The Queensland Court of Appeal today unanimously upheld the
appeal against the decision in re Octaviar Limited; re Octaviar
Administration Pty Ltd  QCS37
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
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
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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