FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Bank of Queensland Limited [2011] FCA 1361

THE COURT DIRECTS THAT:

1.    Within fourteen (14) days of the date hereof, each group of parties serve upon each other group of parties and lodge with the Associate to Foster J, Short Minutes of Order giving effect to these Reasons together with a Written Submission of no more than three (3) pages in length in support of the orders sought.

2.    The orders to be made by the Court thereafter be determined on the papers.

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

REASONS FOR JUDGMENT

1    In this proceeding, the Australian Securities and Investments Commission (ASIC) claims relief against Bank of Queensland Limited (BOQ), Senrac Pty Limited (Senrac) and Macquarie Bank Limited (Macquarie). The proceeding is one of several proceedings which have been instituted as a result of the collapse of Storm Financial Limited (Receivers and Managers Appointed) (In Liq) (Storm). ASIC is the first applicant. Barry and Deanna Doyle (the Doyles) are the second and third applicants.

2    In its Application, ASIC relies upon s 39B(1A)(c) of the Judiciary Act 1903 (Cth), s 86 of the Trade Practices Act 1974 (Cth) (the TPA), s 1337BA of the Corporations Act 2001 (Cth) (the Corporations Act) and s 12GJ of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) as the statutory provisions upon which the Court’s jurisdiction to deal with the claims made by ASIC in the proceeding is founded.

3    ASIC’s claims are many. Its Statement of Claim runs to 157 pages. There are 328 paragraphs. In its Application, ASIC claims 69 specific orders and four general orders.

4    In its Application, ASIC stated:

The first applicant brings these proceedings with the consent of, and on behalf of, each of the second and third applicants pursuant to section 12 GM(2)(b) of the ASIC Act and causes these proceedings to be begun and carried on in each of the second and third applicants’ names pursuant to section 50 of the ASIC Act.

This application is for relief consequent upon contraventions of sections 12CA, 12CB and/or 12CC of the ASIC Act, sections 51AA, 51AB and/or 51AC of the TPA, section 39 of the Fair Trading Act 1989 (Qld) and/or sections 8 and 8A of the Fair Trading Act 1999 (Vic), as well as claims [for] damages for breach of contract and recovery under section 73 of the TPA of loss or damage suffered by the second and third applicants.

5    The respondents contend that much of what ASIC has alleged against them discloses no reasonable cause of action against them, has a tendency to cause prejudice, embarrassment and delay and is otherwise an abuse of the process of the Court. Accordingly, each of the respondents has filed a Notice of Motion in which each of them seeks orders that:

(1)    Pursuant to O 11 r 16 of the Federal Court Rules, the whole or part of the Statement of Claim be struck out.

(2)    Alternatively, pursuant to O 20 r 5 of the Federal Court Rules and s 31A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act), the whole or part of the proceeding be dismissed.

(3)    Alternatively, the proceeding be stayed permanently.

6    The Federal Court Rules 2011 have been in operation since 1 August 2011. The equivalent rule under those rules to former O 11 r 16 is r 16.21. The equivalent rule under those rules to former O 20 r 5 is r 26.01. The decision which I have to make on the Motions filed by the respondents falls to be determined under the Federal Court Rules (not the Federal Court Rules 2011: see r 1.04 of those rules).

7    One of the objections to ASIC’s case raised by the respondents is that this proceeding should not be permitted by the Court to remain actively on foot because there are two sets of proceedings instituted in the Queensland Registry of the Court (ASIC v Storm Financial Ltd and Ors (QUD 577 of 2010) and Richards v Macquarie Bank Limited (QUD 590 of 2010)) (the concurrent proceedings) which raise similar factual and legal issues. Macquarie, in particular, argues that this proceeding should be dismissed or permanently stayed because of the existence of the concurrent proceedings. However, Macquarie suggested that its claim for a permanent stay and its claim for summary dismissal (insofar as that claim is based upon the existence of the concurrent proceedings) should be adjourned to a date to be fixed because the progress of the concurrent proceedings may have some impact on the relevant questions of concurrency affecting the present proceeding. I understood that BOQ and Senrac took the same position as Macquarie on this point. ASIC did not object to this course and I propose to accede to it.

8    The respondents have raised many points in support of the summary relief which they seek. In order to do justice to the respondents’ arguments and to ASIC’s answers to those arguments, it will be necessary to consider each of those arguments in turn.

The Case Against BOQ and Senrac

9    The allegations made in the Statement of Claim against BOQ and Senrac may be summarised as follows:

(a)    As at April 2006, the Doyles were financially naive retirees in their mid 60s with little tertiary education and no experience in investing in the stock market or borrowing to invest in the stock market.

(b)    As at April 2006, the Doyles owned their home at Kirwan, Qld, which was worth approximately $450,000 at that time.

(c)    As at April 2006, the Doyles had joint superannuation benefits of the order of $650,000 and a small amount of cash.

(d)    As at April 2006, the Doyles had no significant liabilities.

(e)    In early 2006, Mr Doyle approached Storm and requested financial advice from Storm as to how the Doyles should invest their assets in order to achieve their objectives in retirement.

(f)    Storm advised the Doyles to invest in registered managed investment schemes operated by Storm (Storm Australian Indexed Trusts) and, in particular, to invest in a specific type of trust called a Double Geared Investment. Storm advised the Doyles to cash in their superannuation and to borrow funds from BOQ by way of investment home loan and to borrow funds from Macquarie by way of a margin loan in order to increase the cash funds available to them for investment.

