By Clement Chigbo

This must be viewed in the context of the courts trying to develop and rely on various patterns of reasoning to justify the protection of long user.

These patterns were finally rationalised and the doctrine was upheld by the House of Lordsin Dalton v Angus.

Under the doctrine, a claimant may seek a prescriptive easement based on 20 years’ uninterrupted use when there is no evidence that the putative grantor was legally incompetent.  Again, this relates to rights that are legally recognised as easements and will not apply to merely access to somebody’s property if the use and enjoyment of the access does not meet the acutely defined criteria of a legal easement. As previously mentioned, easements are often defined with rigorous certainty.

The doctrine applies only in those cases where the state of affairs between the parties cannot otherwise be explained.  However, the doctrine is not displaced by evidence that in fact there had been no grant in the 20-year period.

The doctrine was (and is) a judicial fiction.

Long user in itself was not a sufficiently convincing rationale for prescriptive acquisition. As such, judges conveniently hid behind a fiction. The doctrine of lost modern grant portrays the acquiescent servient owner as the active grantor of a deed which was lost. In fact, the active player is the dominant owner, who acquires an interest through a factual connection to the land and its de facto enjoyment. The other artifice is that only retrospective conduct matters. It is true that claimants must prove that the retrospective conduct of both parties was consistent with the fiction. Yet, it is clear that in most cases dominant owners would not pursue a claim for theoretical or historical reasons only. The physical connection to the land and the subject matter of the easement will have a present, prospective and practical utility for the dominant owner. This is also part of the contiguity and propinquity requirement of a legal easement as there can be no easement in gross.

The teleological utility of the doctrine is normally deployed in legal and judicial reasoning in the circumstances where:

• express conferment was complex and expensive;
• the servient owner refused to grant a formal easement over the land, even though the dominant owner had used the land in a certain way for a considerable period of time; or
• a dominant owner could not rely on alternative bases for a claim for an easement such as necessity, common intention or the principle in Wheeldon v Burrows

Note further that a claimant may also rely on the Prescription Act 1832 — although it has been criticised for being ill and poorly drafted. The real purpose of this legislation is no doubt to prevent the defeat of claims based on immemorial user.

But note that not all easement will operate in the context of the dominant owner being able to use the land of another to make ingress and egress from and to his property. In some instances, easement may be to support another’s property eg a neighbouring property or an adjoining land. We refer to this kind of easement as negative easement.

Negative easements entitle the dominant owner to receive something from or through the servient owner’s land. Accordingly the dominant owner may seek to restrain the servient owner from freely using the servient land. One problem is that courts did not consider that such negative rights were necessarily capable of grant. Another problem is that it is not incumbent upon the dominant owner to act positively and so reveal the existence or utility of the alleged easement. Negative prescriptive easements have been described as ‘an anomaly in the law’. Therefore it has been held that the categories of negative easements by prescription ought to be closed.

But note that while it is not possible to claim a prescriptive right to air generally, it is possible to do so where the access is through a specific aperture in the dominant land or a definite channel over the servient land.

Note further that, there is an automatic natural right of support between two parcels of land.

However, where it is established that adjacent land has supported a building for 20 years and the enjoyment has been as of right then the owner of the land on which the building stands has a prescriptive right to continued support.

In addition, generally a right of support by buildings for buildings on adjacent land can only arise by prescription.

Parties claiming a prescriptive easement must demonstrate that:

• the user was ‘as of right’;
• the servient owner had knowledge, constructive knowledge, or means of knowledge, of the user;
• the servient owner acquiesced in the user;
• the user was against the fee simple owner; and
• the user was nec vi, nec clam, nec precario.

Note that nec vi, nec clam and nec precario simply means ‘not by force, nor stealth, nor licence’. It is the principle by which rights may be built up over time, principally public or rights s of way under the English law. Specifically, if a path is used – openly, not against protests, and without permission of the landowner – for an extended period (20 years) then a permanent legal right to such use is established.

It is often referred to in the context of adverse possession and other land law issues. It is also relevant to the creation of easements whereby the law ‘prescribes’ an easement in the absence of a deed. In order for the law to do so the right of way or easement needs to have been enjoyed without force, without secrecy, and without permission for a period of time, usually 20 years.

To Be Continued…

Clement Chigbo [esq], LLB [Hons], LLM [London], L.E.C, B.L, Dip.Lat, MCIarb, is a practising solicitor and a lecturer in law in UK. He is also a registered associate with Law Firm of C F Butler & Associates, Nassau, The Bahamas. Criticisms, suggestions and comments are welcome. He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com.

Also published in the Bahama Journal at :

http://www.jonesbahamas.com/news/135/ARTICLE/21015/2009-12-17.html

BY CLEMENT CHIGBO

One of the universally recognised difficulties to the common law principles of relativity has always been that claims to land are secure only to the extent that no other person can assert a better claim. This relates to primary real right [an estate in fee simple absolute in possession] in land as well as secondary or subordinate real rights in land [incorporeal hereditaments like easements, covenants etc].

If the common law were to allow prior possession as a consistent and legitimate basis to recover possession from a later possessor, then land title could become the subject of potentially indefinite or open-ended conflict. If the foregoing were to be the case, it will mean that the current possessor of land would remain constantly vulnerable to a claim advanced by some earlier possessor. It is in light of the above that the doctrines of adverse possession and prescription can be justified as being both necessary and inevitable. The restrictive principle which seeks to address the above mentioned issue operated in the context of a principle of limitation which seeks to curtail the prior possessor’s right to recover possession after some time. [See the Limitation Act 1980]. Thus, adverse possession and prescription play an important role in land law to conclusively bar all prior rights of recovery following the expiration of a legally stipulated limitation period under the Limitation Act 1980 and the Prescription Act 1832.

Hence, on a more practical note, prescription has not only had a role to play in protecting retrospective interests, but also in mediating claims for access and use between landowners and hence, its continuing relevance in the law of real property.

The continuing relevance of prescription in the law of real property was succinctly captured and encapsulated in the witty and epigrammatic summation of Lord Hoffman in R v Oxfordshire County Council; Ex parte Sunningwell Parish Council (‘Oxfordshire County Council] to the effect that “Any legal system must have rules of prescription which prevent disturbance of long-established de facto enjoyment”. Adverse possession invariably has a somewhat similar objective.

The courts in England have always had ‘a strong policy bias in favour of the legitimacy of a user which has been exercised de facto over extended periods of time. Thus, it is not surprising that for centuries, prescription has been an important basis for claiming easements and other interests in land in England.

Prescription is based on the rationale that over time a person may acquire an interest in land on the basis of de facto long continuous user.

Note however, that in registered conveyancing system modelled after the Torrens system that prescriptive easements have only a minimal role to play in such a registered system. In order to understand how prescription or adverse possession operates, one needs to understand the doctrine of tenure under English law of property which does not admit of the concept of ownership.

The doctrine of tenure — under which a person did not own the land, but held it as a tenant of the Crown or a feudal superior — has shaped English land law. Therefore, juristically speaking and in a highly technical sense, English law never employed the concept of ownership to land. Rather, for much of the history of English land law, possession and physical control of land dominated legal reasoning about title and rights to land.

All titles to land were based on possession or or what is commonly referred to as‘seisin’ — so that a person seised of land prevailed against all others who could not show a better right to seisin.

Title was relative and can never be indefeasible. For instance, in an action to recover land, it was not necessary for the defendant (or plaintiff) to prove absolute title. The issue was whether the defendant could establish an earlier and better seisin. It has been variously argued that title was also defeasible because even if seisin was wrongfully taken by a disseisor, they had good title against all except the disseisee and their successors in title.

Thus, it is trite beyond any doubt that exclusive possession de jure or de facto, now or in the future, is the bedrock of English law of real property law.

Note that under English law, a person did not simply acquire an interest in land because of their use of that land. Rather, after a lapse of time, the law either barred an owner from asserting an interest contrary to the claimant or it was presumed that the owner or their predecessor in title had granted the claimant a lawful title.  This is the basis of acquisition of title by prescription and adverse possession but the sharp distinction must be noted.

The former was the basis for the law of adverse possession, while the latter established the legal rationale for the law of prescription. See Limitation Act 1980 and the Precription Act 1832.

Prescription was not founded on exclusive possession, but on de facto enjoyment which fell well short of complete control. Nevertheless, prescription was based on a physical connection with the land for a significant period of time. Prescription has been defined as ‘a title acquired by use or enjoyment had during the time and in the manner fixed by law.’

A party who successfully claimed an easement by prescription not only acquired an interest which was carved out of a larger estate, but also an incorporeal right or hereditament.  Incorporeal hereditaments refer to those rights and interests that are appurtenant to or appendant to the principal right or interest in land.  In civil law countries, right to land or heritable property are classified between primary real right [ownership] and secondary or subordinate real right in land [eg servitudes or easements or real burden or covenants].

They are like pertinent of ownership of land ie those other rights that are intrinsically associated with the enjoyment and use of land. Easement or servitude remains a veritable example of these kind of rights.  They also do have the potential of third party consequences.

For instance, easement as a legal proprietary interest in the servient land which would endure in favour of successive owners of the dominant land and would bind successors in title of the servient land.  This means that easements have third party consequences as a proprietary interest as opposed to a contractual or personal interest.

The justification is the inexorable recognition that sometimes people need to use other people’s land and that it will be necessary to set down rules determining how rights are legitimately acquired. Another was that the law had to be inherently flexible. In some cases, over a long period of time, rights ought to be acquired outside the formal process.

Prescription in English law was never based solely on a long period of use, enjoyment or benefit of property, or ‘user’.

The essence of the English law was, and is, the acquiescence of the servient owner according to E H Burn who has observed:

Why should long user confer a right protected by the courts? The answer is, that if the servient owner has allowed somebody to exercise an easement over his land for a considerable period and if he has omitted to prevent such exercise when he might very well have done so, it is only reasonable to conclude that the privilege has been rightfully enjoyed, for otherwise some attempt to interfere with it would long ago have been made by any owner who possessed even a modicum of common sense.

Note further that the onus is on the claimant to prove that they acquired a prescriptive easement. They must demonstrate that the user was of right, namely that the servient owner acquiesced in the use for the period prescribed by law.

Clement Chigbo, lawyer and chartered arbitrator practices as a registered associate with the law firm of CF Butler & Associates, Nassau, The Bahamas.  He is currently a tutor and doctoral/PhD candidate at the university of Aberdeen, U.K.  Opinions, comments and criticisms and suggestions on his articles are welcome. He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com

The rules on conflict in the guide to the professional conduct of solicitors in the UK were widely considered inadequate and recently attempts were made to strengthen them. However, in practice, the courts have always intervened to fill the void. An attorney who acts for a client in some previous matters is precluded from acting in another matter involving the client and involving the potential or likelihood of conflict of interest which is inextricably linked to the duty of an attorney in relation to confidential information and disclosure.

Thus, where a lawyer was previously acting on behalf of a client or representing the client in such a manner that the attorney would have gained or obtained or had access to confidential information relating to the company, such an attorney is precluded from acting against the company or representing another client in another matter involving the former or previous  client where there is potential or likelihood that the information he would have been privy to or have access to while acting for the other client may be used in a subsequent litigation or matter involving the previous client.

To do so will amount to a grave conflict of interest and the attorney is precluded from so acting.  Today in this article, we will be looking at the Grand Bahama Port Authority legal tussle and the issue whether their previous attorney could act in a matter involving the Port Authority without breaching the old-age conflict of interest rule.

We will look at the conflicts between the duties of confidentiality and disclosure and information barriers. This has been recognized as sacrosanct in well-regulated and progressive jurisdiction throughout the common law jurisdictions.  It is axiomatic that where a conflict between these duties arises, the duty of confidentiality is paramount.

The common law sets out an attorney’s fundamental duty to keep all client’s affairs.

