13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd

• Re Magarey Farlam Lawyers Trust Accounts [2007] SASC 307; (2007) 90 SASR 40 - Re Parbery & Ors (as liquidators of Trio Capital Ltd (in liq)) [2012] NSWSC 597; (2012) 88 ACSR 700 - Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 - Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171 - Trio Capital Ltd (admin apptd) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425 Category: Costs Parties: 411117 of 2011 Christopher Robert Campbell, Vaughan Neil Strawbridge and David John Frank Lombe in their capacity as liquidators of MF Global Australia Limited (in liquidation) (First Plaintiff) MF Global Australia Limited (in liquidation) (Second Plaintiff)

RMF Management Services Pty Limited (First Defendant) Practical Human Resource Solutions Pty Limited (Fifth Defendant) Deutsche Bank AG (Eighth Defendant)

102788 of 2012 Christopher Robert Campbell, Vaughan Neil Strawbridge and David John Frank Lombe in their capacity as liquidators of MF Global Australia Limited (in liquidation) (First Plaintiff) MF Global Australia Limited (in liquidation) (Second Plaintiff)

MF Global Singapore Pte Limited (in voluntary liquidation) (First Defendant) RMF Management Services Pty Limited (Second Defendant) Representation: Counsel: 411117 of 2011 R. Foreman (First Plaintiff) R. Foreman (Second Plaintiff)

D. Hogan-Doran/T. Glover (First Defendant) C. R. Newlinds SC/D. R. Sulan (Fifth Defendant) D. Healey (Eighth Defendant)

102788 of 2012 F. Gleeson SC/ R. Foreman (First Plaintiff) F. Gleeson SC/ R. Foreman (Second Plaintiff)

J. White (First Defendant) D. Hogan-Doran/T. Glover (Second Defendant) Solicitors: 411117 of 2011 Ashurst (First Plaintiff) Ashurst (Second Plaintiff)

Arnold Bloch Leibler (First Defendant) Gilbert & Tobin (Second Defendant) Gillis Delaney (Fifth Defendant) King & Wood Mallesons (Eighth Defendant)

102788 of 2012 Ashurst (First Plaintiff) Ashurst (Second Plaintiff)

Kemp Strang (First Defendant) Arnold Bloch Leibler (Second Defendant) File Number(s): 11/411117 and 12/102788

Judgment 1I delivered judgment in these proceedings ("Main Proceedings") on 29 August 2012 ("Judgment") dealing with some thirteen issues which had arisen in respect of the liquidation of MF Global Australia Limited (in liquidation) ("MFGA") and, specifically, the distribution of monies held by the liquidators of MFGA ("Liquidators") in client segregated accounts ("CSAs") relating to futures trading and trading in contracts for differences ("CFDs") by MFGA on clients' behalf. 2Two issues were, by agreement of the parties, deferred to determination following my judgment, namely issues as to:

• whether the remuneration of and expenses incurred by the Liquidators in respect of their administration of MFGA relating to the CSAs and MFGA's costs during the liquidation and administration in connection with administering property it holds as trustee, including the CSAs, should be paid solely out of MFGA's assets held beneficially ("House Funds"), or should some part of the Liquidators' remuneration and expenses be paid out of the CSAs and recoveries from claims against counterparties ("Recoveries"); and
• whether the Liquidators' costs and expenses in relation to these proceedings should be paid solely out of House Funds or whether some part of those costs and expenses should be paid out of the CSAs and the Recoveries. Those issues, and several specific matters associated with them, were the subject of further oral submissions on 10 October 2012 and subsequent written submissions. 3RMF Management Services Pty Limited ("RMF") was appointed to represent all clients of MGFA in relation to the appropriate source of payment of the Liquidators' remuneration, costs and expenses. Practical Human Resource Solutions Pty Limited ("PHRS"), which appeared as the representative of unsecured creditors, represented the interests of unsecured creditors on the application. Graincorp Operations Limited ("Graincorp") made written but not oral submissions with the agreement of all parties. Several other parties that had properly (in order to minimise costs) not appeared at the hearing on 10 October advanced subsequent written submissions in respect of issues arising at that hearing. 4The Plaintiffs relied on an affidavit of Christopher Campbell sworn 25 September 2012 ("Main Costs Affidavit") that exhibited a report ("Costs Report") providing information as to MFGA's forecast cash position on finalisation of the liquidation and the effect of different costs orders and directions in respect of that position. The Main Costs Affidavit and Costs Report indicated that, on the basis of specified assumptions including that the Plaintiffs' legal costs and the Liquidators' remuneration, costs and expenses of recovering, realising and preserving Recoveries were paid out of House Funds rather than CSAs and Recoveries, there would be a likely shortfall of approximately $1.346m in finalising the liquidation. The Plaintiffs also relied on a further affidavit of Mr Campbell sworn 9 October 2012 ("Further Campbell Costs Affidavit"). The Further Campbell Costs Affidavit indicated that, if the Court accepted all of the principal submissions made by RMF, the shortfall in the funding of the liquidation could arise as soon as the end of October 2012 and the Liquidators would not then be in a position to pursue further Recoveries, complete the process for proof of client claims or distribute client funds. 5The Liquidators noted that the forecast shortfall would be avoided if the Plaintiffs' costs of the proceedings and/or the legal costs of recovering, realising and preserving Recoveries were not paid out of House Funds. The Liquidators adopted a neutral approach in respect of these issues, except in relation to the situation were there would be a shortfall in funds available to meet their remuneration, costs and expenses. The Liquidators also sought a direction that they would be justified in paying their remuneration, costs and expenses (including legal costs) in recovering, realising and preserving Recoveries out of the CSAs and Recoveries of the Product Line to which the relevant Recovery would be paid if obtained. Issue A - Plaintiffs' costs of the proceedings (Issue 15 in the Main Proceedings) 6I first address the question of the source that should bear the costs of the proceedings. The Liquidators contend, and I accept that: "The proceedings were necessary to determine the manner in which client funds in the CSAs and the Recoveries should be distributed. The nature of the proceedings is squarely within the type of case in which costs are paid out of the trust fund." The Liquidators submitted that a principled outcome would be for the Plaintiffs' costs of the proceedings to be paid from CSAs and Recoveries. PHRS submitted that such costs should be paid from the CSAs or otherwise minimally and proportionately from the House Funds. RMF submits that the Plaintiffs' costs of the proceedings should be paid from House Funds or, if that submission was not accepted, from the Product Pools to which I referred in the Judgment according to the value of estimated client claims as at 31 October 2011. 