torrens title system.

11. [161]

    It follows from what I have set above that I think a distinction can be made between an easement whose existence is said to be conditional and an easement that continues indefinitely but creates rights that can only be lawfully exercised on the performance of particular conditions. In the latter case, the easement does not twinkle in and out of existence according to whether the condition is satisfied.

Consideration

1. [162]

   It will be convenient to consider the effect of the wording of the Transfer, before attention is given to the parties' submissions as to the legal effect of that instrument.

Construction of the Transfer

1. [163]

   As New World noted in its submissions, the part of the standard form transfer that provided for a statement of the amount of the consideration for the grants in the transfer, and an acknowledgement of receipt, was crossed out and "the covenants and Agreements on the part of" the transferees inserted instead. Thus, the transferors did not receive a lump sum price for the grants in the Transfer.

2. [164]

   Clause (a) is an immediate grant of a permanent right of way and right to use amenities to the transferees and their executors, administrators, and assigns and all persons authorised by them.

3. [165]

   These easements attach to the part of the arcade on the servient tenement (as depicted on DP 219753) and permit use of the stairs landings washrooms water closets and urinals for the purpose for which they have been erected.

4. [166]

   Clause (b) is an immediate grant of a permanent right of support for the identified part of the wall and roof constructed on the dominant tenement by the identified part of the wall on the servient tenement.

5. [167]

   The easement for support is not mutual, in the sense that the wall on the dominant tenement is not required to support the wall on the servient tenement.

6. [168]

   The right of way is a right of footway only and does not extend to other uses.

7. [169]

   The right of way is appurtenant to the whole of No 181, although a possible issue as to whether it only extends to the four shops on the dominant tenement, because of the structural configuration of No 181 at the date of the Transfer, as depicted on DP 219753, has not arisen for determination.

8. [170]

   By clause 1 of the Transfer, the transferors and their successors covenant to repair and maintain the arcade stairs landings washrooms water closets and urinals and wall in good and substantial repair. The question of whether that obligation extends to the cleaning of those areas and the provision of consumables has not arisen in these proceedings.

9. [171]

   By clause 2, the transferees and their successors covenant in perpetuity to pay to the transferors and their successors one quarter of the gross rentals “received by them” on a monthly basis in respect of the four shops. Even though clause 2 refers to the gross rentals, the inclusion of the words "received by them" probably has the effect that the payment covenant only requires payment of one quarter of the rentals received in respect of the four shops after all allowances and returns of rental made in performance of the various COVID-19 Regulations. However, that is not an issue that arises in these proceedings.

10. [172]

    By clause 3, the transferees and their successors covenant not to let any of the shops that are erected on the part of No 181 that is coloured green on DP 219753 for purposes in competition with any business being conducted on any of the shops erected on Nos 183-185, without the prior written consent of the transferors or their successors.

11. [173]

    As a matter of the structure of the wording of the Transfer, all of the "covenants and Agreements", albeit in express terms only by the transferees, are the consideration for the grants in clauses (a) and (b) and the transferors' covenant in clause 1. That is for the simple reason that the reference to the consideration appears in the preamble to the Transfer at the beginning, and there is no textual basis for the consideration to be attributed to the grant of any of the easements, or the covenant in clause 1, but not the others.

Commercial effect of the Transfer

1. [174]

   The transferors incurred the cost of building the arcade, the stairway, the passage and the washrooms, as well as the wall providing support for the wall and roof on the dominant tenement, without contribution by the transferees. The transferors and their successors are required to repair and maintain the arcade, the stairs, the landings, the washrooms, the water closets and the urinals without separate contribution from the transferees or their successors. There is no textual or practical basis for apportioning the covenant by the transferees and their successors to pay the one quarter of the gross rentals received for the four shops to any of the costs incurred by the transferors, either initially or on an ongoing basis, by the transferees and their successors.

