A COURT appeal has backfired for 20 banks that will now have to pay up to $3 billion to the liquidators of Alan Bond's former company Bell Group, after a landmark ruling.
The court not only upheld a previous decision ordering the banks - including Westpac, the National Australia Bank and Commonwealth Bank - 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 billion and $3 billion.
In what has been the most expensive and one of the longest-running cases in Australian legal history, the West Australian Court of Appeal 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 West Australian government is one of many creditors expected to benefit from the payout. Its third-party insurer, the Insurance Commission of Western Australia, 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 the banks 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 Owen's orders but made some amendments, including how the damages bill would be calculated.
Despite the decision again ruling against the banks, the case could continue to the High Court, stretching out the legal battle to 20 years.