in the supreme court of belize a.d., 2006 claim no. 83 of...
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IN THE SUPREME COURT OF BELIZE A.D., 2006
CLAIM NO. 83 OF 2006
BETWEEN
(FIRST CARIBBEAN INTERNATIONAL (BANK (BARBADOS) LIMITED CLAIMANT
AND
(THE BELIZE BANK LIMITED FIRST DEFENDANT (DEVELOPMENT FINANCE ( COROPORATION SECOND DEFENDANT (SOCIAL SECURITY BOARD THIRD DEFENDANT (STANLEY ERMEAV FOURTH DEFENDANT [As Receiver for BELIZE GOLD BANANAS LIMITED, TROPICAL PRODUCE COMPANY LIMITED, TOLEDO FISH FARMING COMPANY LIMITED] (BELIZE GOLD BANANAS LIMITED FIFTH DEFENDANT
(TROPICAL PRODUCE ( COMPANY LIMITED SIXTH DEFENDANT (TOLEDO FISH FARMING ( COMPANY LIMITED SEVENTH DEFENDANT (TOLEDO CITRUS COMPANY
LIMITED EIGHT DEFENDANT
Before: Honourable Justice Hafiz
Mr. Michael Young SC for Claimant Mr. Rodwell Williams SC for First Defendant Mr. Fred Lumor SC for Second and Third Defendants Mr. Eamon Courtenay SC for Fourth Defendant
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J U D G M E N T
BACKGROUND
1. The Claimant is a banking corporation duly incorporated under the Laws
of Barbados West Indies with a branch duly registered in Belize carried on
at #21 Albert Street, Belize City. On the 14 th October 2002 they assumed
all the assets rights liabilities and obligations of the Belize branch of
Barclays Bank PLC in Belize.
2. The First Defendant, The Belize Bank Limited (BBL) is a banking
corporation operating in Belize. The Second Defendant, Development
Finance Corporation (DFC) is a finance corporation operating in Belize.
The Third Defendant, Social Security Board (SSB) is also a financial
institution in Belize.
3. The Fourth Defendant, Stanley Ermeav is Receiver of charged assets
of the Fifth Defendant, Belize Gold Bananas, the Sixth Defendant Tropical
Produce Company Limited and the Seventh Defendant Toledo Fish
Farming Company Limited. The eight Defendant is Toledo Citrus
Company Limited.
4. At the commencement of this Claim there were Second Claimants and
Third Claimants who removed themselves after hearing arguments from
the First, Second, Third and Fourth Defendants that the Claim cannot be
brought in their personal capacities as Receivers and Liquidators. The
Third Claimants were Court Appointed Liquidators of Caribbean Farming
Limited. It is necessary to give the history of Caribbean Farming Limited
(CFL) in order to get a better understanding of the Claim before the Court.
The Claimant’s submission is helpful in this respect. Caribbean Farming
Limited is a company incorporated under the Laws of the Cayman Islands.
However it is the holding company of several wholly owned subsidiary
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companies which own property in Belize, including the Fourth, Fifth, Sixth,
Seventh and Eight Defendants. This group of companies will be referred
to as the Caribbean Farming Group (CFG).
5. The CFG has conducted the business of the growing, harvesting and sale
of bananas, citrus and shrimp for many years and in that connection has
acquired and managed farmlands in Belize. In the course of the said
business the Caribbean Farming Group (CFG) has arranged financing for
its operations and the subsidiaries of the CFG have created certain
mortgages and charges as security for the financing provided from time to
time. The financing has been provided variously by the First Claimant,
First Caribbean International Bank (Barbados) Limited, the First Defendant
the Belize Bank Limited, the Second Defendant the Development Finance
Corporation and the Third Defendant Social Security Board (hereinafter
called “the Lenders”). The various lenders separately took securities on
properties through the different subsidiary companies and this led to
complexity in the status of the securities and the respective positions of
the lenders.
6. The CFG began experiencing financial problems and from March 2003 the
First Claimant made a formal written demand on the outstanding loans.
Ultimately the First Claimant petitioned the Cayman Court for liquidation of
Caribbean Farming Limited and on the 8 th of April 2005 Provisional
Liquidators were appointed. (They are Marcus Wide and David Walker
who removed themselves as Second Claimants).
7. On 1 July 2005 BBL appointed Stanley Ermeav, the Fourth Defendant,
Receiver of the charged assets of TPCL, TFFC, Farm 1 Limited, Farm 11
Limited and D&F Limited. On 15 July 2005, DFC appointed Stanley
Ermeav, Receiver of the charged assets of BGB. The Third Defendant,
Social Security Board (SSB) on 18 July 2005 appointed Stanley Ermeav,
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Receiver of the charged assets of BGB. The Fourth Defendant, Stanley
Ermeav is therefore the Receiver of the charged assets of Fifth
Defendant, BGB, the Sixth Defendant , TPCL and the Seventh Defendant
TFFC. On the 28 th of July 2005 the First Claimant appointed Marcus
Wide and Brian Robinson as Receivers (who were removed as the Third
Claimants) of the Fifth Defendant Belize Gold Bananas Limited. The
Receivers appointed by the First Claimant by letters dating between the
end of July and September 2005 , wrote the Fourth Defendant who is also
a Receiver requesting information and accounting in respect of the assets
of the companies of which he had taken possession. The First
Claimants were not satisfied with the response of the Fourth Defendant
and thereafter filed this Claim on the 17 th of February 2006 to protect the
assets which formed the securities for its loans to the CFG and in
pursuance of realizing proceeds from the said securities.
8. After the filing of the Claim the Claimants learnt that (i) in January 2006 a
number of properties of the subsidiary companies of the CFG had been
sold to companies named serially Gold Bananas 1, 2, 3, 6, 11 and Banana
Farms 9 & 10 and Traders Home Limited and (ii) The First Defendant had
been granted Mortgage Debentures on the assets of certain of the above
companies which had purchased the properties in January 2006.
9. Following upon the discovery of the Conveyances and the Mortgage
Debenture the Claimants amended their Statement of Claim. The
Statement of Claim was further amended after the Second Claimants and
Third Claimants were removed as parties. This significantly reduced the
dispute between the parties. The final Amendment to the Claim is labeled
“Third Amended Statement of Claim”.
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The Claim
10. The Claimant at paragraph 8 of their Claim states that they have
caused searches to be conducted in relation to the securities
created by affiliates of the CFG and annexed to the Claim was a
listing of the charges and Mortgages and assignments. They said
that the Caribbean Farming Group has defaulted on their payment
obligations of the Lenders and as at the 5 th of February 2006 was
indebted to the Claimant in the amount of BZ$13,101.283.70 with
interest continuing to accrue at a current rate of 15 per annum. At
paragraph 12 the Claimant state that the floating portion of the
charges held by the Claimant has crystallized.
11. They claim that by letter of the 11 th of April 2006 addressed to the
Banana Growers Association, Banana Farm 9 & 10 Limited
reported that they had purchased all assets of the Fifth Defendant
from Stanley Ermeav, acting as receiver of the Fifth Defendant.
That through searches at the Land Titles Unit they learnt that
certain Conveyances have been recorded in respect of sales of
lands from the First Defendant Belize Bank and the Fourth
Defendant, Stanley Ermeav to Banana Farms 9 & 10 Ltd. The
Conveyances relate to a 200 acre parcel and 77 acre parcel of
land. See paragraph 15 of Third Amended Statement of Case.
12. The Claimant states at paragraph 19 that the purchaser of the
properties conveyed by the Conveyances above are deemed in
law to have notice of the legal interests of the Claimant contained in
any mortgage instruments recorded in any public registers including
those in the Land Titles Unit and the Companies Registry and are
subject to any prior legal interests owned by the Claimant relating
to the properties subject to the Conveyances or any of them. The
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purchaser is a company formed and registered under the
Companies Act of Belize in or around October 2005. The Claimant
state that they have also learnt through their attorneys of a
Mortgage Debenture recorded in favour of the First Defendant in
respect of the properties and assets of Farm 9 & 10. The
Mortgage Debenture is:
Mortgage Debenture of 30 th January 2006 – Mortgagor:
Banana Farm 9 & 10 Ltd. – Mortgagee: Belize Bank Ltd. –
The properties directly mortgaged are Farms 9 & 10 625
acres, 200 acres and 77 acres.
13. The Claimant say that the First Defendant as holder of the
Mortgage Debentures listed above is deemed in law to have notice
of the legal interests of the Claimant contained in any mortgage
instruments recorded in any public registers including those in the
Land Titles Unit and the Companies Registry and the Mortgage
Debenture is subject to any prior legal interests relating to the
properties subject to the Conveyances or any of them. See
paragraph 19.
14.The Claimant states that by virtue of Mortgage Debenture dated 8 th
February 1990 recorded in the Land Titles Unit Deeds Book
Volume 4 of 1990 Folios 803 to 834 the Claimant holds a first
charge on properties and assets of the Fifth Defendant, Belize Gold
Bananas in priority to all other charges and interests including
those held by any of the Defendants . See paragraph 21.
15. The Claimant states that that in the event that the Principal and
interest secured by the Mortgage of 2 nd April 1986 created by the
Sixth Defendant Tropical Produce Company Limited has been paid,
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it holds a first mortgage on the 3225 acre parcel of land charged by
the Sixth Defendant under the Mortgage dated the 30 th of January
1987 recorded in Deeds Book Volume 1 of 1987 folios 943998.
16. The Claimant say that in any event the Mortgage of 30 th January
1987 ranks prior to any other charge by any other mortgagee
insofar as such other charge secures a debt of debts above and
beyond any balance due of the original debt to Clarence McCleary
and Anita McCleary under the Mortgage of 2 nd April 1986.
17. And the relief claimed by them which is reproduced in it entirety is:
1. “A Declaration that the Claimant First Caribbean International Bank (Barbados) Limited by virtue of Mortgage Debenture dated 8 th February 1990 recorded in the Land Titles Unit Deeds Book Volume 4 of 1990 Folios 803 to 834 holds a first charge on properties and assets of the Fifth Defendant Belize Gold Bananas in priority to all other charges and interests including those held by the first Defendant [inclusive of the Mortgage Debenture of 30 th January 2006], Second Defendant and the Third Defendant.
1B. A Declaration that any titles vested by the Conveyances listed in Paragraph 20(which is now paragraph 15 in Third Amended Statement of Claim) above relating to the 200 acre parcel, the 77 pace parcel and the 625 acre parcel formerly in the name of the Fifth Defendant are in any event subject to the Mortgage Debenture of 8 th February 1990 [including the supplemental mortgage] in favour of the Claimant.
1C. A Declaration that the Mortgage Debenture listed in Paragraph 18 above in favour of the 1 st Defendant and relating to the 200 acre parcel, the 77 acre parcel and the 625 acres parcel is in any event subject to the Mortgage Debenture of 5 th
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February 1990 [including the supplemental mortgage].
2. A Declaration that the Claimant is entitled to take possession of and exercise its power of sale as mortgagee in relation to all properties and assets of the Fifth Defendant Belize Gold Bananas Limited [including any properties purportedly sold under any mortgages held by the First, Second or Third Defendants).
3. An Order for an accounting from the Fourth Defendant Stanley Ermeav of receipts and outgoings in relation to the properties and assets of the Fifth Defendant.
3A. An Order for an accounting from the Second Defendant Development Finance Corporation of receipts relating to the 200 acre and 77 acre parcels of land formerly owned by the Fifth Defendant [including the sale thereof].
3B. And Order for an accounting from the Third Defendant Social Security Board of receipts relating to the 625 acre parcel of land formerly owned by the Fifth Defendant [including the sale thereof].
4. An Order that the Fourth Defendant disclose and/or account for any transfers, conveyances, dealings or agreements for sale or charge or liens created or arising in relation to the properties and assets of the Fifth Defendant since the Fourth Defendant was appointed receiver in July 2005.
5. A Declaration that in any event the Mortgage of 30 th January 1987 in favour of the Claimant ranks prior to the charges in favour of the Second Defendant insofar as charge or charges in favour
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of the Second Defendant secure a debt or debts above and beyond any balance due of the original debt to Clarence McCleary and Anita McCleary under the Mortgage of 2 nd April 1986.
6. An Order for an accounting from the Second Defendant Development Finance Corporation of receipts relating to the 3225 acre parcel of land formerly owned by the Sixth Defendant Tropical Produce Company Limited [including the sale thereof].
6A. An Order for the payment by the Defendant to the Claimant of such monies as are found to be due to the Claimant relating to the 3225 acre parcel of land formerly owned by the Sixth Defendant.
7. Directions from the Court (if and where necessary) on how proceeds of sale of management of the Fifth Defendant and Sixth Defendant are to be distributed having regard to priority including the respective priorities of the secured creditors including the Claimant as secured creditor.
8. Damages
9. Such further consequential orders and directions as the Court deems fit and just including particularly any injunctions.
10. Costs.”
18. The Defence filed by the First, Second, Third, and Fourth
Defendants were in relation to the Second Amended Statement of
Claim. Since the Third Amended Statement of Claim has reduced
the claim significantly as a result of the removal of the second and
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third Claimants, the Defences will now be limited to the relief now
claimed.
19. The First Defendant, Belize Bank, in their Defence said that the
Claimant alleges that a mortgage debenture has been recorded in
their favour in respect of properties and assets of Banana Farm 9
and 10 Limited but the Claimant did not urge any impropriety in
respect of this mortgage debenture. Further the Claimant have not
proven interest in the properties of Banana Farm 9 and 10 and
therefore no entitlement to relief on the part of the Claimant can
arise with respect to the said mortgage debenture.
