ATTORNEY-GENERAL v ZAMBIA SUGAR COMPANY LIMITED AND

NAKAMBALA ESTATE LIMITED (1977) Z.R. 273 (S.C.)

SUPREME COURT
GARDNER, AD. C.J., BRUCE-LYLE, J.S., AND MUWO, AJ.S.
10TH NOVEMBER 1976, AND 28TH OCTOBER, 1977
(S.C.Z. JUDGMENT NO. 43 OF 1977)

Flynote

Land - Charge over - Debenture - Floating charge - Whether prior consent of President
required under Land (Conversion of Titles) Act, 1975, section 13 (1). l.
Company law - Debenture - Floating charge over assets including land - " Whether prior
consent of President required under Land (Conversion of - Titles) Act, 1975, section 13
(1).

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Headnote

The respondents applied to the High Court for a declaratory order that prior written
consent of the President was not required for a debenture creating a floating charge over
assets which included land. It was contended that a floating charge is not within section
13 (1) of the Land (Conversion of Titles) Act, 1975, because it does not affect any
particular piece of land at present, and there is only a possibility that it may affect land in
future if anything occurs which causes the floating charge to crystallise.

Held:
A floating charge operates as an immediate and continuing charge on the property
charged and has the effect of charging all the property in the hands of the borrower at the
date of the charge. Hence, Presidential consent under section 13 (1) is required.

Cases cited:
(1) Illingworth v Houldsworth (1304) A.C. 365.
(2) Re Yorkshire Wool Combers Association (1903) 2 C.H. 284.

Legislation referred to:

Land (Conversion of Titles) Act, 1975, s. 13 (1).

For the appellant: R.C. Nzerem, State Advocate.

For the respondent: J.A. Hadden, Ellis and Co.
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Judgment

GARDNER, AD.CJ.: delivered the judgment of the court

This is an appeal against a decision of the High Court at Lusaka making a declaratory
order that under section 13 (1) of the Land (Conversion of Titles) Act, 1975, the prior
written consent of the President is not required to create a floating charge by the
documents contemplated by the respondents.

The respondents applied for a declaratory order that prior written consent of the
President is not required to:

"(a) the creation of a proposed Debenture intended to be made between the Zambia
Sugar Company Limited and Development Bank of Zambia.
(b) the creation of a proposed Trust Deed intended to be made between the Zambia
Sugar Company Limited and Barclays Bank of Zambia Limited to secure K10,000,000
nine per cent Debenture Stock 1990.
(c) the creation of a proposed Further Charge intended to be made between the
Zambia Sugar Company Limited and Nakambala Estate Limited and Barclays Bank of
Zambia Limited."
Section 13 (1) of the Land (Conversion of Titles) Act' 1975, reads as follows:

"13 (1) Notwithstanding anything contained in any other law or in any deed,
instrument or document, but subject to the other provisions of this Act, no person shall
subdivide, sell, transfer, assign, sublet, mortgage, charge, or in any manner whatsoever
encumber, or part with the possession of his land or any part thereof or interest therein
without the prior consent in writing of the President."

The effect of the proposed transaction is to create a floating charge over all the property
assets and rights whatsoever and wheresoever, both present and future, belonging to the
respondents. The property includes large areas of land at Mazabuka and the question
resolved is whether debenture which creates a floating charge over land at present in
possession of the borrower is a charge within the Act over such land as soon as the
debenture is entered into, or whether it does not become such a charge until some event
occurs which causes the floating charge to crystallise and attach itself to a particular
piece of land.

The definition and effect of a floating charge is set out in two authorities cited by the
learned trial judge. In Illingworth v Houldsworth [1] at p. 358 Lord MacNaughten said:

"I should have thought there was not much difficulty in defining what a floating
charge is in contrast to what is called a specific charge. A specific charge I think, is one
that without more fastens on ascertained or definite property or property capable of being
ascertained and defined, a floating charge, on the other hand, is ambulatory and shifting
in its nature, hovering over and so to speak floating with the property which it is intended
to affect until some event occurs which causes it to settle and fasten on the subject of the
charge within its reach and grasp."

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Palmer's Company Law (21st Edition) at page 398 reads:

"Although a floating charge operates as an immediate and continuing charge on

the property charged, nevertheless before it crystallises the company has a free hand to
deal with and dispose of the property charged in the ordinary course of business. It may
do so by way of sale, lease, exchange, specific mortgage or otherwise as it deems most
expedient."

Mr Hadden on behalf of the respondent argues that the ability of the owner to sell the
land unencumbered is relevant to the consideration of whether or not section 13 (1)
applies to floating charges and he further argues that a floating charge is not within the
section because it does not affect any particular piece of land at present and there is only
a possibility that it may affect land in future if anything occurs which causes the floating
charge to crystallise. If the land has to be sold to satisfy the debenture holder application
will then have to be made to the President for his consent to such a sale. Thereby the
President does not lose his control over the land at all and the intention of the legislature
is fulfilled. This in my view is the wrong approach to the matter under consideration. The
question is not what rights the borrower has to deal with the land but what rights accrue
to the lender when the debenture is created.

