The Queensland Court of Appeal today unanimously upheld the appeal against the decision in re Octaviar Limited; re Octaviar Administration Pty Ltd [2009] QCS37 (Octaviar).
In the Octaviar decision, the court had found that where a charge was drafted so as to secure all money, obligations and liabilities owing by the chargor to the lender under, or in relation to, a Transaction Document and an additional document was subsequently specified as a "Transaction Document", that constituted a variation of the terms of the charge. According to s268(2) of the Corporations Act 2001, a notice of the variation would then have to be lodged with ASIC within the applicable timeframe.
The Octaviar decision caused considerable consternation throughout the banking and legal communities because it was contrary to accepted banking practice.
In Octaviar, the specification of the additional document as a "Transaction Document" was effected by way of a letter operating as a deed between the chargor and charge, dated 22 January 2008 (22 January Deed).
The Court of Appeal has determined that s268(2) was directed only at variations in the actual terms of the document creating the charge, not at any changes imposed, in accordance with those terms, in the burden of liability under the charge. The subsequent nomination of an additional document as a "Transaction Document" for the purpose of determining the amounts secured by the charge did not constitute a variation of the terms of a charge because in doing so, the terms of the instrument of charge itself were not varied.
The court went on to say that "Section 268(2) is not brought into operation by 'a variation in the charge' but by a variation 'in the terms of the charge' and only where such variation has the effect of increasing the amount of the debt or the liability secured by the charge or prohibiting or restricting the creation of subsequent charges. For s268(2) to apply, it must be possible to identify a variation in the terms of the charge effected by subsequent agreement between the parties.
The 22 January Deed did not modify or alter any of the terms of the charge or their operation. After execution of the 22 January Deed, those terms were precisely the same in word and operation as they were prior to its execution.
Unless subsequently successfully appealed (there is no indication yet as to the Public Trustee's intentions), participants in the banking industry can return to previous established practice in relation to the lodgement requirements for charges drafted in the manner described above.
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