November 29, 2013
Constructive notice and the Belizean Companies Registry

Fri Nov 29, 2013

by Kerri-Ann Mew, Norman Manley Law School

Mortgages and loans are a regular, everyday part of commercial dealings. A lender lends money to a borrower and receives a form of security in the event repayment cannot be completed.{{more}}

Typically, security takes the form of some property which is owned by the borrower. It can also be over future property; that is property not yet owned by the borrower but which the borrower, considers will be soon be owned by him/her. An issue arises when the borrower uses this “future property” as security, then uses the same property, once acquired, as security for another loan given by a different lender. Where the borrower defaults, which lender is to be paid first? Who has priority?

These were two of the questions the Caribbean Court of Justice had to answer in the case of Atlantic Corporation Ltd v Development Finance Corporation and Novelo’s Bus Line Ltd (In Receivership) [2012] CCJ 6 (AJ). Novelo’s Bus Line Ltd had borrowed money from Atlantic Corporation Ltd on the security of Novelo’s present and future assets. Novelo promised not to borrow any money, using those assets as security, without the prior written consent of Atlantic. In breach of this agreement, Novelo borrowed money from Development Finance Corporation (DFC) without Atlantic’s consent, using as security some newly acquired registered land as security. Novelo defaulted on payments to each of its lenders. DFC then got a court order to sell the registered land to recover the monies lent. Atlantic, on becoming aware of the situation, applied to the court to determine who had the priority to be repaid out of the proceeds of the sale of the registered land. The court decided that Atlantic had priority over DFC.

The Court considered the doctrine of notice. According to this doctrine, if DFC had notice of Atlantic’s interest in the registered land (which at the time of Atlantic’s loan would have been “future property”), then DFC could not have priority over Atlantic. DFC had to prove that it had no notice of the agreement with Atlantic in order for it to be paid before Atlantic. The CCJ found that DFC had constructive notice of the terms of Atlantic’s security, because DFC was in a position where it could have or ought to have known of Novelo’s agreement with Atlantic. This the Court found because the Registry retained a copy Atlantic’s loan agreement and it was unthinkable for a commercial lender to proceed with a sizeable loan without having searched the Companies Registry.

Hence, it can rightly be said that where any form of loan agreement is required to be registered, lenders are advised to make the appropriate checks to secure their interests, lest they be deemed to have constructive notice of prior charges and risk losing their money where the borrower defaults.

This summary is intended to assist the Caribbean public in learning more about the work of the CCJ. It is not a formal document of the Court. The judgment of the Court is the only

authoritative document and may be found at http://www.caribbeancourtofjustice.org/wp-content/uploads/2013/01/2012-CCJ-6-AJ.pdf.