Re Cayman Kai Dev Scheme

• Jurisdiction: Cayman Islands
• Judge: (Sanderson, J.)
• Judgment Date: 30 December 2005
• Court: Grand Court (Cayman Islands)
• Date: 30 December 2005

Grand Court

(Sanderson, J.)

IN THE MATTER OF CAYMAN KAI SCHEME OF DEVELOPMENT

CAYMAN KAI PROPERTY OWNERS ASSOCIATION

and

CAYMAN ISLAND BASIC INDUSTRIES LIMITED, NORTH COAST RESORT MANAGEMENT LIMITED and CAYMAN KAI DEVELOPMENT LIMITED

A.J. Jones, Q.C. for the plaintiff;

S.J. Barrie for the second defendant;

W.A. Sykes and C. Easdon for Cayman Kai Land Holdings Ltd.;

R.H. Jones for Gumme Development Ltd.

Cases cited:

(1) Jamaica Mutual Life Assur. Socy. v. Hillsborough, [1989] 1 W.L.R. 1101; (1989), 26 J.L.R. 308; 28 W.I.R. 192, applied.

(2) Martin”s Application, Re(1987), 53 P. & C.R. 146, referred to.

(3) Shaw v. Applegate, [1977] 1 W.L.R. 970; [1978] 1 All E.R. 123; (1977), 35 P. & C.R. 146, distinguished.

(4) Sobey v. Sainsbury, [1913] 2 Ch. 305, considered.

(5) Truman & Co. Ltd.”s Application, In re, [1956] 1 Q.B. 261; [1955] 3 All E.R. 559, considered.

Land Law-restrictive covenants-development schemes-in development scheme restrictive covenants run with land and are mutually enforceable-requires defined group of properties bound by similar restrictive covenants for mutual benefit-remains development scheme even if not all properties in designated area are bound by covenant

Land Law-restrictive covenants-enforcement-delay-right to enforce covenant not affected by delay unless unconscionable to do so-if breach escalating, past inactivity unlikely to make enforcement unconscionable

Development and Planning Law-development-change of use-right to enforce restrictive covenant limiting use to residential not affected by re-zoning to commercial from residential use, though to be considered

The plaintiff association sought, inter alia, a declaration that Cayman Kai constituted a scheme of development and an injunction preventing the second defendant from operating a real estate office on its residential premises in breach of a restrictive covenant.

Cayman Kai was developed in lots which were sold mainly as residential properties. They were nearly all sold subject to identical restrictive covenants, which stipulated that the buildings were to remain residential in purpose. The second defendant (a company established by the original developer and now controlling all the remaining land in Cayman Kai) had run an estate agency from its residential property in Cayman Kai for over 30 years, in admitted breach of the restrictive covenant, but this had been tolerated by the other residents. It then ceased all residential use of its premises and carried on a full-time business with a consequential increase in traffic and extended parking facilities. Shortly before the plaintiff body (an association of approximately 80 Cayman Kai property owners) brought the present proceedings, the second defendant

applied to the Central Planning Authority and had the premises re-zoned from residential to commercial. The plaintiff sought injunctive relief to enforce the restrictive covenant in respect of the second defendant”s property.

It submitted that (a) Cayman Kai was a scheme of development and therefore the restrictive covenants were enforceable by successors in title; (b) an injunction should be granted as the second defendant”s business activities had expanded and were having a greater impact on the residential character of the neighbourhood than before; (c) none of its members had knowingly breached the restrictive covenant and they therefore had the ‘clean hands’ required to seek an equitable remedy; breaches of the covenant by constructing houses without the permission of the Architectural Control Committee had only occurred because two of the three Committee members had died and not been replaced, so that the Committee had effectively ceased to function; (d) the commercial use brought an increased and unreasonable amount of traffic to the neighbourhood, and in any case it could not be argued that an activity might be carried on in breach of a restrictive covenant merely because it was reasonable; (e) the re-zoning of the property did not affect its right to enforce the restrictive covenant to which it was subject; and (f) an undertaking by the second defendant to apply to re-zone the property prior to sale could not easily be enforced, would not be of help for as long as the second defendant remained in possession of the property, and the future re-zoning request might not be granted in any case.

The second defendant submitted in reply that (a) Cayman Kai was not a scheme of development as some of the properties had been sold without the restrictive covenant and it had not been developed according to any fixed plan; (b) an injunction was a discretionary equitable remedy which should not be granted because it had been operating the same business for 30 years and the plaintiff”s inaction during that time should bar relief; (c) many members of the plaintiff association had also breached the terms of the restrictive covenant and the building of some of the houses in Cayman Kai had been in breach of the covenant, as the permission of the Architectural Control Committee had not been obtained and the association did not therefore come to court with the clean hands necessary for obtaining an equitable remedy; (d) the use of the property for commercial purposes was not unreasonable and ought therefore to be permitted; (e) it had obtained planning permission for the re-zoning of the property from residential to commercial; and (f) it would undertake to apply to have the property re-zoned back to residential if it sold the house.

Held, granting the injunction:

(1) The second defendant was clearly in breach of the restrictive covenant as to residential use and the injunction sought would be granted. Cayman Kai constituted a scheme of development because it was a geographically defined area within which the majority of lots had been

sold subject to the restrictive covenant on the understanding that all other property-owners in the area would be bound by the same covenant, which would be mutually enforceable and run with the land. Although some properties had been sold without the covenant attached, this did not prevent Cayman Kai overall being a scheme of development, as those properties which were not bound by the covenant could easily be ascertained (paras. 13–20).

(2) The plaintiff”s inaction would only deprive it of its legal right to enforce the covenant if its acquiescence in the situation made it dishonest or unconscionable for it to do so. The re-zoning of the property and its becoming a full-time real estate agency with parking for six cars and no person living in the house was a fundamentally different situation from the smaller-scale activities carried on in previous years and it was therefore not unconscionable for the plaintiff to seek to enforce the covenant now (paras. 22–24).

(3) Nor should the plaintiff be denied an injunction for not coming with clean hands. Its claim that the permission of the Architectural Control Committee had not been sought for the building of some houses because it had ceased to function, since two of its members had died and not been replaced, was accepted. The evidence of other breaches of the covenant by members of the association was not sufficient, or the breaches were too minor (paras. 25–26).

(4) Nor was the second defendant”s clear breach of its restrictive covenants reasonable; to operate a commercial business causing a significant increase in traffic in a residential neighbourhood was not a reasonable use of its premises and, even if it were, there was no authority to support the view that activities in breach of a restrictive covenant could be excused merely because they were reasonable (paras. 27–28).

(5) Similarly, whilst the decision to re-zone the property was a factor to be taken into account, it did not automatically entitle the second defendant to breach the covenant put into place for the benefit of all the other property-owners, and in this situation the successful re-zoning did not outweigh the benefit of the covenant to the surrounding residents (para. 31).

(6) Likewise, there was no authority for allowing the second defendant to continue to operate in breach of the covenant on the basis that he would...