20. The Second Defendant, DFC, admitted the appointment of the
Fourth Defendant as Receiver/Manager of the Fifth Defendant,
Belize Gold Bananas Limited (BGB) under and by virtue of Deed of
Mortgage dated 29 th May, 1991 in respect of the following
properties, namely:
i) 200 acres of land situate at Swasey Branch of
Monkey River subject to Crown Grant No. 27 of 1894.
ii) 77 acres and 1 rood situate at Monkey River subject
of Crown Grant No. 12 of 1903.
Further, that the Fourth Defendant sold the 277 acres of land
sometime in January of 2006.
21. At paragraph 10 of the Defence the Second Defendant, DFC, said
that at all material times, the Claimant knew that the Mortgage
Debenture dated 8 th February, 1990, executed between the Fifth
Defendant, BGB, and the First Claimant, FCIB, does not give the
First Claimant a first charge in priority to the Second Defendant in
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respect of the 277 acres of land. Further, that the priority of the
Second Defendant in respect of the 277 acres of land charged by a
fixed mortgage contained in a deed of mortgage dated 29 th May,
1991 made between the Second Defendant, DFC, and the Fifth
Defendant, BGB, is not postponed in favour of the First Claimant.
22. Further, at paragraph 11 the Second Defendant states that in the
alternative (a) the first Claimant is estopped and precluded by
acquiescence from denying that the Second Defendant has a first
charge in priority to the first Claimant in respect of the
aforementioned 277 acres of land situate at Monkey River (b) The
First Claimant is estopped by the convention or common assurance
of the parties in respect of the aforementioned 277 acres of land
situate at Monkey River and precluded from denying that the
Second Defendant has a first fixed charge in respect of the same
parcels of land in priority to the First Claimant.
( c ) It appointed the Fourth Defendant, Receiver/Manager of the
Fifth Defendant, Belize Gold Bananas Limited, under and by virtue
of a Deed of Mortgage dated 29 th May, 1991 in respect of the
aforementioned 277 acres of land with the full knowledge and
acquiescence of the First Claimant.
23. As for the Defence of the Third Defendant, SSB, they admit
appointing the Fourth Defendant, Receiver/Manager of Belize Gold
Bananas Limited, under and by virtue of a Deed of Mortgage dated
28 th February, 2000 in respect of the 625 acres of land situate
along Swasey Branch, Harvest Caye , Toledo District which he sold
and filed the notice required by section 97 of the Companies Act,
Chapter 250.
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24. At paragraph 10 the Third Defendant, SSB states that (a) The
Mortgage Debenture dated 8 th February, 1990 executed between
the Fifth Defendant and the First Claimant does not give the First
Claimant a first charge in priority to the Third Defendant in respect
of the 625 acres of land; (b) the priority of the Third Defendant in
respect of the 625 acres of land charged by a fixed mortgage
contained in a Deed of Mortgage dated 28 th February, 2000 made
among the third Defendant, the Fifth Defendant and the Seventh
Defendant is not postponed in favour of the First Claimant.
25. In the alternative, the Third Defendant states that (a) The First
Claimant is estopped and precluded by acquiescence from denying
that the Third Defendant has a first charge in priority to the First
Claimant in respect of the 625 acres of land (b) The First Claimant
is estopped by the convention or common assurance of the parties
in respect of the said 625 acres of land and precluded from denying
that the Third Defendant has a first fixed charge in respect of the
same parcel of land in priority to the First Claimant. (c) That it
appointed the Fourth Defendant, Receiver/Manager of the Fifth
Defendant under and by virtue of a Deed of Mortgage dated 28 th
February, 2000 in respect of the said 625 acres of land with the full
knowledge and acquiescence of the First Claimant.
26.Both the Second and Third Defendants claim that the Claimants are
not entitled to the Declarations, orders and or relief sought in this
Claim.
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The evidence
27. The evidence is this case was by way of Affidavits. The
Claimant’s affidavit evidence was from Philip Johnson and
Stephen Duncan. The Second Defendant issued affidavits from
Arsenio Burgos. The Third Defendant’s evidence is from Narda
Garcia. The Fourth Defendant Stanley Ermeav issued one
affidavit.
The Mortgage Debentures for consideration
28. There are a significant amount of mortgages but I am not
concerned with the interpretation of all of them as it is only
necessary to interpret the provisions of the Claimant’s Mortgage of
8 th February, 1990 to determine the characteristics of the charges.
After this is determined then the issue of priority of the following
mortgages will be considered:
(a) For the Claimant, FCIB
29. (i) Mortgage Debenture dated 8 th February 1990 made
between the Fifth Defendant , Belize Gold Bananas, and the
predecessor of the Claimant, Barclays Bank which is recorded in
the Land Titles Unit Deeds Book Volume 4 of 1990 Folios 803 to
834. The Mortgage is for the principal sum of $1,500,000 (as
upstamped).
(ii) Mortgage dated 24 th September 1999 on two parcels of land
comprising 200 acres and 77 acres 1 rood respectively owned by
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Belize Gold Bananas Limited which is supplemental to the
Mortgage Debenture of 8 th February 1990 above.
(b) For the Second Defendant, DFC
30. There are several Mortgages in favour of the Second Defendant
but I am concerned only about the first Mortgage between the
Second Defendant and the Fifth Defendant, Belize Gold Bananas
Limited with respect to the 200 acres and the 77 acres. That is,
Deed of Mortgage between Belize Gold Bananas Limited and
DFC dated 29 th May, 1991 for $129,165.00 which was secured by
the said 200 acres and 77 acres. There is no dispute that this is a
specific mortgage.
(c) For the Third Defendant, SSB
31. Mortgage dated the 28 th of February 2000 between the Seventh
Defendant Toledo Fish Farming, the Fifth Defendant Belize Gold
Bananas Limited and the Third Defendant Social Security Board by
which the Fifth Defendant mortgaged 625 acre parcel of land in
favour of the Third Defendant for the sum of $2,000,000 . There is
no dispute that this is also a specific mortgage.
The Claimant’s submissions
32. Learned Counsel Mr. Young submitted that the Mortgagor, by
executing the mortgage, acknowledged and accepted the intent
and effects of the above language. That the only property which is
specifically referred to in the 1990 Mortgage Debenture is a 694.36
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acre parcel situate south of Harvest Caye Work which is referred to
in the Schedule to the Mortgage Debenture. However, he further
submitted that the Mortgage Debenture would clearly charge
properties owned by the Fifth Defendant Company at the date of
the recording of the Mortgage. This would include the 200 acre and
77 acre parcels of land which were first mortgaged to the Second
Defendant (DFC) by a mortgage of 29 th May 1991. These
properties were vested in the Fifth Defendant by a Deed of
Conveyance dated the 24 th of March 1987. Mr. Young submitted
that the 200 acres and the 77 acres were subject to a fixed charge
and not a floating charge.
33. As for property acquired after recording of 1990 Mortgage
Debenture, Learned Counsel submitted that the 625 acre parcel
was vested in the Fifth Defendant by Minister’s Fiat Grant No. 83 of
2000. He submitted that at the very least any mortgage
subsequent to the Mortgage Debenture and covering property
acquired by the Mortgagor after the recording of the Mortgage
Debenture would in equity rank after the Mortgage Debenture. (See
P.J. 2D of Phillip Johnson’s affidavit). By the express terms of the
Mortgage Debenture, the Mortgagor was not supposed to
subsequently mortgage any property without the prior and written
consent of the mortgagor and in such event the subsequent
mortgage would not rank prior to or pari passu with the Debenture.
That any subsequent mortgagee would take a mortgage subject to
all charges recorded in the Deeds Registry and the Companies
Registry. Learned Counsel submitted that this position accords
with common sense, fairness, business efficacy, clarity and
certainty. Learned Counsel submitted that it cannot be right or
proper for a subsequent mortgagee to claim priority to the prior
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Mortgage Debenture when such Debenture is publicly registered
and so clear in its language.
34. Mr. Young submitted that consequently, the following mortgages
in favour of the 2 nd Defendant all rank after the 1990 Mortgage
Debenture:
1. Mortgage dated 29 May 1991
Belize Gold Bananas Ltd and DFC $129,165.00
Containing 200 acres and 77 acres situate Monkey River
Vide: DBV 12 of 1991 folios 363426
2. Mortgage dated 30 December 1991
Riversdale Ltd, Belize Gold Bananas Ltd and DFC $70,740.00
Containing 200 acres and 77 acres situate Monkey River
Vide: DBV 1 of 1992 folios 10351102
3. Mortgage dated 7 July 1993
Caribbean Farming Ltd, Belize Gold Bananas Ltd, Cowpen $400,000.00
Farms Ltd and DFC
Containing 200 acres and 77 acres situate Monkey River and
1083 acres situate Swasey Branch, Monkey River Area
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4. Deed of Mortgage dated 18 th December 2003 between $2,000.000.00
Belize Gold Bananas Limited as borrower, Tropical Produce
Company Limited as Surety and Development Finance
Corporation as Mortgagee covering 200 acre parcel, 77
acre parcel, 625 acre parcel [owned by BGB] and a 3225
acre parcel [owned by Tropical Produce].
5. Mortgage and Further Charge dated 20 March 2001 $2,000,000.00
Caribbean Farming Ltd, Belize Gold Bananas Ltd, Tropical
Produce Company Ltd, John F. Parsons Inc and DFC
Containing 200 acres situate Monkey River, 77 acres situate
Monkey River, 1083 acres situate Swasey Branch, 995 acres
situate at Potts Creek Road.
35. Mr. Young further submitted that the following mortgage in favour of
the Third Defendant rank after the 1990 Mortgage Debenture. That is:
Mortgage dated 28 th February 2000 between Toledo $2,000.000.00
Fish Farming [as borrower], Belize Gold Bananas
as surety] and Social Security Board [as mortgagee]
Charging 625 acre parcel of land along Swasey
Branch Harvest Caye.
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36. Mr. Young then referred to the Properties conveyed in January,
2006 owned by the Fifth Defendant, that is the 625 acre parcel of land
and the 200 acre parcel and the 77 acre parcel. The conveyances
are:
(i) Conveyance of 23 rd January 2006 under Mortgage dated the 28 th of February 2000 Mortgagor Belize Gold Bananas Ltd.– Mortgagee Social Security Board – Purchaser Banana Farms 9 & 10 Ltd. This sale relates to the 625 acre parcel of land – Consideration: $960,000.
(ii) Conveyance of 23 rd January 2006 under Mortgages dated (1) 29 th May 1991 (2) 30 th December 1991 (3) 7 th July 1993 (4) 9 th
October 1996 (5) 20 th March 2001 (6) 18 th December 2003 and Deed of Substitution of Mortgage dated 13 th July 1995, Deed of Substitution dated 31 st December 1999 and Deed of Variation and Further Charge dated 5 th May 2004 Mortgagor: Belize Gold Bananas Ltd. – Mortgagee: Development Finance Corporation – Purchaser: Banana Farms 9 & 10 Ltd. This sale relates to the 200 acre parcel and 77 acre parcels of land – Consideration: $570,000.
37. These properties, the 200 acres plus the 77 acres and the 625
acres were then sold to Banana Farm 9 & 10 and have been
mortgaged to the First Defendant, Belize Bank Limited (BBL) by
way of a Mortgage Debenture on all assets of Banana Farm 9 &
10. The details are:
Mortgage Debenture of 30 th January 2006 – Mortgagor: Banana Farm 9 & 10 Ltd. – Mortgagee: Belize Bank Ltd. – (i) Properties being Farm 9 & 10 [the 200 & 77 acre parcels] with all plant, machinery and fixtures (ii) all other freehold and leasehold property present and future (iii) interests in stocks, shares debentures, bonds, book and other debts, monies and (iv) goodwill and all other property ([See exhibit “PJ2D” of Philip Johnson’s affidavit).
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38. Learned Counsel submitted that the above Mortgage Debenture
purports to be a first fixed charge by way of legal mortgage on the
said properties. That Banana Farm 9 & 10 Limited is reported
as having purchased “all” assets of the Fifth Defendant. This is
evidenced by letter dated April 11, 2006 from Banana Farm 9 &
10 Limited to the Banana Growers Association where they
informed the Association that they purchased all the assets of
Belize Gold Bananas Limited.
39. Mr. Young submitted that the 200 and the 77 acre parcels were
sold by the Second Defendant and the Fourth Defendant in
exercise of the power of sale under the mortgages held by the
Second Defendant, which mortgages rank subsequent to the
1990 Mortgage Debenture in favour of the First Claimant. The
creation of these mortgages subsequent to the 1990 Mortgage
Debenture was in breach of the Mortgage Debenture. He
submitted that at the very least, the conveyance of the 277 acres
would not in any way discharge the legal charge on those lands
created by the Mortgage Debenture. Further, the Second
Defendant and Fourth Defendant would be accountable to the
First Claimant for any proceeds of sale received. That the
$570,000 consideration stated in the Conveyance is consideration
only for the 277 acres of land. He then posed the question as to
the position of the plant, machinery and fixtures (including trade
fixtures). He submitted that all assets were sold to Banana Farm
9 & 10 Limited and the question arises as to the consideration
paid for assets other than the land. He further submitted that no
agreement for sale has been produced and the Second
Defendant and the Fourth Defendant are liable to account for
these properties which have been sold.
