FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Storm Financial Limited (Receivers and Managers Appointed) (In Liq) (No 2) [2011] FCA 858

THE COURT ORDERS THAT:

1.    The notice of motion filed by the second defendant on 10 March 2011 be dismissed.

2.    The notice of motion filed by the third defendant on 10 March 2011 be dismissed.

3.    The notice of motion filed by the fourth defendant on 11 March 2011 be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

Introduction

1    Until about the time it was placed in liquidation on 26 March 2009, Storm Financial Limited operated a number of investment schemes for its customers throughout Australia. Those investments schemes are central to these proceedings. If any one of them was a “managed investment scheme”, as that expression is defined in s 9 of the Corporations Act 2001 (Cth) (“the Act”), Storm was required to register it under Pt 5C.1 of the Act. If it did not do so, subject to various exclusions and defences contained in the Act, it contravened s 601ED(5) of the Act.

2    The Australian Securities and Investments Commission (“ASIC”) commenced these proceedings seeking, among other things, a declaration that Storm had contravened s 601ED(5) of the Act. However, Storm was not the only object of these proceedings. ASIC also sought declarations that the Commonwealth Bank of Australia (“CBA”), the Bank of Queensland Limited (“BOQ”) and the Macquarie Bank Limited (“Macquarie Bank”) – who I will refer to jointly hereafter as the three Banks – were knowingly concerned in Storm’s contravention of that section of the Act.

3    In response, the three Banks have filed notices of motion seeking orders that these proceedings be dismissed, or alternatively stayed permanently. I will refer to these applications henceforth as the strike-out applications.

The relief sought

4    The relief sought in ASIC’s original originating application was in the following terms:

This application is made for an injunction under section 1324 of the Corporations Act 2001 (Cth) and declaratory relief under section 21 of the Federal Court of Australia Act 1976 (Cth) in respect of a contravention of section 601ED of the Corporations Act.

On the facts stated in the supporting affidavit, [ASIC] claims:

1.    A declaration that the [Storm] contravened s 601ED(5) of the Corporations Act.

2.    An injunction restraining [Storm] from operating the Storm Scheme in contravention of s 601ED(5) of the Corporations Act.

3.    A declaration that each of the [three Banks] were knowingly concerned in the contravention by [Storm] of s 601ED(5) of the Corporations Act for the purposes of s 1325(1) of the Act.

4.    Costs

If the Court finds that Storm contravened s 601ED(5) of the Act or that [any of the three Banks] were involved in the contravention, Investors may make application for orders for compensation pursuant to s 1325(2) of the Act (or ASIC may make application on their behalf under that section, in accordance with s 1325(3) of the Act).

(Emphasis added)

5    The relief sought in ASIC’s original statement of claim was in identical terms to that set out above.

6    The word “Investors” (emphasised above) was defined in para 6 of ASIC’s statement of claim as follows:

The Storm model

6    Storm’s principal business was the promotion to members of the public of a programme or plan of action in the form of a standardised leveraged investment programme (Storm Scheme) that provided for each person who invested pursuant to the Storm Scheme (together, the Investors):

(a)    to make leveraged investments in index share funds by investing:

(i)    money available to the Investors from their existing resources, including in many cases money borrowed by way of a loan secured on the Investor’s home; and

(ii)    money borrowed pursuant to a margin loan secured against units acquired in index share funds;

(b)    to retain some investment funds in a cash account known as a ‘cash dam’ for servicing the cost of the loans and, if required, living expenses; and

(c)    to receive from Storm ongoing monitoring and management of their investments and loans.

The legislative provisions

7    It can be seen from the relief claimed by ASIC that it relies upon:

(a)    s 1324 of the Act and s 21 of the Federal Court of Australia Act 1976 (Cth) (“the FCA Act”) to seek a declaration and injunction against Storm in relation to its alleged contravention of s 601ED(5) of the Act; and

(b)    s 1325 of the Act and s 21 of the FCA Act to seek declarations that the three Banks were knowingly concerned in Storm’s contravention of s 601ED(5) of the Act.

8    I will set out the relevant parts of the various statutory provisions mentioned above, together with various related provisions of the Act.

