In Leveraged Equities Limited v Goodridge [2011] FCAFC 3 the Federal Court of Australia Full Court overturned the trial judge’s decisions (discussed here) that there was no valid assignment of a margin loan by the original lender (Macquarie Bank) to (ultimately) Leveraged Equities Limited (part of the Bendigo and Adelaide Bank), that no proper notice of the assignment had been given and that Leveraged Equities had acted unconscionably.

Although the Full Court was critical of the drafting of the Loan and Security Agreement, it decided that LE had the power to make the margin call at short notice.

It decided that the margin call was not unconscionable as section 12CB of the ASIC Act applies only to financial services of a kind ordinarily acquired for personal, domestic or household use and Mr Goodridge acknowledged when he entered into the LSA that the funds would be applied wholly or predominantly for business or investment purposes. The Full Court decided there is nothing unconscionable in a margin lender enforcing its legal rights to protect itself against a fall in the value of its security.

In respect of the sale of Macquarie’s margin lending loan portfolio to Leveraged Equities the Full Court rejected the proposition that a party cannot consent in advance to a novation and decided that Mr Goodridge’s consent was given to the introduction of a new lender who was substituted for Macquarie on the same terms and conditions as the LSA.

The decision supports the current techniques for the sale of financial assets.

UPDATE June 2011: Goodridge’s application for special leave to appeal to the High Court has been dismissed.