CONTRACT —Australian Master Securities Lending Agreement (‘AMSLA’) – Appellant ‘borrowed’ securities from respondent and lent funds to respondent — Appellant obliged to re-deliver equivalent securities to respondent subject to certain conditions — Respondent defaulted under contracts with appellant —Appellant sold borrowed securities to discharge respondent’s debt and expenses with surplus going to respondent — Securities sold at less than market value — Whether borrowing transaction created security interest or transferred beneficial ownership of securities — Effect of custom clause inserted into AMSLA limiting obligation to re-deliver equivalent securities — Whether AMSLA netting clause operated — Calculation of market value of securities — Appeal dismissed.
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Appearances:
Counsel
Solicitors
For the Appellant
Mr A J Myers QC with Mr P Whitford SC and Dr T J McEvoy
Corrs Chambers Westgarth
For the Respondent
Mr N J O’Bryan SC with Mr H N Austin
Blake Dawson
WARREN CJ:
Table of contents
Table of contents
Introduction
The original contracts between the parties
The amendment deed
Primebroker’s default and the sale of borrowed securities by Fortis
The proceedings at trial
The issues and parties’ positions in relation to the sale of the securities
Fortis is not entitled to deny beneficial ownership of the borrowed securities
Fortis was the beneficial owner of the borrowed securities
Title is governed by the intended legal effect of the transaction
Parties intended Fortis to acquire beneficial title
The netting clause was applicable
Fortis could not choose to deal with securities under other default provisions
It is unnecessary to consider general applicability of other default provisions
Fortis must account to Primebroker for the value of the securities on 7 July 2008
The trial judge did not err in valuing the Octaviar notes
Disposition of the appeal
Introduction
The appellant, formerly known as Fortis Clearing Sydney Pty Ltd (‘Fortis’), is a specialist securities broker. The respondent, Primebroker Securities Ltd (‘Primebroker’), now in liquidation, was a securities trader and a client of Fortis. Fortis ‘borrowed’ certain securities from Primebroker and was required to redeliver ‘equivalent securities’ subject to certain conditions. Primebroker defaulted under its contracts with Fortis. Fortis then sold some of the securities for less than their market value at the time of default and applied the proceeds against Primebroker’s debt to Fortis. The central question in this appeal is whether Fortis is required to account to Primebroker…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
ABN Amro Clearing Sydney Pty Ltd (formerly Fortis Clearing Sydney Pty Ltd) v Primebrokers Securities Limited (recs & mgrs apptd) (in liq) [2012] VSCA 287
Case
[2012] VSCA 287
Decision Date
CaseChat Overview and Summary
ABN Amro Clearing Sydney Pty Ltd (formerly Fortis Clearing Sydney Pty Ltd) appealed against a decision of the Supreme Court of New South Wales in relation to a dispute arising out of a securities lending agreement. The dispute involved the interpretation of the Australian Master Securities Lending Agreement (AMSLA) and the sale of securities by the appellant to discharge a debt owed by the respondent. The appellant argued that the sale of the securities did not breach the agreement, while the respondent claimed that the securities should have been re-delivered to them.
The primary legal issue before the court was whether the borrowing transaction under the AMSLA created a security interest or transferred the beneficial ownership of the securities. Another issue was whether a custom clause in the AMSLA, which limited the obligation to re-deliver equivalent securities, operated to allow the appellant to sell the borrowed securities to discharge the respondent’s debt and expenses. The court also had to determine the effect of a netting clause in the AMSLA, as well as the calculation of the market value of the securities.
The court found that the borrowing transaction under the AMSLA created a security interest in the securities, rather than transferring beneficial ownership. The custom clause in the AMSLA was held to be valid and enforceable, allowing the appellant to sell the borrowed securities to discharge the respondent’s debt and expenses. The netting clause in the AMSLA was also found to be effective, and the court held that the market value of the securities was properly calculated. The appeal was dismissed, and the decision of the Supreme Court of New South Wales was upheld.
The court ordered that the appellant pay the costs of the appeal, which were to be taxed on an indemnity basis if not agreed upon. The court also noted that the respondent was entitled to recover its costs of the proceeding in the Supreme Court of New South Wales from the appellant, subject to any agreement between the parties or order of the court.