9    First, s 601ED(5) of the Act provides that: “A person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered.”

10    Then, s 1324(1) of the Act allows ASIC, or a person whose interests have been, are, or would be affected, by certain defined conduct, to apply to the Court for an injunction to restrain another person from engaging in that conduct, or requiring that person to do any act or thing. The conduct defined in that section is:

(a)    a contravention of this Act; or

(b)    attempting to contravene this Act; or

(c)    aiding, abetting, counselling or procuring a person to contravene this Act; or

(d)    inducing or attempting to induce, whether by threats, promises or otherwise, a person to contravene this Act; or

(e)    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)    conspiring with others to contravene this Act;

11    Section 1325 of the Act is headed “Other Orders”. Sections 1325(1) and (2) relied upon by ASIC in its prayer for relief (above) each use the expression “a person who was involved in the contravention”. Because these provisions are central to the arguments put by the three Banks in these strike-out applications, it is appropriate to set them out in full. They are as follows:

(1)    Where, in a proceeding instituted under, or for a contravention of, subsection 201P(1), Chapter 5C, 6CA or 6D, subsection 798H(1) or Part 7.10, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage because of conduct of another person that was engaged in in contravention of subsection 201P(1), Chapter 5C, 6CA or 6D, subsection 798H(1) or Part 7.10, the Court may, whether or not it grants an injunction, or makes an order, under any other provision of this Act, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (5)) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.

(2)    The Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage because of conduct of another person that was engaged in in contravention of subsection 201P(1), Chapter 5C, 6CA or 6D, subsection 798H(1) or Part 7.10, or on the application of ASIC in accordance with subsection (3) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (5)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.

(3)    Where, in a proceeding instituted for a contravention of subsection 201P(1), Chapter 5C, 6CA or 6D, subsection 798H(1) or Part 7.10 or instituted by ASIC under section 1324, a person is found to have engaged in conduct in contravention of subsection 201P(1), Chapter 5C, 6CA or 6D, subsection 798H(1) or Part 7.10, ASIC may make an application under subsection (2) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but ASIC must not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made

12    Section 601ED falls within Ch 5C of the Act, so these provisions apply to a contravention of that section. Further, s 1325(5), referred to in ss 1325(1) and (2) (above), sets out various types of orders that a court may make against the person engaged in the conduct so described. Those orders include a declaration that a contract was void ab initio; a declaration varying the terms of a contract; and orders for the payment of damages.

13    It will be noted that the expression “knowingly concerned in” does not appear in s 1325(1)–(3) above – it does, however, appear in s 1324(1)(e): see at [10] above. Instead, the expression used in ss 1325(1) and (2) is: “involved in the contravention”. That expression is defined in s 79 of the Act as follows:

A person is involved in a contravention if, and only if, the person:

(a)    has aided, abetted, counselled or procured the contravention; or

(b)    has induced, whether by threats or promises or otherwise, the contravention; or

(c)    has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or

(d)    has conspired with others to effect the contravention.

14    For present purposes, the consequences of being knowingly concerned in, or involved in, a contravention are dealt with in ss 1324 and 1325 of the Act, respectively. In determining these applications, it is not necessary to decide whether this difference in terminology between these two sections has any significance.

15    Finally, s 21 of the FCA Act gives the Court the power in relation to “a matter in which it has original jurisdiction” to make binding declarations of right. In this context, the words “a matter” require that there must be an existing and real controversy between the parties involving “some immediate right, duty or liability to be established by the determination of the Court”: see In re the Judiciary Act 1903-1920 and In re the Navigation Act 1912-1920 (1921) 29 CLR 257 at 265 per Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ and Tay v Migration Review Tribunal (2009) 178 FCR 1; [2009] FCA 515 (“Tay”) at [27] per Besanko J. It is not sufficient if the matter involves an abstract, theoretical or hypothetical question: see Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581–2 per Mason CJ, Dawson, Toohey and Gaudron JJ and Tay at [32].

The issues and contentions

16    The primary focus of these strike-out applications is ASIC’s reliance upon s 1325 of the Act. In summary, the three Banks submitted that:

(a)    In the absence of an identified Investor or Investors (as defined in para 6 of ASIC’s statement of claim: see [6] above), either as a party to these proceedings under s 1325(1), or as a person who actually wishes to have ASIC apply on their behalf under ss 1325(2) and (3), which Investor has suffered loss or damage as a consequence of the contravention of s 601ED(5) of the Act by Storm, the declarations sought by ASIC that each of them was knowingly concerned in that contravention does not involve a matter of controversy affecting the immediate legal rights, duties, or liabilities of any person such that the Court has jurisdiction in these proceedings to make the declarations sought against them.

