FEDERAL COURT OF AUSTRALIA

National Australia Bank Ltd (ACN 004 044 937) v T2 Trading Limited

(ACN 009 158 829) [2003] FCA 1477

CORPORATIONS – charges – requirement for registration of charges – time limit for lodgment of notice of charge and charge for registration – lodgment out of time – whether extension should be granted – inadvertence – whether ignorance of the law amounts to inadvertence – whether ignorance of the law gives rise to inadvertence – discretionary considerations – protective orders in respect of creditors and persons dealing with property on faith of Register – extension granted

Corporations Act 2001 (Cth) s 266(4)

Scarfe Steel Supplies Pty Ltd v SMP Pty Ltd  (1980) 5 ACLR 262 cited

Sanwa Australia Finance v Ground Breakers Pty Ltd (in liq) (1991) 2 Qd R 456 cited

Re Dudly Engineering Pty Ltd [1968] 1 NSW 483 cited

Nichol v Fearby, Nichol v Robinson  [1923] 1 KB 480 cited

Hamilton v Property Investments Ltd  [1983] WAR 317 cited

Rynmarc Pty L td v Classic Ergonomic Chairs Pty Ltd (1994) 121 ACLC 1038 cited

Re Freightlines Northern Territory Pty Ltd (In Liq)  (1999) 17 ACLC 169 cited

NATIONAL AUSTRALIA BANK LTD v T2 TRADING PTY LTD  AND OTHERS

W3026 OF 2003

FRENCH J

9 DECEMBER 2003

PERTH

THE COURT ORDERS THAT:

1.         The period for lodging with the Australian Securities and Investments Commission a notice of charge in respect of:

            (a)        a charge dated 1 August 2003 granted by the first respondent to the applicant (ASIC number 986563) be extended to 13 October 2003;

            (b)        a charge dated 1 August 2003 granted by the second respondent to the applicant (ASIC number 982767) be extended to 26 September 2003;

            (c)        a charge dated 1 August 2003 granted by the third respondent to the applicant (charge number 982804) be extended to 26 September 2003;

            (d)        a charge dated 1 August 2003 granted by the fourth respondent to the applicant (charge number 982768) be extended to the extent necessary to 26 September 2003; and

            (e)        a charge dated 1 August 2003 granted by the fifth respondent to the applicant (charge number 982763) be extended to 26 September 2003.

2.         Liberty be reserved to any liquidator, administrator or creditor of the respondents (in the event that any winding up of or administration of any of the respondent companies commences, or any of them executes a deed of company arrangement, within six months of the relevant date) to apply to discharge or vary the order in paragraph 1 if a creditor of the respondents has advanced funds, or given credit, to the respondents in reliance on the register not disclosing the charges (as listed in paragraph 1) to be registered.

3.         The order in paragraph 1 be without prejudice to the rights of any person in consequence of any dealings by that person with any property the subject of the charges, referred to in paragraphs (b) to (e) between 1 August  2003 and 26 September 2003, and the charge referred to in paragraph (a) between 1 August 2003 and 13 October 2003.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Introduction

1                     The National Australia Bank Ltd (‘the Bank’), in August 2003, provided a number of bank facilities to a group of companies known as the Tec Plus Group.  In consideration of these facilities members of the corporate group provided charges over their assets in favour of the Bank.  The charges were not lodged for registration with the Australian Securities and Investment Commission (‘ASIC’) within the 45 days from their creation prescribed by the Corporations Act 2001 (Cth).  Since that time administrators have been appointed to one of the companies in the Group.  The Bank now applies to the Court for an extension of the time limited for lodgment of the charges for registration.  It does so on the basis that the failure to lodge within time was the result of inadvertence on the part of a Bank officer and that there is no relevant prejudice to any party which is unable to be protected by appropriate ancillary orders.

2                     On 9 December 2003, I made orders substantially in the terms sought by the Bank.  I now publish the reasons for making those orders.