2. [175]

   It would have been obvious to any intending purchaser of No 181 from an inspection of (a) DP 219753 in Transfer J592560, as recorded in the folios for the dominant and servient tenements, and (b) the physical layout of both tenements and their environs, that:

3. [176]

   Any intending purchaser of No 181 would have understood from the terms of the Transfer in the context of the physical relationship of the two properties that the right of way and the right to use amenities in this case had a more substantial practical and commercial significance than merely allowing access from the street and the lane to the four shops on No 181, and for persons using those shops to have the use of the restrooms. The arrangement created by the Transfer had the exceptional feature of permitting the owner for the time being of No 181 to lease out four shops, which otherwise would only have an inefficient access to the lane, on the basis that they would operate as an integral part of a functioning retail arcade that would naturally draw custom to and from the street and the Council car park via the lane and the bridge over the stormwater drain. The Transfer created more than a right of way and right to use amenities that were required to be repaired and maintained. The creation of the easements as part of a single retail arcade permitted the owner for the time being of No 181 to derive a commercial return from the use of the rear of that property that otherwise would not be feasible.

New World’s submissions

1. [177]

   I will now deal with the parties' arguments concerning the enforceability of the payment covenant. I will first explain my reasons for not accepting New World's argument that the payment covenant is enforceable because it is an essential part of the easements granted by the Transfer, notwithstanding that the payment covenant does not run with the dominant tenement.

2. [178]

   In considering the relevant legal principles above, I have attempted to explain why I find it conceptually difficult to justify aspects of the proposition that the burden of a positive covenant associated with an easement can be enforceable because it is an essential part of the easement, particularly where the covenant is made by the grantee of the easement. It is not however necessary in these reasons to express a final opinion on that subject.

3. [179]

   That is because, even allowing the validity of the proposition for the full scope that could be justified, I would not find the payment covenant to be an essential part of the easements in this case.

4. [180]

   I accept New World's submission that all of the rights and obligations created by the Transfer are, both textually and in substance, part of the one transaction or 'deal', so that the true intention of the original parties to the Transfer, as discerned from its wording, was that all of the rights and obligations of the transferors and their successors were to be in return for all of the rights and obligations of the transferees and their successors.

5. [181]

   However, the issue is not whether the payment covenant was an essential part of the 'deal', but whether it was an essential part of the easements. I have explained that the only way that I can conceive of the meaning of "essence" in this context is that the particular covenant is in some way truly essential to the rights granted by the easement being real and meaningful.

6. [182]

   In the present case, all easements can operate effectively to the fullest of their intended effect whether or not the payment covenant is honoured by the owner of the dominant tenement for the time being.

7. [183]

   All of the right of way, the right to use amenities, and the easement for support were created once and for all with the registration of the Transfer, and will be able to be used by the owner of the dominant tenement from time to time, provided that the relevant parts of the servient tenements are repaired and maintained. Not only does the owner of the dominant tenement have an ancillary right at common law to enter upon the servient tenement to repair and maintain the land subject to the easements, but in this case the repair covenant binds the owner of the servient tenement to repair and maintain the relevant parts of the land. All the easements will be completely effective whether or not the payment covenant is performed, so that it cannot be said that performance of the payment covenant is essential to the operation of the easements and thus of the essence of those easements.

8. [184]

   Finally, the payment covenant is in no different position to the other covenants in the Transfer. If New World's argument is valid, all of the covenants would bind successors in title to the owners of the two properties, and the effect would be to circumvent all of the legal principles that limit the circumstances in which the burden of a positive covenant may be enforceable against successors in title to parties to dealing with freehold land, at least where the covenants are associated with the grant of easements. The success of New World's argument would outflank all the law flowing from Rhone v Stephens.

Aust-One’s submissions

1. [185]

   I will now turn to consider the arguments put by Aust-One in support of its claim that it is not bound by the payment covenant, even though it is entitled to enjoy the easements and the benefit of the repair covenant.

2. [186]

   As I understand Aust-One's position, it in substance accepts the existence of the conditional benefit principle on a basis that is substantially in accordance with the conclusions that I have set out above in my consideration of the legal principles that apply. Aust-One submits, however, that, when the relevant propositions are properly applied, it will be determined that the payment covenant is not enforceable against it. Aust-One relied in particular on the reasons for judgment of the McMurdo J in Rural View Developments.