(b)    In the alternative, if the Court does have jurisdiction to entertain the proceedings, the proceedings should be stayed permanently, or at least until such time as ASIC has identified an Investor or Investors (as defined) who has suffered loss or damage as a consequence of the alleged contravention by Storm and who wishes to have ASIC claim compensation under ss 1325(2) and (3) of the Act in relation to the alleged involvement by one or more of the three Banks in that contravention.

17    Importantly, in relation to [16(a)] above, they submitted that, under the provisions of the Act, being knowingly concerned in a contravention of s 601ED is not a contravention of the Act per se. Further, they submitted there is no provision of the Act that fixes primary responsibility for a contravention of the Act on someone who is knowingly concerned in it: cf s 11.2 of the Criminal Code 1995 (Cth).

18    ASIC’s response to these submissions was that s 1325 involved a two-stage process. It submitted the first stage involved a finding by the Court that Storm engaged in conduct that contravened s 601ED(5) of the Act and that one or more of the three Banks was knowingly concerned in that contravention. It submitted the second stage involved an application by ASIC in accordance with s 1325(2) on behalf of a person or persons who have suffered, or are likely to suffer loss or damage by that conduct (in accordance with s 1325(3)), for an order to compensate those persons, or for any of the other orders mentioned in s 1325(5). ASIC submitted that this two-stage process meant that it did not have to identify any Investor who may seek to have it apply for an order for compensation under s 1325(2) and (3) until such time as the finding had been made at the first stage that one or more of the Banks was knowingly concerned in Storm’s contravention of s 601ED(5). Indeed, ASIC submitted that there was authority of this Court that prevented it doing so. Nonetheless, ASIC submitted there was a real controversy between ASIC and each of the three Banks at the first stage about whether one or more of them was knowingly concerned in Storm’s contravention of the Act such that the Court has the jurisdiction to make the declarations sought.

19    In response to these submissions, the three Banks submitted that there is no such two-stage process under s 1325. It follows, so they submitted, that ASIC is still bound to identify an Investor or Investors who has suffered loss or damage. They submitted that if it does not do so, ASIC is simply seeking an advisory opinion from the Court about whether one or more of them was knowingly concerned with Storm’s alleged contravention of the Act. In the alternative, if there is such a two-stage process under s 1325, it only arises if one of them were to take the point and each has expressly waived any reliance on it.

20    This summary of the issues between the parties represents their positions earlier in the life of these strike-out applications. However, in the process leading up to, and during, the ultimate hearing of the strike-out applications, ASIC’s reliance on s 1325 of the Act changed significantly. Since those changes directly affect the determination of these strike-out applications, it is necessary to set out what those changes were and some of the details of the procedural context in which they occurred. Before doing so, I will begin by recording two preliminary procedural matters.

the procedural context

Storm’s liquidators not involved

21    Shortly before the first directions hearing in these proceedings, Mr Ivor Worrell, one of the liquidators of Storm, indicated by email to the solicitors for ASIC that neither the liquidators nor Storm wished to play any active role to play in the proceedings. Accordingly, Mr Worrell appeared at the first directions hearing and confirmed that the liquidators’ position was as stated in his email. As a result, the liquidators of Storm were excused from any further attendance or involvement in the proceedings.

Section 471B leave granted

22    The other preliminary procedural matter involved the requirements of s 471B of the Act. Because Storm was in liquidation, ASIC required leave under that section to begin, or proceed with, these proceedings against it. Mr Worrell indicated in his email above, that the liquidators did not oppose such leave being granted. For their parts, the three Banks initially opposed that leave being granted, but subsequently withdrew that opposition. Accordingly, at the third directions hearing, an order was made granting the necessary leave under s 471B of the Act.

Two related class actions

23    From the outset, the case management of these proceedings was affected by the existence of two other proceedings in the Court. They were Sherwood v Commonwealth Bank of Australia Limited (NSD 811/2010) and Richards v Macquarie Bank Limited (QUD 590/2010). Both proceedings are class actions under Pt IVA of the FCA Act. Each class involves about 230 members. Those proceedings relate to claims made against the CBA and Macquarie Bank by persons who claim to have suffered loss or damage from their involvement in investment schemes operated by Storm. The question whether those investments schemes were managed investment schemes that were required to be registered under s 601ED of the Act is a central issue in both proceedings.