7The Court has power to make orders in respect of the costs of the proceedings under s 98 of the Civil Procedure Act 2005 (NSW), s 93 of the Trustee Act 1925 (NSW), s 1335 of the Corporations Act 2001 (Cth) and Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 42. In particular, the Court has power to award costs where a trustee has sought the opinion, advice and direction of the Court under s 63 of the Trustee Act. Section 1335(2) of the Corporations Act provides that the costs of any proceedings before a Court under the Act are to be borne by such party to the proceeding as the Court, in its discretion, directs. That general costs power is applicable to proceedings in a liquidator's application for directions: Re Magarey Farlam Lawyers Trust Accounts [2007] SASC 307 at [50]; (2007) 90 SASR 40. 8The usual rule is that a person who is party to proceedings in the capacity of trustee is entitled to be paid his or her costs in the proceedings, so far as they are not paid by any other person, out of the funds held by the trustee: UCPR r 42.25; Re Buckton; Buckton v Buckton [1907] 2 Ch 406; Milillo v Konnecke [2009] NSWCA 109 at [130]. In my view, the commencement of the Main Proceedings was necessary to determine the manner in which client funds in the CSAs and Recoveries should be distributed. The Liquidators submit, and I accept, that the underlying character of the proceedings was that of trust proceedings, notwithstanding that directions were sought under ss 479(3) and 511 of the Corporations Act. In the present case, it seems to me that the conduct of the proceedings was an essential step in the distribution of trust assets to the persons beneficially entitled to them, and that supports a characterisation of the legal and other costs incurred by the Liquidators in respect of the proceedings as properly relating to the distribution of such assets. The Liquidators submit, and I accept, that the issues arising in the Main Proceedings were complex and novel: compare Re Global Finance Group Pty Ltd (in liq); Ex parte Read [2002] WASC 63; (2002) 26 WAR 385 at [303]. In these circumstances, it is in accordance with principle and the authorities that the Liquidators' costs of the proceedings should be paid from the CSAs and Recoveries. 9RMF contends that general law trust principles do not apply, referring to the observations in my Judgment as to the special character of the trust established under Pt 7.8 Div 2 Subdiv A of the Corporations Act and the Corporations Regulations 2001 (Cth). I do not accept that submission; while the trust created under those provisions is a statutory trust, the proceedings in respect of it were brought as trust proceedings and it seems to me that the ordinary principles in respect of the costs of such proceedings are applicable. 10RMF also repeats submissions made by other client representative defendants at the hearing that the legal costs and expenses in the proceedings are costs that have arisen in the winding up of MFGA and the difficult issues that have emerged result from the manner in which MFGA conducted its business. RMF submits that the relief sought was in substance for the benefit of the Liquidators, or MFGA as trustee, rather than the client beneficiaries and that the proceedings are not properly characterised as one that in substance involved determining who should receive priority to trust funds. While the manner in which MFGA conducted its business was the source of the factual issues which arose in the proceedings, the relevant statutory regime is complex and its application involved novel legal issues, and the dealings with counterparties which gave rise to issues of some complexity and MFGA's dealings with counterparties, for the purpose of hedging positions, were permitted by the Corporations Act and contractual documents and disclosed by its product disclosure statements. I consider that the proceedings were directed, in substance, to the determination of the entitlements of clients claiming against the relevant CSAs and Recoveries. 11The Liquidators point out that, to the extent that there is a question as to the manner in which CSAs and Recoveries should bear legal costs, the maxim that equality is equity can provide a basis for apportionment where a trustee could not otherwise, with accuracy, apportion the expenses of administration between various trusts, and such an apportionment may take place on a pro rata basis: Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 at 109; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377; Trio Capital Ltd (admin apptd) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425 at [34]. The Costs Report models a pro rata allocation based on value of client claims as at 31 October 2011 or alternatively value of CSAs and Recoveries to 27 July 2012. 12In my view, such costs should be paid, as RMF contends, from the Product Pools pro rata to the value of estimated client claims as at 31 October 2011. The course is consistent with the direction given in the Judgment that the Liquidators would be justified in determining entitlements on a contractual basis as at the Appointment Date, by reference to gross liquidation value calculated under the client agreements on the basis of 31 October 2011 mark-to-market prices. The alternative approach of an allocation by reference to the value of the CSAs and Recoveries as at 27 July 2012 has the difficulty that that date would represent an interim position that may change if further Recoveries are obtained. Issue B - Client representatives' costs of the proceedings Whether client representatives' costs should be paid from the House Funds 13Orders previously made by the Court provided that the legal expenses reasonably incurred by each client representative defendant were to be paid out of, or recouped from, the CSAs (other than certain bank accounts maintained by MFGA in Singapore ("Singapore-based accounts")) and Recoveries (to the extent they had been received) on a pro-rata basis having regard to the balance of the CSAs and the quantum of the Recoveries (to the extent they had been received) on the date of the payment or the date of recoupment (as appropriate), on an indemnity basis as agreed or as assessed; and that the Liquidators were justified in paying the legal expenses reasonably incurred by each client representative defendant first out of MFGA's general funds, and then recouping those amounts from the CSAs (other than Singapore-based accounts) and Recoveries. Those orders were made without admissions and without prejudice to the ability of any party to submit, at the completion of these proceedings, that the legal expenses reasonably incurred by client representative defendants should be paid or recouped from House Funds (to the extent that the general funds exceeded the amount required to meet the Liquidators' unpaid remuneration, costs and expenses, including the amount reasonably required to enable the Liquidators to finalise the liquidation of MFGA) or should be paid or recouped from particular CSAs or Recoveries. 