The duty of confidentiality extends to all confidential information about a client’s affairs, irrespective of the source of the information, subject to limited exception.  Note that the duty of confidentiality continues after the end of the retainer.  On the client’s death, the duty of confidentiality passes to his/her personal representatives.

Information acquired in relation to a prospective client may still be bound by the duty of confidentiality even if there is no subsequent retainer.  In the UK where we derive our legal system, lawyers [whether barristers or solicitors] have a positive duty to refrain from acting if there is a conflict of interests, unless an exception applies.  The question that readily comes to mind is what is a conflict of interests or how does one define a conflict of interests?

A conflict of interest is defined as:

Where a lawyer, or the firm or practice, owes separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict, or where a lawyer’s duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with the solicitor’s own interests in relation to that or a related matter.

The definition of conflict of interest encompasses all situations where doing the best for one client in a matter will result in prejudice to another client in that matter or a related matter.  A related matter will always include any other matter which involves the same asset or liability. Note that that there needs to be some reasonable degree of relationship for a conflict to arise.

An example will illustrate: An attorney or his firm acts for a company either as a retainer or on a dispute with another company or has been retained as an attorney for the company, the attorney or his firm would be precluded from acting for another client if issues in respect of which he acted for the company are likely to arise in a litigation involving another company or if he is likely to draw on or use confidential information that he would have obtained or had access to while acting for the other company as a retainer.

The attorney will need to make a judgment on the facts.  In making this judgment, the attorney may consider the views of the existing client.  Crucially, the lawyer should consider whether the lawyer or the firm holds any confidential information from the existing client which would be relevant to the new instructions to ensure compliance with the rule against conflict of interests in the legal profession,

The exception is provided in Rule 16D [3] Solicitors  Practice [Conflict ]Amendment  Rule 2004 which contains the exceptions:

It provides that:

A lawyer, or a practice, may act for two or more clients in relation to a matter in situation of conflict or possible conflict if:

• the different clients have a substantially common interest in relation to that matter or a particular aspect of it; and
• all the clients have given their informal consent in writing.

An attorney that has previously acted for the Grand Bahama Port authority and would have had or obtained access to confidential information relating to the company engages in a classic case of conflict of interest breach by so acting against his former client. Is it not likely that the attorney would have obtained intimate information about the Port Authority having previously acted as their attorney?  Is it not likely that those confidential information or intimate knowledge would have been used in litigation involving the Port authority? Why the Port authority lawyer failed to raise a preliminary objection on this issue at the supreme court trial remains perplexing to the writer?

Conflict when already acting

If at the outset there does appear to be any conflict, a lawyer is obliged to immediately cease acting for the other party.  An attorney or a firm may not continue to act provided the duty of confidentiality is put at risk.  In fact an attorney should always be cautious of accepting instructions where the possibility of future conflict is evident.  The fiduciary relationship which exists between attorney and client prevents the attorney taking advantage of a client or acting where there is a conflict or potential likelihood of conflict of interests.  An attorney must always disclose with complete frankness any personal interest or benefit in a transaction and insist that the client receives independent advice.

It actually borders on professional embarrassment for an attorney to turn around and act against his former client in a matter involving that former client.  There may be some circumstances in which instructions should be refused when, although there is no actual conflict of interests as defined by Rule 16D, the attorney may feel unable to act in the client’s best interests due to professional embarrassment.  An example often given in the UK by the Law Society Guidance is the situation where a solicitor has previously acted for Client A [e.g. the Port Authority company] and subsequently accepts instructions from Client B [estate of a deceased shareholder in the same company] to act against Client A in a contentious litigation.  If the attorney would be unable to act in Client B’s best interest or there is a likelihood that confidential information he would have obtained or had access to while acting for Client A and/or being there by a historic relationship with Client A, an attorney should not accept instructions from Client B since to do so would breach the conflict of interest rule and his so acting is likely to be prejudicial to the interest of his former or previous client.  Again, why the Port Authority’s attorney, a brilliant litigation attorney  well versed in commercial and corporate law, did not raise an objection based on this issue remains incomprehensible to the writer.

Conveyancing

In no area of law practice have ordinary Bahamians paid dearly in frustration and loss of bargain than in real property conveyancing where at least forty percent of the transactions ends in problems/failure and in the purchaser not getting what he bargained for!   The other area is in dealing with Wills and administration of the estates of deceased persons where hundreds of beneficiaries whether under a Will or rules of intestacy have been completely ‘ripped-off’ or brazenly deprived of their beneficial entitlements under a Will or under Rules of Intestacy.  Generally  speaking, in conveyancing cases there are specific provisions to limit the circumstances in which a solicitor/attorney can act for both seller and buyer.  In The Bahamas, it does not appear to be that there are any restrictions on this whatsoever, leading to so many people having lost their funds or having failed to get a good, marketable and valid title to land they thought they had purchased.

The usual defence for the lawyer who acts for the buyer and seller is to say that he has not been retained by the buyer to give an opinion on title.  But this defence is spurious and dishonest to say the least.  If the attorney has not been retained to give an opinion on title, what was he retained for?  And how does he get paid from the two parties and yet deny acting for the helplesss buyer.  The buyer is usually an ordinary person who is not well versed  or informed on the intricacies of a conveyancing transaction.

I have come across a multitude of clients with this kind of problems.  On one occasion, I was overjoyed when I had to assist a single mother to recover a substantial amount of money in a transaction that failed owing to want of good and marketable title to the property she was purchasing.  On another occasion I saved a potential client from loosing nearly $90,000 USD when the client was on the verge of purchasing a property whose title was disputed and pending in court. She was lucky to have sought a last minute advice from the writer before proceeding with the purchase.

Note that there are few exceptions where a lawyer/solicitor can act for more than one party in an arm’s length transaction for the transfer of land, the grant or assignment of a lease and the grant of a mortgage.  The object is to prevent the solicitor from acting for both parties, even though there is no actual conflict at the time.  The two parties should have their own attorneys.

Remember as we previously mentioned, that a lawyer who acted for a client is precluded for putting himself or his practice in a conflict situation.  Part of the rationale for this is that for the attorney to continue to act for another party in a matter involving his previous client raises the potential or likelihood that there is likely to be a breach of confidential information and disclosure duty to the former client.  This duty of confidentiality continues even after the end of the retainer.  Information acquired in relation to a prospective client may still be bound by the duty of confidentiality even if there is no subsequent retainer information which is material to the ‘client’s matter’ must be information which is relevant to the specific retainer with the client and not just information which might be of general interest to the client.  It must therefore be information which might reasonably be expected to affect the client’s decision with regard to its matter in a way which is significant having regard to the matter as a whole.  Could the former attorney for the Grand Bahama Port Authority not have confidential information about the Company and their principal shareholders who are now embroiled in litigation?  Could this not have been prejudicial to the company or its major shareholder[s]?

The golden rule in the legal profession is enshrined in the duty not to put confidentiality at risk by acting.  Note that there need not be actual breach.  It is sufficient if there is likelihood or potential for breach!

If the attorney or the law firm holds confidential information or is likely to hold confidential information in relation to a client or a former client [e.g. the Port Authority company], the attorney MUST not risk breaching confidentiality by acting, or continuing to act, for a client on a matter where:

• that information might [not will] reasonably be expected to be material or used, and
• that client [the estate of ST. George former deceased shareholder] has an interest adverse to the first or former client [the port company or its major shareholder] unless an exception applies.

In real terms, this means that where the attorney or the law firm holds material confidential information, a lawyer may not without consent take on new instruction adverse to the interests of the client or former client to whom the duty is owed. An attorney cannot act except the former client gives their informed consent.

Note finally that in addition to the obligation to observe the general rules of professional conduct [e.g. confidentiality, no conflict of interest, an attorney has a contractual relationship with the client.  This requires the attorney to carry out instructions with reasonable care and skill.  The client's reciprocal contractual obligation under the retainer is to pay the attorney's proper costs.  Thus, an attorney who did not carry out his instructions with reasonable speed especially in the preparation of a Will, for instance, thereby causing a beneficiary to loose his entitlement under a testamentary disposition or engages in conflict of interest or breaches the rule against confidentiality is in breach of rules of professional conduct as well as breach of his duty to the client.

Be finally informed that the English House of Lords has also dealt a fatal blow to the immunity of barristers for negligence in conducting a client's case.  This was recognized by the English court of appeal decision in the noted case of Rondell V Worsley [1969] Appeal Cases.  But the House of Lords in the recent decision in the case of Arthur J S Hall v Simonds [2002] H L overturned the earlier court of appeal decision thereby making barristers liable for negligent conduct of their client’s matter.

Published in the Bahama Journal, 12th December 2007

Clement Chigbo [esq], LLB[Hons], LLM[London], L.E.C, B.L, Dip.Lat, practices as a registered associate with the law firm of C F Butler & Associates, Nassau,N.P., The Bahamas.  He is the author of four books including  ‘A Practical Guide to Land Law, Conveyancing, Wills, Probate &  Administration.  He is also a PhD candidate at the university of Aberdeen specializing in Property Law. He is a peripatetic consultant in property law and commercial litigation.  Mr. Chigbo offers free legal services every Thursday subject to his availability.  He can be contacted at Tel: 1 242 393 27 22 or e-mail clemsweiss@hotmail.com or lawscholar2006@yahoo.com

This article has the potential to benefit many landowners. It covers not only the law of easements and other aspects of a category of real property rights and interests known as incorporeal hereditaments. The writer will draw largely on his experience both in the legal practice and in the academia, but also from advanced legal research in this area where he is currently pursuing a doctoral degree. Parties with interests in land can be affected by positive and restrictive covenants which in practical conveyancing contexts operate as land obligations.

Covenants are obligations entered into by deeds.  They usually involve promises by holders of interests in land.  Positive covenants involve positive obligations to do something, eg to maintain and keep a fence in good condition, whereas, restrictive covenants involve a promise not to do something, eg not to carry out certain kind of business or effect a repair without the consent of the land owner, ie the owner of the benefited property.   Restrictive covenants are proprietary in nature as opposed to contractual and as such they are said to “run with the land” and will inexorably have third party consequences because of their nature as proprietary rights.  Contractual rights in this sense do not have third party consequences as they are governed by the privity of contract principle.  But note that the burden of positive covenants does not run so as to bind successors in title of the covenantor unlike a restrictive covenant.

The burden of a restrictive covenant can run in equity under the doctrine of Tulk v Moxhay, but only if certain complex and technical conditions are met.  However, our focus in this article is more on a species of interests known as easements or servitudes in some jurisdictions.  An easement is a right enjoyed by one landowner over the land of another, both plots usually being in close proximity.  This contiguity or propinquity or “neghbourliness” of the two properties commonly known as the servient tenement [or the burdened property] and the dominant tenement [or the benefited property] is indispensably essential to all easements for there can be no easement in gross.  See Gale on Easements (17th ed 2002) para 1.01.

It is trite and axiomatic that easements and covenants remain vitally important in the twenty-first century conveyancing.  The law of easements and covenants has practical implications for every landowner.  Most freehold estates in the Bahamas are subject to one or more easements and some properties have the benefit or burden of restrictive and positive covenants.  As previously mentioned, these interests can be fundamental to the use and enjoyment of property.  For instance, many landowners depend on easements in order to obtain access to their property.  Restrictive covenants may provide, for example, that a trade or business should not be carried out on, or that no more than one dwelling house should be built upon, a neighbouring plot of land.  A person selling a piece of property may use a restrictive covenant to impose a term to the effect that specific business may not be carried out on the property.  This may be owing to the fact that he himself is undertaking that kind of business or that the location of the property may not be suitable for that kind of business.

Without the vital role that easements and covenants play in the regulation of the use of land in any well regulated jurisdiction, the full extent to which land can be enjoyed could not be realised.  It is quite clear that many properties would be unable to exist fruitfully without rights over neighbouring land.  Easements and covenants are enforceable rights and obligations.  Every society protects and enforces these rights and obligations.  These incorporeal hereditaments, as they are commonly referred to in real property jurisprudence have potential to impede developments and housing policy sometimes.  Covenants may also impede land development, but the grant of planning permission does not extinguish a restrictive covenant which may confer upon a landowner an enforceable right to prevent new buildings being erected on neighbouring land.

