Public Trustee (Qld) v Fortress Credit Corporation (Aus) 11 Pty Ltd

• Jurisdiction: Australia Federal only
• Judge: French CJ,Gummow,Hayne,Kiefel,Bell JJ.
• Judgment Date: 01 September 2010
• Neutral Citation: 2010-0901 HCA B,[2010] HCA 29
• Date: 01 September 2010
• Court: High Court
• Docket Number: B9/2010

[2010] HCA 29

HIGH COURT OF AUSTRALIA

French CJ, Gummow, Hayne, Kiefel And Bell JJ

B9/2010

Public Trustee of Queensland

Appellant

and

Fortress Credit Corporation (Aus) 11 Pty Ltd & Ors

Respondents

Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 Pty Ltd

Corporations — Charge — Registration — First respondent (‘Fortress’) obtained fixed and floating charge over assets of second respondent (‘Octaviar’) — Charge secured all moneys payable under or in relation to certain documents, including such documents as Fortress and Octaviar agreed in writing — Fortress and Octaviar subsequently agreed by deed (‘Deed’) that charge secured liability of Octaviar to Fortress under guarantee — Whether charge void, to extent it secured Octaviar's guarantee, under s 266 of the Corporations Act 2001 (Cth) (‘the Act’) — Whether execution of Deed required notice to be lodged under s 268 of the Act — Whether Deed effected ‘variation in the terms of the charge’ — Relevance of legislative policy expressed in Ch 2K of the Act — Whether Deed created new charge requiring registration under s 263 of the Act.

Words and phrases — ‘charge’, ‘terms of the charge’, ‘variation in the terms’.

Corporations Act 2001 (Cth), ss 263, 266, 268.

1 French CJ, Gummow, Hayne, Kiefel And Bell JJ. This appeal from the Court of Appeal of the Supreme Court of Queensland (Holmes and Muir JJA and White J)1 concerns the construction and application of Ch 2K of the Corporations Act 2001 (Cth) (‘the Act’). Chapter 2K (ss 261–282) is headed ‘Charges’ and Pt 2K.2 (ss 262–277) deals with the registration of charges on company property.

French CJ

2 The Court of Appeal set aside a declaratory order made on 6 March 2009 by the primary judge (McMurdo J)2. His Honour held that a fixed and floating charge over the assets of the second respondent (‘Octaviar’) in favour of the first respondent (‘Fortress Credit’), granted by instrument dated 1 June 2007 (‘the Charge’), was void to the extent that it would secure the liability of Octaviar to Fortress upon the guarantee of the indebtedness of Young Village Estates Pty Ltd (‘YVE’). Fortress contended that the Charge had, at least from 22 January 2008, secured the liability of Octaviar on the guarantee of the indebtedness of YVE (‘the YVE Guarantee’). YVE had purchased assets with funds advanced to it by Fortress from a managed investment scheme then managed by a subsidiary of Octaviar.

3 Initially the Charge had secured the liability of Octaviar to Fortress Credit upon Octaviar's guarantee of the obligations to Fortress Credit of a subsidiary, Octaviar Castle Pty Ltd (‘Octaviar Castle’). The Charge was registered as required by ss 262 and 263 of the Act on 6 June 2007. However, the indebtedness of Octaviar Castle was paid in full on or about 29 February 2008. The terms of the Charge then would have entitled Octaviar to a discharge, and s 269 of the Act would have entitled Octaviar to seek from Fortress Credit, and lodge, a memorandum acknowledging the discharge of the liability. But Fortress Credit contended that the Charge remained on foot because since 22 January 2008 it also secured the still current liability of Octaviar to Fortress Credit on the YVE Guarantee and that, as at 17 December 2008, the amount secured by the Charge was in excess of $59 million.

4 In September 2008 administrators were appointed to Octaviar and another subsidiary, the third respondent (‘Octaviar Administration’). Each company subsequently executed a deed of company arrangement under Pt 5.3A of the Act (ss 435A–451D). The appellant (‘the Public Trustee’) is trustee for certain

noteholders. It applied to the Supreme Court on 19 February 2009 for orders under s 445D terminating each deed. The Public Trustee contended that each deed had been premised upon the validity in all respects of the Charge, whereas it did not validly secure the YVE Guarantee.

5 McMurdo J then ordered the separate determination of the question of the validity of the Charge, before the trial of the s 445D applications.

