Primebrokers Securities Ltd (recs & m'gers app'td) (in liq) v Fortis Clearing Sydney Pty Ltd

fsch

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
and
FORTIS CLEARING SYDNEY PTY LTD (ACN 081 279 889)	Defendant

---

JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	5 May 2009 and 10 June 2009
DATE OF JUDGMENT:	28 August 2009
CASE MAY BE CITED AS:	Primebroker Securities Ltd v Fortis Clearing Sydney Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VSC 364

---

Corporations law – borrowed securities – rights of borrower - default powers – construction of documents – applicability of netting provisions – estoppel by convention.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr Sifris SC	Blake Dawson Waldron
For the Defendant	Mr Whitford SC Mr McEvoy	Corrs Chambers Westgarth

---

HIS HONOUR:

Introduction

Until 4 July 2008 the plaintiff, Primebroker Securities Ltd, carried on business as a share trader. The defendant, Fortis Clearing Sydney Pty Ltd, is a specialist broker and third party clearer with membership of the Australian Stock Exchange and the Sydney Futures Exchange. The services offered by Fortis were directed solely to the professional market comprised of market makers, proprietary traders, trading firms, brokers, fund managers and financial institutions. Fortis generates its revenue from transaction fees charged for the provision of services. It did not engage in proprietary trading. That is, trading in securities on its own behalf.

Fortis offered execution, clearing and settlement services in relation to all products listed on the Australian Stock Exchange and the majority of products listed on the Sydney Futures Exchange. These services related to the sale and purchase of securities, including the placement of trades and the delivery or receipt of securities in exchange for money. Fortis offered its clients direct access to the Australian Stock Exchange and the Sydney Futures Exchange so that a client could place trades through Fortis without an intervening broker.

Fortis also offered its clients securities lending services, finance for trading activity and custody services. The custody service offered by Fortis involved the holding of a client’s portfolio in the name of Fortis until the client wished to deal with the portfolio or part of it.

Primebroker entered into a Standard Client Agreement (SCA) with Fortis dated 19 December 2006. Under the SCA Fortis agreed to provide a number of services to Primebroker, including settlement; clearing and custody; a credit facility of $A50m; 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), also dated 19 December 2006.

Fortis advanced funds to Primebroker under a 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 and Fortis held borrowed securities with a market value exceeding the loan amount.…

CaseChat Overview and Summary

Primebrokers Securities Limited, in liquidation, and its receivers and managers, brought an action against Fortis Clearing Sydney Pty Ltd. The dispute revolves around the rights of the parties in relation to borrowed securities, the default powers available to Fortis, and the applicability of netting provisions. The case was heard in the Federal Court of Australia.

The primary legal issues before the court involved the interpretation of the terms and conditions governing the borrowing of securities between the parties. The court was required to determine whether Fortis had the right to exercise default powers under the relevant agreements, including the power to set off or net debts and obligations. Additionally, the court needed to consider whether the actions of the parties had created an estoppel by convention that would prevent Fortis from exercising these rights.

The court found that Fortis had the right to exercise its default powers under the agreements, including the power to net debts and obligations. The court held that the agreements did not prevent Fortis from exercising these rights, and there was no estoppel by convention preventing Fortis from doing so. The court emphasised that the terms of the agreements were clear and that the parties had agreed to the netting provisions. The court also found that the borrowers did not have the right to unilaterally decide to terminate the agreements and return the borrowed securities.

The court's decision resulted in the dismissal of the claims brought by Primebrokers Securities Limited. The court held that Fortis was entitled to exercise its default powers and that there was no estoppel by convention preventing it from doing so. The court found that the agreements were clear and that the parties had agreed to the netting provisions. The final orders of the court reflected these findings, and the claims brought by Primebrokers Securities Limited were dismissed in their entirety.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established