(g)    In the period from about May 2006 until about June 2008, having borrowed funds as advised by Storm, the Doyles used those funds and their own funds to invest in a number of Storm Australian Indexed Trusts. The total amount invested by the Doyles in Storm Australian Indexed Trusts as at June 2008 was $2,266,000. The Doyles also paid to Storm significant sums by way of fees.

(h)    As a result of making these investments on the advice of Storm, the Doyles lost the entire value of their superannuation and cash assets and were left with liabilities to BOQ totalling $456,000 which broadly equated as at late 2008 with the value of their family home. The Doyles did not have the financial capacity to service these liabilities.

(i)    There are to be implied into the investment contracts between the Doyles and Storm the implied terms specified in s 12ED of the ASIC Act and s 74 of the TPA.

(j)    The services provided by Storm to the Doyles under most of the investment contracts were of a kind ordinarily acquired for personal, domestic or household use, within the meaning of s 12BC(1)(b) of the ASIC Act and s 4B(1)(b)(ii) of the TPA with the consequence that the Doyles were consumers for the purposes of those Acts.

(k)    Senrac operated BOQ’s North Ward Qld branch as BOQ’s agent and dealt with the Doyles on behalf of BOQ.

(l)    Storm made a number of misrepresentations to the Doyles as to the wisdom and viability of the investments which it recommended and thereby became liable in tort to the Doyles and also contravened s 12DA of the ASIC Act, s 52 of the TPA and s 1041H of the Corporations Act.

(m)    BOQ is liable to the Doyles for breach of certain terms imported into their loan contracts with BOQ by the Modified Code of Banking Practice 2004. The effect of those terms was to impose upon BOQ and Senrac a contractual duty to exercise the care and skill of a diligent and prudent banker in forming and applying BOQ’s opinion about the Doyles’ ability to repay loans from BOQ. This claim against BOQ is for damages for breach of contract. BOQ is also alleged to have engaged in asset lending.

(n)    BOQ is also guilty of unconscionable conduct within the meaning of s 12CB and s 12CC of the ASIC Act, s 51AB and s 51AC of the TPA and s 39 of the Fair Trading Act 1989 (Qld) (the QFTA) vis-À-vis the Doyles by increasing or failing to address the risks of default by the Doyles under their loan contracts with BOQ. This conduct is also said to constitute unconscionable conduct within the unwritten law within the meaning of s 12CA of the ASIC Act and s 51AA of the TPA. It is said that the Doyles were in a position of special disadvantage in their dealings with BOQ which gave rise to an entitlement to equitable relief.

(o)    By lending moneys to the Doyles, BOQ, in trade or commerce:

(i)    Supplied financial services and/or services to the Doyles of a kind ordinarily acquired for personal, domestic or household use; and/or

(ii)    Suppled financial services and/or services to the Doyles for the purpose of trade or commerce

and thereby engaged in conduct which was unconscionable in contravention of ss 12CA, 12CB and 12CC of the ASIC Act, ss 51AA, 51AB and 51AC of the TPA and/or s 39 of the QFTA. Senrac is said to have been knowingly concerned in the contraventions by BOQ and is therefore to be held liable for such conduct pursuant to s 5(2) of the ASIC Act, s 79 of the Corporations Act, s 75B of the TPA and s 5F of the QFTA.

(p)    Storm breached the implied fitness for purpose warranties imported into the investment contracts between it and the Doyles by s 12ED(2)(c) of the ASIC Act or, alternatively, s 74(2) of the TPA and the implied warranty that it would render its services with due care and skill (as to which see s 12ED(1)(a) of the ASIC Act and s 74(1) of the TPA).

(q)    Pursuant to s 73(1)(b) of the TPA, BOQ and Storm are jointly and severally liable to the Doyles for the amount of loss or damage suffered by them as a result of the breaches of contract, misrepresentations and breaches of warranty committed by Storm. This is the “Linked Credit Provider Claim”.

(r)    The Doyles have given their consent in writing to ASIC to commence proceedings on their behalf under s 12GM(3)(b) and s 50 of the ASIC Act.

10    Declaratory, pecuniary and other flexible relief relieving the Doyles from their obligations to BOQ are sought in the Application.

The Case Against Macquarie

11    In Macquarie’s Written Submissions-in-Chief, Senior Counsel for Macquarie summarised the whole of the Statement of Claim as follows (footnotes omitted):

(a)    paras [15]–[86] plead the dealings between the Doyles and Storm, and the investments. The pleadings allege eleven Investment Plans; eleven Statements of Advice or Statements of Additional Advice; eight Investment Contracts; and eleven Investments (the Investments);

(b)    paras [87]–[120]; [161]–[194]; and [195]–[228] plead respectively three home loan contracts between the individual applicants and BOQ (or Senrac Pty Ltd). The claims include breach of contract, and statutory unconscionable conduct in making the home loans for the purpose of Storm investments: See eg [100]–[105]; [188] (the Home Loan Case);

