Court of Appeal clarifies important aspects of Cayman Islands’ property law regarding restrictive agreements, easements and Land Register rectification

Cayman Shores Development Ltd and another v. Registrar of Lands and Others CICA 017 of 2021.

On 7 March 2023, the Cayman Islands Court of Appeal (CICA) overturned the decision of the Grand Court, which held that certain legal instruments dating from 1992 to 2001 granting various rights to residential proprietors in the Britannia development (Owners) were binding on a number of companies in the Dart Group (Dart Companies) which had acquired the land in 2016 (Land). These instruments purportedly granted rights to enjoy certain facilities situated on the Land , including the enjoyment of a beach and a golf course.  At first instance, the Grand Court held that these rights bound the Dart Companies, a decision now reversed by CICA.

In summary, CICA adopted a strict approach finding that:

1. The relevant instruments did not contain any restrictive agreements;

2. The relevant rights were not perfected by registration as easements pursuant to the Registered Land Act (RLA);

3. There was no rectifiable mistake under the RLA, emphasizing the importance of respecting the parties’ apparent decision to enter into and register in the land register (Register) restrictive agreements only, and not easements.

CICA’s decision is important as it addresses a number of fundamental aspects of Cayman property law, and gives primacy to commercial certainty thereby avoiding the potentially impracticable consequences for the use of the Land introduced by the decision at first instance.

Facts

The dispute relates to a large development formerly known as the Britannia Resort, which was comprised of a hotel, a golf course situated on the land adjoining the hotel, two tennis courts, a beach club (together, the Facilities), and four phases of residential developments.

At the time the residential properties were developed, the use of the Facilities was held out by the developer as attractions to potential and actual purchasers.

The then registered proprietor of the Land (Cayman Hotel) entered into various written agreements relating to the Facilities (the Instruments).  The judge at first instance, Segal J, described the Instruments as “puzzling”. They are headed ‘Restrictive Agreement’ but contain no explicit promise from Cayman Hotel as to what it was not to do with the Land. Rather, and despite their heading, the Instruments purported to grant rights (referred to as the ‘Beach Club Rights’, the ‘Golf Playing Rights’ and the ‘Tennis Court Rights’ (collectively, the Rights)) to the proprietors of the relevant dominant parcels and their successors in title.  The Instruments were also entered into the Register as restrictive agreements or ‘Rest. Agmnts’.

Following Hurricane Ivan in 2004, the hotel and resort ceased to operate.  Subsequently, the tennis courts were overtaken by a highway and the golf course fell into disrepair.

After the Dart Companies purchased the Land in 2016,  they communicated to the Owners that they were considering plans for redevelopment of the properties and offered to make the beach facilities and golf course available for use by the Owners as licensees.

The Owners objected on the basis that, in their view, the Rights were binding on the Dart Companies as the successors in title of the servient tenement.

The Dart Companies, who had not been involved in creating the Instruments in (1992 to 2001), first tried to reach a negotiated settlement with the Owners but, when those efforts failed, were left with no choice but to bring the proceedings for the purpose of clarifying the legal position surrounding the Land.

The decision of the Grand Court

At first instance, Segal J found in favour of the Owners on the basis of the following conclusions:

1. The Instruments contained restrictive agreements within the meaning of and pursuant to section 93 of the RLA (‘an agreement …by one proprietor restricting the building on or the user or other enjoyment of his land for the benefit of the proprietor of other land’). The Judge found such a term arose out of clause 3 of the Instruments, which states:

‘The proprietors hereby covenant on their own behalf and that of their successors in title and assigns to exercise such rights in accordance with any rules and regulations in force from time to time in respect thereof 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 held that expressly or by implication, Cayman Hotel thereby promised not to modify the Facilities or their location, or to suspend the Rights, other than for the purpose of carrying out repairs or maintenance. As the Instruments contained restrictive agreements and were registered as such, the Rights were therefore binding on the Dart Companies as the registered proprietors of the Land.

2. The Instruments contained easements within the meaning of and pursuant to section 92 of the RLA, notwithstanding the fact that the registration of those agreements marked a considerable departure from the prescribed formal requirements and did not reference the registration of an easement.

3. The Register could, and should, be altered by the registrar of lands (Registrar) after the event to record that easements had been created over the Land.

