Bermuda’s Supreme Court confirms that property owners have an indefeasible right to title deeds

About Louise CharlesonLouise Charleson

Louise Charleson is a Senior Associate in the Dispute Resolution Group. She has extensive experience in advising both local and international clients on a wide range of commercial litigation and dispute resolution matters including high-value trust disputes and restructures, cases involving telecommunications and regulatory issues, professional negligence, policy coverage and general contractual disputes.

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It may seem obvious to practitioners that where there is no mortgage on a property, the legal owner is entitled to retain the title deeds to the property. However, it was recently argued in a dispute over whether a deposit could be forfeited by the vendor in a failed property transaction that the purchaser’s attorneys should be permitted to hold onto the title deeds until the vendor returned the full deposit.

Background

The vendor and purchaser entered into a conventional Bermuda Sales & Purchase Agreement (the “Agreement”) which incorporated standard special conditions providing terms for the Agreement being subject to financing until a certain date known as the “Finance Expiry Date”. After this date, the Agreement was no longer conditional on financing being obtained. The Agreement further provided for either party to rescind the Agreement within a 7 day period following the Finance Expiry Date (“the rescission period”). Neither party rescinded the Agreement. As the vendor had not received any notice to the contrary, it believed that the purchaser had obtained the necessary financing for the sale to proceed as contemplated by the Agreement.

Unfortunately, the purchaser was unable to secure financing on terms which it found acceptable. However, the purchaser only informed the vendor of this and demanded return of the deposit on the Completion Date long after the Finance Expiry Date and the rescission period had lapsed. There is a live dispute as to whether the purchaser is entitled to the return of the deposit at such a late stage. This case will be important for practitioners, because if it is found that a purchaser can rescind after the date for rescission has passed and without risk of losing his/her deposit despite the Bermuda Bar standard terms, then the long standing ordinary practice of making a deposit on the signing of the contract will need to be reviewed.

Title Deeds

After the Agreement was signed by the parties and the deposit had been paid, the vendor provided the title deeds to the purchaser’s attorneys to assist them with drafting the relevant conveyancing papers. As per the standard practice in Bermuda an undertaking was given by the recipient of the title deeds to hold them to the order of the vendor.

When it was apparent that the transaction was not going to proceed, the vendor’s attorneys (MJM) demanded the return of the title deeds. However, despite the undertaking, the purchaser’s attorneys refused stating that they would not return the title deeds unless their client’s deposit was returned to them in full. Arguably, this stance is tantamount to holding the title deeds to ransom.

As a result of the refusal to return the title deeds, an application against the purchaser’s attorneys had to be made for their return. At the hearing the purchaser’s attorneys tried to argue that the issue of the deposit should be decided at the same time as whether the title deeds should be returned. However, the Chief Justice rightfully noted that ownership of the title deeds is an indefeasible right unlike the deposit which is subject to the terms of the Agreement in respect of which the vendor relies to support its retention of the deposit. The purchaser’s attorneys were unable to provide any legal basis on which they could argue an entitlement to retain the title deeds. Therefore, the Chief Justice ordered the immediate return of the title deeds with the issue of the deposit to be decided in separate proceedings.

Postscript

It was suggested by the Court that perhaps the attorneys had only been acting on their client’s instructions in retaining the deeds. However, it strikes the writer that even if that were the case then it should be a cautionary tale to attorneys; it would enable an attorney to renege on the undertaking upon which the deeds had been provided to them, and would undermine the ability for transactions to be conducted in a sensible and timely manner. Thankfully the Chief Justice recognised this in his decision.

Under no circumstances can a breach of an attorney’s undertaking be justified as acting on a client’s instructions.

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