On considering the extract from Palmer's Company Law cited by the learned trial judge it
is noted that in his judgment there is an important omission. In the text book the relevant
passage reads:

"Although a floating charge operates as an immediate and continuing charge on

the property charged nevertheless etc.,"

In the text book the word "immediate" is in italics and it is this stress on the word which
has been omitted in the judgment of the learned trial judge. When a floating charge is
created it has the effect of charging all the property at present in the hands of the
borrower and this is exemplified by the test applied by Romer, LJ, in Re Yorkshire Wool
Combers Association [2] at p. 29 where he said:

"If a charge had the following three characteristics it was a floating charge viz:
(i) if it is a charge on a class of assets of a company present and future;"

The other two characteristics are irrelevant to the question before the court but what is
important is that a floating charge creates a charge on present property. To say nothing
will happen to the property unless the floating charge crystallises is an irrelevant
argument because this of course applies to all charges, that is to say, a borrower of money
on security of land hopes that the security will never have to be realised. Until the land is
disposed of by the borrower it is subject to the charge and, if he defaults to an extent that
entitles the lender to realise the security, the land at present in his possession may be sold
and the lender will have a first charge on the proceeds of sale in priority to other
creditors. It follows therefore that what would have been the lender's rights had the
borrower

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disposed of the land before his default is immaterial, and the effect of the debenture,
namely to give the lender rights over the land at present in the possession of the
borrower, is the deciding factor as to whether or not it could be said that the debenture
creates a charge on the land. Having decided that a debenture creates an immediate
charge on the land, the question of whether or not Presidential consent is required is in
effect answered in the affirmative, but the court has been invited by the parties to
consider whether, in any event, the legislature intended to include such a transaction
within the provisions of section 13 (1) having regard to the general intention of the Act
set out in the title and otherwise. The principal object of the Act is effected by section 4
which provides that all land shall vest absolutely in the President and the consequence of
such vesting is indicated by sections of the Act providing that the President shall have
control over all transactions concerning land. There is no ambiguity in the relevant
sections and there is therefore no need for the court to look at the title to the Act which in
any event confirms the effect and intentions as I have indicated. In accordance with the
intention that the President shall have control over all transactions concerning land
section 13 (1), which sets out such transactions in detail, includes mortgages and charges.
In all such cases it is never the intention of the parties that the security will have to be
realised and the instances where a borrower has to call in the security are the exception
rather than the rule. It is clear from the construction of the whole Act that by referring to
mortgages and charges the legislature did not intend merely to control sales effected to
realise securities. The necessity for obtaining consent for the creation of mortgages and
charges can only be for the clear purpose of controlling the borrowing of money on the
security of land. In the debenture before the court (and in all debentures under which the
assets to be charged include land), the transaction is one of borrowing money on the
security of land and as such the transaction is intended to be subject to Presidential
control.

There is further assistance in ascertaining the meaning of the word "charge" and that is by
reference to the transaction in this case and the general practice relating to similar
transactions.

The Trust Deed contains the following provisions at clause 5:

"The company as beneficial owner hereby charges in favour of the trustees by

way of floating charge all its undertaking and all its property . . . so that the company
shall not be at liberty without the written consent of the trustees to create any mortgage or
charge of the property hereby charged in priority to or pari passu with this security (other
than mortgages to secure Building Society loans in respect of housing for the company's
employees)"

Here the parties to the document itself have used the word "charge" and have prohibited
it. Palmer on Company Law (21st Edition) at page 373 has this to say about this clause:

"Where the clause expressly allows the company to mortgage its property this
does not prima facie authorise the company to

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create a further floating charge, but an unlimited power to create charges over
certain property may be sufficient to authorise floating charge."

This indicates clearly that the word "charge" in this prohibition clause 5 relates to
floating charges and I should have no hesitation in construing clause 5 of the Trust Deed
as meaning that the respondents are prohibited from entering into another debenture
creating a floating charge in priority to or pari passu With the charge referred to in the
Trust Deed. In that event I can see no reason to apply a different definition to section 13
(1). The word "charge" in itself is not difficult to construe and, as I have indicated, the
insertion of the word "floating" before it means no more than that at some future date the
land may be alienated free of the charge, but it does not qualify the immediate effect of
the charge. There is nothing in the use of the description "floating" to take the charge
outside the provisions of section 13 (1).

Another question to be considered is whether it can be said that a floating charge,

although apparently within the section, is intended to be excluded because the practical
considerations of conveyancing would make the application of the section to floating
charges absurd. In the event of a company creating a floating charges over assets which
do not at present consists of any land a difficulty might arise as to whether consent would
be necessary if the company obtained at a later date some land which would then become
subject to the floating charge. This difficulty is apparent rather than real because in
practice the company would have to obtain the consent of the President before acquiring
the land and this would be the appropriate time to disclose the existence of the debenture
for the purpose of obtaining consent to both the purchase and the charge.

No other valid arguments have been presented to the court to indicate that the obtaining
of consent for floating charges would be impracticable and I see no reason on that ground
why section 13 (1) should not apply to the proposed floating charges in this case.

In my view the prior consent of the President to the proposed transactions is required and
I would allow this appeal with costs in this court and in the court below to the appellant.

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Judgment
Bruce-Lyle J.S.: I agree.

Judgment
Muwo, AJ.S.: I also agree.

Appeal allowed