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Commercial List Procedure

Monday, January 20, 2014 2:15 PM

Commercial List Procedure – Order 53 of the High Court Rules


• Order 53 Rule 3(1): The Commercial List Registry is administered by the Registrar of the Commercial List

The Chief Justice designates a Judge in Charge of the Commercial List and such other Judges dedicated to the Commercial List (Rule 4).

A commercial action shall be commenced and filed in the Commercial List Registry (Rule 5 (1)).

Commercial Action

Order 53 Rule 1 defines a Commercial Action as meaning “any cause arising out of any transaction relating to commerce, trade,
industry or action of a business nature”.

A Judge has discretion to consider whether the cause of action and issues of fact and law likely to arise or the procedure to be followed
in an action make the action suitable for inclusion or exclusion in the Commercial List (Rule 5 (2)).

These two rules have been interpreted as excluding all applications for Judicial Review. The reason is that the law applicable to all
Judicial Review applications is Administrative Law.

Commercial List General List

- Only at High Court in Lusaka - at High Court in


Livingstone, Lusaka, Kitwe and Ndola.

In both, commencement of proceedings is by Writ of Summons accompanied by a Statement of Claim.

• Commercial List - the Statement of Claim must state in clear terms the
material facts upon which the Plaintiff relies and must show a clear cause of action failing which the Statement of Claim may be Struck
Out or Set Aside and the action shall be dismissed summarily.

The Defendant will file a Memorandum of Appearance and a Defence.

• Commercial List - the Defence must specifically traverse every


allegation made in the Statement of Claim or Counter Claim as the case may be. A bare denial or a general statement or non-admission
of the facts alleged in the Statement of Claim are not required.

If a Defence doesn’t meet the aforesaid requirements, the Defendant shall be deemed to have admitted the allegations in the
Statement of Claim that have not been specifically traversed.

An example is the case of:

KAWAMBWA TEA COMPANY 1996 LIMITED V. ZYGO BONSAI LIMITED SCZ Appeal No. 11 of 2003.

CHINA HENAN INTERNATIONAL ECONOMIC TECHNICAL CORPORATION V. MWANGE CONTRACTORS LTD (2002) ZR 28

Scheduling Conference

- In Commercial List a Judge shall within 14 days after the filing of the Memorandum of Appearance and Defence summon the
parties to a Scheduling Conference (Rule 6 (1)).

- During the Scheduling Conference, the parties shall be required to give the Judge an estimate of the time the hearing will take
and the Judge shall allocate such time to the matter. It is at this stage when/that the Judge will issue Order for Directions.

- The purpose of the Scheduling Conference is to chart the course of events in the case as all matters in the Commercial List are
Judge Driven, the Judge in consultation with the parties gives directions. It is important that the Scheduling Conference be attended by
the lawyers who are personally seized with the conduct of the case. The reason being that the schedule of events or the directions for

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the lawyers who are personally seized with the conduct of the case. The reason being that the schedule of events or the directions for
trial ought to be agreed upon by Counsel on both sides and the Judge. Having committed themselves at the Scheduling Conference,
the lawyers will know what has been agreed upon and will therefore not be expected to advance any excuses for non-compliance.

By agreement, the directions will cover the following:

(a) Reply if any;


(b) Defence to Counter-Claim if any;
(c) Discovery by List as agreed;
(d) Inspection;
(e) Exchange and filing of Bundles of Pleadings and Documents;
(f) Statements of witnesses;
(g) Skeleton Arguments and Authorities;
(h) Number of witnesses to be summoned by each party;
(i) Time required by each party to conduct its case;
(j) Date of Status Conference;
(k) Trial Date.

At the Scheduling Conference the Judge may refer the parties to mediation or arbitration. The Judge may also consider the Statement
of Claim or the Defence if either does not comply with the rules.

Witness Statements

- In Commercial List, not less than 21 days before the date of trial, the parties are required to exchange as well as to file into Court
Statements of Witnesses that they intend to call. Because of this, there is no Examination in Chief in Commercial List.

- A guide as to the form of Witness’ Statement will be found in order 38 Rule 2 and Order 38 Rule 2 A (8) RSC 1999.

- A Statement of Witness must be expressed in the first person. It should also state the following:

(i) The full name of the witness;


(ii) His residential or official address, position held and name of employer;
(iii) His occupation;
(iv) That he is a party to the proceedings or an employee.

Since such a Statement, shall stand as evidence in chief at the trial, it should be treated as if the witness were testifying in the witness
box.

The Statement must carry the following features:

• Should be stated in a clear, straight-forward narrative form;


• Should follow the chronological sequence of events of matters dealt with;
• Should be divided into paragraphs which must be consecutively numbered;
• Dates, sums or numbers must be expressed in figures and not in words;
• Should be typed double spaced;
• Should be paginated;
• Any documents referred to must be clearly identified;
• Must be signed by the witness except for good reason, which must be stated in a letter attached to the Statement;
• Should contain a statement by the maker that the contents are true to the best of his knowledge and belief.

There is only Cross Examination and Re- Examination. The witness is expected to have said what they wanted to say in the Witness
Statement.

Apart from Witness Statements, parties shall also file Skeleton Arguments of their case.

- The reason for this is to expedite matters.

Adjournments

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Adjournments

A Judge shall not grant an application for an adjournment except in compelling and exceptional circumstances.

In Commercial List, if a party requires an adjournment and the Judge thinks that the reasons advanced for the application for
adjournment are frivolous, while granting the adjournment, the Judge will condemn the Applicant to pay a Court Hearing Fee in
addition to costs to the other party. The Court Hearing Fee is K300,000.00 and it must be paid before the next hearing date.

JAMAS MILLING COMPANY LTD V. IMEX INTERNATIONAL (PVT) LTD (2002) ZR 79

If an Applicant is condemned in Court Hearing Fees and fails to pay, the application will be dismissed.

In the event that Counsel cannot appear in person, Counsel can seek an adjournment through an agent or by Notice of Motion
accompanied by an Affidavit explaining the reasons for non-appearance. No application for an adjournment by letter will be accepted.

The above don’t apply to the General List.

If a matter is Struck Out for example, for non-attendance, by the Applicant, the application to restore it shall be charged higher fees
than those charged normally.

The Rules also state that a party whose application has been struck out for non-attendance must make an application to restore it
within 30 days failing which the application shall stand dismissed. If the matter that had been struck out is restored, but the applicant
fails to attend again, the judge shall dismiss the application forthwith.

The above Rules are there to ensure that cases are dealt with speedily and there are no unnecessary delays.

Service of Court Process

The applicant is required to serve Court Process on the other party and must show proof of such service, through Sworn Affidavit of
Service with annexed acknowledgement of service as exhibit thereto.

Mediation

A Judge at the Scheduling Conference may refer parties to mediation in accordance with Order 31 of the High Court Rules or where
applicable to Arbitration (Rule 7).

Interlocutory Applications

Interlocutory applications may be made at any time to a judge in chambers not the deputy Registrar.

In Interlocutory Applications, the applicant shall file, together with the application, Skeleton Arguments, the Law (authorities referred
to) and where necessary also provide copies of the Authorities.

Example: When applying for an Injunction.

Applicant Defendant

(a) Ex-parte Summons Affidavit in Opposition


(b) Affidavit in Support Skeleton Arguments
(c) Skeleton Arguments Authorities
(d) Order
(e) Authorities
(f) Inter – parte Summons
(g) Certificate of Urgency

If Skeleton Arguments and Authorities are omitted the case will not be heard.

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Another unique feature of actions commenced in the Commercial Court, is that after 60 days from time action commenced and the
Plaintiff does not make any progress, the Judge shall call for the file and the matter will be dismissed.

In General List: Defendant has to apply for matter to be struck out for want of prosecution.

In Commercial List the Judge does not wait for the Defendant to file for dismissal of the case.

Hearing Date Abridgement

In Commercial List when parties have been given a hearing date and Counsel for the Plaintiff considers that something may happen
that may disadvantage the Client, they may apply to have the date varied (brought forward). Such an application must be made at
least 10 days before the date of hearing. The application is made by Notice to Vary Hearing Date.

Matter Dismissed

- The matter is removed from Active Cause List

- The Plaintiff has to commence a fresh action to get the action back on Active Cause List - if case not determined on merits (Start
De Novo)

- Case determined on merits cannot be restored


Strike Out

- Matter put in abeyance with liberty to restore

- Only particular application affected and not the whole matter.

- Affected party must apply to Court to restore

Set Aside

- If a Writ is Set Aside, it may be because it has not met certain requirements

- To revoke an application so that the matter is determined on its merits

- Judgment may be set aside in order to allow the matter to continue and be determined on its merits

Status Conference (Compliance)

- This is where the Judge and the parties check whether the parties have complied with the Order for Directions. If the Judge is
satisfied that all the pleadings, bundles, witness statements are there, the Judge will set date for trial.

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Injunctions
Monday, January 20, 2014 2:18 PM

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Agency
Wednesday, October 02, 2013 1:43 PM

Introduction
• An agent is a person who negotiates and concludes commercial/business transactions on behalf of another (called the "principal")
○ e.g. insurance brokers, estate agents, auctioneers, travel agents
• It is an established principle of law that a person cannot acquire rights or duties under a contract unless he is a party to that contract
(i.e. privity of contract)
○ BUT, if a contract is concluded by an agent on behalf of his principal, the acts of the agent are treated as if they are the acts of his
principal
 i.e. the principal steps into the shoes of his agent and becomes a party to the contract through his agent
 In law, agents are recognized as having the power to affect the legal rights, liabilities and relationships of the principal
□ Cavmont Merchant Bank v Amaka Agricultural Holdings SCZ Judgment No. 12 of 2001
 Held: where an agent in making the contract discloses both the interest and the names of the principal on whose
behalf he purports to make a contract, then, as a general rule, the agent is not liable to the other contracting party

• Apart from having the power to affect the legal rights, liabilities and relationships of the principal, the agent may also affect the legal
position of his principal in other ways
 e.g. he may dispose of the principal’ property in order to transfer ownership to a third party
 e.g. he may acquire property on his principal’s behalf
○ Sometimes the actions of the agent may make the principal criminally liable
 e.g. Gardner v Ackeroyd [1952] 2 QB 743 or 2 All ER 306

• The law recognizes the following as agents even though they do not bear the title of agent:

i. Company Directors and other company officials


 Being an artificial person, a company has to act through human agents
□ The authority to act as company agents is vested in the board of directors
 This authority may be delegated to one or more executive directors by the articles of the company to allow him to
manage the day-to-day operations of the company

ii. Partnerships
 As a partnership has no separate legal identity from its members, every partner in a firm is an agent of the firm as well as all
the other partners, for the purpose of the business of the firm
□ Thus, a partner who performs an act for the purpose of carrying out the business of the firm, binds the firm and the
other partners

iii. Employees
 Employees may be servants working under a contract of service or an independent contractor working under a contract for
services
□ e.g. a shop assistant is the agent of the shop owner for the purposes of making a contract of sale for the owner
 Such shop assistant has the authority to make statements about goods that are binding on the shop owner, his
employer

iv. Professionals
 Professionals acting on behalf of clients may be the agents of those clients
□ e.g. a lawyer conducting litigation is his client’s agent and may have authority to settle the case and that settlement will
bind the client
 Thus the lawyer, not the client, normally signs a consent judgment
□ e.g. similarly, an accountant’s agreement or statement to ZRA will bind his client in accordance with agency principles

Power and Authority of an Agent

The law recognizes an agent has the power to bind the principal in the following situations:

1. Actual Authority: this is where the principal gives prior consent to the agent's actions
○ In such a situation the agent is said to have Actual Authority
○ Since a relationship between principal and agent is based on consent, Actual Authority is of paramount importance because an
agent is only entitled to be paid the commission if he acts within his actual authority
 Further, an agent may be liable to the principal if he acts outside such authority

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2. Apparent Authority: this is where the agent acts Without the principal's consent but the principal is stopped from denying the agent's
authority
○ In this situation the agent has Apparent Authority
○ The relationship between the Principal and the Third Party depends on the agent's power to bind the principal
 However, what is of concern to a third party is the agent's Apparent Authority, as this is what he relies upon in the ordinar y
course of events
○ Summary: as the relationship between the agent and his principal is based on consent, actual authority is of paramount
importance. An agent is only entitled to be paid if he acts within his actual authority. If he acts outside his authority he may be
liable to his principal. The relationship between the principal and a third party depends on the agent’s power to bind his pr incipal.
However, what is of concern to the third party is the agent’s apparent authority as this is what he relies on in the ordinary course of
events.
 Thus, the distinction between actual and apparent authority is important
 For an explanation of this distinction, read case of Freeman and Lockyer vs. Buckhurst Properties [1964] 2 QB at p.480
□ Held:
 Actual Authority:
◊ An "actual" authority is a legal relationship between principal and agent created by a consensual agreement to
which they alone are parties
◊ The scope of actual authority is to be ascertained by applying ordinary principles of construction of contracts,
including any proper implications from the express words used, the usages of the trade, or the course of
business between the parties
◊ To this agreement [i.e. between the principal and agent] the contractor [i.e. third party] is a stranger
 i.e. the third party may be totally ignorant of the existence of any authority on the part of the agent
– Nevertheless, if the agent does enter into a contract pursuant to the "actual" authority, it does create
contractual rights and liabilities between the principal and the contractor
 Apparent Authority:
◊ "An "apparent" (or "ostensible") authority, on the other hand, is:
 a legal relationship between the principal and the contractor created by a representation, made by the
principal to the contractor, that the agent has authority to enter on behalf of the principal into a contract
of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any
obligations imposed upon him by such contract
– When such representation is being made by the principal, it must be intended to be acted upon by the
contractor and must then in fact be acted upon by the contractor
 The agent is a stranger to the relationship so created between the principal and the contractor [i.e. third
party]
– The agent need not be (although he generally is) aware of the existence of the representation but the
agent must not purport to make the agreement as principal himself
 The representation, when acted upon by the contractor by entering into a contract with the agent,
operates as an estoppel, preventing the principal from asserting that he is not bound by the contract
– Note: it is irrelevant whether the agent had actual authority to enter into the contract

3. Where the agent acts without prior authority but the principal gives retrospective consent by way of ratification of the agent's actions

4. Where the agent acts without the principal's consent but the law deems the principal to have consented

Types of Authority

1. Express Authority
○ An agreement between a principal and agent may be express that such a relationship should exist (i.e. that the relationship of
principal and agent should exist).
 Agreement may be made either:
i. Orally or
ii. in Writing or
iii. by Deed
 Generally, if an agent is appointed to execute a deed, his appointment is made by a deed known as a 'Power of
Attorney'

2. Implied Authority
○ This arises in a situation where, although a particular action is not sanctioned by any express agreement between a principal and
an agent, a principal is nevertheless taken to have impliedly consented to the action in question
 Read case of Garnac Grain Company vs. HMF Faure and Fariclough and Fariclough [1967] 2 All ER at p.353 (see especially

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 Read case of Garnac Grain Company vs. HMF Faure and Fariclough and Fariclough [1967] 2 All ER at p.353 (see especially
what the House of Lords said at p.358)
□ Held: "The relationship of principal and agent can only be established by the consent of the principal and the agent. They
will be taken to have consented if they have agreed to what amounts in law to such a relationship even if they do not
recognize it themselves and even if they have professed to disclaim it. An agent who has express authority to carry out a
particular task may also have additional authority to do certain acts which are incidental to his authorized task. For
example, an agent who is expressly authorized to sale the principal’s property has implied incidental authority to sign a
contract of sale. On the other hand, if his express authority is to find a purchaser, he has no authority to execute a
contract of sale."
 See also Lusaka West Development Company Ltd and BSK Chitty as Receiver vs. Timekeep Properties Ltd [1992] Zambia
Reports
□ Held: Lawyer acting for a client has ostensible/implied authority to negotiate a settlement
 i.e. in the absence of fraud or mistake when counsel to an agreement has ostensible authority to enter into an
agreement the principal will be bound by the agreement and the Court is not concerned with any internal
arrangement which limits the authority of the person who instructs counsel

3. Apparent Authority
○ A person may be bound by acts of another on his behalf and without his consent or even in breach of an express prohibition if his
words or conduct create an impression that he has authorized the other person's acts - this situation is described in law as
'Apparent Authority' or 'Apparent Agency'
 i.e. Apparent Authority is that authority that a person appears to possess to act on behalf of another.
○ Apparent authority can be illustrated in the following situations:

a. e.g. X is appointed as Y's agent to act as its managing director. However, Y places an express limitation on X's actual authority
to prevent him from entering into contracts involving sums in excess of $10,000, without the approval of the Board of
Directors. X orders goods worth $15,000 from a third party who is unaware of the limitation on X's authority. X has apparent
authority to order the goods and Y is BOUND by X's action.

b. e.g. X is appointed as Y's agent but his agency is Terminated. X, however, continues to act and enters into contracts with a
third party who is unaware of the termination. Y is BOUND.
□ See Drew vs. Nunn [1879] 4 QBD at p.661

c. e.g. X is never appointed as an agent for Y but, Y allows him to act as if he were or leads the third party to believe that X is
Y's agent. Y will be BOUND to the third party in transactions entered into by X on his behalf within the scope of X's apparent
authority/agency.
□ See Freeman and Lockyer vs. Buckhurst Properties [1964] 2 QB at p.480 (see especially what Diplock LJ says in
distinguishing apparent and actual authority)
 Diplock LJ:
◊ "an actual authority is a legal relationship between principal and agent created by a consensual agreement to
which they alone are parties. To this agreement the third party is a stranger. He may be totally ignorant of the
existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract
pursuant to the actual authority it does create contractual rights and liabilities between the principal and the
third party."
◊ "An “apparent” authority on the other hand is a legal relationship between the principal and the third party
created by a representation made by the principal to the third party, intended to be and in fact acted on by the
third party, that the agent has authority … [and] to the relationship so created the agent is a stranger…”

Agency of Necessity
• A person who acts in an emergency (e.g. to preserve the property or interest of another) may be treated as an agent of necessity with
the result that his actions will be deemed to have been authorized even if no actual authority has been given
• This type of agency is created by the law (i.e. there is no express agreement between the principal and agent)
• It should be noted that an agency of necessity only arises in extreme circumstances where there is actual and definite commercial
necessity for the actions of the agent

• Requirements for an Agency of Necessity


○ The following requirements must be satisfied by an agent for an agency of necessity to exist:
i. There must have been a genuine commercial emergency
ii. As a result of the emergency it must have been practically impossible for the agent to obtain instructions from the principal
□ Because of modern technology, almost impossible to satisfy this requirement
iii. The agent must have acted bona fide in the principal's interest and not in his own interest

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iii. The agent must have acted bona fide in the principal's interest and not in his own interest
iv. The agent must have acted reasonably in all the circumstances

• Agency of Necessity ("AON") is common in situations of carriage of goods by SEA


○ It is universally accepted that a captain on a ship may take such action in relation to the ship or its cargo in an emergency as he
deems appropriate for purposes of preservation
 e.g. the captain may sell or pledge that cargo to raise capital for repairs, or he may incur expenses on behalf cargo owners in
order to preserve the cargo
 A captain may also throw overboard part of the cargo in order to preserve the cargo or do so in cases of extreme danger in
order to lighted the load of the ship (e.g. so that the ship does not sink).
○ However, in respect of perishable goods or livestock, even carriage of goods over LAND may create circumstances in which an
Agency of Necessity may arise

• AON creates Privity of Contract between the principal and a third party

• Case Law

○ Great Northern Railway vs. Swaffield [1874] Law Report at p.9


 Principle: an agent of necessity can recover his expenses incurred on behalf of the principaL
 Facts:
□ Mr Swaffield sent his horse by railway to a station at Sandy
□ The horse arrived late at night, and the railway company lodged the horse
□ Mr Swaffield failed to collect it on the following morning
□ After four months of this, the railway company lost patience
□ They unilaterally delivered the horse to Mr Swaffield’s farm and then sued him for the livery charges to date
 Held:
□ The contract of carriage had come to an end on the day after the arrival of the horse at Sandy, when the performance
required of them as carriers was completed
□ However, despite the termination of the contract of carriage, the railway company was bound to take reasonable care of
the horse
 i.e. an agency of necessity had arisen so that it was necessary for the railway company to incur expenses to look after
the horse
□ An agent of necessity can recover his expenses incurred on behalf of the principal

○ Springer vs. Great Western Railway [1921] 1AD at p.257


 Principle: for an agency of necessity to arise there must be a situation where it is impossible for the agent to get the
principal’s instruction
 Facts:
□ The Railway Company (the defendant) agreed to carry plaintiff’s tomatoes from Channels Island to London, by ship to
Weymouth and by train to London
□ The ship was stopped at Channels Island for three days due to bad weather
□ Eventually, when the ship arrived at Weymouth, D’s employees were on strike, so the tomatoes were unloaded by casual
laborers but it was delayed for two days
□ At that time, some of the tomatoes were found to be bad
□ So, D decided to sell the tomatoes as they felt that tomatoes could not arrive in Covent Garden market in a good and
saleable condition
□ When P found out about this, P wanted to claim damages from defendant
 Held:
□ P was entitled to damages because D ought to have communicated with P when the ship arrived at Weymouth to get
instruction
□ As D failed to communicate with P when D could have done so, there was no agency of necessity

○ Sachs vs. Miklos [1943] 2 KB 23


 Facts:
□ Agent sold principal's furniture before it is sent to the destination without there being an urgent reason for the furniture
to be sold
 Held:
□ If there is no urgency and the goods are sold just because they are inconvenience to the agent, then agency of
necessity does not arise
□ The agent who sells the goods may be liable in tort for conversion because those goods do not belong to the agent

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○ Fray vs. Voules [1859] 120 ER at p.1125
 Facts: case involved an agent who settled a legal dispute on the advice of legal counsel but without his principal's authority to
settle
 Held:
□ The agent will be liable for exceeding the limits of authority granted
□ The agent is not entitled or required to exceed the authority even if such an action is perceived to be in the principal's
best interests

Agency Arising from Cohabitation


• It has sometimes been argued that the wife has authority to pledge the husband's credit for necessities
○ However, this argument has considered to be inaccurate for 2 reasons:
1. This rule cannot only apply to husband and wife, but also to all couples who are cohabiting
2. It has been observed that the act of cohabitation does not give rise to authority but, it is a rebuttable presumption that a
husband gave his wife such authority
□ This presumption can be rebutted by the husband if he can show either of the following:
a. His wife is adequately supplied with the necessities of life; or
b. That he has provided the wife with an adequate allowance; or
c. He has forbidden his wife to pledge his credit

• Case law:

○ Debenham vs. Melon [1880] 6 AC at p.24


 Held: a husband who is willing and able to supply his wife with necessaries, and who has forbidden her to pledge his credit,
cannot be held liable for necessaries bought by her

○ Phillipson vs. Hayter [1870] LR 6 CP at p.38


 Held: this implied authority for the wife to pledge the husband's credit is confined only to necessities (e.g. food, clothing,
medicine) and does not extend to extravagant orders/luxuries (e.g. jewelry)

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Ratification and Duties
Wednesday, October 09, 2013 2:05 PM

RATIFICATION OF AN AGENCT ACT


• Notwithstanding the absence of the agent's actual or apparent authority, the principal can nevertheless adopt the agent's acts
which are done in his name without his authority by ratifying them, unless the acts are to his detriment.

○ There are 3 requirements for effecting ratification, which are:

1. The principal can Only ratify acts which were Done in his NAME
□ The agent must have purported to have authority to act on behalf of the principal and not to act in his own name
□ Watteau vs. Fenwick [1893] 1 QB at p.346

2. The principal must have been in EXISTENCE at the time of the agent's actions on his behalf
□ This requirement may cause problems for Promoters of companies who enter in contracts before the company is
actually incorporated (i.e. Pre-Incorporation Contracts) as such contracts canNOT be Ratified after incorporation
 Promoters who make pre-incorporation contracts are Personally Liable UNLESS they are in agreement to the
effect that the company, once incorporated, shall substitute for the promoters
□ Kelner vs. Baxter [1866] LR2CP at p.174
□ Newborne vs. Sensolie [1953] 1QB at p.45

3. The principal can only ratify a contract if he was COMPETENT to make it at the time of the agent's action as well as at
the time of the ratification

i. A MINOR canNOT effectively ratify a contract after attaining majority age if such contract would not have bound
him when he was a minor
 BUT a minor can only ratify a contract which was made when they were minors if such contracts were for
Necessities

ii. A COMPANY cannot ratify contracts which are Ultra Vires under its Constitution or Articles of Association
□ Read:
 Brook vs. Hook [1871] LR6 at p.89

• Effect of Ratification

○ When a principal ratifies a contract made in his name the effect is as if the Agent had been Authorized at the Time of the
Action
 Consequently, if the agent made a contract with a third party on behalf of the principal then privity of contract will exist
between the third party and the principal
□ In such a situation, the Agent is Not LIABLE for exceeding his authority and will be entitled to the rights of an agent
 Similarly the third party cannot have a claim against the agent for breach of warranty or authority

○ Ratification may also have RETROACTIVE effect on a third party to the extent that if the third party makes an offer to the
agent which the agent accepts on behalf of the principal who ratifies then the third party is bound, even if he purports to
withdraw the offer before ratification
 i.e. if a third party makes an offer to the agent and the agent accepts then the third party will be bound by that acceptance
even if he purports to withdraw the offer before the principal ratifies the agent's acceptance
 Bolton and Partners vs. Lambert [1889] 41 Chancery Division at p.295

○ Ratification is ONLY Effective if it takes place within a REASONABLE TIME


 e.g. ratification will not be effective where a third party has acquired property rights which would be adversely affected by
ratification

• Method of Ratification

i. The principal may EXPRESSLY ratify the agent's action

ii. The principal may also IMPLIEDLY ratify the agent's action by any Act that shows Intention to Ratify
 e.g. the agent and the third party enter in a contract and then later the principal brings legal proceedings to enforce the

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 e.g. the agent and the third party enter in a contract and then later the principal brings legal proceedings to enforce the
contract, the action of the principal bringing legal proceedings is an act of ratification
 Bedford Insurance Company Ltd vs. Instituto [1985] QB at p.966 or [1984] OPR at p.766
□ Held: a principal canNOT ratify an ILLEGAL act or illegal contract
□ Note: although the Insurance Act in Bedford case does not apply to Zambia, the principles set out in the case are
important

DUTIES OF AN AGENT

• The duties of an agent are as follows:

1. Duty to Obey Instructions


□ An agent is under a general duty to obey his principal's instructions

□ An agent acting under a Contract is contractually obliged to perform the duties he has undertaken under the
contract and if he fails to do so he will be liable for breach of contract
 A contractual agent is under a Duty to Obey the instructions of his principal given during the course of his
agency
◊ BUT an agent is NOT obliged to obey instructions which require him to act ILLEGALLY
 Further, the duty of a professional agent to obey an instruction may also be limited by the rules of
professional conduct pertaining to that profession (e.g. lawyers, accountants etc.)

□ If the agency is Non-Contractual, then the agent is Generally under NO Duty to Act and he canNOT be held Liable if
he simply does nothing, Unless his failure to act gives rise to a Tortious liability

□ The agent's Duty of Obedience also means that he must Not EXCEED his Authority and this applies equally to
contractual and gratuitous agents

□ Ernest Lubanga vs. Barclays Bank Ltd [1996] Supreme Court


 Held:
◊ Where the principal gives the agent Express instructions to perform an act and the agent fails to perform
such an act, the BURDEN is on the Principal to show that the agent was in fact instructed
 The court will not readily assume that the agent was instructed to do things in respect of which the
principal cannot provide proof of instruction

□ Ireland vs. Livingstone [1872] 27 LT at p.79


 Held:
◊ The instruction that the principal gives must be CLEAR and UNAMBIGUOUS
 The courts will be reluctant to impute a duty on the agent to obey instructions which are unclear

2. Duty to Exercise Reasonable Care

□ An agent owes a principal a Duty to Exercise Reasonable Care when he is exercising his authority
 The Standard of Care required is what is REASONABLE in the particular circumstances and will vary depending
on the facts of a particular case [*this is IMPORTANT*]
◊ e.g. if an agent holds himself out as a member of a profession then he will be expected to show the standard
of care and skill reasonably expected of a competent member of that profession

□ It is an established principle of law that even a GRATUITOUS agent (i.e. an agent who is Not Paid by the principal)
owes a Duty of Reasonable Skill and Care to his principal
 Chaudhry v. Prabhakar [1988] 3 All ER 718; [1989] 1 WLR 29, CA
◊ Facts:
 Principal, who had recently passed a driving test, wanted to buy a car
 Being inexperienced she asked an agent, who happened to be a friend, to find her a suitable car and
specified she did not want one that had been in an accident
 The agent (who was not a mechanic and was acting Gratuitously) recommended a car
 Principal bought the car and later discovered that the car had been in an accident
◊ Held:
 TEST: the Standard of Care of any agent is such as is reasonable in all the circumstances

Comm Trans Page 12


– In deciding what care is reasonable, the court will take into account:
i. the fact if the agent was Paid or Not;
ii. the degree of Skill possessed or claimed by the agent; and
iii. the degree of Reliance placed on the agent by the principal

 On the facts of this case, the agent had failed to exercise reasonable skill and was held to be liable
– i.e. even though agent was acting gratuitously and not a mechanic, he was liable

• Agent's Fiduciary Duties


○ An agent has extensive power to affect the principal's legal position and the principal must place trust in the agent
 Consequently, the law regards the relationship between an agent and the principal as being one of a fiduciary nature, and
therefore imposes certain obligations upon the agent so that the principal can be protected against abuse of the agent's
power and the following are the agent's fiduciary duties:

i. Duty to Avoid Conflict of Interest


 It is a rule of universal application that a person who has fiduciary duties to discharge shall not be allowed to
enter into engagements in which he has a completely personal interest with those he is bound to protect.
◊ Arising from this rule, an agent who is instructed by the principal to buy property on behalf of the principal
and then proceeds to sell his own property to the principal will be in breach of a fiduciary duty.
 Similarly, an agent who is instructed to sell his principal's property but ends up buying it himself will
also be in breach.
– In both situations, there is an obvious potential for conflict as the seller's interest is to get the best
possible price while that of the buyer is to pay as little as possible.
– Whether the agent acted fairly and paid the fair price is immaterial and he will be in breach of
such duties unless there is full disclosure to the principal of all the relevant facts and most
importantly the principal consents to the transaction
 The duty to avoid conflicts of interest may in some cases continue even after the agency has been terminated if
a Confidential Relationship has been created and that relationship continues or if it gives the agent a special
provisional dominance over the principal and the transaction is connected to their relationship.
◊ McMaster v Byrne [1952] 1 All ER 1362
 With regard to this duty, many professional associations have enshrined the rule against conflicts of interest in
their code of conduct; notably lawyers and accountants

ii. Duty Not to Make a Secret Profit


 An agent is under a duty not to retain a profit made in the course of his duty
◊ According to this principle, it is irrelevant that:
a. the agent acted in good faith; or
b. that the principal did not suffer any loss; or
c. that the principal actually benefitted from the agent's actions
 Phipps v. Boardman [1964] 1 WLR at p.993
◊ Held:
 it is a principle of equity that trustees and agents shall not retain a profit made in the course of their
duties
– According to this principal it is irrelevant that the agent acted in good faith or that the principal did
not suffer any loss
 The liability arises from the mere fact that a profit has been made

 Duty not to make secret profit also applies to unpaid/gratuitous agents

 An agent who makes a profit will be in Breach of this duty, UNLESS:


I. Agent reveals all the circumstances of the transaction to his principal and
II. The principal consents to the agent retaining the profit

 Shah v. Attorney-General [1969] High Court of Uganda at p.88 of 'Commercial Law in Zambia' book
◊ Note: this case is also for conflicts of interest
◊ Facts:

◊ Held:

Comm Trans Page 13


◊ Held:

iii. Duty Not to take a bribe


 A bribe is a form secret profit.

 TEST: Where an agent deals with a THIRD PARTY on the principal’s behalf, a bribe is:
◊ any payment made by the third party to the agent,
◊ with the third party knowing that the agent is the agent of the principal and
◊ the payment is kept secret from the principal.
 Industries and General Mortgage Co. Ltd. v Lewis [1949] 2 All ER at p. 573

 Where an agent takes a bribe the principal may have recourse to the following REMEDIES:
a. Dismiss the agent without notice;
b. Refuse to pay any commission due to the agent or recover the commission paid before discovery was made
c. Rescind the Contract with the third party
d. Recover the bribe from the agent or the third party

 In addition to the above civil remedies, the taking of the bribe gives rise to Criminal Liability under the Corrupt
Practice Act

iv. Duty to Account


 In the same way that an agent must not make a secret profit, he is also under a duty to keep his own property
separate from property of the principal
◊ The agent is required to keep full and accurate books of account of all transactions he enters into on behalf
of the principal
 When the agency is Terminated the agent must deliver all books and documents given to him by the principal
or which were prepared in the course of the agency relationship, unless the agent is entitled to exercise a lien
over such documents (e.g. if principal has not paid agent yet)

v. Duty Not to Delegate


 General Rule: an agent canNOT Delegate his duty to a sub-agent
◊ In certain instances, however, a right to delegate may be Implied from the circumstances surrounding a
transaction
 e.g. usage of the trade
 e.g. the conduct of the parties
 e.g. in the event of an anticipatory emergency

 Debussche v. Alt [1878] Ch Div p.286


◊ Facts:
 D was an ship owner and he engaged an agent to sell the ship at a minimum price of $90,000
 With the consent of the ship's owner, the agent engaged Alt (as sub-agent) in Japan to sell the ship.
 After spirited efforts to find a buyer for the ship, Alt bought the ship himself for $90,000
 Alt then sold the ship for much more
 D then sued Alt arguing that he was an agent and therefore not allowed to
◊ Held:
 Generally, an agent cannot delegate duty to sub-agent but a right to delegate may be implied from
the circumstances surrounding the transaction
– In this case, since the ship was expected to move from one port to another, it was in the
contemplation of both parties that a sub-agent would be appointed in any of those parts
 When Alt sold the ship there existed a relationship of Principal and Agent between ship
owner and Alt
 As such, Alt was obliged to account for the secret profit that he made.

Comm Trans Page 14


Rights of an Agent
Wednesday, October 16, 2013 2:47 PM

Rights of an Agent

• Generally, the agent's rights depend on the contract, if any, between him and the principal

• The common law comprises 3 rights:

i. Right to Remuneration
 An agent will only be entitled to remuneration if that has been Agreed with the principal

□ Where there is No Express Agreement that the agent should be paid his services the court may imply a term that gives
him right to remuneration and such a right will probably be implied where the agent is acting in the course of a
profession or business and will be more readily implied where the agent has performed the services.