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40. With regards to the 625 acre parcel Mr. Young submitted that the
same considerations apply. That the 625 acre parcel which was
sold by the Third Defendant and Fourth Defendant in exercise of
the power of sale under a mortgage was subsequent to the
Claimant’s 1990 mortgage. Counsel submitted that the only
difference in relation to this parcel of land is that it was not owned
by the Fifth Defendant at the time of the 1990 Mortgage Debenture.
Therefore, he submitted that it may be the case that the Mortgage
Debenture, though ranking in priority to the later mortgage in favour
of the Third Defendant, created an equitable charge on the land
when it was acquired by the Third Defendant. Counsel submitted
that in any event the Third and Fourth Defendants are liable to
account for the sale of the 625 acre parcel and any plant, fixtures
and machinery thereon.
41. Learned Counsel further submitted that the assets covered by
Mortgage Debenture held by the First Defendant in respect of the
property of Banana Farm 9 & 10 Limited is subject to the 1990
Mortgage Debenture.
42. Mr. Young supported his argument on priority of mortgages on the
basis of the time of recording or registration. He referred to
sections 66 and 74 of the Law of Property Act, Chapter 190 which
states:
Section 66 – “A second mortgage or any number of mortgages may be created to affect the same land and in that case they shall, as regards taking effect, have priority in the order in which they are registered in the Land Charges Register or recorded under Part V of the General Registry Act as the case may be
Section 74 – “Every mortgage affecting a legal estate in land made after the commencement of this Act shall rank according to its date of registration as a land charge
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pursuant to Part IV or recording pursuant to Part VI of the General Registry Act”
43. Mr. Young submitted that the Mortgage Debenture charging the
assets of the Fifth Defendant was lodged for registration on the 8 th
of February 1990 – prior to the recording of any of the mortgages of
the other lenders.
44. Counsel then made submissions on the law on Floating Securities.
He referred to the text Fisher & Lightwood’s Law of Mortgage, 10 th
Edition – 1988 at page 132 to 133 where there is the following
passage describing “Floating Charge”
“Mortgage Debentures almost invariably create a floating security. Such a security is an immediate equitable charge on the assets of the company for the time being, but it remains unattached to any particular property, and leaves the company at liberty to deal with its property in the ordinary course of its business, as it thinks fit, until stopped, either by the appointment of a receiver, or by a winding up, or the company ceasing business, or the happening of some agreed event, when the charge becomes fixed to the assets and effective or as it is said, crystallizes – and gives the debenture holder priority over the general creditors. So long as the security remains a floating security, the property of the company may be dealt with, and even a part thereof sold in the ordinary course of business, as if the security had not been given and any such dealing with a particular property will be binding on debenture holders, provided that the dealing is completed before the charge ceases to be a floating security. A purchaser or other mortgagee from the company will require evidence of noncrystallization. This is generally supplied by a letter to this effect from some officer of the company or the company’s solicitor. Unless prohibited by the conditions of the debentures, this power of disposition extends to the creation of fixed charges, but not the creation of further general floating securities so as to give these priority. In fact, it is usual to provide in the deed that no
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mortgage or charge ranking pari passu with or in priority to the debenture shall be created by the company. The registration of the charge in the Companies Register will constitute constructive notice of the floating charge to a subsequent mortgagee. The restriction may be noted amongst the filed particulars of the charge in the Companies Register (though there is no express sanction for this practice under the Companies Act – of [compare] the position in Scotland), but while this may give someone who searches the Register actual notice of the restriction, it is generally accepted that such noting is not sufficient to give constructive notice of the restriction . In the case of registered land, if the floating charge is noted on the register, the entry will usually refer to the restriction and a subsequent mortgagee will take subject to the noted rights”
45. Learned Counsel then referred to Lingus in the text Bank Security Documents which states as follows:
“Subsequent Charges
9.6 Because the floating charge is ‘incomplete’ and ‘dormant’ until it crystallizes, subsequent fixed charges (whether legal or equitable) in the ordinary course of business even with notice of the floating charge will take priority over it, subject to para 9.7 below (Re Hamilton’s Windsor Ironworks, ex p Pitman and Edwards (1879) 12 Ch D 707)……
9.7 The above rules do not apply if the floating charge contains a restriction against the creation of charges ranking in priority provided the subsequent Chargee has notice of the restriction. Such a restriction is therefore an essential part of any floating charge.”
46. Learned Counsel then referred to the case of Ferrier v Bottomer 1972 HCA 11 to bolster his argument. Here a floating
charge on the assets of a company, Australian Factors
(Queensland) Ltd. was created to secure moneys owed to
23
stockholders. On the 13 th of March 1964 a receiver was
appointed under the charge. The issue was the treatment [in
terms of priority] of two sums of money which were paid in
settlement of debts to the Company owed from outside of the
State of Queensland. The debts in favour of the Company arose
from the State of New South Wales. The approach of the High
Court was principally to examine the language of the charge
instrument itself.
“If a company borrows money and gives a charge in favour of the lenders, it is not, I think, for the Court to be astute to limit the operation of the deed creating the charge to reduce, in favour of the company, the security of the lenders. An assignment of future assets, such as this deed makes, does not in the absence of clear language so providing, lose its efficacy as an assignment when the deed has the character of a fixed charge” (See p.6)
Justice Menzies quoted the following from a prior Court of Appeal case:
“Reliance was placed on condition no. 1 as showing that property of the company first coming into existence after the appointment of the receiver and manager – in this case the chose in action consisting of the debt now sued upon – was not made subject to any charge: put shortly it was argued that since the phrase used is ‘as regards all other property and assets of the company a floating security’ and since no security on any assets could be described as floating once the receiver and manager was appointed, therefore the phrase ‘all other property and assets’ must be construed as excluding any asset thereafter first coming into existence. This argument seems to me to be as invalid as it is subtle.
…..
The fact that there was a floating charge cannot, it seems to me operate to exclude assets from the agreement to charge. That particular quality of the charge (or the agreement to charge) only means that its full operation is, so to speak, in suspense until certain events occur, and when such an event occurs the charge (or agreement to charge) loses that
24
suspended quality. That in no way justifies the conclusion that the field of the charge is in any way restricted; it only means that after this particular quality disappears equity will fasten the charge directly upon all assets thereafter coming into existence as soon as they do so.” (See pp. 6 7 ).
Later Justice Menzies at page 8 said:
“Here I feel no compulsion to limit the words of the deed which we are considering” (See p. 8).
The Effect of Recording
47. Learned Counsel Mr. Young referred to the following extracts from “Elements of Land Law” by Kevin Gray, Second Edition 1993 on the effect of recording.
“Legal Rights Bind the world
The force of the first axiom is simply explained. If B owns a legal right in or over land belonging to A, and C later acquires any interest in that land, B’s right is binding on and effective against C. This result follows irrespective of whether C previously knew of B’s right. The outcome rarely works injustice since almost all legal rights in or over land are evidence on the face of the documents relating to title, and are therefore open to perusal by an intending purchaser (See page .75 of text)
Equitable rights are governed by the doctrine of notice
Constructive Notice. Constructive notice relates to matters of which the purchaser would have been consciously aware if he had taken reasonable care to inspect ……… unconscionably, on the rights of such third parties in the property” (See pp.80 to 81 of text).
25
48. Learned Counsel submitted that in Belize, notwithstanding
the introduction of the Torrens system of Land Title
registration under the General Registry Act and the gradual
change to the system established under the Registered Land
Act, the “Deeds Registry” remains a major part of our land
titles system and the properties subject of this claim fall
under that system. He referred to paragraph 1024 of
Volume 14 of Halsbury (3rd Edition) – 156 where the
following is stated;
“Constructive notice where title not investigated. A purchaser is bound, at the risk of being affected with constructive notice, to make the usual full investigation of title, notwithstanding that he is debarred by agreement from doing so; and he is bound to follow up any inquiries suggested by matters of which he has actual notice; so that notice of a deed, which affects the land, being a deed within the period for which the title should be investigated, is notice of both its contents and of the facts which would have been disclosed if its production was insisted on.”.
49. Next, Learned Counsel referred to the case of Overseas Chinese Banking Corporation v Malaysian Kuwaiti Investment Co. Sdn Bhd [2003] and submitted that this case is instructive on the
underlying principles relating to notice, priority and the failure to
make proper inquiries. Counsel referred to Paragraphs 168, 169.
At Paragraph 173 Judge Redlich states:
“conduct which falls short of subjective dishonesty but involves failure to make the inquiries which a hypothetical, reasonable and honest person would make in the light of known facts is sufficient to affect the conscience and result in equitable intervention. A stranger will be liable for breach of trust in such circumstances. Such conduct is a form of
26
constructive or equitable fraud which stands outside subjective dishonesty.”
Mr. Young submitted that the First, Second, Third and Fourth
Defendants in law had constructive notice of the Mortgage
Debenture of 8 th February 1990 in favour of the First Claimant. He
said that when one looks at the language of the 1990 Mortgage
Debenture, it is complete and manifest in declaring the intent and
effect of the mortgage.
Submissions of the First Defendant
50. Mr. Williams SC Submitted that the Encumbered Properties are the
200 acres and 77 acres formerly owned by BGB and was sold and
conveyed by DFC to Banana Farm 9 and 10 Limited. That the 625
acres formerly owned by BGB was sold and conveyed by SSB to
Banana Farm 9 and 10 Limited. Then Banana Farm 9 and 10 Limited
mortgaged the said 200 acres, the 77 acres and the 625 acres to
BBL, the first Defendant. He correctly stated that this is not in
dispute. What is in dispute is who has the priority.
51. Mr. Williams who helpfully prepared a chart of the Mortgages in
relation to this Claim submitted that the chart clearly shows that DFC
held a specific first priority legal mortgage over the 200 acres and the
77 acres and that SSB, the Third Defendant held a specific first
priority legal mortgage over the 625 acres. This chart shows specific
property and the date of registration of the mortgage. Learned
Counsel submitted that FCIB is shown to have a Debenture with a
specific first priority legal charge on 694 acres only and what
purports to be a legal charge, but can be no more than an equitable
charge over “all other (if any) freehold property” then owned by BGB.
27
He submitted that nine years later and after the DFC specific legal
mortgages on the 200 acres and the 77 acres, the Claimant
converted to a specific legal mortgage on the 200 acres and 77
acres only, and not on the 625 acres.
52. Mr. Williams in response to the Claimant’s submission on the fixed
or specific charge on the 200 acres and the 77 acres parcels of land
which they say was notice to all the world and which therefore ranks
in priority to DFC’s later mortgages referred to The Law of Corporate Receivers and ReceiverManagers by Andrew D. Burgess at page page 34 where fixed charge is described thus:
“. . . as a charge that attaches to a particular piece of
property which is identified when the charge is created and
whose identity does not change during the subsistence of
the charge. This is because, immediately a fixed charge,
other than a legal mortgage, is granted, then by virtue of the
debenture, a proprietory interest is absolutely and
irrevocably transferred by way of specific equitable
assignment to the debenture holder. In the case of a legal
mortgage, the transfer is of both the proprietary as well as
the legal interest. The transfer of the proprietary interest and
in the case of the legal mortgage, the property in the secured
asset, means that the company cannot deal with the charged
assets without the consent of the debenture holder.
53. Mr. Williams also cited the case of Re Yorkshire Woolcombers Association [1903] 2 Ch 284 at page 294.
He submitted that with regards the law on floating charges “It is
now well settled that a floating charge is an immediate equitable
28
charge on the assets of the company for the time being, which,
unlike a fixed charge, remains unattached to any specific property
until crystallization, when it settles and becomes a fixed equitable
charge.”
54. He further submitted that the law as to whether a fixed charge or a
floating charge is created is now made absolutely clear by the Privy
Council decision in the case of: Agnew v. Commissioner of
Inland Revenue [2001] 2 A.C. 710 at page 716 where it was held
that the critical feature which distinguished a floating from a fixed
charge lay in the chargor’s ability, freely and without the chargee’s
consent, to control and manage the charged assets and withdraw
them from the security.
55. He further referred to the House of Lords decision in
National Westminister Bank v. Spectrum Plus Ltd [2005] UKHL 41 where it was held that it was the courts duty to characterize the
document according to the true legal effect of its terms. That the
real question was whether the rights and obligations conferred and
imposed by the debenture disclosed an intention that the company
should be free to deal with the assets and withdraw them from the
security without the consent of the debenture holder, then the
inevitable consequence would be to reject the description as a fixed
charge.
56. Mr. Williams submitted that even though the FCIB Debenture claim
to create a fixed charge on “all other (if any) the freehold property
of the company both present and future …” the charge actually
created was not a fixed charge it was a floating charge because: (a)
although the company already owned the 200 acres and the 77
acres and had title thereto the Bank allowed it to retain the titles
29
and to be able to deal with these lands in the ordinary course of
business without the consent of the Bank; (b) by clause 6 the
company was to deposit all titles to real property with the Bank
during the continuance of the security, but this never happen and if
it did happen the mere deposit of title deed does not create a fixed
legal mortgage.
57. Counsel submitted that this is consistent with intention to create a
mere equitable charge; (c) by clause 7 the company was required
to, if the Bank requested it, to give it further legal or other
mortgages or charges on the premises constituted in the deposited
titles and deeds, or which may be later acquired by the Bank; By
clause 13 (11) the company again covenants with the Bank to
deposit all titles to land that it may own and at the request of the
Bank to execute to a legal mortgage, but if the Bank does not
require anything of it the company was free to deal with those
assets as it sees fit without the consent of the Bank. (d) it was not
until nine years later that the Bank did call on the company to do a
fixed mortgage on these lands for the purpose of perfecting the
charge created by the Debenture, (see Mortgage between BGBL
and FCIB of September 24 th , 1999 see clause 4) of the aforesaid
mortgage. He submitted that this is a clear indication that the
company was free to deal with these lands otherwise and so the
charge on them by the Debenture was not fixed. The charge was
only a floating charge.