Easements can also pose a potential problem given its anomalous mode of operation sometimes, as it was held  in one unique case of Benn v Hardinge (1993) 66 P & CR 246 that a right of way granted in 1818 and never used has nevertheless not been abandoned.  One would have thought that this kind of easement would have been extinguished by negative prescription.

Easements and covenants rights play a vital part in enabling the efficient operation of freehold developments and in preserving the quality of life of people who live there.  Easements and covenants are therefore capable of both limiting and facilitating the use of land.  A positive easement allows a landowner to go onto or make use of some installation on his or her neighbour’s land.  This could be a right of way providing access (vehicular or pedestrian). It could be a right to install and use a pipe or a drain.  A negative easement is essentially a right to receive something from land owned by another without obstruction or interference.  The law recognises as negative easements the right of support of buildings from land (or from buildings), the right to receive light through a defined aperture, the right to receive air through a defined channel and the right to receive a flow of water in an artificial stream.  Thus, a landowner may not be allowed to excavate or deal with his land in such a way that it might affect other peoples use and enjoyment of their own land although, modern environmental laws would adequately deal with this as well apart from ordinary rules of property law.

Covenants are contractual in origin, and, as a matter of contract, bind only the party who gave the promise (the covenantor) and are enforceable only by the party who received it (the covenantee). However, where the promise is made in relation to land and the promise is restrictive of the user of that land, a covenant can have some characteristics which are normally associated with property rights.  It was in this sense that we previously said that restrictive covenants are proprietary in nature.

We also say that easements are appurtenants or appendants or pertinents to property in that they are ancillary to the use and essential to the enjoyment and use of the property to which they are “attached”.  There are different kinds of easements depending on their mode of creation, eg ranging from express grant, implied grant, express reservation, implied reservation, prescriptive easement or easement by prescription to statutorily created easements. These are the modes of creation of easements and servitudes.

Section 52 of Law of Property Act 1925 will also create incidental easements necessary for the use and enjoyment of property by way of a conveyance but parties should not rely on this as this is not as straight forward as it may appear.  Ideally, in any given conveyance, parties should take into critical consideration the need to expressly create and reserve the necessary easements which the purchaser will have and which the seller intends to reserve for his continuing use and enjoyment over the property, otherwise this has a serious potential to cause problem in the future. The approach of the law in progressive jurisdictions is to promote clarity by demanding sufficient specificity at the time of creation.  Confusion and conflicts often arise in some jurisdictions with the nature, scope and mode of creation of easements in a simple conveyancing matter!  This is also heavily attributable to slipshod or sloppy conveyancing on the part of attorneys representing the parties to say the least!

Some easements may exist in the future as overriding interests and not required to be entered on the register and this will potentially bind a subsequent acquirer or purchaser of the burdened property.  That is why we also advise parties to make a visit of the properties they are purchasing before executing the contract and even the conveyance to satisfy themselves that the subject property has the benefit of an easements suitable to their needs.

The series of articles we will be featuring in the next few weeks, God willing, will try to address the general law governing the rights in question:  the characteristics of such rights, how they are created, how they come to an end and how they can be modified.  With a few exceptions, we do not examine purported problems unique to specific rights, such as rights to light or rights of support.  We consider that the defects in the general law must be identified and addressed first.  We believe that the article will provide benefits to those who are affected by the law, such as private homeowners, businesses and organisations that own property, real property developers and managers and those that deal with and develop land and professional advisers.

Easements, covenants and profits are all rights enjoyed by one party relating to the land of another.  They are limited rights, falling short of rights of ownership or possession.  Easements and covenants are functionally similar in terms of the role they play in controlling the enjoyment and development of land over time.  The two rights are ancillary and complementary, each comprising an important tool for facilitating and controlling the use of land.  In some cases, parties will be able to achieve the same result by means either of a negative easement or a restrictive covenant.  Given this functional similarity, contemporaneous and consistent reform of all three types of interest might considerably simplify and rationalise the law.

Easements and profits are both “incorporeal hereditaments” that is, they belong to a defined list of rights recognised by the law of property as being, like land itself, a species of “real property” to which the rules of land law apply.  If created expressly, such rights should be granted by deed.  Once created and registered, they are binding against the whole world.  All easements, and some profits are appurtenant (that is to say, attached) to a dominant estate in land.  That is, once created for the benefit of an estate in land, they attach to that estate for the benefit of all those who subsequently become entitled to it.  As a result, if A buys land that has the benefit of an easement – such as a right of way over B’s neighbouring land – A will be automatically entitled to exercise that right of way without any need to negotiate further with B.  B will be obliged, like everyone else, not to interfere with A’s exercise of the right even if B is not the person who originally granted it.

CHARACTERISTICS OF EASEMENTS

INTRODUCTION

It is well established beyond any cavil that a right cannot be an easement unless four requirements are satisfied:

(1) there must be a dominant tenement and a servient tenement;

(2) the easement must accommodate the dominant tenement;

(3) the dominant and servient tenements must be owned by different

persons; and

(4) the easement must be capable of forming the subject matter of a grant.

We will examine the four requirements of an easement seriatim;

THERE MUST BE A DOMINANT AND A SERVIENT TENEMENT

This requirement means that “every easement is, in principle, linked with two parcels of land, its benefit being attached to a ‘dominant tenement’ and its burden being asserted against a ‘servient tenement”.  The requirement of a dominant tenement has been described as going to the heart of the nature of an easement.  It has been said that it is well recognised by a long line of authorities that an essential element of any easement is that it is annexed to land and that no person can possess an easement otherwise than in respect of and in amplification of his enjoyment of some estate or interest in a piece of land. Authorities are legion on this.  See for example, the case of Alfred F Beckett Ltd v Lyons [1967] Ch 449, 483, by Winn LJ.  See also 1 Re Ellenborough Park [1956]; Ch 131, 163.

It is therefore essential that there is dominant land, or more accurately a dominant estate in land, to which the easement is attached.  Should an attempt be made to create an easement which is not so attached (a so-called “easement in gross”) it will be ineffective, for “it is trite law that there can be no easement in gross”.  The reason for this not far-fetched and they can be summed up as follows;

(1) To avoid capricious and personal benefits becoming easements.

(2) To promote clarity by demanding sufficient specificity at the time of creation.

THE EASEMENT MUST ACCOMMODATE THE DOMINANT LAND AND
BE CAPABLE OF FORMING THE SUBJECT MATTER OF A GRANT

Note that these two requirements are, respectively, the second and fourth characteristics listed in Re Ellenborough Park together.

The above in essence simply implies also that easement must “accommodate and serve”.  The requirement that the easement “accommodate and serve” the dominant land ensures that there is a nexus between the land and the right that is attached to it.  The easement right attached to the land is often said to be a pertinent to the dominant or benefited property or tenement and as such is ancillary and essential to the use and enjoyment of the land.

At the same time, the courts have acknowledged the somewhat artificial nature of the concept that the land can itself benefit from the right:

The protection of land, qua land, does not have any rational, or indeed, any human significance, apart from its use and enjoyment by human beings, and the protection of land is for its enjoyment by human beings.  For further illustration of the above, see the case of Stilwell v Blackman [1968] Ch 508, 524 to 525, by Ungoed-Thomas J.

The easement must accommodate the dominant tenement in that it is related to, and facilitates, the normal enjoyment of that land.  We can refer to this as the contiguity or propinquity rule!  In other words, the right claimed must be “reasonably necessary for the better enjoyment” of the dominant tenement.  See Re Ellenborough Park [1956] Ch 131, 170, by Evershed MR.

An easement therefore benefits the owner of the land in his or her capacity as owner of that land, not personally, otherwise it will be said to exist in gross and it is a rigid construct in the law of easement and servitude that there can be no easement in gross.  Such rights can never be recognised as rights in or of easement!

It follows that, for an easement to be effectively created, the plots of land in question must be sufficiently close to one another, ie within some degree of proximity.  The dominant and servient properties need not be contiguous but there must be a degree of proximity.  However, it is well established that an easement may benefit the business being carried out on the dominant land.  In Moody v Steggles the grant of a right to fix a signboard to the adjoining property advertising the public house which constituted the dominant tenement was held to comprise an easement.  In Copeland v Greenhalf, leaving carts and carriages on the neighbour’s verge was not objectionable on the ground that it accommodated the wheelwright’s business being conducted on the purportedly dominant land.  The explanation for this principle is offered by Mr Justice Fry:

It is said that the easement in question relates, not to the tenement, but to the business of the occupant of the tenement, and that therefore I cannot tie the easement to the house. It appears to me that that argument is of too refined a nature to prevail, and for this reason, that the house can only be used by an occupant, and that the occupant only uses the house for the business which he pursues, and therefore in some manner (direct or indirect) an easement is more or Stilwell v Blackman [1968] Ch 508, 524 to 525, by Ungoed-Thomas J.

Re Ellenborough Park

[1956] Ch 131, 170, by Evershed MR.

See the right, conferred in Hill v Tupper (1863) 2 H & C 121, exclusively to put pleasure boats on a canal adjacent to the grantee’s land:  see Megarry and Wade, The Law of Real Property (6th ed 2000) para 18-048.  This may be best explained as a right which is too extensive to comprise an easement: see K Gray and S F Gray, Elements of Land Law (4th ed 2005) para 8.38.

The often quoted phrase that one cannot have a right of way in Northumberland over land in Kent is from Bailey v Stephens (1862) 12 CB (NS) 91, 115, by Byles J.  See also Todrick v Western National Omnibus Co Ltd [1934] 1 Ch 561; Pugh v Savage [1970] 2 QB 373.

(1879) 12 Ch D 261.

[1952] Ch 488.

The claim to an easement by prescription failed on the ground that the use claimed was too extensive and was therefore not capable of forming the subject matter of a grant less connected with the mode in which the occupant of the house uses it.  The right claimed goes wholly outside any normal idea of an easement, that is, the right of the owner or the occupier of a dominant tenement over a servient tenement.  Note that in Copeland v Greenhalf, the claim to an easement by prescription failed on the ground that the use claimed was too extensive and was therefore not capable of forming the subject matter of a grant.

The notion that an easement must accommodate and serve the dominant land holds sway in common law jurisdictions.  Recent Australian authority has recognised the importance of a nexus between the dominant land and the right in question, although it suffices that the business being carried out on the dominant land is being facilitated.  See the case of Clos Farming Estates Pty Ltd v Easton [2002] NSWCA 481 at [31].

The Canadian courts have applied the test that the right is “reasonably necessary” for the enjoyment of the dominant land.  See also the case of 30 Depew v Wilkes (2002) 60 OR (3d) 499.

Many easements involve some interference with the possession and enjoyment of the servient land but it must be noted that not every right that seems to touch and run with the land will constitute an easement.

The purpose of the law in this area is always to ensure that capricious personal rights do not run with and bind the land and thereby constitute unnecessary incursions on the title.

The “touch and concern” requirement in the law of incorporeal hereditaments will be further examined in our next article.

Also published in the Bahama Journal:

http://www.jonesbahamas.com/news/135/ARTICLE/20023/2009-07-02.html

Clement Chigbo [esq], a chartered arbitrator in the U.K., practises as a registered associate with the Law firm of C.F. Butler and Associates, Nassau, The Bahamas.  He is currently a doctoral candidate and a peripatetic lecturer in law in the U.K. He can be contacted at lawscholar2006@yahoo.com clemsweiss@hotmail.com

By Clement Chigbo

Many thousands of contracts are entered into every day in the Bahamas. They are not all performed according to their terms. Often discussions and negotiations can resolve matters. Sometimes the contract will itself provide some mechanism for resolving disputes. But in many cases the difficulties caused by breach of contract cannot be resolved informally. The law has to provide a range of remedies to enable the party aggrieved by the breach to obtain either the performance contracted for or some compensation for not receiving it. In the absence of such remedies one of the most basic of legal principles -that contracts must be kept -would be legally unsupported. Problems of breach of contract are by no means confined to large commercial contracts. They can affect anybody. In this article we consider the adequacy of the existing law on remedies for breach of contract.