(c)    paras [121]–[160] plead the case against Macquarie, in effect, that it ought not to have advanced funds to the individual applicants: eg [146]; [152]. The claims are similar to those in the Home Loan Case, again alleging breach of contract (SOC [139]–[147]) (the Contract Claims); and statutory unconscionable conduct: SOC [p148]–[160] (the Unconscionable Conduct Claims). The pleadings invoke ss12CA, 12CB, 12CC, 12ED, 12GM(1), 12GM(7)(e) and 50 Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); ss51AA, 51AB, 51AC, 77, 82, 87(1), and 87(2)(d) Trade Practices Act 1974 (Cth) (TPA); ss39, 99, 100(1) and 100(7)(a) Fair Trading Act 1989 (Qld) (QFTA); and ss7, 8, 8A, 158 and 159 Fair Trading Act 1999 (Vic) (VFTA);

(d)    paras [229]–[305] plead a very large case against Storm. The case includes breach of warranties, breach of express terms, negligent misstatement and misleading and deceptive conduct (the Case Against Storm). The sole purpose of this pleading is to establish the liability of Storm to the Doyles, hence to invoke “strict liability” provisions in s73 TPA, making BOQ and Macquarie each jointly and severally liable for loss caused by Storm: SOC [381]–[328] (with [229]–[305], the s73 Case).

12    It should be noted that there are no allegations in the Statement of Claim to the effect that Macquarie made any misrepresentations to the Doyles or provided misleading advice to them. The Doyles admit and plead that they were party to Macquarie’s Risk Declaration and Disclosure Statement. There is no allegation in the Statement of Claim that the Doyles relied upon Macquarie in any way or sought advice from Macquarie. The case is that Macquarie and Storm had entered into a formal alliance whereby Storm would advise its clients to invest in its investment trusts upon the basis that they would borrow funds from BOQ and Macquarie for the purpose of maximising their investments and their returns from those investments.

13    The specific relief claimed against Macquarie is found at [58]–[73] of the Application. Those claims for relief are in the following terms:

58.    A declaration that the Third Respondent engaged in conduct that was unconscionable in all the circumstances in contravention of ss 12CB and/or 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or unconscionable within the unwritten law in contravention of s 12CA of the ASIC Act by:

(a)    entering into the Margin Loan Contract;

(b)    making each of the Credit Limit Approvals;

(c)    making each of the Margin Loan Advances; and

(d)    enforcing the Margin Loan Contract.

59.    Further or in the alternative, a declaration that the Third Respondent engaged in conduct that was unconscionable in all the circumstances in contravention of ss 51AB and/or 51AC of the Trade Practices Act 1974 (Cth) (TPA) or unconscionable within the unwritten law in contravention of s 51AA of the TPA by:

(a)    entering into the Margin Loan Contract;

(b)    making each of the Credit Limit Approvals;

(c)    making each of the Margin Loan Advances; and

(d)    enforcing the Margin Loan Contract.

60.    Further or in the alternative, a declaration that the Third Respondent engaged in conduct that was unconscionable in all the circumstances in contravention of s 39 of the QFTA by:

(a)    entering into the Margin Loan Contract;

(b)    making each of the Credit Limit Approvals;

(c)    making each of the Margin Loan Advances; and

(d)    enforcing the Margin Loan Contract.

61.    Further or in the alternative, a declaration that the Third Respondent engaged in conduct that was unconscionable in all the circumstances in contravention of ss 8 and/or 8A of the Fair Trading Act 1999 (Vic) (“VFTA”) or unconscionable within the unwritten law in contravention of s 7 of the VFTA by:

(a)    entering into the Margin Loan Contract;

(b)    making each of the Credit Limit Approvals;

(c)    making each of the Margin Loan Advances; and

(d)    enforcing the Margin Loan Contract.

62.    An order under ss 12GM(1) and (7)(e) of the ASIC Act directing that the Third Respondent pay to the Second and Third Applicants the amount of the loss or damage suffered by them by conduct of the Third Respondent in contravention of ss 12CA, 12CB and/or 12CC of the ASIC Act.

63.    An order under ss 87(1) and (2)(d) of the TPA directing that the Third Respondent pay to the Second and Third Applicants the amount of the loss or damage suffered by them by conduct of the Third Respondent in contravention of ss 51AA, 51 B and/or 51AC of the TPA.

64.    An order under s 100(1) and (7)(a) of the QFTA directing that the Third Respondent pay to the Second and Third Applicants the amount of the loss or damage suffered by them because of the contravention by the Third Respondent of s 39 of the QFTA.

65.    An order under s 158(1) and (2)(3) of the VFTA directing that the Third Respondent pay to the Second and Third Applicants the amount of the loss or damage suffered by them because of the contravention by the Third Respondent of s 7, 8 and/or 8A of the VFTA

66.    An order under s 12GF of the ASIC Act, s 82 of the TPA, s 99 of the QFTA and/or s 159 of the VFTA that the Third Respondent pay damages to the Second and Third Applicants.

67.    An order that the Third Respondent pay damages for breach of contract to the Second and Third Applicants.

Section 73 of the TPA

68.    A declaration that the Third Respondent was a “linked credit provider” in relation to Storm within the meaning of s 73(14) of the TPA.

69.    An order under s 73(1) of the TPA that the Third Respondent pay the amount of the loss or damage suffered by the Doyles.

As against all respondents:

General Orders

70.    An order that the quantification of all damages and similar compensation claims is to be assessed at a separate hearing after the determination of liability.