58. Mr. Williams submitted that as the subject of a floating charge the
company BGBL was free to deal therewith until the Debenture
crystallize and that such crystallization occurred not when the
demand letter was written in 1993 by FCIB, as there followed a
forbearance, and in any event the DFC mortgage was already
30
created in 1991. He further submitted that the crystallization
occurred when the receivers was appointed in July 2005, after the
creation of the DFC mortgages, and so the floating charge
crystallize to create an equitable charge in favour of FCIB only
then, and such a charge therefore ranks after DFC’s charge.
59. Learned Counsel submitted that as to the 625 acres of parcel of
land BGBL became the owner in 2000, well after the creation of
the Debenture and it is admitted that it could not have a fixed
charge thereon and so it could be held under the floating charge, so
the creation of SSB mortgage in 2000 means that it ranked in
priority to FCIB earlier equitable charge.
60. Mr. Williams submitted that DFC and SSB appointed the Fourth
Defendant receiver of BGB before FCIB appointed Receivers of
BGB. He said that FCIB by virtue of its equitable charge under
the Debenture first in time does not have priority over DFC as to
the 200 acres and the 77 acres and over SSB as to the 625
acres. He submitted that the equities are not equal, as a legal
charge later in time does rank in priority over an earlier equitable
charge, and that the equitable charge only attaches on
crystallization of the floating charge, which occurred after the
creation of DFC legal mortgage. Counsel submitted that DFC first
legal mortgage on the 200 acres and 77 acres and SSB first legal
mortgage on the 625 acres ranks prior to FCIB equitable charge
under its Debenture. That the later perfection of First Caribbean
equitable charge to a specific legal charge some nine years later
over the 200 acres and 77 acres ranked after the DFC first
specific legal mortgage. Further, FCIB at no time perfected its
equitable charge over the 625 acres on which SSB held a first
priority legal mortgage.
31
61. Learned Counsel submitted that nine years later, on 24
September 1999, BGB and FCIB purported to perfect FCIB’s
security over 277 acres of land by executing a Deed of Mortgage
in favour of FCIB and recording it in Deeds Book Volume 30 of
1999 at folios 525 and 536.
62. Mr. Williams submitted that preamble 2 of the Deed of Mortgage
dated 24 September 1999 in which Belize Gold Bananas (BGB)
and FCIB purported to perfect FCIB security over 277 acres of
land it was acknowledged that the said 277 acres of land are also
mortgaged in favour of DFC by virtue of four separate deeds of
mortgage dated 29 May 1991, 30 December 1991, 7 July 1993
and 9 October 1996, respectively.
That in preamble 1 of the said Deed of Mortgage, the 1990
Debenture is referred to and in preamble 4, the deeds says that
“For the purpose of perfecting the Charge created by the
Debenture upon the property described in the Schedule hereto
FCIB, “in pursuance of the power in that behalf contained in the
Debenture has called upon the company to execute such specific
Charge by way of legal mortgage thereon as is hereinafter
contained which the company has agreed to do.”
The specific properties charged are described in the Schedule as
first, 200 acres and second 77 acres.
63. Mr. Williams further submitted that even if First Caribbean
Debenture created a first legal charge on the Encumbered
Properties, but which he said is denied, in priority to DFC and SSB
specific legal mortgages the sale and conveyance by DFC and SSB
32
as second priority mortgages is still valid and effective in passing a
good title for the Encumbered Properties to the purchaser Banana
Farm 9 and 10 Limited and First Caribbean may as first priority
mortgagee look to the proceeds of sale only in priority to DFC and
SSB. Then Banana Farm 9 and 10 Limited as purchasers took free
and clear of First Caribbean charge and its mortgage to BBL is
likewise free of any interest in the Encumbered Properties in favor
of First Caribbean.
64. Mr. Williams further submitted that by Section 69 of the Law of Property Act, Chapter 190 of the Laws of Belize, Revised
Edition 2000 2003 where an estate in fee simple has been
mortgaged by creation of a charge by way of legal mortgage and
the mortgagee sells under power of sale conferred by that
instrument the conveyance or transfer by him operate to vest the
fee simple in the purchaser subject to any legal mortgage having
priority to the mortgage in right of which the sale is made and any
money thereby secured and thereupon the charge by way of legal
mortgage and any subsequent charges shall merge or be
extinguished as respects the land conveyed. Hence FCIB had no
specific legal mortgage or charge on SSB’s 625 acres in any event.
65. Mr. Williams further submitted that First Caribbean is estopped by
acquiescence, convention or common assurance and waiver of
rights as against DFC’s legal charge on the 200 acres and 77
acres. Therefore, the Encumbered Properties sold and conveyed
by DFC and SSB to Banana Farm 9 and 10 Limited extinguished
the subsequent legal charge of FCIB on the 200 acres and the 77
acres, there being no legal charge of FCIB on the 625 acres sold
and conveyed by SSB, the purchaser Banana Farm 9 and 10
Limited took free and clear and its later mortgage of the
33
Encumbered Properties to BBL was free of any interest of FCIB in
the Encumbered Properties.
Submissions by Mr. Lumor for Second Defendant, DFC
66. Learned Counsel Mr. Lumor in his written submissions stated that
the Debenture made between the Fifth Defendant and the
predecessor of the Claimant, Barclays Bank created (a) a floating
charge over the present and future assets of the Fifth Defendant
and (b) A first legal charge over 694.36 acres of land situate South
of Harvest Caye Works in the Toledo District owned by the Fifth
Defendant by virtue of Minister’s Fiat (Grant) No. 6 of 1990 dated
22 nd January, 1990.
67. Learned Counsel stated in his written submissions that when the
Second Defendant by a Deed of Mortgage dated 29 th May, 1991
took a first legal charge over the 200 acres and the 77 acres of land
owned by the Fifth Defendant the Debenture of the Claimant did
not crystallize.
68. Mr. Lumor submitted that when the Claimant made a further
advance of BZ$1.5 million to the Fifth Defendant by virtue of Deed
of Mortgage dated 24 th September, 1999 the said Mortgage
recited DFC’s Mortgage at Recital Clause 3. Learned Counsel
also referred to the recital in Clause 4 of the Claimant’s 1999 Deed
of Mortgage which include the following:
“4. for the purpose of perfecting the charge created by the
Debenture upon the property described in the Schedule hereto the
Bank in pursuance of the power in that behalf contained in the
34
Debenture has called upon the Company to execute such specific
charge by way of legal mortgage thereon as is hereinafter
contained which the Company has agreed to do.
69. It is Mr. Lumor’s submission that by the aforementioned term
included in the 1999 Charge the Claimant has acknowledged that
DFC has a first legal charge on the 277 acres of land owned by the
Fifth Defendant and sought to ‘neutralize’ the effect of the first
charge of DFC. Mr. Lumor said that the attempt to perfect the
1990 Debenture of the Claimant by the 1999 Deed is a futile act
which gave no priority in ranking to the Claimant.
70. Learned Counsel in his written submissions on the law of Floating
Mortgage referred to the text Law of Mortgage, 10 th edn., by
Fisher & Lightwood at page 132 to 133. This passage is also
quoted above in the Claimant’s submission.
71. Mr. Lumor also referred to Barnsley’s Conveyancing Law and Practice, 3 rd Editon., by D.G. Barnsley at page 365 which states:
“3. Floating Charges. A floating charge has been judicially explained as one which presently affects all the items
expressed to be included in it but not specifically affecting any
item until the happening of an event which causes the
security to crystallize as regards all the items. It floats over
the company’s assets, enabling the company to deal with
them in the ordinary course of business. It becomes a fixed
charge on the occurrence of an event causing it to crystallize,
eg liquidation, or the appointment of a receiver.”
35
72. Mr. Lumor submitted that the charge given to DFC on the 277 acres
was given by the Fifth Defendant in the “ordinary course of
business”. He referred to the case of Countrywide Banking
Corporation Ltd. Vs. Brian Norman Dean (1988) AC 338 at 349
where the Privy Council stated that the transaction must be such
that it would be viewed by an objective observer as having taken
place in the ordinary course of business.
73. Mr. Lumor then referred to the Conveyances referred to by the
Claimant in their Claim in which they said that the purchasers of
the properties are deemed in law to have notice of the legal interest
of the Claimant contained in any mortgage instrument recorded in
any public registers including those in Land Titles Unit and the
Companies Registry. Learned Counsel submitted that this
statement cannot be sustained in law as the averment did not
identify the mortgages and the particular public register meant.
Further, he submitted that it was not mentioned whether the floating
charge of the Claimant crystallized before DFC took the charge on
the 277 acres of land.
74. In support of his argument on Floating charge over present and
future assets, learned counsel referred to the case of T. Niall
Welch vs, Bowmaker (Ireland) Limited and Others (1980) I.R. 251 at 255 to 256 per Henchy J. who gave his views on a
debenture that charged properties present and future and also
specific charge. Henchy J. said:
“ I am fortified in this conclusion as to the extent of the
specific charge by the fact that, when the particulars of the
charge created by the debenture were lodged with the
registrar of companies for registration, the “short particulars
of the property” charged were given …as “the company’s
36
undertaking and all its property and assets present and
future including its uncalled capital for the time being
goodwill and as a specific charge the following premises …”
The words after “the following premises” described the
properties specified in the schedule to the debenture. It
would seem that Bowmaker did not consider (or intend
anyone consulting the statutory register of charges to
consider) that the debenture had created a specific charge
over the Ivy Lawn property. Bowmaker represented to the
registrar of Companies, and to the public at large, that the
charge over the Ivy Lawn property created by the debenture
was only a floating charge. In my view, that was a correct
representation of the effect of the debenture.”
75. With regards to the Notice of the Particulars of the Mortgage, Mr.
Lumor referred to the above case as Per Hency J. at page 255 to
256 who said that there is no duty on the bank to seek out the
precise terms of the debenture and that actual or express notice of
the prohibition must be shown before the subsequent mortgagee
can be said to be deprived of priority.
76. Learned Counsel, Mr. Lumor also referred to Legal Problems of Credit and Security, 3 rd ed., by Roy Goode para. 224 where it is
said that:
“It is well established that registration of a charge, though notice
of the existence of the charge, is not notice of the contents of the
instrument of charge, despite the fact that a party searching the
register and obtaining details of a registered charge is then
entitled to inspect a copy of the charge instrument at the
37
company’s registered office….. As the law now stands, the rule is
clear: registration is not notice of the terms of the security
agreement.”
77. And he further referred to para 226 where it is said that:
“Where a floating charge creates restrictions on the debtor’s
power of disposal …. The absence of such restrictions in the
filed particulars entitles a third party acquiring an interest in the
asset without notice of the restrictions to ignore them.”
78. Mr. Lumor referred to the Affidavit of Arsenio Burgos, Chairman of
the Board of Directors of the Second Defendant , DFC sworn to on
6 th May, 2006 at paragraph 6 and 7. At paragraph 6 Mr. Burgos
deposed that the Claimant took a Mortgage Debenture dated 8 th
February, 1990 as a floating charge on the assets. See Exhibit
“AB–1” for the Mortgage. Then at paragraph 7 he deposed that
the particulars of Mortgage or Charge filed in the Companies
Register by the First Claimant in relation to the aforementioned
Debenture pursuant to Section 93 of the Companies Act, Cap. 250
is also produced. See Exhibit “AB2”.
79. Mr. Lumor submitted that the shorts particulars of the property
mortgaged, that is Mortgage dated February, 1990 filed by the
Claimant evidenced an intention or gave notice of only 694.36
acres of Land as being the subject of a fixed charge whilst all the
other assets including “present or future” were subject to the
floating charge. He submitted that the Fifth Defendant was
therefore entitled to deal with the other assets in the ordinary
course of business including charging the same by fix charge.
Further, he submitted that the DFC cannot be imputed with notice
38
of any restrictions contained in the Mortgage Debenture of the
Claimant dated 8 th February, 1990.
80. Mr. Lumor in further support of this argument referred to the case
of Siebe Gorman & Co. Ltd. Vs. Barclays Bank Ltd. (1979) 2 Lloyd’s Report 142 at 160. Though this case is now overruled he
submitted that parts of it are not overruled. Here it is said that while
the registration of particulars of a charge at the Companies Registry
may by itself serve to give subsequent mortgagees constructive
notice of a charge affecting the company’s property, it will not be
deemed by itself to give them constructive notice of the special
provisions contained in that charge restricting the company from
dealing with its property in the usual manner, at least when the
subsisting charge is a floating security.
Submissions for the 3 rd Defendant, SSB
81. For the Third Defendant, Mr. Lumor applied the same principles of
law as in his submissions for DFC. He submitted that the
particulars of the property mortgaged by the Fifth Defendant to the
Claimant filed in the Companies Registry pursuant to section 95 of
the Companies Act, Chapter 250 recites the 694.36 acres of land
and the present and future assets of the mortgagor, the Fifth
Defendant. The Notice is dated 8 th February, 1990. The amount
secured by the mortgage was BZ$1 million and not
BZ$13,101,283.70.
82. Learned Counsel submitted that the Third Defendant, SSB, took a
first legal charge of the 625 acres of land owned by the Fifth
Defendant by a Deed of Mortgage dated 28 th February, 2000 for
a loan of BZ$2,000,000.00.
