For Bunyip and interested parties
Found this in the Colonial Margin Lending Terms and Conditions booklet from 2006.
Notice of Margin Call
4.3 (a) You agree that we may provide notice of margin call by any
or all of the following ways to you or your Client Adviser:
• In writing (including by fax, email or other electronic
means)
• Orally, including by telephone
• Updating the Colonial Geared Investments website.
(b) It is your obligation to keep your or your Client Adviser’s
contact details up to date.
4.4 You are responsible for:
(a) monitoring your portfolio and determining when your loan is
subject to a margin call; and[/COLOR]
(b) being in a position to receive any communications from us
in relation to this clause and to act within the time limits
specified in this clause; and
(c) ensuring that a margin call does not occur.[/COLOR]
From the sections I've highlighted in red, it appears, at least in this particular aggreement, that the onus is on the borrower to monitor his portfolio and determine when the loan is subject to a margin call.
And also to ensure that a margin call does not occur.
Bunyip,
You have quoted conditions from a typical CBA margin loan and state that because these conditions are clearly outlined, “the onus is on the borrower to monitor his portfolio and determine when the loan is subject to a margin call”.
So why do you think ASIC and we are litigating against these Banks if it’s all that simple? The fact of the matter is that it isn’t and it’s therefore quite wrong in the case of Storm and the Banks for anyone to look at everything in insolation. The issues involved are far more complex than that! If everything were that straightforward and aboveboard, then the Banks wouldn’t be facing the charges that have currently been brought against them.
It should also be remembered that we are suing the Banks for breach of contract (among a number of other things) which are linked with their banking codes where issues such as imprudent lending come into the equation. The conditions of contract you mention are, of course, relevant and will form a substantial part of the Banks’ counter arguments when they are defending themselves. However, the question of whether the Banks’ conditions of contracts will stand up in law is another thing.
In the ‘Goodridge v Macquarie Bank/Leverage Equities Case’ a particular clause was contentious:
"BNP may notify you of the margin call and of details of the actions which can be taken to satisfy the margin call"
His Honour referred to the NSW Court of Appeal decision in Morgan v BNP Paribas Equities (Aust) Limited [20061. NSW, CA 197, in construing the Clause in margin loan documents, namely that by finding that in that context: "may" in effect means "shall", when it comes to making a margin call in terms of the loan agreement.
"Otherwise the client would simply not know what were the actions which should be taken to satisfy the margin call. Nor would the client know, in the absence of knowing a margin call existed, that actions were required to be taken in the first place." (per: Santow JA, with whom Gyles and McCole JJA, agreed).”
A similar clause occurred in the later version of the Colonial Margin Call Agreement.
In the conditions you have quoted it states:
“Notice of Margin Call
4.3 (a) You agree that we may provide notice of margin call by any or all of the following ways to you or your Client Adviser:
• In writing (including by fax, email or other electronic means)
• Orally, including by telephone
• Updating the Colonial Geared Investments website.”
As to whether or not the CBA or other Banks could assign to Storm the obligation to make a margin call, His Honour's finding with regard to the non-assignability of obligation is important. Clearly, he was of the opinion that the Banks’ could not assign their obligation in this regard.
Because the margin loans contracts were between the Banks and their Storm clients they cannot in his opinion assign the obligations they have to their customers to make margin calls to a third-party - in this case, Storm. Whether they made margin calls to their customers’ client adviser, Storm or not is completely irrelevant. Their primary “obligation” in this regard is to their customers, not Storm. Some will say that this procedure of notifying the financial adviser rather than the customer is standard practice and has therefore become the accepted norm. That is also an erroneous argument because the “obligation” for the Banks to also notify their customers remains, and is not, as Justice Rares has explained, assignable as Banks would have everyone believe.
In saying this, ‘the ‘Goodridge’ decision was overturned on appeal BUT the Court of Appeal in so doing did not dispute Justice Rares’ remarks in this respect. Whether another Court has different ideas is anyone’s guess. As I have said before, the only certain thing about the Law is its uncertainty. That’s why we have a chain of different Courts so that decisions in Law can be clarified and determined.
The interesting thing about all this is that the CBA’s resolution scheme was based for the most part on the assumption that Storm could act as our agent in matters such as these and accordingly, the Banks could by-pass its margin loan customers and take their instructions from Storm. This is an assumption rather than a fact in law and it is therefore strange that both ‘The Panel’ and Slater & Gordon who negotiated this scheme accepted this notion as the basis for the resolution scheme.
Incidentally, Justice Rares also found that a notice on a website was insufficient notice.
"Therefore, I am of the opinion that the web pages could not be notice to him of any assignment of his loan at law, by statute or in equity. It mostly invited speculation."
Rares J. quoted from Griffith CJ with approval in Anning v Anning [1907J 4 CLR 1049 at 1060:
"Written notice means a document addressed to, and intended to be retained by, the debtor."
So you see, what are sometimes contained in the conditions of contract can be misleading or suspect. This means that even though one party can put what they like in their contractual conditions, and such can be agreed to by the second party, these conditions must stand up to legal scrutiny.
For years now the Banks have had it all their own way when it comes to margin loans because they have sought to dictate the terms and you could either “take it or leave it!” Their stance has never been really challenged in law (with the possible exception of the ‘Goodridge’ case) until now. Statutory regulations have now been brought in where margin loans are concerned because it has been recognised that margin loans in their past form have been somewhat inequitable when it comes to the rights of those taking out the loans as opposed to those that lend them; namely the Banks.
Note that I said “statutory regulations” (such did not fully cover them before), but this does not mean that margin loans were not covered in the past under the tenets of commercial law contracts. All commercial agreements (unless statutory law has been introduced superseding such) are subject to common law principles. Therefore, margin loans have not fallen through any legal net whatever applied in the past. Contracts existed in law as far as these margin loans were concerned and “obligations” and “rights” will therefore play a prime role when deciding breach.
The Courts always view commercial contracts in terms of the obligations imposed on both parties and the rights that both parties should have. In terms of equity, they will also assess whether there is a superior position held by one that impinges on the other’ right’s.
“Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308, 1316, per Lord Diplock: ‘To be in a position to adopt this [‘take it or leave it’] attitude toward a party desirous of entering into a contract to obtain goods or services provides a classic instance of superior bargaining power.”’
To answer your original question, "Can it be argued that the customers were ultimately responsible for monitoring their own margin calls? that will, of course, will be for the Law to decide, not the Banks. Certainly, the time-factors involved (CBA -10 to 12 weeks) and (Macquarie Bank 3 to 4 weeks) should blow this argument out of the water! What were the Banks doing during this time? Whistling "Dixie!" perhaps? Were they not in a position to know that margin calls should have been made? For that matter, were they not concerned about their own positions?
As I recently stated to GG, nothing about our cases is straightforward. There are a plethora of different issues and they are many facetted. Therefore, no one has the answers at this stage. Certainly, not me or anyone else on this website. I therefore hasten to add that what I state here is based on my own knowledge of the Law and should not be considered Gospel because I am not, after all, a lawyer. A fellow victim was quick to point this out in a recent email he sent to me in which he quoted a Jewish proverb:
"He who glorifies himself in his knowledge of the law is like a dead beast at the side of the road. Sure it attracts the attention of those passing by - but they all hold their hand to their nose for it stinks!" I gather from this that he didn't agree with my assessment of all this?
Certainly something stinks about this whole business and the smell is not wholly emanating from my carcass at the side of the road.
If nothing else, the forthcoming trial promises to be fascinating when the lawyers strut their stuff.