□ Where it has been agreed that the agent should be paid but the Amount of remuneration has Not been Agreed or
where a Right of Payment is Implied, the agent will be entitled to a Reasonable sum based on quantum meruit
 Clement Chuuya and Hilda Chuuya v. JJ Hakwenda [2002] ZLR at p.11
 Way v. Latilla [1937] 3 All ER at p.759

ii. Right to Indemnity and Set-Off


 All agents, whether acting under a contract of agency or not, are entitled to be reimbursed and indemnified against
expenses incurred in the course of performing their duties

 Where the agency is Contractual the indemnity will be an express or implied Term of the contract

□ Where there is No Contract the basis of indemnity shall be Restitution


 A non-contractual agent can only be indemnified against expenditure Necessarily incurred on the principal's behalf
and cannot claim reimbursement for payment the principal would not have been obliged to make

 An agent is entitled to set-off the monies of the principal received by him in the business of the agency for sums properly
due to him
□ i.e. if agent is owed money by principal and he receives money from principal, then agent is entitled to recover the
money owed from the money received
 Graphic Africa Ltd v. Barclays Bank Zambia Ltd and RBS Investment Ltd and Ronald Penza Supreme Ct of Zambia
judgment No.17 of 1995

iii. Right to a Lien


 In order to protect his right to remuneration or indemnity, an agent may be entitled to a lien over property belonging to the
principal which is in his possession
 Simply stated, a lien is the right to retain property by way of security until some debt is paid

□ 2 types of lien:

i. General Lien
◊ A person entitled to a general lien is entitled to retain any property belonging to the debtor until the debt is
discharged or paid
◊ By custom of trade/profession, people who are entitled to a general lien include:
 Banks
 Legal Practitioners
 Solicitors
 Stockbrokers

ii. Particular Lien


◊ This only entitles a beneficiary to retain an item of property until debts relating to that property or a
particular transaction are discharged

Comm Trans Page 15


Termination of Agency
Wednesday, November 06, 2013 2:01 PM

Termination of Agency
• The relationship between a principal and an agent depends on consent, so when such consent is withdrawn it will result in the
termination of the relationship and the agent's actual authority to bind the principal

• The agency relationship may be terminated in ONE of the following ways:

a. By Mutual Consent
 i.e. the principal and agent agree that the agency relationship be terminated

b. By either party Unilaterally withdrawing the consent


 i.e. either principal or agent may withdraw their consent, whereupon the agency relationship terminates

c. The Agent may be Appointed for a Fixed Period of time or to Perform a Specific Task
 In such a case the agency relationship and the agent's authority are determined by the expiry of the agency period or on
completion of the specific task

d. An agency relationship may also be terminated by Operation of Law


 e.g. where the performance of the agency becomes illegal or impossible

e. The Death of either the principal or the agent also terminates the agency relationship

f. Insanity of Either the principal or the agent will automatically terminate the agency relationship

 The position where the agency is terminated by the insanity of the principal has been the subject of some debate because the
case law is contradictory

□ Drew v. Nunn [1879] QBD at p.661


 Facts:
◊ Husband gave wife authority to act on his behalf and held her out as his agent
◊ Husband then became insane
◊ While he was insane the wife ordered goods from the plaintiff (P did not know husband was insane)
◊ Husband then regained sanity and husband was held liable for goods
 Held:
◊ Although the agency is terminated by a principal's insanity his liability continues in respect of acts performed on
his behalf by the agent at least so long as the third party has no knowledge of the facts which terminate the
agency. Presumably the agent still has authority, though this is no longer an express authority but an apparent
authority.
 i.e. when husband lost sanity the wife's express authority was terminated
– But third party did not know that husband had become insane (and, thus, that the agency had been
terminated)
 As such, he was able to recover the money on the basis that the Wife had Apparent Authority.

□ Young v. Toynbee [1910] 1 KB at p.215


 Court of Appeal Held: where a principal became insane the solicitors acting for him in certain litigation would be
personally liable to other party for the Cost of Proceedings which were continued in ignorance of the fact that the
principal was insane and before they were stopped whilst that insanity was Known by the solicitors.
◊ The basis for this decision was that the solicitors, albeit ignorantly, had Impliedly Warranted that they had
Authority to Act when it would appear that they had No such Authority (since it ended when the principal
became insane)
◊ This case contradicts Drew v. Nunn, because in Drew the court said that the agent in such circumstances
Continues to have authority (though it is apparent not express)
 These cases can be reconciled because they give rise to the result that both principal and agent can be held
liable to a third party who conducts business without knowing that the principal is insane

□ Canada Permanent Trust Company v. Parks [1957] 8 DL 2nd ed. at p.155 (Canadian Supreme Court case)
 Held:
◊ Rule: unsoundness of mind is sufficient to terminate a contract of agency between principal and agent, though
the authority of an agent is not revoked with regard to a third person who has been dealing with the agent

Comm Trans Page 16


the authority of an agent is not revoked with regard to a third person who has been dealing with the agent
unless such third person has knowledge of the mental incapacity of the principal
 This rule is important because it supports the view that the agent should not be personally liable to the
third party at least where agent has acted in ignorance of the disability
◊ In such cases the 3rd party does not have to have actual knowledge; Constructive knowledge or a knowledge of
such circumstances as would put a reasonable man on his inquiry are sufficient notice to the 3rd party that the
contract of agency has been terminated and any authority of the agent has been revoked
 In view of this case, when a principal becomes insane the insanity revokes the agency relationship
◊ As such, it becomes important for the agent to inform third parties they are dealing with on behalf of the
principal
 If fail to do this then the agent will be personally liable
 Apart from statute whatever the reason for the termination of agency except possibly the date of the principal a third
party who deals with the agent without actual or constructive notice of the ???

g. Agency is terminated by the Bankruptcy of the principal as well as the bankruptcy of the agent

h. Dissolution
 Where the principal is a corporation or body corporate and where the agent is also a corporation or body corporate, it's
dissolution will bring the agency relationship to an end

Effect of Termination of Agency on Third Party

• Agents may Continue to have Apparent Authority even if actual authority has been terminated

• If the principal's conduct is such as to suggest that the agent continues to have authority, until the principal brings the termination of
the authority to the notice of 3rd parties the agent may continue to have apparent authority on the strength of the principal's
representations/conduct
○ This is illustrated by Drew v. Nunn case

• If an agent continues to act after his authority has been terminated, he may incur personal liability for Breach of Duty

• Sometimes an agent may suffer a potential risk when his authority is terminated automatically but without his knowledge
○ See case of Young v. Toynbee

Comm Trans Page 17


Power of Attorney
Wednesday, November 06, 2013 2:48 PM

Power of Attorney ("POA")


• One of the situations where the law recognizes an agent as having power to bind the principal is when the principal gives prior
consent to the agent's actions so that the agent has actual authority
○ A typical example of actual authority is a POA
 Black's Law Dictionary defines a POA as: "an instrument in writing whereby one person as principal appoints another as his
agent and confers authority to perform specific acts or kinds of acts on behalf of the principal. It is an instrument authorizing
another to act as one's agent or attorney."
• A POA is an arrangement by which one person (called the "donor") gives another person (called the "attorney" or "donee") authority
to act on his behalf and in his name
• *IMPORTANT*: an instrument creating a POA must be executed as a DEED
○ Must remember that every instrument creating a POA must be executed as a deed
• POA is basically just a form of agency
○ However, POAs differ from conventional forms of agency in one fundamental respect: the purpose of a POA is to satisfy 3rd
parties that the agent has power and the extent of it, rather than to govern the relationship between the principal and agent
 i.e. generally agency is there to govern principal and agent's relationship, but with POA the purpose is to inform 3rd parties
that the 3rd party has power and the extent of the agent's power
□ For this reason, usually POA are not between parties i.e. the POA will be made and signed by the Donor alone (and the
attorney need not sign)
 Usually executed in one jurisdiction for use in another jurisdiction
 Important that the donor execute the POA before a notary public
◊ e.g. if a client is creating a POA in Zambia for an attorney to act in Angola, then client must execute POA in
Zambia before notary public so that the POA is valid in Angola

Capacity to Create POA


• The rules required or relating to the capacity to appoint an attorney are the same as those governing the capacity to enter a contract
○ In this respect, the general rule of contractual capacity is that a person concerned must be capable of understanding the nature
and effect of the contract at the time it has been executed
 i.e. as donor creates POA he must be capable of understanding the nature of the POA and its effect

• Capacity of a Minor
○ With regard to minors, the modern view is that whenever a minor can lawfully do an act on his own behalf, so as to bind himself,
he can instead appoint an agent to do it for him
 Read G(A) v. G(T) [1970] 2 QB at p.643 or [1970] 3 All ER at p.506
□ Facts:
 In 1964 the complainant aged 32 had intercourse with a boy aged 17 and gave birth to a child in 1965
 Complainant wrote telling the boy about the birth but he did not reply
 She then wrote to his parents and within 12 months of the birth received letters from the boy's parents, enclosing
sums of money and promising to make regular payment to maintain the child
 The boy's mother's letter stated that the money was from her son
 The promise to make regular payments was not carried out
 In January 1968, the Complainant began affiliation proceedings against the boy under the Section which allows
Complaints to be brought outside the 12 month limitation period, on proof that the alleged father of the child had
within 12 months next after the birth paid money for its maintenance
 The boy denied paternity and the Complainant produced his parents’ letters.
.
□ Held: in such circumstances, the court held that it was proper for complainant to produce the letters
 It has been suggested that a POA could be regarded as a contract of service and therefore binding on a minor if it is
for his benefit
◊ i.e. a minor can create a POA provided the POA is for the benefit of the minor

• Capacity of Persons Suffering from Mental Disorders


○ The law is that a POA executed by a person incapable, through mental incapacity, of understanding what is to be perfected by
executing the deed is INVALID

Companies
• In relation to companies, the board of directors may appoint, by way of resolution, an attorney to execute on its behalf any agreement
or other instrument that is not a deed in relation to any matter that falls within the company’s powers

Comm Trans Page 18


or other instrument that is not a deed in relation to any matter that falls within the company’s powers

Formalities for creating a POA

• Execution of POA
a. Option 1
i. an instrument creating a POA must be executed as a DEED by the Donor of the power and
ii. the Donor's execution of that power must be attested by a WITNESS

b. Option 2
 In the alternative:
i. another person may Sign the POA on Behalf of the Donor or principal at his Direction and
ii. in the donor/principal's Presence as well as
iii. in the presence of TWO WITNESSES who must attest the signature
 This alternative method can be used in situations where the donor or principal of the power is unable to sign personally

• Notary Public
○ Usually a POA will be executed in one jurisdiction but to be used in another jurisdiction
 In such circumstances the POA must be executed before a Notary Public in the country where it is created

• Registration of POA
○ There is no mandatory requirement to Register a POA either in the High Court or at the Lands and Deeds Registry
 However, in practice, it is not uncommon to register a POA in either of these registries but more particularly in the
Miscellaneous Registry at the Lands and Deeds Registry (especially where one of the powers granted to the attorney
concerns realty)

Duties of an Attorney

• An attorney's duties are similar to those of trustees and they include the following:
i. To act in accordance with the terms of his Authority
ii. To act in the Name of the Donor
iii. Not to Exceed his Authority
iv. To act with Due Care and Skill
v. Not to Delegate his authority
vi. Not to put himself in a position where his duties conflict with his own personal interests or the interests of third parties
 i.e. avoid conflicts of interest
vii. Not to take advantage of his position to obtain a Benefit for himself
viii. Not to accept a Secret Commission or Bribe
ix. To keep the donor's Money Separate from his own money
x. To Account to the Donor

Interpretation of POAs by Courts of Law


• A POA is strictly interpreted by the courts as giving only that authority which is Expressly conferred or such authority as is Necessarily
Implied (authority is the Anderson Security Systems case, which cited the Bryant Powis case)

○ Read Anderson Security Systems v. Albert Masuka Supreme Ct of Zambia Appeal No.3 of 2002
 Held: an ordinary POA is construed as to include all INCIDENTAL POWERS which are necessary for its effective execution
□ e.g. if donor gives an attorney power to sell land then the attorney must do other things which are incidental to the sale
of property such as, obtaining state's consent, conducting searches to prove title, paying Property Transfer Tax etc

 In the Anderson Security Systems case the Supreme Court also cited the case of Bryant, Powis and Bryant Ltd v La Banque
Du Peuple (1893) AC at p.177:
□ “…powers of attorney are to be construed strictly – that is to say, that where an act purporting to be done under a
power of attorney is challenged as being in excess of the authority conferred under the power, it is necessary to show
that on a fair construction of the whole instrument the authority in question is found to be within the four corners of the
instrument, either in express terms or by necessary implication.”

• Where a POA contains a LIST of specific acts followed by general words, the general words are construed as being of the same kind as
the specific acts
○ i.e. Ejusdem Generis rule: [My Notes: "ejusdem generis" is Latin for "of the same kind," used to interpret loosely written statutes.
Where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the

Comm Trans Page 19


Where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the
same kind of persons or things specifically listed. Example: if a law refers to automobiles, trucks, tractors, motorcycles an d other
motor-powered vehicles, "vehicles" would not include airplanes, since the list was of land -based transportation.]
 If a donor wishes to exclude this rule, then donor should Expressly state so in the POA

• Danby v. Colts and Company [1885] 29 Chancery Division at p.500


○ Held: where the Operative words are Clear, such words will prevail over any recitals but if they are Ambiguous they may be
Controlled by the Recitals

Remuneration of an Attorney
• An attorney, like any agent, is entitled to be remunerated for his services IF the terms of his appointment Expressly or Impliedly
provide for such payment
• If there are No Express terms, the attorney may claim remuneration on a Quantum Meruit (i.e. the reasonable value of his services)
basis, IF the understanding was that the attorney would be remunerated
• Even where the POA does Not Expressly provide for the attorney's remuneration, the attorney is entitled to be Indemnified by the
donor in respect of Costs and Expenses properly incurred by him in carrying out his function

Revocation of POA
• Attorney's Protection
○ If an attorney purports to act under the POA which has been Revoked, then he will be Liable for any loss incurred by the Donor
and that which is incurred by the Third Party
 However, if the attorney did NOT KNOW of the revocation of his power, then he will Not incur any Liability either to the
donor or third party
□ BUT, in order for the attorney to escape liability the act or transaction must be one which could have been authorized
but for the revocation

• Protection of Third Parties


○ If a third party deals with an attorney at a time when his power has been Revoked but the third party has NO Knowledge of the
revocation, then the transaction between the attorney and third party will be as VALID as if the power had not been revoked
 Remember: the purpose of the POA is to satisfy third parties that the attorney has power and the extent of such powers
□ Thus, it follows that in order for the third party to be protected he must be protected in the event that he does not know
that POA has been revoked

Enduring Power of Attorney


• In certain circumstances, an ordinary POA may be Irrevocable (an irrevocable POA is called an "Enduring POA")
○ Whereas an ordinary POA is automatically revoked by the supervening mental incapacity of the donor, an enduring POA continues
to subsist and it is normally given by the donor to secure the attorney’s proprietary interest or the performance of an oblig ation
owed to the attorney

• Donor canNOT Revoke an Enduring POA


○ Donor can only revoke it if Attorney CONSENTS

• Enduring POA arises under either of the following circumstances:


i. POA stipulates that POA is irrevocable; or
ii. POA is created to either:
□ secure the Proprietary interest of the attorney; or
□ secure the Performance of an obligation owed to an attorney by a donor
○ Under either of these circumstances, as long as the interest or obligation remains undischarged the power will not be revoked
 i.e. once donor discharges the obligation/interest the power can be revoked

• POA can only be revoked in the following circumstances:


a. By the Attorney Consenting to revocation;
b. By the Death, Incapacity or Bankruptcy of Donor or, if Donor is an LLC, then by its Winding-Up or Dissolution

Provision for Disclaimer


• An attorney may disclaim the power, and cease to exercise or join in the exercise of the power
○ However, whether the disclaimer is effected by deed or by conduct, it is important that Notice of the same should be given to the
donor as soon as possible

Types of Power of Attorney


• There are 2 types:

Comm Trans Page 20


• There are 2 types:

1. General POA
 This is a POA which gives the agent or attorney, general and full powers to act in many transactions on behalf of the donor

2. Specific POA
 This POA gives the attorney or agent authority to perform a specific act
□ e.g. power to sell the donor's property
 Note: 2 or more specific tasks may be assigned, provided that such tasks are specified

Checklist for Preparing a POA

• If lawyer is asked to prepare a POA, must carry out the following things:

1. The Client
 Ascertain whether the client is the donor or the intended attorney
 Establish whether there will be a conflict of interest in lawyer acting for both attorney and donor

2. The Need for the Power


 Ascertain whether the power needed is an Ordinary POA or an Enduring POA
 Ascertain whether the power needed is a General POA or a Specific POA

3. Donor's Capacity
 Ascertain whether the donor is mentally capable of understanding the effect of executing the POA
□ Particularly, ascertain that donor understands that the attorney/donee could assume control of the donor's property
and affairs and do almost everything which the donor could have done
 In practice, do not have to be a psychologist - just ask simple questions to make sure donor understands

4. Suitability of the Proposed attorney


 Things to look out for:
i. Ascertain whether the proposed attorney is too old, infirm or likely to pre-decease the donor
ii. Ascertain whether the proposed attorney is likely to become bankrupt
iii. Ascertain whether the proposed attorney is likely to become mentally incapable
 The reason why a lawyer must make an assessment as to whether a proposed attorney is likely to become mentally
incapacitated is because an ordinary POA is automatically revoked when an attorney becomes mentally
incapacitated
◊ i.e. an ordinary power of attorney unlike an enduring power will automatically be revoked if the donor loses
mental capacity unless it is expressed to be irrevocable
iv. Ascertain whether there will be conflicts within or with the donor's family
 Donor is appointing someone who will stand in donor's shoes, so must ascertain whether appointment of proposed
attorney will bring conflict in the donor's family
v. Ascertain whether the proposed attorney/donee is trustworthy and reliable
vi. Ascertain whether the donor's relatives are happy about the proposed appointment

• Note on Mental Incapacity


○ If Donor becomes mentally incapacitated then both an Enduring POA and Ordinary POA are REVOKED

○ BUT, when the Attorney becomes incapacitated the Ordinary POA is REVOKED
 However, an Enduring POA is NOT affected when attorney becomes mentally incapacitated
□ The fact that someone is of unsound mind does not meant that he cannot contract; a mentally incapacitated attorney
can act through the "next friend"

Revocation of POA
• A POA may be revoked in the following ways:

i. by Express Revocation

ii. by Implied Revocation


 e.g. when the donor does anything which is inconsistent with the continued operation of the power

iii. by the Donor's Death or Bankruptcy

Comm Trans Page 21


iii. by the Donor's Death or Bankruptcy

iv. by the Donor's Mental Incapacity, unless the POA is an Enduring POA
 Note: an enduring POA survives the Mental Incapacity or Death of the Donor
□ A clause is inserted in the POA in this regard

v. by the Winding-Up or Dissolution of the Corporate Donor

vi. by the Attorney's Death, if he is the sole attorney or one appointed to act jointly with others
 e.g. if there are 2 attorneys who are required to act jointly, then the death of one terminates the power of the other
□ BUT, if there 2 attorneys who do not act Jointly, then the death of one will not affect the power of the other

vii. by the Attorney's Bankruptcy, if he is the sole attorney or has been appointed to act jointly with others

viii. by the Attorney's Mental Incapacity, whether sole attorney or one who acts jointly with others
 But recall that this will not affect an Enduring POA

ix. by the Winding-Up or Dissolution of the Corporate Attorney

x. by the Effluxion of Time


 i.e. the time appointed for performance of the task Lapses

xi. by Fulfilment of the Purpose for which the Attorney was appointed

xii. by Frustration of the Purpose for which the Attorney was appointed
 e.g. donor appoints attorney to sell property but before attorney sells it, the property burns down
□ Thus, the POA is frustrated

xiii. by any Event which Renders the Agency or its Objects Illegal

Comm Trans Page 22


Partnership
2:03 PM

Introduction
• Section 1(1) of the Partnership Act 1890 ("the PA") defines a partnership as: "the relations which subsists between persons carrying on
a business in common with a view of profit."
○ "Person" must be taken in its widest sense, so a person can mean corporate bodies or individuals
○ s.1(2) of PA excludes from this definition a relationship between members of a company
 i.e. shareholders or members of a limited liability company cannot be considered partners
 s.1(2) of PA: "But the relation between members of any company… is not a partnership…"
• s.4(1) of PA: persons who have entered into a partnership with each other are collectively called a "firm"

Distinction between a partnership and limited company

• The distinction between the two is better understood by considering the following:

1. Formation
• A partnership is easy and cheaper to form and maintain
• In a limited company more expenses are incurred during incorporation and the filing of annual returns with the Registrar of
Patents

2. Accounts
• It is not necessary to disclose a partnership accounts
□ But in a company’s accounts are always made public, and particularly accounts relating to public companies which are
listed on the stock exchange
 A law firm need not file annual accounts at PACRA
◊ Filing of accounts must be with the governing body of the profession (i.e. LAZ for lawyers)

3. Debts
• While a partner is liable for the debts of a firm, a shareholder is not liable for debts incurred by the company once his shares
are fully paid up

4. Property
• A firm's property is owned by all the partners in common
□ But since a limited company has a separate corporate personality, its property belongs to the company alone

5. Transfer of Shares
• General Rule: without consent of other partners, a partner cannot transfer his share to another person so that he becomes a
partner, unless there is an agreement between the partners to the contrary
□ However, shares are freely transferable in a company
 See s.65(1) and s.65(2) of the Companies Act ("CA") but be mindful of the restriction s.65(3) of CA

◊ s.65(1) of CA: "Save as expressly provided in a company's articles and in this Act, shares shall be transferable
without restriction by a written transfer in accordance with s.57."

◊ s.65(2) of CA: "The articles of a private company shall not impose any restriction on the transferability of shares
after they have been issued unless all the shareholders have agreed in writing."

◊ s.65(3) of CA: "A company may refuse to register a transfer of shares to any person who-
(a) is under eighteen years of age; or
(b) is of unsound mind and has been declared to be so by the court or a court of competent jurisdiction of
another country."

6. Capital
• The capital of a partnership can easily be increased or reduced
• In the case of a company capital can only be increased or reduced in accordance with the provisions of the CA and a special
resolution of the shareholders has to be passed
□ s.74(1) of CA: "A company may, unless its articles provide otherwise, by special resolution alter its share capital as stated
in the certificate of share capital by doing any of the following:
(a) increasing its share capital by new shares of such an amount as it thinks expedient;

Comm Trans Page 23


(a) increasing its share capital by new shares of such an amount as it thinks expedient;
(b) consolidating and dividing all or any of its share capital into shares of a larger amount than its existing shares;
(c) converting all or any of its paid up shares into stock, and re-converting that stock into paid up shares of any
denomination;
(d) subdividing its shares, or any of them, into shares of smaller amounts than is stated in the certificate of share
capital;
(e) cancelling shares which, at the date of the passing of the resolution, have not been allotted to any person, and
diminishing the amount of its share capital by the amount of the shares so cancelled."

7. Agency
• A partner can make contracts as an agent for the firm
□ But a shareholder is generally not an agent for the company
 Generally, the directors of a company are its agents

8. Death or Bankruptcy
• The death or bankruptcy of a partner dissolves a partnership unless there is an agreement to the contrary
• However, a company will continue to exist in spite of the death or bankruptcy of a shareholder

Formation of Partnership

• Who may be a partner?


○ A person wishing to be a partner must have the necessary CAPACITY to enter into partnership
○ Generally, any person is capable of becoming a partner
• "person" includes individuals and companies
• e.g. a limited company may be a partner provided it would not be ultra vires to the articles of association
• e.g. a minor may be a partner but the minor may repudiate the agreement while he is still a minor or within a
reasonable period after attaining majority
 However, a minor is not liable for partnership debts incurred during his minority

• Illegal Partnership
○ A partnership is illegal if it is formed for the purpose of a business which is contrary to public policy or which cannot be carried on
without breaching the law
• e.g. for instance a partnership for the purpose of a brothel is a partnership against public policy
• e.g. a partnership for the purpose of human trafficking is also against public policy
• e.g. an unqualified person is forbidden under the Legal Practitioners Act ("LPA") from practicing as a lawyer
• Thus, a partnership between an unqualified person and a lawyer is illegal because it breaches the LPA

○ Where a partnership is found to be illegal, the Courts will not recognize any rights of the parties to that partnership

○ s.34 of PA: a partnership is automatically dissolved on "the happening of any event which makes it unlawful for the business of
the firm to be carried on or for the members of the firm to carry on in partnership."
• e.g. if a law firm has 2 partners and one of them is subsequently de-barred then the remaining partner (who still has his
license) cannot carry on business in partnership with the de-barred partner

Essential Clauses in a Partnership Agreement

1. The Nature of Business or Practice


○ The nature of business must be CLEARLY STATED to avoid the possibility of disputes as to what constitutes the real business of the
firm
• e.g. if the firm is one of advocates, then this must be stated first

2. Firm Name
○ Partners may carry on business or trade under any name, provided it is compliant with the requirements of the Registration of
Business Names Act

○ In some professions there will be further requirements


• e.g. under the Legal Practitioners Act there is a requirement that the name must be approved by the Legal Practitioners
Committee before it is submitted to the Registrar of Business Names for approval

○ It is important that the name does not cause Confusion in the minds of the public

Comm Trans Page 24


○ Physical Address of the firm
• This must be Clearly Stated so that people can know where the firm carries on its business
• If the firm is going to carry on business at more than one place, then all those places must be stated

3. Duration of Partnership

○ The DATE when the partnership shall Commence should be stated


• A firm will, in fact, commence business prior to the date which is put in the partnership agreement

○ General Rule: with respect to Duration, the general rule is that partnership only lasts during the will of the partners unless a
definite tenure is specified (see s.26(1) of PA)
• Most agreements will stipulate when the partnership will commence without stating when it will end

4. Capital
○ Provision on the capital of the firm to be subscribed by the partners should be included in the agreement

5. Division of Profits
○ "Profit" refers to moneys received by the firm minus expenses
○ s.24(1) of PA provides that all the partners are entitled to share equally in the profits of the business unless the partners agree
otherwise

6. Bank Account and Drawing of Cheques


○ The Articles of a partnership must specify the bank in which all cheques or cash received by the firm are to be deposited

○ It is equally important to make provision for signatories of cheques issued by the firm
• Usually cheques will be signed by a senior partner where there is a senior and junior partner
• Where partners are of equal status there should be provision that either any partner or any 2 partners shall sign the cheques

○ Some professions have further requirements


• e.g. in legal profession there is a requirement for a business account and a client account

7. Management

○ The Articles of a partnership must specify whether all or some only, of the partners, are to take part in the management of a
business

○ Agreement must also state that those partners who take part in managing the firm must spend all their time on management
• Absent such provision, each and every partner is entitled to participate in the management of the business of the firm

○ Articles must also specify that no partner shall enter in contracts exceeding the specified amount and no partner shall give a
credit to a debtor in excess of a certain amount (*very important*)

○ There must also be a clause which sets the extent of the power of a partner to employ/engage/dismiss an employee

8. Accounts
○ The Articles of a partnership should always make provision for keeping of proper BOOKS OF ACCOUNTS of the firm and of
quarterly, half-yearly or annual BALANCE SHEETS
• The purpose of keeping these accounts is so the partners know how the firm is faring and what each partner's standing is
towards the firm
○ Some professions have very specific requirements pertaining to the keeping of books of accounts
• e.g. in legal profession, before a practice certificate is renewed (this is done annually), one of the things the lawyer must
submit to the Legal Practitioners Committee is an accountant's certificate stating that books of account are being kept properly

9. Death or Retirement of a Partner

○ Death
• The default position is provided by s.33(1) of PA: "Subject to any agreement between partners, every partnership is dissolved
as regards all the partners by the death of any partner."
• i.e. Death of One Partner = Automatic Dissolution of Partnership (unless otherwise agreed)
• Thus, it is *important* to have a clause that enables the partnership to continue even when one partner dies

Comm Trans Page 25


• Thus, it is *important* to have a clause that enables the partnership to continue even when one partner dies
 Failure to include such a clause will mean firm will automatically dissolved when a partner dies

• There should be a clause ascertaining how a determination will be made as to which assets belong to the deceased partner
and how the estate of the deceased partner will be paid
• This is why a firm should keep proper accounts - so that it knows the standing of all partners, including the deceased's
standing

○ Retirement
• You should also include a clause that states that even if one partner retires, the remaining partners shall continue to carry on
business in partnership
• Must do this because most partners would like to maintain the goodwill of the firm and retain the goodwill that the
name of the firm carries

10. Restrictions on a Retiring Partner


○ It is necessary to insert a clause preventing a retiring partner from carrying on a competing business
• i.e. "No-Compete Clause"
○ A clause restricting a retiring partner from carrying on a competing business can only be enforced if it is REASONABLE
• Whether such clause is reasonable depends on the circumstances of the case (*very important*)
• Whitehill and Others v. Bradford [1952] 1 All ER at p.115

 Facts:
◊ There was a partnership of doctors (general practitioners)
◊ Their partnership agreement had a no-compete clause banning a retiring partner from opening a general
practice within a 10-mile radius for 21 years

 Held:
◊ Interpretation of the No-Compete Clause: "As the contract was a partnership agreement between professional
men, the words did not carry the effect of the clause beyond what was reasonably required to protect the
continuing partners against competition."
 i.e. the court construed the clause in such a way that it did not ban the retiring partner from practicing
medicine (i.e. surgery, mid-wifery, medicine) altogether but merely from practicing as a general practitioner
so that the retiring partner would not be banned from (for example) practicing as a specialist surgeon

◊ 10-mile radius: 10-mile radius was reasonable considering that this was not a master-servant case but one
between professional men (i.e. doctors)
 Empire Meat Co. Ltd v. Patrick
– Held: in a master servant case (i.e. a butcher and his servant), it was held that because the great bulk
of the butcher's business was within a radius of 2 miles, it was unreasonable for the no-compete clause
to extend to a 5-mile radius

◊ 21 years: this was reasonable considering that this was an agreement between professional men
 "21 years… is equivalent to a life banishment from the area concerned but, again I am not persuaded that in
a case of this kind there is anything vicious in so long a period of time. The partnership… was intended to
continue for a long period. A man like the defendant, with his professional qualifications, is a relatively
mobile person and the whole of the rest of the UK is open for the application by him of his professional
skill. I am not, therefore, satisfied that 21 years is over long."

11. Arbitration (*very important*)


○ An Arbitration clause is a MUST
• To resort to arbitration rather than court is in the interest of the partners because arbitration is PRIVATE and, thus, unlikely to
injure the business and its reputation

12. Retiring from the firm


○ There must be a clause in the partnership agreement that any partner may RETIRE from the firm or partnership by giving WRITTEN
NOTICE

The Rights and Duties of Partners


• s.24 of PA gives the following rights to the partners, subject to Express or Implied agreements between the partners:

a. Capital and Profits

Comm Trans Page 26


a. Capital and Profits
• s.24(1) of PA: subject to any agreement between the partners, all partners are entitled to share equally in the capital and
profits of the business
 Similarly, all the partners must also contribute equally towards the losses sustained by the firm

b. Indemnity against Liability


• s.24(2) of PA: subject to any agreement between the partners, the firm must indemnify every partner in respect of
payments made and personal liability incurred by him in the ordinary and proper conduct of the business of the firm
• The right to indemnity is only available in respect of necessary acts
 But indemnity does NOT extend to mere voluntary acts which the partner who undertakes the liability thinks may
be advantageous to him

c. Advances (i.e. loans) to the Firm


• s.24(3) of PA: subject to any agreement between the partners, a partner who gives an advance to the firm in excess of
the amount or capital which he has agreed to subscribe is entitled to interest from the date of the payment of the
advance
 s.24(3) of PA puts the interest rate at 5% per annum (i.e. partner who makes loan is entitled to 5% interest per
annum)
◊ BUT the partners can agree to charge a different interest rate
 i.e. not mandatory to charge 5% interest
 The reason the partner is entitled to interest because an advance is not an increase in capital but a mere loan (on
which interest must be paid)
◊ However, the converse to this rule is that in the absence of fraud or express agreement, a partner who is
indebted to the firm is not liable to pay interest on the debt
 i.e. a partner who owes a debt to the firm does not have to pay interest

d. Interest on Capital
• s.24(4) of PA: subject to any agreement between the partners, a partner is not entitled to interest on the capital
subscribed by him before profits have been ascertained

e. Management of the Partnership Business


• s.24(5) of PA: subject to any agreement between the partners, every partner may take part in the management of the
partnership business
 Because of s.24(5) of PA, each partner shall attend to and work in the business of the firm and if any partner fails to
do so then this may be a ground for DISSOLUTION of a partnership
◊ In fact, a Court may order such a partner to Compensate the other industrious partners for the trouble cause by
his idleness
• Although the law infers that the partners must attend to the business, the Partnership Articles may provide that whereas
a junior partner is bound to attend to the business, the senior partner reserves the right not to attend to the business
• The Partnership Deed may also contain a clause authorizing each working partners to take a salary, in addition to his
share of the profits
 Where the partners agree that working partners must also take a salary, the scenario may arise where the working
partner receives more that the idle partner

f. Remuneration
• s.24(6) of PA: subject to any agreement between the partners, no partner is entitled to remuneration for acting in the
partnership business
 EXCEPTION: in the case of winding-up of the firm, where one of the partners is dead or retires or becomes of
unsound mind, all the work being done by the other partners will necessitate some compensation to be paid out of
the profits of the firm, if any
◊ If a partnership is being winding up on account of a partner dying and the remaining partners are his executors
then they will NOT be entitled to compensation - rather, any work they do will be gratuitous

g. Introduction of New partner


• s.24(7) of PA: subject to any agreement between the partners, no person may be brought into the partnership without
the Consent of ALL existing partners
• If the Partnership Deed provides that one or more of the partners shall have the option of introducing a new partner,
wether as his successor or otherwise, the other partners will be bound to accept his nominee
 Byrne v. Reid [1902] 2 Chancery Division at p.735
◊ Held: where a person has been duly nominated as partner under a clause in a Partnership Deed and the other
partners refuse to admit him as a partner, he can successfully obtain a Court Order compelling the unwilling

Comm Trans Page 27


partners refuse to admit him as a partner, he can successfully obtain a Court Order compelling the unwilling
partners to accept his nomination

h. Differences on matters relating to the partnership business


• s.24(8) of PA: subject to any agreement between the partners, differences arising as to ordinary matters connected with
the partnership business may be decided by a majority of the partners
 BUT, no change may be made in the nature of the partnership business without the Consent of ALL existing
partners

i. Partnership Books
• s.24(9) of the PA: subject to any agreement between the partners, the partnership books (i.e. books of account and
financial records of the firm) must be kept at the firm's place of business and every partner has a right to access any of
the books or documents if he so desires
 Right to access books may be exercised by the partner in person or through an agent, but where an agent is being
used the agent must undertake not to use the information he acquires (during the inspection of the books) for any
other purpose
• Bevan v. Webb [1901] 2 CD at p.59
 Facts:
◊ The sleeping partner in a partnership decided to sell their interest to the managing partner
◊ For the purpose of valuation, the sleeping partner had appointed a valuer to inspect the books of the
partnership
◊ The managing partner refused to allow valuer to have access to the books
◊ The sleeping partner then applied for an injunction from the court to allow the valuer to gain access to the
partnership book for the purpose of evaluation
 Held:
◊ Under a provision in the Partnership's articles and s.24(9) of PA, any partner was entitled to have the books and
accounts examined on his behalf by an agent appointed by him for the purpose of advising the partner
PROVIDED that:
i. the agent had to be a person to whom no reasonable objection could be taken by the other persons; and
ii. The agent had to give an undertaking not to make use of the information which he acquired except for the
purpose of confidentially advising his principal

j. Expulsion of a partner [*very popular exam question*]


• s.25 of PA: a majority of the partners canNOT expel any partner unless the power to do so has been conferred by
agreement between the partners
• Read:
 In Re a Solicitor's Arbitration [1962] 1 All ER at p. 772
◊ Issue: Whether under the terms of a Partnership Deed made between 3 solicitors, one of the 3 partners alone
has the power to expel the other 2?
◊ Facts:
 3 solicitors entered into a partnership
 One of the partners sought to expel the other 2 from the partnership
– On the same day, the other 2 partners also sought to expel the one partner from the partnership
 The matter proceeded to arbitration
 The other 2 partners argued that they could not be expelled from the partnership by only one partner as
the Partnership Deed's clause stated:
– "If during the continuance of the partnership any partner shall commit or be guilty of any act of
professional misconduct then and in any such case the other partners may by notice in writing given to
him expel him from the partnership."
 Background:
– s.25 of PA: "No majority of the partners can expel any partner unless a power to do so has been
conferred by express agreement between the partners."
– s.61 of Law of Property Act ("LPA"): provides that in all deeds, unless the context otherwise requires,
the singular includes the plural
◊ Held:
 The single partner could NOT expel the other 2 partners because the Partnership Deed provided that
expulsion had to be done by "partners" (i.e. plural - so more than one partner required for expulsion)
– i.e. The effect of the provision in the Partnership deed, taken by itself, was that on a default by a
partner with that provision, all the partners other than the defaulting partner could jointly expel him
 Even if the clause were read with s.61 of LPA (whereby the singular included the plural and vice
versa)l the effect still was that a defaulting partner could be expelled by the other 2 partners

Comm Trans Page 28


versa)l the effect still was that a defaulting partner could be expelled by the other 2 partners
 "Of course, if one of those partners died, leaving only 2, then s.61 of LPA would operate to fit that particular
circumstance, there being only one other partner. The plural would refer to the consent of the other
partners and that would be read properly "or partner" if in fact there were only one."