14The Liquidators and RMF contend, and MF Global Singapore Pte Limited (in voluntary liquidation) ("MFGS") accepts, that the Singapore-based accounts should now bear a share of the costs of the proceedings. That is the necessary consequence of the finding in the Judgment that there should be pooling between the CFD CSAs and the Singapore-based accounts. 15RMF's initial submission was that the existing costs order should be vacated and the cost of representative defendants (other than PHRS) should be treated as costs in the liquidation and be recouped from House Funds. This submission was initially put on the basis that, inter alia, the proceedings resulted from the manner in which MFGA conducted its business so MFGA, through the House Funds, should bear the costs of them. I would not have accepted that submission, for the reasons noted above in respect of the Plaintiffs' costs of the proceedings. PHRS contended that such costs should be paid from CSAs. The Liquidators submit, and I accept, that the orders already made by the Court have the consequence that a reallocation of costs of the proceedings from CSAs and Recoveries to House Funds could only occur to the extent that House Funds exceed the amount reasonably required to enable the Liquidators to finalise the liquidation of MFGA. The extent of such a reallocation is therefore constrained by the Liquidators' evidence as to the likely shortfall on finalisation of the liquidation if a full reallocation of costs and expenses took place. 16RMF qualified its initial position in oral submissions before me on 10 October 2012, and in subsequent written submissions, following the service of the Further Campbell Costs Affidavit that indicated that the position for which RMF initially contended would result in an inevitable shortfall in the funding of the liquidation, which was likely to result in a position that the Liquidator was unable to fund the pursuit of Recoveries, and would either need to pay the relevant monies into Court under s 95 of the Trustee Act (although that course could not be taken in respect of future Recoveries) or to seek the appointment of a receiver under the Supreme Court Act 1970 (NSW) who could pursue the Recoveries, presumably with funding from the CSAs and Recoveries. RMF accepted in oral submissions that an outcome where the Liquidator was not funded to pursue Recoveries would not be in the interests of the clients that it represented. The position adopted by RMF in its supplementary submission, following service of the Further Campbell Costs Affidavit, was that it was appropriate that the costs of client representative defendants be paid from the CSAs and Recoveries in accordance with orders previously made by the Court. Reallocation of client representatives' costs against Product Pools 17As I noted above, under orders previously made by the Court, legal costs of representative defendants were initially paid out of the House Funds and legal costs of client representative defendants (as distinct from PHRS, which was representing the interests of unsecured creditors in the proceedings) were recouped from the CSAs and Recoveries pro rata. Mr Campbell's evidence is that the amounts recouped from the CSAs and Recoveries and repaid to MFGA's House Funds were $525,000 in respect of the CFD Product Pool; $1,292,000 in respect of the Futures Product Pool; $43,000 in respect of the On-Line FX Product Pool and $106,000 in respect of the Margin FX Product Pool. 18RMF initially contended that it would be open to the Court to order that each Product Pool (as defined in the Judgment) bear its own costs. RMF initially submitted that the pro-rata allocation of all client representative defendants' legal costs across the Product Pools involved a degree of inequity, in that clients entitled to be paid from some Product Pools will bear more in respect of legal costs than their representatives incurred on their behalf in the proceedings. RMF noted that, in particular, the Futures Pool and, to a lesser extent, the CFD Pool would bear a greater share of costs than had been incurred by representative parties for those pools if the current orders remain in place. 19Graincorp also contended for a reallocation of costs incurred by the representative defendants so that the actual costs borne by the representative defendant in respect of a Product Pool are allocated to that Product Pool. Graincorp contended that the effect of the costs of represented parties being paid on a pro-rata basis across the Product Pools was that Graincorp, which had a substantial claim against the Futures Product Pool, would bear a larger share of the legal costs incurred by client representative defendants, with the Futures Pool bearing in the order of 67% of total legal costs incurred by client representatives; the CFD Pool bearing 27%; and the On-Line and FX Product Pools bearing 2% and 5% of the total legal costs respectively. Graincorp characterised that as amounting to its bearing a "disproportionate" share of the costs of the proceedings, although that share was in fact proportionate to the size of the Product Pool against which the charge was to be made. In further supplementary submissions, Graincorp submits, and I accept, that parties were on notice of the possibility of such a reallocation from 2 April 2012, when provision was included reserving the right to submit for a reallocation of legal expenses to a particular CSA or Recoveries. 20RMF then recognised that there was (initially) no contradictor to the position advanced by it and Graincorp and therefore advanced submissions in contradiction to the position that it had originally advanced and Graincorp had adopted. RMF pointed out that there was commonality and joint effort between the client representatives in submissions which they made as to the proper construction of the Corporations Act and in respect of the directions which should be given to the Liquidators as to issues such as pooling, currency conversion and dealing with Recoveries. RMF pointed out that it would be open to the Court to consider that the submissions made by representatives of Margin FX clients and On-line FX clients were to the benefit of Futures clients of which Graincorp is one. In its supplementary submissions, RMF did not press its original costs submissions in respect of any change to client representative defendants' costs orders, other than in respect of the contention that any costs of MFGS should be paid out of House Funds, which I will address below. 