Foith and Others v Proprietors of Strata Plan No 436 and Others

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Mottley and Newman, JJ.A.)
• Judgment Date: 06 May 2015
• Court: Court of Appeal (Cayman Islands)
• Date: 06 May 2015

Court of Appeal

(Chadwick, P., Mottley and Newman, JJ.A.)

FOITH and TWO OTHERS

and

PROPRIETORS, STRATA PLAN NO. 436 and THREE OTHERS

K.J. Farrow, Q.C. for the appellants;

P. McMaster, Q.C. and R. Lindley for the respondents.

Cases cited:

(1) British Eagle Intl. Airlines Ltd. v. Compagnie Natle. Air France, [1975] 1 W.L.R. 758; [1975] 2 All E.R. 390; [1975] 2 Lloyd”s Rep. 43, referred to.

(2) Demirel v. TMSF, C.A., Cause No. 6 of 2009, September 9th, 2009, unreported (noted at 2009 CILR N[27]), applied.

(3) Hoare v. Adam Smith (London) Ltd., [1938] 4 All E.R. 283, referred to.

(4) Kok Hoong v. Leong Cheong Kweng Mines Ltd., [1964] A.C. 993; [1964] 2 W.L.R. 150; [1964] 1 All E.R. 300, considered.

(5) Lake View & Star Ltd. v. Cominelli, [1937] A.C. 653; [1937] 2 All E.R. 285, referred to.

(6) Pittalis v. Grant, [1989] Q.B. 605; [1989] 3 W.L.R. 139; [1989] 2 All E.R. 622; (1989), 21 H.L.R. 368, referred to.

Legislation construed:

Strata Titles Registration Law (2005 Revision), s.21: The relevant terms of this section are set out at para. 12.

Registered Land Law (2004 Revision), s.93: The relevant terms of this section are set out at para. 20.

s.132: The relevant terms of this section are set out at para. 25.

Land Law-registration-restrictions-agreement between proprietors restricting one proprietor”s use of land ‘restrictive agreement’ under s.93(1) of Registered Land Law (2004 Revision) and not binding unless registered-may be registered under s.93(1) or as ‘restriction’ (i.e. order made by Registrar restricting use of land) under s.132

Land Law-strata titles-control by developer-prohibition of bye-laws restricting ability to lease lot under Strata Titles Registration Law (2008 Revision), s.21(4) not applicable to contracts even if terms identical to terms of invalid bye-law-no public policy reasons requiring contracting out of Law to be prevented as strata lot owners not vulnerable group requiring protection

The appellants brought an action in the Grand Court to set aside certain bye-laws and contractual terms which restricted their ability to lease their strata lots to others.

The appellants purchased strata lots governed by a bye-law which stated, inter alia, that an owner could only rent out his unit through the strata manager on terms set by the manager or executive committee. The manager was entitled to a management fee on rentals and the owner was required to pay a deposit against damage by the tenant. This restriction was also included in the contracts of purchase and sale of the units, as well as transfers of lease agreed by the parties in order to complete the sale; the contracts stated that the manager retained exclusive control over rental of

the properties, subject to the Strata Titles Registration Law (2005 Revision) (‘the Law’). The restrictions contained in the bye-laws and the transfers of lease were registered pursuant to the Registered Land Law (2004 Revision), s.93, but those contained in the contracts of purchase and sale were not registered.

The appellants brought proceedings in the Grand Court (reported at 2014 (1) CILR 335) alleging that the bye-law and the corresponding contractual terms were invalid on the basis that they were contrary to s.21(4) of the Law, which stated that no bye-law should ‘prohibit or restrict the devolution of strata lots or any dealing therewith.’ It was contended that ‘dealing’ should be read so as to include the leasing of property. In addition, any agreements in conflict with s.21(4) of the Law should be invalidated on the grounds of public policy.

The respondents replied that s.21(1) of the Law stated that use of strata lots would be governed by bye-laws, which justified restrictions on leasing. In the alternative, there was nothing in the statutory scheme which prevented contracting out from its terms.

The Grand Court (Henderson, J.) held that s.21(4) of the Law invalidated bye-laws which sought to restrict the creation of leases by owners of strata lots; however, the incorporation of similar terms into agreements was not invalid as public policy would only prevent contracting out from a statutory scheme when vulnerable groups would lose protection, and it could not be said that strata lot owners were vulnerable.

On appeal, the appellants submitted that (a) the restrictions contained in the purchase and sale agreements were not binding on them as they had not been registered; (b) as a matter of construction the purchase and sale agreements and the transfers of lease did not give the manager exclusive control over rental of the properties as they were stated to be subject to the Law, s.21(4) of which prohibited restrictions on the creation of interests such as leases; and (c) public policy required that agreements contrary to s.21(4) be invalidated as they undermined the statutory protection afforded by it.