 Green v. Howel [1910] 1 Chancery Division at p.495


◊ Facts:
 2 fishmongers entered into a partnership agreement
 The Partnership Deed provided that in the event of either partner breaching the partnership articles or any
flagrant breach of his duties as partner, the other partner could, by written notice, terminate the
partnership, provided that if any question should arise whether a case had happened to authorize the
exercise of the power to terminate, then it should be determined by arbitration if the offending partner
requested for such arbitration in writing.
 One of the partners discovered that the other partner was operating a side -business and excluded the
money he made from it from the daily returns of the partnership
 The injured partner then wrote to the offending partner to terminate the partnership (i.e. sent a notice to
terminate as required by the Partnership Deed
◊ Held:
 A notice terminating the partnership will be valid without the partner terminating the partnership giving
reasons why he is terminating it or giving the offending partner a chance to defend himself PROVIDED
that the partner terminating the partnership is not acting in BAD FAITH (e.g. not terminating the
partnership so that he can buyout his co-partner on unfavorable terms)
– i.e. "In the absence of bad faith, it was not a condition precedent to the validity of the notice that the
partner serving the notice should before serving it disclose to his co-partner the causes of complaint
against him or give him an opportunity of being heard in his defence."
 Lecturer said to read what was said at p.504:
 Rule 1: "A partnership contract is a contract in which uberrima fides [i.e. "good faith"] is
required. A clause enabling one partner to expel the other cannot be relied upon unless
there is good faith; it cannot be used if the motive is really to get an undue advantage over
the other partner by purchasing him out on unfavorable terms."
 Rule 2: "Wherever it is left to a judicial/quasi-judicial tribunal to determine whether a person
is or is not properly excluded, common justice requires that explanation and notice shall be
given to the person said to be amenable to the jurisdiction and that he should have an
opportunity of defending himself."
 On the facts, the notice was valid because partner terminating partnership was not acting in bad faith and
the offending partner had the opportunity to defend himself
– "In the present case there are no grounds for invoking either of the above rules. The trial judge found as
fact that there was no unfair dealing, no unfair taking advantage on the part of the plaintiff. Is it
possible to say that the plaintiff acting under the clause [allowing termination of the partnership by
notice] was in a judicial or quasi-judicial position? [i.e. did the clause mean that P was acting as a
tribunal and terminating the partnership without giving his co-partner a chance to be heard?] Plainly
not. He was really, so to speak, the moving party, the litigating party, the person who was starting
proceedings which would ultimately lead to proper adjudication on the rights of the parties."

k. Determination of the partnership at will


• s.26(1) of PA: if no fixed duration of the partnership has been agreed, any partner may determine the partnership at any
time on giving notice to all other partners
 Where the partnership has originally been constituted by deed, a Written Notice signed by the partner giving it shall
be sufficient for this purpose
• Note: s.26(1) of PA is not mandatory - this may be varied by agreement of the partners

l. Continuance of a Partnership for a term


• s.27(1) of PA: if a partnership entered into for a fixed term is continued after the term has expired and there is no new
agreement, then the rights and duties of the partners remain the same as they were at the expiry of the term in so far as
this is consistent with the incidents of a partnership at will

• Neilson v. Mossend Iron Company [1886] 11 Appeal Cases at p.298


 Facts:
◊ Partnership was created by partnership agreement for a specified term
◊ A clause in the Partnership Agreement allowed the partnership to continue where one of the partners elected to

Comm Trans Page 29


◊ A clause in the Partnership Agreement allowed the partnership to continue where one of the partners elected to
retire and the others wanted to continue the partnership; those that wished to continue could elect to buyout
the retiring partner and continue the partnership
◊ Partners continued to trade as partners after the term had expired
 One of the partners then wanted to dissolve the partnership
 Held:
◊ When partners continue to trade after expiration of the term in the Partnership Agreement without entering
into a new agreement, then the old contract is prolonged by IMPLIED Consent and its terms will apply in so far
as they are not inconsistent with the IMPLIED terms of the renewed contract
 i.e. "When the members of a firm continue to trade as partners after the expiration of the term limited by
the partnership article, without making any new agreement, the original contract is prolonged by tacit
consent [i.e. implied consent], and all the conditions remain in force, except in so far as they are inconsistent
with any implied term of the renewed contract."
◊ An implied term of a prolonged contract is that each partner has the right to DETERMINE the Partnership AT
WILL, PROVIDED that he is acting BONA FIDE and NOT for the PURPOSE of obtaining an UNDUE ADVANTAGE
 i.e. "An implied term of such a new contract is that each partner has the right, when acting bona fide [i.e.
without intention to deceive] and not for the purpose of obtaining undue advantage, instantly to determine
the partnership [ i.e. "The main distinction between the old contract and the new/prolonged contract is that
the new contract is a contract determinable at will. It is an implied term of the new contract that each
partner has the right to instantly dissolve the partnership whenever he thinks proper, provided the right is
exercised in bona fide, and not for the purpose of deriving an undue advantage from the state of the firm's
engagements; but no question of that kind arises here]."

Comm Trans Page 30


Commercial Credit
Wednesday, January 08, 2014 2:03 PM

Introduction
• Credit plays an important role in the world of commercial transactions
• In commercial credit, the seller may provide credit to the buyer or the seller may prefer to sell the goods to a third party such as a
Finance House and let the Finance House supply goods on credit terms such as finance leasing
• A buyer is given credit by a seller i.e. given a grace period
• The seller will provide credit by either deferring payment or the seller could provide credit by accepting that in exchange f or the goods
he accepts a bill of exchange which is payable at a later date
• Irrespective of who is providing the credit, there will usually be a requirement for security
○ e.g. the seller sells goods to the buyer but title to the goods does not pass to the buyer until he pays
 So the fact that the buyer retains title until payment is security
○ e.g. irrevocable credit demand???
○ e.g. a bank or financial institution may require security of another property belonging to the buyer
○ e.g. a bank/financial institution may ask for a third party guarantee
• The reason why security is important is that the creditor wishes to ensure that if the debtor is not able to pay/perform, the n the
creditor will not be left with nothing to fall back on
• Credit in this context is in the form of financial accommodation
○ Financial accommodation means the provision of a benefit (like cash, land, goods, services or facilities) for which payment is to be
made by the recipient in money at a later date

• There are various forms of credit:


i. Loan Credit [very important]: this is granted where money is lent to the debtor on terms that it must be repaid to the creditor with
interest in due course
 Usually it relates to bank loans and bank overdrafts

ii. Sale Credit [very important]: this is granted where the debtor is allowed to defer payment of the price of goods and services
supplied
 We will discuss the following later:
□ Conditional Sale Agreements
□ Hire Purchase Agreements
□ Credit-Sale Agreements
□ Finance Leasing

iii. Fixed-Sum Credit: this is granted where the debtor received a fixed amount of credit which must be repaid in a lump sum or by
installments over a period of time
 e.g. a loan for K20,000 obtained from a bank

iv. Revolving Credit: this is granted where the debtor is allowed a credit facility which he may draw on as and when he pleases up to
an overall credit limit
 e.g. getting an overdraft of up to K20,000 but can drop that amount as and when he pleases

The Nature of Security


• There are 2 basic forms of security:

i. Personal Security: this is where a person who is not otherwise liable under a contract between the debtor and the creditor enters
into a separate contract with the creditor under which he assumes some form of liability to ensure that the creditor does not lose
if the debtor fails to perform his contractual obligations. The debtor's contractual obligations may involve the payment of m oney
or require performance of some other act.
 Examples of personal security:
□ Guarantee;
□ Indemnity; or
□ Performance bond

ii. Security over Property: this is a right relating to property the purpose of which is to improve the creditor's chance of getting paid
or of receiving whatever the debtor is required to do by way of performance of the contract
 Later we will look at:
□ Possessory security
□ Non-possessory security

Comm Trans Page 31


□ Non-possessory security
□ Land

Guarantees
• What is a Guarantee?
○ In certain situations, security for a loan may be provided by a surety under a Contract of Guarantee
 A guarantee is a contract by which the promisor (aka "guarantor" or "surety") undertakes to be answerable to the promisee
(aka "creditor") for the debt or default of another person known as the "principal debtor" or "borrower"
 A guarantee is usually referred to as a collateral contract and it is different from the original contract between the lender and
the principal debtor
 A guarantor or surety is discharged if the principal debtor or borrower performs the obligation guaranteed (i.e. if he pays the
debt or performs whatever act he was required to do)

• Continuing Guarantee
○ A guarantee may be a continuing guarantee if it extends to a series of transactions and is not confined to a single credit or
transaction
 e.g. A goes to bank and borrows by way of loan, K10,000. C then goes to bank and guarantees that the K10,000 loan will be
repaid - such guarantee is a one-off guarantee because it relates to K10,000.
□ But if A got an overdraft of K40,000 instead and C guaranteed the overdraft facility for K40,000, what the bank will want
from C is what is known as a continuing guarantee because the borrower does not need to draw the K40,000 at one go
 Thus C will give a guarantee in respect of the amount drawn at any one time
 If the bank did not get a continuing guarantee then the bank would not be fully protected
◊ e.g. A gets a K40,000 overdraft and bank does not get a continuing guarantee from C. A draws K10,000 and then
pays the bank back the K10,000. Once A has paid back the K10,000, C will be discharged as a guarantor to the
extent of K10,000 (i.e. even though C guaranteed the K40,000 overdraft, because the guarantee is not a
continuing guarantee, C will not be liable if A then draws the remaining K30,000 allowed in the overdraft
because C would only be responsible for the K10,000 that A initially drew)
 Devaynes and Others v. Noble and Others [aka "Claytons case"] - very important case
 LECTURER'S NOTES: Banks frequently lend money on current account by way of fluctuating
overdraft – if the guarantee is not stated to be a continuing security – the Rule in Clayton’s Case
would apply, and so payments in would be treated as payments towards the discharge of the debt
and payments out would constitute unsecured advances. Clayton’s Case (1816) 1 Mer 572.]
 Facts:
 Devaynes, Noble and Dawes were partners in a banking firm
 Devaynes died and the surviving partners continued to operate the firm
 Devayne's son (one of the plaintiffs) then sought to get Devayne's share of the profits (for the
period upto Devayne's death only) and his share of the capital after payment of all the
partnership debts
 The surviving partners (i.e. the defendants) went bankrupt
 Clayton, a Customer of the bank, was also a Plaintiff
 Clayton continued to deal with the surviving partners after Devayne's death
 i.e. Clayton would make drawings (sometimes overdrafts) and deposits into his bank
account
 Prior to Devayne's death Clayton had deposited with the bank 2 exchequer bills worth $500 each
[i.e. government bonds] and agreed with the bank that the bank could not sell the bonds without
his consent
 Contrary to this agreement, the bank sold the bonds (while Devaynes was still alive) for
$1,035 without Clayton's knowledge or consent
 Clayton only found out about this after the bankruptcy of the surviving partners
 When Devaynes died, Clayton had a balance of $1,713 in his cash account
 The court made various deductions and reduced the amount to $1,171
 Before the bankruptcy, the surviving partners had already paid out more than this
amount to Clayton
 But Clayton claimed that those payments did not apply to the discharge the $1,171
owed at the time of Devaynes' death (i.e. he was claiming the payments made by
the surviving partners were an overdraft - i.e. when Clayton drew $1,171 from his
account after Devaynes' death this was an overdraft and not meant to be drawn
from the $1,171 in his account at the time of Devaynes' death)
 Thus, Clayton claimed the $1,171 against Devayne's estate
 Held:

Comm Trans Page 32


 Held:
 General Rule: the first sum paid in is the first sum drawn out (e.g. if you deposit $1,000 on
Monday and then $1,000 on Tuesday, and then withdraw $1,000 on Friday, then the $1,000 paid
in on Monday is what is drawn out)
 i.e. cannot claim that the $1,000 drawn on Friday was meant to discharge the $1,000
deposited on Tuesday
 Thus, the $1,171 in Clayton's account at the time of Devaynes' death was discharged by
later payments of the surviving partners
 EXCEPTION to General Rule: if creditor (i.e. Clayton) did not want the money he drew out after
Devaynes' death to discharge the $1,171 in his account at the time of Devaynes' death then he
should have communicated his intention to the bank
 i.e. general rule of first sum paid in is the first sum drawn out applies unless otherwise
agreed
 Thus, Devaynes' estate was discharged of the obligation to pay Clayton $1,171 because this
sum was treated as being discharged by subsequent payments by the surviving partners
 Had Clayton wanted the $1,171 in his account at the time of Devaynes' death not to be
treated as being discharged by his subsequent drawings from his account then he should
have told his bank that the drawings were not being made on the $1,171 in his account at
the time of Devaynes' death
 Thus, Devaynes' obligation to Clayton was extinguished on the first drawing of $1,171
by Clayton after Devaynes' death
 If Clayton did not want this to be the case then he should have told the bank so
(i.e. a Continuing Guarantee), in which case Devaynes' obligation to Clayton
would not have been discharged by Clayton drawing $1,171 after Devaynes death
 The failure to create a Continuing Guarantee meant that Devaynes'
obligation was discharged by the first drawing of $1,171 by Clayton after
Devaynes' death (i.e. first sum deposited in the bank is first sum drawn out)

• Nature of Guarantee
○ An agreement will not be a guarantee unless there is in existence or contemplation a principal debtor and a secondary debtor
○ Unless the guarantee provides to the contrary the guarantee will be determined if the principal obligation is changed without the
guarantor's consent or if the principal obligation is itself determined
○ Important thing to take from this: a guarantee is secondary to the contract between the lender and the borrower because the
guarantor is simply saying that he will pay in the event that the borrower defaults

• Essentials of a guarantee
○ The essentials of a guarantee are:

i. There must be a VALID AGREEMENT


 i.e. there must be an offer on ascertainable terms which received an unqualified acceptance from the person to
whom offer is made
◊ i.e. words of offer must not be vague - the offer made by guarantor must be clear so that the creditor can make
an unqualified acceptance of that offer

ii. To amount to a guarantee, the OFFER made by guarantor/surety must be ADDRESSED to the Creditor
 Consequently, an offer which is not addressed to any individual creditor to contribute to the assets of the principal
debtor is not a guarantee

iii. There must be a DEBT owed by someone which has to be GUARANTEED

iv. For an agreement of guarantee to be binding it must be made with the INTENTION of CREATING LEGAL RELATIONS
 Note: a guarantee is really an agreement/contract between the guarantor/surety and the creditor

• Requirements for Gurantee Contract to be Valid

○ Form of a contract of guarantee

1. The contract must be in Writing and Signed by the Guarantor or by some other person lawfully authorized by the
guarantor/surety
□ This requirement arises from the English Statute of Frauds (1677)
□ Note: a creditor need not sign the contract of guarantee

Comm Trans Page 33


□ Note: a creditor need not sign the contract of guarantee

2. The writing will be satisfied by any sufficient Note or memorandum of the Promise of Guarantee Signed by the Guarantor or
the guarantor's agent
□ i.e. there is no particular form that contract of guarantee - all that matters is that such contract it is clear that the
guarantor is promising to be liable in case of default by the principal debtor

• Liability of the Guarantor


○ The guarantor's/surety has 2 kinds of liability:
i. A promise by the guarantor which becomes effective if the principal debtor fails to perform his obligation
 i.e. the guarantor promises the creditor that in the event that the principal debtor fails to pay/perform the
obligation, then the guarantor will perform that obligation/pay in the principal debtor's stead
ii. A promise that the principal debtor will perform his obligations

 With respect to both these types of liability, the guarantor's liability is secondary
□ i.e. the guarantor has no liability if the liability of the principal debtor is discharged on or before the date of performance
 i.e. it the principal debtor who has the primary obligation of paying the debt - the guarantor merely has a secondary
obligation to pay/perform
◊ It, therefore, follows that before any default has been committed by the principal debtor, a creditor cannot
bring an action against the guarantor/surety to force him to set aside money to provide for the possibility of the
debt becoming due from the principal debtor and the principal debtor being in default
 i.e. guarantor's liability only arises when the principal debtor is in default but not before
• Payment on Demand
○ Contracts of guarantee usually contain a provision requiring the guarantor to pay on demand
 Even if there is no express requirement in the contract of guarantee for payment on demand, the guarantor is still liable
provided that the principal debtor defaults in making payment

• Enforcement of a Guarantor's Liability


○ A creditor can enforce the remedy against a solvent guarantor on his guarantee by bringing an action in the High Ct for judgment
□ Note: the principal debtor may or may not be sued in the same action as the guarantor
 i.e. when the principal debtor defaults, the creditor is free to sue the guarantor and in so doing the creditor can
bring action against either the guarantor alone or against both the guarantor and the principal debtor
◊ Very important: creditor cannot bring action against the guarantor until the principal debtor has defaulted

• Guarantor's rights after payment


 Unless guarantor/surety has waived his rights he is entitled to be subrogated to all the rights possessed by the creditor in
respect of the debt as soon as he has paid to the creditor the debt due to the creditor under the guarantee
□ The right of subrogation means that upon payment of the debt the guarantor steps into the shoes of the creditor and can
have use of whatever security the principal debtor created in favor of the creditor
 e.g. A borrows K50 from bank and offers bank a mortgage over Property X to secure the debt. B then guarantees
that credit in the event that A fails to pay K50 to bank on due date. B can pay bank the K50 and if he does so then
the mortgage that was created over Property X will be transferred to B, because the debt owed to the bank would
be discharged. The mortgage will be transferred to B even if B is not aware of the existence of the mortgage.
◊ ASKED LECTURER AFTER CLASS: if A were to default would bank look to mortgage first for K50 or would it look to
guarantor?
 Answer: the lender has the option of suing either the borrower alone to recover debt by looking to his assets
(i.e. mortgage) if they are sufficient or the lender can go after both the guarantor and the borrower in the
same action, so that he recovers the debt, to the extent possible from the borrower's assets and where the
borrower's assets fall short then can recover the rest from the guarantor in the same action.

Mortgages
○ A mortgage is a security effected by the creation or transfer of a legal or equitable interest in property as security for th e payment
of the debt or for the discharge of some other obligation
○ A mortgage may be created by a demise of land; by a transfer of a chattel or by a charge of any interest in real or personal
property for securing a loan or money
○ There is a difference between a mortgage and a charge
 A charge is regarded as a particular type of mortgage
 Differences:
□ A mortgage is a conveyance of an interest in property subject to a right of redemption
◊ i.e. a right to have the interest re-conveyed upon payment of the loan or discharge of the obligation

Comm Trans Page 34


◊ i.e. a right to have the interest re-conveyed upon payment of the loan or discharge of the obligation
□ Whereas a charge conveys nothing but merely gives the chargee certain rights over the property
◊ i.e. in a mortgage an interest over land is conveyed but with respect to a charge no such interest is conveyed

○ Characteristics of a mortgage
 A mortgage has 2 basic characteristics:
1. A personal contract for payment of a debt
2. A disposition or charge of the mortgagor's interest or estate as security for the repayment of the debt

○ There are 2 types of mortgages:

1. Legal mortgage
□ A legal mortgage of land can only be created by demise or a legal charge and it must be by deed
 The effect of a legal mortgage by demise is to vest the legal estate, in the term of years created by it, in the
mortgagee, who is immediately entitled to possession of the property upon execution of the deed
◊ The mortgagor's (i.e. borrower) legal estate in the reversion of the term of years is not transferred to the
mortgagee (i.e. lender) until the right of redemption is destroyed by foreclosure
 The term "demise" means a transfer or conveyance of property from one person to another or a grant of a lease by a
term of years
□ Charge by way of legal mortgage
 If the mortgagor holds the term on condition that he will not sub-lease without the landlord’s consent, consent must
be obtained to create a mortgage by sub-demise he legal charge does not involve the granting of a sub-lease and so
the landlord’s consent is unnecessary
 In Zambia all land is leasehold, so to create a legal mortgage you have 2 options:
i. Create legal mortgage by demise of term of years - i.e. borrower is conveying an interest in the land (i.e. term
of years)
ii. Create legal mortgage by charge then borrower is merely giving lender rights over land but not conveying an
interest

2. Equitable mortgage
□ This is a contract which creates a charge on the property but it does not convey any legal estate or interest to the
creditor or lender
□ As between the parties and so far as equitable rights and remedies are concerned an equitably mortgage is equivalent to
an assurance and it is enforceable under the courts of equitable jurisdiction
□ As a general rule, all property, whether real or personal, which may be subject of a legal mortgage can also be charged in
equity
□ An equitable mortgage may be created in either of the following 2 ways:
i. By an agreement to create an equitable mortgage; or
ii. By a deposit of title deeds (with an intention to create legal relations)
◊ A good security in equity may be created by the deposit of the Title Deeds. (This is better than just merely
agreeing verbally that you have an equitable mortgage)
◊ The deposit if Title Deeds could even be used to secure the debt of a third person – Third Party Mortgage
whereby the borrower uses another person’s Title Deeds to secure a loan. A deposit of Title Deeds is regarded
as an imperfect mortgage.
 i.e. the guarantor could in addition to the guarantee create a third party legal mortgage
 e.g. A borrows from bank and D guarantees the debt. But in addition to his guarantee D can also
create a third party mortgage over his property to secure the loan.
◊ Usually the lender will also ask the borrower to sign a legal mortgage but do not date it, and will only register it
if borrower defaults (this is to ensure that borrower does not later claim that he gave the lender bank the title
deeds merely for safe-keeping in a safety deposit box)
 In addition, the lender may enter a caveat against the property to stop you from doing anything with it that
would harm their interests

○ The mortgagor's Equity of Redemption


 A mortgagor has a right to redeem a mortgage
□ i.e. the mortgagor has a right to pay back the debt so that the mortgage property can come back to mortgagor
 The right of redemption continues even if the mortgagor has failed to pay the debt/loan in accordance with the proviso for
redemption
□ The right of redemption arises from the transaction being considered, a mere loan of money which is secured by a pledge
of the estate
For this reason, any provision in the mortgage which tends to prevent redemption on the payment of the debt or

Comm Trans Page 35


 For this reason, any provision in the mortgage which tends to prevent redemption on the payment of the debt or
performance of the obligation for which the security was given is considered to be a fetter or clog on the equity of
redemption and is void
◊ Indeed, the mortgagor's right to redeem the mortgage is so inseparable from the mortgage that it cannot be
taken away even by an express agreement between the parties
 e.g. A borrows money from bank and creates a legal mortgage over his property as security for loan. In the
mortgage A and bank agree that even if A pays back loan the property will not be re-conveyed to A. This
agreement, which takes away the right to redeem the mortgage, is void.
• ESSO PETROLEUM CO. LTD V. HARPERS GARAGE LIMITED [1968] AC at p. 269 or (1967) 1 ALL ER at p.
699 [*very important*]
 Facts:
 P owned 2 garages
 D was a petrol company which sold its petrol through garages
 P and D entered into a 5-year solus agreement in respect of one of P's garages ("Garage A"),
the terms of which were that P would only sell D's petrol at Garage A (thus, this was an
agreement in restraint of trade as P was restricted from getting petrol from other suppliers)
 P borrowed $7,000 from D and D secured the loan by way of legal mortgage over one of P's
garages ("Garage B")
 The terms of the mortgage included:
a. Payment of the loan with interest;
b. A tying covenant and compulsory trading covenant:
 i.e. P was only allowed to sell D's petrol at its garage
 Thus, this was a "contract in restraint of trade" (because it restricted P's
ability to freely trade)
c. A provision that the mortgage should not be redeemed other than by repayment
by instalments over 21 years
 i.e. P could not redeem the mortgage earlier than 21 years
 P found cheaper petrol and stopped selling D's petrol
 P sought to pay back D the loan but D refused to accept the payment as 21 years had not yet
passed
 D sought an injunction to restrain P from buying petrol from suppliers other than D
 There was no evidence to show that a period so long as 21 years or, indeed, exceeding 5
years was reasonable
 Held:
 Lecturer said: Any agreement between the parties to take away the right to redeem is void
 Mortgages can be "agreements in restraint of trade" where the terms of the mortgage
include provisions restraining trade
 i.e. "Agreements were not excluded from the ambit of the legal doctrine regarding
agreements in restraint of trade by the fact that the restriction imposed was a restriction
in relation to land, nor by the fact that the agreement was by way of covenant in a
mortgage of land."
 Agreements restricting trade must be REASONABLE, otherwise they will be VOID
 i.e. "The solus agreements were within the category of agreements in restraint of trade
and, accordingly required to be justified on the ground of reasonableness. [Similarly the
restrictions on trade in the mortgage had to be Reasonable]"
 DURATION of Agreement restraining trade is CRUCIAL in determining whether agreement
is reasonable; 21 years is an UNREASONABLE length for an agreement restraining trade,
thus P was allowed to redeem the mortgage (with respect to Garage B) BUT 5 years is a
Reasonable duration for a contract restraining trade
 i.e. "The crucial consideration in determining reasonableness in the present case was the
length of the period for which each agreement was to last, and in the circumstances the
period of the solus agreement for Garage A (i.e. between 4 and 5 years) was reasonable,
but the period of the restraint in relation to Garage B (i.e. 21 years) was NOT
[Reasonable], with the consequences that the Garage A agreement was VALID and that
as to Garage B, the tying covenant was unenforceable as being in unreasonable restraint
of trade and P was entitled to redeem the mortgage."
 Note: "tying covenant" is the restriction that P could only sell D's petrol
 The Right of Redemption continues until the mortgagor's title is extinguished or destroyed or his interest in the mortgage
property is destroyed by the sale of the property (such as a sale of the property will either be pursuant to a court order or
pursuant to a power of sale contained in the legal mortgage)
□ e.g. mortgagor defaults on payment and mortgagee has not yet taken steps to sell property, and mortgagor finds money

Comm Trans Page 36


□ e.g. mortgagor defaults on payment and mortgagee has not yet taken steps to sell property, and mortgagor finds money
and pays the mortgagee then the mortgagor is entitled to have his property re-conveyed to them

○ The main provisions of a legal mortgage


 Among others, a legal mortgage has the following 3 main provisions:
1. A covenant to pay the principal debt and interest on a given date
 The first operative part of a legal mortgage is usually a covenant by a mortgagor to pay the principal amount and
interest thereon on a particular date
 Because it's the principal amount and interest which is payable, the amount which is payable by the mortgagor may
exceed the sum advanced to the mortgagor
2. A covenant to pay interest
 The covenant fixing the date of payment generally also provides for interest to be paid
 The rate of interest is usually simple interest
◊ However, the mortgagor can validly agree to pay compound interest
 The mortgagee may only charge compound interest if, and only if, there is agreement to that effect in the
legal mortgage
• i.e. mortgagor is entitled to charge simple interest but is not entitled to charge compound interest
unless borrower agreed to pay compound interest
 The agreement to pay compound interest may either be express or implied from the nature of the dealings
between the parties
• However, a mere intimation by the mortgagee that he intends to charge compound interest is not
enough
• It is critical that there is assent or agreement by the mortgagor and such agreement/assent can in fact
be inferred from the business
 e.g. commercial banks, by custom, do charge compound interest, so even if borrower does not
agree to pay compound interest it will be implied that he agreed to pay compound interest
 Compound interest: charges interest on both the principal amount and also charging interest on the
interest
 Simple interest: lender charges interest only on principal amount
 UNION BANK ZAMBIA LIMITED V SOUTHERN PROVINCE COOPERATIVE MARKETING UNION 1995/97 ZR
at p.207 [very important - must read]
• Facts:
 Bank agreed to lend Customer K400 million
 Customer executed a promissory note undertaking to pay on demand the K400 million with
interest at a rate over 5% of the published rate, with a minimum of 135% per annum
 The customer also agreed with the bank that any money he had in his bank account could be held
as security for the loan and that he would pay the loan in installments
 Bank charged Customer both compound and simple interest
 Customer refused to pay the bank because of overcharging on interest
 Bank then brought action to recover the money owed to it, including the interest
 Bank also sought to recover "penal interest"
 i.e. Bank sought to recover "penal interest" from Customer on account of the penalties
inflicted on Bank by BoZ because of Bank's overdrawn position with the central bank
• Held:
 Bank can charge Simple interest at a Reasonable rate on overdrafts or loans
 i.e. "A banker has the right to charge simple interest at a reasonable rate on all overdrafts or
loans."
 Compound interest can only be charged if there is an EXPRESS Agreement or evidence of
consent/acquiescence
 i.e. "However, when it comes to an unusual rate of interest (like Compound Interest)
EXPRESS Agreement is required, or in the alternative, evidence of consent or
acquiescence to such a practice of custom."
 In the present case, there was evidence of Customer consenting to the compound interest,
thus the compound interest charges were upheld: "There was evidence on record that the
bank debited the customer's account at regular intervals and this is reflected in the
documents. When the customer itself worked out its own computation, the document on
record shows the customer equally added interest at regular intervals."
 Very important: Penalty/penal interest, in whatever form, cannot be charged in Zambia (even if
the parties agree to it, penal interest cannot be charged)
 i.e. "Penal interest is certainly not part of banking practice and custom in Zambia and, even if
there had been an agreement to pay penal interest, such would have been liable to be struck

Comm Trans Page 37


there had been an agreement to pay penal interest, such would have been liable to be struck
down for being a penalty objectionable at common law."

3. Appointment of a receiver
 Every mortgage will have a provision for the appointment of a receiver or a receiver manager or a manager, and this
is particularly so if the mortgagor is a Limited company incorporated under the Companies Act ("CA") and it is in
breach of its obligation to pay the amount secured by the mortgage.

○ The Mortgagee's Remedies


 When there is default on the part of a borrower/mortgagor, the mortgagee is entitled to pursue the following remedies
concurrently:

1. The payment of principal and interest


 This remedy is in accordance with the mortgagor's covenant in the mortgage deed to pay principal and interest on a
particular date

2. Possession
 The mortgagee is entitled to take possession of the mortgaged property
 In the case of land which includes a dwelling house, the remedy of possession is subject to the limitation that the
High Ct has the discretion to delay the making or enforcement of a possession order if it considers that the
mortgagor is likely to pay the money within a reasonable time/period
◊ i.e. court has discretion to delay the granting/enforcement of a possession order to give chance to mortgagor to
repay loan when the land includes a house in which mortgagor resides/lives

3. Foreclosure or sale after the day fixed for redemption


 If the time that is given to the mortgagor within which to pay the debt expires, then the mortgagee is entitled to
foreclose on the mortgaged property and also to sell it
 The process of sale does not include a sale by the mortgagee to himself
◊ i.e. property must be sold to a third party
 Read - very important:
◊ DAPONTE V. SCHUBERT (1939) 3 ALL ER 495
 Facts:
• P agreed to sell D shares in a company for $20,000
• D gave P a cheque for $10,000 and $10,000 cash
 P then transferred the shares to D
• When P tried to cash the cheque, he was not able to as D had instructed his bank not to honor the
cheque
• P brought an action, asking the court to make an order for foreclosure over the shares which had not
been paid for (and for those shares to be transferred back to P) or, alternatively such other order as
the court saw fit
 Held:
• The court had NO jurisdiction to make an order for Foreclosure over the shares
 The appropriate order was an order for SALE of the shares (i.e. P's remedy was not foreclosure
over the shares but rather for D to be forced to sell the shares and pay P the $10,000)

◊ S. BRIAN MUSONDA (Receiver for First Merchant Bank Zambia Limited in Receivership) v. HYPER FOOD
PRODUCTS LIMITED & OTHERS Supreme Court of Zambia Judgment No. 16 of 1999
 Held:
• Court has equitable jurisdiction to delay foreclosure or suspend an order for possession (or
postpone the alternatives) where there are reasonable prospects of the mortgagor paying within a
reasonable time, even if this results in fettering the mortgagee's of inflicting a remedy of their own
choice in a mortgage action
 i.e. "In the exercise of its equitable jurisdiction, the court has long been entitled to interfere with
the contractual rights of the mortgagee, to the extent of enlarging time even where there is
foreclosure or suspending orders for possession or postponing the alternatives if there are
reasonable prospects that the monies due can be paid within a reasonable time (see Order 88 of
the White Book)"
 "It is not contrary to law or to the rules, for the court to exercise its equitable jurisdiction of
affording relief where a judgment debtor can pay within a reasonable time, even if this results in
fettering the judgment creditor's freedom of inflicting a remedy of their own choice or
preference in a 'mortgage action'."

Comm Trans Page 38


preference in a 'mortgage action'."

• Remedies of "Sale" and "Foreclosure"


 Foreclosure: a foreclosure decree absolute extinguishes the equity of redemption and vests
absolute ownership of the property in the mortgagor
 Sale: more appropriate to order a sale where the property is worth substantially more than the
mortgage debt
 i.e. "Foreclosure and sale are 2 distinct and separate remedies though both are remedies
primarily for the recovery of capital in contradistinction with the taking of possession or the
appointment of a receiver which are remedies primarily for the recovery of interest. Further,
a foreclosure decree absolute extinguishes the equity of redemption and vests the
mortgagor's entire interest in the property in the mortgagee, so that the mortgagor's
property belongs to the mortgagee absolutely. Sale on the other hand is usually more
appropriate where the property mortgaged is worth substantially more than the mortgage
debt."
• Duty on the mortgagee to obtain the proper price; when property is sold at a grossly -undervalued
price then the sale is liable to be set aside if there is an obvious injustice or fraud on the mortgagor
 i.e. "There is a duty to obtain a proper price and an obligation to take reasonable precautions to
secure a proper price which had been fixed with regard to the property. Order 31 of the White
Book directs that the best price that can be obtained be realized. Colorable sales and sales at a
gross under-valuation by receivers, mortgagees, judgment creditors and the like are liable to be
set aside by the court where an obvious injustice or fraud on the debtor or surety is manifest."
 i.e. "The mortgagor is the person interested in the proceeds of sale in so far as they exceed
the debt, and his interests must not be sacrificed. The mortgagee is accordingly required to
act not only in good faith but also with reasonable care. If he advertises the property
without mentioning that the land has valuable planning permission then he will be
accountable to the mortgagor for the difference between the proper price and the price
obtained, it has been held that he need not advertise the property or attempt to sell it by
auction before selling by private contract, or delay a sale so as to obtain a better price,
since he is entitled to proceed to a forced sale. His motive for selling too (such as spite
against the mortgagor) has been held immaterial."

