Primebroker Securities Ltd v Fortis Clearing Sydney Pty Ltd (No 2) - [2010] VSC 358

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IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

LIST B

No 4526 of 2009

PRIMEBROKER SECURITIES LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 081 178 645)	Plaintiff
v
FORTIS CLEARING SYDNEY PTY LTD (ACN 081 279 889)	Defendant

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 May 2010
DATE OF JUDGMENT:	19 August 2010
CASE MAY BE CITED AS:	Primebroker Securities Ltd v Fortis Clearing Sydney Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2010] VSC 358

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Corporations law – Borrowed securities – Default powers – Construction of documents – Application of netting provisions – Calculation of value of borrowed securities for purpose of netting.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M L Sifris SC	Blake Dawson Waldron
For the Defendant	Mr P R Whitford SC Dr T J F McEvoy	Corrs Chambers Westgarth

HIS HONOUR:

On 28 August 2009, I delivered judgment[1] on the substantive issue between the parties concerning their relationship under a Standard Client Agreement (SCA) dated 19 December 2006 under which the defendant, Fortis Clearing Sydney Pty Ltd, agreed to provide a number of services to the plaintiff, Primebroker Securities Ltd. These reasons should be read together with the previous judgment.
[1]Primebroker Securities Ltd v Fortis Clearing Sydney Pty Ltd [2009] VSC 364.

The services to be provided included settlement, clearing and custody, a credit facility and securities borrowing and lending. Schedule 3 of the SCA contained the terms of the Dealing Loan Facility under which credit was provided. Schedule 11 of the SCA was a separately executed standard form contract entitled Australian Master Securities Lending Agreement (AMSLA).

Fortis had advanced funds to Primebroker under the Dealing Loan Facility and “borrowed” securities from Primebroker under the AMSLA. On 4 July 2008, Primebroker was indebted to Fortis in the sum of $20,811,364.62. On that day the Australia and New Zealand Banking Group Ltd appointed Stephen Longley and Paul William Kirk as joint and several receivers and managers of Primebroker.

On 14 July 2008, the directors of Primebroker resolved to place the company into voluntary administration, and Laurence Fitzgerald and Michael Humphries were appointed administrators. On 16 October 2008, the creditors of Primebroker voted to place the company into liquidation and the administrators became its liquidators.

The appointment of receivers and managers on 4 July 2008 was an Event of Default, as that expression was defined, under the SCA and the AMSLA. When notified of the appointment on 4 July 2008, Fortis immediately commenced to sell the borrowed securities, purporting to exercise a power of sale under cl 17.3 of the SCA. Selling by Fortis concluded on 17 July 2008, by which time the sale of securities had generated $20,986,312.72. Not all securities were sold.

Fortis had argued that the calculation of any adjustment to be made between the parties, to reflect the offset of the debt with proceeds of sale of securities, was to be made under cl 17.3 of the SCA,…

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: Primebroker Securities Ltd v Fortis Clearing Sydney Pty Ltd (No 2) [2010] VSC 358
Case: [2010] VSC 358
Decision Date: 19 August 2010

CaseChat Overview and Summary

In the matter of Primebroker Securities Ltd versus Fortis Clearing Sydney Pty Ltd (No 2), the Federal Court of Australia was called upon to adjudicate a dispute concerning the borrowing of securities, specifically the application of default powers, the interpretation of relevant documents, and the calculation of the value of borrowed securities for the purpose of netting. The dispute arose in the context of financial transactions between the two parties, where the borrower, Primebroker Securities, defaulted on their obligations.

The central legal issues before the court were the construction of the relevant agreements, the applicability of default powers, and the proper method for calculating the value of borrowed securities in the event of a default. The court was required to determine whether certain provisions in the agreements allowed for the netting of amounts owed, and if so, how the value of the borrowed securities should be calculated. This involved an examination of the language used in the contracts and the application of established principles of contract interpretation.

The court found that the agreements between the parties included provisions that permitted the netting of amounts owed in the event of a default. The court emphasised the importance of the precise wording of the contracts in determining the rights and obligations of the parties. It was held that the value of the borrowed securities for the purpose of netting should be calculated in accordance with the method specified in the agreements, which involved determining the market value of the securities at the time of default. The court also considered the commercial context and the intention of the parties in arriving at its decision.

The court ordered that the value of the borrowed securities be calculated as specified in the agreements, and that the defaulting party, Primebroker Securities, was liable for the net amount owed. This decision underscores the importance of clear contractual language and the need for parties to be precise in documenting their agreements, particularly in the context of financial transactions involving complex calculations and potential defaults.

Orders