Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 [2010] HCA 29

This High Court case concerned the validity of a registered charge. Initially two loans were guaranteed by Octaviar, however, only one of the loans was secured by way of a fixed and floating charge. The secured loan was repaid, but the lender did not release the charge, claiming that it now secured the previously unsecured guarantee. This was on the basis that:

1. Octaviar had charged all of its present and future property as security for the repayment of the “Secured Money”;

2. “Secured Money” was defined as amounts owing under any “Transaction Document”;

3. “Transaction Document” was defined to include new documents deemed to be “Transaction Documents” by agreement between the parties;

4. A subsequent deed deemed the unsecured loan to be a transaction document.

The validity of the charge (in so far as it applied to the unsecured loan) was challenged on the basis of s268(2) of the Corporations Act which provides:

Where, after a registrable charge on property of a company has been created, there is a variation in the terms of the charge having the effect of:

(a) increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge; or …

the company must, within 45 days after the variation occurs, ensure that there is lodged a notice setting out particulars of the variation…

The Public Trustee argued, before the High Court, that the Deed had the effect of varying the terms of the Charge by adding a new liability to the class of liabilities already secured by the Charge, thereby altering the terms of the Charge by adding to the meaning of “Transaction Document”. It submitted the definition merely foreshadowed the securing by the Charge of future liabilities, and to that extent was merely an agreement to agree.

The High Court, in a unanimous decision, and to the relief of every lender who relies upon all monies clauses, disagreed:

No doubt, as a result of the January 2008 Deed, the YVE Guarantee was now, but had not before been, a Transaction Document. However that did not vary the meaning of “Transaction Document” in the Facility Agreement and consequently the meaning of “Secured Money” in the Charge. Section 268(2) makes clear that there must first be a variation in the terms of the charge before it is necessary to consider whether that variation has the prescribed effect. The YVE Guarantee, as subject matter denoted by the Transaction Document definition, now fell within the class of liabilities secured by the Charge. There was no variation made to the terms of the Charge, either in their text or in the rights and obligations to which those terms gave rise.

To focus upon the effect of the January 2008 Deed, as opposed to whether its execution varied the terms of the Charge, is to misconceive the operation of s 268(2). Section 268(2) does not apply to any increase in the debt or liabilities secured. If the parties have chosen that a term of the charge will be variable or ambulatory in its factual operation, as is, for example, common with “all moneys” clauses and the imposition of variable rates of interest, there is no variation in the terms each time its operation is, as a matter of fact, altered or modified.

Thus the High Court affirmed that the register does not purport to be a perfect and complete record of the nature and extent of all liabilities but rather it warns persons who may become creditors of the company of the existence and maximum liability of any encumbrances over its property.

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