We will use the term “aggrieved party” in this article. This is preferable to “innocent party” because the party aggrieved by a breach of contract is not necessarily innocent of contractual wrongdoing as he himself may be guilty of some breach himself.

The article deals with both non-judicial and judicial remedies for breach of contract. The non-judicial remedies covered are unilateral repudiation or suspension of performance (under which the aggrieved party can withhold performance temporarily until the party in breach performs or reject and cancel the contract outright and this can also be referred to as rescission (whereby the aggrieved party can bring the contract to an end so far as all future performance is concerned). The judicial remedies fall into two categories. Some, such as a decree for payment of what is due under the contract and a decree for specific performance, are designed to ensure that the aggrieved party receives the performance contracted for. An injunction may in practice serve the same function in certain circumstances. The second category consists of those remedies designed to ensure that the aggrieved party receives monetary compensation.

Compensation in the above context will invariably seek to put the party at the same position he would have been if the contract has been performed as the parties originally intended.

The main example is an award or payment of damages. An award of interest may serve the same function where the breach consists of the late payment of money.

One of the main practical problems in relation to remedies for breach of contract is caused by uncertainty as to whether the conditions required for the exercise of a particular remedy are fulfilled as the law does not operate in vacuum as it is an instrument of social engineering. The article discusses whether there would be advantages in a special procedure for obtaining a summary judgment in matters of breach of contract. It also discusses other ways of increasing certainty, such as giving the aggrieved party a right to set a further fixed time for performance, or to seek adequate assurances of performance, with appropriate sanctions in each case

A proper consideration of remedies for breach of contract requires us to consider whether, and to what extent, the normal remedies for breach of contract apply where both parties are in breach.

In this article we are not concerned, save incidentally, with the law on undue or unconscionable enrichment. A decree for the redress of unjustified enrichment is strictly speaking, not a remedy for breach of contract. However, incidental consideration of this subject is required where a contract is terminated by rescission but something has already been done under it. In this regard, a party may have obtained some benefit from the contract. In such a situation the remedy of rescission may have to be supplemented by some mechanism for the return of, or payment for, benefits already received. This is in the form of equitable remedy of restitution. We consider ways in which that can be done, and in that context we refer briefly to the law on unjustified enrichment, which is one way of dealing with the problem.

We are not concerned in this article with the problems arising in cases where neither party is in breach. We are not, for example, concerned with the rules whereby pre-contractual impossibility of performance may in certain cases make a contract invalid or with the rules whereby supervening impossibility of performance may bring a contract to an end.

There can be gainsaying the fact that the topic of remedies for breach of contract has given rise to a great deal of academic discussion. The United Nations Convention on Contracts for the International Sale of Goods (commonly called the Vienna Convention or the CISG) is now in force in some 50 states and regulates a large proportion of international commerce. It already affects companies engaged in international trade because the Convention applies if the law governing the contract is the law of a Contracting State and contracts entered into by a company in a contracting state may well be governed by such a law. The United Kingdom has not ratified the Convention but may yet do so. With each year that passes, the United Kingdom courts lose opportunities to influence the interpretation of the Convention.

The Vienna Convention has had an influence on two other recent international instruments -the Principles of International Commercial Contracts drawn up by Unidroit and published in 1994 and the Principles of European Contract Law prepared by the commission on European Contract Law under the chairmanship of Professor Ole Lando of which the part on remedies was published in 1995.

All of these instruments were the product of comparative legal discussion. They involved a pooling of ideas from common law countries and civil law countries.

It would probably be easy for most common law countries to achieve full compatibility with international norms on remedies for breach of contract. The fact that the existing contract law of most common law jurisdictions is not entirely in statutory form but is derived largely from cases disguises the extent to which it is similar to the rules of the modern international instruments mentioned above.

There has in the past been confusion in the use of the words “resile”, “repudiate” and “rescind” in the context of contracts. In recent years a standard usage seems to have emerged, although variations are still encountered. We follow that standard usage in this article and use the terms in the following way.

To resile from a contract means to withdraw from it lawfully, in the exercise of a right to do so, but not in response to a repudiation or breach.

To repudiate a contract means to indicate clearly, by words or acts, that the repudiator will not perform it, having no right to withhold or refuse performance. A repudiation is a wrongful rejection or renunciation of the contract. It does not end the contract but gives the other party an option to rescind.

To rescind a contract means to bring it to an end, at least so far as concerns the future performance of primary obligations, in response to a repudiation or material breach by the other party.

It is inaccurate to talk of the aggrieved party “treating” the contract as rescinded, although this usage is sometimes encountered. What the aggrieved party does is rescind the contract, not treat it as rescinded. The Sale of Goods Act 1979 talks of the party aggrieved by a material breach being entitled to treat the contract as repudiated. That is different and is not inaccurate so much as incomplete. It leaves it to be implied that the aggrieved party can rescind in response to a repudiation. Nowadays it would be preferable to talk of the aggrieved party being entitled to rescind the contract.

A repudiation will often be accompanied by, or followed by, a breach of contract but is not, strictly speaking, itself a breach of contract. There can be a repudiation without a breach.

For example, a builder, in the course of a heated dispute about what a building contract requires, says “I’m finished with this contract. You can do what you like. I’m having nothing more to do with it. My men are walking off this site and not coming back.” The other party urges another attempt to sort matters out and suggests a compromise solution. An hour later, matters are resolved to the satisfaction of both parties. The contract is duly performed. We can rightly say in relation to the above scenario that there was a repudiation but no breach.

However, a repudiation gives the other party an option to rescind the contract and, if this option is exercised, the repudiation is treated as if it were a breach. Damages can be claimed accordingly. It is critical to note at what point in time a repudiation or rescission has occurred so as to know when a remedy is potentially triggered by such repudiation or rescission. A repudiation can be regarded as a sort of “inchoate breach”.

A material breach is not necessarily a repudiation.

A contract, for example, may give either party a right to resile if the consent of a third party to some step is not forthcoming when such consent is a condition precedent in such a contract. There is a helpful discussion of the concept of repudiation, and a review of earlier cases, in some leading text modern text books on the law of contract.

The word “renunciation” is used in some English cases. See eg Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 436.

Lord Dunpark had said that a repudiation was in itself a breach but, for the reasons given in the text, the idea of an inchoate breach seems more accurate.

Example. A is a young man who is just setting up in the computer maintenance business. He enters into a contract with B to maintain a system which is unfamiliar to him. He has every intention of performing, being anxious to do a good job, build up his reputation and acquire useful experience, but his performance is disastrous. His early attempts to rectify a minor problem make matters worse and cause B great loss. There is a material breach of contract. B rescinds the contract while A is still trying to repair the system and asks A to leave. A pleads for another chance to rectify the problem. He has to be escorted forcibly from the premises, protesting all the way that he can solve the problem. There was a material breach but no reasonable person could conclude that A was at any time indicating an unwillingness to perform. There was a material breach but no repudiation.

The term “repudiatory breach” is sometimes used. It is a useful enough term in certain contexts but not precise enough for general use. A breach can have all the effects of a material breach and, in particular, can justify rescission, even although it would be straining language to say that it indicated an intention to repudiate.

At one time contracts would be “avoided” or declared null and void and of no effect ab initio because of a material breach, such as a failure to pay the price for land which had been bought, want of due execution or improper execution of a deed or failure to comply with a statutory requirement for the contract and lack of contractual capacity or failure to obtain the consent of a party to a contract where such consent is necessary etc. This usage reflects an earlier conceptual framework and is not now appropriate. It is noteworthy, however, that the Vienna Convention talks of contracts being “avoided” for breach in contexts where we would say “rescinded”. The European Principles and the Unidroit Principles talk of contracts being “terminated” for breach, a more understandable usage.

In general “breach” in relation to a contract means a failure, without legal justification, to perform an obligation under the contract as required by the contract. Legal justification may take various forms. For example a party may be justified in withholding performance if the other party is already in breach of a countervailing obligation. Supervening impossibility may justify a party in not performing. These may be in the form of circumstances not within the contemplation of the parties at the time they entered into the contract. A statute may make it unlawful to perform and thereby justify non-performance. For instance, A contracts to import cement from Thailand from B on June to be performed within three months and two months later the Thai government or the Bahamas government passed a law banning the sale and importation of cement to and or from Thailand and the Bahamas. Non-performance of an obligation may be justified if performance requires the co-operation of the other party and the other party obstructs performance.

So far as we are aware, the only difficulty in relation to the definition of breach of contract which might lend itself to a legislative solution is a slight uncertainty about the nature of a breach of a contractual warranty. Is a breach of a warranty about past, present or future facts, which is not an obligation to do or pay anything, a breach of contract which can trigger the normal remedies for breach of contract so far as applicable? The fact that breach is commonly defined by reference to a failure to “perform” may give rise to a doubt. If, for example, X enters into contract to sell land and warrants that there has been no adverse planning decision affecting the property, and it turns out that there has been such an adverse planning decision, it would be straining language to say that X has failed to “perform” an obligation. And yet there is no doubt that breach of a contractual warranty ought to be treated as a breach of contract. The parties in this situation cannot proceed to the conveyance stage of their transaction.

Generally, remedies for breach of contract cannot be pursued until the time for performance of the contract has arrived and a breach has occurred. The doctrine of anticipatory breach, however, provides a well-known exception to the above principle. The essence of this doctrine is that if one party repudiates the contract the other party has an option to accept the repudiation, rescind the contract and claim damages immediately without waiting for the date when performance would have been due. In effect the repudiation, once accepted, is treated as if it were an actual breach. The aggrieved party is not obliged to take action in response to the anticipatory breach and may choose to wait until the date of performance before seeking available remedies. If, however, the repudiation is not accepted, the contract remains in force and the repudiating party retains the option, and indeed the obligation, of performing at the due date.

The doctrine of anticipatory breach by repudiation derives from English law and is found in all common law systems.

It is clear whether it should be made clear that the aggrieved party has similar remedies where there is not total repudiation but where there is nonetheless something which indicates conclusively that there will be a fundamental or material breach. On principle, anything which makes it clear that there will be a material breach of the whole contract ought to give the aggrieved party the option to rescind the contract and exercise other available remedies. If, for example, a builder who has contracted to build a house says that he will be able to lay the foundations but not to do anything else, it seems clear that the other party to the contract should be able to treat this as a repudiation of the contract and act accordingly. This is in accordance with the rules in international conventions. The Vienna Convention provides that

“If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.”

The Unidroit Principles and the European Principles have very similar rules.

But it is not clear whether the aggrieved party’s remedies for anticipatory breach arise not only when there is a total repudiation of the contract but also when it is clear that there will be a material breach of the contract.

Anticipatory breach of severable part of contract.

There may also be a need for clarification of the law on the effect of a repudiation or anticipated breach of a severable, but perhaps small, part of a contract. Suppose that a builder who has contracted to build a house says that he will not be able to supply a particular kind of window lock which is specified, and charged for separately, in the contract. It seems clear that that should not entitle the other party to bring the whole contract to an end.

This will be considered a minor breach and as such does not entitle the other party to repudiate the contract or rescind it. He may seek for monetary damages where and if necessary. There could also be difficulty in allowing a claim for damages so long as the contract continues unchanged. The builder might be able to obtain the window locks and may tender performance notwithstanding his earlier statement. Damages might prove to be premature. On the other hand it would seem reasonable to give the aggrieved party the option to bring the part of the contract relating to the window locks to an end (but not to rescind or reject or cancel the entire contract]

This is where we consider the concept of material breach or fundamental breach that goes to the root of the contract as opposed to a minor breach that does not affect the substratum of the contract as previously mentioned. The two kinds of breach have no doubt differing effects.