3. [187]

   As, in this case, all the rights and obligations were created in the one transaction by the Transfer, proposition (1) as stated by Sir Andrew Morritt C in Davies v Jones is plainly satisfied.

4. [188]

   The question is whether his Lordship's propositions (2) and (3) have been satisfied. For convenience, I will repeat the statement of those propositions from his Lordship's reasons:

5. [189]

   Aust-One made several submissions as to why these propositions were not satisfied in the present case. The sub-headings encapsulate the arguments put by Aust-One.

6. [190]

   Aust-One submitted that the Transfer does not make performance of the payment covenant a condition to the entitlement of the owner of No 181 to enjoy the benefit of all easements and to enforce the repair covenant because textually neither the easements nor the repair covenant are expressed to be conditional upon the payment covenant being performed.

7. [191]

   It is true that performance of the payment covenant is not an express condition of the right to enjoy the easements and enforce the payment covenant. However, the authorities appear to make it clear that it is not necessary for the enjoyment of the right to be made conditional by express terms, and the real question is whether, having regard to the substance of the transaction as a whole and the construction of the relevant instrument, the intent of the parties to the instrument was that the covenantor and its successors could only enjoy or enforce some reciprocal right or benefit created by the instrument if the covenant was performed. That was made clear by the House of Lords in Chamber Colliery Company Limited v Twyerould, and reinforced by the Court of Appeal of England and Wales in Wilkinson v Kerdene Ltd at [27], where it was pointed out that Halsall v Brizell was an example of a case where the conditional relationship between the performance of the covenant and the enjoyment of the right was implied.

8. [192]

   In my view, the performance of the payment covenant is in the relevant sense a condition to the owner of No 181’s right to enjoy the right of way, the right to use amenities and to enforce the repair covenant. I will explain below my view that the same result does not apply to the easement for support.

9. [193]

   As is plain from a reading of the Transfer, the transferees obtained for their own benefit and for the benefit of their successors in title in perpetuity the right to participate in a single functioning retail arcade that required that they have the benefit of the easements and the repair covenant, without being required to pay any price to compensate the transferors for incurring the costs of building the arcade on Nos 183-185 or contributing to the costs of repair and maintenance, save only for the continuing performance of the payment covenant.

10. [194]

    Although the transferees would remain personally liable on the payment covenant to the transferors and their successors in title, the possibility of an action against the transferees or their estates for breach of covenant may have ceased to become valuable after the transferees had assigned No 181 and spent the proceeds of sale. As Aust-One acknowledged in response to a question from the Bench, the transferees could have assigned No 181 the day after the Transfer was registered. If the payment covenant was not enforceable against the transferees’ successors in title, then the transferors would in effect have made a gift to those successors. No intending purchaser of No 181 would reasonably understand the Transfer to have been intended to have that effect.

11. [195]

    In my view, it does not matter that the Transfer only states that the consideration to be provided to the transferors was the covenants and agreements on the part of the transferees. The Transfer was not signed as a deed and would only be deemed to be a deed under s 36(11) of the Real Property Act when it was registered. Consequently, consideration was necessary to support the Transfer in the period before registration, and it was sufficient that formally the consideration be provided by promises made by the transferees. That does not mean that, for the purpose of determining the effect of the Transfer on its true construction, the transferors should be treated as having accepted the promises made by the transferees as the only quid pro quo that they were entitled to receive for the rights granted by the Transfer to the transferees and their successors in title in perpetuity. In my view it is obvious that the objective intention of the Transfer was that the transferors and their successors in title would actually receive the specified share of the rental for the four shops as long as the easements were used.

12. [196]

    Given that those rights are in substance a right to participate in a functioning retail arcade, the natural way to construe the Transfer is that the continuation of the entitlement to enjoy the rights depends upon performance of the payment covenant.

