SUPREME COURT OF QUEENSLAND

1. HOLMES JA:  The appeal

2. This appeal primarily concerns the construction of s 268(2) of the Corporations Act 2001 (Cth), which requires lodgment of a notice with the Australian Securities and Investments Commission (“ASIC”):

“[w]here, 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 … increasing the amount of the debt or increasing the liabilities (whether present or prospective) secured by the charge… .”

If such a notice is not given in the prescribed time, and an administrator is appointed to the company, by virtue of s 266(3) the registrable charge is void as against the administrator as a security on the property to the extent that it secures the amount of the increase in the debt or liability.  Section 266(1) operates to similar effect when a registrable charge is first created; in that case, the charge is void unless notice of it has been lodged as required by s 263.

3. Here, the appellant, Fortress Credit Corporation (Australia) II Pty Limited, appeals against the learned primary judge’s declaration that a charge on property of Octaviar Limited, the first respondent, was void as a security on that property to the extent that it would secure Octaviar Limited’s liability under a guarantee, generally referred to as the “YVE Guarantee”, of a loan made by Fortress. The charge had originally secured Octaviar Limited’s liability as guarantor under a lending arrangement between Fortress and one of Octaviar Limited’s subsidiaries. Fortress asserts that the learned judge erred in holding that a later deed, which Fortress and Octaviar Limited executed on 22 January 2008 in order to bring the YVE Guarantee within the coverage of the charge, constituted “a variation in the terms of [a] charge” within the meaning of s 268(2)(a). Fortress also appeals on the basis of error in what it describes as a finding by the learned judge, that the same deed created a charge in respect of which a notice was required to be lodged under s 263 of the Corporations Act.

4. The third respondent, the Public Trustee, is the only party actively involved in resisting the appeal. It has filed a notice of contention which turns on a point of construction and whether the deed of 22 January 2008, given its lack of connection with the purposes of the original loan agreement, was capable of bringing the YVE Guarantee within the category of “Transaction Documents” under that agreement, so as to extend the security of the charge to the YVE Guarantee.

The transactions

5. On 31 May 2007, Fortress entered into a loan agreement with Young Village Estates Pty Ltd as borrower, guaranteed by Octaviar Limited^[1] by an instrument dated 25 May 2007, the YVE Guarantee.  Octaviar Limited gave no security for the payment of that loan.  On 1 June 2007, Octaviar Limited and a related company, Octaviar Financial Services Limited, guaranteed another loan arrangement in which Fortress was lender, this time the provision of a $250,000,000 facility to Octaviar Castle Pty Ltd as borrower.  On this occasion, Octaviar Limited provided security for the loan by way of a fixed and floating charge, of which notice was lodged with ASIC. 

6. Pursuant to clause 2.1 of the charge, Octaviar Limited charged all of its present and future property for the payment of the “Secured Money”. The charge defined “Secured Money” as meaning:

“… all money, obligations and liabilities of any kind that are or may in the future become due, owing or payable, whether actually, contingently or prospectively, by the Chargor to or for the account of the Lender under or in relation to a Transaction Document including on account of principal, interest, fees, expenses, indemnity payments, losses or damages and irrespective of:

(a)the capacity of the Chargor or the Lender (whether as principal, agent, trustee, beneficiary, partner or otherwise);

(b)whether the Chargor is liable as principal debtor or as surety; or

(c)whether the Chargor is liable alone, jointly or jointly and severally with another person.”

7. The charge provided that any terms left undefined in it (as “Transaction Document” was) were to have the meaning given them in the Octaviar Castle facility agreement. The latter document defined the expression “Transaction Documents” as meaning:

“(a)this Agreement;

(b)each Security;

(c)each other document which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document for the purposes of this Agreement; and

(d)each document entered into or provided under any of the documents described in paragraphs (a) or (b), or for the purpose of amending or novating any of those documents,

and Transaction Document means any of them and, when used in relation to the Borrower or a Security Provider, means any of those documents to which the Borrower or that Security Provider is a party.”

8. The notice of the charge which Octaviar Limited lodged under s 263 set out, by way of details of the liabilities secured by it, the definition of “Secured Money”, with the variation that Fortress was referred as to the “Chargee” rather than the “Lender”, and immediately after “Transaction Document” there appeared the words “(as defined in the Facility Agreement (as defined below))”. “Facility Agreement” was then defined as meaning:

“the A$250,000,000 facility agreement described between, amongst others, the Chargor (as an obligor) and the Chargee (as the lender).”

The annexure also set out as the “maximum prospective liability” the amount of A$750,000,000, and it went on to identify the “prospective liability” in terms of the money, obligations, and liabilities described in the definition of “Secured Money”.  The identification of maximum prospective liability as A$750,000,000 was odd, because the charge itself did not specify any maximum figure for the prospective liability secured.

9. On 22 January 2008, Fortress, Octaviar Limited and Octaviar Castle executed a deed in letter form, by which those parties acknowledged that the YVE Guarantee was a Transaction Document for the purposes of the Octaviar Castle facility agreement. No notice of any charge created or varied was lodged with ASIC in respect of the deed’s execution. On 29 February 2008, the amount advanced under the Octaviar Castle facility agreement was repaid, but Fortress continued to rely on the charge as securing the YVE Guarantee. In late 2008, administrators were appointed to Octaviar Limited and to the second respondent, Octaviar Administration Pty Limited, and each company subsequently executed a deed of company arrangement. On the Public Trustee’s application to set aside both deeds, the learned judge ordered the determination first, as a separate question, of whether Fortress held a valid charge in respect of Octaviar Limited.

The relevant provisions of the Corporations Act

10. Section 9 of the Corporations Act defines “charge” as:

“a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.”

Chapter 2K of the Corporations Act deals with the giving of notice in relation to certain charges, their registration, and the priorities which attach to them.  By virtue of s 262(1), the types of charge to which those provisions apply include:

“… a floating charge on the whole or a part of the property, business or undertaking of [a] company”.

The notification provisions

11. Section 263 applies where a charge is created:

“263Lodgment of notice of charge and copy of instrument

(1)Where a company creates a charge, the company must ensure that there is lodged, within 45 days after the creation of the charge:

(a)a notice in the prescribed form setting out the following particulars:

(i)the name of the company and the date of the creation of the charge;

(ii)whether the charge is a fixed charge, a floating charge or both a fixed and floating charge;

(iii)if the charge is a floating charge—whether there is any provision in the resolution or instrument creating or evidencing the charge that prohibits or restricts the creation of subsequent charges

(iv)a short description of the liability (whether present or prospective) secured by the charge;

(v)a short description of the property charged;

(vi)whether the charge is created or evidenced by a resolution, by an instrument or by a deposit or other conduct;

(vii)if the charge is constituted by the issue of a debenture or debentures—the name of the trustee (if any) for debenture holders;

(viii)if the charge is not constituted by the issue of a debenture or debentures or there is no trustee for debenture holders—the name of the chargee;

(ix)such other information as is prescribed…

…

(c)if… the charge was created or evidenced by an instrument or instruments:

(i)the instrument or each of the instruments; or

(ii)a copy of the instrument or of each of the instruments verified by a statement in writing to be a true copy, and a statement in writing verifying the execution of the instrument or of each of the instruments.  …”

Section 268 is relevant where there has been a variation in the terms of the charge:

“268Assignment and variation of charges

…

(2)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

(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.

3. Where a charge created by a company secures a debt of an unspecified amount or secures a debt of a specified amount and further advances, a payment or advance made by the chargee to the company in accordance with the terms of the charge is not taken, for the purposes of subsection (2), to be a variation in the terms of the charge having the effect of increasing the amount of the charge or the liabilities (whether present or prospective) secured by the charge.

…

5. Nothing in section 263 requires the lodgment of a notice under that section in relation to a charge merely because of the fact that the terms of the charge are varied only in a manner mentioned in this section.”