24    Initially, these three sets of proceedings were case managed separately. However, at the first directions hearing, the question arose as to how best to conduct these proceedings given that the two class action proceedings were on foot involving similar, if not identical, issues. To address this aspect, ASIC proposed orders that required it to confer with the solicitors for the plaintiffs in both the Sherwood and the Richards proceedings about “… conducting this proceeding, the Sherwood [proceeding], and the Richards [proceeding] in a manner that is as efficient as possible”. Thereafter, ASIC was to notify the solicitors for the three Banks as to “what steps, if any, it says ought to be taken in order that this proceeding, the Sherwood [proceeding], and the Richards [proceeding] may be conducted in a manner that is as efficient as possible”.

25    Directions were also made that the three Banks were to file and serve any application for a stay or strike out of these proceedings, together with an outline of their submissions in support of any such application and ASIC was to file and serve any material in response, including its outline of submissions. It was intended that these latter directions would not operate if, after conferring with the Sherwood and Richards plaintiffs, ASIC decided not to proceed with these proceedings and instead await the outcome of the two class action proceedings.

26    By the time of the second directions hearing, ASIC had conferred with the Sherwood and Richards plaintiffs and given notice to the three Banks that it intended to proceed with these proceedings. Consequently, the three Banks had filed and served their strike-out applications.

ASIC’s first change of position regarding s 1325

27    It was at this second directions hearing that ASIC made its first change of position in relation to s 1325. It sought and was given leave to amend its originating application by striking out the words at the end of para 3 of the relief sought (see at [4] above): “for the purposes of s 1325(1) of the Act”. It was also given leave to make a corresponding amendment to the relief sought in its statement of claim. Mr Derrington SC, for ASIC, claimed that this amendment made it clear that ASIC was not just seeking the declarations under s 1325(1), but it was also seeking them for the purposes of an application being made for compensation on behalf of Investors under ss 1325(2) and (3). He described the declarations as being “a stepping stone” to that type of application.

Overlaps and joint case management

28    This amendment did not dissuade the three Banks from proceeding with their strike-out applications and most of that directions hearing was taken up with submissions by Mr Gleeson SC, for Macquarie Bank, in support of its application. However, as that hearing proceeded, it became apparent that, assuming the Court had jurisdiction in these proceedings, the question whether they should be stayed permanently may be affected by the co-existing Richards proceedings and that, in turn, indicated that it would be more efficient and effective to have all three proceedings case managed together, rather than separately.

29    Accordingly, arrangements were made within the Court to transfer the Sherwood proceedings from the docket of Emmett J in the Sydney Registry, to my docket in the Brisbane Registry. As well, the Richards proceedings were transferred from the docket of Dowsett J to my docket.

30    In the meantime, to assist to determine the most efficient and effective way to case manage the three proceedings, I made a series of directions requiring the parties to exchange information and confer to provide to the Court a joint agreed statement as to the number of Storm Investors who were class members in each of the Sherwood and Richards proceedings, and those who were (and were not) also Investors as defined in para 6 of these proceedings (see at [6] above) and who may seek to have ASIC apply in these proceedings for compensation on their behalf under ss 1325(2) and (3). In relation to the BOQ, which was not a defendant in any existing class action proceeding, ASIC and that Bank were required to exchange information and confer to prepare a joint agreed estimate of the Investors (as so defined) who may seek to have ASIC apply for compensation on their behalf as described above.

31    At the next directions hearing, which was a joint directions hearing for all three proceedings, I was told that the extent of the overlaps between the various proceedings had been identified by the parties as follows:

    Of the 2,099 customers of the CBA who invested in a Storm Scheme, 467, or 22.2%, were potential members of the Sherwood class action and the balance of 77.8% were persons who may seek to apply under ss 1325(2) and (3) in these proceedings.

    All but one of the 1,060 customers of Macquarie Bank who invested in a Storm Scheme were potential members of the Richards class action and there was, therefore, only one Investor who may seek to apply under ss 1325(2) and (3) in these proceedings.

    Because the BOQ was not a defendant in any class action proceeding, all of its 502 customers who invested in a Storm Scheme were persons who may seek to apply under ss 1325(2) and (3) in these proceedings.

32    It was apparent from these figures that each of the three Banks was in a very different position as to the extent of any potential overlap between these proceedings and one or other of the class action proceedings. With Macquarie Bank, the potential overlap was almost total; with the CBA, the overlap involved less than one quarter of the Investors; and with the BOQ, there is no overlap.