 The legal mortgage will usually give the mortgagee the right to foreclose and sell and if it does so then the
mortgagees will be entitled to foreclose and sell
◊ However, on the part of the mortgagee it is usually safer, even where the mortgagee is entitled to foreclose and
sell, to take out a mortgage action and obtain a court order for foreclosure and an order to sell
 If mortgagee goes to court, the court will in the first instance grant a Foreclosure Order Nisi
• Reason courts do not grant a foreclosure order absolute in the first instance (and rather grant a
foreclosure order nisi) is to give the mortgagor an opportunity to pay back the money within a certain
period and if the mortgagor fails to pay within the specified period then the court will grant a
foreclosure order absolute
 Once foreclosure order absolute is granted, the mortgagee will then sell
 Once mortgagee sells property the mortgagor's right to redemption is destroyed
 Also advisable to get court's assistance to avoid delays
• e.g. if do not get court orders then the mortgagor can apply for an injunction to prevent the
mortgagee from foreclosing and selling, resulting in a delay
 Thus, if get a foreclosure order nisi it means mortgagor will have a deadline to pay after which an
absolute order will be granted and the mortgagee will be entitled to foreclose and sell

4. Appointment of receiver
 Usually a mortgagee will be entitled to appoint a receiver without going to court but in practice it is better to go to
court to avoid delays
 Where the mortgagor breaks any of his obligations to pay, the mortgagee may apply to court for the appointment of
a receiver
 Role of receiver will be to take possession and sell property etc
◊ Generally, unless an action is pending in Court, neither a receiver will be appointed nor will the Court assist the
mortgagee in possession to relinquish possession by appointing a receiver
 The English Conveyancing Act 1881 (which still applies in Zambia) gives the mortgagee power to appoint a receiver
and the power to sell mortgaged property when the mortgage money has become due and the mortgagor has failed
to pay
◊ The power under the Act to appoint a receiver and foreclose/sell, is such that before the mortgagee exercises

Comm Trans Page 39


◊ The power under the Act to appoint a receiver and foreclose/sell, is such that before the mortgagee exercises
such power, the mortgagee must give notice to the mortgagor to repay the mortgage money (but note that this
is the default position and can be done away with if the parties agree to do so in the legal mortgage)
 The power to appoint a receiver or sell can only be enforced after notice to repay has been given and the
mortgagor defaults
◊ However, most lenders legal mortgages have a stipulation that the provisions of the conveyancing Act will not
apply to the legal mortgage and put a clause that the outstanding amounts are due on demand, so that if the
mortgagee makes a demand for the mortgagor to pay and he does not, the mortgagee can then immediately
exercise the remedies provided in the Conveyancing Act 1881 (i.e. foreclose and sell)

○ Mortgagor's remedies
 A mortgagor (i.e. borrower) has the following remedies:

1. Possession
 This remedy arises where the mortgagees refuses to deliver possession of the mortgaged property after the
mortgagor has paid the amount outstanding under the mortgage

2. Redemption
 The mortgagor can exercise his right to redeem the mortgage

3. Surrender or Release
 A mortgagor is entitled to this remedy where the mortgagee refuse to release a security
◊ e.g. if mortgagee refuses to release title deeds in an equitable mortgage and mortgagor has paid outstanding
amount then mortgagor can take out a mortgage action in court to force the mortgagee to release the title
deeds

○ Mortgage Action
 These are proceedings in the High Court relating to mortgages
 In a mortgage action the plaintiff can begin the action by a writ of summons or originating summons
□ An originating summons (supported by an affidavit) is appropriate where there is unlikely to be any substantial dispute of
facts
 i.e. the mode of commencing action depends on likelihood of dispute of facts
 Usually used for legal mortgages, as unlikely to be a dispute of facts in this scenario
 Mortgage actions are commenced by originating summons pursuant Order 30 rule 14 of High Ct Rules as read with
Order 88 of the Supreme Ct Rules (i.e. White Book 1997 Ed.)
 Might be asked to draft a plaintiff's prayer in a mortgage action, and the prayer will read:
◊ "By this summons the Applicant/Plaintiff claims against the Respondent under Order 30 rule 14 of the High
Court Rules as read with Order 88 of the Supreme Court Rules 1997 Edition:
i. Payment of all moneys due under the Third Party Mortgage/ Legal mortgage/Equitable Mortgage
relating to…
ii. Delivery up and possession of…[mortgaged property
iii. Foreclosure and sale of… [mortgaged property]
iv. Right to redeem… [mortgaged property] - note: this is claimed only by a mortgagor
• Prayer that the mortgagor releases title to mortgagee
• Or could be a prayer that mortgagee discharges the legal title
v. Further or other relief
vi. Costs
If the Respondent(s) do not enter appearance such judgment shall be entered or an order made against or in
relation to him/them as the court may think or deem expedient."
 [Note: the reliefs sought in the prayer will depend on whether the applicant in mortgage action is a mortgagor or a
mortgagee]
□ If there is likelihood that there will be a dispute of facts then commence by writ of summons accompanied by statement
of claim

 A mortgage action is an action by either a mortgagee or mortgagor in which there is a claim for any of the following
reliefs/remedies:
i. Payment of money secured by a mortgage
 This relates to both principal and interest
 The mortgage can be either be a legal mortgage or an equitable mortgage
ii. Sale of the mortgage property
iii. Foreclosure

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iii. Foreclosure
iv. Delivery up of possession to the mortgagee by the mortgagor
v. Redemption
vi. Delivery up of possession by the mortgagor to the mortgagee
 Note: this is not the same thing as relief number (iv) above [research distinction on internet]
vii. Release of title deeds to the mortgagor or an order for the mortgagee to discharge the mortgage

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Guarantee
Wednesday, January 29, 2014 3:09 PM

Personal Security

• Guarantees
○ In certain situations, security for a loan may be provided by a surety under a contract of guarantee

○ A guarantee is a contract by which the promisor (aka "guarantor" or "surety") undertakes to be answerable to the promisee
(aka "creditor") for the debt or default of another person known as the "principal debtor" or "borrower"

○ A guarantee is usually referred to as a collateral contract and it is different from the original contract between the lender and
the principal debtor

○ A guarantor or surety is discharged if the principal debtor or borrower performs the obligation guarantee (i.e. if he pays the
debt or performs whatever act he was required to do)

○ A guarantee may be a continuing guarantee if it extends to a series of transactions and is not confined to a single credit or
transaction
 e.g. A goes to bank and borrows by way of loan, K10,000. C then goes to bank and guarantees that the K10,000 loan will be
repaid - such guarantee is a one-off guarantee because it relates to K10,000
□ But if A got an overdraft of K40,000 instead and C guaranteed the overdraft facility for K40,000, what the bank will
want from C is what is known as a continuing guarantee because the borrower does not need to draw the K40,000 at
one go
 Thus C will give a guarantee in respect of the amount drawn at any one time
 If the bank did not get a continuing guarantee then the bank would not be fully protected
◊ e.g. A gets a K40,000 overdraft and bank does not get a continuing guarantee from C. A draws K10,000 and
then pays the bank back the K10,000. Once A has paid back the K10,000, C will be discharged as a guarantor
to the extent of K10,000 i.e. even though C guaranteed the K40,000 overdraft, because the guarantee is not a
continuing guarantee, C will not be liable if A then draws the remaining K30,000 allowed in the overdraft
because C would only be responsible for the K10,000 that A initially drew
 Read Claytons case [very important case]

○ Nature of Guarantee
 An agreement will not be a guarantee unless there is in existence or contemplation a principal debtor and a secondary
debtor
 Unless the guarantee provides to the contrary the guarantee will be determined if the principal obligation is changed
without the guarantor's consent or if the principal obligation is itself determined
 Important thing to take from this: a guarantee is secondary to the contract between the lender and the borrower because
the guarantor is simply saying that he will pay in the event that the borrower defaults

○ Essentials of a guarantee
 The essentials of a guarantee are:
i. There must be a valid agreement
 i.e. there must be an offer on ascertainable terms which received an unqualified acceptance from the person to
whom offer is made
◊ i.e. words of offer must not be vague - the offer made by guarantor must be clear so that the creditor can
make an unqualified acceptance of that offer
ii. To amount to a guarantee, the offer made by guarantor/surety must be addressed to the creditor
 Consequently, an offer which is not addressed to any individual creditor to contribute to the assets of the
principal debtor is not a guarantee
iii. There must be a debt owed by someone which has to be guaranteed
iv. For an agreement of guarantee to be binding it must be made with the intention of creating legal relations
 Note: a guarantee is really an agreement/contract between the guarantor/surety and the creditor

○ Form of a contract of guarantee


1. The contract must be in writing and signed by the guarantor or by some other person lawfully authorized by the
guarantor/surety
□ This requirement arises from the English Statute of Frauds (1677)

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□ This requirement arises from the English Statute of Frauds (1677)
□ Note: a creditor need not sign the contract of guarantee
2. The writing will be satisfied by any sufficient note or memorandum of the promise of guarantee signed by the guarantor or
the guarantor's agent
□ i.e. there is no particular form that contract of guarantee - all that matters is that such contract it is clear that the
guarantor is promising to be liable in case of default by the principal debtor

○ The guarantor's/surety's liability


 There are 2 kinds of liability:
i. A promise by the guarantor which becomes effective if the principal debtor fails to perform his obligation
 i.e. the guarantor promises the creditor that in the event that the principal debtor fails to pay/perform the
obligation, then the guarantor will perform that obligation/pay in the principal debtor's stead
ii. A promise that the principal debtor will perform his obligations

 With respect to both these types of liability, the guarantor's liability is secondary
□ i.e. the guarantor has no liability if the liability of the principal debtor is discharged on or before the date of
performance
 i.e. it the principal debtor who has the primary obligation of paying the debt - the guarantor merely has a
secondary obligation to pay/perform
◊ It, therefore, follows that before any default has been committed by the principal debtor, a creditor cannot
bring an action against the guarantor/surety to force him to set aside money to provide for the possibility of
the debt becoming due from the principal debtor and the principal debtor being in default
 i.e. guarantor's liability only arises when the principal debtor is in default but not before

○ Contracts of guarantee usually contain a provision requiring the guarantor to pay on demand
 Even if there is no express requirement in the contract of guarantee for payment on demand, the guarantor is still liable
provided that the principal debtor defaults in making payment

○ Enforcement of a Guarantor's Liability


 A creditor can enforce the remedy against a solvent guarantor on his guarantee by bringing an action in the High Ct for
judgment
□ Note: the principal debtor may or may not be sued in the same action as the guarantor
 i.e. when the principal debtor defaults, the creditor is free to sue the guarantor and in so doing the creditor can
bring action against either the guarantor alone or against both the guarantor and the principal debtor
◊ Very important: creditor cannot bring action against the guarantor until the principal debtor has defaulted

○ Guarantor's rights after payment


 Unless guarantor/surety has waived his rights he is entitled to be subrogated to all the rights possessed by the creditor in
respect of the debt as soon as he has paid to the creditor the debt due to the creditor under the guarantee
□ The right of subrogation means that upon payment of the debt the guarantor steps into the shoes of the creditor and
can have use of whatever security the principal debtor created in favor of the creditor
 e.g. A borrows K50 from bank and offers bank a mortgage over Property X to secure the debt. B then guarantees
that credit in the event that A fails to pay K50 to bank on due date. B can pay bank the K50 and if he does so then
the mortgage that was created over Property X will be transferred to B, because the debt owed to the bank would
be discharged. The mortgage will be transferred to B even if B is not aware of the existence of the mortgage.
◊ ASKED LECTURER AFTER CLASS: if A were to default would bank look to mortgage first for K50 or would it
look to guarantor?
 Answer: the lender has the option of suing either the borrower alone to recover debt by looking to his
assets (i.e. mortgage) if they are sufficient or the lender can go after both the guarantor and the
borrower in the same action, so that he recovers the debt, to the extent possible from the borrower's
assets and where the borrower's assets fall short then can recover the rest from the guarantor in the
same action.

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Mortgages
Wednesday, January 29, 2014 2:42 PM

Mortgages
○ A mortgage is a security effected by the creation or transfer of a legal or equitable interest in property as security for the
payment of the debt or for the discharge of some other obligation
○ A mortgage may be created by a demise of land; by a transfer of a chattel or by a charge of any interest in real or personal
property for securing a loan or money
○ There is a difference between a mortgage and a charge
 A charge is regarded as a particular type of mortgage
 Differences:
□ A mortgage is a conveyance of an interest in property subject to a right of redemption
◊ i.e. a right to have the interest re-conveyed upon payment of the loan or discharge of the obligation
□ Whereas a charge conveys nothing but merely gives the chargee certain rights over the property
◊ i.e. in a mortgage an interest over land is conveyed but with respect to a charge no such interest is conveyed

○ Characteristics of a mortgage
 A mortgage has 2 basic characteristics:
1. A personal contract for payment of a debt
2. A disposition or charge of the mortgagor's interest or estate as security for the repayment of the debt

○ There are 2 types of mortgages:

1. Legal mortgage
□ A legal mortgage of land can only be created by demise or a legal charge and it must be by deed
 The effect of a legal mortgage by demise is to vest the legal estate, in the term of years created by it, in the
mortgagee, who is immediately entitled to possession of the property upon execution of the deed
◊ The mortgagor's (i.e. borrower) legal estate in the reversion of the term of years is not transferred to the
mortgagee (i.e. lender) until the right of redemption is destroyed by foreclosure
 The term "demise" means a transfer or conveyance of property from one person to another or a grant of a lease
by a term of years
□ Charge by way of legal mortgage
 If the mortgagor holds the term on condition that he will not sub -lease without the landlord’s consent, consent
must be obtained to create a mortgage by sub-demise he legal charge does not involve the granting of a sub -lease
and so the landlord’s consent is unnecessary
 In Zambia all land is leasehold, so to create a legal mortgage you have 2 options:
i. Create legal mortgage by demise of term of years - i.e. borrower is conveying an interest in the land (i.e. term
of years)
ii. Create legal mortgage by charge then borrower is merely giving lender rights over land but not conveying an
interest

2. Equitable mortgage
□ This is a contract which creates a charge on the property but it does not convey any legal estate or interest to the
creditor or lender
□ As between the parties and so far as equitable rights and remedies are concerned an equitably mortgage is equivalent
to an assurance and it is enforceable under the courts of equitable jurisdiction
□ As a general rule, all property, whether real or personal, which may be subject of a legal mortgage can also be charged
in equity

□ An equitable mortgage may be created in either of the following 2 ways:

i. By an agreement to create an equitable mortgage; or

ii. By a deposit of title deeds (with an intention to create legal relations)


◊ A good security in equity may be created by the deposit of the Title Deeds. (This is better than just merely
agreeing verbally that you have an equitable mortgage)
◊ The deposit if Title Deeds could even be used to secure the debt of a third person – Third Party Mortgage
whereby the borrower uses another person’s Title Deeds to secure a loan. A deposit of Title Deeds is
regarded as an imperfect mortgage.

Comm Trans Page 44


regarded as an imperfect mortgage.
 i.e. the guarantor could in addition to the guarantee create a third party legal mortgage
 e.g. A borrows from bank and D guarantees the debt. But in addition to his guarantee D can also
create a third party mortgage over his property to secure the loan.
◊ Usually the lender will also ask the borrower to sign a legal mortgage but do not date it, and will only register
it if borrower defaults (this is to ensure that borrower does not later claim that he gave the lender bank the
title deeds merely for safe-keeping in a safety deposit box)
 In addition, the lender may enter a caveat against the property to stop you from doing anything with it
that would harm their interests

○ The mortgagor's equity of redemption


 A mortgagor has a right to redeem a mortgage
□ i.e. the mortgagor has a right to pay back the debt so that the mortgage property can come back to mortgagor
 The right of redemption continues even if the mortgagor has failed to pay the debt/loan in accordance with the proviso for
redemption
□ The right of redemption arises from the transaction being considered, a mere loan of money which is secured by a
pledge of the estate
 For this reason, any provision in the mortgage which tends to prevent redemption on the payment of the debt or
performance of the obligation for which the security was given is considered to be a fetter or clog on the equity of
redemption and is void
◊ Indeed, the mortgagor's right to redeem the mortgage is so inseparable from the mortgage that it cannot be
taken away even by an express agreement between the parties
 e.g. A borrows money from bank and creates a legal mortgage over his property as security for loan. In
the mortgage A and bank agree that even if A pays back loan the property will not be re -conveyed to A.
This agreement, which takes away the right to redeem the mortgage, is void.
• Read: ESSO PETROLEUM CO. LTD V. HARPERS GARAGE LIMITED [1968] AC at p. 269 or (1967) 1 ALL
ER at p. 699 [very important, must read]
 Held: Any agreement between the parties to take away the right to redeem is void

 The Right of Redemption continues until the mortgagor's title is extinguished or destroyed or his interest in the mortgage
property is destroyed by the sale of the property (such as a sale of the property will either be pursuant to a court order or
pursuant to a power of sale contained in the legal mortgage)
□ e.g. mortgagor defaults on payment and mortgagee has not yet taken steps to sell property, and mortgagor finds
money and pays the mortgagee then the mortgagor is entitled to have his property re-conveyed to them

○ The main provisions of a legal mortgage


 Among others, a legal mortgage has the following 3 main provisions:

1. A covenant to pay the principal debt and interest on a given date


 The first operative part of a legal mortgage is usually a covenant by a mortgagor to pay the principal amount and
interest thereon on a particular date
 Because it's the principal amount and interest which is payable, the amount which is payable by the mortgagor
may exceed the sum advanced to the mortgagor

2. A covenant to pay interest


 The covenant fixing the date of payment generally also provides for interest to be paid
 The rate of interest is usually simple interest
◊ However, the mortgagor can validly agree to pay compound interest
 The mortgagee may only charge compound interest if, and only if, there is agreement to that effect in
the legal mortgage
• i.e. mortgagor is entitled to charge simple interest but is not entitled to charge compound interest
unless borrower agreed to pay compound interest
 The agreement to pay compound interest may either be express or implied from the nature of the
dealings between the parties
• However, a mere intimation by the mortgagee that he intends to charge compound interest is not
enough
• It is critical that there is assent or agreement by the mortgagor and such agreement/assent can in
fact be inferred from the business
 e.g. commercial banks, by custom, do charge compound interest, so even if borrower does not
agree to pay compound interest it will be implied that he agreed to pay compound interest

Comm Trans Page 45


agree to pay compound interest it will be implied that he agreed to pay compound interest
 Compound interest: charges interest on both the principal amount and also charging interest on the
interest
 Simple interest: lender charges interest only on principal amount
 UNION BANK ZAMBIA LIMITED V SOUTHERN PROVINCE COOPERATIVE MARKETING UNION 1995/97 ZR
at p.207 [very important - must read]
• Held:
 Simple interest can be charged
 Compound interest must be agreed
 Very important: Penalty/penal interest, in whatever form, cannot be charged in Zambia

3. Appointment of a receiver
 Every mortgage will have a provision for the appointment of a receiver or a receiver manager or a manager, and
this is particularly so if the mortgagor is a Limited company incorporated under the Companies Act ("CA") and it is
in breach of its obligation to pay the amount secured by the mortgage.

○ The mortgagee's remedies


 When there is default on the part of a borrower/mortgagor, the mortgagee is entitled to pursue the following remedies
concurrently:

1. The payment of principal and interest


 This remedy is in accordance with the mortgagor's covenant in the mortgage deed to pay principal and interest on
a particular date

2. Possession
 The mortgagee is entitled to take possession of the mortgaged property
 In the case of land which includes a dwelling house, the remedy of possession is subject to the limitation that the
High Ct has the discretion to delay the making or enforcement of a possession order if it considers that the
mortgagor is likely to pay the money within a reasonable time/period
◊ i.e. court has discretion to delay the granting/enforcement of a possession order to give chance to mortgagor
to repay loan when the land includes a house in which mortgagor resides/lives

3. Foreclosure or sale after the day fixed for redemption


 If the time that is given to the mortgagor within which to pay the debt expires, then the mortgagee is entitled to
foreclose on the mortgaged property and also to sell it
 The process of sale does not include a sale by the mortgagee to himself
◊ i.e. property must be sold to a third party
 Read - very important:
◊ DAPONTE V. SCHUBERT (1939) 3 ALL ER 495
◊ S. BRIAN MUSONDA (Receiver for First Merchant Bank Zambia Limited in Receivership) v. HYPER FOOD
PRODUCTS LIMITED & OTHERS Supreme Court of Zambia Judgment No. 16 of 1999
 The legal mortgage will usually give the mortgagee the right to foreclose and sell and if it does so then the
mortgagees will be entitled to foreclose and sell
◊ However, on the part of the mortgagee it is usually safer, even where the mortgagee is entitled to foreclose
and sell, to take out a mortgage action and obtain a court order for foreclosure and an order to sell
 If mortgagee goes to court, the court will in the first instance grant a Foreclosure Order Nisi
• Reason courts do not grant a foreclosure order absolute in the first instance (and rather grant a
foreclosure order nisi) is to give the mortgagor an opportunity to pay back the money within a
certain period and if the mortgagor fails to pay within the specified period then the court will grant
a foreclosure order absolute
 Once foreclosure order absolute is granted, the mortgagee will then sell
 Once mortgagee sells property the mortgagor's right to redemption is destroyed
 Also advisable to get court's assistance to avoid delays
• e.g. if do not get court orders then the mortgagor can apply for an injunction to prevent the
mortgagee from foreclosing and selling, resulting in a delay
 Thus, if get a foreclosure order nisi it means mortgagor will have a deadline to pay after which
an absolute order will be granted and the mortgagee will be entitled to foreclose and sell

4. Appointment of receiver
Usually a mortgagee will be entitled to appoint a receiver without going to court but in practice it is better to go to

Comm Trans Page 46


 Usually a mortgagee will be entitled to appoint a receiver without going to court but in practice it is better to go to
court to avoid delays
 Where the mortgagor breaks any of his obligations to pay, the mortgagee may apply to court for the appointment
of a receiver
 Role of receiver will be to take possession and sell property etc
◊ Generally, unless an action is pending in Court, neither a receiver will be appointed nor will the Court assist
the mortgagee in possession to relinquish possession by appointing a receiver
 The English Conveyancing Act 1881 (which still applies in Zambia) gives the mortgagee power to appoint a receiver
and the power to sell mortgaged property when the mortgage money has become due and the mortgagor has
failed to pay
◊ The power under the Act to appoint a receiver and foreclose/sell, is such that before the mortgagee exercises
such power, the mortgagee must give notice to the mortgagor to repay the mortgage money (but note that
this is the default position and can be done away with if the parties agree to do so in the legal mortgage)
 The power to appoint a receiver or sell can only be enforced after notice to repay has been given and the
mortgagor defaults
◊ However, most lenders legal mortgages have a stipulation that the provisions of the conveyancing Act will not
apply to the legal mortgage and put a clause that the outstanding amounts are due on demand, so that if the
mortgagee makes a demand for the mortgagor to pay and he does not, the mortgagee can then immediately
exercise the remedies provided in the Conveyancing Act 1881 (i.e. foreclose and sell)

○ Mortgagor's remedies

 A mortgagor (i.e. borrower) has the following remedies:

1. Possession
 This remedy arises where the mortgagees refuses to deliver possession of the mortgaged property after the
mortgagor has paid the amount outstanding under the mortgage
2. Redemption
 The mortgagor can exercise his right to redeem the mortgage
3. Surrender or Release
 A mortgagor is entitled to this remedy where the mortgagee refuse to release a security
◊ e.g. if mortgagee refuses to release title deeds in an equitable mortgage and mortgagor has paid outstanding
amount then mortgagor can take out a mortgage action in court to force the mortgagee to release the title
deeds

○ Mortgage Action
 These are proceedings in the High Court relating to mortgages
 In a mortgage action the plaintiff can begin the action by a writ of summons or originating summons
□ An originating summons (supported by an affidavit) is appropriate where there is unlikely to be any substantial dispute
of facts
 i.e. the mode of commencing action depends on likelihood of dispute of facts
 Usually used for legal mortgages, as unlikely to be a dispute of facts in this scenario
 Mortgage actions are commenced by originating summons pursuant Order 30 rule 14 of High Ct Rules as read with
Order 88 of the Supreme Ct Rules (i.e. White Book 1997 Ed.)
 Might be asked to draft a plaintiff's prayer in a mortgage action, and the prayer will read:
◊ "By this summons the Applicant/Plaintiff claims against the Respondent under Order 30 rule 14 of the High
Court Rules as read with Order 88 of the Supreme Court Rules 1997 Edition:
i. Payment of all moneys due under the Third Party Mortgage/ Legal mortgage/Equitable Mortgage
relating to…
ii. Delivery up and possession of…[mortgaged property]
iii. Foreclosure and sale of… [mortgaged property]
iv. Right to redeem… [mortgaged property] - note: this is claimed only by a mortgagor
• Prayer that the mortgagor releases title to mortgagee - note: this is claimed by a mortgagee
• Or could be a prayer that mortgagee discharges the legal title - note: this is claimed by mortgagor
v. Further or other relief
vi. Costs
If the Respondent(s) do not enter appearance such judgment shall be entered or an order made against or in
relation to him/them as the court may think or deem expedient."
 [Note: the reliefs sought in the prayer will depend on whether the applicant in mortgage action is a mortgagor or a
mortgagee]

Comm Trans Page 47


mortgagee]
□ If there is likelihood that there will be a dispute of facts then commence by writ of summons accompanied by
statement of claim
 A mortgage action is an action by either a mortgagee or mortgagor in which there is a claim for any of the following
reliefs/remedies:
i. Payment of money secured by a mortgage
 This relates to both principal and interest
 The mortgage can be either be a legal mortgage or an equitable mortgage
ii. Sale of the mortgage property
iii. Foreclosure
iv. Delivery up of possession to the mortgagee by the mortgagor
v. Redemption
vi. Delivery up of possession by the mortgagor to the mortgagee
 Note: this is not the same thing as relief number (iv) above [research distinction on internet]
vii. Release of title deeds to the mortgagor or an order for the mortgagee to discharge the mortgage

Comm Trans Page 48


Debenture
Wednesday, January 29, 2014 2:41 PM

Debentures
○ A debenture is a document which either creates or acknowledges a debt

○ Generally, debentures are securities given by limited liability companies


 Debentures can only be created by companies (NOT individuals)

○ A debenture may contain either a fixed charge or a floating charge on the company's property and undertaking (such property may be
real or personal) whether present or future, as security for a debt

○ Distinction between a debenture and a mortgage:


 A mortgage relates to real and present property and not personal and unascertained property

○ Floating Charge
 A floating charge is a charge or security which is not put into immediate operation but floats so that the company is allowed to
carry on with its business
 A floating charge moves with the property it is intended to affect until some event occurs or some act is done which causes i t to
settle and fasten on the subject of the charge within its reach and grasp
 e.g. Shoprite borrows from Bank and Shoprite then creates a debenture which creates both a fixed and floating charge. The
floating charge will be on all of Shoprite's moveable assets and personal property and because it is floating charge Shoprite is
allowed to use the personal property. So all the goods it sells will be part of the floating charge but Shoprite will be allowed to
sell the items and the floating charge will attach to any new goods/merchandise (i.e. it will attach to whatever moveable
property is available at the time) and will not end until something happens
□ Thus floating charges are important because without them companies would not be able to borrow relying on their stock
in trade (i.e. goods they sell) as security and then continue selling their goods/continue in their stock in trade

 MUST READ following cases:


 Illingworth v. Houldsworth [1904] AC at p.355
□ Especially statement by Lord MacNaghten:

 Meaning of "SPECIFIC CHARGE": "A specific charge, I think, is one that without more fastens on ascertained and
definite property or property capable of being ascertained and defined ."

 Meaning of "FLOATING CHARGE": "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 or
some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.”

 Amiran Ltd and Others v. Agriflora Zambia Ltd (in Receivership) [2004] HPC/0268
□ This case basically restated and explained what a floating charge is

 RE: Yorkshire Woolcombers Association Ltd v. Houldsworth [1903] 2 Ch. D at p.284 [case reaffirmed by Illingsworth v.
Houldsworth]

 A mortgage or a charge by a company which contains the following characteristics is a floating charge:
i. If it is a charge on a class of assets both present and future
ii. If that class of assets is one which in the ordinary course of the business of the company will be changing from time to time
iii. If it is contemplated by the charge that until some future step is taken by or on behalf of the mortgagee/chargee, the company
may carry on its business in the ordinary way so far as it concerns the particular class of assets charged

 A floating charge remains dormant until the undertaking charged ceases to be a going concern or until the person in whose favor
the charge is created intervenes
 i.e. when a floating charge is created it is dormant and will only fasten/crystallize when the company which creates it becomes
insolvent or when the lender/chargee takes some step (such as appointing a receiver)

 Effect of a Floating Charge


 Since a floating charge is only a charge on the assets for the time being, a company can, in the ordinary course of business, sell,
mortgage or otherwise deal with any of its assets as if the floating charge had not been created but only until such time as the
security becomes fixed
□ This is important because it enables companies to borrow, using moveable assets as security

Comm Trans Page 49


□ This is important because it enables companies to borrow, using moveable assets as security

 Restrictions of a Floating Charge


 The operations of a floating charge are usually restricted by making a provision in the debenture that a company shall not
create a mortgage or a charge on the assets which ranks in priority to or pari passu with the charge given by the debenture
□ i.e. a lender who lends money, creating a debenture which creates a floating charge will not want the borrower to go and
get another mortgage with another floating charge that takes priority over the lender's floating charge and, as such, the
lender will put in this restriction
□ This provision will stipulate that the borrower can only create another floating charge with the prior consent of the lender

 Circumstances when a Floating charge becomes a Fixed charge


 A floating charge becomes a fixed charge in any of the following situations:

i. The company ceases its business or company stops carrying on business


 When company ceases/stops carrying on its business the floating charge automatically becomes fixed in order to
prevent the company from disposing of the assets

ii. If a company is wound up


 Immediately a company is wound up the floating charges a company created automatically become fixed charges

iii. If a receiver is appointed


 Immediately a receiver is appointed any floating charge the company created becomes a fixed charge
◊ Typically, it will usually be the lender who will appoint a receiver
 i.e. most debentures/mortgage-debentures will give the lender the power to appoint a receiver when the
borrower defaults
 The receiver will take possession of the company and will be the agent of the company, who will be looking out for
the interests of the lender

iv. If some EVENT happens upon which the charge is to become a fixed charge and if NOTICE is given to that effect in terms
of the charge
 i.e. in the charge the lender and borrower will agree that when a certain event happens the floating charge will
become fixed
◊ e.g. might agree that if borrower fails to make payment within 2 days of demand being made by lender then the
floating charge will become fixed
 Note: it is important that on the happening of the event the lender must give borrower notice that the even has
occurred and, as such, that the floating charge is now a fixed charge

 Most debentures will have a clause which will stipulate that upon a floating charge becoming a fixed charge, the company
cannot, thereafter, deal with any of the property charged except subject to the terms of the charge
□ Read:
 Government Stock and Other Securities Investment Company v. Manila Railway Company [1897] AC 81
◊ "A crystallized charge will bite on all the assets covered by the charge since a floating charge does not normally
provide for crystallization of a part only of the assets to which it relates. The effect of crystallization is to deprive
the company of the autonomy to deal with assets subject to the charge in the normal course of business."
◊ [Note: "crystallization" simply means that a floating charge has become fixed]

○ Fixed Charge (aka specific charge)


 A fixed or specific charge fastens on ascertained or definite property or property capable of being ascertained and defined
 For example, in a mortgage the security for the loan can be ascertained
□ e.g. Plot Nos. 9 & 11 Andrew Mwenya Road, Rhodes Park Lusaka

○ Mortgage-Debenture
 This is a debenture that contains both a fixed and floating charge

Comm Trans Page 50


Agricultural Credits
Tuesday, February 25, 2014 3:50 PM

Agricultural Credits Act


• Agricultural credits are governed by the Agricultural Credits Act 2010 ("ACA")
○ This ACA repealed the Agricultural Credits Act 1995

Scope of the ACA


• The preamble to the ACA provides that the ACA:
i. Establishes the Warehousing Licensing Authority and provides for the functions and powers of that Authority
ii. Facilitate the borrowing of money on the security of charges created on farming stock and other agricultural assets
iii. Provides for the registration of agricultural charges
iv. The certification of warehouses

Definitions in s.2 of ACA

• "Farming stock" is "all agricultural commodities excluding those which are subject of a negotiable or non-negotiable warehouse
receipt, whether future growing or severed from the land" (i.e. agricultural commodities can be future growing or severed from the
land)
○ "Farming stock" under s.2 of ACA includes, among others:
 "Livestock;
 Poultry; and
 Bees
 Wild animals in captivity
 Fish stock
 Timber
 Seed and manure
 Fertilizer
 Insecticide
 Oil and fuel
 Agricultural vehicles, machinery and other plant; and
 Any moveable agricultural fixture"

• "Additional assets" are "any tangible assets, excluding land and warehouse receipts, that belong to a farmer, trader or related
business relating to agricultural production, processing or trade"

• "Other agricultural assets" are "any right of the tenant, including any right to compensation for improvements"

• "Agricultural commodity" is "anything derived directly or indirectly from cultivation"

• s.11(3) of ACA: a farmer can create an agricultural charge over the farmer's farming stock, additional asset and other agricultural
asset
○ i.e. they can be used as security for a loan
 But remember, the definitions for "farming stock" and "agricultural commodities" do not include land and warehouse
receipts
□ Thus, farmer can use any farming stock and agricultural commodities as security for loan but cannot use land or
warehouse receipts (i.e. cannot create a charge over land/warehouse receipts

Agricultural Charges
• For the purposes of this class, we are only concerned with Part 3 of the Act which deals with agricultural charges
• s.11 of ACA provides that an agricultural charge on farming stock and other assets can be a fixed charge or a floating charge or both
○ Thus, under this Act a farmer can create a fixed or floating charge, or both a fixed and floating charge over farming stock and
other agricultural assets
• Note: apart from the farmer, s.11(4) of ACA provides that a related business or trader may create an agricultural charge on
agricultural commodities which it/he purposes or intends to purchase from the farm
○ s.11(4) states: "Notwithstanding any other law, any person who advances inputs or other items required for cultivation to a
farmer and fails to fully disclose to the farmer the cost of the input or item, the interest to be paid by the farmer, and an y
changes, fees or penalties, as required under this section shall be ineligible to register, under this Act, a charge created by the
farmer on the basis of an agreement or contract, and such charge shall be void."