12. To understand what is meant by “present or prospective” liabilities, one must go to the definitions in s 261:

present liability, in relation to a charge, 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.

prospective liability, in relation to a charge, means any liability that may arise in the future, or any other liability, but does not include a present liability.

13. Section 266(1) renders a registrable charge on the property of a company to which an administrator has been appointed void as against the administrator, unless a notice in respect of it was lodged under s 263 within the prescribed period.^[2]  Section 266(3) has a similar effect in respect of a variation within the compass of s 268(2); in that case, the registrable charge is void as a security on the property of the company in administration to the extent that it secures the amount of the increase in the debt or liability.  Default in compliance with s 263 or s 268(2) is a contravention of s 270(2).

The registers of charges

14. Section 265 requires ASIC to keep the Australian Register of Company Charges. Where a notice under s 263 is lodged, s 265(2) requires entry in the register of the time and date of lodgment, together with these particulars:

“(a) if the charge is a charge created by the company, the date of its creation or, if the charge was a charge existing on property acquired by the company, the date on which the property was so acquired;

(b)a short description of the liability (whether present or prospective) secured by the charge;

(c)a short description of the property charged;

(d)the name of the trustee for debenture holders or, if there is no such trustee, the name of the chargee.”

Section 265(14) similarly requires that where notice of a variation is given under s 268(2), ASIC must cause to be entered in the register the time and date of the notice’s lodgement and its particulars.  Where any person requests it, ASIC must issue a certificate setting out the details entered in the register (s 272(1)).

15. Section 271 requires a company to keep a register of charges, in which, upon the creation of a charge, the same particulars as those required under s 265(2) must be entered, with, in addition, “the name of the person whom the company believes to be the holder of the charge”. That register must be open for inspection by creditors and members of the company, and, on payment of a fee, by members of the public. The company must also keep, at the place where the register is kept, a copy of every document relating to a charge lodged under the relevant part of ch 2K, and every document given to the company under that part.

Priority rules

16. Section 280 sets out priority rules in relation to registered charges securing present liabilities:^[3] a registered charge has priority over a subsequently registered charge, unless the second charge is created before the first, and it can be proved that the chargee under the first charge had notice of the second when the charge in his favour was created.  Similarly, a registered charge has priority over a pre-existing unregistered charge, unless, again, notice of the existing unregistered charge can be proved against the chargee under the registered charge.

17. Section 282, which deals with charges securing prospective liabilities, is titled, “Special priority rules”. Under s 282(2), which applies to registered charges securing either a present liability and a prospective liability of an unspecified amount or a prospective liability of an unspecified amount, the charge’s priority over another charge of which the chargee does not have actual knowledge extends to the prospective liability.  Section 282(3) deals with charges securing a present liability and a prospective liability up to a specified maximum amount or simply a prospective liability up to a specified maximum amount.  Where the notice lodged under section 263 or 264 in relation to the charge sets out the nature of the prospective liability and the specified maximum amount, the charge has priority for the prospective liability secured to the extent of the specified maximum amount, whether or not the chargee had actual knowledge of another charge when the prospective liability became a present liability.

The arguments and judgment below

18. At first instance, the Public Trustee, sought, unsuccessfully, to argue that Fortress and Octaviar Limited could only make the YVE Guarantee a Transaction Document if the guarantee were given “for the purposes of” the Octaviar Castle facility agreement. Since the loan to Young Village Estates Pty Ltd had nothing to do with that agreement, and the YVE Guarantee was unconnected with it, the latter could not constitute a Transaction Document for the purposes of the former. The learned judge rejected that argument, but the Public Trustee seeks to advance it here by way of a notice of contention.

19. The Public Trustee’s second, more successful argument was that there was a new charge or a variation of the existing charge’s terms, in either case requiring notice. It contended that, whereas the charge as given by Octaviar Limited secured its guarantee of the facility granted to Octaviar Castle, the agreement of 22 January 2008 charged the same property to secure a different liability, that of Octaviar Limited under the YVE Guarantee. It relied on Landers v Schmidt^[4] and Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd.^[5]

20. Those cases, summarised by the learned judge in his reasons, both concerned vendors under instalment contracts who prior to entering the contracts had mortgaged land, and after entering the contracts had executed deeds of variation of mortgage in order to obtain further advances. Section 73 of the Property Law Act 1974 (Qld) prohibited the mortgaging of land the subject of an instalment contract without the purchaser’s consent, and rendered the contract voidable by the purchaser.  “Mortgage” was defined in the Act to include “a charge on any property for securing money or money’s worth”.^[6]  In Landers v Schmidt, the Full Court of the Supreme Court, and in Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd the Privy Council, held, on that definition, that the charging of the land in order to obtain further advances constituted a “mortgage”.  The reasoning to the conclusion that the further advance constituted a further charge in Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd was similar to that in Landers v Schmidt, but perhaps more shortly put:

“Prior to the Deed of Variation the land was not charged with this sum.  Afterwards it was.”^[7]

21. Sibbles v Highfern Pty Ltd^[8] also concerned an instalment contract and s 73 of the Property Law Act.  In that case, the vendor’s existing mortgage was an “all moneys” bank mortgage.  While it remained on the certificate of title of the unit sold, the vendor’s account fluctuated from being in credit to being overdrawn.  A majority in the High Court rejected the purchasers’ argument that on each of the latter occasions fresh charges under the mortgage were created; instead what occurred was

“the application of an existing contractual arrangement by way of mortgage or charge in relation to a specific advance.”^[9]

Landers v Schmidt and Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd were distinguished on the basis that in each of those cases there was a variation of the existing mortgage to increase the sums secured.

22. Fortress and the administrators of Octaviar Limited and Octaviar Administration Pty Limited joined forces at first instance to argue that “the terms of the charge” was a reference to the instrument creating the charge. The 22 January 2008 agreement simply designated the YVE Guarantee as a “Transaction Document” under the Octaviar Castle facility agreement. That did not result in any variation of the terms of the charge, nor did it increase the liabilities secured by the charge because they were always those identified in the definition of “Secured Money”: any moneys that might become owing by Octaviar Ltd to Fortress under a Transaction Document. Their case fell within the Sibbles v Highfern category: the parties had agreed that the charge would secure any liabilities of Octaviar Limited to Fortress, past or future.  The liability under the YVE Guarantee was  a “prospective liability” as the term is used in s 268(2)(a) and defined in s 261, because it was at all times a possibility that, without any amendment to the charge itself, the YVE Guarantee would be designated as a Transaction Document. 

23. Fortress also advanced an argument that the phrase “increasing the liabilities” in s 268(2)(a) referred to what was dealt with in s 282(3): an increase in the “specified maximum amount” of the “prospective liability” as identified by notice under s 263.  There had been no increase in the nominated figure of A$750,000,000 in the present case, so that there was no variation increasing liabilities for the purposes of s 268.

24. The learned judge found those arguments unconvincing. The reference in s 268(2) to an increase in the liabilities was not confined to some change in a “specified maximum amount” inserted in a notice under s 263. It was unlikely, his Honour said, that an arrangement such as that involved in the execution of the 22 January 2008 deed was not intended to be caught by the scheme of registration of charges prescribed by ch 2K of the Corporations Act.  Section 268(2) was engaged by a variation of the terms of the charge having a certain effect; it did not refer to an amendment of the instrument by which the charge was created.  Chapter 2K distinguished between an instrument creating or evidencing a charge and the charge itself.  An essential element of an equitable charge was the obligation or liability which it secured.  Before 22 January 2008, Octaviar Limited’s property was not charged in order to satisfy the YVE Guarantee; it was only by the agreement of that date that the parties agreed that Octaviar Limited’s property would secure its liability under the YVE Guarantee.