Easements were created immediately upon registration

1. [197]

   It was apparently of significance to McMurdo J in Rural View Developments that, in that case, the relevant easement was created once and for all by the registration of the relevant instrument, while in Rufa the relevant instrument gave the defendant a right to choose to extend the wall and rely upon a wall extended on the servient tenement for support. Aust-One relied upon this distinction in the present case as a reason why the payment covenant was not enforceable against it.

2. [198]

   For reasons that I have considered above when dealing with the decision in Fanigun and the significance of the Transfer having been registered under the Real Property Act, I consider that the timing of the creation of the easement might be relevant to the application of the conditional benefit principle in a case where the existence of the easement is intended to depend upon the performance of the covenant by the owner of the dominant tenement. I will not repeat my view as to the difficulties that may arise in a case where the existence of an easement may depend upon the performance of some covenant by the owner of the dominant tenement. In my view, these difficulties do not arise where the easement, once granted, continues to exist indefinitely, but it is a term of the instrument creating the easement that some right inherent in it can only be exercised on condition that some reciprocal obligation is performed by the dominant owner.

3. [199]

   Consequently, the fact that all the easements were created once and for all upon the registration of the Transfer is in my view immaterial to the application of the conditional benefit principle to the enforceability of the payment covenant.

4. [200]

   Aust-One submitted that the payment covenant is not enforceable against it because there is no relevance, correlation, connection or relationship between the payment covenant and the rights (and the exercise of those rights) bestowed pursuant to the easements.

5. [201]

   Whereas Lord Templeman in Rhone v Stephens said that: “[t]he condition must be relevant to the exercise of the right” and that there must be “reciprocal benefits and burdens” (a requirement repeated by Sir Anthony Morritt C in Davies v Jones), Aust-One seems to be submitting that there must be some proportionate relationship between the right or benefit and the condition required to be satisfied that can be measured at least broadly in money terms or the equivalent.

6. [202]

   Aust-One submitted that it was significant that the payment covenant is not framed as an obligation to contribute to the cost of the repair and maintenance of the areas the subject of the easements, and that, if it had been the purpose of the payment covenant that it be sufficiently connected with the easements, it would have been framed as an obligation to contribute towards that cost. Further, there is no correlation or relationship between one quarter of the gross rentals received from leasing the four shops and the cost of repairing or maintaining the right of way and the right to use amenities. Aust-One submitted that rental yields and repair and maintenance costs are not proxies for one another. One quarter of the gross rentals could be far more or far less than the cost of repair and maintenance. If the owner of No 181 did not lease any of the four shops, the owner of Nos 183-185 would remain liable to perform the repair covenant.

7. [203]

   I do not accept that the payment covenant is unenforceable against Aust-One on this ground for the following reasons. First, the argument requires too great a monetary relationship between the reciprocal rights and obligations than is required by the conditional benefit principle, as expounded in the authorities. Rights and obligations may be sufficiently relevant and reciprocal even though the burdens involved are not equivalent measured in money. Secondly, Aust-One’s argument assumes that the payment covenant was included in the Transfer as some form of contribution to the obligation of the owner of Nos 183-185 under the repair covenant. In fact, it is clearly intended to be a quid pro quo for the continuing enjoyment of the right to enhance the commercial value of No 181 by participating in what was in practical terms a single functioning retail arcade, and enjoying the rights under the easements and the repair covenant necessary to enable that participation to be effective.

8. [204]

   Viewed through that lens, the payment covenant was an inventive and apparently congenial commercial arrangement intended to provide the owner of Nos 183-185 with compensation that bore a simple and commercially fair relationship to the benefit enjoyed by the owner of No 181.

9. [205]

   The inclusion of the payment covenant in the Transfer was, considered as a practical matter, a reasonable commercial solution to the provision by the transferees and their successors of consideration to the transferors and their successors for the benefit of the easements and the covenants created by the Transfer. That is because (a) the consideration was made proportional to the revenue received from the four shops, and would fluctuate in response to the actual benefits enjoyed; (b) it avoided the transferees having to pay a lump sum up front to the transferors; (c) it avoided the need to have to haggle over the size of the lump sum in circumstances where it would have been difficult to value the benefits properly; and (d) as the transferees and their successors were not obliged to continue to operate the four shops, the covenant to pay the one quarter of the gross rentals would abate in practice if any of the shops were not rented, whether by reason of circumstances or choice.