39
83. He further submitted that when the SSB took the 625 acres of land
as security, the Debenture of the Claimant did not crystallize. The
Fifth and Seventh Defendant defaulted on the loan and the fourth
defendant was appointed Receiver/Manager of the assets of the
Fifth Defendant with knowledge and notice to the Claimants. He
further submitted that the Fourth Defendant was appointed
because its Deed of Mortgage dated 28 th February, 2000 ranked
superior to that of the First Claimant.
84. Mr. Lumor also relied on the cases of National Westminister Bank
v. Spectrum Plus Ltd [2005] UKHL 41 and Agnew v. Commissioner of Inland Revenue [2001] 2 A.C. 710 at page 716 in support of his arguments. Learned Counsel in oral arguments also referred to the text ‘Principles of Modern Company Law, by Gower and Davies, 7 th Edition in support of his arguments at
pages 818 – 825. This was in relation to the nature of the floating
charge, the vulnerability of the floating charge and crystallization.
Response from Mr. Michael Young
85. Mr. Young in his response to the arguments by Mr. Lumor and Mr.
Williams said that the Agnew case supra and Spectrum case
supra actually support the position of the Claimant. In the Agnew’s case Mr. Young drew the Court’s attention to page 716
at paragraphs 3 and 4 where the Court looked at the question of
whether the Company’s right to collect book debts and deal with
their proceeds free from their security means that the charge on
the uncollected book debts, though described in the debenture as
fixed, was nevertheless a floating charge until it crystallized by the
appointment of the receivers. The Court said that this is a question
40
of characterization and to answer it the Court must examine the
nature of the floating charge and ascertain the features which
distinguish it from a fixed charge.
86. Mr. Young then drew the Court’s attention to page 730 of the said
case at para 49 where the Court said that the Company was in
control of the process by which charged assets were extinguished
and replaced by different assets and this is inconsistent with a fixed
charge. Mr. Young then referred to the same case at pages 725
726 para 3132 where the Court stated that in deciding the
question of whether a charge is a fixed charge or a floating charge,
the Court must be engaged in a twostage process. The first stage
is to construe the instrument of the charge and seek to gather the
intentions of the parties from the language they have used. The
second stage is the categorization stage. The Court also said that
“This is a matter of law. It does not depend on the intention of the
parties. If their intention, properly gathered from the language of
the instrument is to grant the company rights in respect of the
charged assets which are inconsistent with the nature of a fixed
charge, then the charge cannot be a fixed charge however they
may have chosen to describe it. A similar process is involved in
construing a document to see whether it creates a licence or
tenancy. The Court must construe the grant to ascertain the
intention of the parties: but the only intention which is relevant is the
intention to grant exclusive possession……. in construing a
debenture to see whether it creates a fixed or a floating charge, the
only intention which is relevant is the intention that the Company
should be free to deal with the charged assets and withdraw them
from security without the consent of the holder of the charge; or to
put the question another way whether the charged assets were
41
intended to be under the control of the company or of the charge
holder.”
87. Mr. Young thereafter referred to the Spectrum case at
paragraphs 83, 99, 104, and para 111. Paragraph 99 dealt with
the classic and frequently cited definition of a floating charge given
by Romer J in the Yorkshire case. Mr. Young in referring to this
definition said that the Debenture in question had a fixed charge on
unfixed things because the property is capable of being ascertained
and defined. The property here is land, that is, the 200 acres, 77
acres and the 625 acres.
88. In referring to paragraph 104, Mr. Young submitted that this is in
contrast with Mr. Williams’ submission. At para 104 the Court said
that the debenture could fortify the apparently fixed character of the
charge by including a provision entitling the chargee to call for a
formal written assignment by the chargor of the debts as they
accrued. Mr. Young submitted that by having a provision which
fortifies the fixed charge does not mitigate the idea of fixed charge.
89. Para 111 refers to the essential characteristic of a floating charge
which distinguishes it from a fixed charge which is the chargor is
left free to deal with the asset.
90. Mr. Young then referred to the case of Welsh and Bowmaker supra cited by Mr. Lumor. He drew the Court’s attention to the
judgment of Henchy J. at page 253, para 3 where the Court said
that that because there was a qualifying condition in the debenture
a conflict has arisen between Bowmaker and the bank as to their
priorities in regard to the Ivy Lawn Property. He then went on to
look at the complicating condition in the debenture. Mr. Young
42
submitted that there was an internal conflict in charging document
which determined the result. He then referred to Kenny J.
dissenting judgment where the learned Judge found that the
debenture created a specific charge on the Ivy Lawn Property
although it was not mentioned in the particulars.
91. Mr. Young further submitted that he disagrees with Mr. Lumor that
the charge in the Debenture in question is a floating charge and
that all the property, all the land charged is a fixed charge. Mr.
Young further submitted that the language of the 1990 Mortgage
Debenture is clear unlike the situation of the Welch and Bowmaker Debenture.
92. He then looked at the Clauses in the 1990 Debenture and
submitted that by Clause 6 all land is charge with fixed charge.
Clauses 7 and 8 are confirmation clauses. Clause 13(11) is
consistent with legal charge.
93. Mr. Young submitted that the 1999 Debenture seek to perfect the
charge. It does not mean it was not specific. He said that when
one say that he is perfecting does not mean that you do not have a
legal charge and that the clear intent is that the charge is really
retroactive back to the 1990 Debenture. That the said Debenture
of 1990 created a first legal charge on the 277 acres.
94. With regard to the 625 acre parcel Mr. Young submitted that there
was no fixed charge on the 625 acres. But in terms of equity, FCIB
ranks first. When the subsequent legal mortgagee exercised its
power of sale, the ranking would apply to the proceeds of sale and
FCIB would rank first.
43
Determination
95. The first issue for determination is whether the security in
Mortgage Debenture dated 8 th February 1990 in favour of the First
Claimant in respect of the 200 acres and 77 acres is a fixed charge
or a floating charge. To answer this question the court has to
look at the distinction between a fixed charge and a floating charge.
To do this the Court will examine the nature of the floating charge
and ascertain the features which distinguish it from a fixed charge.
It is therefore necessary to touch on the history of the floating
charge though not in any detail. See the Agnew case supra for
the history of the floating charge from its inception to 2001 when Agnew was decided. The cases adjudicated upon by the Courts
with regards to floating charge/fixed charge paid particular attention
to charges over book debts. In the Spectrum case supra the
House of Lords finally resolved the controversial legal issue
concerning the distinction between a fixed charge and a floating
charge. I say controversial because of the previous position of the
law.
96. The floating charge originated in England in a series of cases in the
Chancery Division in the 1870s. The reason for this development
was because of the possibility of two things. (1) The possibility of
assigning future property in equity which was confirmed in Holroyd v. Marshall (1862) 10 HL Cas 191. This principle
made it possible for future book debts to be assigned by way of
security. See the case of Tailby v Official Receiver (1888) 13
App Cas 523. (2) The Companies Clauses Consolidation Act,
1845 sanctioned a form of mortgage for use by statutory
companies by which the company assigned “its undertaking”.
44
97. Before moving on I will touch on what is meant by the word
“undertaking”. In Re Panama New Zealand and Australian Royal Mail Co. (1870) 5 Ch App 318 the Company charged its
“undertaking and all sums of money arising therefrom”. Gifford LJ
held, at p. 322, that “undertaking” meant “…all the property of the
company, not only which existed at the date of the debenture, but
which might afterwards become the property of the company.” He
also said that the word “undertaking” “..necessarily infers that the
company will go on, and that the debenture holder could not
interfere until either the interest which was due was unpaid, or until
the period had arrived for the payment of his principal , and the
principal was unpaid.” See also paragraph 96 of Spectrum case
supra.
98. Now, on the reason for the development of the floating charge was
that compliance with the terms of the fixed charge on the
company’s circulating capital would paralyse its business. This is
because the fixed charge gives the holder of the charge an
immediate proprietary interest in the assets subject to the charge
which binds all those into whose hands the assets may come and
who has notice of the charge. Unless the consent of the holder of
the charge is obtained the Company would be unable to deal with
its assets without committing a breach of the terms of the charge.
In other words a fixed charge on all the property of the Company
would deprive the company of access to its cash flow, which is the
life blood of a business.
99. A floating charge on the other hand contemplates that the
Company will continue to carry on the business despite the
existence of the charge. The charge is upon the entire
undertaking of the debtor company and its assets from time to time
and at the same time the Company is able to freely deal with its
45
assets and pay its trade creditors in the ordinary course of business
without any consent from the holder of the charge. This form of
security was very attractive to banks and it acquired great
importance in the English commercial life.
100. The floating charge however was criticized because it enabled the
holder of the charge to withdraw all or most of the assets of an
insolvent company and leave the liquidator with little or nothing and
as a consequence they were unable to pay preferential creditors.
This led to the provision of laws which made the preferential debts
payable out of proceeds of a floating charge in priority to the debt
secured by the charge.
101. But then there was a second mischief which arose because of the
nature of the floating charge which put ordinary trade creditors of
the company at risk even though they would not know of the
existence of the charge. The reason being is that the holder of the
charge can at any time step in and obtain priority over them. This
normally leave many supplier of goods unpaid. This was seen as a
great injustice and more than 80 years later the remedy adopted
by Parliament was to require floating charges to be registered so
that proposed creditors of the company could discover the
existence of the floating charge. This requirement was introduced
in England by the Companies Act 1900. See section 14 of that
Act. Later by the Companies Act 1907, section 10 (1) (e) it was
extended to include all charges on book debts whether floating or
fixed.
102. The Act did not provide any definition for “floating charge” and
before the introduction of any legislation the term did not have any
distinct meaning. It therefore, became necessary to distinguish
46
between fixed charges and floating charges within the meaning of
the Act.
The previous position under the law
103. A number of judicial decisions gave conflicting interpretations over
the characteristics that were definitive of a fixed charge, particularly
with references to charges over book debts, commencing with the
decision of Slade J. in Siebe Gorman v Barclays Bank (1972) 2 Lloyd’s Rep. 142. For clarity ‘book debts’ of a Company is
money outstanding to the company from its customers. In Sieb Gorman case it was held that where the debenture required the
charged book debts not to be disposed of prior to their collection
and the proceeds to be paid into a specific bank account upon their
collection, such restrictions would be sufficient for the purpose of
constituting a fixed charge. As a result, under this case the charge
was fixed even if the debenture did not prohibit the debtor from
withdrawing money from the account into which the proceeds were
deposited without the bank’s consent, so long as the other
restrictions were present.
104. The problem with this decision was highlighted in Spectrum case
at the Court of Appeal. Here the debtor after paying the proceeds
of the book debts into the account, drew on the account up to its
overdraft limit. Following the decision in Sieb Gorman, the Court
of Appeal held that the charge was a fixed one since the Debenture
stipulated restrictions in the ways by which the debtor could
manage the assets, that is, the books debts could not be assigned
and the proceeds were to be paid into the chargor’s account with
the bank. In the Court of Appeal’s view the fact that the debtor
47
was able to draw on the account up to its overdraft limit did not
mean the fixed charge became a floating one. The Court also felt
constrained to follow Siebe Gorman case because that decision
had been accepted as correct by the banking industry for 25 years
or so.
105. The House of Lords Judgment in National Westminister bank plc v Spectrum Plus Limited and others (2005) UKHL 41 (Spectrum case).
The position was definitely resolved when the House of Lords
confirmed that a charge over book debts could be a fixed charge,
provided, that the secured creditor exhibited the necessary degree
of control over the proceeds of the book debts. This would
normally require that they either be paid into a blocked account, or
they be paid directly to the secured creditor. Any lesser degree of
control was not consistent with a fixed charge, and such charges
would be construed as floating charges, regardless of what label
the parties had given them.
106. As a result, the decision of the Court of Appeal in Spectrum Plus case was overturned by the House of Lords which held that the
charge was a floating one. It was held that in order to preserve the
status of a charge as a fixed one, the bank must be able to exercise
actual control over the blocked account. Since the debtor was not
prohibited from overdrawing from the account into which the
proceeds were deposited, the bank did not have effective control.
The House of Lords looked into the contractual relationship with
regard to the account between the bank and the Company and
decided that an account from which the Company can withdraw
money at will within the agreed limits of any overdraft was not a
48
blocked account. Since this was inconsistent with the status of the
charge as fixed the charge was found to be a floating one.
107. Lord Walker at para 142 of the Spectrum case said that in his
opinion Slade J. did not, in Sieb Gorman, make any significant
error in stating the general principles which apply. But he did not
correctly construe the debenture which was before him in that case,
and his decision on its construction has had surprisingly far
reaching consequences.
108. The Sieb Gorman case remained unchallenged for many years.
The construction of the Debenture in that case by Slade J. was
relied upon by Banks and Companies for over 25 years and the
form had been used under the understanding that this is the
meaning and effect. Banks relied on this understanding and
individuals had guaranteed the liabilities of companies to banks on
the understanding that the banks would be entitled to look first to
their charges on book debts unaffected by the claims of preferred
creditors. This is because the book debts were fixed charges. If
it was a floating charge then preferential creditors would have been
entitled to have their debts paid out of proceeds of the book debts
in priority to the banks. Lord Scott of Foscote in the Spectrum
case said that the Debenture in that case was in the bank’s normal
form and that many other banks and other commercial lenders
have taken security over their borrower’s book debts using a similar
form of debenture. For that reason he said that it is of commercial
as well as legal importance that the issue should be resolved.