Held, allowing the appeal in part:

(1) The contracts of purchase and sale were ‘restrictive agreements’ under s.93(1) of the Registered Land Law (2004 Revision), as they were agreements between proprietors restricting one proprietor”s use of his land, but were not binding on the appellants as they had not been noted in the Land Register under s.93(1). Further, neither agreement had been registered as a ‘restriction’ (i.e. an order made by the Registrar restricting a proprietor”s use of his land) under s.132 of the Law. The restrictive covenants contained in the transfers of lease had, however, been noted by the Registrar as restrictions and were therefore binding on the appellants (paras. 22–23; paras. 25–28).

(2) It was not possible to construe the transfers of lease such that the manager”s control over rentals was qualified by the appellants” ability to lease their properties. The manager”s control was subject to the Strata

Titles Registration Law; however, there were no applicable provisions in the Law limiting that control and, in particular, s.21(4) did not disallow the restrictions on the creation of leases contained in the transfers as it was applicable solely to bye-laws and not to agreements. It was implausible that the parties had intended s.21(4) to apply to their agreement despite its limited scope, and the manager therefore retained exclusive control over rentals of the properties (para. 32).

(3) There were no reasons of public policy which required agreements contrary to s.21(4) of the Law to be invalidated. The strata lot owners were not in a vulnerable position during negotiations and were therefore able to protect their own interests, and the court would not prevent them from contracting out of the statutory scheme (para. 34).

1 CHADWICK, P.: This is an appeal from part of an order made by Henderson, J. and filed on June 10th, 2014 in proceedings brought by Scot Foith, his wife, Paula Foith, and Marsha Ltd. against the Proprietors, Strata Plan No. 436, the Proprietors, Strata Plan No. 437 and the Proprietors, Strata Plan No. 550 (together ‘the Strata Plan Proprietors’) and RC Cayman Property Holdings Ltd. and RC Cayman Hotel Holdings Ltd. (together ‘the RC Cayman Holdings companies’) in respect of dealings affecting (or said to affect) strata lots in the buildings known as

the South Tower and the North Tower at The Residences at the Ritz Carlton.

The underlying facts

2 Mr. and Mrs. Foith are the proprietors of a condominium known as Residence 104 in the South Tower; Marsha Ltd. is the proprietor of a condominium known as Residence 501 in the North Tower. Those two condominiums are registered as strata lots under the Registered Land Law (2004 Revision) pursuant to the provisions of the Strata Titles Registration Law (2005 Revision). They are included, respectively, in Strata Plans Nos. 437 and 436. As proprietors of those strata lots, Mr. and Mrs. Foith and Marsha Ltd. are, respectively, members of the bodies corporate known as ‘The Proprietors, Strata Plan No. 437’ and ‘The Proprietors, Strata Plan No. 436,’ constituted under Part III of the Strata Titles Registration Law, and are subject to the bye-laws made, respectively, by those bodies corporate.

3 There is no material difference, for the purposes of this appeal, between the bye-laws made by The Proprietors, Strata Plan No. 437 and the bye-laws made by The Proprietors, Strata Plan No. 436. Each set of bye-laws contained, at By-Law 9 (‘Residential Condos’), restrictions on the dealings or dispositions by the proprietor of the condominium. In particular, para. 9.1 of each bye-law was in these terms:

‘A Proprietor shall not rent, lease, licence or part with possession of his residential Condo unless he does so through the Manager or its designee exclusively, on such terms as are determined by the Manager or the Executive Committee from time to time acting reasonably, subject at all time to these by-laws.’

In that context, ‘the manager’ meant Cesar Hotelco (Cayman) Ltd. or its nominee, successor, assignee or any designee thereof, retained by the Proprietors of the Strata Plan (the ‘corporation’) to provide management and administration services. The ‘executive committee’ meant the executive committee of the corporation.

4 Mr. and Mrs. Foith purchased Residence 104 from Condoco Grand Cayman Resort Ltd. pursuant to an agreement for purchase and sale dated July 31st, 2004. The agreement contained a schedule of conditions; cl. 10 in the schedule, headed ‘Restriction on Rental of Condominiums,’ was in these terms:

‘Restriction on Rental of Condominiums

The Purchaser hereby acknowledges that the Condominium is subject to the Restriction and agrees that in the event that the Purchaser desires to rent the Condominium or any part thereof from time to time it may only do so in accordance with the provisions of this

clause 10 and then only through the Vendor or its agent exclusively. Rentals for periods of 30 days or less are not permitted. Rentals for periods of more than 30 days shall be managed exclusively by the...