Payment covenant does not apply to rentals from the restaurant or the residences

1. [206]

   Aust-One submitted that the payment covenant did not sufficiently relate to the rights granted by the easements and the repair covenant because it only required payment of one quarter of the gross rentals received from the four shops and did not include rentals from the restaurant or the residences on No 181.

2. [207]

   There are several reasons why this submission should be rejected as a ground for finding that the payment covenant is not enforceable against Aust-One.

3. [208]

   First, it assumes that, when the terms of the Transfer were agreed at the time that the Council deed was entered into, it was a part of the agreement that the right of way and the right to use amenities would be made available to persons using the restaurant and the residences. I have explained above why that proposition is doubtful because of the apparent absence of a passageway beside Shop 4A from the storage area and stairwell behind the restaurant to the arcade on Nos 183-185 (and possibly also the fact that the Council deed recited that the easements were to benefit the four shops). It is not necessary to decide the issue, but the explanation for the payment covenant only covering the gross rentals from the four shops may well be that the expectation of the parties to the Council deed, and thus the Transfer, was that the rentals from the restaurant and the residences would be irrelevant to the use of the easements.

4. [209]

   Secondly, although the evidence is scant, it appears that the restaurant and the residences formed part of the existing building on No 181 at the time the terms of the Council deed were negotiated. Even if it was understood by the parties that persons using the restaurant and the residences might also use the easements, the rentals from those parts of No 181 may well have been excluded from the payment covenant because that covenant was understood to relate only to the new development on No 181.

5. [210]

   Finally, the argument that the exclusion from the payment covenant of the gross rentals from the restaurant and the residences means there is insufficient relationship between the payment covenant and the enjoyment of the rights under the easements and the repair covenant substantially overstates the degree of equivalence that is required between the payment covenant and the rights to be enjoyed for all of those rights to be sufficiently relevant or reciprocal to each other.

Payment covenant is a recurrent obligation and not an isolated one

1. [211]

   In Rural View Developments, McMurdo J distinguished Rufa on the basis that, in that case, the defendant was entitled to exercise a right created in the original deed to extend the building on its property and to then pay a single amount as its share of the cost of taking advantage of an easement for support. Aust-One submitted that as the Transfer required it to make monthly payments to New World, that is a valid reason for the Court to find that the payment covenant is not enforceable against it.

2. [212]

   As a general proposition, I do not accept that the conditional benefit principle can only make a covenant to pay money enforceable against a successor in title to the original covenantor if the covenant is to pay a single sum of money. There seems to be no reason why that should be so, and in a number of the authorities the covenant has been found to be enforceable against the successor even though it may be required to be performed on multiple occasions. Halsall v Brizell was one such case.

3. [213]

   Aust-One submitted that there has been no real choice (nor any opportunity for real choice) as to whether to use the easements. As I understand this submission, it is made on the basis that, once Aust-One became the owner of No 181, including as it does the four shops, it was not realistic as a practical matter to expect Aust-One to cease renting the four shops, and once it did so, it could not control the use of the easements by the persons who will do so, given that those persons include its “servants, agents, licensees and all other authorised persons authorised by him or her” in the terms of the Transfer.

4. [214]

   It is obviously true as a practical matter that, so long as Aust-One chooses to lease any of the four shops for retail purposes, it will by clear implication invite and authorise the lessees, their staff and all customers to use the right of way and the right to use amenities.