49
Judicial definitions
109. The nature of the floating charge has been widely considered by
the courts but no full definition has ever been given. The earliest
descriptions were given by Lord Macnaghten in two cases.
110. In Government Stocks and Other Securities Investment Co. Ltd. V Manila Rly Co (1897) AC 81 at 86 he said:
“A floating security is an equitable charge on the assets for
the time being of a going concern. It attaches to the subject
charged in the varying condition in which it happens to be
from time to time. It is the essence of such a charge that it
remains dormant until the undertaking ceases to be a going
concern, or until the person in whose favour the charge is
created intervenes. His right to intervene may of course be
suspended by agreement. But if there is no agreement for
suspension, he may exercise his right whenever he pleases
after default.”
111. A description was subsequently given in Re Yorkshire Woolcombers Association (1903) 2 Ch 284. Romer LJ set out the
most often cited threefold definition of a floating charge. He said this
at page 295:
“ … if a charge has the three characteristics I am about to
mention it is a floating charge. (1) If it is a charge on a
class of assets of a company present and future; (2) If that
class is one which, in the ordinary course of business of the
company, would be changing from time to time; and (3) If
you find that by the charge it is contemplated that, until
some future step is taken by or on behalf of those interested
in the charge, the company may carry on its business in the
50
ordinary way as far as concerns the particular class of
assets I am dealing with.”
This was the first case to deal specifically with book debts. The
question here was whether a charge on uncollected book debts
was a fixed charge or a floating charge so as to require registration.
112. Later when the matter went to the House of Lords sub nom Illingworth v Houldsworth (1904) AC 355 at 358 Romer J.,
stated:
“..a floating charge.. is ambulatory and shifting in nature,
hovering over and so to speak floating with the property
which it is intended to affect until some event occurs or some
act is done which causes it to settle and fasten on the
subject of the charge within its reach and grasp.”
113. In the Agnew case (2001) UKPC 28, (2001) 2 AC 710 Lord
Millett who gave the opinion of the Board, said this at page 724
“In deciding whether a charge is a fixed or floating charge, the
court is engaged in a twostage process. At the first stage it
must construe the instrument of charge and seek to gather
the intentions of the parties from the language they have
used. But the object at this stage of the process is not to
discover whether the parties intended to create a fixed charge
or a floating charge. It is to ascertain the nature of the rights
and obligations which the parties intended to grant each other
in respect of the charged assets. Once these have been
ascertained, the Court can then embark on the second stage
of the process which is the categorization. This is a matter of
law. It does not depend on the intention of the parties. If their
intention properly gathered from the language of the
51
instrument, is to grant the Company rights in respect of the
charged assets which are inconsistent with the nature of a
fixed charge, then the charge cannot be a fixed charge
however they may have chosen to describe it.”
114. In the Spectrum Case (2005) UKHL 41, (2005)2AC 680 at 111,
Lord Scot of Foscote described a floating charge as follows:
“In my opinion, the essential characteristic of a floating
charge, the characteristic that distinguishes it from a fixed
charge, is that the asset subject to the charge is not finally
appropriated as a security for the payment of the debt until
the occurrence of some future event. In the meantime the
charger is left free to use the charged asset and remove it
from the security.”
115. In a most recent case of RussellCooke Trust Co Ltd v Elliott and others (2007) 2 BCLC 637, (2007) EWHC 1443 (Ch) the
principles in the Agnew case and the Spectrum case were
applied. This case also dealt with book debts and whether the
security given was a fixed or a floating charge. It was held that the
fact that the mortgage deeds prevented withdrawal of an asset from
the security was consistent only with a fixed charge and was
inconsistent with the notion that the property was merely subject to
a floating charge. Accordingly, since the Chargor under the
mortgage deeds was not free to use the charge assets or to
remove them from the security, the net effect of the rights and
obligations affecting the secondary security was that the deeds
created fixed and not floating charges, notwithstanding the labeling
used by the parties. The priority of claims to the secondary fund
therefore depended on the date of the creation of the charges over
the secondary security by the mortgage deeds.
52
116. A review of the authorities on whether a charge created is
actually a fixed charge or floating charge arose most frequently in
relation to trade receivables and cash in bank accounts. The
problems arose because although a charge over the book debts
were fixed the mortgagor was still able to withdraw the funds from
the bank. In the case at bar the argument is over land so the
Court is not faced with the same difficulties as in the above cases
which is now settled by the Spectrum case. In the case at bar
what is being argued by the Claimant is that there is a fixed charge
on unfixed things. The Defendant argued that there is a floating
charge on the 277 acres of land and the 625 acres of land.
117. From the authorities cited above it is clear that the Court does not
have to accede to the labeling of the parties. That is no more
appropriate in a fixed charge, floating charge case than it is to a
lease/licence case. What the court has to do is to ascertain the
nature, the true legal nature, of the interest which the parties have
managed to create looking at the totality of the wording of the
documents, and looking at the rights and obligations created by
those documents. (See paragraph 46 of RussellCooke case).
Type of charge created by the FCB’s 1990 Debenture
118. The charging provision in the Mortgage Debenture of 8 th February,
1990 between Belize Gold Bananas Limited and the First Claimant
will be set out in its entirely as the Court would have to make a
determination on the nature of the charge based on these clauses.
The clauses are:
53
5. “The Company as BENEFICIAL OWNER hereby charges
with the payment of all moneys and liabilities hereby agreed to
be paid or intended to be hereby secured (including any
expenses and charges arising out of or in connection with the acts
or matters referred to in clause 11 hereof) and so that the charge
hereby created shall be a continuing security:
First. – The deeds and documents mentioned in the Schedule
hereto and all and singular the premises comprised therein
together with all buildings now or hereafter erected thereon
and all fixtures (including trade fixtures) fixed plant
machinery and equipment from time to time thereon.
Secondly – All other (if any) the freehold property of the
company both present and future and the fixed plant
machinery and fixtures (including trade fixtures) from time
to time thereon but not including and specifically excluding all
the leasehold property of the Company
Thirdly. The goodwill and the uncalled capital of the
Company both present and future
Fourthly – the undertaking and all other property and assets of the
company whatsoever and wheresoever both present and future
The charge hereby created shall be as regards the premises firstly
secondly and thirdly described be a fixed first charge subject
to any prior charges existing at the date hereof) and as regards all
those parts of the premises first and secondly described now vested
in the Company shall constitute a charge by way of legal mortgage
thereon and as to the premises fourthly described shall be a floating
54
charge but so that the Company shall not without the consent in
writing of the Bank create any mortgage debenture or charge upon
and so that no lien shall in any case or in any manner arise on or
affect any part of the premises fourthly described ranking either in
priority to or pari passu with the charge hereby created..
PROVIDED ALWAYS that the Bank may at anytime by notice in
writing to the Company convert the said floating charge into a
specific charge as regards any assets specified in the notice and the
said floating charge shall without notice be converted into a
specific charge as regards all the premises so charged upon the
appointment of a receiver or receivers under the provisions of
clause 11 hereof” (emphasis mine).
THE SCHEDULE ABOVE REFERRED TO
ALL the hereditaments and premises comprised in or affected
by all or any of the following deeds and documents and all the
fixed and moveable plant machinery and fixed implements and
utensils now or hereafter fixed to or placed upon and used in or
about the said hereditaments and premises that is to say:
Minister’s Fiat (Grant) dated the 22 nd day of January 1990 and
numbers 6 of 1990 in favour of Belize Gold Bananas Limited
containing 694.36 acres of lands situate South of Harvest Caye
Work in the Toledo District of Belize.”
55
Labelling of charge by parties
119. The Instrument clearly states that the firstly, secondly and thirdly
are fixed first charges. The intention was to grant fixed charges
with the said properties.
The fourth charge is clearly intended to be a floating charge
because of the words used, that is, “Fourthly – the undertaking and
all other property and assets of the company whatsoever and wheresoever
both present and future ……..
fourthly described shall be a floating charge but so that the Company
shall not without the consent in writing of the Bank create any
mortgage debenture or charge upon and so that no lien shall in any
case or in any manner arise on or affect any part of the premises
fourthly described ranking either in priority to or pari passu with
the charge hereby created. (hereinafter called “the Restriction”).
Description of property
120. The First described is the deeds and documents mentioned in the
Schedule which is the 694 acres and also the premises which is
on that property. Further it includes any building erected whether
presently or afterwards and also all fixtures such as plant and
machinery on the 694 acres. This is a fixed charge. There is no
dispute about this clause.
121. The Secondly described Charge is a fixed charge on all other
freehold property both present and future. This would include the
200 acres, the 77 acres and the 625 acres which are freehold
properties. The 200 acres and the 77 acres were owned by the
56
company at the date of the charge. The 625 acres was acquired
after the charge. This clause also includes all fixed plant
machinery and fixtures (including trade fixtures) on all freehold
property. I agree with Mr. Young that these are properties
capable of being ascertained and defined.
122. The Third Charge is also fixed charge on the goodwill and uncalled
capital. When the Court looks at the fourthly described charge it
speaks of “all other property”. In my view therefore all other
property would include any property other than freehold property,
fixed plant machinery and fixtures (including trade fixtures).
123. The properties in the first to thirdly described were intended to be
under the control of the charge holder, FCIB. There is no provision
which allows for the Company to withdraw them from security.
Categorisation of the charges
Are the rights created in the Firstly, Secondly and Thirdly described
consistent with a fixed charge?
124. In applying the principles in the authorities cited above, including Agnew supra, Spectrum supra and Russell Cooke supra it is
quite apparent that rights created are consistent with a fixed charge
on all the freehold properties of BGB and the plant and machinery
on the said properties. The Company did not have the authority to
deal with these properties in the ordinary course of business
without the consent of the bank.
57
125. Mr. Williams in his submissions stated that the FCIB Debenture
claim to create a fixed charge on “all other (if any) the freehold
property of the company both present and future …” but the
charge actually created was not a fixed charge it was a floating
charge because of the non compliance with Clause 6, Clause 7 and
Clause 13(11).
Clause 6 states that : “The Company will deposit with the Bank and
the Bank during the continuance of this security shall be entitled to
hold and retain all deeds and documents of title relating to the
Company’s freehold property (and the insurance policies thereon)
for the time being”.
126. I disagree with Mr. Williams that the Bank allowed BGB to retain
the titles of the 200 acres and the 77 acres and so enabled the
Company to deal with these lands in the ordinary course of
business without the consent of the Bank. There is no evidence
that the Bank knew of the existence of these deeds. All indication
from the Debenture as drafted shows that the Bank wanted to be
the only Mortgagee. The Company however, had other ideas in
raising money. I have no evidence from the Company to say
whether they understood the provisions of the Debenture. But,
what they did amounted to a breach of the terms of the Debenture
as the Bank was entitled to hold and retain all deeds and
documents relating to the Company’s freehold property. The
Bank did so nine years later and submitted that it got a
perfected mortgaged on the 277 acres (see Mortgage between
BGBL and FCIB of September 24 th , 1999 clause 4).
127. The first and secondly charged property according to the charging
clause states that, “premises first and secondly described now
vested in the Company shall constitute a charge by way of legal
58
mortgage thereon”. The 200 acres and the 77 acres were vested in
the Company at the time. In my view, this clause created a fixed
legal mortgage and the failure to deposit the title deeds, does not
make the charging clause void.
128. I further agree with Mr. Young that Clause 13 (11) is a re
confirmation clause which states:
Deposit with the Bank (which it may retain during the
continuance of this security) all documents of title relating to all
freehold property which the Company now or at any time
hereafter owns and if the Bank so requires promptly to execute
at the Company’s own cost a legal mortgage or charge in form
to be determined by the Bank of any freehold or leasehold
property which is acquired by the Company.
129. I also agree with Mr. Young that Clause 7 is a reconfirmation
clause which states that
“The Company will at any time if and when required by the Bank
so to do execute to the Bank or as the Bank shall direct such
further legal or other mortgages or charges as the Bank shall
require of and on all the Company’s estate and interest in any
premises comprised in the said deposited deeds and writings or
which may hereafter be acquired by or belong to the
Company . . .”
130. Further, in my view preamble 4 of the Deed of Mortgage, dated
24 th September, 1999 between BGB and the then Barclays Bank
which is now FCIB which says that “For the purpose of perfecting
the Charge created by the Debenture upon the property described
in the Schedule hereto , FCIB, “in pursuance of the power in that
behalf contained in the Debenture has called upon the company to
59
execute such specific Charge by way of legal mortgage thereon as
is hereinafter contained which the company has agreed to do,”
does not in any way suggest that the charge was not fixed in the
1990 Debenture on the said properties. (emphasis added).
131. I therefore disagree with Mr. Lumor’s submission that by the
aforementioned term included in the 1999 Charge the Claimant
has acknowledged that DFC has a first legal charge on the 277
acres of land owned by the Fifth Defendant and sought to
‘neutralize’ the effect of the first charge of DFC. FCIB already had
a fixed charge as from 1990. The word “specific” can be
misleading. In my view this clause is referring specifically to the
277 acres. See Spectrum at paragraph 79. The expression
“specific charge” is potentially ambiguous. It may mean a charge
over specific ascertained property or it may mean a fixed charge in
contrast to a floating charge, depending on the context. In my view,
it is clear that in this debenture the expression is intended to bear
the meaning of a charge over a specific ascertained property
albeit the 277 acres. This further Debenture sought to confirm the
fixed charge on the 277 acres.
