The decision is of interest for what it says about what happens to such rights when (1) the hotel and resort cease to operate; and (2) certain of the facilities cease to be usable. The hotel and resort had ceased to operate in 2004 (following Hurricane Ivan), although the golf course, beach and tennis courts remained in place. The land on which the resort stood was successively sold until it was acquired in 2016 by the plaintiffs. When the plaintiffs acquired the land, the land registers pertaining to it recorded that certain agreements (Agreements) had been entered into with respect to the land. The legal effect of those Agreements was the subject of considerable uncertainty, as the 184 pages taken up by the judgment attest.
The plaintiffs, who had not been involved in creating the Agreements, brought the proceedings in a quest to clarify the legal position surrounding the land. While the judgment does bring some clarity to certain matters, there remain (as we explain below) considerable uncertainties about the future of the land.
The Agreements were recorded on the land register as “restrictive agreements”. Under Cayman property law certain types of rights granted by one landowner in favour of another may be registered as restrictive agreements and will pass to successive owners when the land is subsequently conveyed. They benefit landowners who succeed to the title which benefits from the Agreements and bind landowners who succeed to the title that was burdened by the agreement.
At the relevant time, only rights that were negative in nature could be registered as restrictive agreements. One of the issues in the proceedings was whether the relevant Rights were negative in nature. In form, the Rights created positive obligations to permit Owners of the residential property to play golf and tennis and enjoy certain beach club facilities. The Owners argued that the Agreements contained an implied negative term, an implied term requiring the owner “not howsoever to build on or otherwise develop or carry out works on the Properties in a manner that prevents or substantially interferes with the exercise of” the relevant Rights. The judge rejected this argument, but he found that a different term should be implied, namely a requirement not to modify the relevant facilities or their location or suspend the exercise of the Rights for any purpose other than for carrying out repairs and maintenance to the facilities.
The judge’s finding was based on his interpretation of a proviso that made the exercise of the Rights:
“subject at all times to the right of Cayman Hotel or its successors in title or assigns to modify the facilities or the location thereof as constitute such Rights or to suspend such Rights for the purpose of carrying out repairs or maintenance in respect thereto.”
The judge did not hear argument on the term that he decided was to be implied or the implication of that term by reference to these words. In making his finding he proceeded on the assumption that the words “for the purpose of carrying out repairs or maintenance in respect thereto” applied not only to the words “or to suspend such Rights” but also to the words “to modify the facilities or the location thereof as constitute such Rights”. That is a questionable assumption. Not having heard argument on the point the judge did not give reasons for his assumption.
This aspect of the decision can also be seen as pushing at the limits (and perhaps beyond) of the restrictions on implying terms into Agreements. Where agreements are contained in documents that may bind persons who were not the original parties, the courts are often reluctant to enlarge the scope of the bare text in the document by implying terms because to do so may undermine the need to promote legal certainty. The implication of terms is also restricted by a requirement that no term is to be implied unless it is strictly necessary to make the contract work. It might be argued that the agreement worked perfectly well without the implication of this term: the apparent reason for implying the term and the apparent “necessity” for the term was to make the agreement a “restrictive agreement”, but it is questionable whether this satisfies the requirement of necessity.
The judge also found that the Agreements were effective as easements. In this respect, the decision is an unusual instance of a right that requires payment of a fee as a condition of its exercise being classified as an easement.
The Rights were, as will be apparent from the above, not created or registered as easements, they were created and registered as restrictive agreements. The Cayman Registered Land Act provides that easements must be created using a particular form – which was not used. As the Registered Land Act is a complete code it might be thought that an easement cannot be created in any manner other than the one specified by the Act and that is indeed what was argued by the plaintiffs. The judge, however, decided that an easement can be created even where there is a considerable departure from the prescribed form and even where there is no mention anywhere that the right is an easement.
The judge went on to deal with the fact that the Rights had never been registered as easements by holding that the land register could, and should, be altered after the event to record that easements had been created and registered against the land on which the golf course and beach facilities had been created. The decision is of interest as indicating that even quite serious errors in creating and registering legal rights can be put right many years later and after the land has changed hands more than once on the basis of the erroneous registration.
As to the tennis courts, the judge exercised a statutory power to extinguish the Rights as they applied to the tennis courts on the basis that the courts were of no real use to the property Owners – one of them lay under a highway and the other had not been used in years.
In respect of counterclaims, the Owners had been critical of what they contended was the plaintiffs’ failure to maintain the golf course. The judge rejected these criticisms as being without any foundation. He held that the plaintiffs did not have any obligation to maintain the course. It was in fact the case, as the judge also found, that the plaintiffs had spent considerable sums on the upkeep of the property despite being under no obligation to do so.
The fact that the plaintiffs have no obligation to maintain the course gives rise to an intriguing question. Will the golf course ever be used as a golf course and if it is not, what use does the land now have? The evidence at trial was that the plaintiffs had maintained the land, but not as a golf course, so that it had in fact deteriorated to a point where it could no longer be used a golf course without the investment of a seven-figure sum. The evidence also indicated that if the land were returned to its former condition as a golf course, a figure of between $500,000 and $1,000,000 dollars a year would be required to keep it in that condition. Although there were assertions from the Owners that the land would be turned back into a golf course, there was no hard evidence to back that up and it is far from certain that the Owners will in reality take this step.
If the land is not in fact turned back into a golf course, then the Owners have no right to go on it or use it for any purpose – because, pursuant to the Rights, the only thing that they are allowed to do on the land is play golf. At the same time the plaintiffs would be unable to modify the land to allow it to be used for any other purpose. Should this not-implausible scenario come to pass, it would become impossible to put the land to any good use. The result would be a stalemate over the land, benefitting nobody. The plaintiffs have appealed to the Court of Appeal.
Appleby represent the plaintiffs, the acquirers of the resort land in 2016.