25. His Honour went on to characterise the agreement of 22 January 2008 as a “variation in the terms of the charge”, rather than a new charge.  He explained:

“If the matter were considered outside the statutory context of Chapter 2K of the Act, the agreement would be regarded as creating a new charge, according to Landers v Schmidt and Coast Securities No 9.  However, in the context of Chapter 2K, the agreement engaged s 268(2) rather than s 263(1).”^[10]

(The first part of that statement, presumably, constitutes the basis of the second ground of appeal, although that ground, as it seems to me, mis-describes his Honour’s observation as a finding that the 22 January 2008 deed created a charge requiring notice under s 263.)  His Honour concluded,

“The agreement increased the liabilities secured by the charge in the sense of s 268(2)(a), in that it added a liability, which was that under the YVE Guarantee, which was previously unsecured.”^[11]

Accordingly, there having been no notice lodged in respect of the variation, by virtue of s 266(3), the charge was declared void to the extent that it secured Octaviar Limited’s liability under the YVE Guarantee. 

Whether the 22 January 2008 deed was a “Transaction Document”

26. It is convenient to deal first with the notice of contention. The Octaviar Castle facility agreement defined “Transaction Documents” as including (sub-paragraph (c)):

“each other document which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document for the purposes of this Agreement.” 

The most obvious construction of that expression, the one contended for by Fortress and accepted by the learned primary judge as correct, is that the words, “for the purposes of this Agreement” simply describe the effect of what is agreed: that the document the subject of agreement in writing is now identified as a “Transaction Document” within the meaning of that expression in the facility agreement, with all the consequences which follow for documents within that definition.

27. But there are two other possible constructions, one focussing on the objective question of whether the document advances the purposes of the facility agreement, and the other on the parties’ intent in agreeing. Sub-paragraph (c) could be read as if it said:

“. . . each other document [made] for the purposes of this Agreement which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document”

or

“. . .  each other document which the Lender and the Borrower or a Security Provider agree in writing for the purposes of this Agreement is a Transaction Document”.

28. The argument of the Public Trustee at first instance was not entirely clear as to which of those alternative constructions was being advanced. The written submissions (both at first instance and on appeal) asserted that the document in question

“must contain a transaction which was entered into by at least two of the parties ‘for the purposes of this Agreement’”,

suggesting the latter construction.  The learned primary judge certainly seems to have proceeded on that basis.  He observed that if the expression were intended to be read as the Public Trustee proposed, one would expect the words “for the purposes of this Agreement” to appear immediately after “Security Provider” or “agree in writing”.  His Honour pointed out obvious difficulties with a construction which directed attention to the purpose of the parties’ agreement.  It did not follow that the parties agreeing would have any single, common purpose; and despite expressed agreement between the parties as to their purpose, there might be a question of fact as to the authenticity of that purpose.

29. Here, it became clearer that the Public Trustee was relying on the first of the possible constructions. On its submission, the words “for the purposes of this Agreement” limited what could be agreed as Transaction Documents to documents which, objectively considered, contained transactions for the purposes of the Octaviar Castle facility agreement. It would be for the court in any given case to determine whether a particular document was “for the purposes of the Agreement”.

30. The Public Trustee placed particular emphasis on the fact that there were four parties to the facility agreement. Sub-paragraph (c) of the definition of “Transaction Documents”, on Fortress’ construction, allowed Fortress and any one of the other three to agree that something would be a Transaction Document. If that construction were right, the result would be inconsistent with cl 20.5 of the Octaviar Castle facility agreement, under which that agreement could only be amended by a document signed by all parties. And it meant that something could be made a Transaction Document which exposed all the parties to the Octaviar Castle facility agreement to potential liabilities, including those who had not agreed that the document was to be a Transaction Document. By way of example, under cl 12 of the Octaviar Castle facility agreement, “Events of Default” included events occurring in relation to a “Transaction Document”; so all the parties to that agreement could be exposed to the consequences of an event of default if a borrower failed to pay moneys payable, or a security provider made a misrepresentation under a Transaction Document.

Discussion

31. I can begin addressing those submissions by saying that, in my view, agreement that a document was a Transaction Document simply enlarged the group of documents falling, as a matter of fact, within the relevant definition in the Octaviar Castle facility agreement. It involved compliance with the facility agreement, not an amendment of it. Accordingly, it did not impinge on the requirement in cl 20.5 of the facility agreement that all parties agree to any amendment of it.

32. The Public Trustee’s proposed construction, in which the words “for the purposes of this Agreement” qualify the noun “document” at the beginning of the clause in sub-paragraph (c), requires a substantial adjustment to the existing language of the clause. One has to assume a draftsman remarkably inept at matching the clause’s phrasing to its intent. And the intent propounded by the Public Trustee entails the parties’ having decided, in effect, to set a threshold requirement, that the document be for the purposes of the facility agreement, before any question of agreement about it arose. That seems unlikely, given the absence of any precise formulation of what those purposes were, and the difficulties inherent in arriving at one. The suggestion that the parties could leave the question to the court to determine is not reassuring.

33. Where the words are in fact placed in sub-paragraph (c), they perform a sensible limiting function. There might be other agreements between Fortress and one or other of the three Octaviar parties in which documents were characterised as “Transaction Documents”. The concluding words of the sub-paragraph limit the relevant Transaction Documents to those agreed to fall under the Octaviar Castle facility agreement.

34. Support for the view that the parties to the facility agreement and the charge took an expansive rather than narrow view of what could be agreed as “Transaction Documents” can be found in two definitions. The first is the definition of “Secured Money” in the charge, which contemplated that Octaviar Limited might owe Fortress money under a Transaction Document as principal debtor, and the second is the definition of “Amount Owing” in the facility agreement which, expressed in very similar terms, covered the possibility of Octaviar Castle’s incurring a liability to Fortress as surety under a Transaction Document. The fact that it was contemplated that Octaviar Limited and Octaviar Castle might enter transactions with Fortress in entirely different capacities from those in which they contracted under the facility agreement suggests that the definition of “Transaction Documents” contemplated transactions quite unrelated to the facility agreement.

35. The aspect of the facility agreement which perhaps militates most compellingly against the Public Trustee’s construction is sub-paragraph (d) of the definition of “Transaction Documents”. It embraced documents “entered into or provided under [the facility agreement and the charge] or for the purpose of amending or novating [them]”. It is difficult to imagine what documents other than those described in (d) would exist for the purposes of the facility agreement, and in consequence, what work, on the Public Trustee’s construction, sub-paragraph (c) could have to do.

36. The chief argument advanced for the Public Trustee’s construction turns on the consequences of allowing Fortress to agree with any one of the other parties as to what should be a Transaction Document, potentially exposing the remaining parties to liabilities. That argument loses its force when one considers, firstly, that Octaviar Castle and Octaviar Financial Services were subsidiaries of Octaviar Limited, so that it was unlikely they would act other than collaboratively, and secondly, that, as the primary judge observed, that there were many other circumstances under the Octaviar Castle facility agreement in which one of the Octaviar parties could be affected by an act or omission of another. The events of default under cl 12 of the facility agreement included a failure by any of the Octaviar parties to pay a debt in excess of $100,000 when due; an investigation, considered by Fortress “a material investigation”, of the affairs of one of them under companies law; or the failure by any of them to honour strictly within its terms any undertaking given to Fortress or its agents.

37. There is no reason to read the words of sub-paragraph (c) as having other than their plain meaning. The learned primary judge rightly concluded that the 22 January 2008 deed was effective to bring the YVE Guarantee within the definition of “Transaction Documents” in the Octaviar Castle facility agreement.

The construction of s 268(2)

“Variation in the terms of the charge…increasing the liabilities”

38. On appeal, Fortress argued that s 268(2) required the answering of two discrete questions: the first, whether there had been a variation in the terms of the charge; and the second, if so, whether the variation had had one of the specified effects, of increasing the amount of the debt or the liabilities secured, or prohibiting or restricting the creation of subsequent charges on the property. In written submissions, it maintained the argument that “increasing the liabilities” in s 268(2) was a reference to the amount of prospective liability specified pursuant to s 282.