6 Section 266(3) of the Act states:

‘Where, after there has been avariation in the terms of a registrable charge on property of a company having the effect of increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge:

• (a) an order is made, or a resolution is passed, for the winding up of the company; or

• (b) an administrator of a company is appointed under section 436A, 436B or 436C; or

• (ba) a company executes a deed of company arrangement;

  the registrable charge is void as a security on that property to the extent that it secures the amount of the increase in that debt or liability unless:

• (c) a notice in respect of the variation was lodged under section 268:

  • (i) within the period of 45 days specified in subsection 268(2) or that period as extended by the Court under subsection (4) of this section; or

  • (ii) not later than 6 months before the critical day; or

• (d) the period of 45 days specified in subsection 268(2), or that period as extended by the Court under subsection (4) of this section, has not ended at the start of the critical day and the notice is lodged before the end of that period.’ (emphasis added)

As will appear, the critical phrase in s 266(3) is ‘a variation in the terms of a registrable charge … having the effect of …’.

7 By a deed dated 22 January 2008 (‘the January 2008 Deed’), the parties to which were Fortress, Octaviar and Octaviar Castle, it was provided that ‘the YVE Guarantee is a Transaction Document for the purposes of the Facility Agreement’. The Facility Agreement was dated 1 June 2007 and was made between Fortress Credit as lender, Octaviar Castle as borrower, and Octaviar and Octaviar Administration as guarantors3. The term ‘Transaction Document’ was defined in the Facility Agreement in terms to include each document which Fortress Credit and Octaviar agreed in writing was a Transaction Document.

8 The Charge bore the same date, 1 June 2007, as the Facility Agreement. By cl 2.1 Octaviar charged to Fortress Credit all of the ‘Secured Property’ (being all of its present and future property) as security for payment of the ‘Secured Money’ (defined to include all moneys that became payable by Octaviar to Fortress Credit ‘under or in relation to a Transaction Document’).

9 Upon the appeal to this Court the only active disputants were the Public Trustee and Fortress Credit. Two questions arise. The first is whether the January 2008 Deed was a ‘variation in the terms’ of the Charge to which s 268(2) of the Act applied. The second is whether the January 2008 Deed created a new charge to which the registration provisions of ss 262 and 263 applied.

10 For the reasons which follow, both questions should be answered in the negative and the appeal by the Public Trustee should be dismissed with costs.

Chapter 2K of the Act

11 The provisions of Ch 2K relating to the giving of notice in relation to, and the registration and priorities of, charges apply to those kinds of charges identified in s 262(1). These include floating charges (whether legal or equitable) on the whole or part of the property, business or undertaking of a company (s 262(1)(a)).

12 Section 266(3), set out above, refers to lodgment of a notice under s 268. Section 268(2) of the Act 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 orincreasing the liabilities (whether present or prospective) secured by the charge; or

• (b) prohibiting or restricting the creation of subsequent charges on the property;

the company must, within 45 days after the variation occurs, ensure that there is lodged a notice setting out particulars of the variation and accompanied by the instrument (if any) effecting the variation or a certified copy of that instrument.’ (emphasis added)

13 A ‘charge’ is defined to mean ‘a charge createdin any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise’ (emphasis added) (s 9). The phrase ‘in any way’ indicates that the creation need not be by written instrument. Section 261(1) defines the concepts of ‘present’ and ‘prospective’ liabilities in relation to charges. A ‘present liability’ means ‘a liability that has arisen, being a liability the extent or amount of which is fixed or capable of being ascertained, whether or not the liability is immediately due to be met’, while a ‘prospective liability’ means ‘any liability that may arise in the future, or any other liability, but does not include a present liability’.

The earlier companies legislation

14 None of the provisions dealing with the registration of charges in Pt III of theCompanies Act 1948 (UK), or the various Australian Uniform Companies Acts (passed in 1961 and 1962) and their predecessors4, required or enabled the lodging of documents consequent on a variation of a registrable charge. Likewise the provisions in Pt 25 of the Companies Act 2006 (UK) do not deal with charge variations. The provisions of the present Act dealing with variations

in the terms of a charge can be traced back to 1972 and the recommendations of the Eggleston Report5. The Committee stated in its report6:

‘It has also been suggested that provision should be made for the registration of variations of the terms of the charge. We think that [the Uniform Companies Acts] should require the filing of particulars of any variation in the terms of the charge, and that priority should be accorded to the increased security given by the variation as from the date on which the particulars are filed.’

However, the Committee did not further explain what was meant by the phrase ‘variation in the terms of the...