Court to hear investors' claim

The 300 investors were sued by the bank in September last year after refusing to repay loans used for investments in agricultural schemes that failed in 2009.

They want to bring a cross-claim alleging the bank is liable for misconduct by Great Southern.

In the Supreme Court, Associate Justice Richard Macready yesterday allowed the class action to file a cross-claim because of the "calamities involved".

But the judge did so on narrower grounds than had been sought.

The law firm advising the investors, ERA Legal, has been trying since December to formulate a cross-claim in a form acceptable to the court. The fourth attempt was summarily dismissed in June.

Yesterday's judgment conflicts with an August decision in the Victorian County Court, which struck out similar claims by a second group of ERA Legal clients.

Justice Macready noted that Judge Paul Lacava's judgment in Victoria was not binding on the NSW investors but said he had read it carefully because of the similarities.

"With respect to [Judge Lacava's] approach, I think, having regard to the nature of the calamities involved, that the focus should be upon seeing whether there is some substance in the claims that warrants further investigation," Associate Justice Macready said.

The judge said a critical question was how the bank, as "an arm's length lender and ... not a related party of the Great Southern group", could be legally "fixed with notice of the misrepresentations contained in the product disclosure statement".

There was "some substance in the claim that some of the representations are false", he said.

He gave the investors 14 days to file a claim, under the consumer protection provisions of the NSW Contracts Review Act, that the loan deeds were unjust.

The class action was also given leave to pursue a claim under the product disclosure provisions of the Corporations Act, which give courts the power to declare void a contract for a financial product.

The investors will not be allowed to pursue allegations of unconscionable conduct or breach of fiduciary duty by the bank. Associate Justice Macready said this was because their draft pleading did not demonstrate knowledge by the bank of false representations.

The investors want to allege close links between the bank and Great Southern, including that the company told prospective investors the bank was a "preferred financier" and Great Southern executives signed loan agreements on the bank's behalf.