21The GFL Group Pty Limited, which represented the interests of margin foreign exchange ("Margin FX") account clients' made a further submission after oral submissions and contended that the Liquidators would be entitled and justified in adopting a pro-rata allocation of legal costs across the CSAs and Recoveries, and contended that such an approach was fair and equitable where there was a common interest for MFGA clients across all product pools deriving the benefits of submissions made by each of the representative parties appointed by the Court for the purpose of the proceedings. Underdog Clothing Pty Limited ("Underdog") which represented the interests of On-line FX clients, also submitted that costs should be borne on a pro-rata basis since the representation of individual client groups was necessary for the proper conduct of the proceedings and the proper conduct of the liquidation; many of the issues on which submissions were made by On-line FX client representatives were common to all client groups; and the proceedings were conducted by client groups on the basis of orders (albeit those orders were capable of future modification) that costs would be allocated on a pro-rata basis. 22RMF also initially submitted that the costs of the Sixth Defendant, Jilliby Pty Limited ("Jilliby") (which represented the interests of "cash only clients") and its contradictors' costs be recouped from the Product Pools in proportion to the interests represented. RMF raised the possibility that it may be appropriate for Jilliby's legal costs to be apportioned across the four Product Pools on the basis of "cash only" and "free equity" client claims as at 31 October 2011 in each of those pools. Graincorp contended that the costs of Jilliby relating to the dispute as to priorities involving "cash only" or "free equity" clients should be apportioned according to the nature of the clients' positions but contested RMF's contention that RMF was a proper contradictor in that regard and that RMF's costs should be similarly treated. RMF responded that it was appointed on behalf of all clients who did not hold a cash only position or assert a free equity position in priority to other clients and that the submissions which it made in respect of that issue were in respect of all clients not represented by Jilliby. 23I am not satisfied that there should be a reallocation of costs to Product Pools at this point. The overlap of issues between the various client classes was such that representative parties generally provided submissions that were helpful to the resolution of all issues before the Court at the hearing before me. For example, Underdog (although representing the interests of On-line FX account clients) made helpful submissions in respect of the nature of client entitlements that were ultimately of considerable assistance to the interests of CFD clients. The parties were properly conscious of avoiding duplication at the hearing before me so some representative parties will not have incurred costs in addressing issues that other parties had addressed. It seems to me that, while each client representative was acting in its own interests and that of the class it represents, the extent of overlap between the issues to be addressed by the client representatives is such that some classes of client will unfairly benefit, and others would unfairly suffer, if there is now a reallocation of the costs incurred to the particular Product Pools. In particular, a party which devoted greater efforts to advancing a submission which benefited all clients would be disadvantaged by such a reallocation, against a party which did not incur the costs of preparing or advancing such submissions, in the knowledge that the first party would do so. It seems to me that a re-allocation of costs to Product Pools at this point has the potential to create cross-subsidies and inequities where one representative party has incurred costs in making submissions for the benefit of all. 24I therefore will not direct a re-allocation of such costs of client representatives generally, which should continue to be borne in accordance with the orders previously made by the Court. The narrower issue as to how the costs of Jilliby and its contradictors should be treated in such a re-allocation does not arise. PHRS' costs of the proceedings 25PHRS contends that the costs of representative defendants should be revisited to the extent that an order was previously made that PHRS' costs, as representative of the unsecured creditors, be paid from the House Funds and that PHRS' costs should, as with other representatives' costs be paid from the CSAs and Recoveries rather than the House Funds. 26RMF contended that these costs should be paid from House Funds. RMF contested PHRS' submission that its costs were incurred as contradictor on matters that concerned the administration and distribution of the trust assets among beneficiaries. RMF pointed out that PHRS was unsuccessful in respect of the position which it advanced in respect of Futures Recoveries and OTC Recoveries and was unsuccessful in asserting a priority by reason of a right of subrogation to MFGA's asserted right of indemnity as trustee of the statutory trust (Judgment [146]-[151]), as to futures recoveries (Judgment [181]) and as to OTC Recoveries (Judgment [239]). RMF contends that PHRS' costs should be borne by those whose interests it represents. 27I have noted above that I consider these proceedings are properly characterised as in the nature of an application by the Liquidators in respect of an administration of a trust. Where a trustee reasonably seeks advice from the Court as to the proper administration of a trust, the usual position is that all parties properly joined should have their appropriate costs out of the fund: Re Buckton; Buckton v Buckton above; Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 671 per Sheller JA, with whom Kirby P and Meagher JA agreed. PHRS submits, and I accept, that its costs were incurred as a contradictor on matters that concerned the administration and distribution of the trust assets among beneficiaries. It was necessary that a representative of the unsecured creditors be party to the proceedings and PHRS advanced submissions that were consistent with the interests of unsecured creditors, although those submissions were unsuccessful in several respects. 28In my view, it is appropriate that PHRS' costs be paid in the same manner as the client representatives. I have held above that those costs are to be borne by the CSAs and Recoveries rather than from the House Funds. Issue C - Costs of the MFGS Proceedings 29Separate proceedings ("MFGS Proceedings") were brought by the Liquidators in which MFGS was named as defendant. Mr Campbell's second affidavit sworn 25 September 2012 dealt with the circumstances of the MFGS Proceedings and the treatment of costs in those proceedings. The primary issue in the MFGS Proceedings was whether the Singapore-based accounts should be pooled with CSAs for CFD clients maintained by MFGA in Australia. I directed the Liquidators that they may properly proceed on the basis that the Singapore-based accounts and the Australian-based CFD CSAs may be pooled and also made a declaration to similar effect. 