71.    Interest.

72.    Costs.

73.    Such further or other order as the Court sees fit.

The Evidence

14    The respondents filed affidavits made by their respective solicitors which addressed the existence and scope of the concurrent proceedings. That evidence also included some solicitors’ correspondence in which the parties ventilated their arguments before filing the Notices of Motion which these Reasons for Judgment determine.

15    Given that the claims for relief made by the respondents based upon the concurrent proceedings are to be deferred, much of this evidence is not relevant.

16    The substance of the matter is that the respondents’ claims that the Statement of Claim be struck out or the whole of the proceeding be dismissed are anchored in propositions of law which they submit are incontrovertible and which inevitably lead to the making of the orders which they seek.

The Issues

17    I shall deal in turn with each of the principal contentions raised by the respondents. It is fair to say that, in broad terms, the issues raised by BOQ and Senrac are the same as those raised by Macquarie. Each of the respondents’ camps provided lengthy Written Submissions to the Court in support of their contentions. These were matched by a similarly lengthy Written Submission filed by ASIC. The parties also made oral submissions. All of this material will remain with the Court file. I shall endeavour to capture and discuss the real issues in dispute and the parties’ arguments in relation to them. However, it is necessary to reduce this material to its essence in order to make it manageable. This is not intended to be disrespectful of the parties’ efforts to advance their respective clients’ interests. It is simply my attempt to produce a judgment of sensible length.

ASIC Concessions

18    At the hearing before me, ASIC made certain concessions in light of an important concession made by Senior Counsel for the respondents.

19    At Transcript p 43 ll 16–21, Mr Gleeson SC, who appeared for Macquarie, said:

That the form we could make a concession in is that Macquarie will not seek to defend the ASIC Act claim, by an argument that the services are not financial services within the ASIC Act, such that they needed to invoke the Trade Practices Act. And the effect of that, if that were acceptable to resolve that issue, would be that orders 59, 63 and 66, insofar as it refers to the Trade Practices Act, could be deleted, and the corresponding allegations could be deleted.

20    At Transcript p 44 ll 1–2, Mr Crowe SC, who appeared for BOQ and Senrac, said that he was in the same position.

21    These concessions led ASIC, for its part, to make appropriate concessions in response (at Transcript p 43 ll 37–44). Those concessions were formalised in a letter from ASIC to the solicitors for the parties dated 29 March 2011, a copy of which was sent to my Associate. That letter will become Exhibit “C”. I need not set out the terms of the letter. For present purposes, it is sufficient to note that, in light of the clarification offered by the respondents, ASIC does not press the allegations that the respondents contravened ss 51AA, 51AB and 51AC of the TPA. ASIC has agreed to amend the Application and Statement of Claim accordingly.

Consideration

The Proper Constitution of the Proceedings

22    The respondents contended that:

(a)    The pleadings are defective because ASIC’s status as an applicant is not clear;

(b)    ASIC does not have the power to bring and maintain certain of the claims made in the present proceeding, namely those for damages for breach of contract, those for pecuniary relief based upon the TPA, the ASIC Act, the Fair Trading Act 1999 (Vic) (the VFTA) and the QFTA; and

(c)    The declarations claimed could not be made in the form in which they are sought.

23    Central to the determination of these issues is a proper understanding of s 12GM and s 50 of the ASIC Act. Those sections are in the following terms:

12GM    Other orders

(1)    Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GLA or 12GLB, 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 (7) of this section) 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)    Without limiting the generality of section 12GD or 12GNB, the Court may, on the application of:

(a)    a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division; or

(b)    ASIC in accordance with subsection (3) on behalf of such a person or 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 (7)) if the Court considers that the order or orders concerned will:

(c)    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

(d)    prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person or persons.

(3)    ASIC may only make an application under paragraph (2)(b) on behalf of one or more persons identified in the application who:

(a)    have suffered, or are likely to suffer, loss or damage by the conduct of another person that was engaged in in contravention of a provision of this Division; and

(b)    have consented in writing to the application being made before it is made.

(4)    An application may be made under subsection (2) in relation to a contravention of this Division notwithstanding that a proceeding has not been instituted under another provision of this Part in relation to that contravention.

(5)    An application under subsection (2) may be made at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

(6)    For the purpose of determining whether to make an order under this section in relation to a contravention of Subdivision C (sections 12CA to 12CC), the Court may have regard to the conduct of parties to the proceeding since the contravention occurred.

(7)    Without limiting the generality of subsections (1) and (2), the orders referred to in those subsections include the following:

(a)    an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after a date before the date on which the order is made;

(b)    an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after a date before the date on which the order is made;

(c)    an order refusing to enforce any or all of the provisions of such a contract;

(d)    an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;

(e)    an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;

(f)    an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his or her own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage;

(g)    an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that:

(i)    varies, or has the effect of varying, the first mentioned instrument; or

(ii)    terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first mentioned instrument.

(7A)    Subsections (1) and (2) have effect subject to section 12GNA.

Note:    Section 12GNA may limit the liability, under an order under subsection (1) or (2) of this section, of a person for his or her contravention of section 12DA (Misleading or deceptive conduct) or involvement in such a contravention.

(8)    The powers conferred on the Court under this section in relation to a contract or covenant do not affect any powers that any other court may have in relation to the contract or covenant in proceedings instituted in that other court in respect of the contract or covenant.

(9)    In subsection (7):

interest, in relation to land, has the same meaning as in subsection 12DC(3).

