A court appeal has backfired for 20 banks who will now have to pay up to $3 billion to the liquidators of Alan Bond's former company Bell Group.
The WA Court of Appeal not only upheld a previous landmark decision ordering the banks - including Westpac, the National Australia Bank and Commonwealth - to pay Bell Group's liquidators but also increased the original amount from $1.56 billion to a total that is likely to be between $2-$3 billion.
In what has been the most expensive and one of the longest running case in Australian legal history, the court dismissed the banks' appeal and accepted part of Bell’s counter appeal, agreeing the trial judge erred in his calculations and that damages and interest awarded should be higher.
The banks were also ordered to pay costs for both sides, estimated to be hundreds of millions of dollars.
The WA Government is one of many creditors expected to benefit from the payout. Its third-party insurer, the Insurance Commission of WA, has been the major funder of Bell liquidators' legal campaign.
Three former Federal Court judges, Acting Justices Malcolm Lee, Douglas Drummond and Christopher Carr, were called out of retirement to hear the case because all other judges had been involved in earlier litigation.
The saga dates back to 1990 when banks including Westpac, Commonwealth and the National Australia Bank took out the corporate equivalent of mortgages over the company's assets in what was supposed to keep the company afloat.
When Bell Group collapsed on April 18, 1991 the banks reaped $280 million from the sale of assets.
The company's liquidators claimed the banks were also liable because they knew the company was in dire straits and it sought to recoup the $280 million, sparking marathon legal proceedings that began in 1995.
It took eight years to get the case to trial. It eventually ran for 404 sitting days between July 2003 and September 2006.
Chief Justice Neville Owen ordered the banks pay $1.56 billion, including costs and interest, after ruling they should have known the company was about to collapse when they took out the mortgages over Bell assets.
The banks appealed Justice Owen's decision, claiming they acted on advice from the company that refinancing was the best course of action, they were not knowing recipients of trust property and that awarding of compound interest was not appropriate or just.
Bell Group liquidators cross-appealed, arguing the banks were liable as knowing participants in alleged breaches of duty by Bell Group directors and that the transfer of assets to the banks were unconscionable bargains.
In the main, the appeal judges upheld Justice Owens' orders but made some amendments, including how the damages bill would be calculated.
Acting Justices Lee and Drummond determined that the principal orders made by Justice Owens were properly based on findings the banks knew the Bell Group directors had breached their duty.
Acting Justice Carr disagreed, finding no breaches had occurred. However, he found that the transfer of assets from Bell Group to the banks was void anyway because they were securities granted by an insolvent corporation.
Acting Justices Lee and Drummond agreed with the Bell Group liquidators that the damages and interest awarded by Justice Owen were too low.
Acting Justice Carr said he would have substantially reduced the sum calculated by Justice Owen.
Despite today's decision again ruling against the banks, the case could continue to the High Court, stretching out the legal battle to 20 years.
In a statement, the banks said they were disappointed in the split decision, highlighting the fact Justice Carr did not agree on several significant issues, including the amount to be paid to the liquidators and the interest rate to be applied.
"He said he believed the original judgement was 'grossly excessive' in this regard and he would have ordered
the amount the banks were required to pay be significantly reduced," spokesman John Vaughn said.
"We are carefully considering the 1026-page judgement and the merits of seeking leave to appeal to the High Court on several key findings of the judges.
"We are not in a position to comment further at this stage."
Bell Group liquidator Tony Woodings urged the banks to accept the courts' decision.
He said the marathon legal fight had taken its toll on creditors, who had been out of pocket for even longer than the 17 years the case had been running.
"It's a pleasing win for the creditors," he said.
"I invite the banks to now take that decision, accept it, and allow the process of distribution to commence."
Treasurer Troy Buswell welcomed the decision but said it was too premature to comment further.
"I understand the Insurance Commission, which has been one of the funding creditors supporting the liquidator, will consult with the liquidator on the full effect of the judgment before briefing me further on the outcome," he said.