132. I find and hold that the rights created in the Firstly, Secondly and
Thirdly described clause are consistent with a fixed charge. Having
found that the charge is a fixed charge, it is unnecessary to
determine the issue on crystallization of the floating charge. This
would have been determined if the charge was found to be a
floating charge.
60
Are the rights created in the Fourthly described consistent with a
floating charge?
133. The properties in contention in the case at bar are freehold
properties which fall under the First, Secondly and Thirdly
described charges. Nevertheless for the sake of completeness
and also for the purposes on the issue of notice it is pertinent that
I make a determination on this clause. As seen above in the fourth
charge the parties claim to create a floating charge but this is
inconsistent with a floating charge as BGB was not left free to use
the charged asset and remove it from security. The restriction
which is that “the Company shall not without the consent in writing
of the Bank create any mortgage debenture or charge upon and so
that no lien shall in any case or in any manner arise on or affect any
part of the premises fourthly described ranking either in to or pari
passu with the charge hereby created” is inconsistent with a
floating charge. The principles in Spectrum applied. The
conditions of the Debenture prohibits the creation of other charges.
It can only be done with the consent in writing by the Bank. This
therefore has the characteristic of a fixed charge despite the
labelling used by the parties. I find that this fourth charge is also a
fixed charge.
Whether Charge on the 625 acres is equitable or legal?
134. Firstly, the Court must determine whether the charge on the 625
acres is equitable or legal before looking at the issue of priority.
Mr. Young conceded that an equitable mortgage was created on
the 625 acres. Mr. Williams agreed with this position. Mr. Lumor
submitted that the third defendant SSB took a first legal charge of
61
the 625 acres of land owned by the Fifth Defendant by Deed of
Mortgage dated 28 th February, 2000. This is not in dispute. He
further submitted that when the SSB took the 625 acres of land as
security, the Debenture of the Claimant did not crystallize. The
issue of crystallization in my view does not arise for reasons stated
above.
135. The charging clause, the secondly described which is worth
repeating states that:
Secondly – All other (if any) the freehold property of the company both
present and future and the fixed plant machinery and fixtures
(including trade fixtures) from time to time thereon but not including
and specifically excluding all the leasehold property of the Company.
136. It can be seen from this secondly described clause that all
freehold property present and future is included. The 625 acres
was acquired after the signing of the Debenture and therefore is
caught under future property. The charging provision clearly
states that the “first and secondly described now vested in the
Company shall constitute a charge by way of legal mortgage”.
The 625 acres was not vested in the Company at the time so
there could be no legal mortgage. If it is not a legal mortgage,
then could it be that an equitable mortgage was created.
How an equitable mortgage is created
137. The Law of Property Act, Chapter 190, Laws of Belize at
section 118 provides that:
62
“118. An equitable mortgage may be created by the
deposit of the proprietor’s duplicate certificate of title or the
proprietor’s deeds relating to the land to be charged.”
138. This section is discretionary and so does not exclude other ways by
which to create an equitable mortgage. In the case of Elias Markets Ltd, (2006) Canadian Legal Information Institute (CanLII ) 31904, Court of Appeal for Ontario. Macfarland J.A.
said at paragraph 66 (5.2):
“The equitable nature of a mortgage may be due either (1) to
the fact that the interest mortgaged is equitable or future, or (2)
to the fact that the mortgagor has not executed an instrument
sufficient to transfer the legal estate … (3) An equitable
mortgage may also be created by deposit of title deeds.”
139. In the case at bar number (1) is applicable to the 625 acres as the
interest mortgaged is future. I have to agree with Mr. Young SC
and Mr. Williams SC that an equitable mortgage was created.
The Charge created by the Debenture extended to after acquired
freehold property. The property is capable of being ascertained
and will not be void for uncertainty.
140. The question as to whether this equitable charge was fixed or
floating in accordance with the Debenture has already be
determined above. The charging provision clearly shows that the
parties intended to create a fixed charge in these clauses. Since
the 625 acres is in the secondly describe clause then the
charge is a fixed first charge. The charge created is therefore an
equitable fixed charge.
63
141. For sake of clarity a borrower and a lender can make an
agreement which grants to the lender a fixed charge over present
and future property. See Holroyd v. Marshall supra. With regards
to future property, the charge attaches to it as soon as it comes into
the Company’s ownership. The 625 acres was acquired by BGB
by Minister’s Fiat Grant No. 83 of 2000. I am fortified in my view
that what was created was an equitable fixed charge on the 625
acres.
Priority of charges on the 625 acres, 200 acres and 77 acres
142. I begin with the equitable fixed charge on the 625 acres. The Law of Property Act, Chapter 190 provides at section 120 (1) that in
order to protect its preference amongst other encumbrances an
equitable mortgage shall be registered in accordance with the VI
of the Registry Act. The Debenture was registered on 8 th
February, 1990. At the time the 625 acres did not exist so there
could be no deposit of title deeds. There is no evidence that when
the property was acquired the deed was deposited in accordance
with section 120(1) and further there is no evidence that the
equitable mortgage was converted into a legal mortgage.
According to section 121 of the Law of Property Act the date of
the legal mortgage shall be the date of registration or recording of
the equitable mortgage. The Bank did not seek to protect itself in
accordance with these sections.
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143. In the case of Elias Markets Ltd supra it was necessary for the
learned Judge to consider the priorities of enforcement as they
relate to equitable mortgages. Macfarland JA said at paragraph
69 that “I adopt the following equitable “rules” as summarized in
Falconbridge on Mortgages, 5 th ed., looseleaf (Agincourt,
Ont.:Canada Law Book, 2003) at paras, 7:20 – 7:40:
Rule 1. As between two equitable mortgages the first in time has
priority, unless the second mortgagee, taking in good faith for value
and without notice, has been misled by the fraud or negligence of
the first mortgagee, or by a representation of the first mortgagee
which estops him or her from claiming priority over the second
mortgage.
Rule 2. As between a first legal mortgage and a second equitable
mortgage, the first mortgage has priority, unless the second
mortgagee, being a mortgagee in good faith for value and without
notice, has been misled by the fraud or negligence of the first
mortgagee in connection with the taking of the first mortgage or the
subsequent fraud (as distinguished from mere negligence) of the
first mortgagee, or unless the first mortgagee is estopped from
claiming priority.
Rule 3. As between a first equitable mortgage and a second legal
mortgage, the second mortgage has priority if the mortgagee has
acquired the legal estate in good faith for value and without notice
(emphasis added).
144. Rule 1 and 2 does not apply in the case at bar. Rule 3 is applicable
as FCIB was the first to get an equitable mortgage on the 625 acres
in 1990. Subsequently, SSB got a legal interest in the 625 acres
by virtue of Deed of Mortgage dated 29 th May 1991.
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145. In order to determine priority the question is whether SSB as
mortgagee of the legal interest has acquired the estate in good faith
for value and without notice. In other words, did SSB acquire its
legal charge without notice of FCIB mortgage. To determine this
one must examine the notice which was filed in the Companies
Registry.
146. But, before looking at the notice, I will look at the law on legal
estates as the 200 acres and the 77 acres are legal estates.
According to section 74 of the Law of Property Act, Chapter 190
which was cited by Mr. Young every mortgage affecting a legal
estate in land shall rank according to the date of registration. This
is further supported by section 66 of the said Act which provides
for priority of second and other mortgages. Priority is determined
in the order in which the mortgages are registered.
147. This section speaks only of legal estate and not of equitable
estates. The 200 acres and the 77 acres are legal estates. If one
were to look strictly at the date of registration of mortgages on
these properties, specifically the 200 acres and the 77 acres in
question the first legal mortgage on the land would be DFC’s
mortgage. (See Chart). This is because as of this date FCIB did
not identify the “present property” as stated in the 1990 Debenture
and did not execute the specific charge on the said property. The
specific property in the 1990 mortgage Debenture is the 694
acres. The word “specific” used here does not refer to fixed charge
but to a property that has been identified and described. For there
to be a power of sale the property must be described and the
amount owing must be stated. There is no dispute on 694 acres as
DFC and SSB did not take any mortgage on this property. FCIB
took a specific mortgage which it calls a perfected mortgage some
nine years later after DFC registered its mortgage on the said
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property. FCIB who had a right to take this specific mortgage did
not seek to protect itself earlier.
148. In my view, Section 66 of the Law of Property Act which provides
for priority of mortgages contemplates a land identified and
described and where a Mortgagee has the power of sale. FCIB did
not have the power of sale on these properties in the 1990
Debenture. However, it is my considered view, that the date of
registration of the mortgages on the identified properties as shown
in the Chart cannot be the sole determining factor on priority
because of the Fixed charge on all present and future freehold
properties by FCIB. Therefore, the Court must determine whether
DFC and SSB had notice of the fixed charge on all present and
future freehold property.
Notice
149. The afteracquired or future property is the 625 acres and the
present property is the 200 acres and the 77 acres. A notice was
filed in the Companies Registry. See affidavit of Narda Garcia.
This Notice is critical to this case and will be produced in its
entirety. It states:
“PARTICULARS OF A MORTGAGE OR CHARGE CREATED BY
BELIZE GOLD BANANAS LIMITED
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A company registered in Belize
__________
1. Date and description of the instrument or instruments creating or evidencing the mortgage or charge:
Debenture dated the 8th day of February 1990
2. Amount secured by the mortgage or charge:
$1,000.000.00 and all other monies now or from time to time hereafter owing by the company to the Mortgagees
3. Date of Resolution creating the mortgage or charge:
31st day of January 1990
4. Short particulars of the property mortgaged or charged:
The Company’s freehold property containing 694. 36 acres or thereabout situate South of Harvest Caye work in the Toledo District and all other freehold property of the Company both present and future together with all buildings and erections thereon and the fixed plant machinery equipment and fixtures (including trade fixtures) from time to time owned by the Company (but not including its leasehold property) as well as all the deeds and documents of title relating thereto, its goodwill and uncalled capital, its undertaking and all other property and assets both present and future.
5. Names, addresses and descriptions of the mortgages or persons entitled to the charge:
BARCLAYS BANK PLC a Banking Corporation duly incorporated in the United Kingdom and having its
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registered office at No. 54 Lombard Street in the City of London in England and carrying on business in Belize.
DATED the 8th day of February 1990.
Secretary/Director of Belize Gold Bananas Limited”
(Emphasis added).
Types of charges required to be registered
The law:
150. Section 95 (1) of the Companies Act, Chapter 250 provides for the types of charges to be registered as follows:
95 (1) Every mortgage or charge created by a company registered in Belize and being either –
(a) a mortgage or charge for the purpose of securing any issue of
debentures;
(b) a mortgage or charge on uncalled share capital of the
Company; or
(c) a mortgage or charge created or evidenced by an instrument which if executed by an individual, would require registration as a bill of sale; or
(d) a mortgage or charge on any land, wherever situate, or any interest therein; or
(e) a mortgage or charge on any book debt of the company; or
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(f) a floating charge on the undertaking or property of the company,
shall, so far as any security on the company’s property or undertaking is
conferred, be void against any liquidator and any creditor of the company,
unless the prescribed particulars of the mortgage or charge, together with
the instrument (if any) by which the mortgage or charge is created or
evidenced, are delivered to or received by the Registrar for registration in
manner required by this Act ….”
Section 95(2) provides that:
“The Registrar shall keep, with respect to each company, a register in the prescribed form of all the mortgages and charges created by the company after the date of the coming into operation of this Act and requiring registration under this section, and shall, on payment of the prescribed fee, enter into the register, with respect to every such mortgage or charge, the date of the creation, the amount secured by it, short particulars of the property mortgaged or charged, and the names of the mortgagees or persons entitled to the charge. (emphasis mine).
Is the Notice in Compliance with the Rules?
151. The 1990 Debenture has fixed charge and floating charge with
restrictions which according to the law as it is today is also a fixed
charge. I have carefully examined the notice filed in the
Companies Registry and I find that there is no indication as to
whether the charge is fixed or floating as stated in the Debenture.
There is one specific property, the 694.36 acres and present and
future property. Is it reasonable to say that this notice represents
to the world at large that there is a fixed charge on all freehold
property, present and future? There is also a charge on all other
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property and assets both present and future but it does not state
that it is floating or it is floating with restrictions. In my view, no
reasonable business man would expect a fixed charge on all
present and future property. This would paralyze the business.
Since there is a specific property mentioned in the notice it is
reasonable to infer that the charge on that property is fixed and the
others are floating. This in my respectful view, is what this notice is
representing to the people. I therefore, agree with Mr. Lumor that
actual or express notice of the prohibition must be shown before
the subsequent mortgagee can be deprived of priority. I further
agree with Mr. Lumor that the short particulars gave notice of only
694.36 acres.
152. Mr. Young submitted that according to paragraph 1024 of Volume 14 of Halsbury’s (3 rd Edition) 156 notice of a deed which affects
the land, being a deed within the period for which the title should be
investigated, is notice of both its contents and of the facts which
would have been disclosed if its production was insisted on. But,
the question is whether it is reasonable for DFC and SSB to ask for
disclosure considering the representation made by the notice which
was filed at the companies registry.
153. I agree with Mr. Lumor’s submissions that registration of a charge
is not notice of its contents. According to Roy Goode in Legal Problems of Credit and Security, Third Edition at paragraph 2
23 he stated that:
“It is commonly said that registration of a charge constitutes notice to the outside world. But this formulation raises three questions: notice of what? By what means? And to whom?
