Clients of collapsed stockbroker Opes Prime do not have a legal claim allowing them to recover their shares, according to a Federal Court ruling this morning.
Justice Ray Finkelstein rejected the argument of lawyers for Beconwood Securities, who claimed that their client retained ownership of shares seized by secured creditor ANZ Bank in the wake of the stockbroker's failure in late March.
In a 26-page ruling released in the Federal Court in Melbourne, Justice Finkelstein found that the agreement signed by Beconwood Securities was valid and the plaintiff didn't have "equity of redemption or other equitable estate or equitable interest" once the shares were lent to the stockbroker.
The ruling lowers expectations for Opes Prime clients who hope to sue the stockbroker or its secured creditor ANZ Bank on the basis of the contracts they signed.
ANZ issued a statement this morning welcoming the judgement but cautioning "there is still a long way to go on the Opes Prime matter."
"Justice Finkelstein has upheld the legal status of the Australian Master Securities Lending Agreement used by Opes Prime," the bank said. "That agreement does what it says. Full ownership of the shares is transferred."
ANZ shares rose 119 cents, or 5.5%, to $22.86.
The bank, which has been criticised for the handling of the stockbroker's collapse, said it will continue to sell down shares in an orderly fashion, seeking fair and reasonable value for its Opes Prime portfolio.
In the decision, Justice Finkelstein rejected the contention, made by Beconwood Securities, that it was an unsophisticated investor. The judge noted in his decision, "Beconwood borrows for, and invests millions of dollars in, share trading. It does not qualify as an unsophisticated investor."
"It certainly is not a candidate for the special protection courts give to the weak and vulnerable," the judge wrote.
The cas is expected to provide legal grounding for further court cases arising from Opes Prime's failure by determining if Opes clients who lent shares to ANZ retain a right to get their property back.
Beconwood Managing Director Paul Choiselat said he was disappointed and was yet to decide whether to appeal.
The ruling "was not totally unexpected because the document was an amended form of a document used extensively in the market," Mr Choiselat said.
"We thought there were holes in it," he said. "The judge obviously has a different view."
But Mr Choiselat hinted at the nature of future potential litigation against ANZ, saying today's ruling could bolster arguments made about ANZ's position as legal shareholder.
"We felt they should have lodged substantial shareholder's notification for what (ANZ) alleged," he said. "Now what (ANZ) alleged has been supported by court."
The Opes Prime client sought to force ANZ to stop its fire sale of shares related to the $1.3 billion collapse of the Melbourne-based stockbroker.
The test case in the matter was initiated by Mr Choiselat who vested with Opes shares valued at $7 million when he borrowed $1.35 million to buy more shares.
ANZ Bank's direct total exposure to Opes Prime is about $700 million. The bank's receiver, Deloitte, said recent calculations put the cost $50 million higher than estimated after the stockbroker's collapse.
Today's judgement follows two legal decisions involving litigation against ANZ.
Yesterday Justice Finkelstein granted a temporary injunction halting an Opes Prime-related entity from selling 1.23 million shares of Restaurant Brands of New Zealand allegedly belonging to holding company Phisci.
Gary Higgon of Warrandyte, who has been heavily involved in Pizza Hut and KFC chains in Australia, wants the Federal Court to force Opes Prime's receivers to accept $394,826 and erase his debt to Opes.
The injunction will expire on May 7.
On Monday the Takeovers Panel found ANZ fell afoul of the law when it failed to lodge a substantial shareholder notice after it took control of 26% of biotech company BioProspect.
The Takeovers Panel declined to take further action after ANZ agreed to sell down its stake in the Brisbane company to under 5% within one year and abstain from voting any BioProspect shares.
The bank also pledged to hand over the remaining shares in the company after one year if it holds more than 5% of the thinly traded stock.
ANZ said it will sell down shares on the ASX in lots no greater than 5% of BioProspect shares, over three-day periods.
Legal experts said today's case could have lasting effects.
University of Melbourne securities law professor Ian Ramsay said the ruling draws a line between sophisticated and unsophisticated investors, which will a have a huge impact not just for Opes Prime-related cases, but also securities related lawsuits.
"Because the judge was interpreting a standard agreement," Professor Ramsay said, "it has implications that extend well beyond Opes Prime."
"It's an important case underpinning the (standard securities) agreements," he said.
Citing past legal failures to stop ANZ from selling down shares, Professor Ramsay said today's case puts an end to questions of legal ownership arising from contracts.
He says lawyers representing Opes Prime clients will now be forced to take a second look at whether their clients can plausibly be considered "unsophisticated" before going ahead with any cases that centre on the contracts.
Lawsuits on Opes Prime and ANZ Bank will now likely focus on the advertising and marketing efforts of the stockbroker.
"They can they argue they were mislead," he said.
Meanwhile, Justice Finkelstein extended the travel ban on Opes Prime director Julian Smith until September 26.
A report by Opes Prime administrator's Ferrier Hodgson indicated Mr Smith, along with Opes chief Lirim "Laurie" Emini, may have controlled the entity Riqueza.
Transactions involving the British Virgin Island-based company are at the centre of the losses that brought Opes Prime down.
The court will take up Mr Smith's case on September 26.
BusinessDay with Leonie Wood, The Age