(10)    A reference in this section to a contravention of a provision of this Division includes a reference to applying or relying on, or purporting to apply or rely on, a term of a consumer contract that the Court has declared under section 12GND to be an unfair term.

…

50    ASIC may cause civil proceeding to be begun

Where, as a result of an investigation or from a record of an examination (being an investigation or examination conducted under this Part), it appears to ASIC to be in the public interest for a person to begin and carry on a proceeding for:

(a)    the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or

(b)    recovery of property of the person;

ASIC:

(c)    if the person is a company—may cause; or

(d)    otherwise—may, with the person’s written consent, cause;

such a proceeding to be begun and carried on in the person’s name.

The Technical Pleading Point

24    Macquarie tendered in evidence before me the Memorandum of Consent and Agreement dated 20 December 2010 entered into between Mr Doyle and ASIC (Exhibit “A”). It was common ground that Mrs Doyle signed a similar document. The operative clauses of that document are in the following terms:

1.    For the purposes of section 50 of the Australian Securities and Investments Commissions Act 2001 (Cth) (“ASIC Act”), Mr Doyle consents to ASIC causing the Proceeding referred to in Annexure A, “Terms of this Agreement”, to be begun and carried on in Mr Doyle’s name.

2.    For the purposes of section 12GM of the ASIC Act, Mr Doyle consents to ASIC making an application on behalf of Mr Doyle under paragraph 12GM(2)(b) of the ASIC Act in the Proceeding referred to in Annexure A, “Terms of this Agreement”.

3.    Mr Doyle and ASIC agree to the provisions contained in Annexure A.

25    It is not necessary to refer in detail to Annexure “A” to this Memorandum. It is sufficient for present purposes to note the following matters:

(a)    Recital F records the fact that ASIC has investigated Storm pursuant to s 13 of the ASIC Act and determined that it is the public interest that a proceeding be commenced substantially in the form set out in the proposed Statement of Claim (Annexure “B”). There was no Annexure “B” to the copy of this Memorandum tendered in evidence.

(b)    ASIC was authorised to commence and prosecute the foreshadowed proceeding. Thereafter, ASIC is to have complete control over the conduct of the proceeding including any settlement or abandonment of the proceeding. Settlement or discontinuance cannot be agreed without the consent of the Doyles but that consent is not to be unreasonably withheld.

(c)    The Doyles agreed to provide further assistance to ASIC in connection with the proceeding.

26    At its meeting on 24 November 2010, ASIC had resolved as follows:

Compensation proceedings against Bank of Queensland Limited, Senrac Pty Limited and Macquarie Bank Limited

As a result of investigations into Storm and following consideration of matters in reports tabled at Commission meetings on 5 October 2010 and 24 November 2010, ASIC has formed the opinion pursuant to section 50 of the Australian Securities and Investments Act 2001 (Cth) that it is in the public interest for ASIC to begin and carry on proceedings against:

1.    Bank of Queensland Limited,

2.    Senrac Pty Limited, and

3.    Macquarie Bank Limited,

for the recovery of damages for negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation related, and other relief.

Commission DETERMINED to cause the proceedings to be begun and carried on in the name of Deanne Dorothy Doyle and Barry Edward Doyle subject to obtaining their written consent.

Commission DETERMINED the proceedings will not be filed immediately, in order to allow a short further period (no more than three weeks) for the commercial resolution discussions to continue.

27    The terms of the Memorandum signed by each of the Doyles make clear that:

(a)    The present proceeding has been brought under s 50 of the ASIC Act in the name of the Doyles;

(b)    Compensation and other orders pursuant to s 12GM of the ASIC Act is sought on behalf of the Doyles pursuant to s 12GM(2)(b);

(c)    The Doyles are nominal applicants only, having irrevocably ceded control of the proceeding to ASIC; and

(d)    ASIC has the entire conduct of the proceedings.

28    Macquarie argued that the Statement of Claim was deficient and embarrassing (in the technical pleading sense) because it does not make clear which causes of action are brought on behalf of the Doyles pursuant to s 12GM and which are brought in the name of the Doyles pursuant to s 50. It was submitted that the respondents were entitled to know which causes of action were anchored in s 12GM of the ASIC Act and which were anchored in s 50 of that Act. Macquarie advanced three main reasons for this. Essentially, those reasons were that a proper specification of which of the pleaded causes of action relied upon s 12GM and which causes of action relied upon s 50 would allow Macquarie to ascertain whether the Court’s jurisdiction pursuant to s 50 has been properly engaged and to ensure that only the authorised remedial responses (if any) were given in each case. ASIC contended that it and the Doyles could have brought separate proceedings for each of the postulated set of claims but chose not to do so, as a matter of convenience.

29    Subject to the observations made in the next section of these Reasons, I think that the debate directed to this point is arid. It is clear that the applicants rely upon s 12GM and s 50 of the ASIC Act. It is also clear that the Doyles are not seeking to run any case of their own, in their own right and for their own benefit. The only case to which they are parties is the case brought pursuant to s 50 of the ASIC Act. If, as ASIC seems to submit, the Doyles are seeking to litigate some case of their own, independently of the s 50 case, it should be made clear that this is so and the precise case sought to be run by the Doyles without the involvement of ASIC would need to be spelt out in the pleading. Consideration would then need to be given to whether such a case is available to the Doyles. As matters presently stand, however, no such case is presently pleaded.