30The MFGS Proceedings were commenced in circumstances that the Court had made orders in respect of the manner in which the costs of the Main Proceedings should be borne on 17 March 2012 and MFGS did not consent to costs of client representative defendants to the Main Proceedings being borne by the Singapore-based accounts. Hammerschlag J granted leave to the Plaintiffs to bring separate proceedings against MFGS, which were filed on 2 April 2012, and ordered that MFGS be excluded from the representative orders in the Main Proceedings. It appears from the transcript of a directions hearing before Hammerschlag J on 19 March 2012 that the risk of adverse costs consequences for MFGS was identified; however, it does not follow from the identification of that risk that it should necessarily come home. 31The Liquidators, RMF and PHRS contend that MFGS should pay (or repay) to MFGA and/or the CSAs the Liquidators' and RMF's costs of the MFGS Proceedings. The Liquidators submit that, having regard to the outcome of the MFGS Proceedings, MFGS should pay (or repay) to MFGA and/or the CSAs and Recoveries (as appropriate), the Plaintiffs' and RMF's costs of the MFGS Proceedings and otherwise bear its own costs. The Liquidators rely on the fact that MFGS was offered the opportunity to avoid separate proceedings by consenting to the Singapore-based accounts being incorporated into the costs regime and becoming a party to the Main Proceedings and declined that offer. The Liquidators contend that MFGS' claim was adverse to the interests of other clients and it was unsuccessful in that claim and that costs should follow the event. 32RMF supports the Liquidators' submission that MFGS should pay (or repay) to MFGA and/or the CSAs and Recoveries (as appropriate) the Plaintiffs' and RMF's costs of the MFGS Proceedings. RMF contends that MFGS adopted an adversarial stance, in that it contended for the creation of an express trust over the Singapore-based accounts, and notes that RMF disputed that contention and submitted that the Singapore-based accounts should be pooled with the Australian-based CFD CSAs. RMF notes that MFGS was unsuccessful in the argument that the Singapore-based accounts were held in trust for MFGS (Judgment [86]-[88]). RMF submits that costs should follow the event in that regard. RMF contended that the dispute between MFGS and RMF was not analogous to a trust claim; was adversarial in both form and substance; its outcome was reflected in the making of a declaratory order; and that declaration was inconsistent with the proprietary claim to the Singapore-based accounts that MFGS advanced. PHRS points out that MFGS chose not to become party to the representative proceedings and confirmed in correspondence between the solicitors that it wished to be party to separate proceedings. 33MFGS contended that the costs of all parties in the MFGS Proceedings should be paid of the House Funds. 34In Re Buckton; Buckton v Buckton above at 414-416, Kekewich J noted that, in cases where trustees ask to have a question determined which has arisen in the administration of the trust, the costs of all parties would be treated as necessarily incurred for the benefit of the estate and would be paid out of the estate. His Honour then noted that: "There is a second class of case differing in form, but not in substance, from the first. In these cases it is admitted on all hands, where it is apparent from the proceedings, that although the application is made, not by trustee (who are respondents) but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole." His Honour then distinguished a third class of cases differing in form and substance than the first, and in substance from the second, where the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and seeks to have determined a question which would otherwise have been the subject of contested proceedings. His Honour noted that, when determining rights between adverse litigants, the unsuccessful party would typically be ordered to pay the costs. In Re Buckton, the beneficiary's action, although in form adverse litigation, was held to amount in substance to an amicable procedure for determining a question which was required to be decided for the benefit of all concerned, including the trustees, and the beneficiaries' costs were ordered to be paid out of the estate on a solicitor-client basis. 35In Farrow Finance Co Ltd (in liq) v ANZ Executors and Trustee Co Ltd (1997) 23 ACSR 521 at 526-527, Hansen J expressed a view that costs should generally follow the event, where an application was necessary only as a result of the position taken by a particular creditor or group of creditors acting only in their own interests. That proposition might support an order for costs against MFGS in respect of the Singapore proceedings. On the other hand, his Honour noted that the starting point is that the costs of all necessary parties are to be paid by the liquidator and treated as costs in the liquidation, where the issue involved is complex or involves a relatively novel position in law. His Honour there allowed costs on the basis that each of the relevant parties had competing interests and was a proper contradictor in the application. The reasoning of Hansen J in Farrow Finance was followed in Re Ansett Australia Ltd (admins apptd) (2002) 41 ACSR 598. Several cases indicate that the fact that proceedings involve claims for declaratory relief will not necessarily prevent their characterisation as, in substance, akin to a trustee's application for directions, and the fact that parties are necessary parties and the factual and legal complexity of the proceedings will support an order that such parties' costs be paid: Farrow Finance at 27; Gothard & Anor (as recs and mgrs of AFG Pty Ltd (in liq)) v Davey (No 2) [2011] FCA 59; (2011) 277 ALR 172 at [18], [56]-[57]; Australian Securities and Investments Commission v Letten (No 14) [2011] FCA 1174 at [3]; Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420; (2011) 87 ACSR 155 at [82]. In BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; (2011) 285 ALR 532; 86 ACSR 507, Campbell JA (with whom McColl JA agreed) referred to Re Buckton; Buckton v Buckton above and other authorities and questioned the adequacy of the analysis of the issue in Farrow Finance; observed that very commonly costs are paid from the fund for non-adversarial proceedings, and by the loser for adversarial proceedings; and held that the proceedings in that case were in substance adversarial litigation and that costs should follow the event. 