39. The Public Trustee contended that it was necessary to construe the expression “variation in the terms of the charge” by reference to the specified effects; the statutory intention was to capture any transaction with the effect of increasing the debt or liabilities secured. Paragraph 62 of the Seventh Eggleston Report^[12] (on the recommendations of which the forerunners to the present charge provisions were based) confirmed that intention:

“…the Act 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.”

40. Fortress reiterated its argument that the expression “the terms of the charge” referred to the instrument creating the charge. A construction which focused attention on what could be readily ascertained, the content of the written document, as opposed to the property rights associated with the charge, made more sense. Support for that view was to be found in s 268(3), which referred to a payment or advance made “in accordance with the terms of the charge” and in the draft provision on which s 268 was based, annexed to the Seventh Eggleston Report. Section 108A, the proposed section dealing with notification of variation of a charge, required provision of particulars of the variation which would:

“identify the terms of the original charge that have been varied and shall indicate the nature of the variation made in each such term”.

41. The Public Trustee argued that the expression “charge” was a reference to the proprietary interest which operated by way of security in respect of a company’s property, and was not a reference to an instrument. Section 268(2) referred to a variation “in the terms of the charge”, not the “instrument creating or evidencing the charge”. A change to the obligations secured by the charge by extending them was a variation of the terms of the charge, increasing the liabilities secured by it.

The exception in s 268(3)

42. Section 268(3) was, on the Public Trustee’s argument, the exception that proved the rule. It showed that the legislature intended s 268(2) to have a wide operation, with only the limited exclusion from its operation that s 268(3) provided. But for it, where a charge secured a debt of an unspecified amount, or a debt of a specified amount with a “further advances” provision, the making of further advances would amount to a variation. The sub-section’s existence would be unnecessary if Fortress’ submission of the interpretation of s 268(2) were correct. Effectively, Fortress was claiming that there was a further category of exception entitled to the special priority which s 268(3) gave.

43. Fortress, on the other hand, argued that s 268(3) was declaratory, designed to deal with the Sibbles v Highfern situation, rather than creating an exception for a set of circumstances which would otherwise constitute a variation.  It manifested a parliamentary intention that a charge could be capable of securing indeterminate amounts of money and that a chargee would not have to update the charge’s register every time new advances were made under the security of the charge, provided they fell within the indeterminate amounts which the charge secured from its inception. 

The objects of the legislation

44. The Public Trustee argued that Fortress’ construction of s 268(2) would defeat three primary objects of the legislation: the notification provisions, the priority rules, and the insolvency provisions. On Fortress’ approach, the agreement here avoided the notification provisions, which were obviously for the public benefit and which carried penal sanctions for non-compliance. They were designed to alert creditors, members and others dealing with the company to the fact that the company had charged its assets, and to advise them of the extent of the liabilities secured. Section 268(2), in particular, was designed to enable searchers to ascertain information concerning any change in the amount of the debt.  If it did not apply in the present case, a search of the ASIC Register would not disclose that the original charge now extended to further liabilities, by virtue of an unrelated transaction.

45. Counsel referred to a series of cases articulating the purpose of requiring charge details to be placed on searchable registers. The first was Esberger & Son Ltd v Capital and Counties Bank,^[13] in which this was said:

“The section is providing for the keeping of a register, which is to shew what moneys are owing by the company on certain securities, so that creditors may have some notion of how far the property of the company is unencumbered … .”^[14]

On the same topic, the High Court observed in Wilde v Australian Trade Equipment Co Pty Ltd:^[15]

“As has been pointed out in the authorities, the requirement that a charge shall be registered is intended to enable persons who are minded to deal with companies to be able, by searching the register, to find out whether the company has encumbered its property or not.  In other words the provisions are intended to protect persons who may become unsecured creditors of the company.”^[16]

That remained the case under the Corporations Act, as a number of cited decisions confirmed.^[17]  The Seventh Eggleston Report similarly exhibited a concern with ensuring that creditors were able to search to establish what charges existed. 

46. Fortress responded that the registration requirements of the chapter were not designed to ensure that a third party could establish the actual amounts of the debt secured by a registered charge. There were no requirements that a specific monetary amount for any liability under the charge be apparent from the instrument itself, or the notice to be lodged under s 263(1). Nor was it necessary that the obligation secured be described in any detail.

47. The Public Trustee pointed out that acceptance of Fortress’ construction also had implications in relation to priority: the liability arising under the YVE Guarantee would have effect from the date of the original charge, whereas if it were regarded as a variation, it would have priority from the date the variation was entered in the register. The only variations which ought to be afforded a priority back to the date of the original charge were those dealt with in s 268(3), which were then the subject of provision in s 282(3).  Again, if Fortress’ construction were correct, a creditor with an existing security could gather in other unsecured debts and liabilities and elevate them to the status of a secured obligation at a time when the company was insolvent or approaching insolvency, allowing that creditor to defeat the operation of s 266 and of s 588FJ, which renders void a charge created in respect of an insolvent company during the six months leading up to the winding up.

Discussion

48. I have not found the debate about whether “the terms of the charge” is a reference to the instrument creating the charge particularly helpful. It is clear that s 268(2) refers to a charge whether in writing or not, and to its terms, wherever found. Counsel for the Public Trustee offered this definition in the course of argument, that the “terms of the charge” are the rights, obligations and liabilities which the charge creates. I am content, for the purposes of the argument, to accept that definition to this extent: that the terms are the rights and obligations, and the obligations will, in a general sense, encompass the liabilities.  In the present case, the terms of the charge, so defined, were to be found in the deed by which it was created, and, arguably, in the Octaviar Castle facility agreement.

49. The Public Trustee’s argument, however, tends to conflate the “variation in the terms of the charge” in s 268(2) with the effects described in s 268(2)(a) and (b). It is trite to say that had Parliament wished the section to apply whenever something happened to increase in amount the liabilities secured by the charge, it could have said so.  The Seventh Eggleston Report is not generally illuminating for present purposes.  (One can read the language of its recommendations as supporting either argument, depending on how one conceptualises the liabilities secured by the charge.)  Still, the draft provision, s 108A, which requires particulars of variation identifying which terms of the original charge have been varied and indicating the nature of the variation in each term, provides some historical basis for the view that, in establishing that s 268(2) applies, the existence of a variation in the charge’s terms is as important and distinct a step as identification of the prescribed effects.  The plain words of the section confirm that approach.  There must first be a term of the charge, that is, some right or obligation created by the charge, which can be shown to have been varied, before the effect of the variation becomes relevant.

50. The exception in s 268(3) only applies where payments in accordance with the charge’s terms are made to the company which created it. Its embrace is narrow, as the facts of the present case serve to demonstrate. Advances made to Octaviar Castle under the facility agreement would not attract the s 268(3) exception, because it was not the company giving the charge.  Accordingly, every time it made a drawdown on the facility, on the construction the Public Trustee contends for, a variation in the terms of the charge would occur, requiring Octaviar Limited to lodge a fresh notice under s 268(2).  That seems an onerous and improbable outcome, and one which provides further cause for doubt about the Public Trustee’s construction of s 268(2).

