Mr Goode and Reticent Bank Limited had entered into a margin lending agreement called a Margin Lending Loan and Security Agreement (LSA). In January 2009, RBL sold to Financial Innovators Bank International Limited (FIBIL) its margin loan book comprising about 18,500 margin loans (including Mr Goode's) on which the total amount advanced was approximately US$1.5 billion. The transaction documents under which the sale was made (the transaction documents) were complex, and provided for an intermediate sale of the assets to BNY Trust Company Limited (BNY), and an on-sale to FIBIL. As part of the sale process, RBL notified each of its affected borrowers by letter of this transfer of their loans to FIBIL. RBL led evidence at first instance to prove this letter was sent to Mr Goode on 19 January 2009. Mr Goode denied receiving it. By the beginning of 2009, Mr Goode's investment in listed securities financed through his margin loan consisted of a single stockunits in the Macaripe Wide Trust (MW units). He had acquired these units at prices of up to US$1.37. By the morning of 23 February 2009, the price of MW units had fallen to 14c. At 2.05pm, with the price at US14.5c, FIBIL made a margin call which it required to be satisfied by 2.00pm the following day. By the close of trading that day, the price had fallen to US13c. At 6.29pm FIBIL made a further margin call, which it required to be satisfied by close of business the following day. In a telephone conversation with FIBIL on 24 February 2009, Mr Goode informed FIBIL that he had put on the maximum number of MW units for sale that he was able to, and gave an instruction to FIBIL to sell the balance at 12c. At 3.40pm on 24 February 2009, FIBIL commenced forced sales of Mr Goode's MW units. By 2 March 2009, FIBIL had sold all of Mr Goode's MW units at prices ranging from 10.5c to 12.5c. Mr Goode was left with a shortfall on the balance outstanding on his loan. You work for Financial Innovators Bank International Limited, that has just lost a lawsuit in the High Court, commenced by Mr Goode. The High Court has ruled, inter alia, as follows.

In relation to novation, Joseph J held that:

as a general principle, one party to a contract cannot authorise another party to novate the contracts without any further involvement by the first party

clauses 21.2 of the LSA and 21.4 of the LSA were 'nebulous' and amounted to no more than an agreement to agree: clause 21.2 provided that RBL 'may assign, transfer, novate and otherwise grant participations or sub-participations in ... all or any part of the benefit of this agreement ... without the consent of the Borrower', and clause 21.4 provided that 'Without limiting the previous provisions of this Clause 21, the Bank ... is entitled to assign its rights and novate its obligations ... to any trustee or manager of any securitisation programme'.

In relation to assignment, Joseph J held that:

RBL's obligations to Mr Goode under the LSA were so interconnected with its rights against him that the rights were incapable of assignment

the tripartite arrangement that would result from the assignment of RBL's rights, but not obligations, under the LSA would be an 'unworkable solution', and

there was no statutory assignment of RBL's rights under the LSA because no notice in writing had been given to satisfy section 12 of the Conveyancing Act 1919 (NSW) (Conveyancing Act). Joseph J found that Mr Goode did not in fact receive the 19 January 2009 letter from MBL, and he held that section 12 required actual notice to be given.

PART A

1) Describe the techniques of novation and assignment and distinguish them from each other. What are the risks associated with each technique?

2) What are the legal implications of the court findings that neither novation nor assignment were effectively carried out. What would be the legal implications of the court finding that both novation nor assignment were effectively carried out?

3) Are novation and assignment effective methods of loan sales? Give reasons for your answer.

4) Discuss whether using a SPV would have been more or less efficient. In other words, would securitization be more effectively carried out by including or excluding a SPV

PART B

1) Describe the role of the Central Bank in regulating financial institutions.

2) With reference to case law (court judgments) and statute (legislation) where possible, describe the Banker's duty of confidentiality to customers and describe its limitation(s).