Return to Contents ‘The Ten Day Rule’ And Article 52 Of The Loi (1880) Sur La Popriètè Foncière John Kelleher Current conveyancing practice in Jersey entails the utilisation of what, on an objective analysis, appears to be a rather cumbersome process relating to the payment of consideration based on what is commonly known as "the ten day rule". The rule is based on the potential implications of Article 52 of the Loi (1880) sur la propriété foncière. Its practice is the subject of a Law Society resolution which binds its members by way of an implied undertaking. However, it is submitted that the current operation of the ten-day rule does not stand up to scrutiny and could potentially result in liability for damages being awarded against a lawyer acting for a purchaser or a lender. Article 52 of the Loi (1880) states as follows: "Tout contrat passé devant Justice en matière immobilière, et toute hypothèque, seront absolument nuls, si le contrat a été passé ou l’hypothèque obtenue dans les dix jours qui ont précédé immédiatement une déclaration de désastre sur les biens de l’une ou l’autre des parties, ou sa réduction aux petits dépens, ou une demande de la part de l’une ou de l’autre d’être admise à faire cession générale, ou de remettre son bien entre les mains de la Justice, ou d’être envoyé devant le Juge-Commissaire moyenner un accord avec ses créanciers. Néanmoins, si le désastre était relevé judiciairement avant l’expiration du délai fixé pour l’évocation des causes, lesdits contrats et hypothèques demeureront en force, comme si le désastre n’avait point été déclaré. Ceux qui auront payé aucune partie de la considération portée aux contrats devenus nuls en vertu de cet Article, n’auront, pour ce qu’ils auront ainsi payé, qu’une créance simple, sans hypothèque ou préférence, vers ceux auxquels ou pour le profit desquels les paiements auront été faits." The effect of Article 52 is therefore to deem an hereditary contract relating to immovable property or an hypothec "absolument nuls" if either party to the transaction finds himself in a state, or near-state, of insolvency, within the stated time period. More specifically, this state of insolvency or near-insolvency comprises: (a) either party’s property being declared en désastre; (b) either party’s being reduced to short rations; (c) either party applying to make cession générale; (d) either party applying for a remise de biens; The possibility of either party being sent before the Juge-Commissaire to make an arrangement with his creditors, per the Loi (1867) au sujet des débiteurs et créanciers is no more, given that the whole of that law was repealed by Article 50 of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the 1990 Law"). The obvious form of insolvency missing here is a dégrèvement, though potentially it may be included since it can commence with the reducing to short rations of a debtor. This does not tend to happen, the preferred course these days being to instigate a dégrèvement with an Acte Vicomte chargé d’écrire". The sting in the tail for unwary purchasers and lenders is therefore that where any consideration payable under the contract or hypothec has been advanced to the other party who has, within the ten days next following the passing of contract or registration of the hypothec, applied to be or has been declared insolvent (as the case may be), the purchaser or lender is left (perhaps not surprisingly in the circumstances) as a simple creditor without hypothecary rights or preference. This ten-day period first appeared in statutory form in Article 23 of the Loi (1832) sur les décrets. It also appeared in Article 8 of the Loi (1839) sur les remises de biens. In his Lettre Explicative (Nouvelle Chronique 23rd January, 1875), R. P. Marett, the draftsman of the Loi (1880) gave no explanation as to the purpose of the time period in Article 52, save that he mentioned its presence in the Loi (1832) which he claimed "l’éxperience a démontré etre équitables et nécessaires". Perhaps its purpose was to forestall the possibility of an insolvent debtor with apparent immovable wealth dissipating his assets to the detriment of unwary creditors. To avoid the the potentially draconian effect of Article 52, local lawyers have turned to ‘the ten-day rule’. Current practice in conveyancing is for the lawyer acting for the purchaser or the lender (though less frequently in the case where a lawyer acts on a regular basis for a major bank) to be in possession of the consideration monies prior to passing contract or registering the charge on a Friday afternoon. These funds he then retains until a week the next Monday, on the morning of which he pays away the monies to the vendor or the borrower. There are however two very serious flaws in this practice. Firstly, Article 52 states that a supervening act of