Judgement may Lift some spirits Michael West February 4, 2009 - 1:47PM
The price of ANZ Bank and Merrill Lynch settling with their Opes Prime adversaries may have just gone up.
In a judgement that will resonate with Opes litigants locked in their legal fray with ANZ, the judge in the Lift Capital liquidator's case against Merrill Lynch has found that Lift made "no attempt'' to explain the perils and legality of share lending arrangements to Lift clients.
Moreover, Lift Capital's conduct was "unconscionable'' and "dishonest'' according to yesterday's finding by Justice Barrett of the NSW Supreme Court (Lift Capital Partners v Merrill Lynch International in the NSW Supreme Court).
The Lift lawsuit has no direct impact on the various Opes claims. It does not even set a legal precedent as such but it will surely provide some legal thrust to the actions by Opes parties and will not be embraced by ANZ as supporting its rights to seize and sell Opes stock last March.
Essentially, this latest case brought by the liquidator centred on whether Lift clients (which were subject to similar share lending arrangements to Opes clients) were sufficiently availed of the risks and nature of those arrangements. Did Lift put them in the picture? Apparently not, according to Justice Barrett.
"Lift Capital made no attempt to explain to potential clients through the product disclosure statements that a client's mortgaged shares might, at the will of Lift Capital and without notice to the client (either before or after the event), be subjected to a securities lending arrangement so that the client's interest in those shares was taken away," Justice Barrett said.
"On the contrary, the prospective client was led by the product disclosure statements to the natural and normal expectation that the shares made available as security would be held intact for the duration of the loan and restored to the mortgagor when the debt had been paid, with the client's interest as mortgagor continuing throughout. There were clear and unambiguous assurances that the client's shares would be held as security and that the client's ownership interest in them would be ongoing.''
According to the judgement, neither product disclosure statement (PDS) referred to the risks inherent in securities lending arrangements.
"(Lift Capital's) conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, (the client defendant) to enter into a transaction which was improvident and conferred a great benefit upon (Lift Capital).''
Opes Prime, Lift and another stock lender, Chimaera, all collapsed last year leaving retail clients' stock in the hands of bankers, mostly ANZ and Merrill Lynch.
Lift tipped over on April 10. Merrill seized the shares and sought to sell them to recover its loans to Lift. It held more than $64 million worth of shares last year and had agreed in mid-July to return some money to the DOCA which would give Lift creditors roughly 63c in the dollar. The value of the shares however has fallen. The case was to determine ownership of the shares.
Justice Barrett found that "the starting point must be the reality that the parties' transaction was, in both form and substance, an equitable mortgage carrying with it a right to unencumbered enjoyment of the mortgaged property by the client mortgagor upon payment of the secured moneys''.
