Allens

Banking & Finance

Client Update: Octaviar in the High Court – The issues appear dead, buried and cremated

1 September 2010

In brief: This morning, the High Court unanimously rejected the appeal from the decision of the Queensland Court of Appeal and thus quashed the first instance decision in Octaviar which had thrown long-accepted practices into doubt. On a first reading, affected parties can now relax. Partners Diccon Loxton (view CV) and Andrew Boxall (view CV) and Lawyer Michael Wells report.

The first instance decision

The case, in essence, concerns whether the designation of additional documents as Transaction Documents for the purpose of a charge constituted a 'variation in the terms of the charge' which had to be registered, even though the charge instrument was not amended.

At first instance, Justice McMurdo held that it did constitute such a variation and was required to be registered to be effective in a liquidation under section 266(3) of the Corporations Act 2001 (Cth): Re Octaviar Ltd; Re Octaviar Administration Pty Ltd [2009] QSC 37.

This caused some consternation in the market, as it departed radically from decades of market practice and understanding of the law around the registration of charges and variations to charges. There were serious knock-on effects in those states that retained mortgage stamp duty. Many banks and other lenders in the Australian market suddenly found themselves in the uncomfortable position of possibly having huge unsecured positions previously thought secured.

The effect of the decision and our response are discussed in our previous Focus: Variation of registered charges and the Octaviar decision.

In conjunction with Mallesons and John Sheahan SC, we produced a set of suggestions for dealing with the issue in present and future transactions.

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The Court of Appeal decision

The Court of Appeal unanimously allowed the appeal and set aside the decision at first instance: Public Trustee of Qld v Octaviar Ltd; Octaviar Administration Pty Ltd; and Fortress Credit Corporation (Australia) II Pty Ltd [2009] QCA 282.

The decision of the Court of Appeal is considered in our previous Client Update: Octaviar - was it all just a bad dream?

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The decision in the High Court

The High Court unanimously rejected the appeal and affirmed the decision of the Queensland Court of Appeal: Public Trustee of Queensland v Fortress Credit Corporation (Aus) 11 Pty Ltd [2010] HCA 29. They said the change was not a variation in the terms of the charge. They said the ' "terms of the Charge" could only be a reference to the terms contained in the written instrument and any terms which may be implied in fact.'

In affirming the decision of the Court of Appeal, the High Court has restored the position and market understanding prior to the first instance decision.

We will be examining the decision in greater detail and will report in the coming days.

For further information, please contact:

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