36In my view, the question which arose for determination by the Court was ultimately a question of how the Australian-based CFD CSAs and the Singapore-based accounts should be treated. MFGS's reliance on a trust in respect of the Singapore-based accounts was one of several arguments advanced to the contrary of a pooling of those accounts. There were a number of matters referred to in the CSA Report, to which reference was made in the Judgment, indicating at least the possibility that the Singapore-based accounts should not be pooled with the Australian-based accounts, including that the Singapore-based Accounts were titled "trust accounts", which can be an indication that a trust is intended, and that it would also be possible to identify the source of the funds in the majority of the Singapore accounts as originating from MFGS. It seems to me that the treatment of the Singapore accounts was a matter that necessarily needed to be determined for the proper administration of the relevant statutory trusts. There was a sufficient indication of the possibility that those accounts were in fact held on trust for MFGS that the Liquidators could not properly have proceeded to pool those accounts with the Australian CSAs without obtaining a direction or declaration from the Court permitting that course, and MFGS was a necessary party to that application. 37I also do not think the MFGS Proceedings can properly be characterised as adversarial in substance. The liquidators took a neutral stance in respect of the MFGS Proceedings. PHRS submits that the adversaries in the proceedings were MFGS and RMF; however, RMF was in fact a client representative, adopting the contrary position to MFGS to assist in resolving the issue as to the proper treatment of the relevant accounts, albeit that position was also in RMF's commercial interest. While MFGS was interested in advancing the position that it advanced for its commercial benefit (or, more precisely, for the benefit of its clients), its position in that regard was no different from that of other representative defendants who equally advanced positions that were in their respective commercial interests. 38I also do not consider that the matters relating to the commencement of the MFGS Proceedings or their conduct as separate proceedings alter the result in respect of costs from the position that would have prevailed had MFGS be joined as a necessary party to the Main Proceedings. The MFGS Proceedings were conducted efficiently before me and it is unlikely that the existence of the separate proceedings would have materially increased the total costs of resolving the issues by comparison with the position if those issues had been raised in the Main Proceedings. In my view, the costs of MFGS in the MFGS Proceedings should therefore be properly treated in the same manner as the costs of client representatives in the Main Proceedings. 39RMF contends that, if a costs order is made in favour of MFGS, the appropriate source of payment is the House Funds or alternatively apportionment across the CSAs and the House Funds. The Liquidators submit that, if client representative costs are to be paid out of CSAs and Recoveries, and MFGS is to receive a costs order in its favour, then that costs order should be paid out of CSAs and Recoveries consistent with the position of client representatives. As the Liquidators point out, that approach is the necessary consequence of a finding that the proceedings in respect of MFGS are not properly treated as adversarial proceedings and there is nothing that disentitles it to a costs order. In my view, the costs of MFGS are properly paid from the relevant CSAs and Recoveries because it was a necessary party to the issues to be determined in relation to those CSAs and Recoveries. 40I therefore consider that MFGS should be entitled to its costs of the MFGS Proceedings and should not be ordered to pay the costs of the other parties to those proceedings, which should each be paid from the CSAs and Recoveries. I have considered whether the costs in relation to the proceedings involving MFGS should be allocated only to the CFD Product Pool, on the basis that the issues as between MFGS and MFGA related to the treatment of accounts holding proceeds of dealings in CFDs. I have ultimately concluded I should not make such an order, given the degree of overlap in the issues as a whole in the proceedings to which I have referred above. Issue D - Deutsche Bank's costs of the Main Proceedings 41The Eighth Defendant, Deutsche Bank AG ("Deutsche Bank") was not a representative party in the Main Proceedings but traded in futures with MFGA and was a counterparty to MFGA in CFD trading and was joined as party to the Main Proceedings in its own right. The Liquidators took no position in respect of the costs of Deutsche Bank of the Main Proceedings. 42RMF contends that Deutsche Bank should bear its own costs and should be ordered to pay the Plaintiffs' and RMF's costs in respect of the issues relating to OTC Recoveries, as agreed or as assessed. RMF submits that Deutsche Bank acted to protect and advance its own interests and not in the interests of a group of MFGA's counterparties or clients. PHRS also contends that Deutsche Bank should bear its own costs or, in the alternative, its costs should be borne by the CSAs rather than the House Funds. PHRS submits that it had already been appointed to prosecute arguments that the Recoveries were not held on trust and that Deutsche Bank sought to join the proceedings to protect its own position and preserve an argument at a later time as to set-off and should bear its own costs of the proceedings. Deutsche Bank contends that its costs should be paid from either the CSAs or the House Funds. 43There was a degree of dispute between RMF and Deutsche Bank as to whether it was drawn into the proceedings over its objection, having sought to avoid involvement in the proceedings. I should observe that I can see nothing unreasonable in the position that Deutsche Bank adopted before Hammerschlag J that either it should not be bound by any determination in the Main Proceedings as to questions of set-off, or alternatively it should be joined to them so that it had an opportunity to be heard in respect of findings by which it would potentially be bound. The logic of that position is reinforced, with hindsight, by the fact that client representatives sought to contend that MFGA was acting in breach of trust in dealings with Deutsche Bank, in circumstances that the Liquidators were taking a neutral position, and no other party to the proceedings had a direct interest in contradicting that submission. As Deutsche Bank points out, its joinder to the Main Proceedings by Hammerschlag J achieved the desirable result of avoiding the risk of inconsistent findings as to the existence of any trust over OTC Recoveries in the Main Proceedings and in any further proceedings between the Liquidators and Deutsche Bank in which that issue was raised. 