In brief

  • The High Court of Australia has unanimously dismissed the appeal by Public Trustee of Queensland against the Queensland Court of Appeal’s judgment in Re Octaviar Ltd (No 7) [2009] QCA 282 (the Court of Appeal Decision).1 (Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 Pty Ltd [2010] HCA 29).
  • In a brief, joint judgment, Chief Justice French and Justices Gummow, Hayne, Kiefel and Bell held that the reference in section 268 of the Corporations Act to the ‘terms of a charge’ is, in the case of a charge created by a written instrument, a reference to the terms contained in that written instrument or which may be implied in it by fact. The occurrence of facts which alter the factual operation of the existing terms of a charge is not a variation in the terms of the charge and so does not require a notice to be lodged under section 268 even though it may as a factual matter increase the liabilities secured by a charge.
  • The decision means that the designation (in accordance with a pre-agreed mechanism) of a new ‘Transaction Document’ for the purposes of a charge created by a written instrument securing moneys owing under all ‘Transaction Documents’ should not require registration as a variation in the terms of the charge. Variations of existing documents secured by such a charge should also not require registration, with the possible exception of variations to definitions or other terms that are incorporated by reference into the charge.  

Analysis

The High Court’s reasoning is summarised below:

  • The Corporations Act requires notice only for variations in the ‘terms of the charge’ which have the effect described in section 268(2) of the Corporations Act. It does not apply generally to require notice to be lodged for any increase in the debt or liabilities secured.
  • Where the charge is evidenced by writing, the ‘terms of the charge’ are the terms contained in the written instrument and any terms which may be implied in it by fact.
  • The mere occurrence of facts that alter or modify the operation of terms of a charge that are variable or ambulatory in operation does not amount to a variation in those terms. In this case, the use of the pre-agreed designation mechanisms to bring a document within the definition of ‘Transaction Documents’ did not constitute a variation of the terms of the charge, even though the effect of that designation was to increase the liabilities in fact secured by the charge.
  • The charge should be regarded, from the time of its creation, as encompassing a liability that ‘might be or become owing under a document that was or became a Transaction Document by the parties agreeing so in writing’ (at paragraph 22).
  • There was no policy objection to the conclusion that no notice needed to be lodged in these circumstances. The purpose of the registration provisions in the Corporations Act is not to ‘create a perfect and complete register of all of the details of a registrable charge’, but rather to simply alert the public to the existence of the charge and to allow them to take additional steps to ascertain the precise terms of the charge (at paragraphs 30 and 32).  

Still worried?

Following the Court of Appeal Decision, concerns were expressed in various quarters over the possible meaning of a comment by Holmes JA in the course of her judgment that the terms of the charge were ‘arguably’ to be found in the particular facility agreement referred to in it. On the basis of this comment it was argued that even though the designation of a new transaction document may not be a variation in the terms of a charge, the variation of an existing transaction document might be.

As we noted in our update following the Court of Appeal Decision, these concerns seemed over-stated as her Honour’s comments appeared to be directed to the point that certain key definitions used in the charge were incorporated by reference from the facility agreement. The High Court considered Holmes JA’s comment and appears to have reached the same conclusion as to her Honour’s meaning. In any event, the High Court clearly holds that the terms of a charge created by a written instrument will be those contained in the written instrument (or implied by fact). This issue therefore appears to have been put to bed.

We now have three justices of the Queensland Court of Appeal and 5 Justices of the High Court of Australia adopting an interpretation of section 268 consistent with that applied by practitioners for a number of decades prior to the decision at first instance of McMurdo J in Re Octaviar Ltd; Re Octaviar Administration Pty Ltd. Hopefully the time has now come to accept that we were right all along.