The strike-out applications proceed

33    As a consequence, each of the Banks proffered a somewhat different approach to the joint case management of the three proceedings. Mr Payne SC, for the CBA, submitted that ASIC should identify at least one representative Investor (as defined in these proceedings) in each of the six identified categories of CBA customers who may wish to apply under ss 1325(2) and (3) in these proceedings. He said that if ASIC did that, the CBA did not wish to pursue its strike-out application. If ASIC did not do that, he submitted that these proceedings should be stayed until it did. On the other hand, Mr Gleeson, for Macquarie Bank, submitted that, since there was only one (or a very small number) of Macquarie Bank customers who may wish to apply under ss 1325(2) and (3) in these proceedings, it wished to proceed with its strike-out application because, if it were successful in that application, that would dispose of these proceedings and it could then concentrate on the Richards class action proceeding. Mr Crowe SC, for the BOQ, took a similar approach. In these circumstances, where at least two of the Banks wished to proceed with their strike-out applications, I decided to proceed to hear the remainder of the submissions on those applications and I fixed a further hearing date for that purpose.

ASIC’s second change of position regarding s 1325

34    Some days before that hearing, ASIC made its second change of position in relation to s 1325 of the Act. As will appear below, this change of position was far more significant than the first. It did this by filing a notice of motion seeking to amend the relief claimed in its amended originating process and its amended statement of claim to insert the following:

(a)    An injunction under s 1324(1) of the Corporations Act 2001 (Cth) restraining the Second to Fourth Defendants from being knowingly concerned in, or being party to, the operation of the Storm Scheme.

(b)    Such further or other orders as the court deems appropriate.

35    This application for leave to amend was opposed by the three Banks. I heard argument on it and some related matters and delivered my decision on the next day, allowing ASIC leave to make the proposed amendments: see [2011] FCA 763. I then proceeded to hear the remainder of the submissions on these strike-out applications.

36    During the course of those submissions, Mr Derrington made it clear just how significant ASIC’s change of position was following those amendments. He did that by describing the further amended proceedings as proceedings to: “enforce the Corporations Act; neither more, neither less. We are not talking, with respect, in our proceedings about compensation. It is an action to enforce the Corporations Act.” He underscored this by pointing out that ASIC’s statement of claim did not contain any pleading that any particular person had suffered damage and the prayer for relief in the further amended originating application and the further amended statement of claim did not contain any claim for damages on behalf of any person. At its highest, he submitted that there was “an intimation” that these proceedings “may become an avenue through which other parties or ASIC may make an application under s 1325(2) or (3)”. He repeated a number of times that s 1325 was irrelevant for present purposes and it was not something that had to be determined. Nonetheless, he did say that this did not mean that Storm Investors may not seek to take advantage of ss 1325(2) and (3) of the Act in these proceedings at some stage in the future if they wished. If they did, he pointed out that ASIC retained a discretion under s 1325(3) as to whether it would make an application on behalf of those Investors.

37    Thus, it became clear that, whereas ASIC’s original purpose in these proceedings was to seek the declarations against the three Banks under s 1325 for the purposes of facilitating applications by Storm Investors seeking compensation under ss 1325(2) and (3), its primary purpose now, ie post-amendment, was to exercise its role as the regulator under the Act by seeking injunctions against the three Banks under s 1324(1).

ASIC’s post-hearing statement

38    About a week after I reserved my decision on these strike-out applications, my associate received a letter from ASIC enclosing a “brief statement” which it said was being provided with the consent of the three Banks. The stated purpose in this statement was: “to clarify or correct any statements made during oral address … in relation to ASIC’s reliance on s.1325 of the Corporations Act”.

39    Among other things, this statement purported to withdraw a submission made by Mr Derrington at the hearing on 9 June 2011. The submission of this statement in this way after the conclusion of the hearing was improper. If ASIC wished to correct, withdraw, or add to something it had said in open court during the hearing, then the proper course was for its counsel to seek to have the matter relisted and seek leave to make further submissions to the Court. This ensures that the whole of the proceedings occur in open court consistent with the principle of the open administration of justice: see Re Application by the Chief Commissioner of Police (Victoria) (2005) 214 ALR 422; [2005] HCA 18 at [54] and Carr v Finance Corporation of Australia Limited (1981) 147 CLR 246 at 258. For these reasons, the consent of the three Banks to the submission of this statement was misconceived. Furthermore, an application in open court would have allowed any confusion caused by the contents of ASIC’s statement to have been cleared up. For these reasons I do not intend to have any further regard to the contents of ASIC’s statement, nor the joint response to it submitted by the three Banks.