44As I noted above, as the Main Proceedings developed before me, several client representatives contended that the application of funds held in CSAs to payment of costs associated with hedge positions by MFGA was in breach of trust, and that the proceeds of those positions were held on constructive trust for them. I ultimately did not accept that contention. If Deutsche Bank had not been party to the proceedings, then it is very likely that it would have been necessary to join it or another party in a similar interest, so as to ensure that there was a proper contradictor to the submission that the client representatives wished to advance. Deutsche Bank ultimately played a helpful and constructive role in the proceedings in addressing that issue, and another issue involving the potential application of Quistclose principles. In these circumstances, irrespective of whether Deutsche Bank was joined willingly or unwillingly to the proceedings, I consider that it was a necessary and proper party to them and its costs should be paid by reference to the principles in respect of the costs of trust proceedings to which I have referred above. 45I should add that I do not accept RMF's submission that Deutsche Bank was wholly unsuccessful in respect of issues relating to OTC Recoveries, since it succeeded in rebutting a submission that MF Global's dealings with counterparties, including itself, were in breach of trust. RMF advances criticism of the fact that Deutsche Bank was represented by Senior Counsel and two junior Counsel in respect of the hearing. That criticism appears to be unwarranted, since Deutsche Bank points out that one of the Junior Counsel appearing for it was a reader in Senior Counsel's chambers and there was no charge for the appearance and, not surprisingly in a case of this complexity, the majority of parties were also represented by Senior Counsel and Junior Counsel. In any event, the level of costs properly recoverable is a matter for assessment, if agreement is not reached between the parties, rather than a matter relevant to whether an order for costs should be made. 46RMF submits that, if a costs order is made in favour of Deutsche Bank, the appropriate source of payment is House Funds, and that cost should properly be treated as an incident of the principal to principal relationship between MFGA and Deutsche Bank as its counterparty, and so a general liquidation expense. The Liquidators submit that, if client representative costs are to be paid out of CSAs and Recoveries, and Deutsche Bank is to receive a costs order in its favour, then those costs orders should be paid out of CSAs and Recoveries consistent with the position of client representatives. As the Liquidators point out, that approach is the necessary consequence of a finding that the proceedings in respect of Deutsche Bank are not properly treated as adversarial proceedings and there is nothing that disentitles Deutsche Bank to a costs order. 47In my view, the costs of Deutsche Bank are properly paid from the CSAs because it was a necessary party to the issues to be determined in relation to the CSAs, and in particular the argument for breach of trust to which I have referred above. Its costs should therefore not be treated differently from the costs of other client representatives. 48Deutsche Bank submits that it should be allowed its costs on an indemnity basis, and points to a contractual right to indemnity for costs arising under clause 11 of the ISDA Master Agreement (Ex L1/Tab 37) and clause 14 of its Prime Brokerage Agreement with MFGA (Ex L1/Tab 38). Deutsche Bank points to the relevance of such provisions to the exercise of the Court's discretion as to costs: Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [8]. Deutsche Bank alternatively contended for an order for costs formulated in the same manner as the other defendants. Having regard to the basis on which I have held that Deutsche Bank is entitled to an order for costs, that order should take the same form as the order for costs in favour of the representative defendants in the proceedings. Issue E - Liquidators' remuneration and expenses relating to Recoveries 49The Liquidators seek a direction that they would be justified in paying their remuneration, costs and expenses (including legal costs) in recovering, realising and preserving Recoveries out of the CSAs and Recoveries of the Product Line to which the relevant Recovery, if obtained, would be paid. The Liquidators contend that further Recoveries received by the Plaintiffs are for the benefit of the relevant Product Lines and that those Product Lines should bear the costs of the attempts to recover, realise and preserve the property. PHRS submits that, applying conventional principles, the Liquidators' costs of the Recoveries ought to be met by the relevant CSAs to which the Recoveries are paid. 50There is authority that the remuneration, costs and expenses incurred by a person such as a liquidator in preserving, recovering and realising a fund on behalf of others should be paid out of, and are secured by an equitable lien over, the fund: Re Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171; Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 40 WAR 53; Re Parbery & Ors (as liquidators of Trio Capital Ltd (in liq)) [2012] NSWSC 597 at [18]; (2012) 88 ACSR 700. In 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) above at [34], Finkelstein J observed that: "These cases establish, clearly enough in my opinion, that provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them." 51RMF contends that the Court has found that Recoveries consist of funds obtained and received by MFGA in performance of its ongoing obligations as a licensee and contracting party, and those funds cannot be characterised as funds preserved, recovered or realised by the administrators or liquidators of MFGA. In my view, these matters are not true alternatives. Although the Recoveries were, as I held in the Judgment, received by MFGA as a person acting on behalf of Futures Clients and OTC Clients, they were nonetheless preserved, recovered or realised by the efforts of the administrators and Liquidators on MFGA's account. 52RMF then makes the further submission that if, on the making of orders as to the costs of the proceedings or otherwise, the Liquidators' estimate is that there would be a shortfall in the liquidation generally, the Liquidators would be justified in drawing upon the CSAs and Recoveries from time to time as required for the purpose of defraying costs incurred exclusively in recovering, realising and preserving the Recoveries or administering the CSAs and Recoveries together with any associated remuneration, subject to the repayment of surplus funds if there is ultimately a surplus in the House Funds. RMF's submission that costs for realising Recoveries should be paid from the CSA and Recoveries only to the extent that there is no surplus of House Funds at the conclusion of the liquidation could only be adopted if it were first established, as a matter of principle, that the House Funds should properly have borne those expenses, so that RMF's position was a concession from that starting point. I have not accepted that starting point. 