It is inherently the nature of the breach that determines the appropriate remedy for a party to a contract.

The Vienna Convention uses the expression “declare the contract avoided” where we would use “rescind the contract” or “treat the contract as having come to an end”.

A breach of contract may be material or not material. The main importance of the distinction is that only a material breach will justify the other party in rescinding the contract. There is no doubt that some distinction of this kind is essential. Judges have described the concept of “material breach” in various ways – a failure to perform the obligations under the contract “in any material respect”;a violation of stipulations which are “material or essential” as opposed to “minor and incidental”;”substantial failure”; a breach of stipulations going “to the root of the contract”;a breach which is “of the essence of the contract”;or which affects “the root and substance of the contract”.

In today’s commercial world, the tendency is normally to concentrate on the materiality of the breach rather than the term but clearly the two are related and whether a breach is material is a question of fact and degree.

A breach could be important enough to give rise to a large claim for damages but yet might not be “material” enough to justify rescission. International rules on contract law use the terms “fundamental breach” or “fundamental non-performance”.

“A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.”

It should be noted that this formula leaves it open to the parties to fix the nature of the breach in the contract. They can provide, for example, that failure to perform by a stipulated time is to be a fundamental breach.

“A non-performance of an obligation is fundamental to the contract if:

(a) strict compliance with the obligation is of the essence of the contract; or

(b) the non-performance substantially deprives the aggrieved party of what he was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result; or

(c) the non-performance is intentional and gives the aggrieved party reason to believe that he cannot rely on the other party’s future performance.”

The Unidroit Principles contain a more elaborate provision which is not so much a definition as a list of factors to be taken into consideration.

“In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether

• the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result. To be Continued

Clement Chigbo is a practising lawyer and lecturer in law in the Uk. He is also a registered associate in the law firmof C F Butler & Associates, Nassau, the Bahamas. He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com

Also Published on the 9^th of September, 2009 on the Bahama Journal @

http://www.jonesbahamas.com/news/135/ARTICLE/20467/2009-09-09.html

In the current global financial meltdown many people have lost their properties to banks and other lending institutions under their contracts of mortgage.  In any given mortgage transaction, both parties- the mortgagee and the mortgagor- have rights and obligations under the mortgage transaction.  The mortgagor is entitled to his equity of redemption and his equitable right to.

In the current global financial meltdown many people have lost their properties to banks and other lending institutions under their contracts of mortgage.  In any given mortgage transaction, both parties- the mortgagee and the mortgagor- have rights and obligations under the mortgage transaction.  The mortgagor is entitled to his equity of redemption and his equitable right to.  The two rights sound alike and seem similar to each other but they are quite different to each other.  The mortgagee is entitled to a number of rights and remedies but the two most common rights available to him as a mortgagee are his statutory right of sale and his right of foreclosure and his right to possession of the mortgaged property.  Again, both rights of sale and foreclosure are quite different from each other.  This article examines the rights available to the parties and argues strongly that despite all said and done that the mortgagor is seemingly not in helpless situation where and if he chooses to exhaust all his rights and remedies.  The law being an instrument of social engineering actually affords protection to the mortgagor but the mortgagor must canvass his rights and remedies with full force before the court to save his property at the hands of heartless creditors.

From time immemorial, society and organized religion have sought to protect citizens against usurious and avaricious creditors who may wish to take advantage of the necessitous and impecunious conditions of the borrower and use their superior bargaining power to coerce him to agree to any onerous condition.  Islamic religion and Judeo-Christian faiths prohibit onerous form of borrowing known as riba fadh or usury respectively and provided that no man might lawfully charge loan for money.  See Exodus 22; 25 and Luke 6; 35.  With the progress and development of human society, statute and equity have stepped in to ameliorate the harshness and rigour of modern mortgages in an attempt to protect the mortgagor considering the inherent inequality of the bargaining power of the mortgagor and the mortgagee.

Before proceeding, a working definition of mortgage is necessary to enhance our understanding of this important aspect of our present day commercial life.  In its simplest form, a mortgage is a transaction under which property is used as a security for a loan.  Mortgages are extremely common in the everyday purchase of a family house or a commercial property since few people have enough money to be able to afford to purchase a house outright.  The traditional essence of a mortgage lies in the transfer of a property interest to the mortgagee [the lender].  Before the Law of Property Act 1925, this would normally be the legal fee simple.  The mortgagor [borrower] would retain the equity of redemption which is the right to recover the property on repayment of the loan.  Under the old law prior to the LPA 1925, the fee simple is transferred to the mortgagee and then re-transferred or re-conveyed to the mortgagor on repayment of the loan.

But note that after 1925 the borrower’s legal estate [fee simple] is not transferred to the lender or mortgagee.  Instead, the lender should be given a long lease by virtue of section 85 of the Law of Property Act 1925.  Alternatively, the property can be mortgaged by a charge by deed expressed to be by way of a legal mortgage pursuant to section 87 of the Law of Property Act 1925.  This can be used for both freeholds and leaseholds, and gives the mortgagee the same protection, right and remedies as if the mortgage had been made lease or sub-lease.  In reality the charge by way of legal mortgage is the usual way of mortgaging property today.

With registered land the mortgage must be registered on the charges register of the title affected if the mortgagee is to enjoy its full powers.    With unregistered land, the mortgage should [ but not must] be recorded at the deeds register at the appropriate records office [eg at the Registrar General Dept in the Bahamas] if the mortgagee is to enjoy priority protection of his interest as a mortgagee. The operation of 1925 is critical to all modern mortgages section 85 and section 86 of the Law of Property Act because it fundamentally underscores the fact that the mortgage transaction was/is intended to operate as security for a loan.  This view is fortified by the ancient law, which had always been, that the Chancery or the Court of Equity  would treat as a mortgage that which was intended to be a conveyance by way of security between A and B.  Thus, the maxim, once a mortgage, always a mortgage and nothing but a mortgage, is not only a rigid construct in real property law, but has been a principle for centuries.  See Harman LJ in Grangeside Properties Ltd v Collingwoods Securities Ltd [1964] 1 WLR 139.

There are many rights, obligation and remedies of both parties under a contract of mortgage.  The mortgagee’s rights include the following:   

I.           The right to possess the title deeds

II.          The right to possess the land

III.          The right to insure the mortgaged property against loss or damage [see section 101 Law                   of Property Act 1925]

IV.         The right to lease the property

V.           The right to tack further advances [section 94 LPA 1925] and

VI.           The right to consolidate the mortgage where the same borrower has two or more mortgages from the same lender on separate properties etc.

Note however, that in practice a lender rarely bothers to lease the property as he will prefer to sell and a borrower’s right are always excluded [the last thing a lender wants is a sitting tenant on his hands if he wants to sell].  As for the mortgagor and as previously mentioned, he has two rights and they are:

The right to right to redeem the mortgage and this right to redeem is often expressed in two facets i.e.:

I.            The equity of redemption which is the right to redeem the property on a date which the mortgage money is to be repaid.  This is the legal date for redemption. 

II.           The second right of the mortgagor is his equitable right to redeem his property even after the legal date for redemption has passed.

It is the critical role that equity plays and supported by statute that affords the mortgagor or borrower the enhanced protection in a mortgage transaction in our modern times where credit crunch and financial meltdown may become a supervening circumstance capable of affecting the parties rights and remedies under the mortgage transaction.  The mortgage instrument normally specifies a date on which the mortgage money is to be repaid and this is called the date for redemption.  At common law this condition had to be strictly observed and if the money is repaid on the agreed date the lender becomes entitled to retain the property which the borrower had conveyed to him.  Equity took a different view.  In the eyes of equity a mortgage is essentially a loan of cash secured by a property transaction.   It therefore allows a mortgagor to redeem his mortgage any time after the legal date for redemption.

Note further that the mortgagee has remedies to enforce his rights and protect his interest in the mortgage transaction.  The mortgagee’s remedies include the right of sale- that is the right under section 101 LPA 1925 under which every legal mortgagee has a power of sale which arises when the mortgage money due is due – i.e. on the legal date for redemption. 

Note further that the right under section 101 LPA 1925 is exercisable subject to section 103 LPA 1925.  The other remedies available to a mortgagee are the remedies of foreclosure which allows the lender to take the property in satisfaction of the mortgage debt but this particular remedy is hardly exercised these days and the mortgagee also has the remedy of appointment of a receiver but only in exceptional circumstances will the mortgagee exercise this remedy today e.g. where a corporate body or business organization is involved.

Thus as previously mentioned if the loan is not repaid in accordance with the contract of loan, the lender’s security may be realized through a forced sale of the land, the loan money being recouped from the proceeds.  Hence, like so many phenomena of land law, the mortgage represents a conjunction of the contractual and proprietary.  The mortgage arises from contract of loan and creates for the lender [or mortgagee] some form of proprietary entitlement in the land of the borrower [the mortgagor].  This proprietary entitlement in the land of the borrower for all practical purposes today is translated into money just as a English County Court judge tersely observe to the writer while the writer was before the learned country court judge in London trying to save a friend’s property from legal repossession [warrant of execution as it is called here] by a lending [mortgage] company to the effect that “it’s all about money”!

Having said this, the mortgagor’s right to redeem is not without legal protection.  The equitable right to redeem is jealously guarded by Equity.  Hence, the mortgagee will not be allowed to impose a “clog or fetter” on the Equity of redemption.  This means that Equity will strike down a legal date for redemption which is so far in the future as to render the right to redeem illusory.  In every case the object is to prevent the borrower from keeping the property for himself so long as the borrower may still be in a position to repay the amount secured.  It follows therefore, that in substance Equity still regards the mortgagor as being the owner of the property and prevents the lender from obtaining more than the return of his capital plus interest plus costs.  These rights are known as the “Equity of redemption”.

In substance they boil down to the market value of the property less than the amount outstanding on the mortgage.  In some instances- if the property has negative equity [i.e. where the mortgage debt exceeds the current market value], the mortgagee may choose to take possession and rent it out in the hope that property price will improve, and sell it at a later date.

Again, hardly will a mortgagee take this route especially in the context of conventional residential mortgage!  The mortgage transaction and the liability which it generates can underpin almost every feature of the way in which we live our lives.  The mortgage provides a method of installment purchase of the homes of millions- thus combining the economic function of a tenancy with the ideological function of property.

Thus, apart from the possibility of the intervention of Equity in the transaction to save the mortgagor’s property, statute also plays a pivotal role in affording the mortgagor some degree of protection.  Section 36 of the Administration of Justice Act 1970 which was amended by section 8 of the same Administration of Justice Act 1973 for instance, sufficiently lays down the criteria which, if, a mortgagor, is able to meet or satisfy may be able to retain his property against legal repossession or the execution of the warrant of possession on or over his property by the mortgagee/lender.  The relevant criteria include;

Will the mortgagor be able to pay the arrears over a reasonable period of time?

And will the mortgagor be able to maintain the current monthly installment during that time?

If the above questions can be answered in the affirmative and supported by evidence of income e.g. in the form of letter from the employer or/and evidence of other realistic and likely source of income which will justify the inference that the chances of redeeming the mortgage by the mortgagor are not nil or hopeless, a mortgagor in default should be able to stop the repossession of his property or the execution of a warrant of possession against his property by a mortgagee/creditor.  Note that section 91 of the Law of Property Act 1925 gives the court discretion to order a sale on an application of anyone entitled to redeem the mortgage i.e. a party to whom the mortgagor may have assigned the mortgage.