40    I will therefore proceed to deal with these strike out applications on the basis that ASIC’s approach to these proceedings is as outlined by Mr Derrington in his submissions at the hearing of these strike-out applications.

The operation of section 31A of the FCA Act and Order 20 rule 5 of the Federal Court Rules

41    Section 31A(2) of the FCA Act provides that:

(2)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)    the first party is defending the proceeding or that part of the proceeding; and

(b)    the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

42    It will be immediately apparent that the sole purpose of this subsection is to allow the Court to give judgment for a respondent or defendant. Further, the Court may do so on the “whole or any part of a proceeding” and it can only do that where it is satisfied that the applicant or plaintiff “has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding”.

43    Order 20 r 5(1) and (2) of the Federal Court Rules provides:

(1)    This rule applies to a proceeding commenced on or after 1 December 2005 if the Court is satisfied that, for the proceeding generally or for a claim for relief in the proceeding:

(a)    the proceeding or claim is frivolous or vexatious; or

(b)    the proceeding or claim is an abuse of the process of the Court.

(2)    The Court may order that the proceeding be stayed or dismissed generally or in relation to the claim for relief.

44    By comparison with s 31A of the FCA Act, this rule allows a proceeding to be stayed or dismissed generally. It also sets a different set of standards for its operation, viz the proceeding is frivolous, vexatious or an abuse of process. However, it is similar to s 31A in that it allows the Court to act in relation to a part of the proceeding, viz: “or for a claim for relief in the proceeding”.

45    In their strike-out applications, the three Banks have all relied upon s 31A(2) of the FCA Act to have the proceedings “dismissed”. As I have pointed out above, the only option available under s 31A is summary judgment, so I take it that that is what they seek. More significantly, none of them has sought to identify a part of the proceedings upon which they have sought to obtain summary judgment or, for that matter, to have dismissed. In the alternative, they have sought to rely upon O 20 r 5 of the Federal Court Rules to have the proceedings dismissed or stayed. As I have pointed out above, these options are available under that Rule. However, as with s 31A, none of the Banks has sought to identify a particular claim for relief in the proceedings which they seek to have dismissed or stayed. I will therefore proceed to deal with the strike-out applications on the basis that the three Banks are seeking summary judgment on the whole proceedings, or alternatively, to have the whole proceedings dismissed or stayed.

Section 1325 compensation proceedings changed to section 1324 regulatory proceedings

46    The procedural history I have outlined above demonstrates that these proceedings, insofar as they are directed to the three Banks, began as a vehicle for Storm Investors to claim compensation under ss 1325(2) and (3) of the Act. To achieve that, Mr Derrington made it clear that ASIC sought the declarations against the three Banks as “stepping stones”. Even when ASIC removed the reference to s 1325(1) from the prayer for relief, it did so to make it clear that it was not limiting its reliance on s 1325(1), but it also intended to rely upon ss 1325(2) and (3). Thus, these proceedings remained a vehicle for Storm Investors to claim compensation under those provisions. However, all that began to change when ASIC introduced its claim for an injunction against the three Banks under s 1324(1) of the Act. From then on, ASIC recast the proceedings as regulatory proceedings under s 1324(1) of the Act, rather than proceedings to provide a vehicle for Storm Investor compensation claims under ss 1325(2) and (3). While it is true that ASIC did not at any time “abandon” the option of s 1325 being used in these proceedings at some time in the future by Storm Investors who had suffered loss and damage, it clearly moved away from that option being an existing purpose of these proceedings.

47    A number of things flows from this recasting of the proceedings by ASIC. First, there can be no doubt that, by its terms, s 1324 gives ASIC the power to seek an injunction to restrain persons such as the three Banks: “being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by [Storm] of [the] Act”: see s 1324(1)(e) at [10] above.

48    Secondly, there can be no doubt that ASIC’s application for an injunction under s 1324 gives rise to a real controversy between ASIC and each of the three Banks as to its liability for its alleged involvement in Storm’s alleged contravention of s 601ED. This, in turn, provides a basis for the Court’s power to issue a declaration under s 21 of the FCA Act. Of course, it may ultimately emerge that an injunction is sufficient relief and a declaration to the same effect is unnecessary. Whether that is so, will obviously have to await the finalisation of the proceedings.