53In submissions in reply, Graincorp disavows the concession made by RMF that the Liquidators would be justified in drawing upon the CSAs and Recoveries as required from time to time to defray the costs of recovering, realising and preserving the Recoveries or administering the CSAs and Recoveries. Graincorp submits that monies used in the CSAs could only be used to fund the Recoveries where there has been appropriate disclosure to interested persons and their consent is obtained. In my view, there is a degree of unreality in that submission, given the prospect that a receiver would otherwise have to be appointed to pursue the Recoveries and the costs of that pursuit would presumably then be funded from the Recoveries. I do not accept that submission. 54RMF accepts that if it is wrong in the submission that Recoveries cannot be characterised as funds preserved, recovered or realised by the administrators or liquidators of MFGA (as I have found), then the Court may direct the Liquidators that they would be justified in paying the Liquidators' remuneration, costs and expenses in relation to Recoveries from the CSAs and Recoveries of the Product Line to which the relevant Recovery, if obtained, will be paid. RMF accepts that, where work was done by the Liquidators for a mixed purpose, it should be apportioned on the basis of a fair and reasonable estimate, or otherwise according to the maxim that equality is equity. I consider that the Liquidators' remuneration and expenses relating to Recoveries should be treated in that manner. Issue F - Liquidators remuneration, costs and expenses of the administration and liquidation (Issue 14) 55The Court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, which extends to a person such as a liquidator which is for practical purposes controlling a trustee: Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (admin apptd) v ACT Superannuation Management Pty Ltd above. The Liquidators acknowledge authority that that jurisdiction may not be exercised where the Company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators' remuneration, costs and expenses, and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company's affairs. The principle that, where a company has assets which are not held on trust, the liquidator's costs should usually fall on its non-trust assets was recognised in Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 685-689 and the authorities were considered by Young CJ in Eq in Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301. In Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97 at [212], Campbell J noted the possibility that such costs could be shared between the distributable property of the company and trust assets, but it was not necessary to decide that question in the circumstances of that case. 56RMF contends that such remuneration and costs and expenses of the administration and the liquidation should be paid from House Funds or, alternatively, remuneration and expenses incurred in connection with the winding up of MFGA should be borne by the House Funds, but remuneration and expenses incurred in connection with administering the trust property should be borne by the CSAs and that the characterisation and allocation of costs should be referred to a Registrar. RMF also submits that no exercise of the relevant discretion could alter the priority of payments mandated by the statutory regime to which I referred in my Judgment. By a further submission, RMF alternatively adopted PHRS' submission that remuneration and expenses in incurred in connection with the winding up of MFGA should be borne by House Funds but remuneration and expenses incurred in connection with administering trust property should be borne by the CSAs. 57PHRS contended that remuneration and expenses incurred in connection with the winding up of MFGA should be borne by the House Funds but remuneration and expenses incurred in connection with administering trust property should be borne by the CSAs and Recoveries. PHRS contends that, for the House Funds to pay the remuneration and costs incurred by the Liquidators in administering the property held by MFGA as trustee would permit trust beneficiaries to "freeload on the general creditors" in the language of French Caledonia above at [212]. 58The Liquidators contend that, in the event of a shortfall of House Funds, a discretionary order allowing payment from the CSAs and Recoveries should be made in favour of the Liquidators of the kind referred to in cases such as Re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway [1989] 1 Ch 32 and French Caledonia above. The Liquidators indicate that they do not forecast a shortfall in House Funds to meet their remuneration, costs and expenses, if the Court orders that the Plaintiffs' legal costs of the proceedings be paid out of CSAs and Recoveries or directs that the Liquidators are justified in paying their remuneration, costs and expenses (including legal costs) in recovering, realising and preserving recoveries out of the CSAs and Recoveries. 59I note that there would have been a strong case for a discretionary order of the kind for which the Liquidators contended, had the relevant issue arisen, since it is likely that a Court-appointed receiver would have needed to be appointed in order to pursue the recoveries, if the Liquidators did not do so, and would have been remunerated for doing so from the relevant fund: Berkeley Applegate at 50-51. However, I do not understand the need for such an order to arise given the manner in which the issues to which I have referred above have been determined and I consider that such an order should be addressed in a separate application made in the circumstances which may require it rather than in this application. 60It appears that the other orders I have made may have the result that there will now not be a shortfall in the Liquidators' ability to fund the liquidation and the pursuit of Recoveries. In my view, any decision whether to exercise the equitable jurisdiction to which I have referred in paragraph 55 above or the discretion in paragraph 58 above would properly be exercised when there was evidence before the Court as to the outcome of those other orders and the parties have had an opportunity to make submissions as to those matters. In my view, that position has not presently been reached because of the number of other open issues which had to be addressed by the Liquidator and other parties and be resolved by this judgment. I therefore consider it preferable not to determine this issue on the evidence and submissions presently before the Court, but to grant leave to the Liquidator to relist the matter if this issue needs to be determined having regard to the other findings which I have made. Summary and orders 61 In summary, I have held that:

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