Comm Trans Page 51


farmer on the basis of an agreement or contract, and such charge shall be void."
 This Act covers not just money but also input
□ e.g. company supplies fertiliser can supply fertiliser to farmer in exchange for the famer creating an agric charge in
favour of the supplier
 s.11(4) would allow, for example, a company that supplies fertiliser to supply the farmer with K20,000 worth of fertiliser in
exchange for the farmer giving the supplier K20,000 worth of wheat. In such a situation, s.11(4) would allow the farmer to
create an agricultural charge over the wheat that he is supposed to give to the supplier as payment for the fertiliser.

• s.11(5) provides that the property affected by a fixed charge must be specified in the charge
○ e.g. if creating a fixed charge over farming stock then the farming stock must be specified
 But when creates a floating charge then not required to specify assets which are the subject of floating charge

• s.11(6) provides that the principal sum secured by:


○ an agricultural charge may be a specific amount (advanced to the farmer by way of loan) or
○ a fluctuating amount advanced on current account
 i.e. the farmer can obtain an overdraft facility and create an agricultural charge in respect of that overdraft facility

• s.12 provides for the effect of a fixed charge


○ s.12(1) provides that the lender or the person in respect of whom a fixed charge is created is given power to take possession of
the property which is the subject of the fixed charge and to sell the property after 21 days

• s.13 provides for the effect of a floating charge


○ It provides that the effect of a floating charge is as if the floating charge had been created by a registered debenture issued by a
company
 i.e. only an individual or partnership can create an agricultural charge
□ A company which is a farming company or in the business or farming cannot create an agricultural charge under the
Act
 A company can create a debenture under the Companies Act

• s.14 provides for notice of agricultural charges to be given


○ Under the Act, a farmer who has created an agricultural charge has an obligation to give notice of the fact that there is an
agricultural charge on the farming stock to any person who purchases any agricultural commodity from the farmer
 He must tell the purchaser the name of the creditor and the nature of the charge
□ e.g. a farmer grows wheat and creates a floating charge over it; when selling the wheat the farmer is required to give
purchaser notice that he created an agricultural charge in favor of lender over the wheat
 Rationale: if purchaser knows about agricultural charge then if the farmer defaults on loan, the purchaser will know to
make payments for the stock directly to the lender (and not the farmer)
□ This gives an incentive to lenders to lend money to small-scale farmers on the basis of their farming stock

• s.15 provides supplementary provisions with respect to agricultural charges


○ s.15(1) provides that an agricultural charge which is created under the Act is not a bill of sale
 This is important because:
□ Under the law, someone who creates a bill of sale is required to register the bill of sale within 7 days
□ Thus, the farmer is not obligated to register the agricultural charge within 7 days of its creation (because it is not a bill
of sale)

○ s.15(2) provides:
 that agricultural charges, in relation to one another, will have priority in accordance with the time of registration
□ i.e. the one which is registered first has priority over the one which is registered later
 s.15(2) also provides that agricultural charges created solely to secure the payment of insurance premiums upon farming
stock have priority over other agricultural charges [*very important*]
□ i.e. if a farmer creates an agricultural charge over a herd of cattle or maize for the sole purpose of securing or paying
insurance premiums, then that agricultural charge will run prior to any other agricultural charge
 Rationale: to encourage insurance companies to accept agricultural charges with respect to insurance coverage

○ s.15(3) provides that when an agricultural charge creating a floating charge has been created, an agricultural charge purporting
to create a fixed charge is of no effect [*very important*]
 This is statutory priority of floating charges and it motivates lenders, especially the banks, to create floating charges even if
they have legal mortgages over the property
□ e.g. bank might lend money to farmer and take a legal mortgage over land and also go on to get an agricultural

Comm Trans Page 52


□ e.g. bank might lend money to farmer and take a legal mortgage over land and also go on to get an agricultural
charge, because of the priority given to lenders who take floating charges over farming stock

○ Under s.15(4) farming stock or agricultural commodities which are the subject of an agricultural charge are not available with
respect to any bankruptcy proceedings against the farmer
 i.e. cannot be attached with respect to bankruptcy proceedings against a farmer
 The fact that this discusses bankruptcy as opposed to liquidation shows that this Act is intended to apply to
individuals/partnerships and not companies (as stated above)

• s.16 makes provision for the registration of agricultural charges


○ We saw that an agricultural charge is not a bill of sale and thus is not required to be registered within 7 days
 However, s.16(1) makes it obligatory for every agricultural charge to be registered at the Lands and Deeds Registry within
30 days of its creation/execution
□ If it is not so registered then such agricultural charge shall b void as against any person other than the farmer
 i.e. if not registered within 30 days then will be void against any other person but will still be valid as against the
farmer
 Because of this requirement, it is the lender who will see to the registration of the agricultural charge
◊ Typically, if you are a lawyer representing a lender and the lender takes an agricultural charge, then lender
will ask his lawyer to attend to registration of the agricultural charge
◊ The Registrar can register an agricultural charge out of time if there are good reasons for not registering it
within the 30 days stipulated

○ s.16(8) provides that the fact that an agricultural has been registered shall constitute actual notice
 i.e. it prudent for the lawyer to the lender to attend to registration of the agricultural charge and once registered all
persons who have interest in that property will be deemed to have actual notice of the agricultural charge
 Note: proviso states that although mere registration of agricultural charge constitutes actual notice to all persons
connected with the property, that will not be the case with respect to further advances made on current accounts (i.e. will
not constitute notice of further advances made on current accounts)
□ e.g. farmer A goes to bank and borrows K20,000 and bank registers agricultural charge of K20,000 (as overdraft
facility). This registration will operate as notice of the K20,000 overdraft. If farmer then goes back to bank and
borrows K10,000 then other persons will not be deemed to have actual notice of the further K10,000 borrowed (i.e.
K10,000 further overdraft). Thus, even though K30,000 borrowed in total, other people only deemed to have actual
notice of only the K20,000.
 This notice does not apply to a purchaser who is buying farming stock or agricultural commodities from a farmer pursuant
to s.14
□ i.e. when the farmer is selling any agricultural commodities which are the subject of an agricultural charge, then the
farmer is obliged to tell the purchaser that the commodities are subject to this agricultural charge

• s.17 provides for the restriction on publication of agricultural charges


 s.17(4) [*very important*]
□ Some lenders will still want an agricultural charge even where they have a legal mortgage and this is partly due to
s.17(4)
 s.17(4) provides that the rights of a holder of an agricultural charge, which includes growing crops, will take
priority over the rights of the holder of a legal mortgage even if the legal mortgage was created before the
agricultural charge

• s.18 makes provision for fraud and imposes certain penalties

• s.19 relates to input and other items

• s.20 provides for full disclosure of the cost of inputs

Arbitration
• s.90 provides that the Arbitration Act 2000 shall apply to the settlement of any dispute arising from the interpretation and
application of the provisions of the Agricultural and Credits Act 2010

Difference between DEBENTURE and agricultural charge


• For an agricultural charge a floating charge takes precedence over a fixed charge

Most Important Point

Comm Trans Page 53


Most Important Point
• Main takeaway: a limited liability company cannot create an agric charge under this Act over any agric commodities that the
farmer agrees to give to the company; this Act is only for agric charges created in favour of individuals and partnerships

Comm Trans Page 54


Trade Charges
Wednesday, February 26, 2014 2:14 PM

Introduction
• Trade charges are governed by the Trade Charges Act (CAP 415)
• The preamble to this Act provides for the creation of charges to secure loans advanced by banks, financial institutions or parastatal
corporations to persons licensed under the Trade Licensing Act
• The Act also establishes a register to record such charges
• Main thing to remember is that under this Act, a trader must be licensed under the Trade Licensing Act in order for such trader to be
able to create a trade charge
• Only banks, financial institutions or parastatal organizations can lend money and obtain trade charges which are created under the
Trade Charges Act

Trade Charges Act


○ Must read s.2 of Trade Charges Act (which contains the definitions), especially definitions for:
 "secured property" with respect to a FLOATING charge is the stock in trade or other personal property described in the
register, whether or not, at the time of registration such property is in existence or owned by the person giving the security
□ "secured property" with respect to a FIXED charge, the property described in the register must be in existence at the
time of registration because such property must be specified in the trade charge

 "stock in trade" means any goods the person giving the security sells by way of business as defined in the Trade Licensing
Act

 "secured party" in relation to any particular charge means the bank, fin institution or parastatal corporation which is
identified in the charge as the creditor or its assignee

 "trader" is a person who holds a reserved licence


□ i.e. only an individual trader or firm which has a trading license under the Trade Licensing Act can borrow money on
the security of stock in trade or personal property (i.e. cannot borrow money by creating a charge over stock in trade
or personal property) under the Trade Charges Act

○ s.3(1) of Trade Charges Act provides that a bank or financial institution may, for the purposes of securing repayment of a loan or
advance, take a floating charge on the stock in trade and personal property which the trader owns or of which he may
subsequently become the owner, whether or not such property is in existence at the time of delivery
 i.e. a trader can create a floating charge over his stock in trade or personal property and because it is a floating charge, the
stock in trade or personal prop need not exist at the time when the trader creates the floating charge; all that matters is
that the stock in trade/personal property should subsequently belong to the trader
□ Remember: trader can create a floating charge over either his stock in trade or personal property

○ s.3(2) provides that a bank or financial institution may take a fixed charge on any personal property which the trader owns at
the time when he delivers the documents creating the fixed charge
 i.e. when it comes to creating a fixed charge, the trader can only create a fixed charge over his personal property and such
personal property must be in existence at the time of the creation of the fixed charge
□ BUT trader cannot create a fixed charge over his stock in trade (can only create one over personal property)
□ Secondly, the personal property must exist at the time that the fixed charge is created

○ s.3(3) provides that the sum secured may be either a specific amount advanced in one sum or in more than one sum or a
fluctuating amount advanced on a current account whether or not subject to a maximum specified in a floating charge
 It is important to distinguish between a loan and an overdraft; one can borrow either by way of loan or by way of overdraft
 Important: the floating charge may, if the parties so speculate, continue to be effective notwithstanding the fluctuation or
temporary extinction of the debt
□ See the Rule in Claytons case: when you borrow on overdrafT, if the guarantee is not stated to be a continuing
security – the Rule in Clayton’s Case would apply, and so payments in would be treated as payments towards the
discharge of the debt and payments out would constitute unsecured advances.

○ s.4 provides for registration as well as cancellation of charges


 s.4(5) provides that registration of a trade charge shall constitute to all persons actual notice both of the charge and the
fact of its registration
 s.4(7) provides that the notice of registration of a trade charge shall cease after 3 years, unless the parties withdraw it
earlier

Comm Trans Page 55


earlier
 s.4(8) provides for the renewal of the notice of registration
□ Provides that registration of a charge may be renewed by the submission of a renewal notice 60 days before the
registration expires
 s.4(9) states that a charge registered under the Act shall not be deemed to be a bill of sale within the meaning of the Bill of
Sales Act
□ i.e. there is no requirement for a trade charge to be registered within 7 days
 s.4(10) provides that when a loan or advance secured by a trade charge is paid, the secured party shall execute a certificate
of satisfaction to the Registrar and the Registrar shall cancel the registration of the charge
□ i.e. when the loan and interest and repaid, the bank/financial institution is obligated to discharge the loan

○ Section 5
 s.5(1)(a) provides that a floating charge has the same effect as if the charge had been created by a duly registered
debenture under the provisions of the Companies Act

 s.5(2) provides that the secured party (i.e. lender) shall have the right to take possession of the secured property and after
5 days, or in the case of perishable goods immediately, to sell the secured property upon the insolvency of the debtor or
death of the trade
□ i.e. on the happening of certain events (which are listed in s.5(2) e.g. insolvency of debtor or death of the trader) the
floating charge crystallizes and becomes fixed

 s.5(2)(b) provides for how the proceeds of sale of the secured property will be used by the lender
□ The proceeds of the secured property shall first go to discharging the expenses incurred by the sale; then in paying
interest or other charges and lastly in paying the principal of the loan/advance

 s.5(2)(c) provides that any surplus shall be retained by the person giving the security
□ i.e. any surplus left after the proceeds of the sale have been distributed as stated in s.5(2)(b) must be given to the
trader (i.e. debtor)

 s.5(4) provides that a charge registered under the Trade Charges Act shall have priority of any rights acquired by anyone
after the trade charge is registered
□ But there are Exceptions to this rule [must read s.5(4) to find these exceptions]

○ s.6 provides for a criminal offence


 This gives an incentive to banks and financial institution to lend money to traders on the basis of charges created under this
Act

○ s.7 [important] provides that if the person giving security (i.e. trader) fails to disclose to the lender that the property he is
offering is already secured or withholds material information or gives incorrect material information then he shall be guilty of
an offence and liable to a fine and/or imprisonment

Comm Trans Page 56


The Law of Sales of Goods in Zambia
Thursday, March 20, 2014 1:52 PM

Introduction
• As previously pointed out, Zambian commercial law borrows heavily from English law. This inevitably means that English case law on
sale of goods is very much a part of the law on sale of goods in Zambia
• Unless the context indicates otherwise, reference to the Act means reference to the Sale of Goods Act of England of 1893 ("SGA")

The Sale of Goods in a Zambian Context


• In Zambia, the law governing the sale of goods is the SGA, supplemented by common law principles
○ In the UK, the SGA was amended by the Sale of Goods Act 1979
• This SGA codified the common law in existence at the time
○ Being old, the provisions are not fully comprehensive; hence, the common law principles are applicable so long as they are not
inconsistent with the SGA
• Parties are free to agree and conclude a contract on terms as they please

The Nature of the Contract of Sale

a. WHAT IS A CONTRACT OF SALE?


○ Definition of a Contract of Sale
 s.1(1) of SGA defines a contract of sale as: "a contract by which the seller transfers or agrees to transfer the property in goods
to the buyer for a money consideration called the price."
 s.1(3) of SGA: "a contract of sale can be absolute or conditional"
□ This means that the contract be one of 2 very distinct transactions: a Sale or an Agreement to Sell
 s.1(3) of SGA: provides that a contract of sale could either be:
a. an Agreement to Sell: this is where under a contract of sale the transfer of the property in the goods is to take
place at a future time or subject to some condition to be fulfilled later; or
b. the Sale: this is where under a contract of sale the property (title) in the goods is transferred immediately from
the seller to the buyer

○ Distinction between a Sale and an Agreement to Sell


 The distinction between a sale and an agreement to sell is important because several consequences flow from the passing of
the property
□ It is, therefore, important to understand at what point in the transaction the property passed
 The following considerations are relevant in this regard:

1. Unless otherwise agreed, the Risk of accidental Loss or Damage passes with property;
 i.e. immediately property has passed, any loss or damage will be borne by purchaser

2. Once the property has passed from seller to the buyer, the seller can Sue for the price even if there has not
been delivery (i.e. seller can sue for payment even if no transfer of possession);

3. If property has passed to the buyer then he may claim the goods if the seller becomes Bankrupt or goes into
Liquidation;

4. If the seller Re-sells the goods after the property in them has passed to the buyer, the Second Buyer acquires
no title to the goods unless he is protected by one of the exception to the Nemo Dat Rule (i.e. means "No one
gives what he does not have)
 Note: property will pass depending on the agreement by the parties; so even if full payment has not been made, but
for an agreement, property will pass

○ Ingredients for a Contract of Sale


 The definition under s.1(1) of SGA contains 4 basic ingredients of any contract of sale:
i. i. It is a contract between a seller and a buyer (i.e. there must be a seller and a buyer)
ii. The subject matter of a contract of sale is goods
iii. The purpose of the contract is to transfer property or ownership in the goods
iv. The transfer of the property in the goods is for a money consideration called the "price"

○ Ordinary Rules of Contract Law Apply


a. For a contract of sale to exist, there must be:
i. an OFFER and ACCEPTANCE;

Comm Trans Page 57


i. an OFFER and ACCEPTANCE;
ii. Sufficient CONSIDERATION; and
iii. an INTENTION TO CREATE LEGAL RELATIONS;
b. The contract should not fail any test for a valid contract (e.g. the contract should not be unlawful or contrary to public po licy)
c. Vitiating factors (such as duress, mistake, misrepresentation) apply to contracts of sale to the same extent as they do to ot her
contracts

○ Formalities
a. In terms of formalities, s.3 of SGA provides: "a contract of sale may be made in writing (with or without seal) or orally or partly
in writing and partly orally or may be implied from the conduct of the parties."
b. The SGA does not provide for offer and acceptance in relation to the formalities of a contract of sale, thus, the general law
applies
c. Terms of a contract of sale must be certain and, depending on the facts of each case, the court may imply terms into the
contract
d. Acceptance of an offer must be communicated

b. TERMS OF A CONTRACT OF SALE

○ The normal principles of contract law determine the contents of a contract of sale
 A statement will become a term of a sale of goods contract if:
i. the maker warrants it to be true; and
ii. the maker intends it to binding
□ i.e. anything a party says which is true and intended to be binding will become a term
 Mere representations cannot be a term of a contract of sale
□ Oscar Chess Ltd v William
 Facts:
◊ A seller of a secondhand car, in part exchange for another car, innocently represented (relying on the log book)
that the car was a 1948 Morris 10 Saloon
◊ The car turned out, in fact, to be a 1939 model although it had the same outward appearance
 Held:
◊ That the statement was a mere innocent representation and was not intended to be a term of the contract

○ Warranties and Conditions


 The terms in a contract may be classified as being either WARRANTIES or CONDITIONS
□ The SGA distinguishes warranties and conditions by reference to the Buyer's Remedies (as opposed to distinguishing them
by their nature)
 s.11 of SGA recognizes that:
1. a Condition is a more vital term the breach of which usually entitled the innocent party to treat the contract as
repudiated (s.11(1)(b) of SGA)
2. a Warranty is a subsidiary term, the breach of which only entitles the innocent party to damages (s.11(1)(b) of
SGA)
 s.11(1)(b) of SGA: where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may
waive the condition or may elect to treat the breach of such condition as breach of warranty, and not as ground for
treating the contract as repudiated

The Subject Matter of a Contract of Sale of Goods


• The subject matter under the definition of a sale of goods contract is stated to be goods
○ This is the distinguishing characteristic of a contract of sale from other forms of contract.

• Goods are defined in s.62 of SGA as including:


i. all Personal Chattels other than things in action and money;
ii. Emblements;
iii. Industrial growing crops; and
iv. Things attached to or forming part of the land which are agreed to be severed under the contract of sale

• What does the definition of goods in s.62 of SGA include or exclude?


○ The definition of "Goods" Excludes:
i. Land; and
ii. Choses in action (e.g. shares, trademarks, debts and negotiable instruments (i.e. intangible property))

It has been held that "goods" Includes:

Comm Trans Page 58


○ It has been held that "goods" Includes:
i. Ships;
ii. Crops;
iii. Minerals;
iv. Energy; and
v. generally things forming part of the land but not land itself

Transfer of Property or Ownership


• The transfer of property in goods is the very essence of a contract of sale
○ The SGA deliberately uses the term property to signify ownership rather than the physical chattel subject of the contract of sale

The Money Consideration


• From the definition under s.1(1) of SGA it is obvious that the Consideration must be Money and a barter transaction is not within the
scope of the SGA

Contrasting a Contract of Sale of Goods From Similar Contracts


a. A Gift and a Contract of Sale
○ Provisions of the SGA will not normally apply to gifts
○ What is a "Gift"?
 A gift is essentially the transfer of property without any consideration
□ Thus, a gift is NOT Binding on the parties to it, unless the transfer is by deed
 EXCEPTION:
◊ Where free gifts are offered by a retailer or manufacturer as part of a sales promotion there may be a contract,
but the contract will generally not be one of sale or gift either (although property may pass)
 Esso Petroleum Limited v. Customs & Excise Commissioners
– Facts:
 Garages selling petrol advertised a free gift of a coin (bearing a likeness of a footballer) to anyone
buying four gallons
– Held:
 Although the transaction was not a gift in as much as the garage was contractually bound to
supply the coin to anyone buying four gallons of petrol, it was not a sale of goods either
 The transaction was characterized as one in which the garage promised to supply a coin in
consideration of a customer buying the petrol
 Thus, in substance, it was a collateral contract existing alongside the contract for the
sale of the petrol
b. A Sale and an Exchange
○ We saw that a contract of sale is one for transfer of property for a money consideration which is called the "price"
 Thus, the price is money and consequently, s.61 of SGA excludes money from the definition of "goods"
 i.e. when you exchange money for money (e.g. when you go to a Bureau and exchange Kwacha for Rands) then that
exchange is not a contract of sale for goods because s.61 excludes money from the definition of goods
□ Equally a transaction of barter cannot be treated as a contract of sale
 e.g. trading a cow for wool is not a contract of sale but merely a barter transaction

c. Distinction between a Sale and a Supply of Services


○ It is important to make a distinction between a contract for sale of goods and a contract for supply of services because the implied
duties of a seller as to quality and fitness of the goods or services supplied in a Sale of Goods Contract may not apply in a Contract
for the Supply of Goods because in contracts for supply of goods the supplier's duties are those of Due Care only

d. Distinction between a Contract of Sale and a Hire-Purchase Contract


○ These 2 contracts are governed by 2 separate statutes:
 Sale of Goods Act 1890 ("SGA") governs contract of sales
 Hire-Purchase Act with regard to Hire-Purchase Agreements
○ Hire-purchase contracts are typically standard term contracts
○ In a sale of goods contract the seller has the right to maintain an action for the price against the buyer where the buyer fails to pay
for the goods - see s.49 of the SGA
 The right to maintain such an action (i.e. an action for price) is not available in a Hire-Purchase Contract
□ i.e. in a H-P contract, the owner cannot maintain an action for the installments due against the hirer

Capacity to Enter into a Contract of Sale


• s.2 of SGA: the capacity to buy and sell goods is regulated by the general law concerning capacity to contract and to transfer and
acquire property or ownership

Comm Trans Page 59


acquire property or ownership
○ BUT infants and persons with mental incapacity are must pay a Reasonable price for any Necessities sold and delivered to them
 i.e. infants and persons with mental incapacity can only enter into valid contracts of sale if those contracts of sale are fo r
necessities
□ Necessities are goods suitable to the condition in life of such infant or minor or other person and to his actual
requirements at the time of sale and delivery
 e.g. a 10-year old girl who goes to school can enter into a contract and purchase school requisites on the basis that
they are necessary and required by her
 See also s.1 of the English Infant Relief Act 1874
□ Contracts for goods supplied or to be supplied, other than contracts for necessities, with infants shall be void

Status of the subject matter of the contract of sale

• Contracts of sale may be related to existing and future goods


○ s.5(1) of SGA: goods subject of a contract of sale may be in existence or they may be future goods

• The contract may relate to specific goods


○ i.e. goods that are identified and agreed upon by the parties at the time the contract is made

• The contract could also relate to goods to be manufactured or acquired by the seller after conclusion of the contract of sale
○ i.e. the contract could relate to unascertained goods which may be referred to by the parties by description
 e.g. the parties could agree that the seller will sell to the purchaser 200 rings of bond paper
○ Read Marjorie Mambwe Masiye v. Cosmas Phiri [2008] ZLR at p.56

• Ascertained goods

○ The term "ascertained goods" is not defined in the SGA


 However, in the case of Re Wait [1927] 1 Chancery Division 606 at p.630
□ Lord Atkin: "the expression "ascertained goods" probably means identified in accordance with the agreement after the
contract is made"

○ As stated above, contracts of sale may be related to existing and future goods
 Future Goods: with respect to future goods, these are usually unascertained and in terms of s.16 of SGA , property in them
will not pass from the seller to the buyer at the time the contract is made until such goods have been ascertained
□ Note: even after the goods have been ascertained the passing of property or ownership may be deferred until the
fulfilment of a condition making them deliverable
 i.e. property or ownership in goods can only pass from the seller to the buyer when the goods are deliverable
 During this time the buyer would not obtain specific performance of a contract because property will not have passed
◊ i.e. one is not entitled to specific performance unless title in the goods has passed from the seller to the buyer

○ Sections 6 and 7 of SGA make provision for Perishable goods


 They envisage specific goods (i.e. these provisions only apply to goods which are in existence at the time of the contract)
 s.6 of SGA: "Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have
PERISHED at the time when the contract is made, the contract is void."
 s.7 of SGA: "Where there is an agreement to sell specific goods, and subsequently the goods, without any fault on the part of
the seller or buyer, perish before the risk passes to the buyer, the agreement is thereby avoided."

The Price
• s.8(1) of SGA: the price in a contract of sale of goods may be fixed by the contract or may be left to be fixed in an agreed manner
○ e.g. the price could be fixed by a third party such as a valuer
 i.e. the parties could agree that the price to be paid for a particular good could be fixed by a third party who is an expert at
valuing the goods being sold
○ e.g. price could be determined by the course of dealings between the parties
 i.e. the parties have entered into a number of sale of goods transactions and can agree that the price will be determined in the
same manner as in previous transactions

• Where parties to a contract for the sale of goods have not expressly agreed on the price and not agreed that it be fixed by a valuer or by
arbitration, then a court may be able to imply the price the parties intended should be paid in other similar transactions between the
same parties
○ i.e. the parties enter into a contract of sale without stating the price or nominating a third party to determine the price, but the
parties have had similar transactions between. In such circumstances, the court will determine that the price should be the same as

Comm Trans Page 60


parties have had similar transactions between. In such circumstances, the court will determine that the price should be the same as
or similar to the price in previous transactions.
○ The course of dealings between the parties may be difficult to ascertain

• The courts are reluctant to allow unilateral variation of price agreed by the parties
○ i.e. once the parties have a agreed to a price, the courts are reluctant to allow one of them to change the price without the consent
of the other
○ Read Kembe Estates Ltd v. ??? Farms Ltd Appeal No. 53 of 2003

Stipulation as to Time

• s.10 of SGA: stipulation as to time of payment is not deemed to be of essence to a contract of sale unless the contract indicates a
contrary intention
○ However, all other time stipulations in a contract of sale are normally considered to be of the essence
 The courts have however illustrated that stipulation as to delivery is essentially a breach of a condition giving the buyer t he
option of refusing the goods altogether
□ Harley v. Hymans [1920] 3 KB at p.475
 Held: "In ordinary commercial contracts for sale of goods the rule clearly is that time is prima facie of the essence with
respect to delivery."
◊ It follows from this that if the time for delivery is fixed by the contract, then failure to deliver at that time will
thus be a breach of condition which justifies the buyer in refusing to take the goods.

• Failure to comply with a stipulation as to time, other than time of payment, will be considered a breach of a condition and the buyer
will be entitled to reject the goods without proof of damage
○ e.g. parties agree that goods are to be delivered at 3pm on 5 April 2014. If the seller delivers the goods on 5 April 2014 at 5pm, then
the buyer is entitled to reject those goods because the seller would have breached a condition.
○ Bowes v. Shand [1877] 2 AC at p.455
 Facts:
□ Sellers agreed to ship a quantity of Madras rice during the months of March and/or April
□ Goods were loaded onto the ship in February and a bill of lading for them was signed
□ The bulk of the rice was shipped at the end of February and only about one-eighth was shipped during March
 Held:
□ Time of delivery (when specified by parties) is a condition
 Courts will interpret this very strictly
□ The buyers were entitled to reject the goods although it was conceded that there was no difference between the rice
actually shipped and any rice which might have been shipped in March
□ Lecturer said: Any delivery of goods early is as much a breach as late delivery
 e.g. parties agree that goods are to be delivered at 3pm on 5 April 2014. if seller delivers the goods at 1pm on 5 April
2014, then the buyer can reject the goods because seller would have breached conditions
□ In this contract delivery occurred when goods were loaded on the ship (the goods were loaded before the specified
months, therefore there was a breach of delivery obligation, which is a condition)
 Thus, buyer was entitled to reject goods
 Summary: contract for goods to be shipped during the months of March and April, was construed according to its literal
meaning and goods partly shipped in February, for which bills of lading were signed then, were held not to satisfy the contra ct.
Lord Blackburn points out in very forcible words that if the description of the article tendered is different in any respect, it is
not the article bargained for and the other party is not bound to take it. It must be shown not merely that the article is eq ually
good, but that it is the same article as the parties have bargained; for otherwise they are not bound to take it.

Implied Conditions and Warranties in contracts for sale of goods


• The SGA implies certain terms and conditions in every contract of sale

○ ss.12-15 of SGA set out these terms:

1. s.12(1) of SGA: there is an Implied Condition that the seller has the Right to Sell
□ i.e. the SGA protects the buyer by guaranteeing to the buyer that the seller is the owner of the goods he is selling
 In this respect, s.12 of SGA provides that in a contract of sale, unless the circumstances of the contract are such as to
show a different intention, there is:
i. An implied Condition on the part of the seller that in the case of the sale he has the right to sell the goods and
in the case of an agreement to sell, he will have the right to sell the goods at the time when property is to pass;
and
ii. An implied Warranty that the buyer shall have and enjoy quiet possession of the goods; and

Comm Trans Page 61


ii. An implied Warranty that the buyer shall have and enjoy quiet possession of the goods; and
iii. An implied Warranty that the goods shall be free from any charge and encumbrance in favor of any third party
not declared or made known to the buyer before or at the time the contract is made
□ If a buyer buys goods from the seller who has no good title to the goods then he acquires a defective title to the goods
and must generally return the goods to the true owner
 The liability which is imposed by s.12(1) of SGA is strict and does not depend on the fault or negligence or knowledge
of the seller
◊ i.e. the provision of s.12 of SGA is reached even if the seller honestly believed that he had the right to sell

2. Correspondence with Description


□ s.13 of SGA implies a condition in a contract of sale that the goods must comply with the description supplied
 A sale by description is a sale where words are used to identify the goods sold
◊ Thus, a sale of future or unascertained goods is a sale by description
 The rule in s.13 of SGA was explained in the words of Lord Blackburn in Bowes v. Shand when he said: "if you
contract to sell peas you cannot oblige a party to take beans. If the description of the article tendered is different in
any respect it is not the article bargained for and the other party is not bound to take it."
 For s.13 of SGA to apply, the descriptive statement must be in or form part of the contract in question
◊ i.e. in order for s.13 of SGA to apply, the statement which describes the goods to be sold or description must
form part of the contract

3. Implied Condition as to Merchantability


□ Until recently, the maxim caveat emptor or "buyer beware" was the primary principle in the sphere of the sale of goods
as it did and still does in the case of land
□ s.14 of SGA: Except as provided by the SGA, there is no implied condition or warranty as to quality of fitness for any
particular purpose of goods supplied under a contract of sale

□ There are many exceptions to the general rule that the buyer must beware and what s.14 of SGA does is, in effect, to
give exceptions to that general rule that the buyer must "beware":

i. There is an implied condition as to merchantable quality;


 Under s.14(2) of SGA, where the seller sells goods in the course of a business, there is an implied condition
that the goods sold/supplied are of merchantable quality
 But there is no such condition:
a. as regards defects drawn to the buyer's attention before the contract is made; or
b. if the buyer examines the goods before the contract is made as regards defects which the
examination ought to reveal

ii. An implied condition of fitness for purpose;

□ In order for the buyer to rely on s.14(1) of SGA, the buyer must have made known to the seller the
particular purpose for which the goods are required
– Thus, this implied condition that the goods are of merchantable quality only applies if buyer told
seller the purpose for which he was purchasing the goods
○ BUT where the goods are used for one purpose only or the purpose for which goods are required
are obvious, the law implies that no further indication is required
 Priest v. Last [1903] 2 KB at p.148
 Facts:
 P bought a hot water bottle from a shop
 The bottle burst when hot water was poured into it
 Held:
 A hot water bottle is required for a particular purpose within the provisions of s.14
of SGA because it has one purpose only, and the buyer could only require it for that
purpose
○ Where goods have a range of purposes, the buyer must indicate the particular purpose for which
he requires the goods

iii. Condition and Warranties for purpose (s.14(3) of SGA); and

iv. A condition of freedom from latent defect on a sale by sample (s.15(2)(c) of SGA)

Comm Trans Page 62


□ Summary of s.14 of SGA Protections for buyers:

i. If goods have only one purpose they are unmerchantable if they have defects rendering them unfit for that
purpose
○ Grant v. Australian Knitting Mills [1936] AC at p.85
□ Facts:
– P bought a pair of underpants manufactured by D and contracted dermatitis after wearing them
□ Held:
– "There is no need to specify in terms the particular purpose for which the buyer requires the goods ,
which is nonetheless the particular purpose within the meaning of the section, because it is the only
purpose for which anyone would ordinarily want the goods ."

ii. Where goods are intended for immediate use they must be merchantable when they are sold and delivered

iii. Where goods are sold under a contract which involves transit before use, the goods must be merchantable at the
time the contract is made and for a reasonable period thereafter

iv. Where the buyer examines the goods, he will not be protected as regards defects which that examination ought to
have revealed

v. Where the goods are sold by the seller in the course of business and the buyer makes known to the seller any
purpose for which the goods are being bought, there is an implied condition that the goods supplied under the
contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly
supplied

vi. The buyer must show that he relied on the seller's skill or judgment

vii. Where the defect occurs as a result of the special or abnormal situation of the buyer which was not revealed to the
seller at the time of the sale, then the seller will not be held liable
○ Griffiths v. Peter Conway Ltd [1939] 1 All ER at p.685
 Facts:
– P bought a tweed coat from D and got a rash because he had sensitive skin
– Someone with normally sensitive skin would not have been affected but the purchaser had abnormally
sensitive skin
 Held:
– As the coat would not have harmed a person with normal skin, the seller was not liable
○ Because P did Not tell D that she had sensitive skin, she lost the case
 P's sensitive skin rendered the required use so special that she had to make it known to D the
purpose for which the coat was required in the relevant sense

viii. The implied conditions as to merchantability are excluded if:


a. Any defects are brought to the buyer's attention before or at the time the contract is made; or
b. The buyer examines the goods before the contract is made

3. Implied condition that the goods will correspond with the Sample
□ s.15(2)(a) of SGA: deals with sale by sample
 A "sample" is a specimen/model/pattern/likeness
 A contract of sale is a contract of sale by sample where there is a term in the contract, express or implied, to that
effect
□ In a contract for sale by sample, 3 conditions are applicable:
i. s.15(2)(a) of SGA: there is an implied condition that the bulk shall correspond with the sample in quality;
ii. s.15(2)(b) of SGA: there is an implied condition that the buyer shall have a reasonable opportunity of comparing
the bulk with the sample; and
iii. s.15(2)(c) of SGA: there is an implied condition that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the sample
○ i.e. the seller is liable if the goods are defective but the seller escapes liability if the defect in the goods could
have been discovered by reasonable examination of the sample, whether or not the buyer has examined the
goods

Excluding the Implied terms (i.e. Contracting Out)

Comm Trans Page 63


Excluding the Implied terms (i.e. Contracting Out)
• s.55 of SGA allows complete freedom to contract out of any of the obligations implied by the SGA
○ Thus, s.55 of SGA deals with exemption clauses relating to the implied terms provided for in s.10(1) and ss.12-15 of SGA