51. Nor do I find convincing the argument that the policy of ch 2K would be defeated by an arrangement such as that in the present case, because a searcher could not identify Octaviar Limited’s liabilities. As Fortress pointed out, under the current regime there is no provision for notices lodged under either s 263 or s 268 to specify a monetary amount owed.  For that reason, the reference to Esberger’s case is of doubtful assistance, since the register there clearly was designed to show what moneys were owing.  In contrast, in Wilde, the function of the register was said to be to allow those searching simply to find out whether the company had encumbered its property or not.  That function would seem to have been met in the present case by lodgment of notice of the original charge.  And, according to the terms of s 263, when that notice was lodged, a copy of the deed of charge should have been lodged with it.  From the definition of “Secured Money” which appeared in both of those documents could be discovered the fact that the charge extended not merely to the liability under the Octaviar Castle facility agreement but to any liability under a Transaction Document; which should at least alert any prospective investor or creditor to the need for further enquiry as to what those liabilities might comprise.  The Public Trustee’s point that failure to lodge a notice in accordance with s 268(2) is a contravention of s 270(2) seems to me a factor rather tending against a broad approach to the section.^[18]

52. As the Public Trustee says, if the 22 January 2008 deed is not characterised as a variation, Fortress will be able to claim, in respect of the security that the charge affords the YVE Guarantee, that the relevant date for priority and the operation of the insolvency provisions is that of registration of the original charge. But that does not seem such an improbable consequence as to require a reading of s 268(2) counter to its ordinary meaning.

53. In conclusion on the construction point, I should add, however, that his Honour was, in my respectful view, correct in dismissing Fortress’ proposed approach of equating any increase in liabilities relevant under s 268(2) with an increase in the specified maximum amount under s 282(3). The two sections apply different wording to perform entirely different functions. And it is worth noting that a peculiarity of this case was that although the charge fell within s 282(2), securing a present liability and a prospective liability of an unspecified amount, the notice lodged set out a specified maximum amount of prospective liability as though the charge met the requirements of s 282(3). As well as involving faulty statutory construction, the argument that there could be no variation because the amount secured never exceeded the specified maximum of A$750,000,000 was always based on a doubtful factual premise.

The effect of the 22 January 2008 deed

54. Before the 22 January 2008 deed was executed, the Public Trustee argued, the charge over the property of Octaviar Limited was to meet the performance of the borrower’s obligations under the Octaviar Castle facility agreement. The effect of the 22 January 2008 agreement was to add a charge for another liability relating to an additional, separate and unrelated amount of $59,000,000 under the loan agreement between Young Village Estates Pty Ltd and Fortress.

55. Reference was made to Re Goldstone’s Mortgage; Registrar-General of Land v Dixon Investment Co Ltd^[19] for the proposition that the change amounted to a further charge or variation.  In that case, the court gave the example of a mortgage for ₤1,000 with a subsequent written agreement that a further ₤500 would be lent, with a fresh repayment date for both sums.  This was the court’s analysis:

“There is a new contract entered into, and there is a new and distinct charge effected, inasmuch as the liability to pay in accordance with the contract contained in the new mortgage is a different liability from that for which the charge in the first mortgage was created.”^[20]

56. An agreement such as the present one, extending the liabilities secured, was what had led the court to conclude in Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd and Landers v Schmidt that a further charge had been created.  Sibbles v Highfern was distinguishable; it was concerned with an “all moneys” mortgage and an overdraft facility, which could go in and out of overdraft.  The YVE Guarantee did not become the subject of the charge by the application of an existing contractual arrangement.  In order for it to become a Transaction Document, there had to be an agreement in writing between the borrower or a security provider and the lender.  The further advances in Sibbles v Highfern were made pursuant to the same loan agreement as secured by the charge originally; here the advance to Young Village Estates Pty Ltd was under a separate and unrelated loan agreement which pre-dated the charge.

57. Fortress, conversely, contended that the decisions in Landers v Schmidt and Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd were distinguishable.  They concerned a different statutory provision and each involved a deed of variation of an existing mortgage.  If the decisions under s 73 of the Property Law Act were relevant, the present case fell within Sibbles v Highfern: no fresh charge was created; instead, under the “existing contractual arrangements”, once the 22 January 2008 deed was executed, “[t]he charge… operated upon the property charged” in relation to the liability under the YVE Guarantee.^[21] 

58. The learned judge had erred in focusing on the existence of the subsequent agreement between Fortress and Octaviar Limited (the 22 January 2008 deed) to make the YVE Guarantee a Transaction Document, regarding it as serving to distinguish the charge from an “all moneys” charge. The execution of that agreement was simply a designation of the YVE Guarantee as a Transaction Document pursuant to an existing right; it was not a variation of the contractual obligations contained in the deed of charge. If the expression “terms of the charge” contemplated the proprietary elements of the charge, it had not been varied. The charge was always a grant of a right to alienate all of Octaviar Limited’s assets and undertakings, and “Transaction Document” had always been defined as including any document which Octaviar Limited and Fortress agreed in writing was a Transaction Document. And the further “finding”, as Fortress described it, by the learned judge that the 22 January 2008 deed involved the creation of a charge for the purpose of s 263(1) of the Corporations Act was wrong, because that deed did not confer any new rights in favour of Fortress.

Discussion

59. I think, with respect, that Fortress has demonstrated two errors in the reasoning which led to his Honour’s conclusion: the acceptance of the Public Trustee’s construction of s 268(2), which focused on a change in the charge’s effects, as opposed to a change in its terms; and a misconceived emphasis on the 22 January 2008 agreement. The facility agreement definition might have prescribed some other means, not requiring agreement, by which a document came to be classified as a Transaction Document. It might, for example, have defined “Transaction Documents” as including those relevant to any transaction of a specified kind. Instead, the mechanism chosen was agreement in writing by two of the parties, including Fortress. The fact that there was an agreement involved in the process is incidental rather than fundamental. All that happened was the application of the mechanism for which the terms of the charge provided, so as to identify a particular liability as falling within the category of liabilities which the charge, in general terms, already secured. The 22 January 2008 deed did not entail any change to what the parties were entitled or obliged to do under the charge; there was no variation in its terms. And, unlike the situation in Goldstone, no “new and distinct charge” was effected because the liability accepted by Fortress as secured as a result of the 22 January 2008 deed was not

“a different liability from that for which the charge… was created”.^[22]

60. It is true that on the analysis in Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd, a different result might flow.  In that case, the deed of variation secured a further advance in circumstances where the original mortgage was “expressed to stand as security for all sums advanced”,^[23] so that it was within its contemplation; and the court held there a new charge had been created.  (In Landers v Schmidt, whether the original mortgage was an “all moneys” mortgage is less clear).  But those cases were decided under a different provision, s 73 of the Property Law Act, directed to a different mischief, identified in Landers v Schmidt as

“the risk to the purchaser under a terms contract which arises where the mortgagee is in competition with him”;^[24]

a rather more direct and immediate risk, in circumstances beyond the purchaser’s control.  In any event, I think that Fortress is correct to say that the present situation more closely approximates that in Sibbles v Highfern Pty Ltd, of “the application of an existing contractual arrangement”; in this case, in relation to a specific assumption of a particular liability. 

Conclusion

61. In my view, s 268(2) is directed at variations in the terms of the charge, not at changes imposed, in accordance with those terms, in the burden of liability under the charge. The deed of 22 January 2008 constituted neither a variation of the charge nor a new charge.  The appeal should be allowed and the judgment at first instance set aside.  Fortress sought to have the issues which were before the primary judge now resolved by declaration.  In the circumstances, that seems an appropriate course.

Orders

1. The appeal is allowed.

2. The judgment at first instance is set aside.

3. It is declared that the execution by the appellant and the first respondent of the deed dated 22 January 2008:

1. was not a variation in the terms of the charge dated 1 June 2007 made between the first respondent as chargor and the appellant as chargee for the purposes of s 268 of the Corporations Act 2001 so as to require a lodgment of notice under that section;

2. did not create a charge between the first respondent as chargor and the appellant as chargee for the purposes of s 263 of the Corporations Act 2001 so as to require lodgment of notice pursuant to that section.

4. The third respondent is to pay the appellant’s costs of the appeal and of the separate hearing at first instance on 2, 3 March 2009 as to the validity of the charge.

62. MUIR JA:  I gratefully adopt Holmes JA's statement of the facts and recitation of the parties' respective contentions but with a view to making these reasons more comprehensible I will repeat the definition of "Secured Money" in the Deed of Charge and of "Transaction Documents" in the Facility Agreement.