5. [215]

   However, I do not accept that this submission establishes, for the purpose of proposition (3), that Aust-One has not had a relevant opportunity of rejecting or disclaiming the benefit of the easements. As the consideration of Halsall v Brizell that is set out above, and Lord Templeman’s acceptance that it is sufficient that the owner of the dominant tenements be able to choose whether to enjoy the right “at least in theory”, show, proposition (3) may be satisfied if the dominant owner has a theoretical possibility of making the choice, even though it might be unreasonable to expect that owner to reject or disclaim the benefit. If the owner of a residential allotment has a sufficient choice whether or not to use the roads and sewers upon which the allotment depends, then it is a sufficient right to choose for Aust-One to decide whether or not to lease any of the four shops. If Aust-One chooses to lease any of the four shops, the fact that it then cannot control who decides to use the easements does not mean that proposition (3) is not satisfied.

6. [216]

   It may well generally be the case that it will be to the commercial advantage of the owner of No 181 to continue to lease the four shops, but if the payment obligation became onerous, or the combined arcade ceased to be commercially viable, there is no reason why that owner could not choose to cease to take advantage of the Transfer, and to develop the property in some different way. [The condition in the development approval removes any choice Aust-One submitted that the existence of the Council’s right to veto any agreement that the rights and obligations created by the Transfer be released, varied or modified, in association with the inclusion of the condition in the development approval that No 181 have the benefit of the right of way, had the effect that Aust-One did not have the opportunity of rejecting or disclaiming the benefits granted to it by the Transfer.

7. [217]

   An argument of this nature succeeded in Rural View Developments, but it is apparent from the judgment of McMurdo J that, in that case, the plaintiff proved by expert town planning evidence that, if the defendant had completed the contract of sale and entered into possession, it could not have released the easement for “access and drainage” without being in breach of the conditions in an applicable development approval given by the relevant Council. Aust-One did not lead equivalent evidence in the present case.

8. [218]

   Aust-One objected to the tender of the Council deed, as I have explained above. The Deed does, however, contain some evidence that the development application lodged by the transferees was approved by the Council subject to a condition that an agreement be entered into to ensure that a right of passageway and footway for access to the proposed four shops was permanently provided. That evidence does not prove in a sufficiently precise way what the condition in the development application required. So far as the evidence goes, the condition required that a certain agreement be entered into. The only conclusion available to the Court on the evidence is that the Council deed embodied the agreement required by the condition. The Council deed not only required that the transferors grant the right of way to the transferees and their successors in title, but it required that they do so on all of the terms that were ultimately contained in the Transfer. So far as the Court knows, the obligation on Aust-One to perform the payment covenant is as much a requirement of the condition as is the grant of the right of way.

9. [219]

   Whilst it is probable that the Council would require Aust-One, so long as it leases the four shops for retail purposes, to authorise all persons using the four shops to take advantage of the right of way, the evidence does not establish that the Council has any interest in the issue whether the owner of No 181 continues to lease the four shops. In the absence of evidence to the contrary, I would infer that the Council would permit the owner of No 181 to cease authorising persons to use the right of way, provided the four shops ceased to be used for retail purposes.

10. [220]

    I do not accept, in these circumstances, that Aust-One is entitled to say that it is prevented from rejecting or disclaiming the benefit of the easements because of the operation of either or both of the Council’s right of veto and the condition in the development approval, with the effect that the payment covenant is unenforceable against it, given that the making of the payment covenant was as much a requirement of the Council deed and the Transfer as any other right that was created by those instruments.

11. [221]

    In any event, in the absence of proper proof, I would not accept that the easements created by the Transfer in favour of the owner of No 181 should be treated as having the same effect as the easement for “access and drainage” that was considered by McMurdo J. No positive judgment can be made because of the absence of precise evidence, but it may be that, if the defendant in that case had taken ownership of the dominant tenement there would simply have been no choice, by reason of the fact of possession, but to use the right of access and drainage. That is not so in the present case where, as I have explained above, although it would be a relatively extreme commercial act for the owner of No 181 to cease renting the four shops and to permanently shut their doors, it is an act that could practicably be done, leaving the owner to continue to enjoy the commercial benefit from renting the balance of the property, as was apparently the case before the Council deed.

The building on No 181 physically requires the easement for support

1. [222]

   Aust-One submitted that, once it acquired No 181, it had no choice about taking advantage of the easement for support, as long as the existing physical structure of the building on No 181 was retained.