Factual Background

3                     In August 2003, a number of companies comprising the Tec Plus Group executed securities in favour of the Bank.  The securities were executed in consideration of the Bank’s provision of a number of facilities to members of the Group.  The facilities offered were:

1.         An overdraft facility of $900,000 to Tec Plus Limited

2.         A guarantee by bank facility to Tec Plus Limited - $500,000

3.         A lease and/or lease purchase and/or fleet leasing facility to Tec Plus Limited - $550,000

4.         A business Mastercard facility to Tec Plus Limited - $30,000

5.         A National FlexiPlus Mortgage (National Choice Package) to Team Corp Pty Ltd - $180,000

6.         A market rate facility to Team Corp Pty Ltd - $160,000

7.         An overdraft facility – approved in principle to Technology Transfer Limited - $100,000.

8.         An overdraft facility to Aus Sailing Limited - $100,000

9.         A National personal investment fixed rate interest only loan to Aus Sailing Limited - $138,000

10.       A National personal investment fixed rate interest only loan to T2 Trading Pty Ltd - $77,000.

4                     Each of the companies was required to provide a first registered mortgage debenture, a guarantee and indemnity and a letter of subordination.  In addition, Team Corp Pty Ltd was required to provide first registered mortgages over two items of real property, one in Western Australia and one in Queensland.  Aus Sailing Limited was also required to provide Ship’s Mortgages over two vessels. In the end this requirement was substituted by a requirement for the provision of a Goods Mortgage.

5                     The provision of the banking facilities and the associated securities were negotiated on behalf of the Bank by Travis Fulton, a Relationship Manager employed at the Bank’s West Perth Business Banking Centre.  From about June 2003, Mr Fulton engaged in a series of discussions with Glenn Tucker, a principal of the Group, concerning the provision of the banking facilities.  The transaction overall required the production of a large number of securities including the documents to which reference is made above.  For the most part, the documents were all executed on or about 1 August 2003.  The Aus Sailing Goods Mortgage was executed by one director on 1 August and by another director on 12 August 2003.  The mortgage debentures executed by Tec Plus Limited, Team Corp Pty Ltd, Aus Sailing Limited and Technology Transfer Limited were all lodged with the appropriate notices for registration at the Australian Securities and Investment Commission on 26 September 2003.  The charge granted by T2 Trading Pty Ltd was lodged on 13 October 2003.  The lodgment in each case was outside the 45 day time limit from creation of the charge for which the Corporations Act provides.

6                     In explanation of the delay, Mr Fulton explained that at all relevant times he was unaware of the forty five day time limit for lodgment of charges with ASIC.  It was his understanding and belief that the limit was 60 days and that the only consequence of late lodgment was the imposition of penalty registration fees.  He became aware on the morning of 5 November 2003 that charges granted by a company to the Bank must be lodged with ASIC within 45 days of their creation and that failure to lodge a charge within that time may render it void as against a liquidator or administrator appointed to that company.  He was first told of this requirement by Paul O’Farrell, an Executive in the Bank’s Credit Restructuring Team on the morning of 5 November 2003. 

7                     In the ordinary course of completion of a financing transaction, Mr Fulton explained that he would forward all of the documentation to the Bank’s West Perth Business Banking Centre Support Team to arrange stamping and registration with ASIC and with the Department of Land Administration where necessary.  The Support Team complete a stamping/registration request form and forward the documents together with the completed request to the Bank’s Lending Services Division in St George’s Terrace, Perth.  The Lending Services Division is responsible for attending to the stamping and registration of the documents.

8                     Mr Fulton did not forward the documents relating to the Tec Plus transaction to the West Perth Business Banking Centre until 15 September 2003.  Apart from the fact that he was not aware of the 45 day time limit, he was still working on a number of parts of the transaction that occurred after the majority of the documents were executed on 1 August 2003. 

9                     It was a term of the letter of offer from the Bank that Aus Sailing provide Ships Mortgages in respect of two ships.  Mr Tucker had raised various objections to this and on 1 August 2003 Mr Fulton obtained the approval of a District Credit Manager for Aus Sailing to provide a Goods Mortgage in lieu of the Ships Mortgages.  The Goods Mortgage was not executed by Aus Sailing until 12 August 2003 because Mr Tucker was travelling interstate for about a week between 1 and 12 August.