63. "Secured Money" is defined in the Deed of Charge as:

"… all money, obligations and liabilities of any kind that are or may in the future become due, owing or payable, whether actually, contingently or prospectively, by the Chargor to or for the account of the Lender under or in relation to a Transaction Document including on account of principal, interest, fees, expenses, indemnity payments, losses or damages and irrespective of:

(a)the capacity of the Chargor or the Lender (whether as principal, agent, trustee, beneficiary, partner or otherwise);

(b)whether the Chargor is liable as principal debtor or as surety; or

(c)whether the Chargor is liable alone, jointly or jointly and severally with another person."  (emphasis added)

64. "Transaction Documents" was not defined in the Deed of Charge. It is defined in the Facility Agreement as meaning:

"(a)this Agreement;

(b)each Security;

(c)each other document which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document for the purposes of this Agreement; and

(d)each document entered into or provided under any of the documents described in paragraphs (a) or (b), or for the purpose of amending or novating any of those documents

and Transaction Document means any of them and, when used in relation to the Borrower or a Security Provider, means any of those documents to which the Borrower or that Security Provider is a Party."

Was the YVE Guarantee a Transaction Document?

65. The primary judge rejected the Public Trustee's contention that the YVE Guarantee was not a Transaction Document and it is convenient to address this question first. The Public Trustee's arguments may be summarised as follows. To be a Transaction Document, a document must "contain a transaction which was entered into by at least two of the parties [to the Facility Agreement] 'for the purposes of [the Facility] Agreement'". A construction should not be adopted which would result in two parties to the tripartite Facility Agreement incorporating an unrelated transaction. Under the Facility Agreement, Octaviar's liabilities might arise, not only out of that agreement itself, but out of "Transaction Documents". For example, it was an event of default under the Facility Agreement if an "Obligor" failed to "pay … interest, fees, costs, charges, expenses or other money (other than the Principal Outstandings) payable under a Transaction Document" (Clause 12.1(b)). Upon the occurrence of an event of default, Fortress might demand in full the amount owing (Clause 12.2 and 12.4). A misrepresentation made by an Obligor in relation to a Transaction Document will also be an event of default and other examples could be provided. Also, it was no purpose of the Facility Agreement to provide Fortress with a security for the indebtedness of a stranger to the Contract.

66. The principal difficulty with the Public Trustee's preferred construction is that it requires paragraph (c) of the definition of "Transaction documents" to be read as if it provided "each other document entered into for the purposes of this Agreement which the Lender and the Borrower or a Security Provider agree in writing is a Transaction Document."  This construction gives a meaning to the words of paragraph (c) which cannot be found in them without the addition of the words emphasised above or similar words, or without re-arranging the words in the paragraph.  In appropriate cases, a court, in constructing a contract, may add missing words or delete words if that is "clearly necessary in order to avoid absurdity or inconsistency."^[25]  In this regard, Lord Brightman, who delivered the reasons of the Board, said in Watson v Phipps:^[26]

"The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency, but no further: see the speech of Lord Wensleydale in Grey v Pearson (1857) 6 HLC 61 at 106, repeated by Lord Blackburn in Caledonian Railway Co v North British Railway Co (1881) 6 App Cas 114 at 131."

67. No alteration, however, needs to be made to the text of paragraph (c) in order to avoid an absurdity or inconsistencies. There is force in the submission by counsel for Fortress that on the Public Trustee's construction, neither Octaviar nor Fortress could be certain "in any given case whether the requirements of the definition had been satisfied." That is a consideration which weighed with the primary judge. The Public Trustee's arguments also lose much of whatever force they have when it is appreciated that the parties to the Facility Agreement, other than Fortress and Octaviar, were subsidiaries of Octaviar.

68. Additionally, as the primary judge pointed out, there are many circumstances unassociated with the inclusion of a document as a Transaction Document in which a party "on the borrower's side of the … facility might be adversely affected by what was done or not done by another party."

69. Accordingly, this ground should be rejected.

The bearing of other provisions of the Act on the construction of s 268(2)

70. It was submitted that acceptance of Fortress's construction of s 268(2) would have the effect of defeating or seriously interfering with the requirements of the Act:

1. In relation to notification of charges;

2. In respect of priorities; and

3. In respect of invalidity, in the event of a company's insolvency.

71. In order to construe s 268(2) it is, of course, necessary to look beyond its words. Statutory interpretation, as was explained in the majority judgment in Project Blue Sky Inc v Australian Broadcasting Authority,^[27] is not merely a linguistic or semantic exercise and the context of the words used and the purpose of the provision under consideration must be borne in mind:

"The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.  See Taylor v Public Service Board (NSW) (1976) 137 CLR 208 at 213, per Barwick CJ.  The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'.  Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320, per Mason and Wilson JJ.  See also South West Water Authority v Rumble's [1985] AC 609 at 617, per Lord Scarman, 'in the context of the legislation read as a whole'.  In Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397, Dixon CJ pointed out that 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning that the logic with which it is constructed'."

72. The following passage from the majority judgment is also relevant:^[28]

"Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision.  In The Commonwealth v Baume Griffith CJ cited R v Berchet to support the proposition that it was "a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent."  (footnotes deleted)

73. In my view the fears expressed by senior counsel for the appellant are largely unfounded. Where a company creates a charge, s 263(1) imposes on it an obligation to lodge within 45 days after the creation of the charge a notice in the prescribed form. The notice must set out prescribed particulars including:

"(iii)if the charge is a floating charge – whether there is any provision in the resolution or instrument creating or evidencing the charge that prohibits or restricts the creation of subsequent charges;

4. a short description of the liability (whether present or prospective) secured by the charge;
5. a short description of the property charged."

Where the charge is created by an instrument, it, or a verified copy of it, must also be lodged.^[29]

74. Section 265 requires the Australian Securities and Investments Commission (ASIC) to keep a register of charges and enter in it particulars in relation to registered charges, including:^[30]

"(b)a short description of the liability (whether present or prospective) secured by the charge;

(c)a short description of the property charged; …"

75. Section 271 requires a company to keep a register of charges which must contain the same particulars as those required by s 265(2). A copy of every document relating to a charge lodged under Chapter 2K must be kept at the place where the register is kept.

76. Where an instrument creating a charge contains a provision such as that under consideration here (a "Transaction Document" provision), the notice required to be lodged under s 263(1) and the particulars required to be entered in the register of charges by ASIC, should disclose the existence of the Transaction Document provision in order to describe the liability secured by the charge. In any event a copy of the registered instrument will be available for inspection. Under both s 263(1) and s 265(1) identification of the secured liability is to be made by "a short description".  There is no obligation at any time or from time to time to state the actual sum presently or contingently owing or to condescend to great particularity in describing the secured liability.

77. Consequently, the construction advanced by Fortress is compatible with the purpose of "the requirement that a charge be registered [which] is … to enable persons who are minded to deal with companies to be able, by searching the register, to find out whether the company has encumbered its property or not."^[31]

78. The fact that s 268(3) expressly accepts that no notice under s 268(2) is required in respect of further advances under an instrument of charge containing an "all moneys" clause, further weakens the argument that acceptance of Fortress's contentions would substantially interfere with or impede the Act's requirements in respect of priorities and regarding the consequences of insolvency.

79. Nor do I consider that there is much force in the submission that "the charge" in s 268(2) has a meaning divorced from the instrument which creates it, as whenever the Legislature intends in Chapter 2K to refer to the instrument creating or evidencing the charge, it does so expressly.  Section 262(7), s 263(1)(a) and (c), s 263(4) and (6), s 264(1)(a) and s 267(1) and (2) are relevant in this regard.  But in each of these provisions the reference to "instrument" is necessitated by the context.  For example, it is provided in s 262(7) that a charge is taken to be a charge on property within sub-section (1) "even though the instrument of charge also charges other property of the company … that is of a kind to which none of the paragraphs of [subsection (1)] applies."