• Although there is a freedom to contract out, the courts tend to frown upon exemption clauses that seek to protect a contracting party
who is guilty of fundamental breach of the contract
○ For this reason, the courts construe strictly any terms which purport to exclude any of the terms implied by the SGA (i.e. terms
contained in s.10(1) and ss.12-15 of SGA)

 e.g. a term excluding guarantees or warranties does not exclude a condition


□ Read Baldry v. Marshall [1925] 1 KB at p.260

 e.g. a clause excluding implied condition does not exclude any express condition
□ Read Andrew Brothers (Bornemouth) v. Singer and Co. Ltd [1934] 1 KB at p.17

 e.g. an express oral term may be held to override a printed or written exemption clause

 e.g. a failure to carry out the contract at all (e.g. by delivering entirely different goods from those contracted for) would be a
breach of a fundamental term and the courts will normally construe an exemption clause as not intended by parties to apply in
this situation
□ Read:
 Karsales Harrow Ltd v. Wallis [1956] 2 All ER at p.866
 Harbutt's Plastacine Ltd v. Wayne Tank and Pump Co Ltd [1970] 1 All ER at p.225

Transfer of Property in Goods


• s.16 of SGA provides that where there is a contract for the sale of UNASCERTAINED goods, no property in the goods is transferred to the
buyer unless and until the goods are ascertained
○ There are various forms that goods can be ascertained
• s.17 of SGA stipulates that where there is a contract for the sale of SPECIFIC or ASCERTAINED property in the goods passes at such time
as the parties wish it to pass
○ For the purposes of ascertaining the intention of the parties (with respect to when property should pass), the terms of the contract,
the conduct of the parties and the surrounding circumstances of each case must be considered

○ s.18 of SGA provides for the rules for ascertaining the intention of the parties:
 Unless a different intention appears, the following are the rules for ascertaining the intention of the parties as to time at which
the property in goods is to pass to the buyer:
i. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods
passes to the buyer when the contract is made
 With respect to specific goods, it is immaterial whether the time of payment or time of delivery of the goods or both
be postponed
 As regards this rule (i.e. s.18(i) of SGA), property in the goods will not pass unless the goods are specific or
ascertained goods
 For property to pass, those goods (specific or ascertained) must be in a deliverable state
○ Goods are in a deliverable state when they are in such a state that the buyer would under the contract be bound
to take delivery of them

ii. Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods to put
them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof

iii. Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure,
test or do some other act or thing to the goods for the purpose of ascertaining the price, the property does not pass
until such act or thing be done and the buyer has notice thereof
 e.g. if the parties have agreed that the goods being sold should be weighed, then property will not pass until the
goods are weighed and the buyer has notice of the fact that they have been weighed and the price determined
 This rule will not apply where the act or thing to be done to the goods is anything other than for the purpose of
ascertaining the price
 This rule will also not apply where the thing to be done is to be done by someone other than the seller

iv. When goods are delivered to the buyer on approval or, on sale or return, or similar terms, the property therein passes
to the buyer:
a. When he signifies his approval or acceptance to the seller or does any act adopting the transaction; or

Comm Trans Page 64


a. When he signifies his approval or acceptance to the seller or does any act adopting the transaction; or
○ Where the person who has received goods on sale or return terms pledges them to a third party, he thereby
does an act adopting the transaction within the meaning of Rule 4(a) (i.e. s.18(4)(a) of SGA), and property in the
goods passes to him and the original owner cannot recover them from the person to whom the goods have been
pledged
 See Kirkham v. Attenborough [1897] 1 QB at p.201
b. If he does not signify his approval to the seller but retains the goods without giving notice of rejection, then if a
time has been fixed for return of the goods on the expiration of such time and, if no time has been fixed, on
expiration of a reasonable time

v. Rule 5:
a. Where there is a contract for the sale of unascertained or future goods by description and goods or that description
and in a deliverable state are appropriated (i.e. identified) to the contract, either by the seller with the assent of the
buyer or by the buyer with the assent of the seller, then the property in the goods passes to the buyer
b. Where in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or
custodian for the purpose of transmission to the buyer and does not reserve the right of disposal he is deemed to
have unconditionally appropriated the goods to the contract

Unascertained goods and appropriation

• Where the seller delivers to the buyer goods still mixed with other goods, then no property can pass until the goods have been
unconditionally appropriated (i.e. seller identifies goods as being subject of contract of sale)
○ See Healey v. Howlett [1917] 1 KB at p.377

• Under s.16 of SGA, property in unascertained goods could not pass to constitute a progression of goods to the contract unless the
parties had an intention to attach those goods to contract
○ i.e. if there is no intention by the parties to appropriate those ascertained goods, all that the parties will have is a conditional
sale
 Similarly property in unascertained goods will not pass unless it is the agreement of the parties that appropriation involvin g
change of ownership is made

• When it comes to appropriation, it should be noted that usually the appropriating act is the last act that needs to be performed by the
seller

Transfer of Risk in the Goods


• It is critical to determine at what time the risk passes from the seller to the buyer because of, inter alia, the financial consequences of
loss or damage
• Under common law, the general rule relating to passing of risk is tied to the question of passing title or passing of property
○ General Rule: whichever party has the general property in the goods sold under a contract of sale at any given moment bears the
risk too
 The SGA captures this common law rule in s.20 of SGA
□ s.20 of SGA: "Unless otherwise agreed the goods remain at the seller's risk until the property therein is transferred to the
buyer, but when the property therein is transferred to the buyer, the goods are at the buyers risk whether delivery has
been made or not."
□ Under s.20 of SGA, risk and possession do not necessarily go together
 Risk can pass to the buyer or remain with the seller, regardless of who has possession or control over the goods
○ The risk passes to the buyer with the passing of the property in the goods, even if the seller still has possession
of them

□ s.20 of SGA does envisage certain EXCEPTIONS to this general rule (i.e. s.20 of SGA) which are as follows:

a. A contrary agreement
○ The parties can decide whether s.20 of SGA will apply to them or not
 i.e. parties can actually conclude a contract which may reallocate the risk in the goods, regardless of the
passage of property
– i.e. s.20 of SGA states "Unless otherwise agreed…", thus the parties are free to make a contrary
agreement

b. Where there is interest in the goods


○ The party bearing the loss may have neither the property in nor possession of the goods but merely an
intermediate and practical interest in the goods

Comm Trans Page 65


intermediate and practical interest in the goods
 Read Stern Ltd v. Bickers [1923] 1 KB at p.78

c. Where there is delay in delivery of goods


○ This is provided for in the proviso to s.20 of SGA
○ Where delivery has been delayed through the fault of either buyer or seller the goods are at risk of the party in
fault as regards any loss which would not have occurred but for such fault
 Dembey Hamilton and Co Ltd v. Barden [1949] 1 All ER

d. The bailee's liability


○ The 2nd proviso to s.20 of SGA states that nothing in s.20 of SGA shall affect the duties and liabilities of the
buyer or seller as bailee of the goods on behalf of the other party

e. Where the seller is bound to send goods to the buyer by sea (i.e. by carriage)
○ s.32(1) of SGA: delivery to a carrier is prima facie deemed to be delivery to the buyer provided the carrier is
independent of the seller
 Read City Council of Ndola v. Colcom Co-operative Zambia Ltd [1968] ZLR at p.182
 Read Dunlop v. Lambert [1839] Sol Fin at p.600

Transfer of Title by a Non-Owner


• s.21(1) of SGA: "Subject to the provisions of the SGA, where goods are sold by a person who is not the owner thereof and who does not
sell them under the authority or with the consent of the owner, then the buyer does not acquire better title to the goods that the seller
had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell."
○ i.e. a person selling goods on behalf of the owner should have the owner's authority otherwise no good title will be passed to the
purchaser
 i.e. the "Nemo dat quod non habet" Rule (literal meaning: "no one gives what he doesn't have")
□ However, there are exceptions to this rule
□ There are 8 EXCEPTIONS under which a non-owner may pass good title even if he no authority to sell or has a defective
title:

i. Estoppel
○ s.21(1) of SGA provides that where goods are sold by a non-owner who does not sell them under the authority
of the owner the buyer acquires no better title than the seller unless the owner is by his conduct precluded from
denying the seller's authority to sell
○ To raise estoppel, it must be shown that either the owner represented that the seller was entitled to sell the
goods or that the owner was negligent in allowing the owner to sell the goods
 i.e. the owner must have acted in such a way as to mislead the buyer into thinking that the seller was
entitled to sell the goods
 Read Eastern Distributors Ltd v. Goldring [1957] 2 QB at p.600

○ To establish estoppel by negligence it must be shown that:


i. There was a duty of care;
ii. The duty was breached; and
iii. Detriment resulted to the buyer the breach of duty being the effective cause
 Read Mecantile Credit Co v. Hamblin [1965] 2 QB at p.242

ii. Sale under the Factors Act 1889 ("FA") [print: linked here]
○ s.2(1) of the FA: "Where a mercantile agent is, with the written consent of the owner, in possession of goods or
of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting
in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as
if he were expressly authorized by the owner of the goods to make the same; provided that the person taking
under the disposition acts in good faith, and has not at the time of the disposition notice that the person making
the disposition has not authority to make the same."

iii. Sale under special common law or court order


○ s.21(1)(b) of SGA: nothing in the SGA would affect the validity of any contract under special common law or
statutory power of sale or under a court order
○ These special acts may be exercised by sellers of goods under statutory power
○ Sellers of goods under statutory power do pass a good title even if the owners of the goods did not authorize or
consent to the sale
 e.g. s.3 of the Disposal of Uncollected Goods Act (CAP 410), confers a right on bailees in certain

Comm Trans Page 66


 e.g. s.3 of the Disposal of Uncollected Goods Act (CAP 410), confers a right on bailees in certain
circumstances to sell goods held under bailment for repair or other treatment [print: linked here]

○ Statutory powers
 Sheriff of Zambia
– The sheriff of Zambia and his bailiffs have the right to sell, seize property and pass on property to the
purchaser pursuant to s.15(1) of the Sheriff of Zambia Act (CAP 49) [print: linked here]
– His statutory powers of sale include those conferred on an unpaid sale of goods under the SGA
 Read s.25(1) of SGA
 Other persons who may have statutory power to sell include:
i. Liquidators;
ii. Trustees in Bankruptcy; and
iii. Mortgagees in Possession

○ Court Order
 Under the Supreme Ct Rules (White Book 1999 Ed), Order 29 rule 4 gives the court power to make an order
as to the sale of goods of goods of a perishable kind or goods likely to deteriorate or ??? or which for any
reason it is desirable to do so

iv. Sale by agent


○ An agent who sells goods on behalf of his principal will pass good title if the agent has authority to sell the goods

v. Sale under voidable title


○ s.23 of SGA: "Where the seller of goods has a voidable title but the title has not been avoided at the time of sale,
the buyer attains good title to the goods provided he buys the goods in good faith and without notice of the
defect of title."

vi. Sale in market overt


○ s.22(1) of SGA: "where goods are sold in market overt according to the usage of the market, the buyer acquires a
good title to the goods, provided he buys them in good faith and without notice of any defect or want of title on
the part of the seller."

 Market Overt

– Lee v. Bayes [1856] 18 CB 601


 Held: the term "market overt" only applies to an open, public and legally-constituted market
open between the hours of sunrise and sunset and where goods for sale are openly or publicly
displayed

– Shops are "market overt" for things which by the trade of the owner are put there for sale
 R Tobacco v. Occra?? [1930] 47 TLR at p.147?
 Held: for a sale in a shop to be "market overt" the sale must be by the shopkeeper to a
member of the public and not when the shopkeeper buys from someone else

○ VERY IMPORTANT: MUST READ


 Lonrho Cotton Zambia Ltd v. Mukuba Textiles Ltd [2002] ZLR at p.43
– Facts:
 P dispatched 120 bales of cotton weighing for export to South Africa through a freight company
 Cotton did not leave the country but found its way to Ndola where it was sold by one Cholwe to D
 Cholwe had represented himself to D as a farmer from Mumbwa and sold the cotton to the
defendant as his own
 Cholwe took the cotton to D's factory and sold it to D there
 Cholwe was subsequently convicted of the theft
 By the time that the theft was discovered, the D had used up the cotton at its factory
 P instituted proceedings against D to recover the value of the cotton
– Held:
 As Cholwe is not the owner of the cotton, D can only acquire title if it can be shown that D
bought the cotton in good faith without notice of any defect or want of title and that the sale
took place in a market overt (pursuant to s.22(1) of SGA)
 i.e. "Where goods are sold by a person who is not the owner thereof, and who does not sell
them under the authority or with the consent of the owner [i.e. s.21 of SGA], the buyer, where

Comm Trans Page 67


them under the authority or with the consent of the owner [i.e. s.21 of SGA], the buyer, where
goods are sold in the market overt, according to the usage of the market, the buyer obtains a
good title to the goods, provided he buys them in good faith and without notice of any defect
or want of title on the part of the owner [i.e. s.22(1) of SGA]."
 D's factory [where Cholwe sold the cotton to D] could not be said to be an "open market", thus
s.22 of SGA did not apply
 i.e. "The evidence on record is that the defendant was approached by Cholwe at its factory
where the negotiations took place and the sale was concluded. The defendant’s factory
cannot be said to be an open market or market overt by any stretch of the imagination. The
defendant cannot therefore avail itself of the provisions of s.22 of SGA."

 Bajan Patel v. A-G [2002] ZLR at p.59 [*IMPORTANT*]


– Facts:
 While the P was at his shop, he was approached by Musonda and Kangwa who offered to sell P a
car
 P stated he would buy the car
 Before buying the car, P conducted the following due diligence:
 Kangwa showed P the car's White book, a National Registration Card and a Customs
Clearance Certificate issued by the ZRA
 The White book showed that it was issued and registered by the Zambian Government;
the owner being Patrick Kangwa
 P checked that the engine and chassis numbers all corresponded with the White Book
 P and Musonda went to the police to verify the car documents and the police verified them
 After verification, Musonda swore an affidavit on behalf of Mr. Patrick Kangwa for change of
ownership
 P and Musonda then executed a contract of sale for the car and P paid Musonda the money
 It was later discovered that the car was stolen
 P launched proceedings for a declaration that he was the lawful owner of vehicle in issue

– Held:
 Pursuant to s.12(1) of SGA, a thief had not right to pass title to P
 i.e. "A thief had neither ownership nor title to pass to a buyer. After citing s.12(1) of SGA, the
court held that a thief in the present case had no right to pass ownership of a title to the
purchaser."
 Market overt is defined as "open, public and legally constituted"; P's shop was not an open
market, and thus s.22(1) of SGA did not apply to protect P
 i.e. "Market overt is defined as an open, public and legally constituted. We cannot accept that
the sale of a vehicle by people going to the plaintiff’s shop was a sale at the market overt as
defined. On the facts of this case the Sale of Goods Act cannot assist the plaintiff. Indeed, the
whole transaction was conducted to the disadvantage of the plaintiff."
 The car had to be returned to its rightful owners and P's only remedy was to sue the seller (i.e.
Musonda)
 i.e. "The court concluded that the vehicle had been stolen. Consequently, the court refused to
make the declaration sought and ordered that the vehicle be returned to the rightful owners
in South Africa noting that the only remedy to an innocent party as the plaintiff was that as
stated in the case of Rowland Vs Divall (2) namely of suing the seller for the price sold."

vii. Disposition by the seller in possession


○ This occurs where a seller remains in possession of the property sold and sells the property to a third party
○ s.25(1) of SGA: "Where a person who has sold goods remains in possession of the goods or documents of title to
the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or
documents of title under any sale, pledge or other disposition thereof, to any person [i.e. the 2nd buyer] who
receives the same in good faith and without notice of the previous sale, shall have the same effect as if the
person making the delivery or transfer were expressly authorized by the owner of the goods to make the same."
 i.e. Where a seller in possession wrongfully disposes of the goods contrary to the terms of the contract to
a second buyer, the latter acquires title that supersedes that of the original buyer
– Pacific Motor Auction v. Motor Credits [1965] AC at p.867

viii. Disposition by a buyer in possession


s.25 of SGA: "Where a person having bought or agreed to buy goods obtains, with the consent of the seller,

Comm Trans Page 68


○ s.25 of SGA: "Where a person having bought or agreed to buy goods obtains, with the consent of the seller,
possession of the goods or documents of title to the goods, the delivery or transfer by that person, or by a
mercantile agent acting for him, of the goods or documents of title, under any sale, pledge or other disposition
thereof, to any person receiving the same in good faith and without notice of any lien or other right of the
original seller in respect of the gods, shall have the same effect as if the person making the delivery or transfer
were a mercantile agent in possession of the goods or documents of title with the consent of the owner."
 i.e. where a buyer sells goods (over which the original seller still has rights) in his possession to a 2nd
buyer and the 2nd buyer buys them in good faith and without knowledge of the original seller's rights
over the goods, then the 2nd buyer shall have good title over the goods

Performance of the Contract of Sale


• Performance of a contract of sale means delivery of the goods conforming to the contract description by the seller and acceptance
and payment for them by the buyer
○ i.e. it is the seller's duty to deliver the goods, and the duty of the buyer to accept and pay for the goods in accordance with the
terms of the contract
 s.35 of SGA governs acceptance and payment by the buyer
□ s.35 of SGA stipulates 3 conditions under which a buyer will be deemed to have ACCEPTED:
i. If he expressly conveys his acceptance to the seller
ii. If the buyer having taken delivery of the goods does an act in relation to the goods which is inconsistent with the
ownership of the seller
○ Jaffico Ltd v. Northern Motors Ltd [1971] ZLR at p.78
iii. If the buyer having taken delivery of the goods keeps them beyond a reasonable time without expressly telling the
seller he has rejected them, then he will be deemed to have accepted
○ Leaf v. International Galleries [1950] 1 All ER

• s.34(1) of SGA deals with the buyer's right to Examine the goods
○ s.34(1) of SGA: "Where goods are delivered to the buyer which the buyer has not previously examined he is not deemed to have
accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether
they are in conformity with the contract."

• Unless otherwise agreed by the parties, Delivery of the goods and Payment of the price are Concurrent conditions
○ Delivery of the goods
 s.62(2) of SGA defines "delivery" as voluntary transfer of possession from one person to another

 Delivery may take any of the following 5 forms:


i. A physical transfer of possession;
ii. A physical transfer of the means of control;
 e.g. giving the buyer the key to the warehouse where the goods are stored
iii. A physical transfer of documents of title
 e.g. by giving the buyer a bill of lading
○ Note: a "bill of lading" is a document issued by a carrier which details a shipment of merchandise and gives title
of that shipment to a specified party
iv. Atonement
 i.e. by arranging that a third party who holds or has possession of the goods acknowledges to the buyer that he holds
them on his behalf
v. Alteration in the character of the seller's possession
 e.g. where the seller agrees to hold the goods until the buyer wants them

• Time and Place of delivery of the goods


○ Time of Delivery
 s.29(2) of SGA: unless there is an agreed date of delivery, the seller is bound to make delivery within a reasonable time
○ Place of Delivery
 In the absence of agreement between the parties, by s.29(1) of SGA the place of delivery is the sellers place of business (if any)
or his residence if he does not have a place of business
□ However, if the contract of sale is for specific goods which to the knowledge of the parties (when the contract was made)
was in some other place then that place is the place of delivery
○ s.32 of SGA provides for the delivery of goods to a Carrier
 s.32(1) of SGA: "Where in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is prima
facie deemed to be a delivery of the goods to the buyer."
Read:

Comm Trans Page 69


○ Read:
 City Council of Ndola case (see above for citation)
 Galbraith and Another v. Lock [1922] 2 KB at p.155

• s.30 of SGA provides for delivery of wrong quantity or wrong goods


○ Where the seller delivers to a buyer a quantity of goods less than he contracted to sell, then the buyer may reject the goods
 If the buyer accepts the goods so delivered he must then pay for them at the contract price
 Where the seller delivers to the buyer the goods he agreed to sell with mixed with other goods, the buyer has the option of
accepting the contracted goods and reject the ones he didn't or he can reject all the goods (both those he contracted to
purchase and those he did not)

• The Seller's breach and Buyer's Remedies

○ In a contract of sale, the seller is in breach if:


a. He fails on the agreed date to deliver goods contracted for in accordance with the contract; or
b. He fails to comply with any term of the contract

○ Where the seller is in breach, the buyer has the following remedies:
i. A right to reject the goods and treat the contract as repudiated;
□ Read Lyons and Company v. May and Baker Ltd [1923] 1 KB at p.685
ii. A claim for damages;
iii. An action for specific performance;
iv. An action for money had and received; or
v. An action in tort

○ The buyer may lose the right of rejection of the goods in certain circumstances, even if the seller was guilty of a relevant breach
 The circumstances under which a buyer would lose a right to reject goods are found in s.11(1)(a) of SGA
 Read also s.11(1)(c) of SGA
 Read Perkins v. Bell [1893] 1 QB at p.193

• The Buyer's Breach and the Seller's Remedies


○ Where the buyer is in breach of the contract of sale, the seller has a number of remedies available to him:
i. s.50(1) of SGA: "Where the buyer wrongfully neglects or refuses to accept and pay for the goods , the seller may maintain an
action against him for damages for non-acceptance."
ii. An unpaid seller's lien under s.41 of SGA
□ The unpaid seller's lien is an entitlement to return the goods until the buyer has paid or tendered the whole of the price
□ Note: the unpaid seller's lien (under s.41 of SGA) is, in fact, a qualification on the seller's duty to deliver the goods to the
buyer
□ The lien arises whether the contract is for the sale of specific goods or an executory contract to supply unascertained
goods (save that, with respect to unascertained goods, the lien will only arise when the goods are ascertained)

Comm Trans Page 70


Hire-Purchase
Wednesday, April 23, 2014 2:16 PM

Introduction [***there will definitely be an exam question on consumer credit i.e. H-P and Sale of Goods***]
• Hire-Purchase ("H-P") is a form of consumer credit
• H-P agreements in Zambia are governed by the Hire Purchase Act ("HPA")

Definition of "Hire-Purchase Agreement"


• s.3 of HPA defines an "Hire-Purchase agreement" as follows:
a. "Any contract whereby goods are sold subject to the condition that notwithstanding delivery of the goods the ownership of such
goods shall not pass except in terms of the contract and the purchase price is to be paid in 2 or more installments"
b. "Any contract which provides for the hiring of goods whereby the hirer has the right:
i. To purchase such goods after 2 or more installments have been paid in respect thereof; or
ii. after two or more instalments have been paid in respect thereof, to continue or renew from time to time such hiring at a
nominal rental, or to continue or renew from time to time the right to be in possession of the goods, without any further
payment or against payment of a nominal amount periodically or otherwise;
whether or not the agreement may at any time be terminated by either party or one of the parties."
c. "Any other contract which has, or contracts which together have, the same import as either or both the contracts defined in
paragraph (a) or (b) of this definition, whatever form such contract or contracts may take."
 i.e. this is a catch-all

• *Important*: the definition of an "H-P agreement" in s.3 of HPA encompasses both H-P at common law and an installment sale

Problems with the HPA


• Note: it is worrisome that HPA uses the terms "seller" and "buyer" to refer to the owner and hirer
○ The HPA ought to really be referring to "owner" and "hirer" instead, because the hirer has an option to purchase (thus, it's
possible that the hirer won't become a buyer)
• Note: the HPA also uses the term "purchase price" as opposed to "rental" or merely "installment payments"
○ This is important because purchase price relates to a transaction where there is an agreement to sell and buy, whereas the HPA
deals with the hiring of goods
 Can only talk about "purchase price" when the hirer exercises the option to purchase

Extent of Application of the HPA


• The HPA does not apply to the following H-P transactions:

a. Where Government is the Seller


 s.2 of HPA provides that the HPA does not apply to agreements under which the government is the seller
□ i.e. any agreement where the government is the seller/owner of goods, whether that agreement is an instalment sale
agreement or hire agreement, the agreement is not governed by the HPA

b. Where Statutory Instrument Exempts Certain H-P Transactions


 Under s.28 of HPA, the minister may, by Statutory Instrument, order that any agreement or class of agreements entered into
by a body corporate established directly by the law of Zambia shall be exempted from any of the provisions of the HPA
□ i.e. the Minister has the power to exempt agreements of any body corporate established in Zambia from the provisions
of the HPA

c. Partial Exemption of Transactions exceeding K3,000


 s.4 of HPA provides that except for the provisions of s.5, s.23 and s.24 of HPA, which shall apply to every agreement, the
provisions of Part 2 of HPA shall not apply to an agreement under which the purchase prices exceeds the sum of K3,000

The Form and Contents of H-P Agreements


• Formalities [*Important*]
○ s.5 of HPA provides for the formalities and states that a H-P agreement must:
a. Be reduced to writing and signed by or on behalf of all the parties [i.e. both owner and hirer must sign] to the agreement;
and
b. Contain a statement of the cash price
□ What is the cash price?
 When purchasing on H-P, you are purchasing on credit
◊ Because you are getting credit, the owner is charging hirer finance charges
 Thus, a person purchasing in installments should know the cash price so that they know how much more

Comm Trans Page 71


 Thus, a person purchasing in installments should know the cash price so that they know how much more
they'll be paying because of the H-P agreement

• Consequences of Non-Compliance with Formalities


○ s.5(2) of HPA: If the H-P agreement does not comply with these formalities [i.e. those contained in s.5 of HPA], the result is that
BOTH of the following will occur:
i. "The goods which are the subject of the agreement shall be deemed to have been sold to the purchaser:
a. without any reservation as to the ownership of the goods or without any stipulation as to the seller's right to the return of
the goods; and
b. on credit at a price payable in the same manner as that stipulated in the agreement which is 25% less than the purchase
price"; and
ii. "The seller shall not be entitled to enforce any contract of suretyship, indemnity or guarantee relating to the agreement."

Nature of H-P contracts


• At Common Law, H-P applies only to contracts of hire which confer an option to purchase
• It is generally used to describe contracts which are, in fact, agreements for the purchase of chattels or goods by installments
○ In H-P contracts, there is a proviso that the property in the chattel/goods will not pass to the purchaser until all the installments
have been paid
• Under a contract to purchase by installments, there is a binding obligation on the part of the purchaser to purchase and he can,
therefore, pass good title to a purchaser or pledgee who deals with him in good faith and without notice of the rights of the true
owner
○ i.e. there is a difference between an H-P agreement which gives the hirer/purchaser an option to purchase and a contract to
purchase by installments
 The difference is that in a H-P agreement which gives the hirer the option to purchase (thus there is no binding obligation on
the hirer to buy), property or ownership of the goods remains with the owner, whereas where there is a contract of purchase
by installments, ownership passes to the purchaser immediately (but with the purchase price being paid in installments)
□ Thus, in a H-P agreement, where the hirer has the option of purchasing, that hirer cannot pass good title to a third party
 However, in a contract of purchasing by installments, the purchaser can pass good title to a purchaser, provided
that the 3rd party buys in good faith and without notice of the rights of the true owner

Main Features of a H-P Agreement under Common Law


○ It is unfortunate that the HPA gives the impression that an H-P Agreement always involves purchase
○ The following are the 7 main common law features of an H-P agreement:
1. It is a bailment of goods – the goods are let out to the bailee or hirer, the owner of the goods is not selling but merely hiring
2. The hirer is obliged to pay a monthly or periodic rent for the use of the goods
3. The hirer has no obligation to buy or purchase the goods. He can determine the agreement at any time and return the goods
4. If the hirer defaults on payment or breaches a material term of the agreement, the owner of the goods can terminate the
agreement and re-take the goods. Once the agreement is determined the hirer has no claim for past rentals and neither the
owner claim future rentals.
5. A Hire Purchase Agreement normally contains a clause which allows the hirer to retain the goods or purchase them upon
payment of rent (premium)
□ In other words the hirer has an option to purchase the goods
6. If the option to purchase or buy has not been exercised there is no agreement to sell

Formation of a H-P Contract


○ Only 2 parties are necessary to an H-P agreement; namely the hirer and the owner
○ As regards the capacity to enter into a H-P agreement, this depends upon the same rules governing capacity to enter into contract

Terms of a H-P Agreement


• Most H-P agreements contain elaborate and express provisions which regulate the rights and obligations of the parties
• Every H-P agreement must have certain prescribed terms (see s.7(1) of HPA) - these terms are mandatory
○ s.7(1) of HPA: among other things, the terms of an H-P agreement MUST include:
i. The purchase price of the goods
ii. The amount paid or to be paid by the purchaser
iii. The amount of the installments payable
iv. The mode of payment of the installments
v. The date or mode of determining the date on which installments are payable
vi. The rate of interest payable on installments in arrears
vii. A description of the goods let, sold or delivered under the agreement
viii. Terms as to the reservation and passing of ownership of the goods or as to the seller's or owner's right to the return of the
goods

Comm Trans Page 72


goods

• Other provisions that are normally found in a H-P Agreement but are not mandatory are:
i. A term relating to the Insurance of the goods
ii. Termination of the agreement
iii. The keeping of the goods in the possession or control of the hirer
iv. Keeping of the goods free from distress or any other execution

• *Important*s.7(3) of HPA: where a H-P agreement does not comply with the requirements of s.7(1) of HPA, the goods subject of the
agreement shall be deemed to have been sold to the hirer or purchaser without any reservation as to ownership of the goods or
without any stipulation as to the seller's right to the return of the goods and on credit at a price which is 25% less than the purchase
price
○ s.12 of HPA: Every H-P agreement also contains the following implied terms:

i. There are implied terms as to Title:


a. There is an implied condition on the part of the owner or seller that he is not precluded from passing the ownership of
the goods to the purchaser or hirer at the time when ownership is to pass - s.12(1)(b) of HPA
 i.e. the owner/seller is basically saying that he will have the right to sell the goods at the time when property or
ownership in the goods is to pass to the hirer/purchaser
b. There is an implied warranty that the goods are free from any charge or encumbrance in favor of any third party not
disclosed or known to the hirer or purchaser before the agreement is made - s.12(1)(c) of HPA
c. There is an implied warrant that the hirer or purchaser shall have and enjoy quiet possession of the goods - s.12(1)(a) of
HPA

ii. There are implied Conditions as to Quality and Fitness


□ s.12(2) of HPA: Every H-P agreement shall be deemed to contain any warranties or conditions implied in a contract for
the sale of goods:
a. There is an implied condition that the goods are of merchantable quality; and
b. There is an implied condition that the hired goods are reasonably fit for the intended purpose

○ Sprite KM Private Ltd v. Tawurai (High Ct of Southern Rhodesia) [1961] Rhodesia & Nyasaland at p.290 - 'Commercial Law in
Zambia' at p.333 [must read this case]
 Facts:
□ P sold D a van under a hire purchase agreement
□ One of the terms of the H-P agreement was that "no warranties on the part of P as to the condition, state or quality of
the goods or as to their fitness for any purpose had been given or implied other than those prescribed by law ."
□ P stopped making payments and D commenced proceedings to recover the outstanding payments
 P argued that the van was unfit for the purpose for which it was bought because it had a latent defect (a cracked
drawbar)
◊ Thus, P claimed cancellation of the agreement and consequential damages arising from the latent defect
 Held:
□ The meaning of the words "other than those prescribed by law relating to this agreement"
 Did this phrase encompass both common law warranties or only those referred to in s.12(1) of HPA?
◊ The effect of the clause (quoted above) in the H-P agreement was to Exclude all warranties other than those
which the parties were not allowed to exclude by s.12(1) of HPA
 i.e. "On P's construction, the clause means that all warranties are excluded from the agreement except
those which the law specifically lays down may not be excluded… The warranties in s.12(1) of HPA are
those which must be applied. The parties may, however, contract out of the application of all the other
common law warranties, so that these are merely warranties which may be applied to the agreement. I
think P's construction of the clause is the correct one, and that on a proper reading of the clause it may be
said that it was intended to cover all warranties except those which the law compels the seller to give - the
irrevocably prescribed warranties."
◊ Principle: parties canNOT exclude the warranties prescribed s.12(1) of HPA by BUT they can Exclude common
law warranties from applying in their agreement

○ Warman v. Southern Counties Car Finance Corporation Ltd and WJ Ameris Car Sales [1949] 2 KB at p.576 or 1 All ER at p.711
[must read this case]
 Facts:
□ D entered into an agreement with P for the hire-purchase of a car (i.e. paying monthly instalments termed "rent" for 12
months for the hire of the car and when all payments were made, P had the option to purchase)
□ P started paying the instalments and was then notified by 3rd Party that the car belonged to 3rd Party and not D

Comm Trans Page 73


□ P started paying the instalments and was then notified by 3rd Party that the car belonged to 3rd Party and not D
 Despite P being notified of 3rd Party's ownership, P continued to pay D instalments in exercise of his option to
purchaser
◊ 3rd Party commenced proceedings against P and recovered the car
 P then sued D
 Held:
□ It was an express condition of the contract that D was at the time when it entered into the contract the owner of the
car and entitled to give P an option to purchase it
 P was entitled to rely on this condition and treat it as a warranty and to continue making payments under the
contract, notwithstanding his knowledge of 3rd Party's claim to ownership
◊ Thus, P was entitled to recover:
i. All the money he paid D (whether before or after he had knowledge of 3rd Party's claim to ownership);
and
ii. Damages for Breach of Warranty
□ D was NOT entitled to recover rent from P because:
i. D was NOT entitled to recover from P any money for P's use of the car during the time that P was hiring it (i.e. D not
entitled to receive rent) because the real object of a hire-purchase agreement was to enable a hirer-purchaser (i.e.
P) to buy the car and so there had been a total failure of consideration
◊ i.e. "Now I think it might well be right to say that if at any stage the option to purchase goes, the whole value of
the agreement to the hirer has gone with it. If he wanted to make an agreement merely to hire a car he would
make it, but he enters into a hire-purchase agreement because he wants to have the right to purchase the car;
that is the whole basis of the agreement, the very foundation of it."
ii. Also, because D was not the actual owner of the car, he was not entitled to receive payment for renting it
◊ i.e. "This car was not, at any time, the property of D. I do not think P in any circumstances could be called on to
pay to D hiring money for a car which belonged to someone else."