The Grand Court’s decision has been previously discussed in an article by Appleby:  Britannia Litigation: Success Or Stalemate?

the Court of Appeal’s Decision

On appeal, CICA found in favour of the Dart Companies.

Restrictive Agreement

As to the issue of whether the Instruments contained any restrictive agreements, the Court of Appeal answered the question in the negative after conducting a principled analysis of the leading authorities on the interpretation and implication of a term.

In reaching that decision, CICA held that the Grand Court misconstrued clause 3 of the Instruments and erred in finding that there was an express or implied agreement by the registered proprietor of the servient parcel (Cayman Hotel) not to modify the Facilities constituting the Rights or their location or to suspend the exercise of the Rights other than for the purpose of carrying out repairs or maintenance.  Among other things, CICA found that the Judge’s construction of clause 3 ‘flies in the face of the fact that the agreements do not contain any promises by… [the then owner of the land] not to do anything on its land’, and was at variance with both:[1]

1. the natural and ordinary meaning of the words use in the clause; and

2. the parties’ contemplation at the time the Instruments were concluded that the Facilities would be available for at least as long as resort remained in operation and that over such time the Facilities might well be modified or moved for reasons other than repairs and maintenance.

Consequently, CICA concluded that the Instruments ‘lacked the essential ingredient plainly and obviously required by section 93 (1) RLA, namely that of restricting building on or the use or other enjoyment of the land owned by the Resort’.[2]

CICA also rejected the Owners’ counterclaim that the Instruments contained a so-called ‘Covenant Not to Build or Develop’, which flowed from the very purported grant of the Rights.  As the CICA stated at paragraph 84:

‘…at the heart of the respondents’ case [on this issue] is the proposition that, where there is a grant of rights of the sort granted in the Agreements, the grantor is subject to a term that he or she will not interfere with the exercise of that right. In our view the judge was right to reject this proposition…’

Easements

Notwithstanding CICA agreeing with the Grand Court’s finding that the wording used in the Instruments was capable of creating rights in the form of easements, the Court of Appeal went on to find that the rights ‘were not easements in the full sense since they had not been perfected by registration as required by section 92(4) [RLA], the parties having deliberately decided not to create or register easements’.[3]

Significantly, CICA agreed with the Dart Companies’ submission that for the creation of easements, there had to be completion by registration so as to give notice to those who inspect the Register, and the registry entries in this case (which identified the Instruments as creating ‘Rest. Agmnts’) were insufficient to do so.  As the registry entries did not conform to the mandatory requirements of the Land Registry Procedural Manual for the registration of easements, CICA held that the registration was ineffective pursuant to s 27 of the RLA.[4]

Rectification

As to rectification, CICA held that there was no rectifiable mistake under s 140 of the RLA and so the Judge below erred in ordering rectification of the Register so as to refer to easements. In doing CICA emphasised the importance of respecting the apparent decision of the parties to enter into and register restrictive agreements only and not easements.

As noted above, the Instruments were entitled ‘Restrictive Agreement’, and a clause thereof expressly requested the Registrar to note that the Land was ‘subject to a restrictive agreement’ in relation to the Rights.  Given that the parties requested the noting of ‘restrictive agreements’ only in the Instruments, CICA found that the Registrar ‘most certainly would not have been entitled to proceed without more to register the easements in the appropriate sections of the register’, even if she had appreciated that the Rights could be characterised as easements.[5]

Significantly, CICA commented at paragraph 169:

‘…it is fundamental to the registration machinery created by the RLA and to the duties of the Registrar, to ensure that the Registrar and her or his staff accord a free choice to applicants as to which rights they wish to apply to have registered, in this case, restrictive agreements and/or easements…’

In light of that fundamental principle, CICA went on to affirm the importance of conducting registration in the prescribed form.  It found that:

1. Even if the parties had confirmed to the Registrar that they wished to apply for the registration of easements, the Registrar would have been duty-bound to require the parties to amend the wording of the documents they had submitted.[6]

2. The Registrar could not have simply approved the Instruments in their existing form using her powers contained in s 105(1) RLA, which required dispositions of land to be effected by instruments in the prescribed form ‘or in such other form as the Registrar may in any particular case approve’.  The Registrar’s powers under s 105(1) of the RLA had to be exercised consistently with the Registrar’s duty to administer the Land Registry in accordance with the Law (s 5(1) RLA) ‘which would include the non-acceptance of documents containing confusing and/or misleading information’.[7]

Was rectification precluded by s140(2) RLA?

