03 Sep 2010

Octaviar appeal dismissed

On 1 September 2010 the High Court handed down its much anticipated decision in the appeal from Re Octaviar Ltd (No 7) [2009] QCA 282. The High Court, consisting of Chief Justice French, and Justices Gummow, Hayne, Kiefel and Bell, unanimously dismissed the appeal in Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 Pty Ltd [2010] HCA 29.

In our Alert of 17 March 2010 we summarised the background to the Octaviar appeal. Essentially it involved a charge which secured all moneys owing under "Transaction Documents" and a deed which designated a document to be a Transaction Document, but which was not registered on the ASIC Charges register. Was failure to register the designation deed fatal under section 268(2) of the Corporations Act?

The High Court has found that failure to register in these circumstances was not fatal, as the designation deed did not constitute either a variation in the terms of a charge or a new charge.

The High Court said that section 268(2) is directed at variations in the terms of a charge and not changes imposed, in accordance with those terms, on the burden of liability under a charge. The execution of the designation deed was no more than the application of the mechanisms in the Charge to identify particular liabilities as falling within the category of liabilities which the Charge, in general terms, already secured.

The Public Trustee argued that failure to lodge a notice of variation under section 268 would offend the policy of registration laid down in Chapter 2K of the Corporations Act. However the Court rejected this argument. In doing so it emphasised that the registration provisions of the Corporations Act do not purport to create a perfect and complete register of all the details of a registrable charge; such details could only be discovered by looking to the document creating the Charge.

Furthermore any person searching the register would have encountered the Charge and would have realised that, given the definition of "Secured Money" and the inclusion of clause 1.2 in the Charge (which cross-referred to the Facility Agreement), there was a need to look elsewhere to ascertain the precise nature and details of the liability secured under the Charge.

The High Court saw no policy offence in this.

With this appeal decided, the remaining uncertainty relating to document designation mechanisms and registration on the ASIC charges register has been laid to rest. Drafters of charges should still note however the criticism made of the practice of not setting out key definitions in the charge itself.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.