Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Limited

REASONS FOR JUDGMENT 1 Beconwood, which lost its argument that the securities lending agreement it had entered into with Opes Prime left it with a security interest over the shares it "lent" to Opes Prime, seeks an order that its costs be paid out of assets that may come under the control of the administrators. The application raises an important point of principle that I have not found easy to resolve. Whatever the outcome someone will be dissatisfied. 2 One begins with s 43 of the Federal Court of Australia Act 1976 (Cth) which provides (in sub-s (1)) that a judge "has jurisdiction to award costs in all proceedings before the Court" and, (in sub-s (2)), that "the award of cost is in the discretion of the Court or Judge". This confers a very wide discretion. But it is not a discretion that can be exercised in any way the judge thinks fit. The discretion must be exercised in accordance with established principles. It is to those principles that I now turn. 3 In ordinary civil litigation the rule is that, special reasons apart, costs follow the event: that is, the loser pays. The corollary of this rule is that the loser does not get his costs paid. But, like many other rules, this one has its exceptions. For example, the Court of Chancery developed special rules about costs in relation to disputes involving trusts. The position is that if a trustee seeks advice from the court as regards how the trust instrument should be interpreted, or how the trust should be administered, to enable him to properly to execute his duties he will have his costs paid out of the trust estate: In re Beddoe; Downes v Cottam [1893] 1 Ch D 547; In re Buckton; Buckton v Buckton [1907] 2 Ch D 406. Those rules apply to beneficiaries who bring an action for the benefit of the trust estate: McDonald v Horn [1995] ICR 685; Laws v National Grid Plc [1998] PLR 295; In the Matter of the British Airways Pension Schemes [2000] PLR 311. They have been extended to cover actions brought by other fiduciaries, such as liquidators, receivers and administrators: Australian Securities and Investments Commission, in the matter of GDK Financial Solutions Pty Ltd (in liq) v GDK Financial Solutions Pty Ltd (in liq) (No 4) [2008] FCA 858. 4 Beconwood seeks to extend the Chancery practice to have it apply to the case at bar. The problem, however, is that this is not an action in which a trustee, or some other person in a position of responsibility for administering assets for the benefit of others, has come to court for guidance. It is an action in which Beconwood makes a hostile claim against ANZ and has lost the first battle. In such a case, even if it is a trusts case, costs usually follow the event. 5 But, here again there are exceptions. They arise because it is not always easy to distinguish between cases which deal with a point arising in the administration of a trust (where the costs will be paid out of the fund) and those that are truly hostile: Buckton [1907] 2 Ch D at 415. In McDonald [1995] ICR at 696, Hoffman LJ instanced as an example a case that involved a dispute over the beneficial ownership of trust property which he described as akin to an interpleader and hence an action in which the beneficiary could have his costs paid on a common fund basis. The rationale for this approach is that the action was of benefit to the trust estate. 6 It is not possible to describe this case as anything other than hostile litigation. It involves a dispute between rival claimants (Beconwood and ANZ) over shares "lent" to Opes Prime. The duty of the administrators (which they have observed to date) is to remain neutral, submit to the court's direction and leave it to the claimants to fight the dispute: cf Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, 1224, 1226. 7 Still, there are features which suggest that it is appropriate to make the order sought. First of all, it is a matter of accident that the legal effect of the securities lending agreement came up for determination in an action instituted by a client of Opes Prime. If it had not been raised by a client it would have been brought before the court by the administrators or, if not by them, then by a liquidator. Without the effect of the agreement being resolved the administrators would not be able to properly advise creditors (many of whom are former clients of Opes Prime who entered into similar agreements to Beconwood's) what should happen with the company. 8 I said as much when I granted Beconwood leave to bring the proceeding against Opes Prime. Indeed, I indicated I would not allow the case to go ahead without Opes Prime as a party, not just because it was a necessary party, but because it was important for the administration itself that the company be bound in the result. 9 Secondly, the case was something of a test case. There are many actions that have been brought by disgruntled clients against Opes Prime and its related companies. The nature and effect of the securities lending agreement is critical to many of them. The resolution of that question is of benefit to the administrators in each of those actions. 10 For these reasons, which are rather exceptional, it is, I think, fair that the uncharged assets of Opes Prime should be applied to meet Beconwood's costs insofar as they relate to the determination of the question whether a "lender" of securities "loaned" to a "borrower" pursuant to a securities lending agreement has an equitable interest in those securities. There will be an order that Beconwood's costs be costs in the administration of Opes Prime. ANZ's costs will be in the cause I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.