Banks fail in bid to have case thrown out

Justice Lindsay Foster said he had not upheld the banks' challenges to the Australian Securities and Investments Commission's power to bring the action under both the ASIC Act, and the Trades Practices Act. However, he said ASIC would have to amend its pleadings in the case to conform with his judgment.

ASIC brought the proceedings on behalf of former Storm clients Barry and Deanna Doyle, "financially naive retirees". The Queensland couple approached Storm Financial in 2006 for advice as to how they should invest their assets for retirement.

Storm advised them to cash in their $650,000 in superannuation borrow from the Bank of Queensland by way of an investment home loan, and borrow from Macquarie through a margin loan. The Doyle's invested $2.26 million in a number of Storm indexed trusts.

They lost all their superannuation and cash, and owed the Bank of Queensland $456,000 which equalled the value of their home.

In 2010, as a result of its investigations into Storm, ASIC resolved to bring proceedings against the banks, with the Doyles as the second and third applicants in the case. Storm Financial collapsed in 2008, costing its clients $3 billion in lost investments.

In dealing with arguments from ASIC and the banks about some of the provisions of the Trade Practices Act, Justice Foster noted: "The ultimate issue here is whether the [banks] in the present proceeding can be made liable through the strict liability pathway ... for the alleged misrepresentations and other alleged contravening conduct of Storm. The substance of the allegation is that each of the [banks] was a 'linked credit provider' in relation to Storm."

He said while the banks argument may eventually "carry the day" in its contention the Doyles did not fall under the definition of "consumers" of services "of a kind ordinarily acquired for personal, domestic or household use or consumption", he could not conclude that ASIC had no reasonable prospect of establishing Storm's services were supplied to the Doyles as "consumers".

The judgment noted the banks had decided to defer their claims for the Federal Court case to be struck out because of two Storm cases in Queensland, which raised similar factual and legal issues.