10                  At the same time Mr Fulton was attending to the settlement of the purchase of a piece of land by Team Corp over which the Bank was being granted security.  There were some delays associated with that transaction.  Because of these and other matters to which he was attending in August and September 2003 as part of his normal responsibilities, he said that his overall workload was high and he was unable to attend to the reviewing and collating of the Tec Plus documents for stamping and registration until about 10 September 2003.  He began collating them at this time.  Due to the complexity of the transaction he reviewed and completed the stamping and registration request for Team Corp himself.  He completed the form at home during the evening of 10 September.  He forwarded all of the documents, including the debenture and the Goods Mortgage to the Support Team on 15 September 2003. Believing that the time limit for lodgment of charges was 60 days he included an instruction on the form that the securities were approaching a late lodgment date and that they should be stamped as soon as possible.  He did this in the belief that there was about two weeks before the expiry of 60 days from execution of the debentures.

11                  The documents were reviewed and the registration and stamping forms for T2 Trading, Tec Plus and Aus Sailing completed on 15 September 2003. 

12                  On 16 September there was a further delay as a new mortgage had to be prepared for Team Corp.  The mortgage over land which had been prepared was not accepted for registration at DOLA because it had been printed ‘single sided’ instead of ‘double sided’. 

13                  There was also before the Court an affidavit sworn by Stacey Groves, a Customer Service Assistant in the West Perth Banking Centre Support Team.  She received the relevant task request form on 15 September 2003.  She was not aware of the time limit within which charges had to be lodged with ASIC.  She was vaguely aware that there was such a limit but did not know what it was or the consequences of late lodgment.  She noted the instruction on the request form that a late lodgment date was approaching so she worked on the matter on the same day that she received the document.  In completing the request forms she noted that the relevant documents must be stamped as soon as possible.  She arranged for the stamping/registration request forms and all of the documents to be forwarded to the Bank’s Lending Services Division by overnight internal mail.  In the event, all of the relevant charges were lodged for registration on 26 September 2003, save for the charge granted by T2 Trading which, for some reason not explained, was lodged on 13 October 2003. 

14                  On 7 November 2003, Anthony Hayes Douglas-Brown and Jeffrey William Vibert were appointed joint and several administrators of Tec Plus Limited by a resolution of directors of the company.  On the same day an application was filed in this Court by the Bank seeking to extend time for the registration of the various charges referred to earlier.  The application is brought under s 266(4) of the Corporations Act.  Copies of the application were served on each of the companies on 10 November 2003. 

15                  The administrators of Tec Plus Limited are aware of the application.  In their report to creditors pursuant to s 439A(4)(b) they referred to the granting of the charge in favour of the Bank against all of the company’s assets and undertaking on 1 August 2003.  They noted in their report that the charge was registered on 26 September 2003 outside the statutory 45 day period provided for in the Corporations Act.  They pointed out that the consequence of the late registration of the charge was that it was void as against an administrator and a liquidator.  They then referred to the Bank’s application to the Federal Court for an order extending the time for registration and the consequences of an extension namely that the charge held by the Bank would no longer be void against the liquidator and the Bank would be a secured creditor of the company.  If the application were not successful then the Bank would be treated as an unsecured creditor of the company.

16                  The administrators indicated that in order to protect the interests of unsecured creditors they were taking legal advice on the issue.  They also advised that the application was due to be heard on 9 December 2003 but observed that it appeared likely the application would be successful and they would be secured against the company’s assets.  In bold print the report went on:

‘As administrators in reviewing the company’s position in relation to this matter we request any creditor of the company (including any creditor that lent money to the company or entered into a contract during the period 15 September 2003 to 26 September 2003) to contact us particularly where such creditor searched the ASIC company register to determine whether there were pre-existing charges against the company’s assets prior to granting the company credit, lending money to the company or entering into a contract during the above period.  If you believe that you did loan money or enter into a credit contract during this period, please contact us before the meeting of creditors on 4 December 2003.’

17                  The administrators have subsequently advised the solicitors for the Bank that they do not consent to the application but do not oppose it.  They advised the Bank’s solicitors that they did not intend to appear at the hearing and asked that the Court be informed of their position.  A letter from the administrator’s solicitors was exhibited to an affidavit of Adam Rollnik, a solicitor employed by the Bank’s solicitors.  No creditor has appeared to oppose the application.