The court will make the order if it is just and equitable, striking a balance between the parties.  See for instance the case of Pulk v Mortgage Services Founding plc where the court ordered as sale as the likely rent was not enough to meet current interest, and there was no realistic prospect of house price recovering sufficiently to pay off ever increasing arrears.  Note finally that even after the date of foreclosure- it is possible for the borrower to reopen it if he acts promptly and can now at long last repay the debt.  It is in this regard that foreclosure can be re-opened and equity of redemption revived in four n conditions at least.  It need not be said that in the case of residential property that mortgagee must make application to the court for an order allowing the mortgagee to exercise its right of possession. Moreover with a dwelling house, section 36 of the Administration of Justice Act 1970 as amended by section 8 of the AJA 1973 gives the mortgagor a degree of protection.

Also published on the 18th of August, 2009: http://www.jonesbahamas.com/news/135/ARTICLE/20284/2009-08-18.html

Clement Chigbo [Esq.], LLB [Hons], LLM [Lond], L.E.C, B.L, MCIArb, is a practicing solicitor and a lecturer in law in the UK.  He also practices as a registered associate with the Law Firm C F Butler 7 Associates, Nassau, The Bahamas.  Mr Chigbo is also currently a doctoral candidate at and a tutor in law at the University of Aberdeen in the UK.  He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com

 A Will is a written declaration, made in a prescribed form, of the intentions of the person making the Will [the testator] which are to take effect on his death. The principle that a Will remains revocable during the life of the testator has far reaching significance in relation to mutual Wills. In essence, the cardinal feature of a Will is that it remains revocable until the death of the testator who remains free to alter its terms at any time before his demise. The principle inherent in the foregoing is exemplified by the Vynior’s Case [1610] 8 Co. Rep 80a.

A significant problem will no doubt arise in the event that an owner wishes to leave property to his wife, for instance, subject to a requirement that the recipient surviving wife bequeaths it to an agreed third party, eg a son from a previous marriage or a beloved nephew. In the above scenario, if the husband executes a Will under which he leaves his property to his wife, the property will become her absolute property on the husband’s death and she will be free to execute her own Will under which she may leave the property to whoever she chooses, even to the children of a second marriage or to some charitable object.

One of the ways to avoid this obvious difficulty is to make a life time gift to their daughter or for both the husband and the wife to decide to execute Wills with the identical terms, thus leaving their properties to each other in the event that they predecease, but to their daughter if they survive. However, it is trite that a Will remains revocable during the testator’s lifetime. Even if the testator has contracted not to revoke his Will he may still do so, though the estate may be liable for his breach of contract. Thus, even where identical Wills have been executed, the survivor will remain free to revoke the former Will and leave the property to others.

No case better illustrates the practical difficulties in the light of the foregoing than the facts of Re Cleavers Case [1981] 2 All ER 1018, where Arthur and Flora Cleavers had married in 1967, when Arthur was 78 and Flora 74. Arthur had three children by a previous marriage and Flora none. They executed identical Wills leaving the bulk of their estates to the survivor absolutely, and in default of their survival to the three children. Arthur died in 1975. The Will was proved and Florence became entitled to his estate absolutely. She subsequently executed a new Will leaving the entire property, which included the property she had inherited from her husband, Arthur, to only one of the children. While Arthur had clearly intended that the property bequeathed to his wife should ultimately be left by her to the children equally, it was however, impossible to prevent his widow revoking her Will and executing a replacement with differing terms. If the terms of the new Will were allowed to operate, Arthur’s intentions would have been defeated by his wife’s subsequent change of mind. Arthur seemed to be a very determined man and everything suggested he would, so far as he could, have wanted to ensure that anything which was left at [his wifes’s] death should go back to his side of the family. These difficulties can be avoided by bequeathing property directly to the intended ultimate beneficiaries or as previously adumbrated through the use of a life interest which will ensure that the survivor is only entitled to utilise the income derived from the property but not the capital. But these may not be of any practical benefit where the testator does not possess great wealth. Thus, the most appropriate solution will be a mechanism which enables the survivor to enjoy the property inherited from the first to die if necessary but which prevents the survivor from making an effective bequest of any of the property remaining at the date of their death to anyone other than the agreed beneficiary.

Equity provides such a mechanism through the doctrine of “mutual Wills”. Equity develops this doctrine to overcome the difficulties posed by the irrevocability of Wills. The doctrine of mutual wills is to the effect that where two individuals have agreed as to the disposal of their properties and have executed mutual Wills in pursuance of the agreement, on the death of the first [testator], the property of the survivor [testator no 2], the subject matter of the agreement, is held on an implied trust for the beneficiary named in the Wills. The survivor may thereafter alter his Will, because a Will is inherently revocable, but if dies, his personal representatives will take the property subject to the trust. For authority for the above proposition, see the observation of Morrit J in Re Dale [1993] 4 All ER 129 at 132. Note further that where mutual wills have been executed equity does not prevent the survivor from changing his Will but the executors of the Will will imply the he holds any property which was intended to be left to the beneficiary of the mutual wills on constructive trust. By means of this constructive trust the property will be held for the beneficiary named in the original mutual Wills, and not pass to those named in the new Will. See the case of Gray v Perpetual Trustees CO Ltd [1925] AC 391 at 399 where the Privy Council stated that;

“If two persons simultaneously make Wills to the same effect, and in that sense mutually, a second Will made by one of them after succeeding to the other’s estate under the originally made Will is precluded from being treated as effective to interfere in equity with the existing disposition…”

Thus, in the light of this authority, the court held in Re Cleavers Case that the Wills executed by Arthur and his wife had been “mutual wills”; so that the equitable doctrine applied and a constructive trust had come into existence. The widow’s executors therefore held the property she had received under her husband’s Will on constructive trust for the three children in equal shares. Note that the rationale for the imposition of a constructive where the testators executed mutual wills is based on an agreement not to revoke. In essence, a constructive trust will be imposed if the testators executed mutual wills on the basis of an agreement not to revoke. The rationale for imposing a constructive trust in such circumstances is that equity will not permit the survivor to commit fraud by going back on his agreement. Since the property he received on the death of the first testator had only been bequeathed to him on the basis of the agreement not to revoke his Will, it would be a fraud for him to take the benefit whilst failing to observe the agreement and equity intervenes to prevent this fraud.

In the Australian case of Birmingham v Renfew [1936] 57 CLR 666, Dixon J stated the principle underlying mutual wills in the following terms;

“It has long been established that a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his Will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. It is true that he cannot be compelled to make and leave unrevoked a testamentary document and if he dies leaving a last Will containing provisions inconsistent with his agreement, it is nevertheless a valid testamentary act. But the doctrines of equity attach the obligation to the property. The effect, is I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the Will which he undertook would be his last and testament”.

In essence, the principle distilled from all the authorities on this subject is that a court of equity will not permit a person to whom property is transferred by way of gift, ,but on the faith of an agreement or clear understanding that it is not to be dealt with inconsistently with that agreement or understanding. If he attempts to do so after having received the benefit of that gift, equity will intervene by imposing a constructive trust on the property which is the subject matter of the agreement or understanding. See Nourse J in Re Cleaver [1981] 2 All ER 1018 at 1024.

It is crystal clear that fraud seems to be the underlying justification for the imposition of a constructive trust in cases of this kind for where there is a contract between the testators which on the death of Testator no 1 is carried over into effect by him, there seems to be an equitable presumption that testator no 1 dies with the promise of Testator no 2 not to disregard the contract which became irrevocable on the death of Testator no 1. See Morrit J in Re Dale [1993] 4 All ER 129 at 136.

Mutual Wills operate to prevent the survivor acting fraudulently contrary to the agreement or understanding he reached with the other testator. The survivor in a mutual Will is entitled to inherit the estate of the predeceasing party absolutely or receive a life interest in it but he is not allowed to dissipate or squander the estate or transfer it to another party as intended by the testator in such a Mutual Will. Therein is the strategic benefit of a mutual Will in preserving or protecting family wealth or estate for the offspring of the family. That is why we always advise parties who want to ensure that upon their death that their property will be preserved for their children and loved ones by the surviving spouse given the concern that the surviving spouse may jump into another marriage and squander the wealth with his “new” partner. A man may use mutual Wills to ensure in the circumstances that even if he predeceases the wife and that the wife decides to remarry after his death, that his estate/wealth/property will still go to his children as the wife or her executors will be holding the property belonging to him in constructive trust for his original intended children under their mutual Wills.

Mutual Wills seem to operate as if it was a contract not to revoke a Will or make a new Will inconsistent with what the parties have agreed under their mutual Wills. Thus, the doctrine of mutual wills will only operate if the testators had agreed that their Wills would not be revoked and in the absence of an agreement there will be no fraud if the surviving testator revokes his Will.

Hence, Lord Loughborough LC in Lord Walpole v Lord Oxford [1797] seemed to encapsulate the core principle relating to the above when he tersely observed that “the principal difficulty in establishing that Wills were intended to be mutual is determining whether the testators had entered a legally binding obligation not to revoke their Will rather than a mere honourable agreement”. Suffice it to say that the agreement or understanding not to revoke their Wills must be such as demonstrably and transparently imposes on the donee a legally binding obligation to deal with the property in the particular way.

Some authorities seem to suggest that this agreement between the parties must take the form of a valid contract. See for instance the observation of Morrit J in Re Dale [supra] to the effect that for the doctrine to apply there must be a contract at law. However, the correctness of this reasoning is doubted. We respectfully submit that a contract should not be required because it is not an essential element of the establishment of a constructive trust. See the case of Goodchild v Goodchild [1997] 3 All ER 63 where the argument was strongly canvassed albeit unsuccessfully. However, the Court of Appeal in the same case after rejecting the purported analogy between the operation of mutual Wills and secret trusts held that a contract was required. We would have thought that a mutual understanding and/or an agreement should suffice. We think that the decision of the Court of Appeal in the instant case borders on strict tabulated legalism to say the least!

A consistent line of authority requires that for the doctrine of mutual wills to apply there must be a contract between the two testators. Viscount Haldane in the Privy Council decision in the case of Gray v Perpetual Trustees Ltd [[1928] AC 391 at 400 made such requirement abundantly clear.

In light of recent authorities on this subject, it is crystal clear that a contract will be required.

Note that in the absence of a contract the testators’ wills will not be mutual and a constructive trust will not arise.

In Re Oldham [1925] Ch 75, Mr and Mrs Weldon executed similar wills in 1907. In 1914 the husband died. As a result his estate passed to his wife absolutely. In 1921 she married Mr Oldham, who was some 35 years some her junior, and altered her Will to grant him a life interest in a large portion of her estate. She died in 1922, leaving some £108,000, all but £10,000 of which had come from her first husband’s estate. Ashbury J held that there was no evidence of an agreement that the “mutual” wills should be irrevocable, and therefore there was no trust raised in favour of the beneficiaries named in them.

We will advise persons wanting to arrange their estates and affairs with mutual Wills to be fully aware that the effect of the existence of mutual Wills is to impose a binding legal obligation in respect of the property affected and that a constructive trust will be established if the mutual wills themselves contain a statement that they have been executed on the basis of an agreement. See Re Itagger [1930] 2 Ch 190. It should also be noted that the property rights of the beneficiaries of the mutual wills cannot crystallise until the date of death of the survivor. The nature of the entitlement of the beneficiaries of a constructive trust arising under mutual wills is rendered similar to a floating charge over the assets of a company which is based on the crystallisation of the charge upon the occurrence of a specified event in the instrument creating the charge/debenture. See Re Panama, New Zealand and Australian Royal Mail Co [1870] 5 Ch App 318. The trust like a company floating debenture/charge would, however, crystallise and settle on the assets of the survivor upon his or her death.

The doctrine of mutual wills clearly operates to prevent the survivor disposing of the trust property by will in a manner inconsistent with the mutual wills. Note that the survivor under mutual wills is prevented from disposing of the trust property during his lifetime. This does not mean that he cannot dispose of the property inter vivos [ie lifetime disposition]. But note that there must be limit to the powers of survivor to dispose of the property subject to the trust, otherwise the entire purpose of the arrangement could easily be defeated. Hence, it is in this regard that gifts and settlements, inter vivos (lifetime), if calculated to defeat the intention of the compact or agreement or contract between the testators, could not be made by the survivor and his right of disposition, inter vivos is, therefore, not unqualified. But, substantially the purpose of the arrangement will often be to allow full enjoyment for the survivor’s own benefit and advantage upon condition that at his death the residue shall pass as arranged. See Dixon J in Birmingham v Renfrew (1936) 57 CLR 666.