2. [223]

   I will assume that the building on No 181 actually makes use of the easement for support at the place indicated in Diagram C on DP 219753, although there was no evidence to support any particular finding about the dependence of the building on No 181 on the continuing existence of the easement for support. New World did not suggest that the easement for support was not needed.

3. [224]

   In these circumstances, I would accept that the requirement of the conditional benefit principle that Aust-One must have or have had the opportunity of rejecting or disclaiming the benefit of the easement for support, not merely the right to receive the benefit, is not satisfied in respect of the easement for support.

4. [225]

   However, it does not follow from a conclusion that the conditional benefit principle does not apply to the easement for support that the principle does not apply in respect of any of the other rights created by the Transfer, in so far as the enjoyment by Aust-One of those other rights may be conditional in the relevant sense upon performance of the payment covenant. Although the agreement contained in the Council deed, and thus the Transfer, was a single ‘deal’ that was intended to allow the owner for the time being of No 181 to participate in a single retail arcade, by means of being given rights over Nos 183-185 without which the commercial benefit that could be derived from the rear of No 181 would be severely limited, it does not follow that the application of the conditional benefit principle requires that all of the rights provided to the owner of No 108 must be conditional upon the performance of the payment covenant. It is necessary to look at each of the rights separately and it may be determined that some are conditional on the performance of the payment covenant, while others are not.

5. [226]

   I am satisfied that the easement for support may be distinguished in its relationship to the payment covenant from the other rights granted to the owner of No 181 by the Transfer. First, as I have noted above, mutual easements for support were not granted by the Transfer. I will infer that, in some way the building on Nos 183-185 provides passive support for the building at the rear of No 181. That support will be necessary for the continuing physical competence of the structure. But it will have little relevance to the commercial return enjoyed by the owner of No 181 from renting the four shops. There is no evidence that the transferors incurred any substantial cost in constructing the wall on Nos 183-185 so that the wall would be able to provide support for part of the building on No 181.

6. [227]

   The effect of the payment covenant is that it requires the owner of No 181 to pay to the owner of Nos 183-185 a share of the commercial return from renting the four shops, which bears a relationship to the amount of ongoing custom enjoyed by the lessees of the four shops, in so far that customers will use the right of way and the right to use amenities, both of which are the subject of the repair covenant. In a real way the payment covenant relates to the right of way, the right to use amenities and the repair covenant in a manner that is not so for the easement for support.

7. [228]

   It follows that, if the owner of Nos 183-185 sought an injunction to restrain the owner of No 181 from using the easement for support, on the ground that the payment covenant had not been performed, the application would fail, because the conditional benefit principle did not apply to the easement for support. That does not mean that an application for an injunction to prevent the use of the right of way or right to use amenities by persons using the four shops, or for damages for breach of the payment covenant, would fail for the same reason.

Meaning of "gross rentals" in the payment covenant

1. [229]

   The final issue to consider is the claim made by New World in its cross claim for a declaration that the payment covenant is enforceable on the basis that the amount required to be paid is "one quarter of the net rent and outgoings" received by Aust-One in the preceding calendar month from letting the four shops.

2. [230]

   To date, and for the whole of the period in which the payment covenant has been performed by the owner of No 181, the amount payable has been calculated and accepted on the basis that it was to be one quarter of the monthly amount of rent received by the owner of No 181, before taking into account any amounts paid by the lessees of the four shops in compensating the owner for the costs of outgoings referable to the shops.

3. [231]

   New World's case is that the use of the expression "gross rentals" in clause 2 of the Transfer requires Aust-Aust to pay to New World one quarter of the total of the rent and the outgoings.

4. [232]

   The source of this argument on New World's part appears to be a long-standing and well-known practice in the commercial and retail leasing market in this country whereby the obligation of the lessee as defined in the lease is either to pay gross rent or net rent. As defined in Butterworth's Australian Legal Dictionary, "gross rental" means: "a rental paid for the premises, usually commercial premises, which includes an allowance for all the outgoings attributable to the premises."