80. It is necessary in s 263 to refer to "instrument" in order to state in sub-section (1)(a) that the prescribed particulars must be given regardless of how the charge arises or is evidenced. Elsewhere in s 263 the reference to "instrument" is necessitated by the fact that the matter addressed is the lodgement of the instrument creating the charge. The matters relevantly addressed in subsections 267(1) and (2) concern powers conferred by instruments creating or evidencing charges. Section 268(2) refers to a variation in the terms of the charge and not to a variation in the terms of the instrument creating the charge, but for the reasons given below the choice of language, although assisting the third respondent’s construction, is far from decisive in its favour.

The relevance of Landers v Schmidt and Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd

81. Counsel for the Public Trustee placed reliance on these decisions, as did the primary judge. The respondents in Landers v Schmidt^[32] were purchasers of land from the appellants under an instalment contract.  They alleged that the vendor appellants had mortgaged the land without their consent entitling the respondents to avoid the Contract.  Section 4(1) of the Property Law Act 1974 (Qld) defined "mortgage" to include a charge on any property for securing money.  Section 73 of the Property Law Act, on which the respondents relied, relevantly provided that a vendor under an instalment contract shall not without the consent of the purchaser sell or mortgage the land the subject of the Contract.

82. Without the consent of the respondents, the appellants executed a memorandum of variation of mortgage in favour of a second mortgagee of the land, increasing the mortgage debt from $6,000 to $12,000. It was held that, by this variation of the second mortgage, the appellants had mortgaged the land within the meaning of s 73(1).  There was thus no issue as to whether the second mortgage had or had not been varied. 

83. The question for the Court concerned the construction of s 73(1) as Connolly J, with whose reasons Lucas SPJ agreed, made apparent. His Honour said:^[33]

"The first question is whether the variation of the mortgage which increased the amount for which the land was security amounted to mortgaging the land within the meaning of s.73(1).  It was contended, in effect, that the mortgage was fully constituted when the contract of sale was entered into and that a further advance, which one might expect under an ordinary mortgage to have been provided for in the original security cannot be regarded as a fresh mortgage.  This argument is attractive at first glance but, on reflection, I do not think it will stand analysis.  The mischief at which the provision is aimed is the risk to the purchaser under a terms contract which arises where the mortgagee is in competition with him.  Section 73 derived from s. 7(1) of the Sale of Land Act 1962 (Victoria).  That provision is discussed by the learned editor of the third edition of Voumard on the Sale of Land at pp. 111-2.  It is pointed out by Mr. McPherson that s. 73 is penal and that it should therefore be strictly construed."  (emphasis added) 

84. The subsequent discussion by Connolly J of the nature of a charge over land is also of relevance for present purposes:^[34]

"The conclusion to which I have come is that if the word mortgage were not given an extended meaning in the Property Law Act there might be much to be said for the appellants' contention.  However, s. 4 of the Act defines 'mortgage' to include a charge on any property for securing money or money's worth.  Whatever may be said of the word mortgage, charge is a word of wide import.  Thus in Payne v. Esdaile (1888) 13 App. Cas. 613 Lord Herschell at pp. 623-4 said:

'Now it seems to me that the word 'charge' may well be used to describe a burden imposed upon land, and if a payment has to be made in respect of land, and it can only be enjoyed subject to the liability for that payment, I cannot think that there would be any great straining of language if it were spoken of as charged upon the land.'

…

In Re Price, ex parte Tinning (1931) 26 Tas.L.R. 158, Nicholls C.J. at p. 160 said that the quality of a charge or lien is that, 'so far as is necessary, it appropriates or sets aside some particular property, real or personal by making a deduction from the absolute ownership of it, in favour of someone who is given by law or by agreement, will, or otherwise, the right to resort to the property to satisfy or discharge some obligation.  They add to the right in personam a limited right in rem.'

What the appellants did on August 26, 1976 was to make the land available for $6,000 for which theretofore it was not available.  It follows in my view that whether they mortgaged it in the strict sense they certainly charged it."

85. The Privy Council in Coast Securities No 9 Pty Ltd v Bondoukou Pty Ltd^[35] was also concerned with a question of whether a Deed of Variation of a mortgage granted by the vendor over land the subject of an instalment contract constituted a mortgage entered into before the completion of the Contract.  The Deed of Variation "contained covenants for payment of principal and interest, a covenant to apply the advance to the construction of the … building and provision for the money to be made available by the mortgagee in accordance with an agreed schedule of drawdown."  Another clause provided that the Deed of Variation was collateral to the Bill of Mortgage and that "the moneys hereby secured include the moneys expressed in and intended to be secured by the said Bill of Mortgage" and that it was agreed that the amount of the further advances under the Deed of Variation were "included in the definition of the principal sum" in the Bill of Mortgage.

86. Lord Oliver of Aylmerton, who delivered the judgment of the Board, referring to the vendor's argument that there was no infringement of s 73 of the Property Law Act because the Deed of Variation did not constitute a "mortgage" but "was merely a consensual variation of the pre-existing Bill of Mortgage", explained:^[36]

"It is true that the Bill of Mortgage secured all sums becoming due to the lender but it is, in their Lordships' view, quite unarguable that the advance, pursuant to the Deed of Variation, of a further $18,300,000 to cover the cost of a new building did not constitute a further charge on the land and thus a mortgage as defined in s 71(2)(c) of the Act.  Prior to the Deed of Variation the land was not charged with this sum.  Afterwards it was.  This hardly requires to be supported by authority but if any is required it is to be found in the decision of the Full Court of the Supreme Court of Queensland in Landers v Schmidt which is, in all material respects, indistinguishable from the instant case."

87. The question for the Court, as in Landers v Schmidt, concerned the construction of provisions of the Property Law Act.  There was, in fact, a Deed of Variation.  That instrument expressly secured the repayment of a further advance and was expressed to be collateral to the existing security and plainly created a charge over the subject land.  Like Landers v Schmidt, Coast Securities sheds little, if any, light on the questions under consideration.

The relevance of Re Goldstone's Mortgage:  Registrar-General of Land v Dixon Investment Co Ltd and Scarel Pty Ltd v City Loan and Credit Corporation Ltd

88. The decisions in Re Goldstone's Mortgage: Registrar-General of Land v Dixon Investment Co Ltd^[37] and Scarel Pty Ltd v City Loan and Credit Corporation Pty Ltd^[38] are of no assistance to the Public Trustee.  The observations in both cases on which reliance is placed start from the premise that there was a variation of mortgage.  Moreover, those cases were not ones in which a new liability came to be secured by a charge through the operation of a term in the instrument creating the charge.

The proper construction of s 268(2)

89. Section 268 of the Act provided at material times:

"Assignment and variation of charges

(1)Where, after a registrable charge on property of a company has been created, a person other than the original chargee becomes the holder of the charge, the person who becomes the holder of the charge must, within 45 days after he, she or it becomes the holder of the charge:

(a)lodge a notice stating that he, she or it has become the holder of the charge; and

(b)give the company a copy of the notice.

(2)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

(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.

(3)  Where a charge created by a company secures a debt of an unspecified amount or secures a debt of a specified amount and further advances, a payment or advance made by the chargee to the company in accordance with the terms of the charge is not taken, for the purposes of subsection (2), to be a variation in the terms of the charge having the effect of increasing the amount of the charge or the liabilities (whether present or prospective) secured by the charge.

(4)…

(5)  Nothing in section 263 requires the lodgment of a notice under that section in relation to a charge merely because of the fact that the terms of the charge are varied only in a manner mentioned in this section."