49    On this aspect Mr Gleeson submitted that, so far as these proceedings are now directed to ASIC obtaining an injunction under s 1324 of the Act, they are futile. He submitted this was so because Storm is now in liquidation, all the investment schemes concerned have been wound up and there is therefore no likelihood of any similar conduct occurring in the future. I do not consider this submission can be accepted. There is ample authority to the effect that a statutory provision such as s 1324 is not constrained by the usual equitable principles in relation to the grant of injunctions, including the principle that an injunction should not be issued where there is no likelihood of the conduct in question being repeated in the future. It follows that quite apart from enjoining a repetition of certain conduct, a court may issue an injunction under s 1324 to mark its disapproval of that conduct involved and to deter others from engaging in similar conduct in the future: see Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [34]–[36] per Austin J, Australian Securities and Investments Commission v Parkes (2001) 38 ACSR 355 at [9] per Austin J and Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd (2002) 42 ACSR 605; [2002] NSWSC 741 at [14]–[16] and [36] per Palmer J.

50    For these reasons, I consider ASIC has now made a valid and justiciable claim for relief under s 1324 of the Act such that there is no basis upon which the three Banks can obtain summary judgment in relation to the whole of the proceedings under s 31A of the FCA Act.

51    Even if I were to assume that the strike-out applications by the three Banks were directed to that part of these proceedings involving s 1325, I do not consider that approach would provide any basis for relief under either s 31A of the FCA Act, or O 20 r 5. At present, the prayer for relief in the further amended originating application and in the further amended statement of claim contains no mention of s 1325. The only mention of that section in the whole proceedings as they are presently constituted is the note below the prayer for relief. It is to the following effect:

If the Court finds that Storm contravened s 601ED(5) of the Act or that CBA, BOQ, or Macquarie were involved in the contravention, Investors may make application for orders for compensation pursuant to s 1325(2) of the Act (or ASIC may make application on their behalf under that section, in accordance with s 1325(3) of the Act).

52    Mr Derrington told me during submissions that this note was inserted because of certain comments made by Dowsett J in Australian Competition and Consumer Commission v Michigan [2002] FCA 1439 at [23]. Be that as it may, it is clear from the face of this note that it does not form part of ASIC’s claim for relief. Instead, it is a statement as to ASIC’s view about the effect of ss 1325(2) and (3) of the Act. Whether or not the view expressed is correct, will have to await determination on another occasion. For present purposes, I consider it is clear this note does not constitute a part of the proceedings upon which the three Banks could obtain summary judgment, and nor does it involve a claim in the proceedings that could be dismissed or stayed under O 20 r 5.

53    Furthermore, as Mr Derrington correctly observed during submissions, the statement of claim does not contain any pleading of loss or damage in relation to any Storm Investor, nor any mention of any Storm Investor suffering loss or damage as a result of his or her involvement in a Storm Scheme. In essence, the statement of claim is limited to identifying Storm’s contravention of s 601ED(5) and the knowledge of the three Banks in relation to that contravention.

54    Finally, I should briefly mention some other consequences of ASIC’s change of position in these proceedings that may affect the future case management of these proceedings. I do so partly because Mr Payne made a number of submissions about the future case management of these proceedings. As I have mentioned above, insofar as they are directed to the three Banks, these proceedings are no longer being actively pursued as proceedings aimed at facilitating compensation claims by Storm Investors under ss 1325(2) and (3) of the Act. The first consequence of this is that the overlaps that were identified as occurring between this proceeding in its original form and the Richards and Sherwood proceedings (see at [31] above) no longer exist. This also applies to the submission made by Mr Gleeson that it was an abuse of process for ASIC to pursue these proceedings in their original form when the same group of Storm Investors is pursuing claims for the same loss and damages in the Richards proceedings. The second consequence is that one of the main justifications for joint case management of these three proceedings, viz that they all involve claims by Storm Investors for loss and damages, no longer exists: see at [28] above. This will obviously need to be taken into account in the ongoing case management of the three proceedings, particularly as to whether they should be heard together or separately, and if separately, which one (or two) is to proceed first. Of course, while the overlaps between these three proceedings no longer exist, there are still issues that are common to all three proceedings, some of which I have mentioned at [23] above.

Conclusion

55    For these reasons, I will order that the notices of motion filed by each of the three Banks be dismissed.

Associate:

Dated:    2 August 2011