In brief, the judge held that Leverage Equities, the assignee of
a margin loan contract, had not given proper notice to Mr Goodridge
when demanding a margin call.
The judge also found that the transfer of the margin loan
contract from Macquarie Bank to Leverage Equities was ineffective
because Mr Goodridge had not consented to the transfer and the loan
was incapable of assignment.
It was this finding that caused most concern as it had
potentially significant ramifications for syndicated loan transfers
and the assignment of financial assets in securitisations. It is
this aspect of the judgment, which the Federal Court in
Leveraged Equities Limited v Goodridge  FCAFC 3 has
now overturned by allowing the appeal, which is of most interest
from a New Zealand perspective.
Consent to transfer
The Federal Court found that Leveraged Equities had validly
assumed Macquarie's obligations under the margin loan
Although the court found that the wording of the contract in
relation to this point could have been clearer, it nevertheless
held that Mr Goodridge had validly prospectively consented to the
novation. It was not a mere agreement to agree in the future to an
assignment or novation as was found by the trial judge.
The court decided that, consistent with the position in the
United Kingdom and the United States, the trial judge's
proposition that a party cannot consent in advance to a novation
was not correct. It confirmed that such a proposition was
"wholly uncommercial" and a "purist" point of
view contrary to the development of the law of contract.
The court also decided that the inclusion of a trustee
limitation of liability provision in the margin loan contract as
part of the novation was permissible and did not affect the ability
of Macquarie Bank to transfer the contract. The court considered
that the clause merely identified the capacity in which the
assignee agreed to enter into the novation contract. The court
noted that the novation provision specifically provided for
novation to a trustee.
Further, the nature of the margin loan contract and the
relationship between the margin lender and the borrower did not
involve obligations so closely linked to the personal qualities of
the lender that the court should imply an intention that the
obligations were incapable of assignment. The Federal Court found
nothing that pointed to Mr Goodridge having specifically stipulated
that the margin loan contract was to be carried out by Macquarie
Ability to assign
On the issue of whether there was an effective assignment, the
Federal Court held that even if there had been no effective
novation of the margin loan contract, it was possible for Macquarie
Bank to retain the obligation to make loans under the contract
while Leveraged Equities had assigned to it the rights under the
contract. It was not necessary that all rights under the contract
were assigned to Leveraged Equities, only those that it sought to
The court considered that there was a clear division between the
rights of Leveraged Equities and the continuing obligations of
Macquarie Bank. Accordingly, while the arrangements were complex,
that did not mean they were "unworkable" as the trial
judge had found.
The Federal Court's decision will be welcomed by financial
institutions on both sides of the Tasman as providing a clear
reaffirmation of the previously accepted position in relation to
consents to transfer and assignments. While it will provide
certainty and comfort, there are some ancillary comments in the
judgment worth noting and the court's comments on the attention
to detail in drafting transfer provisions should be taken on board
for future reference.
Having said this, it is unlikely that the matter will be laid
completely to rest just yet. It appears that Mr Goodridge will
appeal the decision to the High Court of Australia.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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