The duties and rights of owner or seller and hirer or buyer

1. At common law, the owner or seller must deliver the goods to the hirer or buyer
○ If the hirer or buyer refuses to take delivery, the remedy of the owner in the absence of express provision is not to sue for the
installments but to sue for damages for breach of contract

2. The hirer or buyer has a duty to inform the owner or seller of the whereabouts of the goods on receipt of a written notice to do so
(pursuant to s.10 of HPA)

3. The hirer or buyer must pay the agreed installments of the purchase price of the goods and, in default, the owner or seller has a right
to retain possession of the goods

4. The hirer has a right to exercise his option to purchase the goods by paying a lump sum at any time during the currency of the H-P
agreement
○ s.16 of HPA allows the purchaser or hirer to make accelerated payments of the outstanding balance of the purchase price
 Where the purchaser makes accelerated payments of the installments due, s.16 of HPA allows a statutory concession: if a
purchaser pays the whole of the purchase price remaining unpaid in one amount (i.e. if the purchaser pays the outstanding
balance in one go), then each installment not due at the date of payment is reduced by an amount calculated at 5% per
annum on such installment in respect of the period by which the payment of such installment is accelerated

5. The hirer or buyer is under an obligation to take reasonable care of the chattels or goods but he is not liable for loss unless such loss
is a consequence of his negligence or that of his employees
○ The hirer or buyer is not liable for damage to the goods caused by wear and tear

6. A hirer or buyer must not use a chattel or goods for any purpose other than that for which it was hired or agreed to be sold

7. The hirer or buyer must return the goods to the owner or seller on termination of the agreement if he fails to complete the purchase

8. s.6 of HPA: the owner or seller has a duty to provide to the hirer or purchaser a copy of the H-P agreement
○ s.6 of HPA creates criminal sanctions if the seller breaches s.6 of HPA

9. s.9 of HPA: the owner or seller has a duty to provide the hirer or purchaser certain information
○ s.9 of HPA: the information that a purchaser or hirer may request for includes the following:
a. Statement indicating the amount paid under the agreement and date of such payment;
b. The amount unpaid and due under the agreement and the date on which each installment becomes due;

Comm Trans Page 74


b. The amount unpaid and due under the agreement and the date on which each installment becomes due;
c. The amount which is to become payable under the agreement; and
d. The date or mode of determining the date upon which each future installment is to become payable and the amount of each
such installment

10. s.15 of HPA: the purchaser or hirer has a right to be reinstated if he pays his arrears within a period of 21 days after the seller or
owner recovered possession of the goods
○ However, this right does not apply where the seller recovered possession of the goods pursuant to a court order

i. s.22 and s.8 of HPA: the purchaser or hirer is protected against waiver of his rights conferred by the HPA
○ i.e. where the HPA gives the hirer or purchaser some rights, such rights cannot be waived by the seller or owner
 This is to protect the hirer/purchaser because the seller/owner is in a stronger position relative to the hirer/purchaser

Invalid Provisions of HP agreements


• Read s.8 and s.22 of HPA:
○ s.8(1)(a) of HPA: Any provision authorizing a seller or owner to enter premises to take possession of the goods will be invalid
○ s.8(1)(b) of HPA: Any provision excluding the hirer or purchaser's right to terminate the agreement is invalid
○ s.8(1)(c) of HPA: Any provision imposing a liability on the purchaser for terminating the agreement is invalid
○ s.8(1)(f) of HPA: Any provision relieving the seller or owner from liability for acts or defaults of any person acting on seller's behalf
is invalid
○ s.8(1)(g) of HPA: Any provision imposing a rate of interest which exceeds the maximum rate stipulated by s.8(2) of HPA

Termination of H-P Agreement


• There are 4 ways to terminate a H-P Agreement:

i. By Performance
 Where the hirer pays all the installments necessary to exercise the option to purchase the goods or the buyer discharges all
his liabilities under the agreement

ii. Either party may determine or terminate the agreement

 With regard to termination, s.18 of HPA gives a statutory right to the purchaser to terminate the agreement by giving notice
of termination
□ Where a purchaser terminates an H-P agreement by giving notice, the purchaser must return the goods to the seller but
will be liable in damages for any liability which may have occurred before termination
□ The purchaser is also liable to pay certain penalties
□ Credit Finance Corporation Ltd v. Abdul Aziz Lanani [1964] East African Law Reports at p.317
◊ Case can be found in the 'Commercial Law in Zambia' book at p.354
 Facts:
◊ P hired a car to K by an H-P agreement
 D then signed a document headed "Guarantee" in which D guaranteed that K would make punctual
payments to P
◊ K defaulted on the 2nd installment
◊ P notified D of the default and claimed instalment arrears but without indicating an intention to terminate the
agreement
◊ D, with P's consent, seized the car from K and returned it to P
◊ P obtained judgment against K but did not recover anything
 P then sued D, claiming the guarantee was an indemnity and, therefore, D was liable to make good
whatever damages and loss had been suffered by P
– D contended that the document was a guarantee and that the H-P agreement was terminated by P
when P instructed D to repossess the car
 Held:
i. The H-P agreement was terminated not terminated at the time that P instructed D to repossess the car
because at that time the intention to terminate the agreement was not communicated either to D or the
hirer (i.e. K)
ii. Where in an H-P agreement the hire is determined by the owner because the hirer is in arrears, the damages
recoverable by the owner are instalments in arrears and the interest on such arrears
 P was entitled to recover:
i. The arrears for the hire rentals with interest at 12% per annum; and

Comm Trans Page 75


i. The arrears for the hire rentals with interest at 12% per annum; and
ii. The expenses of the abortive attempt to repossess the vehicle
iii. The document signed by D was a Guarantee and both P and D had so understood and treated it all along

 The seller or owner may terminate the agreement where the buyer or hirer is in default in making payments or where the
buyer is guilty of breach of some terms of the agreement
□ If the seller or owner terminates the H-P agreement after he has been paid 50% of the purchase price, then s.20 of HPA
provides for the procedure to be followed in selling the goods

iii. A breach by either party amounting to a Repudiation of the agreement


 Examples of breaches which amount to repudiation of an H-P agreement include:
a. If the hirer or purchaser stops paying the installments; or
b. If the hirer or purchaser returns the goods to the seller or owner; or
c. If the owner or seller collects his goods from the hirer or purchaser

iv. Rescission of the agreement by either party for Fraud, Misrepresentation or Mistake

Distinguishing a H-P Transaction from Similar Transactions

i. H-P and Contract for Sale of Goods


○ A contract of H-P is a bailment of goods coupled with an option on the part of the hirer to purchase the goods when all the
installments have been paid
 On the other hand, a sale transaction is either a contract for the transfer of property in the goods outrightly or an
agreement to transfer property in the goods at a future date or subject to a condition
○ The outlet objective of both H-P and contract of sale is the transfer of property in the goods to the buyer (in the case of contract
of sale) and to the hirer (in the case of an H-P agreement)

○ Differences between H-P and contract of sale:

a. These 2 transactions are governed by 2 separate statutes


• H-P are governed by HPA
• Contract for sale of goods are governed by SGA

b. H-P contracts are usually standard term contracts which are prepared by the owner or seller and which the hirer merely
completes
• Conversely, many contracts of sale are concluded by the parties who agree the terms by negotiation

c. A contract of sale imposes an obligation on the part of the buyer to pay the price for the goods sold and delivered to him
 Thus, the seller has the right to maintain an action for the price against the buyer where the buyer fails to pay for
the goods
• In contrast, in a H-P contract an action on the balance of the H -P installments cannot be maintained by the owner
when the hirer returns the goods
 The owner's remedy is to sue for damages (but not for the installments which have not fallen due)

d. In a contract of sale, the buyer cannot return the goods and consider himself discharged from the obligation to pay the
price, UNLESS the buyer is exercising his statutory right of rejection
• On the other hand, in a H-P contract, the hirer has the right to terminate the agreement by returning the goods

e. In a contract of sale, property or ownership in the goods generally passes at the time when the contract is made or soon
thereafter
• On the other hand, in a contract of H-P, there is generally no guarantee that property in the goods will pass from the
owner to the hirer

ii. H-P and Credit Sale


○ A credit sale is one where goods bought are paid for in installments
 It is an out and out disposal of the goods comprised in the contract
 i.e. the parties have agreed that property in the goods shall pass to the buyer, however, the purchase price is paid in
installments
• However, a H-P transaction is a bailment of goods coupled with an option to purchase at the end of the period of hire
 Thus, there is no guarantee that ownership will pass from the outset - rather, the hirer has the option to purchase
at the end

Comm Trans Page 76


at the end
◊ This is different to a credit sale where parties agree that ownership in the goods will definitely pass from the
outset but payment is made in installments
○ Problem:
 The definition of "agreement" in the HPA includes an installment sale
• Thus, an "installment sale" should not have been included in the HPA
• An "installment sale" under the HPA is much wider than the common law definition of an "installment sale"
 The essence of an installment sale is that title or property passes immediately to the buyer and because of that the
seller has no right to repossess the goods because title has already passed to the purchaser
◊ If the seller repossessed the goods, then the agreement would be a bill or sale and would, consequently, be
void
 The definition of "seller" and "purchaser" in the HPA has a wider meaning than at common law
• Lecturer's opinion: HPA should be amended so that there is no confusion
○ For an installment sale, the purchase price must be payable in 2 or more installments
○ Remember: a credit sale is a species of a sale of goods contract

iii. H-P and Conditional Sale


○ H-P and conditional sale are similar
 In both transactions, possession of the goods is transferred from the owner to the hirer or purchaser subject to fulfilment of
some condition, normally the payment of the price
○ A conditional sale is a type of sale agreement whereby the sale is subject to a condition and the condition may be something other
than the payment of the price

iv. H-P and Finance Leasing or Equipment Leasing


○ Finance leasing is a new form of leasing, involving the hiring of capital goods on long-term basis by business
 Finance leasing is similar to H-P agreement
• The most important difference is that under a H-P contract, the hirer may acquire legal title or property by exercising
an option to purchase the asset or goods upon the payment of an agreed number of installments
 Note: the option to purchase is not available to a lessee in a finance lease or equipment lease
 Typically, in a finance lease the lessee selects the equipment to be supplied
• The lessor provides the funds for procuring that asset acquires title to that equipment and allows the lessee to use it
 e.g. A wants to buy heavy equipment and selects to buy the equipment from Caterpillar. Then a financing institution
(e.g. commercial bank) will then buy the equipment and hold title to it, and then lease it to A.
 During the lease period, the lessee bears the risks of loss, destruction and depreciation or malfunction
• The lessee also bears maintenance and repair costs as well as insurance costs
 Important feature of a finance lease: if the finance lease is terminated before its expiry date, then the lessor (i.e. owner of the
equipment) is, in addition, to repossessing the leased equipment also entitled to recoup its capital investment and finance
charges
○ In Zambia, while there is considerable statutory regulation of H-P systems and the terms of an individual H-P agreement,
equipment/finance leasing arrangements are wholly contractual
 There is no statute which governs equipment leasing
 Lecturer's view: because of the value of the goods involved, Zambia ought to have a statute governing finance leasing
○ With H-P, the goods involved are pro forma goods whereas with finance/equipment leasing we are looking at capital goods of
considerable value
○ With H-P transactions the users are ordinary people (e.g. A buys a stove through H-P agreement) whereas with finance/equipment
leasing mostly business (e.g. airlines, mining companies etc) are involved
○ Meridien Leasing Ltd v. ?? Auto Services Ltd SCZ Appeal No.81/64 of 1977
 Facts:
• Supreme Ct considered a dispute under an equipment leasing agreement
• Unfortunately the court treated the agreement as though it were an ordinary contract and did not employ special
considerations when dealing with the dispute
○ Industrial Credit Co Ltd v. Plavmark Zambia Ltd [2003] PC/02/98 - *Must read this case - important* [GET THIS CASE - LECTURER
HAS PROVIDED IT IN HARDCOPY]
• Judge did employ special considerations and discussed a passage from 'Chitty on Contracts' 27th Ed (1994) Vol. 2 para.
32-056 - this para. gives a definition of finance leasing
• In the Industrial Credit case, the court makes reference to: On Demand Information PLC (in administrative receivership)
and Another v. Michael Gersom Finance Plc and Another [1999] 2 All ER at p.811
• This judgment and the Chitty on Contracts distinguishes 'finance leasing' from 'operating leasing'
 Facts:
• P and D entered into an Equipment Lease Hire Agreement, whereby D leased a truck and other equipment at a lease
rental cost of $80,000 to be paid in 17 monthly instalments

Comm Trans Page 77


rental cost of $80,000 to be paid in 17 monthly instalments
•P and D then entered into a Further Equipment Lease Hire Agreement for $23,000 to be paid in 21 monthly instalments
•D paid P $30,000 as security
•P terminated the agreements alleging D had breached the agreements by failing to make some of the payments
•D repossessed the equipment (except one item which D sold without P's knowledge) but there was still money
outstanding (i.e. the total lease transaction value, finance charges and VAT)
• P claimed that even where an equipment lease is terminated, D is still obligated to make rental payments
 Thus, P sought to recover the arrears and payments that were due after termination of the equipment lease
 Held:
• It is legally inconceivable that obligations of a party to a terminated contract can continue to subsist after termination
as this event ipso jure terminates the parties' obligations under the contract
 i.e. "The sum and substance of the clauses in the agreements is that the legal ownership of the leased equipment
lies in the lessor; the lessee's default in paying rentals terminates the lease agreement and the leased equipment is
returned to the lessor upon termination. Once the lease is terminated and the equipment repossessed, the lessee is
no longer obligated to pay rent (i.e. rent cannot continue to accrue after termination)."
• Definition of "finance lease": "A finance lease involves the payment of the full cost of the asset by the lessee to the
lessor together with a return on the finance provided by the lessor."
• In the present case, there was no dispute that the parties had entered into a Finance Lease
• When a finance lease is terminated before its expiry date, the lessor is not entitled to further rentals but only to
recoup its capital investment and finance charges
 i.e. Chitty on Contracts para. 32-056: "Finance Leasing. In light of various tax advantages, a form of long-term
leasing has developed, which is known as finance leasing. In a finance leasing, the lessee selects the equipment to be
supplied by a manufacturer/dealer, but the lessor (a finance company) provides the funds, acquires title to the
equipment and allows the lessee to use it for all (or most) of its expected useful life. During the period of the lease,
the usual risks and rewards of ownership are substantially transferred to the lessee, who bears the risks of loss,
destruction and depreciation of the leased equipment (fair wear and tear only excepted) and of its obsolescence or
malfunctioning. The lessee also bears the costs of maintenance, repairs and insurance. The regular rental payments
during the primary period of the lease are calculated to enable the lessor to amortize its capital outlay and to make
a profit from its finance charges. At the end of the primary leasing period, there will frequently be a secondary
leasing period during which the lessee may opt to continue the lease at a nominal rental, or equipment may be sold
and a portion of the proceeds of sale returned to the lessee as a rebate of rentals. The lessee thus acquires any
residual value in the equipment, after the lessor has recouped its investment and charges. If the lease is terminated
prematurely, the lessor is entitled to recoup its capital investment (less the realizable value of the equipment at
the time) and its expected finance charges (less an allowance to reflect the accelerated return of capital). The
bailment which underlies finance leasing is therefore only a device to provide the finance company with a security
interest (its reversionary right); a finance lease is similar in function to outright purchase or a hire purchase."
• P was awarded:
 Capital costs;
 Finance charges; and
 Value Added Tax charges
 BUT the court deducted the money that P had realized from the repossession and sale of equipment from the
money it awarded P

Powers of the High Ct under the HPA


• s.21 of HPA vests the powers in the High Ct in relation to goods subject to H-P agreement
○ Powers of High Ct include:
i. the power to order the return of the goods from the buyer to the seller; and
ii. the power to impose a condition that the seller should return to the hirer the portion of installments already paid by the
hirer
• Note: s.21 of HPA contains various conditions which must be satisfied in order for the court to exercise these powers

Comm Trans Page 78


Mediation
Wednesday, May 14, 2014 2:08 PM

Introduction
• There are a number of dispute resolution ("DR") mechanisms which are alternatives to litigation and these include:
○ Mediation; and
○ Arbitration

Mediation
• Mediation is a process of negotiation facilitated by or through the intervention of a mutual third party or intermediary call ed a
"mediator"
• A mediator helps the parties in communicating their positions on the issues relating to the dispute and in exploring possible solutions or
settlements
• Unlike an arbitrator or judge, a mediator does not decide or adjudicate the dispute between the parties
○ A mediator is merely a facilitator who helps the parties to reach a consensus by listening, suggesting and brokering a compromise
• Mediation is a voluntary and non-binding process
○ For that reason, the parties themselves must be willing to come to some form of settlement
 However, in Zambia we have court-annexed mediation
□ If the parties in such mediation reached settlement then that settlement (which is reduced to writing) can be filed (after
the parties sign it) and once filed the settlement is binding
• Because the process of mediation is non-adversarial the parties are encouraged to look at the broader aspects of their interests instead
of focusing on the narrow aspects of their interests and obligations
• The process of mediation is not restricted by legal principles or rules of procedure which are akin to litigation
○ i.e. the parties in mediation are not required to prove their cases on the balance of probabilities by using legal and principles of
evidence or by calling witnesses
 For this reason, the mediator is usually more skill-oriented than legal knowledge-oriented
□ i.e. a good mediator must have excellent negotiation, listening and problem-solving skills
• In Zambia, the process of mediation is court annexed
○ Read Order 31 rule 4 of the High Ct Rules
 Order 31 rule 4: "Except for cases involving constitutional issues or the liberty of an individual or an injunction or where the
trial judge considers the case to be unsuitable for referral, every acting may, upon being set down for trial, be referred by the
trial judge for mediation and where mediation fails the trial judge shall summon the parties to fix a hearing date."
□ Thus, all civil action before court, the principal and commercial list, are amenable to mediation
 i.e. judges on both lists can refer matters to mediation
◊ But if the mediation fails, then the files are sent back to the trial judge who will then fix a hearing date
• In an action commenced in the commercial registry of the High Ct, the judge may refer the matter during the scheduling confer ence
when the circumstances of the case show that it is prudent to be settled by mediation
○ This can be done at request of the judge or at the request of either of the parties
 But it is important that the parties agree/consent to have the matter referred to mediation
□ i.e. the judge cannot force the parties to mediation
 Thus, if one of the parties does not want to go to mediation then the judge cannot refer the matter to mediation

Advantages of Mediation
○ The following are 6 advantages of mediation:

i. Since the process of mediation is not constrained by legality and procedural rules, it is easy for the parties to tailor a flexible
format to suit their own specific requirements
□ Consequently, mediation can be quite informal and speedy to the extent that a simple or less complex dispute can be
settled within a few days as opposed to litigation or arbitration which may take many months or years

ii. Because the process does not take too long, costs of the parties are considerably reduced

iii. Relationships between the parties are preserved, which is especially important if there will be ongoing contracts or business
transactions between the parties
□ No adjudicator pronounces a winner and a loser
 i.e. it is possible to have a win-win situation because the settlement is agreed upon by the parties

iv. In mediation, the focus is not necessarily what is legally correct but rather what the parties joint interests are

v. The parties have greater commitment to the solution reached since they fully participated in generating it
□ This means that the agreement or settlement or solution reached is likely to be more enduring

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□ This means that the agreement or settlement or solution reached is likely to be more enduring

vi. Privacy of the matter remains intact


□ With regard to privacy, in court-annexed mediation whatever is discussed during that process cannot be disclosed
 Even when the mediation fails and the file is sent back to the judge, nothing which is discussed is revealed to the
judge
◊ i.e. there is no record of mediation - rather, whatever is agreed is reduced to writing but no record of
proceedings

Disadvantages of mediation
○ The disadvantages of mediation are as follows:

i. Since the process of mediation requires the consent of the parties, it is bound to fail without their goodwill

ii. Mediation cannot succeed in circumstances where one of the parties is determined to cause delay by insisting on litigation
□ This is a reason why the consent of the parties is necessary before a trial judge can refer a matter to mediation

iii. Mediation will also not succeed if parties are desirous of setting legal industry precedent
□ i.e. because of the nature and privacy of mediation, if the parties would like their settlement to be a precedent then that
is not possible

Mediation Procedure - for both Court-Annexed Mediation and Non Court-Annexed Mediation
○ The mediation usually starts with a joined session attended by the mediator, the parties and their representatives
 The parties are free to decide who will represent them in a mediation
□ A representative need not be a legal practitioner
 Important: with regards to corporate bodies, they must be represented by someone from the corporation authorized
to make decisions
◊ i.e. a representative should not be someone who needs to consult the managing director before he can agree to
a settlement
 Rather it should be someone authorized to make decisions and make settlements
○ At the joined session, introductions are made and the issues in dispute are briefly highlighted
○ Ground rules (such as confidentiality, maintaining civility and respecting others etc) are also set
○ Once the issues in dispute have been agreed and listed, the mediator then invites solutions and options from the parties
○ After the initial joint session, the proceedings often move to individual sessions between the mediator and each of the parties in
turn
 These private sessions (which are sometimes referred to as "caucuses") help the parties to be more forthcoming with ideas
and suggestions than in the presence of the other party
□ It is up to the mediator to decide how many joint sessions and private sessions he will have with the parties
○ If an agreement is reached, it is recorded in a written form and signed by the parties and witnessed by the mediator
 When that happens, the settlement becomes a settlement judgment which, once filed with the court, can be enforced like any
judgment of the court
□ Remember: the mediation process is voluntary and non-binding in the sense that the parties are free to stop the process
at any stage
 However, if a settlement is signed and filed then it is binding and can be enforced by the courts

Legal Regime Relating to Mediation in Zambia


○ Mediation as an alternative dispute resolution ("ADR") process was formally introduced in Zambia on 28 May 1997 by the passage
of Statutory Instrument No. 11 of 1997 (aka the High Ct Amendment Rules 1997)
 To make this possible, Order 31 of the High Ct Rules relating to place and mode of trial was amended to provide, in certain
instances, for mediation
□ Order 31 rule 4
 Order 31 Rule 4 of the High Court (Amendment) Rules provides that except in cases involving constitutional issues
or the liberty of an individual, or an injunction, or where the trial Judge considers the case to be unsuitable for
referral, every action may upon being set down for trial be referred by the trial Judge for mediation and where the
mediation fails, the trial judge shall summon the parties to fix a hearing date.

 Therefore, mediation in Zambia is also compulsory to the extent that parties may be ordered to proceed to
mediation. However, mediation is also voluntary because the parties are not compelled to settle the matter during
the mediation session and further parties can agree to take a dispute to mediation without being ordered to do so by
a trial Judge.

Comm Trans Page 80


 The question regarding whether participation in a Court-annexed mediation programme should be voluntary or
mandatory for certain types of cases is one of the most hotly debated issues in the mediation field. Those who
advocate voluntary participation point to what they see as a fundamental conflict between mediations ideal of party
determined outcomes and forced participation. Parties participating in mandatory mediation programmes may feel
pressured into accepting undesirable settlement terms. Proponents of mandatory mediation support it for reasons
largely based on efficiency. Mandatory mediation is more likely to generate a case volume large enough

○ In Zambia, mediation could be said to be semi-compulsory to the extent that parties may be ordered to proceed to mediation
 However, mediation is also voluntary because the parties are not compelled to settle the matter during the mediation session
and, in any event, both parties must consent to the referral to mediation and, further, parties can agree to take a dispute to
mediation without being ordered to do so by a trial judge

○ Order 31 rule 5 of High Ct Rules provides for training and certification of mediators
 It provides that there shall be kept by the Mediation Office or a proper officer a list of mediators who have been trained and
certified by the court to act in this capacity with a field of bias or experience indicated against each of their names?
□ Apart from that, the mediation shall have not less than 7 years of work experience in their field
 Thus, mediators come from all those professions where mediation is used
◊ e.g. lawyers, human resource managers etc
 Important: for court-annexed mediation only certified mediators can conduct such mediation
□ However, if parties choose to go to mediation they are free to pick a non-certified mediator to mediate their matter

○ Order 31 rule 6 of High Ct Rules provides for Discovery and states that the mediators shall sign for and collect from the mediation
office or proper officer the record or bundles of documents consisting the following:
i. Writ;
ii. All the pleadings;
iii. All interlocutory orders;
iv. Any interrogatories with the answers thereto;
v. Copies of settled issues; and
vi. Any other documents required by the judge
□ Essentially, in court annexed mediation the court file is handed to the mediator
 The mediator is given all documents on the court record - the mediator does not have to start from the scratch

○ Order 31 rule 7 of HCR provides that the mediator shall soon after collection of the record, contact the parties and give them the
date time and venue of the mediation and shall not more than 60 days from receiving the record???
 Thus, court annexed mediation must be completed within 60 days
□ Thus, mediator has the obligation that the process be finalized within 60 days otherwise the file must be sent back to the
trial judge

○ Read Order 31 rule 8: parties shall appear in person at the mediation


 If they are represented, their lawyer shall accompany them
 If a party is a corporation, capable of suing and being sued, then their representative must have the authority to settle

○ Order 31 rule 9 - role of mediator


 Order 31, Rule 9 of the High Court (Amendment) Rules provides that at the commencement of the mediation, the mediator
shall read and explain to the parties the statement on the role of the mediator and shall require the parties to sign the form.

 The mediator is impartial, keeps order, facilitates communication, clarifies issues and keeps participants moving toward their
own agreement. The mediator, unlike a judge or arbitrator does not decide the case.

 Throughout the mediation session, the mediator is the control person. The mediator interprets concerns, relays information
between the parties, frames issues and re-focuses the problems.

 In some cases, the mediator facilitates by giving the parties control of the agenda and walking them through a problem solving
process.

○ Order 31 rule 10 - confidentiality


 Order 31, Rule 10 of the High Court (Amendment) Rules provides that the mediator shall not be required to keep a record of
the proceedings and any document prepared by the mediator shall where the mediation fails, be destroyed at the end of the
mediation process in the presence of the parties. Statements made during the mediation are confidential and privileged and
shall not be used as evidence in any matter. The mediator shall not communicate with any trial judge about the mediation.

Comm Trans Page 81


shall not be used as evidence in any matter. The mediator shall not communicate with any trial judge about the mediation.
 The mediation process works effectively when the disputing parties participate in good faith and are willing to share their real
needs and interests with each other and the mediator. The parties may be reluctant to speak openly, for fear that their
statements will come back to haunt them and the mediator in future litigation if the mediation breaks down. Other parties
may fear that the opponent is using the mediation process as a discovery fishing expedition. As a result, some advocates may
be reluctant to encourage their clients to participate in the mediation process, particularly in the face of on-going litigation.
These concerns have resulted in the need to provide for protecting confidentiality in the mediation process.
 Privilege provides a broader scope of confidentiality. Privilege is a legal concept, which operates to exclude evidence from
discovery or trial. Privilege usually involves parties in a relationship and generally prohibits the disclosure by one party of
information revealed by the other. Privilege is created by law in recognition of the sanctity of certain relationships, which are
built upon trust and the need for protected disclosure. One of the benefits of mediation is the confidentiality that surrounds
the process.

○ Order 31 rule 12 - settlement


 If the mediation succeeds, Order 31 Rule 12 of the High Court (Amendment) Rules provides that a mediation settlement
stating that the parties have agreed to settle the disputes or differences shall be signed. The same shall stipulate the terms of
the settlement. The mediation settlement shall have the same force and effect for all purposes as a judgment, order or
decision of the Court/or Judge and shall be enforced in the like manner.
 The mediated agreement belongs to the parties and not the mediator. However, the mediator should take a direct role in
determining the substance of the final agreement. This role is not in dictating terms of specific content, but rather in ensuring
that all items previously discussed and proposed by the parties are included.
 Rule 14 of Order 31 of the High Court (Amendment) Rules provides that no appeal shall lie against a mediated agreement.

Comm Trans Page 82


Arbitration
Wednesday, June 11, 2014 2:20 PM

What is Arbitration?
• Arbitration may be described as a process where a dispute is put to one or more neutral third parties chosen by the parties for a final,
binding and enforceable decision

Characteristics of Arbitration [*important*]


i. Parties submit dispute to a neutral arbitrator for a decision on the merits
ii. Each party has an opportunity to present evidence to the arbitrator(s) in writing or by witnesses
iii. Arbitration is more informal then court proceedings and strict adherence to the rules of evidence and procedure is not usually
required
iv. Arbitrators decide cases issuing written decisions known as awards
v. Awards are final and binding on the parties and the only recourse against an award is setting them aside

Differences between Arbitration and MEDIATION

i. Arbitration awards are binding whereas mediation is non-binding

ii. In arbitration the award is legally enforceable, whereas in mediation the settlement is enforceable with the parties' consent

iii. In arbitration, the arbitrator decides the dispute, whereas in mediation, the parties decide for themselves with the assistance of the
mediator

iv. In arbitration, the solution is reached by judicial evaluation and so it's fairly predictable what the decision will be, whereas in
mediation the solutions are innovative and varied (because you never know what solution the parties may arrive at)

v. In arbitration, there are some formal legal procedures but no strict rules of evidence, whereas in mediation there are no formal legal
procedures and so mediation is not bound by legal doctrines

vi. In arbitration, the focus is on the rights of the parties, whereas in mediation the focus is on the interests of the parties

vii. In arbitration, the solution is based on past events and precedents, whereas in mediation solutions or settlements seek to
incorporate the future relationship of the parties

viii. In arbitration, the process is knowledge-based (i.e. knowledge of the law and practice of arbitration are essential), whereas in
mediation the process is based on the mediator's skill

ix. In arbitration, the winner takes all (i.e. it's a win-lose situation), whereas in mediation a win-win situation is possible

x. Arbitration can be tedious and costly, whereas mediation can be speedy and cost-effective

Two Important Similarities between mediation and arbitration


i. Both processes are confidential
ii. In both arbitration and mediation, proceedings are held in private

Theoretical advantages of Arbitration over LITIGATION


• In practice, these theoretical advantages are not always realized - it is up to the parties and the arbitrator to ensure that arbitral
proceedings are done quickly and cost-effectively

i. Expertise of the decision maker


○ An arbitrator is not imposed on the parties, unlike in litigation where parties have no choice of who should adjudicate their
dispute
○ The parties can choose a decision maker who is an expert in the subject matter of the dispute
 e.g. if the dispute relates to a bridge then it makes sense to choose an arbitrator who is a civil engineer as opposed to a l egal
practitioner

ii. Finality of the decision


The courts of law will always respect a provision that the arbitrator's decision is final and binding

Comm Trans Page 83


○ The courts of law will always respect a provision that the arbitrator's decision is final and binding
 This tends to discourage appeals to the court and to make provisions for finality meaningful
□ Consequently, because no appeals are made, the decision of the arbitrator is indeed final
○ In litigation, only decisions of the Supreme Ct cannot be appealed against
 Conversely, in arbitration, an award or a decision of an arbitrator cannot be appealed against
□ The only recourse in arbitration is to have the reward set aside

iii. Privacy of proceedings


○ If the parties wish the proceedings to be shielded from public scrutiny, arbitration (which is a private forum) is more prefe rable
to the courts (which will rarely deny public access)

iv. Procedural Informality


○ Since the parties in arbitration determine the procedural rules, they can opt for simplicity and informality
 Conversely, in litigation there is no departure from procedural rules

v. Low cost
○ Simplified procedures tend to reduce the costs of dispute resolution in arbitration
○ Costs are also reduced by lack of opportunity to appeal the arbitrator's decision

vi. Speed
○ The same factors which lead to low cost, lead to speedy resolution of a dispute
 In addition, parties need not wait for a trial date to be assigned to them, but can proceed to arbitration as soon as they an d
the arbitrator are ready

Matters which can be Arbitrated


• s.6(1) of the Arbitration Act ("AA"): "any dispute which the parties have agreed to submit to arbitration may be determined by
arbitration."
○ However, s.6(2) of AA gives the following exceptions (i.e. these are matters which CANNOT be determined by arbitration):

i. "An agreement contrary to public policy


□ e.g. an agreement to use certain premises for a brothel

ii. A dispute, which, in terms of law, may not be determined by arbitration


□ e.g. divorce proceedings cannot be arbitrated in Zambia

iii. A criminal matter or proceeding, except as permitted by written law or unless the court grants leave

iv. A matrimonial cause cannot be arbitrated

v. A matter incidental to a matrimonial cause, unless the court grants leave


□ e.g. maintenance or property settlement

vi. The determination of paternity, maternity or parentage of a person cannot be arbitrated

vii. A matter affecting the interests of a minor or an individual under a legal incapacity, unless represented by a competent
person"

• s.10(1) of AA: as long as there is an arbitration agreement between the parties, the court must STAY PROCEEDINGS in such a matter
at the request of any of the parties
○ s.10(1) of AA: if there is an arbitration agreement between the parties, then if any of the parties request the court to stay
proceedings then the court must stay proceedings and refer the matter to arbitration
 This is Mandatory and can be done at ANY STAGE of the proceedings

• Notwithstanding s.10(1) of AA, the following interim measures can be granted by the court pursuant to s.11(2) of AA:
a. An order for the preservation, interim custody, sale or inspection of any goods which are the subject matter of the dispute;
b. An order securing the amount in dispute or the costs and expenses of the arbitral proceedings;
c. An interim injunction or other interim order; and
d. An order to ensure that an award which may be made in the arbitral proceedings is not rendered ineffectual

Characteristics of an Arbitration Agreement

Comm Trans Page 84


Characteristics of an Arbitration Agreement
• Doctrine of Severability or Separability: an arbitration agreement in a contract is treated as a separate and independent agreement,
which survives the termination of the underlying contract - this is known as the Doctrine of Severability or Separability

○ In Heyman and Another v. Darwins Ltd [1942] 1 All ER at p.337 [*must read this case*]
 Facts:
□ P and D entered into a contract with an arbitration clause
□ P alleged that D had repudiated the contract through its letters
□ P started proceedings for a declaration that D had repudiated the contract and for damages
□ D claimed that the action should be stayed and proceed to arbitration
 P contended that, D having repudiated the contract as a whole and P, by the commencement of proceedings,
having accepted that repudiation, the contract had ceased to exist for all purposes and, as such, D could not rely
on the arbitration clause
 Held:

□ The dispute between the parties was a dispute within the arbitration clause and, thus, the action was stayed

□ Where there has been a total breach of contract by one party so as to relieve the other of his obligations under the
contract, an arbitration clause, if its terms are wide enough, still remains effective
 This is so even where the injured party has accepted the repudiation and, in such circumstances, either party
may rely on the arbitration clause

□ Differences between an Arbitration Clause and other clauses in a Contract:


i. Other clauses set out the parties' obligations to each other but an Arbitration clause does not impose on
one party an obligation that affects another;
ii. The Remedy for breach of the Other clauses is either damages or specific enforcement but the ONLY
Remedy for breach of an Arbitration Clause is Specific Enforcement; and
iii. Courts have a discretionary power of dispensation as regards arbitration clauses which they do not possess
as regards other contract clauses.
 i.e. Lord MacMillan described an arbitration clause in the following terms: "An arbitration clause in a contract is
quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards
each other but the arbitration clause does not impose on one of the parties an obligation that affects the other. It
embodies the agreement between the parties that, if any dispute arises as with regard to the obligations which one
has undertaken to the other, then such dispute shall be settled by a tribunal of their own constitution. Moreover,
there is this very material difference that whereas in an ordinary contract the obligations of the parties to each
other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause
can be specifically enforced by the machinery of the Arbitration Acts. The appropriate remedy for breach of the
agreement to arbitrate is not damages, but its enforcement. Moreover, there is the further significant difference
that the courts in England have a discretionary power of dispensation as regards arbitration clauses which they
do not possess as regards the other clauses of contracts.”