Note that even during the lifetime of the survivor under mutual wills, he could be called upon to account for any extraordinary or anomalous transaction inappropriate to his means and circumstances. Such extraordinary and anomalous transaction could be set aside or held to have no effect. Besides, if any purported extraordinary or anomalous transaction was identified, a beneficiary affected by it could presumably take steps to restrain it.

Clement Chigbo [Esq], LLB [Hons], LLM [London], L.E.C, B.L, Dip.Lat, MCIarb, Solicitor of England and Wales, Member of the Chartered Institute of Arbitrators, UK, practises with the Law firm of CF Butler & Associates and is currently a doctoral candidate and tutor in Law at The University of Aberdeen, UK. Comments, suggestions and opinions are welcome. He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com

Also Published in August 12th, 2009 in the Bahama Journal

BY CLEMENT CHIGBO

Real Property transactions can very daunting and complex for parties sometimes.

Problems ranging from interpretation of clauses and terms in the sale agreement to one of the parties rescinding the contract or not willing to proceed to the conveyance stage may arise at any time. Not all of these problems are amenable or suitable for full-blown litigation. In some instances issues relating to property transaction may be more appropriately dealt with in an expeditious manner by presenting a vexed question to the appropriate court with requisite jurisdiction to make a judicial declaration or pronouncement. Some attorneys do not utilize this expeditious means either out of ignorance of its existence or because they want the transaction to last longer so that they can justify their exorbitant fees. The following article explains an expeditious and speedy process that can be used in the Bahamas and other common law jurisdictions to s obtain a judicial ruling on conveyancing questions and points on title issues and contractual interpretation etc.

At common law, a party to a sale agreement or a contract for the sale of land who wished to obtain a judicial ruling upon rights and liabilities could do so only by bringing an action. He might sue in court of law for damages for breach of contract, or he might file a petition for specific performance in Chancery. The first alternative, though time consuming was widely used but a purchaser of land usually wants land not money owing to the unique nature of land. The existence of the equitable remedy of specific performance can be justified on the ground that payment of monetary damages may not constitute adequate compensation to a plaintiff or prospective purchaser who is uniquely interested in the real property that he bargains to purchase. There can be no doubt that an action for specific performance has distinct procedural advantage not possessed by the action at law.

It is beyond dispute that at law, a party to a contract who was not in agreement with his co-contractor upon the meaning and the effect of every term and condition or clause had only two courses- he might sue for damages for breach of the disputed term, or he might refuse to perform it and sit back and wait to be sued. Needles to say that in the former case he might well have some difficulty in proving damage. In the latter case he might well find that, owing to the very strict interpretation that the courts of common law put upon contracts of this type, he had entitled the other party to repudiate or rescind the entire or the whole transaction. Note that to rescind or repudiate a contract simply means to reject, cancel or refuse to continue with the contract.

In a suit in equity for specific performance on the other hand, once the existence of the contract was established the whole matter would be adjourned into chambers for an inquiry into the title of the vendor and any incidental questions which might arise upon the contract could be disposed of at the enquiry. This was a more eligible and efficacious method of proceeding than the common law afforded; but it had the disadvantage that even when the only real point at issue between the parties was some question of title or some other matter which could be disposed in chambers, and neither the existence nor the general effect of the contract was questioned for a moment, it was necessary in order to get the question into chambers to have the entire contract carried into effect under the eye and by the order of the court, and the consequent expense was very heavy. It was in the hope of reducing this expense that the procedure by Vendor and Purchaser Summons was introduced.

Section 9 of the Vendor and Purchaser Act, 1874 and now replaced by section 49 [2] of the Law of Property Act 1925 provided that the vendor or purchaser of real property [freehold estate] or a term of years [leasehold estate] or their representatives might apply in a summary way to a judge of the Court of Chancery in chambers in respect of any requisition or objections, or any claim for compensation, or any other question arising out of or connected with the contract [not being a question affecting the existence or validity of the contract], and the judge should make such order upon the application as to him should appear just. Note that similar provision was made for other common law jurisdictions that inherited or “received/” the English legal system.

The effect of the above section has been thus described by eminent and high authority;

“It has enabled the parties to dispense with the form of a bill and answer [ie like an action commenced by writ necessitating the exchange of pleadings] and at once to put themselves in Chambers in exactly the same position in which they would have been, and with all the rights which they would have had under the old form of decree”. See In re Burroughs, Lynn, and Sexton [1887], 5 Ch D 601

Thus upon proceeding by summons evidence may be given by affidavit upon disputed matters of fact, and the deponents crossed-examined upon their affidavits, in the same manner as upon an inquiry in Chancery Chambers. See In re Burroughs, Lynn, and Sexton [1887][supra]

The exclusion of “questions affecting the existence or validity of the contract” from the scope of the new procedure was intended to confine it to questions arising in the working-out of admitted contract and to make it clear that it could not be used as a substitute for action in all circumstances. But note however, that the court is not prevented from deciding a point on the construction of a contract properly raised upon summons merely because one of the parties claims that he is entitled to have the whole agreement set aside for misrepresentation or non-compliance with or fulfilment of a condition precedent to the validity of their contract. The fact that the contract might be open to rescission in proceedings properly constituted for the purpose will not oust the right of the court to pronounce upon its effect in the meantime. See In re Hughes and Ashley’s Contract [1900] 2 Ch 595. Again, if the summons raises a point which is clearly within the scope of the section, it is no objection that the facts which it discloses might also entitle the applicant to repudiate or rescind the contract. Thus if a vendor [even fraudulently] misrepresents his title in the particulars of sale, there is nothing to prevent the purchaser from taking out a summons to have it declared that the vendor has not shown a good title according to the contract, rather than suing for fraud. See In re Davis and Casey [1888] 40 Ch D 601. This was exactly the cause I intended to take when a client of mine, a single mother found her self in that unusual waters of controversy that characterise real property conveyancing in the Bahamas. The vendor in that matter has advertised for sale a property saddled with a legion of litigation and when my client’s attorneys advised her not to proceed, the other party refused to reimburse my client her deposit. Suffice it to say that the other party saw reason and refunded my client her deposit saving us the expense of a judicial resolution. There is moreover, nothing to prevent a purchaser from raising the contention that on the facts of the case he is not bound to complete, for there are cases in which though the contract be perfectly valid at law the exclusively and discretionary equitable remedy of specific performance would not be granted.

Clement Chigbo [esq],LLB[Hons], LLM[London], L.E.C, B.L, Dip.Lat, MCIArb, a lawyer is a Member of the Chartered Institute of Arbitrators [U K].  He practises as a registered associate with the law firm of C F Butler & Associates, Nassau,The Bahamas.  Mr Chigbo is also a doctoral candidate and a tutor in law at the University of Aberdeen, U K.  The above article is a joint collaboration between Mr Chigbo and Nwaniki Gachuba LLB, LLM, LLM, MSc

An arbitration clause can be defined as a provision in an underlying commercial contract, through which the parties involved in a particular transaction, agree to settle any conflict or dispute that may arise from or related to the transaction by means of arbitration. Most commercial contracts or agreements these days inexorably contain an arbitration clause. The importance of a well drafted arbitration clause especially in joint venture agreements has been emphasized in the last three articles in this column. In this article, we highlight some of the fundamental elements that must be considered carefully when drafting an international arbitration clause.

An arbitration clause can be defined as a provision in an underlying commercial contract, through which the parties involved in a particular transaction, agree to settle any conflict or dispute that may arise from or related to the transaction by means of arbitration. Most commercial contracts or agreements these days inexorably contain an arbitration clause. The importance of a well drafted arbitration clause especially in joint venture agreements has been emphasized in the last three articles in this column. In this article, we highlight some of the fundamental elements that must be considered carefully when drafting an international arbitration clause.

However, let us first highlight the issue of ambiguity in arbitration clauses. An arbitration clause is considered ambiguous if the parties do not express clearly or sufficiently clearly for that matter that, in the case of conflict or any dispute arising out of their transaction that the settlement shall be effected through arbitration. Given that, arbitration is only possible if there is consent by the parties, to the extent that, an arbitration clause is ambiguous, then, there is no agreement to arbitrate.

Thus, an ambiguous arbitration clause squanders the opportunity to arbitrate. This was the case in one case, where an arbitration clause provided that: “In case of dispute, the parties undertake to submit to arbitration but in case of litigation the Tribunal de la Seine shall have exclusive jurisdiction.” There is no way an arbitration tribunal can go ahead with arbitration arising from such an ambiguous clause for there is no guarantee the resultant award will be upheld.

In the remaining parts of this article, we deal with key elements of a well drafted arbitration clause. These elements are:

The scope of the arbitration clause

Unless there are specific reasons for excluding all disputes in terms of an international contract, it is advisable to ensure that, the clause covers all conceivable disputes that may arise in connection with the contract. Such a clause would look like this:

All disputes, claims, controversies or disagreements relating to, arising out of or in connection with this contract/agreement (this includes its formation, existence, validity, enforceability, performance, termination, interpretation or breach thereof), or the subject matter of this contract/agreement, shall be finally resolved by arbitration.

 Let us illustrate why such a comprehensive clause is worthy of it: We shall attempt to examine each clause seriatim.

“All disputes, claims, controversies or disagreement.” By drafting the clause in this manner, it helps to ensure that, there is little possibility of a recalcitrant respondent party arguing that the issue that are the subject of the request for arbitration  are not covered by the arbitration clause. For instance, it is possible for a party to claim that, the “claims” are not “disputes.” Arguing over such meaning will definitely cost parties resources and it is therefore advisable to avoid such arguments.

“Relating to, arising out of or in connection with.” If a clause is formulated to read “arising under,” there is a possibility of it being construed to mean that, only claims encompassing claims related to the parties’ contractual relations are covered. Thus, by including “relating to” and “in connection with,” the clause covers tort, quasi contract, statutory and any other non – contractual claims are brought under the ambit of the arbitration clause.

“Formation, existence, validity, enforceability, performance, termination, interpretation or breach.” This type of language makes it very clear that, all disputes relating to the parties’ contractual relationship shall be subjected to the arbitration clause. This ensures that, such issues as fraudulent inducement or improper termination are covered.

“Subject matter.” This formulation helps to further broaden the scope of the arbitration clause and ensure that, any disputes regarding the formation and validity of the underlying contract will also fall within the scope of the arbitration clause. It is possible to carve out certain types of disputes. However, such a clause must be very carefully worded. If not so, it will lead to jurisdictional challenges as regards the applicability of the clause to particular claims. This will obviously occasion delays and additional expenses. While at it, one should be aware of the applicable mandatory rules of national law that may make some claims not arbitrable.

“Shall be finally resolved by arbitration.” The importance of these words can be deduced from a recent New York case. The relevant arbitration clause provided that “All disputes … may be resolved by final and binding arbitration pursuant to the voluntary arbitration rules of the AAA.” The plaintiff argued that, the words “may be resolved by final and binding arbitration” clearly made the arbitration optional and not mandatory and therefore, the parties could resolve the conflict in court. Finally, the court did hold that “may be resolved” did give the parties an option not between court and arbitration, but between going to arbitration and doing nothing at all. Although the court came to the right decision, the parties did take long time and incurred extra expenses than would have been necessary if the clause had been drafted carefully.

