Bendigo & Adelaide Bank Ltd. (BEN)’s claim to a lawyer’s A$4.8 million ($4.8 million) margin-call account is valid, Australia’s federal appeals court ruled, indicating the institution has the right to make demands on as many as 18,500 margin-loan customers.
A three-member panel of the Full Court of the Federal Court of Australia today overturned a judge’s decision that said the margin-loan contracts weren’t legally transferred when Bendigo bought the A$1.5 billion margin-lending business from Macquarie Group Ltd. (MQG) in January 2009 for A$52 million.
Ross Goodridge, a Sydney trial lawyer, was among the customers whose margin loans were transferred to Bendigo’s Leveraged Equities unit following the sale. Federal Court Judge Steven Rares ruled Feb. 12 that the transfer wasn’t legal and Leveraged Equities acted improperly when it sold Goodridge’s investments to cover a margin-loan shortfall. Rares ordered Bendigo and Leveraged Equities to return the investments.
“The orders are set aside,” Judge Margaret Stone said in Sydney Federal Court today.
Stone ordered Goodridge to return the 5.6 million units of Macquarie CountryWide Trust he was awarded after the trial, or A$5 million, to Leveraged Equities and Bendigo. She agreed to let Goodridge file a request within 14 days to place the order on hold pending a possible appeal to the country’s High Court.
“I’ll probably appeal,” Goodridge said after today’s decision. He said he still had to read the reasons for the appeal court’s decision.
Goodridge had invested in 5.6 million Macquarie CountryWide Trust units, valued at about A$1 million on Feb. 5, 2009, with a loan balance in his margin account on that date of $865,152, according to court records.
Leveraged Equities made a $159,076 margin call on Feb. 5, after the trust units declined in value. Goodridge requested a A$200,000 dividend he was to receive be placed in his margin account. Instead it was deposited in his cash account and Leveraged Equities determined on Feb. 23 that he had defaulted under his agreement. Leveraged Equities then sold Goodridge’s MCW Trust portfolio, leaving a debit of A$58,126 in his account, according to court records.
Rares ruled Goodridge didn’t default on his agreement and Leveraged Equities didn’t have the authority to sell the units.
“Mr. Goodridge had a contract that was breached by the unauthorized sale of his property,” the judge wrote.
Return and Compensation
He ordered Leveraged Equities and Bendigo to give back to Goodridge his trust units and compensate him for any loss he suffered.
“If as a result of their treatment of Mr. Goodridge, the damages the respondents must pay, or the sum that they must now outlay, has increased, they have only themselves to blame, not him,” Rares wrote.
Rares’s ruling brought into question the validity of transfers of all 18,500 margin loan accounts Bendigo had bought from Macquarie. The judge said Leveraged Equities would have needed all 18,500 borrowers to agree to the transfer for it to have been done properly.
The case is Leveraged Equities Ltd. v Ross Ian Goodridge. NSD269/2010. Full Court of the Federal Court of Australia (Sydney).
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