90. 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 of prohibiting or restricting the creation of subsequent charges. Consequently, for s 268(2) to apply, it must be possible to identify a variation "in the terms of the charge".  To vary an instrument in writing is to alter or modify its terms.  Variation of a contract, other than by the conduct of the parties, is effected by subsequent agreement.  Whether a subsequent agreement rescinds the original agreement with which its terms are inconsistent, in whole or in part, depends on the intention of the parties disclosed by the later agreement.^[39]  Plainly, the 22 January Deed discloses no intention to rescind or discharge the Deed of Charge.  Nor can it be said that it modified or altered any of the terms of the Deed of Charge or their operation.  After the execution of the 22 January Deed those terms were precisely the same in word and operation as they were before its execution. 

91. The Public Trustee's argument does not provide any identification of the "terms of the charge" or of the way in which they were said to be varied beyond asserting that "terms of the charge" is a reference to the "registrable charge … created" to which s 263 applied when the charge was originally created and that the "evident legislative purpose is directed to requiring notice to be lodged in circumstances where there is some event having the effect of … increasing the amount of the debt or increasing the liabilities … secured by the charge."  The argument thus, while accepting implicitly that a variation entails an alteration or modification, studiously avoids the language of subsection (2).

92. In my view, "terms of the charge" in subsection (2), where the charge is created or evidenced by an instrument in writing, can only be a reference to the terms contained in that instrument and any terms which may be implied in fact.^[40]  For present purposes it is unnecessary to decide whether "terms of the charge" encompasses all of the terms of the instrument or only those relevant to its character as a charge.^[41]

93. The wording of s 268(3) supports the conclusion that in subsection (2) "terms of the charge" has the meaning just advanced. Subsection (3) refers to "a payment or advance … in accordance with the terms of the charge".  It provides that in the circumstances contemplated by the subsection a "payment or advance" is not to be regarded as "a variation in the terms of the charge having the effect of increasing the amount of the charge or the liabilities … secured by the charge."

94. It is difficult to see, in the case of a charge created by an instrument, how the words emphasised can refer to anything other than the terms of the instrument creating the charge. The other part of subsection (3) which is quoted draws a distinction between "the terms of the charge" on the one hand and "the amount of the charge" and the liabilities secured by it on the other. It is unlikely that "terms of the charge" has different meanings in subsections (2) and (3).

95. The fact that a charge need not be created by written instrument is not to the point. A charge to which Chapter 2K of the Act applies which is created other than by written instrument would normally have oral terms in respect of the amount of the debt or the liabilities secured. And, however a charge to which Chapter 2K applies is created, it must have terms which can be identified.

96. The third respondent’s construction equates increasing the amount of the debt or the extent of the liabilities secured by the charge with a variation in the terms of the charge. The contention is inconsistent with s 268(3) which makes an entirely conventional distinction between a charge and that which it secures. If correct, the third respondent’s broad proposition would mean that a notice under s 268(2) would need to be given in the case of a charge which secured all liabilities, present and future, of the Chargor to the Chargee, whenever, after the registration of the charge, the Chargor incurred a liability to the Chargee which did not exist at the time of registration of the charge or of any prior variation. That is an unlikely and unattractive result.

97. It is useful at this juncture to consider Sibbles v Highfern Proprietary Limited^[42], another case in which it was argued that a vendor under an instalment contract had mortgaged land without the consent of the purchaser.  The mortgage in favour of a bank provided that it was security for all moneys to be lent by the bank to the vendor.  There was no limit to the advances covered by the mortgage.  The purchaser argued that on each occasion during which "a debit balance in the account was created or increased, the vendor mortgaged the unit in question without the consent of [the purchaser], thus infringing s 73 of the Property Law Act."  The argument was rejected.  The majority reasons explained:^[43]

"The security upon which the bank relied … was a mortgage by way of charge.  It was in existence at the time Highfern sold the unit to the Sibbles.  The charge could not operate until Highfern's account with the bank was overdrawn but it then operated upon the property charged in relation to each advance.  There was not a fresh mortgage or charge on each such occasion but the application of an existing contractual arrangement by way of mortgage or charge in relation to a specific advance.  Highfern did not, therefore, mortgage the land sold without the Sibbles' consent and did not infringe s. 73 of the Property Law Act."

98. Similarly, the subject charge could not operate with respect to the liabilities of Octaviar under the YVE Guarantee until that instrument became a Transaction Document. When that happened there was no fresh charge or varied charge, merely "the application of an existing contractual arrangement by way of … charge". The existence of the charge was not dependent upon the making of the YVE Guarantee a Transaction Document even though, to adapt the words of the majority in Sibbles, "the operation of [the] charge in relation to [the YVE Guarantee could] only began when [the January Deed took effect]."^[44] 

99. There is, of course, nothing novel in the proposition that a "complete and valid operative charge" arises on the execution of an instrument creating a charge securing future advances or liabilities, not when the advances are made or the liabilities arise.^[45]

100. It is submitted on behalf of the Public Trustee that if Fortress's construction of s 268(2) is correct, s 268(3) would be unnecessary.  It is also submitted that s 268(3) shows that the Legislature intended s 268(2) to have a wide operation and intended only to exclude from the operation of that subsection charges in quite limited circumstances which have no present application.

101. I accept Fortress's explanation that s 268(3) is declaratory, making it apparent that in the circumstances referred to in it, s 268(2) is not engaged. As senior counsel for Fortress submitted, declaratory provisions, or provisions for avoiding doubt, are common enough drafting devices.^[46]  It would be a curious drafting technique if the effect of subsection (3), which makes specific provision for particular circumstances, was to substantially alter the operation of subsection (2), a provision having general operation, so that words which on their face are central to its operation are given no meaning.  A possible explanation of s 263(3) is that, as senior counsel for the Public Trustee himself explained, it has a long history and is concerned with the principles of tacking and the rule in Clayton's case.

102. The fact that failure to register a charge in compliance with s 268(2) gives rise to an offence by the company and by "any officer of the company who is in default", also tells against the third respondent’s construction for the reasons explained by Gibbs CJ in Beckwith v The Queen:^[47]

"The rule formerly accepted, that statutes creating offences are to be strictly construed, has lost much of its importance in modern times.  In determining the meaning of a penal statute the ordinary rules of construction must be applied, but if the language of the statute remains ambiguous or doubtful the ambiguity or doubt may be resolved in favour of the subject by refusing to extend the category of criminal offences:  see R. v. Adams (1935) 53 C.L.R. 563, at pp. 567-568; Craies on Statute Law, 7th ed. (1971), pp. 529-534. The rule is perhaps one of last resort."

103. Section 15AA(1) of the Acts Interpretation Act 1901 (Cth) relevantly provides:

"(1)In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object."

104. However, neither s 15AA nor a purposive approach to construction authorises a departure from the grammatical or literal meaning of a statute, where that meaning gives effect to the purpose or object of the statute.^[48]  The court’s role is one of construction not legislation.^[49]  As the above discussion shows, the construction of s 268(2) advanced by the Public Trustee is inconsistent with the grammatical or literal meaning of the words that of provision.  It has not been demonstrated that the third respondent’s construction would best achieve the purpose of the Act and, more significantly, it would fail to give meaning to the words "the terms of" which precede "the charge" in s 268(2).  Those words, particularly when regard is had to their repetition in s 268(3) (and also in s 268(5)), are most unlikely to have no material function, yet the third respondent’s construction denies them a credible role.

Conclusion

105. For the above reasons the construction of s 268(2) advanced by Fortress is to be preferred and the appeal must be allowed. I agree with the orders proposed by Holmes JA.

106. WHITE J:  Holmes JA has set out the relevant legislative provisions and definitions in the documents and summarised the arguments of the parties in her reasons for judgment.  I am indebted to her Honour for her detailed analysis of the issues and I agree with her Honour’s conclusion that the letter/deed of 22 January 2008 was neither a variation of charge nor a new charge within the meaning of those concepts in ss 268 and 263 of the Corporations Act 2001.

107. I note that Muir JA has reached the same conclusion and for very similar reasons to those of Holmes JA.

108. I agree with the orders proposed.