S 140(2) RLA precludes rectification affecting the title of a proprietor in possession who purchased the property for valuable consideration ‘unless such proprietor had knowledge of the omission, fraud or mistake in consequence of which the rectification is sought, or caused such omission, fraud or mistake or substantially contributed to it by his act, neglect or default.’

Although CICA agreed with the Grand Court’s ruling that knowledge for s 140(2) purposes ‘includes knowledge possessed by the proprietor at the time he, she or it acquired the land in question’, not just knowledge acquired at the time the omission, fraud or mistake occurred,[8] it held that the Grand Court erred in finding that the Dart Companies had such knowledge on the facts.  Therefore, rectification to refer to the Rights as easements was not available against the Dart Companies in any event.[9]

Discretion

Further, CICA held that the Judge was ‘clearly wrong’ in the exercise of his discretion in ordering rectification of the Register to refer to easements, when the parties had requested only the registration of restrictive agreements.  At [176], CICA went to express the following view:

‘In our judgment, there is a powerful argument, founded on the long-accepted benefits that flow from commercial certainty, for holding the respondents to their election, which should have been weighed in the balance by the judge giving it the very considerable weight it merited. As a result of the parties’ freely taken decision to register restrictive agreements, the register recorded entries only for restrictive agreements and parties inspecting the same would have been well entitled to conclude that it was restrictive agreements and only restrictive agreements that had been registered. The whole point of the system created by the RLA was that entitlement to land and related interests therein are to be determined by entries in the register and that people should be able to rely on the entries to determine and vindicate their real property interests.’

Following from its conclusion that there were no restrictive agreements which satisfied that definition under s 93(1) of the RLA and no rectifiable mistake, the CICA ordered the entries referring to ‘Rest. Agmnts’ to be removed from the Register.[10]  In doing so, the CICA affirmed the Dart Companies’ long-standing view that their use of the Land was not subject to any restrictions in favour of the Owners.

Conclusion

By giving primacy to commercial certainty, CICA judgment marks the reversal of a decision that created potentially impracticable consequences for the future use of the Land.  On the Grand Court’s reasoning, the golf course land at Britannia could only be used to play golf by the Owners, but there was no requirement for the Dart Companies to maintain it as such and it could not be modified to any alternative use.

The strict approach taken by CICA to the formal requirements of registration, although resulting in what CICA recognised as ‘a profoundly negative impact on the Owners who had paid a premium for the Rights’,[1] is arguably necessary for the purpose of maintaining the integrity of the land registration system.  The creation of a land registration system which enables users to treat the Register as an accurate record of all entitlements to land is the whole point of that system under the RLA.

Unfortunately, commercial certainty comes at a cost to parties that seek to rely on ambiguously worded agreements or instruments.  As put by CICA at [184]:

‘… the restrictive agreements that the parties to the original Instruments and Agreements deliberately decided, on legal advice, should be the sole mechanism for protecting the Rights, lacked the essential ingredient plainly and obviously required by section 93 (1) RLA, namely that of restricting building on or the user or other enjoyment of the land owned by the Resort. The die was therefore cast at the very moment that the requested entries were recorded in the register, and it is most unfortunate that the proprietors must bear the consequences of the mistaken selection of this defective mechanism for the protection of the Rights.’

CICA’s decision serves as a reminder to parties intending to enter into restrictive agreements and/or easements, and crucially their lawyers, to ensure that the instruments purporting to record those agreements or grant those rights are clearly drafted and registered in the correct form.  It confirms that simply identifying a right over land as protected by a ‘restrictive agreement’, and registering it as such, is insufficient if the agreement does not actually contain any promise by a landowner restricting the use of its land within s 93 RLA. It also confirms the limits of what the courts can do to rectify after the fact if an incorrect mechanism is used.  The decision may also prompt others to review the adequacy of historic arrangements already in place.

The Dart Companies, being the successful appellants, were represented by Appleby and counsel team comprising of Jonathan Seitler KC and Emer Murphy of Wilberforce Chambers.

[1] Cayman Shores Development L td v The Registrar of Lands and Ors CICA 017 of 2021 at [81]
[2] [184]
[3] [134]
[4] [112]
[5] [169]
[6] [171]
[7] [171]
[8] [173]
[9] [174]
[10] [181]
[11] [184]