The Scope of Section 12GM and Section 50 of the ASIC Act

Section 12GM

30    The respondents submitted that, upon the true interpretation of s 12GM of the ASIC Act, ASIC cannot seek compensation for the alleged breaches of contract against BOQ and Macquarie nor for most of the statutory causes of action relied upon. It was submitted that those causes of action do not fall within the phrase in s 12GM(1) “… conduct of another person that was engaged in in contravention of a provision of this Division …”. “This Division” referred to in that phrase is Pt 2, Div 2 of the ASIC Act (Unconscionable conduct and consumer protection in relation to financial services). It comprises s 12AA to s 12HD of the ASIC Act. Section 12GM is directed to compensating a party who has suffered, or is likely to suffer loss and damage by the conduct of another person that was engaged in in contravention of Pt 2 Div 2. Orders directed to preventing or reducing the loss or damage may be made. Examples of the types of orders which may be made are specified in s 12GM(7).

31    In my judgment, the breach of contract cases, as pleaded, cannot be brought by ASIC on behalf of the Doyles pursuant to s 12GM(2)(b). The causes of action which invoke ss 12CA, 12CB and 12CC may be brought by ASIC pursuant to that provision. The point of distinction is whether the conduct was engaged in in contravention of the Division.

32    An action for breach of the warranties implied into contracts for the supply of financial services by a person to a consumer is not a proceeding brought against that person for a contravention of the ASIC Act. It is an action for breach of contract—the breach being of the implied statutory warranties.

33    ASIC will be required to make clear which causes of action within Pt 2, Div 2 of the ASIC Act are brought by it pursuant to s 12GM(2)(b) of that Act. The current Statement of Claim and Application require amendment, in order to make clear that the breach of contract cases raised by ASIC pursuant to s 12GM(2)(b) cannot be litigated under that section. The statutory causes of action based upon ss 12CA, 12CB and 12CC of the ASIC Act are able to be run.

Section 50

34    The respondents contended:

(a)    There are limits to the claims which ASIC may cause to be begun and carried on in the name of individuals pursuant to s 50 of the ASIC Act. The section does not authorise ASIC to commence proceedings of any kind or for any cause of action or any relief of any kind that might be in the public interest merely because it arose from an investigation.

(b)    The Courts have, to some extent, interpreted s 50 and its predecessors by reference to its history and the incremental changes to the text of the earlier versions of the section.

(c)    The phrase “… fraud, negligence, default, breach of duty, or other misconduct …” does not cover actions for breach of contract or actions based upon the many statutory causes of action relied upon in the present case. “Other misconduct” are words which take their meaning from those words which immediately precede it. “Other misconduct” must encompass a degree of moral turpitude.

(d)    Furthermore, each of the other concepts referred to in s 50(a) involve a breach of duty. A breach of contract is not such a breach. A claim for compensation arising from a statutory provision specifically authorising such a claim of the kinds relied upon in the present case are based upon a failure to conform to a norm of conduct specified in the statutes, not from any breach of duty.

(e)    The recovery of “… damages …” is a different exercise conceptually from an action for statutory compensation for loss and damage.

(f)    ASIC cannot use s 50 as the foundation for its claims based upon the proposition that the respondents were linked credit providers in respect of Storm and thus liable under s 73 of the TPA.

35    ASIC answered these submissions as follows:

(a)    Section 50 is remedial in character and should be construed beneficially so as to give the most complete remedy consistent with the language employed (Australian Securities Commission v Deloitte Touche Tohmatsu (1996) 70 FCR 93 at 118–119).

(b)    Section 50 should be interpreted so as to give effect to its purpose and effect. That purpose was described by Lockhart J in Somerville v Australian Securities Commission (1995) 60 FCR 319 at 324G in these terms:

An evident function of s 50 is to permit the Commission, acting in the public interest, to cause proceedings to be taken where persons or corporations have suffered loss or harm arising from fraud, negligence or misconduct, but do not have the resources to maintain expensive and complicated litigation.

(c)    Section 13 of the ASIC Act authorises ASIC to make such investigation as it thinks expedient for the due administration of the corporations legislation where contraventions of the corporations legislation (other than certain excluded provisions) are suspected or where contraventions of Commonwealth or State laws are suspected which concern the management or affairs of a body corporate or managed investment scheme or involve fraud or dishonesty and relates to a body corporate or managed investment scheme or financial products. Section 13 confers very wide powers of investigation on ASIC.

(d)    Section 12GM compensation is the same as “damages”. It is indistinguishable from damages under s 12GF of the ASIC Act or s 82 of the TPA and its equivalents in the QFTA and the VFTA.

(e)    Section 50 encompasses actions for damages founded upon non-intentional acts or omissions, whatever may be the cause of action involved (including breach of contract and the statutory causes of action relied upon by ASIC in the present case). The word “default” encompasses any failure to act (intentional or non-intentional) where the person concerned is under a legal obligation to act.

36    The parties addressed very detailed submissions as to the correct interpretation of s 50 of the ASIC Act and, in particular, as to whether it authorises actions for damages for breach of contract and actions for compensation in respect of the many statutory causes of action relied upon in the present case.