Choice of the arbitral institution

Today, there are numerous competent arbitral institutions that may be selected by the parties to conduct the arbitration proceedings. We are proposing to set up one in the Bahamas to aid the administration of the justice system in the Bahamas. However, it is important to have in mind that, the choice of a particular arbitration institution affects both the length and expense involved in the proceedings and the outcome. This is so because, different arbitral institutions have differences in procedural timetable, the powers of the arbitrator, the scope of discovery, availability of interim relief, costs of arbitration and the choice of the arbitrators in the case of default by one party. Since most arbitral institutions provide model clauses that may be used to incorporate them in the arbitration clause, it is advisable where appropriate, to use these model clauses. It is true that, the parties may decide to amend the institutional rules. However, if they decide to do so, they are advised to consult such an arbitral institution and those experienced in arbitration.  We urge parties in the Bahamas to seriously consider using arbitration in resolving their disputes considering the inherent advantages in arbitration over litigation.  Arbitration saves time and cost.  Litigation is time-consuming and money-consuming.  Arbitration is an informal process or resolving disputes and is conducted under more relaxed atmosphere. Litigation is highly stressful and morbidly unpredictable.  Arbitration preserves and enhances existing business and commercial relationship.  Litigation is very often contentious and acrimonious and embitters and damages business and commercial relationships and involves a daunting procedural technicalities.  Why don’t you consider arbitration today and you will see the benefits no doubt.

Clement Chigbo [esq],LLB[Hons], LLM[London], L.E.C, B.L, Dip.Lat, MCIArb, a lawyer is a Member of the Chartered Institute of Arbitrators [U K].  He practises as a registered associate with the law firm of C F Butler & Associates, Nassau,The Bahamas.  Mr Chigbo is also a doctoral candidate and a tutor in law at the University of Aberdeen, U K.  The above article is a joint collaboration between Mr Chigbo and Nwaniki Gachuba LLB, LLM, LLM, MSc

 Also published this May 25, 2009 in the Bahama Journal

Original Articles of Association for the Bank of Montreal

It is strongly advised that clients satisfy themselves of the corporate financial history and company filings within the Registrar of Records, along with revising the company’s Articles of Association prior to the purchase of shares in a local Bahamian company, as shareholders are often the victims of fiduciary breaches on part of Directors and Corporate Officers. As a shareholder, one must be vigilant concerning the actions and decisions made by of the Board of Directors by staying current with the corporate agenda along with attending and voting in the company’s Annual General Meetings:

By Clement Chigbo

 Published in the Bahamas Journal, March 20th, 2009

As far as the allocation of corporate powers is concerned the proper guide is the Articles of association in tandem with the Memorandum of Association. Of course it should be noted that the main internal constitutional document remains the Articles of Association. See Section 9 (2) of the Companies Act, 1992 which provides that the Memorandum shall, when registered bind the Company and the shareholders to the same extent as if “each shareholder had subscribed his name and affixed his seal thereto;” and “there were contained in the memorandum on the part of himself, his heirs, executors and administrators, a covenant to observe all the conditions of such memorandum, subject to this Act” [ie the Companies Act, 1992, section 11].

[Excerpts from Mr Chigbo's recent book..."Company Law and Practice in the Bahamas "]

Section 9 of the Companies Act seems to create the impression of the existence of contract and shareholders’ agreement.  But see the case of Bushel v Faith (197)) AC 1099.  While Companies often have very complex organizational structures, hoever, at the core of every corporate structure is the Articles’ allocation of power between the general meeting and the board of directors.  It is this allocation of power that is the core function of the articles of association.

Sections 70 to 83 of the Companies Act 1992 deal with the general meetings and sets out procedures for meetings and voting at meetings.  Sections 84 – 105 deal with the office of the directors providing for the appointments, meetings, duties, termination, resignations, removal, delegation of their duties, etc.  For instance Section 92(1) of the Companies Act, 1992 provides that:

The members of a company may by a resolution at an extraordinary general meeting, remove any directors from office.

Section 90 of the Companies Act also provides that a director of a company shall cease to hold office when:

(a)        he dies or  resigns

(b)        he is removed in accordance with Section 92 (mentioned above) or

(c)        he becomes disqualified under Section 87 or 88.  Sections 87 and Section 88 deal with disqualified director e.g. a person being disqualified and hence prohibited by (Section 3(2) of the Companies Act, 1992 i.e. to the effect that no person who is under the age of majority [ie a minor] or has been found to be of unsound mind by a tribunal in The Bahamas or elsewhere, or is an undischarged bankrupt, may join in the incorporation of a company under the Companies Act, 1992.  Section 88 of the Companies Act, 1992 deals with Directors disqualified by Court i.e. to the effect that the Registrar may make an application to the Court that a person is unfit to be concerned in the management of a public company – the Court may order that that individual may not be a director of the company or, in any way, directly or indirectly, be concerned with the management of the company.  This may occur as a result of the person undergoing a term of imprisonment or/and where the person has been adjudged a bankrupt.

Section 92 provides members with the right by simple majority at an extra ordinary general meeting to remove a director for any reason whatsoever is a significant power of the general meeting.  The general meetings role, at least in theory, is to act as a residual control on the board by meeting once a year and checking on the performance of the board.  See Sections 70 and 71 of the Companies Act, 1992 which provide for general meeting and extraordinary general meeting. The primary power wielding organ is, however, the board, i.e. the board of directors:  Section 84 provides:

Subject to any unanimous shareholder agreement the directors of a company shall -

(a) exercise the powers of the company directly or indirectly through the employees and agents f the Company; and

(b) direct the management of the business and affairs of the company.

Hence, subject to the provisions of the Companies Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and the articles.

Most problems that often arise in private companies stems from a lack of clear understanding of the important significance of the provisions of section 11 that seem to create what is commonly referred to as a statutory contract among the shareholders inter parties and with the company as well.  This is called the section 11 contract or as in English law the section 14 contract.  See section 14 of the English Companies Act 1985.

The rather odd statutory contract was introduced to automatically bind the shareholders and the company together to observe the constitution of the company.   See the case of Hickman v Kent or Romey March Sheep-Breeder’s Association (1915) 1 Ch. 881.

It is an odd contract as it can be varied without the consent of all the parties to it by special resolution and also binds future members.  When new members join the company by buying shares, the constitution will automatically cause them to observe the pre-existing constitution.  As such, it removes the possibility of renegotiating the rules every time a new shareholder arrives especially with respect to public companies.  This no doubt facilitates the development of the share market as the shares are more transferable where they come with a fixed set of rights. It is this statutory contract and the question of participation in the management of the company and the incidental issue of minority protection that have remain discombobulating to company law practitioners in advising their clients in small and close-nit companies that shareholders form with expectation of continuing participation in the management of the companies and with expectation of using the company as a means of employment.  Practitioners have often failed to advise their clients that being a shareholder in a company does not guarantee continuing participation in the day to day business of the company.  They failed to advise on the effects of shareholding and the possibility of being excluded from management position in the company albeit while one remains a shareholder in the company.  The amount of shares a shareholder holds in the company plays a critical role in this context.  Hence the concept has been referred to as the doctrine of corporate democracy.

Principle of Corporate Democracy

It has been suggested that only the company can sue for a wrong done to the company.  This is not as easy as said above:  This will likely lead to some complex issues in company law and will be discussed elsewhere.  Suffice it to say that the fundamental question for determination remains whether the wrong or breach complained of is a wrong to the company or a wrong to the individual?  This concerns a central aspect of company law i.e. majority rule.

As a general rule however, individual shareholders are not empowered to initiate proceedings for a wrong to the company.   See Companies Act, 1992.  This is known as the Rule in Foss v Harbottle (1843) 2 Hare 461.  Only the company through its organ (the board or general meeting) can enforce such a wrong.

If a shareholder is to be able to enforce the contract against the company directly, they must be trying to enforce a personal right.  Lord Wedderbum (1957) in an article on Foss v Harbottle (1843) set out a list of rights the courts have in the past considered personal in nature.  These included:

• Voting rights
• Share transfer rights
• A right to protect class rights
• Pre-emption rights
• The right to be registered as a shareholder and obtain a share certificate
• The right to enforce a dividend that has been declared and to enforce the procedure for declaring the dividend
• The right to have directors appointed in accordance with the articles
• Other procedural rights such as notices of meetings

See also the case of Edwards v Haliwell.  This area of Company Law is beset with some degree of confusion.  But see the divergent views in the case of MacDougal v Gardner (1875) 1 Ch D 13 and Pender v Lushington (1877) 6 Ch D 70.

In Elley v Positive Government Security Life Assurance Co (1876) 1 Ex D 20 the articles contained a clause that ensured that a particular member of the company was appointed as the company’s solicitor.  The member was not appointed as the company’s solicitor and sued for breach of contract.  The court found that he could not rely on breach of that clause in the articles as the cause of his action, as there was no contractual relation between the member as solicitor and the company.

Note also the concept of shareholders’ agreement which may be in the nature of agreements between shareholders themselves (that is, all of the shareholders or just some of them) or between the company and shareholders (that is all of them or just some of them).

The agreement usually concerns the exercise of power in a given situation.  For example, to only allow an increase in the authorized share capital of the company if all the parties to the shareholders’ agreement agree, or to exercise votes at the general meeting in a particular way.  The key advantage of a shareholders’ agreement is that it is easily enforceable against another party to the agreement (see the case of Puddephatt v Leith (1916) Ch 200).

In small to medium-sized companies, it is also common to add the company to the agreement for security.  Companies may however be limited in what they can agree to do.  For example, in Punt v Symons & Co Ltd (1903) 2 Ch 506 the court held that a company could not contract out of the right to alter its articles (See Section 29 Companies Act, 1992).  This means in effect that a provision of a shareholders’ agreement that binds the company not to alter its articles will not be enforceable, but see a seemingly contradictory decision in the case of Russell v Northern Bank Development Corporation (1992) BCLC 431 where the House of Lords considered a shareholders’ agreement where the company agreed not to increase the share capital of the company without the agreement of all parties to the shareholders’ agreement.  The company did attempt to increase the share capital of the company and one of the shareholders who were party to the shareholders’ agreement objected and attempted to enforce the agreement.  The statutory conflict here was between the agreement and C.A. 1985 section 121 (U.K.) that allows companies to increase their share capital if their articles contain an authority (see the Companies Act).  The articles of the company did provide for such an authorization.  The House of Lords found that the company’s agreement not to increase its share capital was contrary to section 121 and, therefore, unenforceable.  However, the court did not declare the whole shareholders’ agreement invalid, just the company’s agreement not to increase the share capital.

This meant that the shareholder who objected could not enforce it against the company but could enforce it against the other members.  As all the members of the company were party to the shareholders’ agreement this has the same effect as if the company was bound.  The shareholders could not vote to increase the share capital      

It should be noted that shareholders’ agreement are a useful way for shareholders to create more certainty about the enforceability of certain rights they have agreed to.  The courts have long recognized this and have been willing to enforce such agreements.  Complications occur where the company is joined as a party to the agreement, as it may not be able to limit its activities where a statutory provision is at issue.  However, we always advise clients in a small, close-nit or family company/business to use the instrumentality of a shareholders’ agreement to secure a better protection of their interest in the company especially where they intend to participate in the management [or day to day running] of the company or where they anticipate using the company as a means of employment.  Where such shareholders agreement exist and any issue subsequently arises, the determination of such issues will be based by reference to not only the ordinary principles of company law and the constitution of the company [ie the articles and memorandum of association], but also be a reference to the shareholders agreement in determination of the rights and duties of parties in the event of future conflict or disagreement.

Clement Chigbo, lawyer and chartered arbitrator practices as a registered associate with the law firm of CF Butler & Associates, Nassau, The Bahamas.  He is currently a tutor and doctoral/PhD candidate at the university of Aberdeen, U.K.  Opinions, comments and criticisms and suggestions on his articles are welcome. He may be contacted at lawscholar2006@yahoo.com, clemsweiss@hotmail.com

 This is a great article by Mr. Clement Chigbo on the aspects of the relationship between the Articles of Association and the Shareholder’s Agreement in the laws of This Commonwealth.