□ Even though a contract is repudiated and the injured party accepts the repudiation, the contract still exists for the
purpose of measuring the claims arising out of the breach and the arbitration clause survives for the purpose of
determining the mode of settlement. Although the purposes of the contract have failed, the arbitration clause is not
one of the purposes of the contract.
 i.e. "I am accordingly of the opinion that what is commonly called repudiation or total breach of a
contract, whether acquiesced in by the other party or not, does not abrogate a contract, though it may
relieve the injured party of the duty of further fulfilling the obligations which he has by a contract
undertaken to the repudiating party. The contract is not put out of existence, though all further
performance of the obligations undertaken by each party in favor of the other may cease, it survives for
the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for
determining the mode of their settlement. The purposes of the contract have failed, but the arbitration
clause is not one of the purposes of the contract."
 i.e. Lecturer said: in a contract, one party owes the other certain obligation. However the
arbitration clause does not impose an obligation but merely stipulates that in the event of a
dispute, the parties will go to arbitration.
 Because the arbitration clause does not impose any obligations on the parties, this is the
reason why it survives where a contract is terminated

Comm Trans Page 85


○ Paal Wilson and Company v. Partenreederei Hannah Blumenthal [1983] 1 All ER at p.34 [*must read this case*]
 Lord Diplock gave the following 3 characteristics of an arbitration clause:

i. An arbitration clause does not impose primary obligations in a contract because the arbitration clause is collateral
 i.e. "An arbitration clause is collateral to the main contract in which it is incorporated and gives rise to collateral
primary and secondary obligations of its own. These collateral obligations survive the termination (whether by
fundamental breach, breach of condition or frustration) of all primary obligations assumed by the parties under the
other clauses of in the main contract."
 i.e.This was established in the Heyman case above

ii. An arbitration clause will only be called into play if the following 2 conditions precedent occur: (1) there is a dispute
between the parties in relation to the obligation; and (2) one of the parties must decide that the dispute must go to
arbitration
 i.e. "The primary obligation the arbitration clause creates are subject to conditions subsequent. The clause comes
into operation so as to impose primary obligations on the parties to the contract only on the occurrence of a
combination of future events which may or may not occur, namely: (1) the occurring of a dispute between the
parties as to their primary or secondary obligations under the main contract; (2) the invoking of the arbitration
clause by a party to the contract (i.e. claimant) who desires to obtain the resolution of that dispute by the
procedure for which the arbitration clause provides."

iii. Once the arbitration is in place, the arbitration clause cannot be destroyed
 Thus, if one of the parties decides to refer the matter to arbitration then the parties have no choice but to go to
arbitration
◊ i.e. "The subject matter of an arbitration agreement is not susceptible to physical destruction. It is an
agreement by the parties to: (1) embark on and follow a joint course of action (i.e. the procedure for which the
arbitration clause provides), for the purpose of obtaining from a third party, the arbitrator or arbitral tribunal,
a decision of the dispute; and (2) to abide by that decision."

Contents of an Arbitration Clause


• s.2 of AA and Article 7 of the Appendix of the AA will give a definition of "arbitration agreements"

• An arbitration agreement/clause must include:


i. The appointment of arbitrator(s), arbitral body or arbitral tribunal;
ii. The place of arbitration; and
iii. The law to apply to the arbitration

○ Sample arbitration clause will read:


 "Any dispute or difference arising out of or in connection with this agreement shall be referred to and settled by arbitratio n
by one or two or three arbitrators appointed by ourselves or appointed by the President of the Engineering Institution of
Zambia and the arbitration shall take place in Lusaka, Zambia and the arbitration shall take place in English and the law
applicable shall be Zambian law."

The Arbitral Process


1. The arbitral process starts with a dispute having arisen in connection with or out of an agreement or contract between the parties
○ For a dispute to be referred to arbitration, the contract/agreement between the parties must contain an arbitration clause to
that effect
 If agreement does not contain an arbitration clause, then there must be an ad hoc arbitration agreement subsequently
signed by the parties, referring the matter to arbitration - see s.6(1) of AA

2. The next stage is the constituting or appointment of an arbitral tribunal

○ The words "arbitrator(s)" and "arbitral tribunal" are used interchangeably


 But if more than one arbitrator, then proper to refer to them as arbitral tribunal

○ s.12(2) of AA: the parties are free to agree on a procedure of appointing the arbitrator(s)

 In general, the arbitrator/arbitral tribunal may be appointed through one of the following ways:

i. By direct appointment by the parties, pursuant to an arbitration clause or ad hoc arbitration agreement; or

Comm Trans Page 86


i. By direct appointment by the parties, pursuant to an arbitration clause or ad hoc arbitration agreement; or

ii. By existing arbitrators; or


◊ This applies in the case of a 3-member arbitral tribunal
 Typically, each party will appoint one arbitrator and the 2 party-appointed arbitrators will then appoint a
third arbitrator
– Typically the 3rd arbitrator (i.e. the one appointed by the 2 party-appointed arbitrators) will be
chairperson of the arbitral tribunal
 If there is a tie, then chairperson has deciding vote

iii. By an appointing authority; or


 The appointing authority could be a professional authority (e.g. LAZ, or Engineering Institution of Zambia)
 An "arbitral institution" is an institution which applies to be an arbitral institution and the Minister has to grant it
such status

iv. By a competent court of law


 This is usually the High Court for Zambia

3. In the event that the parties fail to agree on the procedure of appointing the arbitral tribunal, s.12(3) of AA provides that the
appointment shall be as follows:

a. In an arbitration with 3 arbitrators, each party shall appoint one arbitrator and the 2 arbitrators so appointed shall appoin t a
3rd arbitrator
□ If a party fails to appoint an arbitrator within 30 days of the request to do so or if the 2 arbitrators fail to appoint a 3r d
arbitrator within 30 days of their appointment, then any party can ask an arbitral institution to make an appointment

b. In an arbitration with a sole arbitrator, the arbitrator shall be appointed upon request of a party by an arbitral institutio n
□ i.e. where the parties have agreed that there will be only one arbitrator but cannot agree who it should be then any
party can request that arbitral instutition appoint one

4. If all institutions have failed to make an appointment, then the last resort is to go to the High Ct to make the appointment or
take necessary measures pursuant to s.12(4) of AA
 s.12(4) of AA: "Where, under an appointment procedure agreed upon by the parties (a) a party fails to act as required; (b)
the parties or 2 arbitrators are unable to reach an agreement expected of them under such procedure; or (c) a third party
(including an arbitral institution) fails to perform any functions entrusted to it under such procedure, then any party can
request the court to take necessary measures"

5. s.12(5) of AA: a decision on a matter by s.12(3) or (4) of AA shall not be subject to appeal
 i.e. if an arbitral institution makes an appointment pursuant to s.12(4) of AA then that decision cannot be appealed against
□ Equally, if High Ct makes an appointment under s.12(5) of AA then that decision cannot be appealed against

6. s.12(6) of AA: where an arbitrator's mandate is terminated after a successful challenge by one of the parties, on grounds of
impartiality and lack of independence
 Once an arbitrator is appointed, his mandate can only be revoked on grounds of impartiality or lack of independence
7. s.13(2) of AA: "Unless otherwise agreed by the parties:
a. where the sole or other presiding arbitrator is replaced, any hearing previously held shall be held afresh; and
b. where an arbitrator, other than a sold or a presiding arbitrator is replaced, any hearing previously held may be held
afresh at the request of any party."
 Note: these provisions stipulate that "unless otherwise agreed by the parties", meaning that these are only default
provisions

Role of a Chairperson of Arbitral Tribunal


• The chairperson of a 3 member arbitral tribunal is also an arbitrator and because he is an arbitrator he is clothed with jurisdiction
over the arbitration and his jurisdiction starts from the date of appointment
• Where there is a difference among the 3 arbitrators, the majority vote carries the decision
 This is true even where there are more than 3 arbitrators (e.g. the majority of 5 arbitrators will carry decision)
○ However, if a majority vote cannot be achieved then the decision of chairperson shall prevail

Qualities and Qualifications of Arbitrators


• Whether the arbitration is domestic or international, s.12(6) of AA gives the following requirements as necessary qualifications for

Comm Trans Page 87


• Whether the arbitration is domestic or international, s.12(6) of AA gives the following requirements as necessary qualifications for
appointment as arbitrator:

i. The qualifications imposed by the parties in their agreement


 The arbitration clause may also stipulate the qualifications desired by the parties of the person they wish to arbtirate thei r
dispute (e.g. lawyer, civil engineer, accountant etc)
 The appointment of an arbitrator will not be valid unless the nominee meets all the qualifications agreed by the parties
□ It follows that any award made by such an unqualified arbitrator is void

ii. Independence of the Arbitrator


 The concept of independence of the arbitrator relates to questions that may arise out of the relationship between the
arbitrator and one of the parties (the relationship may be financial or otherwise):
a. An independent arbitrator is one who is not under pressure from, or dependent upon, a party on account of the
relationship
b. An arbitrator should not have direct professional relations with one of the parties or financial interest in the outcome
of the arbitration
c. In the case of a sole arbitrator in an international arbitration, he should not be of the same nationality as that of
either of the parties

iii. Impartiality of Arbitrator


 Impartiality relates to bias or prejudice of an arbitrator either:
i. in favor of one of the parties; or
ii. in relation to the issue in dispute

 Partiality of an arbitrator will be evident in the following circumstances:

a. If he applies a procedure in the arbitration which is not in accordance with notions of due arbitral process of equality
of treatment of parties

b. If he does not to observe the rules of natural justice

Comm Trans Page 88


Exams
Wednesday, January 29, 2014 3:50 PM

Note: can bring into exam ALL the statutes BUT NOT ORDER 53 - if you bring Order 53 this is a serious problem
Exam will cover all the topics
Advice:
• Question 1 is worth 40 marks so make sure you answer it well
○ Question 1(a) is multiple choice and is worth 20 marks
• Give relevant law for the specific question - do not put down everything you know

Comm Trans Page 89


Alternative Dispute Resolution
Monday, February 24, 2014 2:03 PM

ALTERNATIVE DISPUTE RESOLUTION (ADR)

There are other dispute resolution mechanisms that are an alternative to litigation. These include, inter alia, mediation and arbitration.

MEDIATION

This is a process of negotiation facilitated by or through the intervention of a neutral third party called a mediator. He helps the parties to communicate their position on the
issues relating to the dispute and in exploring possible solutions to reach a settlement. Unlike an arbitrator or a judge, a mediator does not decide or adjudicate the dispute
between the parties. He is merely a facilitator who helps them reach a consensus by listening to them and suggesting a compromise. Mediation is a voluntary and non-binding
process and parties themselves must be willing to come to some sort of settlement. The process of mediation is non-adversarial, where parties are encouraged to look at the
broader aspects for their interests instead of focusing on the narrow aspects of their rights and obligations. The process is not restricted by legal principles or rules of procedure
that are used in litigation. I.e. the parties are not required to prove their cases on a balance of probabilities, by using legal rules and principles of evidence or by calling witnesses
and exhibits. For this reasons a mediator is usually more skilled oriented than legal knowledge oriented. A good mediator must have excellent negotiation and problem solving
skills.

In Zambia the process of mediation is “court annexed” i.e. it is triggered by a court process (in other countries it may be undertaken without a court requiring the parties to try
mediation). Thus O.31 r.4 states “Except for cases involving constitutional issues or the liberty of an individual or an injunction or where the trial judge considers the case to be
unsuitable for reference, every action may, upon being set down for trial, be referred by the trial judge for mediation and where mediation fails, the trial judge shall summon the
parties to fix the hearing date.” In the commercial list, this is normally done at the scheduling conference but note that a judge may only refer a matter to mediation with the
consent of the parties or their counsel. He can’t force mediation on them.

ADVANTAGES OF MEDIATION

(a) Since mediation is not constrained by legality and procedural rules, it is easy for the parties to tailor a flexible format to suit their own specific requirements. Thus,
medication can be quite informal and speedy to the extent that a simple or less complex dispute can be settled in a few days as opposed to litigation or arbitration that may take
months or years.
(b) As it is speedy, the costs incurred by the parties are considerably lower. [Unfortunately mediation processes collapse, as some lawyers are not interested in a quick
settlement].
(c) In mediation, the focus is not necessarily what is legally correct but rather what the parties’ joint interests are. Thus a party may forgo certain of its rights in order to
arrive at a quick settlement.
(d) Most importantly, parties often have greater commitment to the solution or decision reached since they fully participated in generating that decision. This means that
the decision reached is more likely to be enduring and respected.

Disadvantages of Mediation

(a) As mediation requires the consent of the parties, it is bound to fail if there is no goodwill or willingness or good faith on their part to the process.
(b) Mediation cannot succeed if one party is bent on causing delay by insisting on litigation or one party uses the process simply to delay litigation.
(c) Similarly, mediation is not appropriate and will not succeed if the parties are desirous of setting a precedent.

Mediation Procedure
The mediator usually starts with a joint session that is attended by the parties and their representatives. At the joint session, issues in dispute are highlighted by the mediator
and ground rules (e.g. confidentiality and maintaining civility) are set out. After this the mediator has individual sessions with each of the parties in turn. These private sessions
(sometimes called “caucuses”) help the parties in being more forthcoming with their ideas and suggestions than they may be in the presence of the other party. If an agreement
is reached, it is recorded in a written form and signed by the parties. It then becomes a consent judgment that can be enforced like any other judgment in of the court. [Can a
party apply to set aside a consent judgment? No, as it is not a court judgment. A party can only challenge a consent judgment by commencing a fresh action in court to overturn
it on the basis of it being entered as a result of fraud, mistake etc.]

ARBITRATION

The process where a dispute is put to one or more mutual party(ies) chosen by the disputing parties for a final, binding and enforceable decision.

Characteristics of Arbitration
(a) Parties submit disputes to a mutual arbitrator or arbitrators for a decision on the merits (i.e. each party will give evidence and be cross-examined etc.)
(b) Each part will have the opportunity to present evidence to the arbitration tribunal in writing and through witnesses.
(c) Proceedings are more informal that court proceedings and strict adherence to evidential and procedural rules is not usually required (but Evidence Act does apply).

DIFFERENCES BETWEEN ARBITRATION AND MEDIATION

(a) Arbitration is binding once the parties have an arbitration clause in their agreement i.e. parties are bound by that clause i.e. they must settle the dispute by arbitration
not litigation. Mediation is non-binding.
(b) An arbitrator decides the dispute while a mediator helps the parties themselves to decide the dispute. Arbitrator performs a quasi-judicial function.
(c) There are formal legal procedures in arbitration (e.g. call witnesses, cross-examination etc.) but there are no such procedures in mediation and it is not limited by legal
doctrines.
(d) An arbitration award is legally enforceable while mediation is only enforceable with the consent of the parties.

Comm Trans Page 90


(d) An arbitration award is legally enforceable while mediation is only enforceable with the consent of the parties.
(e) Arbitration focuses on the rights of the parties. Mediation focuses on the interests of the parties.
(f) The arbitration process is knowledge-based (i.e. arbitrator must have knowledge of the law) while medication is skill based (i.e. mediator needs to possess negotiating
skills).
(g) In arbitration, a winner takes all - a win/lose situation. In mediation, both sides will benefit - it is a win/win situation.
(h) Arbitration can be tedious and costly. In theory, mediation can be speedy ands cost effective.

SIMILARITIES BETWEEN ARBITRATION AND MEDIATION

(a) Confidentiality: both processes are confidential. [Mediator tears all the notes of the medication proceedings before putting the consent judgment on file].
(b) Private: They are not open to the public – they are only attended by the parties concerned, their lawyers and other representatives.

ADVANTAGES OF ARBITRATION OVER LITIGATION

(a) Expertise: of the decision maker. An arbitrator is not imposed on the parties unlike in litigation where the parties have no choice of who should adjudicate their dispute.
In arbitration, parties can choose the decision maker who is an expert in the subject matter of the dispute.

(b) Finality of the Decision: the courts will always respect a provision that the arbitration award is final and binding on the parties. This serves to discourage appeals to the
courts of law and to make the provisions for finality meaningful. In litigation, every decision can be appealed against, except those of the SCZ.
(c) Privacy of Proceedings: If the parties wish proceedings to be shielded from public scrutiny then arbitration, that is a private forum, is more preferable to the courts that
will rarely deny public access.
(d) Procedural Informality: Since the parties in arbitration determine the procedural rules to apply to the arbitration they can opt for simplicity and informality. There is no
such departure from procedure in litigation.
(e) Low cost: In theory, simplified procedures tend to reduce costs as does the lack of opportunity to appeal against an arbitrator’s award. [However, an award can be
challenged by applying to court to set it aside on the grounds set out in s.17 of the Arbitration Act of 2000 e.g. the award went beyond the scope of the arbitration].
(f) Speed: The same factors that tend to reduce costs also lead to a more speedy resolution of a dispute. In addition, parties need not wait for a trial date to be assigned to
them but can proceed to arbitration as soon as they and the arbitrators are ready. [In arbitration there is a “preliminary meeting” - like a scheduling conference - where orders
for directions are given.]

Note: some of these are only theoretical advantages and in practice they may not be realized e.g. an arbitrator is paid fees (often quite high) whereas a judge is paid by the State
and not by fees.

SECTION 6 - MATERS SUBJECT TO ARBITRATION AND EXCEPTIONS

S.6(1) states that “Subject to subsections (2) and (3) any dispute which the parties have agreed to submit to arbitration may be determined by arbitration.”

Subsection (2) gives exceptions


(a) An agreement that is contrary to public policy
(b) A dispute, which, in terms of law, may not be determined by arbitration (e.g. the winding up of a Co. - can only be done by petitioning the High Court).
(c) A criminal matter, unless permitted by written law or court grants leave.
(d) A matrimonial cause e.g. petition to dissolve a marriage.
(e) A matter incidental to a matrimonial cause e.g. maintenance or custody, unless by leave of the court.
(f) The determination of paternity, maternity or parentage of a person.
(g) A matter affecting the interests of a minor or a person under legal incapacity unless a competent person represents such minor/person.

Section 10 - a court is obliged to stay proceedings and refer the parties to arbitration if there is an arbitration agreement unless the court finds that such an agreement is null and
void, inoperative or incapable of being performed.

Section 11 - Notwithstanding s.10, the court under s.11 may, on application by any of the parties in the matter that is subject to arbitration, grant the following orders:
(a) An order for the preservation, interim custody, sale or inspection of any goods that are the subject matter of the dispute.
(b) An order securing the amount in dispute or the costs and expenses of the arbitral proceedings.
(c) An interim injunction or other interim order; or
(d) Any other order to ensure that an award, which may be made in the arbitral proceedings, is not rendered ineffectual (or nugatory)

CHARACTERISTICS OF AN ARBITRATION AGREEMENT

An arbitration agreement or clause in a contract is treated as a separate & independent agreement that survives the termination of the underlying contract. This is known as the
severability or separability doctrine. In, Heyman & Another v. Darwins Ltd [1942] AC 356, Lord McMillan described an arbitration clause as follows:
“An arbitration clause in a contract is quite distinct from the other clauses. The other clause set out the obligations which the parties undertake towards each other but the
arbitration clause does not impose on one of the parties any obligation in favour of the other. It embodies the agreement of both parties that if any dispute arises with regard to
the obligations which one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. The purpose of the contract has failed but the
arbitration clause is not one of the purposes of the contract.” [See also Lord Diplock’s three characteristics in Hannah Blumenthal [1985] 1 All ER 34].

THE HANNAH BLUMENTHAL (1983) 1 ALL ER 34

LORD DIPLOCK: The first characteristic is that which was established by the House of Lords in Heyman and another V Darwins Ltd… an arbitration clause is collateral to the main
contract in which it is incorporated and it gives rise to collateral primary and secondary obligations of its own. Those collateral obligations survive the termination (whether by
fundamental breach, breach of condition or frustration) of all primary obligations assumed by the parties under the other clause in the main contract.
The Second characteristic of an arbitration clause is that the primary obligations that it creates are subject to conditions subsequent. The clause comes into operation so as to
impose primary obligations on the parties to the contract only on the occurrence of a combination of future events which may or may not occur, VIZ;
1. The coming into existence of a dispute between the parties as to their primary or secondary obligations under the main contract, ands
2. The invoking of the arbitration clause by a party to the contract… who desires to obtain the resolution of that dispute by the procedure for which the arbitration clause
provides.
The third characteristic is that the subject matter of an arbitration agreement is not a thing that is susceptible of physical destruction…

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The third characteristic is that the subject matter of an arbitration agreement is not a thing that is susceptible of physical destruction…

THE ARBITRATION PROCESS


For a dispute to be referred to arbitration, the contract between the parties must contain an arbitration clause to that effect. However, even if it doesn’t, the parties can enter
into an ad hoc arbitration agreement which they sign agreeing to refer their dispute to arbitration [They must agree - see s.6(1)]

The next stage is to appoint/constitute the arbitral tribunal in accordance with s.12. How is this done? In general the tribunal is appointed through 1 of the following ways
(a) By direct appointment by the parties pursuant to the procedure set out in the arbitration clause or ad hoc agreement or otherwise.
(b) In a three-person tribunal, each party appoints one arbitrator and these two then appoint the third (the chairman).
(c) By an appointing authority e.g. LAZ, Zambia Centre for Dispute Resolution (ZCDR) , ZCAS
(d) By a competent court.

In the event that the parties fail to agree on the procedure of appointing the arbitration tribunal s.12(3) states that the appointment shall be as follows:
(a) In an arbitration with three arbitrators, each party appoints one and these two appoint the third. If (a) a party fails to appoint its arbitrator within 30 days of receipt of a
request to do so from the other party or (b) if the two arbitrators fail to agree on the third within 30 days of their appointment, then the appointment shall be made upon
request of a party by an arbitral institution e.g. ZCDR. This decision is not subject to appeal - see s.12(5)
(b) In an arbitration with a sole arbitrator, if the parties are unable to agree, the arbitrator is appointed, upon request of a party, by an arbitral institution.

S.12(4) - if there is failure even by the arbitral institution, in appointing the arbitral tribunal, any party may request the court to take the necessary measures to secure the
appointment of the tribunal and the court’s decision is not subject to appeal.

THE ROLE OF THE TRIBUNAL CHAIRMAN

The chairman of a three-member tribunal is also an arbitrator. As such he is vested with jurisdiction from the date of his appointment just like the party appointed arbitrators.
Where there is a difference among the three (on procedure?) then the decision of the chairman shall prevail (but the arbitral award is by majority decision).

QUALITIES AND QUALIFICATIONS OF ARBITRATORS

Whether the arbitration is domestic or international, s.12(6) gives the following requirements as the necessary qualifications for appointment as an arbitrator.
(a) Qualifications imposed by the parties in the agreement. The arbitration clause may stipulate the qualifications desired by the parties of the person they wish to arbitrate
their dispute. The appointment will not be valid unless the nominee meets all the qualifications agreed by the parties. It also follows that any award made by such unqualified
arbitrator is void.
(b) Independence of the arbitrator. The concept of independence of the arbitrator relates to questions that may arise out of the relationship between the arbitrator and one
of the parties. It may be financial or otherwise. An independent arbitrator is one who is not under pressure from, or dependent upon, a party on account of the relationship. An
arbitrator should not have direct professional relations with one of the parties or financial interest in the outcome of the arbitration. In case of a sole arbitrator in an
international arbitration, he should not be of the same nationality as that of either of the parties.
(c) Impartiality relates to bias or prejudice of an arbitrator either (i) in favour of one of the parties or (ii) in relation to the issue in dispute. Partiality of an arbitrator will be
evident in the following circumstances:
a. If he applies a procedure in the arbitration which is not in accordance with notions of due arbitral process of equality of treatment of parties.
b. If he fails to observe the rules of natural justice.

TERMINATION OF AN ARBITRATOR’S MANDATE

An arbitrator’s mandate may be terminated in the following circumstances:


(a) By virtue of a successful challenge by a party under Article 13(2) of the Model Law in Schedule 1 of the Arbitration Act No. 19 of 2000 on the grounds provided under
Article 12(2) of the Model Law [UNCITRAL Model Law]
(b) Failure or impossibility of the arbitrators to act in the following circumstances:
a. One is unable to perform his duties due to incapacity
b. If arbitrator fails to act without undue delay [Art. 14 of Model Law]
(c) By an agreement of the parties at any time to revoke/terminate his mandate
(d) By an arbitrator withdrawing due to any reason e.g. his own doubts as to his impartiality or independence.
(e) When the arbitrator becomes “functus officio” Article 32(2). I.e. his mandate ends when he makes his arbitral award.

PROCEDURE FOR CHALLENGING AN ARBITRATOR

An arbitrator’s appointment can only be challenged by a party if there are valid grounds for doing so. See Article 12(2) of the Model Law. This restriction is intended to prevent
parties from disrupting arbitral proceedings by making frivolous challenges. To pre-empt such challenges it is incumbent on the arbitrator to disclose to the parties any
circumstances that are likely to give rise to possible challenges in respect of his impartiality and independence. Where possible this should be done at the time of his
appointment. The challenge procedure is specified in Article 13 of the Model Law as follows:
(a) The parties may agree on the procedure for challenging the arbitrator;
(b) If there is no agreement the party making the challenge should within 15 days of becoming aware of the constitution of the tribunal or of the circumstances giving rise to
justifiable doubts as to arbitrator’s impartiality or independence, send a written statement of reasons for the challenge to the arbitrator.

The following options are available to a challenged arbitrator.


(a) To withdraw/recuse himself - this does not mean he accepts the validity of the grounds of the challenge.
(b) To withdraw from office if the other party also agrees to the challenge. I.e. ask the other party and if he agrees with the challenge step down, but again this does not
mean arbitrator accepts the validity of the grounds of the challenge.
(c) The arbitrator can constitute himself into a tribunal for the purpose of deciding on the challenge. When he does so, he should hear both sides on the issues. If, after
hearing the parties, the arbitrator decides the challenge is successful, he must withdraw. If he decides otherwise, he may continue with the arbitration. If the challenging party is
dissatisfied with the arbitrator’s decision, he must within 30 days from the date of receiving the decision, apply to court for a determination on the challenge. The court will not

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dissatisfied with the arbitrator’s decision, he must within 30 days from the date of receiving the decision, apply to court for a determination on the challenge. The court will not
be hearing the matter in an appellate capacity but making a decision on the merits of the challenge itself. I.e. the court will hear the grounds advanced and decide. The court’s
decision is final and not subject to appeal.

Preliminary Meeting
After the arbitrator has accepted his appointment the next sage is to convene a preliminary meeting attended by the parties and their lawyers. The preliminary meeting is like a
scheduling conference in the Commercial Registry as it is here that the arbitrator and the parties agree on the future conduct of the arbitration after which an order for directions
is issued by the arbitrator.

Agenda of the Preliminary Meeting


(a) To see the original agreement so as to ascertain that there is an arbitration clause and its stipulations e.g. arbitrator’s qualifications.
(b) To identify the issues in dispute. Unlike in litigation, the arbitrator is given what the parties conceive to be the dispute upon which he should arbitrate upon and the
parties must sign off on what the dispute to be resolved is.
(c) The arbitrator’s schedule of charges i.e. his fees and whether the parties accept these before he proceeds further with the arbitration.
(d) Representation: will counsel represent the parties or not.
(e) The law pursuant to which the arbitration will proceed (but note that the procedural law to be followed will always be the Arbitration Act of 2000).
In the Matter of
And
In the Matter of the Arbitration Act No. 19 of 2000
(f) Procedures and rules to apply to the arbitration as taken from the Act No. 19
(g) Whether the award shall be reasoned or not i.e. whether the reasons should be stated for the award or not. But in Zambia; s.16(2) of Act No. 19 of 2000 requires that a
reasoned award be given.
(h) Programme for the submission of:
a. Statement of Claim
b. Defence and counterclaim if any
c. Reply and defence to counterclaim if any
(i) Discovery: Timetable for the exchange lists of documents, inspection of documents and when bundle of documents will be served. Also agree if the arbitration will only
be on documents or also whether witnesses will be called.
(j) Hearing date: agree how much time will each party will require at the hearing
(k) Witnesses: how many will be called, how many are expert witnesses and how many are witnesses of fact.
(l) Communication with the arbitrator: for transparency, parties must know that when they communicate with the arbitrator, copies of such communication should be sent
to the other party.
(m) Date when the award shall be rendered: the arbitrator should also be tied to a date (c.f.) a court.
(n) Taxation of costs: agree with the parties if costs are awarded and the losing party does not agree the quantum whether the arbitrator or the taxing master at the High
Court will do the taxation.

JURISDICTION OF AN ARBITRATOR

In addition to challenging an arbitrator for lack of impartiality or independence, a party can also challenge an arbitrator for lack of jurisdiction . In general, and arbitrator’s
jurisdiction is derived from the consent of the parties. An arbitrator has no jurisdiction in the following circumstances:
(a) Where an agreement between the parties does not contain an arbitration clause unless they enter into an ad hoc agreement to arbitrate.
(b) If the arbitration agreement is invalid under the law which the parties have subjected it to - see s.6(2).
(c) If the arbitrator has not been validly appointed e.g. he does not meet the prescribed qualifications.
(d) If the issue in dispute is one that was not contemplated by the parties e.g. if the arbitration clause relates to a contractual dispute, a tortious dispute between the parties
would not be within the scope of the arbitration clause.
In these circumstances an arbitrator has no jurisdiction.

However, an arbitrator is vested with one statutory jurisdiction i.e. his competence to decide and rule on his own jurisdiction (conflict with rules of natural justice?). This is
commonly referred to a Kompetenz-Kompetenz. It arises only if his jurisdiction is challenged. Art. 16(1) of the Model Law (1st schedule of the Act) states that an arbitral tribunal
may rule on its own jurisdiction including any objection with respect to the existence or validity of the arbitration agreement.

The advantage of this doctrine is that it avoids delays and difficulties when a question is raised as to:-
(a) Whether there is a valid arbitration agreement
(b) Whether the tribunal is properly constituted.
(c) Whether matters have been submitted to arbitration in accordance with the arbitration agreement.

According to Art 16(2) a plea that the arbitration tribunal does not have jurisdiction shall be raised not later than the submission of the defence i.e. before the defence is served.
Art 16(3) states that the arbitral tribunal may rule on its own jurisdiction either as a preliminary question or in an award. A party dissatisfied with the tribunal’s ruling may
request a court to decide the matter and the court’s decision shall not be subject to appeal.

The Award
Note: there are no dissenting awards in arbitration c.f. you can have dissenting judgments in litigation. Section 16(1) of the Act states that the award shall be in writing and shall
be signed by the arbitrator(s). In arbitral proceedings with more than one arbitrator, the signature of the majority of the members shall suffice provided that the reason for any
omitted signature is stated. S. 16(2) states that the award must state the reasons upon which it is based unless the parties agree otherwise. The award must also state the date
and place of the arbitration at which it shall be deemed to have been made. After the award is made, a copy signed by the arbitrator(s) is delivered to the parties [In practice, the
arbitrator has a lien over the award for his fees.] On request by any party, (within 30 days?) an award may be corrected or interpreted by the arbitrator. The arbitrator can also
correct the errors at his own instance or initiative. See Art 33. The interpretation forms part of the award.

TYPES OF AWARD

An award may be:


Interim: this award is a determination of an issue during the course of arbitral proceedings e.g. (a) an interim injunction; (b) an order for the deposit of the fees, costs and
expenses of the arbitration, (c) and interim measure for protection in respect of the subject matter of the dispute. (See s. 14 of the Act).

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expenses of the arbitration, (c) and interim measure for protection in respect of the subject matter of the dispute. (See s. 14 of the Act).
Partial: like an interim award, a partial award is a determination of an issue during the course of the arbitral proceedings which may result in the parties saving time and money.
E.g. (a) determination of the arbitral tribunal’s jurisdiction; (b) determination of part of the claim that can easily be disposed of during the hearing.
Final: this is an award that completes the mandate of the arbitral tribunal. Once it is delivered, the tribunal becomes “functus officio” i.e. it ceases to have any further jurisdiction
over the dispute and the relationship existing between the arbitral tribunal and the parties during the currency of the arbitration comes to an end. There is however, one
exception, i.e. when the arbitral tribunal is requested by the parties (or one of them) to correct clerical errors in the award OR interpret the award OR make an additional award.

RECOURSE AGAINST AN AWARD

An award rendered by an arbitrator is final and binding on the parties as provided by s.20(1) of the Act. The only recourse is to set it aside pursuant to s.17(2) of the Act. This
gives instances when an award can be set aside (by applying to a court). I.e. by

[I] The party making the application furnishing proof that:


(a) A party was under some incapacity or the agreement is not valid under the law the parties subjected it to.
(b) A party was not given proper notice of appointment of the arbitrator or of the proceedings or was otherwise unable to present his case.
(c) The award goes beyond the scope of the arbitration (but matters which were submitted to arbitration may be separated out).
(d) The composition of the arbitral tribunal or the procedure was not as agreed by the parties or as provided by the Act or the law.
(e) The award is not yet binding on the parties or has been set aside or suspected by a court, or under a law, of the country where it was made.
[II] The court finding that:
(a) The subject matter of the dispute is not capable of settlement by arbitration under the law of Zambia.
(b) The award is in conflict with public policy.
(c) The making of the award was induced or effected by fraud, corruption or misrepresentation.

When a court sets an award aside, the court will normally send it back for arbitration before a different tribunal. [Normally, as in litigation, costs of arbitration “follow the event”
i.e. costs normally go to the successful party. Costs may be taxed.

RECOGNITION AND ENFORCEMENT OF AN AWARD

A court shall recognize an arbitral award as binding regardless of the country in which it was made see s.18. The party in whose favour the award is made must file it in court for
it to be recognized and enforced. Recognition alone is sufficient if the losing party willingly pays the amount awarded to the successful party. If he is unwilling, the successful
party must enforce the award. Recognition and enforcement of an arbitral agreement may be refused upon the grounds set out in s.19, which are identical to those above in s.
17 above which a party may use to set aside an award.

HOW DO YOU MAKE THE APPLICATION TO SET ASIDE?

See: the Arbitration Court Proceedings Rules of 2001. Done by an originating summons to a High Court judge in chambers supported by an affidavit stating the facts relied upon
in support of the application and the date of the receipt of the award and exhibiting:
(a) The original award or a certified copy thereof,
(b) The original arbitration agreement or certified copy.

RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) is in the second schedule of the Act. Art 2 states that each contracting
party (includes Zambia) shall recognize such awards as binding – see Art 3 and 4. Note recognition may be refused on the grounds set out in Art. 5 which are the same grounds as
in s.17 and s.19 above.

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Common Exam Questions
Wednesday, July 16, 2014 2:18 PM

A. SALES OF GOODS
1. Multiple Choice Questions
 A person who induces another to sell goods by making an actionable misrepresentation or by means of duress or undue
influence will gain title to the goods. T or F?
 Implied warranties are included in the contract of sale of goods and in a hire purchase agreement only by the agreement of
the parties. T or F?
B. HIRE-PURCHASE
1. Multiple Choice Questions
 A finance lease or equipment lease does not provide for the lessee to exercise an option to purchase the asset upon
payment of an agreed number of instalments or at the expiry of the lease term. T or F?
2. Finance Leasing: A enters into a Finance Leasing with B. A paid B the sum of K400 cash collateral and also created a mortgage
debenture over its office building. A falls into rental arrears for more than 12 months. What advice would you give B regarding
B's rights if he terminates the finance lease? Discus the legal principles involved. (10 marks) (November 2013)
3. Write short notes on Hire Purchase (5 marks)
C. INJUNCTIONS
1. Multiple Choice Questions
2. Fact Pattern: Musician released album and sold CDs. John starts selling illegal copies of Musician's CD. Musician finds out that
John has 1,000 copies of the CDs in his possession ready for sale. As a result of John's actions, musician has lost lots of money.
Musician now instructs you to urgently take legal action against John. What action would you take on behalf of your client?
Discuss the legal principles involved. (15 marks)

D. COMMERCIAL LIST PROCEDURE


1. Multiple choice questions
 The Commercial Court can hear and determine a matter stemming out of an employment contract where the employees is
being evicted out of the house that he occupied by virtue of his employment. T or F?
2. What happens at a trial in the Commercial Court of the High Court for Zambia that distinguishes it from a trial in the General or
Principal Civil Court of the High Court for Zambia? (5 marks)

Topics Tested (Finals)


• Mortgages
• Injunctions
• Arbitration
• Agency
• Mediation
• Partnership
• H-P
• Commercial list (minor)
• Trade charges (minor)
• Agricultural charges (minor)
• Power of Attorney
• Guarantee (minor)

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