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What is the Collateral damage?

This week’s TGIF considers Credit Suisse AG, Sydney Branch v Springsure Property Holdings Pty Ltd (in liquidation) (receivers and managers appointed) [2017] QSC 142, in which the court considered whether real property acquired by the guarantor after the execution of the agreement with the lender formed part of the collateral.


In 2012, the plaintiff granted a finance facility to a coal mining services company (borrower) pursuant to a Guarantees Facility Agreement (Facility Agreement).

In February 2014, the parties:

  • amended the Facility Agreement to join the defendant as a guarantor of the borrower’s obligations to the plaintiff; and

  • entered into a General Security Agreement (Security Agreement), where certain property of the defendant was charged as security for its obligations as guarantor.

Later in 2014, the defendant acquired 3 lots of real property in Queensland (After-acquired Land).

In September 2014 the defendant and borrower went into voluntary administration, which constituted a default under the Facility Agreement. The plaintiff demanded payment from the defendant of the amounts owed by the borrower under the Facility Agreement. As the defendant was unable to pay those amounts, the plaintiff sought to enforce the securities provided by the defendant.


The plaintiff claimed the defendant had granted the plaintiff security over all its assets, including the After-acquired Land.

The defendant contended that on the proper construction of the Security Agreement, the After-acquired Land was not within the definition of “Collateral” and therefore not part of the security provided under the Security Agreement.

Whether the After-Acquired Land was “Collateral” within the meaning of the Security Agreement was determined as a separate question, prior to the other issues in the proceeding.

Security Agreement

The Security Agreement provided that:

  • the plaintiff was granted security in the “Collateral” to secure the defendant’s obligations under the relevant agreements;
  • “Collateral” was defined as “all of the (defendant’s) present and after-acquired property, including anything in respect of which the (defendant) has a sufficient right, interest or power to grant a Security”; and
  • “property” was defined in clause 1.2(1)(l) as “any real or personal, present or future, tangible or intangible property or asset and any right, interest, revenue or benefit in, under or derived from the property or asset”.

However, the interpretation clause in the Security Agreement stated that “after-acquired property” (and numerous other terms) have the meaning given to those terms by the Personal Property Securities Act 2009 (Cth), which excludes real property. The defendant argued therefore that the After-acquired Land was not part of the Collateral under the Security Agreement.


Bond J determined that the After-Acquired Land was part of the Collateral within the meaning of the Security Agreement.

Having regard to the commercial context of the Security Agreement as a whole, his Honour considered that the language used in the definition of Collateral meant the parties intended to use a broad definition of “property” (i.e. which included real property) to give meaning to the words “after-acquired property” in the definition of Collateral.

This conclusion meant the PPSA definition of “after-acquired property” was not used in the Security Agreement. His Honour referred to five other defined terms not used in the Security Agreement and acknowledged the terms were redundant, but that this was not determinative of itself.

Amongst other considerations, his Honour also noted:

  • it was unlikely that the parties intended a result that any cash the defendant had would be property charged under the Security Agreement, but the charge would disappear if the defendant later used the cash to acquire land; and
  • the principle that provisions in a contract of guarantee/surety which are ambiguous must be construed in favour of a guarantor did not apply because the agreement was not ambiguous after applying other rules of construction.


This decision demonstrates the importance of using clear and consistent language in contracts, particularly when incorporating definitions and other sources external to the contract. If property is to be excluded from a wide-ranging definition of the security being provided, the contract should specifically address that exclusion.

It is also a reminder that in determining the rights of the parties, the courts will consider the entire agreement to determine the objective intention of the parties.


Restructuring and Insolvency

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