37    For the respondents to succeed in having all of the claims anchored in s 50 struck out, I would need to be satisfied that the claims have no reasonable prospect of succeeding or otherwise run foul of the strictures contained in O 11 r 16 of the Federal Court Rules. Similarly, for the respondents to succeed in having these claims dismissed pursuant to s 31A of the Federal Court Act or O 20 r 5 of the Federal Court Rules, I would have to be satisfied that the applicants have no reasonable prospect of succeeding on these claims.

38    The claims presently under consideration are not in the class of claim covered by the provisions to which I have referred at [37] above. Whilst there is considerable force in the respondents’ submissions, the applicants have persuaded me that there is merit in their counter-arguments. There is no authority binding upon me that mandates that s 50 of the ASIC Act should be construed as narrowly as the respondents contend. For the reasons advanced by ASIC, I am not prepared to strike out or dismiss the s 50 claims currently pleaded. I shall deal separately below with the claims based upon s 73 of the TPA.

39    However, the applicants should make clear in an amended pleading precisely which causes of action are founded upon s 50. I will require them to do so.

The Form of Declarations

40    Macquarie sought to pre-empt the scope of the remedies that might be available to the Court on a final hearing by arguing that the declarations sought were of no utility and, for that reason and for other reasons as well, would never be made.

41    None of these arguments should be entertained at this point in time. They should be left for the final hearing.

42    I reject the submissions made as to the form of the declarations claimed by the applicants.

The Claims relying upon Section 73 of the TPA

43    The ultimate issue here is whether the respondents in the present proceeding can be made liable through the strict liability pathway created by s 73 of the TPA for the alleged misrepresentations and other alleged contravening conduct of Storm. The substance of the allegation is that each of the respondents was a “linked credit provider” in relation to Storm within the meaning of the definition of that expression in s 73(14) of the TPA.

44    The respondents’ argument proceeded as follows:

(a)    Section 51AF of the TPA (which is located in Pt V—Consumer Protection) provides as follows:

51AF     Part does not apply to financial services

(1)    This Part does not apply to the supply, or possible supply, of services that are financial services.

(2)    Without limiting subsection (1):

(a)    sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and

(b)    if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and

(c)    section 63A does not apply to:

(i)    a credit card that is part of, or that provides access to, a credit facility that is a financial product; or

(ii)    a debit card that allows access to an account that is a financial product.

(3)    In subsection (2):

credit card has the same meaning as in section 63A.

debit card has the same meaning as in section 63A.

(b)    “Financial services” is defined in s 4 of the TPA as “… having the same meaning as in Division 2 of Part 2 of the [ASIC Act]”.

(c)    In s 12BA of the ASIC Act, “financial service” is defined as having the meaning given by s 12BAB of that Act. The definition of “financial service” set out in s 12BAB of the ASIC Act is a wide one. There is no doubt that, as pleaded, the many services rendered by Storm to the Doyles constituted “financial services” within the meaning of s 12BAB of the ASIC Act.

(d)    Each of BOQ and Macquarie was also a supplier of financial services to the Doyles.

(e)    For the above reasons, the norms of conduct laid down in Pt V—Consumer protection of the TPA comprising s 51AF–s 75A do not apply to the supply, or possible supply, of services that are financial services.

(f)    The 1998 amendments to the TPA were intended to separate out from the TPA financial services and to collect in one place (viz in the ASIC Act) the norms of conduct which would regulate the supply of such services. The case pleaded by ASIC is that, in various ways, Storm provided financial services to the Doyles and breached a series of provisions in both the ASIC Act and the TPA for which the respondents in the present proceedings should be held liable by reason of the operation of s 73 of the TPA.

(g)    Section 51AF means what it says and s 73, therefore, does not apply to the pleaded case.

45    ASIC countered these arguments with the following submissions:

(a)    Section 73 of the TPA is predicated upon the existence of a linked credit provider. For s 73 of the TPA to apply to any set of circumstances, a linked credit provider must have provided credit under some form of contract in relation to a supply of goods and/or services. Providing credit under a contract (including a home loan contract or a margin loan contract) amounts to providing financial services within s 4(1) of the TPA, s 12BA of the ASIC Act and s 12BAB of the ASIC Act. Therefore, a claim under s 73 of the TPA will always involve the supply of financial services. To read s 73 in the way that the respondents urge upon the Court would render s 73 incapable of any application. ASIC urged an interpretation of s 73 which allowed it to operate harmoniously with the rest of Pt V of the TPA.

(b)    Section 12ED of the ASIC Act is specifically referred to in s 73(1) of the TPA. Section 12ED is confined in its operation to a contract for the supply of financial services by a person to a consumer in the course of a business. Accordingly, s 73 of the TPA must be capable of applying to a contract for the supply or possible supply of financial services at least insofar as there is implied into such a contract the warranties specified in s 12ED of the ASIC Act.

(c)    Section 51AF(1) restricts the operation of Pt V of the TPA only when a provision of Pt V would otherwise “apply to the supply, or possible supply of … financial services” (emphasis added). As a result, the only provisions of Pt V which are affected by s 51AF(1) are those which have as their subject matter some aspect of the actual supply or possible supply of financial services. There are many sections which have that operation: for example, s 52 and s 53 would operate where a misrepresentation or false statement was made in relation to the supply or possible supply of financial services.

