Octaviar - The Queensland Court of Appeals decision affirmed in the High Court

Earlier this week, the High Court handed down its decision in Public Trustee of Queensland v Fortis Credit Corporation (AUS) Pty Ltd [2010] HCA 29, unanimously upholding the decision of the Queensland Court of Appeal and ending confusion in relation to the circumstances that constitute a variation to a charge.

The facts

The facts of the Octaviar litigation are well known and are summarised in our previous case notes on:

• the decision of McMurdo J at first instance;
• the Queensland Court of Appeal decision; and
• the special leave application to the High Court.

In summary, in June 2007, Octaviar Limited granted a charge in favour of Fortress Credit Corporation (AUS) Pty Ltd (OCV Charge). The OCV Charge was expressed to secure all money owing under “Transaction Documents”. The term Transaction Documents was defined (in a separate facility) to include any documents which Octaviar and the chargee agreed in writing were Transaction Documents.

At approximately the same time, Octaviar provided a guarantee in respect of the obligations of a subsidiary (YVE Guarantee). On 22 January 2008, Octaviar and the chargee agreed by Deed that the YVE Guarantee was a “Transaction Document” for the purpose of the OCV Charge (Deed).

The issue

The High Court considered the following issues:

1. whether by increasing the liabilities secured, the Deed constituted a “variation in terms” of the OCV Charge within the meaning of section 263 of the Corporations Act 2001 (Act); and
2. whether the Deed created a new charge (which was required to be registered under sections 262 and 263 of the Act).

Decision

In upholding the decision of the Queensland Court of Appeal, the High Court held that the designation of the YVE Guarantee as a “Transaction Document” was not a variation to the OCV Charge within the meaning of section 268(2) of the Act, and for similar reasons, no new charge had been created.

From its creation, the OCV Charge always secured liabilities under a document that was or became a “Transaction Document” by the agreement of the parties. Therefore, merely designating the YVE Guarantee as a “Transaction Document” did not vary the terms of the OCV Charge, as those terms already encompassed the securing of future “Transaction Documents”.

The High Court concluded that whilst section 268(2) of the Act requires that variations in the terms of the charge be notified to ASIC, it does not require notification in relation to modifications in the way in which those terms apply to the circumstances from time to time during the currency of the charge.

In relation to the system of charge registration under the Act, the High Court noted that a copy of the charge in question had been lodged as required under section 263(1) of the Act. Accordingly, any person searching the register would be informed of “the need to look elsewhere” to determine the precise details of the liabilities secured by the charge.

Comment

The High Court’s decision is welcomed and affirms that an increase of liability under an “all moneys” security or the designation of a facility agreement as a “Transaction Document” does not require ASIC notification. This decision re-establishes the long-standing market practice which existed prior to McMurdo J’s contentious decision at first instance.