The Statutory Framework

18                  Chapter 2K of the Corporations Act deals with charges.  Part 2K.2 deals with registration of charges.  Section 263 provides that where a company creates a charge it must ensure that there is lodged within 45 days after the creation of the charge a notice in the prescribed form setting out particulars of the charge specified in par (a) of s 263(1).  That section also requires lodgment of the instrument or a verified copy.  Where a notice in respect of a charge required by s 263 is lodged, whether before or after the period within which it was required to be lodged, and contains all the requisite particulars, ASIC must as soon as practicable enter in the Register the time and date of lodgment and specified particulars in relation to the charge (s 265(2)). 

19                  Section 266(1) provides that where an administrator of a company is appointed then a registrable charge on property of the company is void as a security on that property against the administrator unless a notice in respect of the charge was lodged under s 263 or s 264 as the case requires within the relevant period or at least six months before a day specified as the ‘critical day’. For present purposes it is the relevant period that is applicable.  That is defined in s 266(2), in relation to a charge to which subs 263(1) applies as ‘… the period of 45 days specified in that subsection, or that period as extended by the Court under subsection (4) of this section…’.

20                  Subsection 266(4) provides:

‘The Court, if it is satisfied that the failure to lodge a notice in respect of a charge, or in respect of a variation in the terms of a charge, as required by any provision of this Part:

(a)       was accidental or due to inadvertence or some other sufficient cause; or

(b)       is not of a nature to prejudice the position of creditors or shareholders;

or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested and on such terms and conditions as seem to the Court just and expedient, by order, extend the period for such further period as is specified in the order.’

Whether the Application Should be Granted

21                  The application in this case is made upon the basis that the lodgment of the documents for registration was due to inadvertence.  The concept of inadvertence, in this context, was addressed by Zelling J in Scarfe Steel Supplies Pty Ltd v SMP Pty Ltd (1980) 5 ACLR 262.  In that case a solicitor omitted to register a debenture within the time required by s 100 of the Companies Act 1962.  The solicitor was winding up his practice before taking up an appointment as a special magistrate and was working long hours in endeavouring to complete his files.  Zelling J said (at 266):

‘I have little difficulty in being satisfied that the omission to register the charge within the time required under s 100 was due to “inadvertence” within the meaning of those words in s 106 of the Companies Act.’

His Honour referred to the dictionary definition of inadvertence as ‘the fact or habit of being inadvertent; failure to observe or pay attention; inattention’.  He went on:

‘I have no doubt that the then solicitor for the applicant failed to observe or pay attention to the necessity of filing the requisite documents with regard to these two companies with the Registrar, and that that part of s 106 is satisfied.’

22                  The Full Court of the Supreme Court of Queensland in Sanwa Australia Finance v Ground-Breakers Pty Ltd (in liq) (1991) 2 Qd R 456 held that failure to file the requisite notice within time because of ignorance of the law could amount to inadvertence.  Kelly SPJ, with whom Macrossan CJ and Connolly J agreed, said (at 461):

‘The question of whether an omission to carry out a statutory obligation because of ignorance of the law may amount to inadvertence has been considered by courts on several occasions and the weight of authority is that it may do so.’

His Honour referred to a number of authorities including Re Dudley Engineering Pty Ltd [1968] 1 NSW 483 at 485; Nichol v Fearby, Nichol v Robinson [1923] 1 KB 480 and Hamilton v Property Investments Ltd [1983] WAR 317.

23                  In Rynmarc Pty Ltd v Classic Ergonomic Chairs Pty Ltd (1994) 12 ACLC 1038, Underwood J took some issue with the analysis of Kelly SPJ and said (at 1046):

‘With great respect to Kelly SPJ, I do not understand how, ‘ignorance of the law may amount to inadvertence’.  Although it may be said that each is a condition of the mind, the former cannot amount to the latter; it can only be a reason for the latter.  I understand his Honour to be saying that the weight of authority is that even if the failure to pay attention to compliance with a statutory obligation is due to ignorance of the existence of that obligation, such failure is capable, depending upon the facts of the case, of constituting inadvertence within the meaning of the statutory provision.  Such ignorance may be the cause of the failure to advert to the statutory requirement.  In this sense, I would respectfully adopt what his Honour says and the authorities upon which he relies.’