insolvency within the ten days of the passing of the contract results in the contract being "absolument nuls". The Loi (1880) does not define what is meant by the word "day". In the absence of legislative guidance, a practical approach suggests that ten days after a contract passes before the Royal Court on a Friday afternoon, anytime between 2.30 and 3.15 p.m., surely, expires on the week next Monday either, literally, at the actual time that the contract was passed ten days earlier or at of the day [1] . Either way, the paying away of the monies on a Monday morning is surely premature. Secondly, given the gravity of the consequences of Article 52, should not the lawyer acting for the purchaser take steps to check that the vendor or his property has not been the subject of one of the forms of insolvency prescribed in that article? There is no immediately easy means of undertaking such a check. In practice an act of the Royal Court may take a week before it appears in the Registre and the Viscount and the Judicial Greffier are not likely to take kindly to a host of telephone calls to their respective offices on a Monday, let alone to accept any liability for information then given. Quite why the practice has arisen of paying away consideration monies within the ten day period is unclear. The failure to check whether in fact some form of insolvency has intervened is also unclear, but may stem from an excessive reliance on the weekly court cycle which focuses on Friday afternoon. This may have made sense at a time when the Royal Court had far less work to occupy its time, but is unacceptable today. Such reliance ignores the possibilty of an intervening act of insolvency taking place on other than a Friday afternoon. By far the most dangerous form of insolvency in this regard is désastre. The danger arises from the fact that a désastre may be ordered within a relatively short space of time and by the fact that it is likely to become, if it is not already, the most frequently utilised form of local insolvency. Rule 2 (2) of the Bankruptcy (Désastre) (Jersey) Rules 1991 enables an applicant for a declaration of désastre to apply ex parte on forty-eight hours’ notice to the Viscount or sooner with leave of the Royal Court. There is nothing to stop such an application taking place on other than a Friday afternoon. The ‘ten-day rule’ ignores this prospect, but then it was formulated before the 1990 Law extended désastre to include immovables. The timescales or factual bases of the other forms of insolvency referred to in Article 52 are not such as to facilitate a declaration of insolvency from start to finish within the ten day period after the passing of a contract. Nonetheless, if they have been instigated prior to the passing of the contract, there is no reason why they cannot be ordered during the ten day period thereafter. Furthermore, it is not standard practice for a purchaser’s lawyer to ask for confirmation from a vendor that no insolvency procedures are under way, nor indeed contemplated. In the case of cession, in the unlikely event that a debtor owning immovable property should wish to pursue this course, the debtor in question must be either in prison and reduced to short rations or has fifteen days previously obtained an Act of the Royal Court "announcing" his intention to apply for the same. He is also required to advertise the intention in the Jersey Gazette: see the Loi (1832) sur les décrets and Article 2 of the Official Publications (Jersey) Law, 1960. Remise, too, envisages a timescale of fifteen days between the application and its being granted by the Royal Court: see Article 2 of the Loi (1839) sur les remises de biens. The reduction to short rations envisages a debtor incarcerated in prison for debt and again the timescale is not such as to risk a declaration of insolvency from start to finish within ten days. The scenario of potential liability is easily painted. A vendor instructs a purchaser’s lawyer that he wishes the consideration monies for the purchase to be paid away by CHAPS or telegraphic transfer to an account somewhere out of the jurisdiction. On the morning of the tenth day, the second Monday following the passing of contract, the monies are paid away electronically. On Monday afternoon, the property of the vendor is declared en désastre at the instigation of one of his creditors. The purchaser has just paid away monies out of the jurisdiction, has a hereditary contract which is "absolument nuls" and now becomes an unsecured creditor of the vendor in the désastre. Unless it has escaped the attention of the reader, the ‘ten-day rule’ was a rule of good practice formulated by lawyers. John Kelleher is an advocate of the Royal Court of Jersey and a partner in Olsen, Backhurst & Dorey, Eaton House, Seaton Place, St. Helier, Jersey JE2 3QL |