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Registration of a charge is not notice of its contents
The learned author said at para 224 which was relied on by Mr. Lumor that it is well established that registration of a charge, is not notice of the contents of the instrument of charge, despite the fact that a party searching the register and obtaining details of a registered charge is then entitled to inspect a copy of the charge instrument at the Company’s registered office.
154. See Section 102 of Companies Act, Chapter 250, Laws of Belize
which provides for Company to keep a register of all mortgages and
charges specifically affecting property of the Company, giving in
each case a short description of the property mortgaged or
charged, the amount of the mortgage or charge and the names of
the mortgagees.
And section 103(1) provides for the right to inspect copies of instruments creating mortgages and charges.
But despite this right, according to the learned author, Goode as
the law now stands, the rule is clear: registration is not notice of the
terms of the security agreement.
Further he said that, “this rule has little impact on the rights of a
fixed chargee. In the case of a fixed charge, the debtor has neither
actual or ostensible authority to dispose of the charge asset free
from the charge. Hence notice of the existence of the charge
suffices to preserve the chargee’s priority over a subsequent legal
mortgagee. The position is otherwise in the case of a floating
charge, where a third party dealing with the debtor company is
entitle to assume that it has freedom to dispose of its assets, in the
absence of the notice of restrictions on the debtors’ powers of
disposition. So for a floating charge the mechanics of giving such
notice is of paramount importance.” (emphasis mine).
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155. I adopt this learning but would add that it is also important that
notice of the existence of a fixed charge must be given as this also
restricts the chargor from disposing of assets without the consent of
the chargee. The question is: Did DFC and SSB have notice of the
fixed charge and the floating charge with the restrictions? My view
is that DFC and SSB could not be aware of the existence of the
fixed charge nor the floating charge with the restrictions because of
the shortcomings of the notice.
156. Though my finding that the Fourth charge is a fixed charge. I must
look at the charge in the way it was drafted for the purpose of the
notice. It says floating with restrictions. The Act provides that a
floating charge must be registered. The charge was registered but
it did not specify whether it is floating or fixed as in the charging
provisions. I note that the restrictions on a chargor’s dealing
powers are not among the details which the Companies Act
requires to be filed. But, how does the courts view this in past
cases. According to Goode para 226, which was also referred to
by Mr. Lumor, “Where a floating charge creates restrictions on the
debtor’s powers of disposal – typically, by providing that a debtor
shall not create any subsequent charge in priority to or pari passu
with the floating charge or sell off its assets outside the ordinary
course of business…. the absence of reference to such restrictions
in the filed particulars entitles a third party acquiring an interest in
the asset without notice of the restrictions to ignore them.”
157. Further, in Halsbury’s Laws of England para 1547: The
registration of particulars of debentures pursuant to the Companies
Act 1985, or earlier Acts, although it amounts to constructive notice
of the debentures, does not amount to constructive notice of the
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restriction, at any rate where the particulars of the restriction are not
also registered.
158. Judges find the issue on constructive notice a difficult one and this
Court is of no different. Another authority, I find helpful is that of Welch v. Bowmaker (1980) I.R. 251 which was cited by Mr.
Lumor in his argument on the fixed and floating charge issue. I find
it helpful on the issue of constructive notice also. In this case the
Debenture was duly registered with the registrar of companies
pursuant to the Companies Act, 1963. The particulars given for the
purposes of registration indicated that the debenture created a
specific charge over only the properties specified in the schedule,
which did not include the Ivy Lawn property. Hendy J. in his
judgment said that it would seem that Bowmaker did not intend
anyone consulting the statutory register of charges to consider that
the debenture had created a specific charge over the Ivy Lawn
property. The learned Judge said that:
“Bowmaker represented to the Registrar of Companies, and to the
public at large, that the charge over the Ivy Lawn property created
by the debenture was only a floating charge. In my view, that was
a correct representation of the effect of the debenture.
Counsel for Bowmaker has argued that, even if that be so, the
bank should be fixed with constructive notice of the provision in the
debenture precluding the company from creating a mortgage (such
as the bank got) which would have priority over the debenture.
Since such a prohibition is more or less common form in modern
debentures, there would be much to be said for applying the
doctrine of constructive notice to such a situation were it not that it
is settled law that there is no duty on the bank in a situation such as
this to seek out the precise terms of the debenture: In re Standard
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Rotary Machine; Wilson v. Kelland and G & T Earle Ltd. V.
Hemsworth R.D.C. Actual or express notice of the prohibition
must be shown before the subsequent mortgagee can be said to be
deprived of priority.
Whatever attractions there may be in the proposition that priority
should be deemed lost because a duty to inquire further was called
for but ignored, and that such inquiry would have shown that the
company was debarred from entering into a mortgage which would
have priority over the debenture, the fact remains that it would be
unfair to single out the bank for condemnatory treatment because
of their failure to ascertain the full terms of the debenture when
what they did was in accord with judicially approved practice and
when such a precipitate change in the law would undermine the
intended validity of many other such transactions. If the proposed
extension of the doctrine of constructive notice is to be made, the
necessary change in the law, would need to be made prospectively
and, therefore, more properly by statute.”
Parke J. in the said judgment said that he is entirely in agreement with Mr.
Justice Hendy on this point of notice. He said that,
“In view of the long line of authorities in both this country and in
England (to many of which he refers) on the necessity for actual or
express notice, in my opinion this Court would not be justified in
attempting to extend the doctrine of constructive notice in the way
sought by Counsel on behalf of Bowmaker. Any such extension
should be made (if at all) by statute.”
159. Further, in Re Valletort Sanitary Steam Laundry Co. Ltd. and, Ward v Valletort Sanitary Steam Laundry Co Ltd (1903) 2 CH. 654, these
cases show that the mere knowledge by a subsequent mortgagee of an
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earlier debenture does not necessarily fix him with constructive notice of
all of the provisions of the debenture.
160. And the cases of Standard Rotary MachineCo. (1906) L.T. 829 and the
case of Wilson v. Kelland (1910) 2 Ch 306 illustrate that while the
registration of the particulars of the charge at the Companies Registry
may itself serve to give subsequent mortgagees constructive notice of a
charge affecting the Company’s property, it will not be deemed by itself to
give them constructive notice of special provisions contained in that
charge restricting the company from dealing with its property in the usual
manner, at least when the subsisting charge is a floating security.
161. I find the Sieb Gorman case which was overruled in the Spectrum case
helpful. The main issue in that case was priority. However, the case was
overturned on the construction of the provisions of the Debenture. The
construction which the learned Judge, Slade J. placed on the Debenture
was wrong. As stated before, this decision has stood for over 25 years.
Lord Scott of Foscote in the Spectrum case said that it is worth while to note that the issues that Slade J. had to decide in the Sieb Gorman case
did not include the question whether the charge over book debts was a
fixed charge or a floating charge. The main issue in the case was one of
priority between the bank chargee on the one hand and a subsequent
assignment of the charged book debts on the other. That the issue
turned on notice. That is, “Did the subsequent assignee have notice of
the bank’s charge and the provision barring subsequent assignments? If
the subsequent assignee did have notice, the bank would have priority. If
not the subsequent assignee would have priority. The categorization of
the charge did not matter”.
And Lord Walker of Gestingthorpe in the Spectrum case said that Slade
J. had “to decide a difficult issue as to priority of charges (and his
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judgment on that issue may be the main reason why the judgment was
reported).”
162. A lot of time was spent in this case at bar to argue whether the charge
was a fixed charge or a floating charge. This detracted from another
important issue in this case which is giving of notice of the provisions
barring subsequent charges or the nature of the charge.
163. Where a subsequent encumbrancer takes without notice of a fixed charge
or the restrictions contained in a floating charge, the third party is entitled
to assume that the company retains the power to deal with its assets in
the ordinary course of business and in the absence of notice of a fixed
charge or a floating charge with a restriction he will obtain priority.
Although the fixed charge and the floating charge with restrictions is a
good private arrangement between FCIB and BGB it cannot be used
against DFC and SSB who took their securities without notice of the said
fixed charge and the floating charge with restrictions.
164. In my view, the absence of the nature of the charge in the notice, that is,
the existence of the fixed charge in the particulars of the notice which
mentions a specific property and in the absence of the particulars in the
notice that there is a floating charge with restrictions, this represents to
the world that there was a fixed charged on the property described which
is the 694.36 acres and a floating charge on all the present and future
properties.
165. In the particulars registered there was mention of the 694.36 acres of
freehold property and all the present and future freehold property. It is
quite unusual to place a fixed charge on a present property without putting
any particulars of that property in the Schedule although it was available at
the date of the preparation and the registration of the Debenture. For
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this reason anyone searching the register would be led to think that this is
a floating charge as there was no notice that there was a fixed charge on
all freehold properties. Further, the fourthly described clause which is a
floating clause had restrictions, but the fact that it was a floating charge
and further a floating charge with restrictions was not put in the Notice.
According to Slade J. in the Siebe Gorman’s case at page 160 there is no
reason why as between mortgagor and mortgagee, these restrictions
should not have been valid contractual provisions. He went on to say that
they were nonetheless special provisions which a third party would not
necessarily have expected to find in a mortgage creating a specific charge
on future book debt. In these circumstances he found that Sieb Gorman
cannot be treated as having had constructive notice of the restrictions at
the date when it took its assignment. I find this principle is also applicable
in the cases of freehold properties. In this case a specific property was
mentioned so a third party would not expect there was a fixed charge on
all the other present and future property. Also, the notice did not state
there was a floating charge with restrictions.
166. DFC and SSB had notice of the Debenture which shows a specific
property and all the others being present and future property. They did
not have notice whether the present and future property was fixed, floating
or floating with restrictions. Mr. Young argued that SSB and DFC should
have inspected a copy of the Debenture. In my view, the particulars
registered at the Companies Registry did not give DFC nor SSB
reasonable grounds for supposing that BGB was not free to deal with its
property in the ordinary course of business with the exception of the
freehold property containing the 694.36 acres. The registered particulars
was insufficient or lacking and therefore did not give reasonable grounds
to suppose that the charges was fixed on present and future freehold
property and floating with restrictions on all other property.
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167. Further, at the time the amount secured by the mortgage was
“$1,000,000.00 and all other monies now or from time to time hereinafter
owing by the company to the mortgagees”. This was on the 694.36
acres. In my view when DFC and SSB took its charge it had constructive
notice of the 694.36 acres to secure the $1,000,000.00 but did not have
actual or constructive notice of the existence of the fixed charge on all the
other freehold properties, present and future.
168. For these reasons, I find that DFC and SSB cannot be treated as having
constructive notice of the fixed charge as described in the first, second
and third clause on present and future freehold property and also of the
floating charge with restrictions on the fourthly described clause. Like in
the Sieb Gorman case I think to hold otherwise would be to stretch the
doctrine of constructive notice too far.
169. As a result, I find that FCIB does not have priority to the charges on the
200 acres, 77 acres and the 625 acres. I find that DFC holds a first
charge on the 277 acres by virtue of Deed of Mortgage dated 29 th May,
1991. I find that SSB holds a first charge on the 625 acres by virtue of
Deed of Mortgage dated 28 th February, 2000.
Mc Cleary Mortgage
170. The relief claimed at paragraph 5 and 6 concerns the Mc Cleary
Mortgage. Mr. Lumor informed the Court that DFC has sold the 3225
acres parcel of land formerly owned by the Sixth Defendant, Tropical
Produce Company Limited and will pay over the surplus to the FCIB. To
Mr. Young’s surprise, Mr. Lumor informed the Court that the proceeds of
sale is at the Belize Bank on a Certificate of Deposit. That interest is still
accruing until the loan is paid off. What is of most importance is that Mr.
Lumor has indicated to the Court that DFC will pay over any surplus to the
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FCIB. Mr. Young in response said that this can be dealt with outside of
the Court. As a result, I do not propose to consider this or decide it. I
think it will be inappropriate and contrary to the practice of the Court to do
so.
The Claim against the Fourth Defendant
171. Mr. Courtenay SC indicated to the Court that with regards to the relief
sought at paragraph 3 and 4 against the Defendant, they are prepared to
make disclosure. Further, he is awaiting the written request from Mr.
Young. Mr. Young told the Court that the Claim for Accounting from the
Fourth Defendant will be dealt with out of Court. Again, it will be
unnecessary for me to consider the said reliefs claimed. More so
because the Court found that FCIB does not have priority to the charges
on the 200 acres, 77 acres and the 625 acres.
Claim of Estoppel
172. Having found that the Claimant does not have priority, I do not find it
necessary to determine the issue on whether the Claimant is estopped by
acquiescence, convention or common assurance and waiver of rights as
against DFC’s legal charge on the 200 acres and 77 acres.
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Conclusion
173. For the reasons stated, I find and hold that the Claimant, FCIB by virtue
of Mortgage Debenture dated 8 th February, 1990 does not hold a first
charge on all properties and assets of the Fifth Defendant, BGB in priority
to all other charges and interest including those held by BBL. That FCIB
by virtue of the said Mortgage Debenture dated 8 th February, 1990 holds
a first charge only on the 694.36 acres.
I find that DFC holds a first charge on the 277 acres by virtue of Deed of
Mortgage dated 29 th May, 1991. I find that SSB holds a first charge on
the 625 acres by virtue of Deed of Mortgage dated 28 th February, 2000.
As a result, the Claimants are not entitled to the Declarations, orders and
or relief sought in this Claim.
The Claimant’s claim is dismissed with cost to the First, Second, Third and
Fourth Defendants.
Cost to be agreed or taxed.
Dated this 17th day of September, 2008
…………………………………. MINNET HAFIZ SUPREME COURT JUDGE