5. [233]

   The same source defines "net rentals" in the following way:

6. [234]

   Thus, for commercial reasons, a lessor and a lessee may agree that the lessee will pay a gross rental. In that case, the lessor will be required to absorb any costs attributable to outgoings for the leased premises. Ordinarily, the lessor will have calculated the amount of the gross rental in a sum that will automatically compensate the lessor for the cost of outgoings incurred. Alternatively, the parties may agree that the lease will include a term requiring the lessee to pay a net rental. In that case, the lessor will have to beer the cost of outgoings, but, as the above definition of net rentals shows, it is usual for the lease in that circumstance to include a specific term requiring the lessee to compensate the lessor on some appropriate basis for the cost of outgoings incurred.

7. [235]

   The difficulty with New World's claim is that the Transfer does not contain any term that requires Aust-One to lease the four shops on a basis whereby the rent obligation of the lessees is on a gross rentals basis. In fact, although the evidence is scant, it appears that Aust-One has been leasing the four shops on a net rentals basis. That means that Aust-One has been receiving an amount of rent each month, and there has been separate provision in the leases for the lessees to compensate Aust-One for a proportion of the cost of outgoings incurred by Aust-One in relation to each of the shops.

8. [236]

   For New World's argument to succeed, it would be necessary for the Court to treat the reference to "gross rentals" in clause 2 of the Transfer as requiring the net rental provisions in the leases to be artificially treated as being gross rental provisions, when they are not such.

9. [237]

   It appears that when the terms of the Transfer were negotiated and agreed, inadequate attention may have been given to the possibility that the owner of No 181 would be left free to enter into leases of the four shops on a net rental basis.

10. [238]

    It cannot in these circumstances be assumed that the draughtsperson of the Transfer used the term "gross rentals" in contradistinction to "net rentals" in the sense now asserted by New World.

11. [239]

    It is also possible that the word "gross" was used in clause 2 of the Transfer in another sense, to refer to the gross rent payable under the leases, and not net of costs incurred by the owner of No 181 after allowing, for instance, for managing agent fees that would not be recoverable from the lessees. There may be other such costs incurred by the lessor that are not recoverable from the lessees, although the evidence did not address this issue.

12. [240]

    The relevant expression in clause 2 of the Transfer is in fact "the gross rentals received by them" and I consider that the expression "received by" is significant and focuses on the intention that the owner of No 181 only had to pay a proportion of the rentals received from the lessees that the lessor was entitled to retain, save for its own costs of doing business such as managing agent's fees. Receipts by the lessor of contributions from the lessees for outgoings costs paid by the lessor would not, in this sense, be treated as money received by the lessor.

13. [241]

    This construction of clause 2 of the Transfer is consistent with the scheme of the arrangement created by the Transfer, which I have considered above, which is that the owner of No 181 was required to make recurrent payments to the owner of Nos 183-185 for the benefit of being able to participate in a functioning, retail arcade. It would be natural for the original parties to have agreed that the owner of No 181 should be required to pay a proportion of the actual rentals that it received. It would not be natural for the parties to have expected the owner of No 181 to pay to the owner of Nos 183-185 a proportion of amounts received from lessees as compensation for costs incurred for outgoings. That would impose a loss on the owner of No 181 that had no commercial justification.

14. [242]

    Consequently, I find that the payment covenant in clause 2 of the Transfer does not have the effect of requiring the amounts payable to be calculated on the basis that the leases were on a gross rental basis when they were not, and the correct effect to give to the word "gross" is that Aust-One is not entitled to deduct from the actual rentals received its own business costs not recoverable from the lessees.

Conclusion

1. [243]

   The result is that orders will be made dismissing both Aust-One's claim and New-World's cross claim.

2. [244]

   In principle, each party is entitled to be paid the costs by the other party of its successful defence of the relevant claim.

3. [245]

   As I have noted above, it will be necessary for the parties to agree on the amount payable by Aust-One to New World in performance of the payment covenant, and I invite the parties to submit appropriate short minutes of order to my Associate.