Section 73 of the TPA is not such a provision. Section 73 merely attaches the liability of the actual supplier to such persons as fall within the definition of “linked credit providers”. Section 73 of the TPA merely creates extended rights and remedies after there has been a supply of goods or services financed by a linked service provider.

46    In my judgment, the submissions of ASIC constitute the preferred interpretation of s 73 when read with s 51AF of the TPA. The initial fundamental engagement of the section is brought about by a consumer suffering loss or damage “… as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of [certain specified sections of the TPA] or section 12ED of [the ASIC Act] … The section does not confine the source of that description of primary liability on the part of the supplier to contraventions of Pt V of the TPA. The description of the primary contravening conduct is very broad and is apt, in my view, to cover common law and statutory contraventions as well as breaches of contract.

47    The only Pt V provisions which are excluded by s 51AF(1) from operation in respect of financial services are those which impose what I have called “primary liability” upon persons. In this case, the statutory liability of Storm directly to the Doyles for misleading and deceptive conduct would have to be anchored in a provision in the Corporations Act and could not have been litigated pursuant to s 52 of the TPA. An applicant is not prevented by s 51AF(1) of the TPA from suing a linked credit provider in respect of conduct of the relevant supplier which is not alleged to be a contravention of Pt V of the TPA. If the liability of the suppler is founded upon general law or statutory rights otherwise covered by the text of s 73(1) which I have extracted at [46] above, s 73 will be available as a means of rendering liable the linked credit provider.

48    Subject to ASIC being able to sustain the proposition that the Doyles were relevantly “consumers” within the meaning of s 73 of the TPA, I do not think that the respondents have made out a case for striking out the pleading insofar as it prays in aid s 73 of the TPA.

49    The respondents contended that, on the face of the pleading, it is perfectly plain that the Doyles were not consumers within the meaning of that expression as used in s 73 of the TPA, s 12CB of the ASIC Act, s 39 of the QFTA and s 8 of the VFTA. Reliance on other sections of the TPA were abandoned at the hearing (as to which see [18]–[21] above).

50    The essence of this contention is that the applicants have no prospect, according to the respondents, of proving that the relevant services acquired by the Doyles from Storm were “of a kind ordinarily acquired for personal, domestic or household use or consumption”. This is the relevant definition of “consumer” (as to which see s 4B(1)(b) of the TPA).

51    In Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71 at [416], the Full Court held that the margin loans provided by Macquarie to Mr Goodridge in that case were to be applied wholly or predominantly for business or investment purposes and were therefore not of the requisite kind. Macquarie submitted that, having regard to the terms of the loan application submitted by the Doyles to Macquarie in April 2006, the Doyles cannot now argue that they were consumers within the meaning of the relevant definition.

52    In that application, the Doyles said:

I/We acknowledge and declare that:

…

(b)    Any loan provided to me pursuant to this application will be applied wholly or predominantly for business or investment purposes.

This acknowledgement is in the same terms as that which was given by Mr Goodridge in Leveraged Equities Ltd v Goodridge.

53    Whether a person has acquired services as a consumer is a question of fact. As stated by Young J in Bunnings Group Ltd v Laminex Group Ltd (2006) 153 FCR 479 at [87] (p 499):

… the question posed by s 74A(2)(a) is ultimately a question of fact and degree. In Chubb at 559, Burchett J described the question which arose under Item 1 of the Third Schedule of the Sales Tax (Exemptions and Classifications) Act in the following way:

That is a question of fact into which degree and impression must enter largely, but I do not think its resolution is assisted much by turning back to the essential character of the article. Rather, attention must be focused on the statutory question whether goods of that kind are ordinarily used for household purposes.

In the same case, Hill J said at 572 that the trial judge’s finding that certain safes were of a kind ordinarily used for household purposes involved:

… a question of judgment based upon a consideration of the description and in some cases photos or drawings of the relevant safe. No error is apparent in her Honour’s judgment, although it is possible that minds could differ as to the outcome in a particular case.

These assessments are borne out by the actual decisions in Diethelm and Chubb. Both cases ultimately turned on the sufficiency of the evidence to discharge the burden of proof which rested on the applicant for sales tax exemption.

54    It may well be that, at trial, the propositions which the respondents have advanced (which I have noted at [49]–[52] above) in support of their applications before me will carry the day because, when all the evidence is in, the impression created by the circumstances of the case as pleaded and the existence of the acknowledgment to which I have referred at [52] above cannot be overcome or displaced by evidence. However, at the moment, I do not think that I can conclude, on the material before me, that the applicants have no reasonable prospect of establishing that the relevant services were supplied to the Doyles as consumers.

55    The respondents have failed to persuade me that the pleaded case based upon s 73 of the TPA should be struck out or that the proceeding should be dismissed insofar as it relies upon s 73 of the TPA.

Conclusions

56    On the main points argued before me, the respondents have failed to persuade me that the relief which they have sought should be granted. However, they have achieved some measure of success. In addition, ASIC has indicated (in Exhibit “C”) that it proposes to amend the current pleadings in order to give effect to the concessions which it made in Exhibit “C”.

57    I propose to require ASIC to amend both its Application and the Statement of Claim to give effect to these Reasons and to the concessions which the applicants have made in Exhibit “C”. I will direct the parties to bring in Short Minutes of Order giving effect to these Reasons and those concessions.

58    I will deal with the costs of the respondents’ Motions in light of such orders as are eventually made.

Associate:

Dated:    30 November 2011