Public Trustee of Queensland v Fortress Credit
Corporation (Aus) 11 Pty Ltd [2010] HCA 29
Undoubtedly to the relief of banking and finance lawyers and
their clients, the High Court yesterday dismissed the Public
Trustee of Queensland's appeal of the decision in the matter of
Octaviar Ltd (No 7) [2009] QCA 282.
The case concerns the construction and application of Ch 2K of
the Corporations Act 2001 (Cth) (Act) in
respect of charges over company property, and whether a deed
entered into between the parties was a 'variation in the terms' of
an existing charge to which s268(2) of the Act applied, or whether
the deed created a new charge to which the registration provisions
of ss262 and 263 applied.
The deed dated January 2008 (January 2008 Deed)
had the effect of securing by a charge already in existence a
liability which was previously unsecured. This was enabled by a
drafting technique in the charge, in which the definition of
'secured money' in turn referred to another defined term, a
'transaction document', not to be found in the charge but in the
January 2008 Deed, a separate and subsequent document.
Decision
The court held that the January 2008 Deed did not vary the terms
of the charge, nor create a new charge, and accordingly the
parties' entry into the deed did not require registration under the
Ch 2K regime.
The court rejected the view that the January 2008 Deed varied
the terms of the charge by adding a liability which was previously
unsecured to the class of liabilities already secured by the
charge, finding that the charge had always encompassed a liability
that might be owing under a document that became a 'transaction
document' by the parties agreeing so in writing. The charge always
secured this 'prospective liability'. Further, the January 2008
Deed did not have the effect of altering or modifying the written
terms of the charge.
Implications
The High Court's decision is consistent with market practice and
the accepted view of banking and finance lawyers.
The court went on to consider examples which occur frequently in
practice where the amount secured under a charge is increased, such
as the early redemption fee or the automatic increase of interest
rates upon the happening of a specified event. The court confirmed
that it would be an unlikely and unattractive result if notice
under s268(2) was required to be given in these instances.
The court also highlighted that the onus of making proper
enquiries is on those relying on the Ch 2K regime, commenting that
the regime 'does not purport to create a perfect and complete
register of all of the details of a registrable charge'. Where
particulars lodged for registration suggest the possibility of the
existence of other documents that set out the total liability under
the charge, it is up to the individual to make further inquiries
regarding the extent of that liability, which the regime is not
intended to specify in detail.
(Authored by Tanya Nguyen, Cornwall Stodart)