Underwood J referred to Hamilton v Property Investments Ltd in which the Full Court of the Supreme Court of Western Australia held there was no inadvertence in the relevant sense because the respondent had intended to do precisely what it did do and the fact that it did not appreciate that it was there by committing an offence did not mean that what was done was due to inadvertence.  The decision of the Full Court, of course, arose in a different statutory setting in which inadvertence was available as a defence to a prosecution arising out of a prohibited acquisition of shares.  Ignorance of the law is generally not available as a defence to a criminal prosecution.  In my opinion it is at least arguable that a failure to advert, through ignorance, to the relevant law and therefore to the relevant time limit, may amount to inadvertence for the purpose of a section conferring a discretion to extend time.  However, whether that approach or the approach of Underwood J is followed, the outcome in this case will be the same.  I am quite satisfied that Mr Fulton’s failure to lodge the charges for registration within time was due to inadvertence constituted by or caused by his ignorance of the law.

24                  The question then is whether the Court should exercise its discretion to grant the extension.

25                  The only argument against the granting of the extension was in respect of the charge over Tec Plus Limited and came from another secured creditor, namely the trustee of the Coney Superannuation Fund of Aus Sailing Ltd.  It appears that the trustee has a similar application in respect of another charge listed for hearing before the Court in another judge’s docket in the next few days.  The trustee, however, was unable to point to any prejudice that it would suffer if the extension of time in relation to the Aus Sailing charge were granted.  It did not oppose the grant of extension of time in relation to the other companies.  In the circumstances I saw no reason to delay the disposition of this matter until the hearing and determination of the trustee’s application.  Any debate about priorities between it and the Bank is not affected by the extension of time sought in this case as that goes to the validity of the charge as against the administrator. 

26                  The principal concern in determining whether or not an extension should be granted is the effect upon unsecured creditors who may have advanced funds or given credit to the relevant companies in reliance on the Register.  This difficulty is overcome by the provision of liberty to any liquidator, administrator or creditor of the respondent companies appointed within six months of the relevant date to apply to discharge or vary the extension orders if a creditor of the respondents has advanced funds or given credit to them in reliance on the Register not disclosing the charges.  The position of persons who may have dealt with the property the subject of the charges between their creation and the extended dates for their registration may be protected by an order that the extension be without prejudice to their rights in consequence of any such dealings.  Such orders were made by Thomas JA in  Re Freightlines Northern Territory Pty Ltd (In Liq)  (1999) 17 ACLC 1629 at 1635.  A similar order was made by Goldberg J in Caterpillar World Trading Corporation v Tiger Engineering Pty Ltd (V3238 of 2003) on 21 October 2003.

27                  It may be that the terms of such orders are wider than necessary in that the period during which a person may unfairly be misled would properly be the period between the expiry of the time limited for registration of the charge and the extended expiry date for its registration.  Nevertheless having regard to the wider orders made previously and the terms in which the minute was submitted to me I made an order in those terms.  That does not of course mean that a person who has dealt with property during the period from the creation of the charge to the time limited by the Act for its notification has rights that would be protected by that order.

28                  It is fair to say that the Bank has apparently acted reasonably promptly in lodging the notices in respect of the charges.  There seems to have been some delay in lodging the application for an extension.  It is probably no coincidence that the application for the extension was lodged on the same day as the appointment of the administrators to Tec Plus Limited.

29                  The extensions granted are not substantial. There is no evidence of prejudice to anyone and the orders provide reasonable protection against unfair prejudice.  On the other hand if the extensions are not granted then the Bank may be deprived of the benefit of its security.  Moneys were advanced by the Bank on the security of the charges.  It gave full value and, as counsel for the Bank submitted, may be deprived of it in the absence of an order thereby conferring a windfall upon unsecured creditors other than those who are properly protected by the orders which I have made.  For these reasons I made the orders sought by the Bank in terms of the amended minute of proposed orders filed in Court.  

Associate:

Dated:              10 December 2003