Proceedings against Commonwealth Bank of Australia Limited, Bank of Queensland Limited and Macquarie Bank Limited – unregistered managed investment scheme

Summary

On 22 December 2010 ASIC (as Applicant) filed an application in the Federal Court of Australia (Brisbane) to start proceedings against Storm Financial Limited (Receiver and Manager Appointed)(In Liquidation)(“Storm”), Commonwealth Bank of Australia Limited (“CBA”), Bank of Queensland Limited (“BoQ”) and Macquarie Bank Limited (“Macquarie”) (as Respondents).

On 14 September 2012, ASIC entered into a settlement agreement with CBA, for CBA to make available up to $136 million as compensation for losses suffered on investments made through Storm. On 17 September 2012, this agreement became binding on ASIC and CBA, when ASIC's proceedings against CBA were dismissed by the Court. More information on the ASIC/CBA settlement.

The outcome ASIC is seeking from this proceeding is an order from the Court that an unregistered managed investment scheme was operated by Storm and that BoQ and Macquarie were knowingly involved in the operation of that scheme.

In this proceeding ASIC alleges that Storm operated a managed investment scheme (MIS) that should have been registered under the Corporations Act 2001 and was not registered.

Generally in a MIS:
  • people are brought together to contribute money to get an interest in the scheme;

  • money is pooled together with other investors or used in a common enterprise; and

  • a 'responsible entity' operates the scheme. Investors do not have day-to-day control over the operation of the scheme.
An MIS must generally be registered with ASIC if it has more than 20 members or is promoted by someone who is in the business of promoting investment schemes.

If the Court finds that any of the BoQ and Macquarie were knowingly concerned in the operation of an unregistered managed investment scheme by Storm, that judgment will lay the foundation for subsequent claims for compensation against those banks.

Note: The trial has now concluded. The parties are awaiting a judgment from the court.


Court appearances


Storm trial: 3 to 12 December 2012

In this week and a half the various parties tendered documents and some further oral evidence was given.


Macquarie Bank called Mr Van der Westhuyzen (National Sales Manager for Macquarie Margin Lending) and also two CBA employees gave evidence in relation to home loan rates provided to all CBA clients.

In the Richards proceedings, some expert witnesses were also called to give evidence. Macquarie's application to amend its defence was rejected by his Honour, on the basis that the applicant would be prejudiced by the late amendment.

This week also marked the end of the phase of the trial where parties presented their evidence. To conclude the trial, the parties will file written closing submissions and also make oral closing submissions before His Honour in February 2013.

His Honour amended the timetable in the ASIC UMIS proceedings for submissions by the parties as follows:

  1. ASIC to file its submissions by Monday 17 December 2012.
  2. The Defendants are to file their submissions by 12 February 2013.
  3. ASIC is to file its submissions in reply by 15 February 2013.
  4. Oral submissions are listed for two weeks commencing on 18 February 2013.

Storm trial: 26 to 30 November 2012

The week began with Robert Stewart and Timothy Batho (former employees of the Managers of the Storm Index Funds who assisted in establishing the three Storm Index funds) called to give evidence, including cross examination by Macquarie, and re-examination by ASIC.


ASIC took Justice Reeves through some final documents relating to its case against both BoQ and Macquarie. ASIC closed its case on 29 November 2012

Macquarie and BOQ also tendered documents this week.

Ms Tracey Richards, the applicant in the Richards proceedings and a Storm investor, was called to give evidence in relation to her personal financial circumstances, the nature of financial advice she received from Storm and the investments she made based on that advice. Her evidence, including cross examination by the banks, commenced on 27 November and concluded on 30 November 2012.

Storm trial: 12 to 16 November 2012

In this week ASIC took Justice Reeves through documents relating to its case against both BoQ and Macquarie. ASIC also took His Honour through documents it alleges prove the 'scheme' that Storm was operating, and documents relating to the index funds. The applicant in the Richards proceedings also presented documents to the Court. His Honour heard ASIC’s application to amend its Reply on 16 November 2012.


The trial was then adjourned for one week, as was scheduled, to resume on 26 November 2012.

Storm trial: 5 to 9 November 2012

ASIC concluded its presentation on the agreed facts in relation to the Storm Index Funds and the rest of the week was taken up with ASIC presenting the agreed fact evidence and documents relating to its case against both BoQ and Macquarie.


At the conclusion of that evidence the court made some orders including:
  1. Macquarie and BoQ were both granted leave to further amend their defences in the ASIC proceedings and leave was also granted to ASIC to file an Amended Reply;
  2. Leave was granted to the applicants in the Richards proceedings to amend their Statement of Claim and the hearing of an application by Macquarie to amend its defence in those proceedings was adjourned; and
  3. The Sherwood proceedings were allocated a date for trial from 4 to 28 March 2013 and otherwise adjourned until 21 November for the hearing of an interlocutory application.

Storm trial: 29 October to 2 November 2012

The week began with ASIC concluding the presentation of the Storm investor facts and rulings by Justice Reeves on some of the objections made by the banks.

David McCulloch, a former Group Accountant and senior financial adviser employed by Storm, was called by ASIC to give evidence. His evidence, including cross examination by the banks, was concluded on 1 November 2012.

The week ended with ASIC presenting agreed facts to the court in relation to the Storm Index Funds.

Storm trial 22 to 26 October 2012

ASIC continued to take the court through the Storm investor facts and the court was again asked to deal with objections by both banks to some of those facts.


Storm trial: 2 to 5 October 2012

In this week ASIC began presenting its evidence to the court, starting with agreed facts in relation to a number of Storm investors including facts about their personal financial circumstances, the nature of financial advice they received from Storm and the investments they made based on that advice. The court was asked to rule on a number of objections from BoQ and Macquarie Bank in relation to some of these facts.


The trial was then adjourned for two weeks, as was scheduled, to resume on 22 October 2012.

Storm trial: 24 September 2012 to 28 September 2012

In the opening week of the trial, the parties made their opening submissions. Also, His Honour Justice Reeves made a decision that the representative proceedings commenced by Levitt Robinson (the Richards proceedings) should not be separated from the ASIC proceedings. Accordingly, the ASIC and Richards proceedings will continue to be heard together. The trial continues on Tuesday 2 October 2012.


CBA settlement: 14 September 2012

On 14 September 2012, ASIC entered into a settlement agreement with CBA, for CBA to make available up to $136 million as compensation for losses suffered on investments made through Storm. On 17 September 2012, this agreement became binding on ASIC and CBA, when ASIC's proceedings against CBA were dismissed by the Court. ASIC will continue the proceedings against Storm, BoQ and Macquarie.
More information on the ASIC/CBA settlement.

16-18 July 2012 and 2 August 2012

The hearings on the 16-18 July 2012 and 2 August 2012 before His Honour Justice Reeves in the Federal Court in Brisbane related to both ASIC's proceedings and the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings).


There were numerous issues dealt with at the hearings. Most significantly, the parties are continuing to attempt to reach agreement about narrowing the issues, both factual and legal, for determination at the trial, with a view to minimising the length of the trail.

Having regard to His Honour Justice Reeves' comments regarding the length of the trial and the number of witnesses being called, ASIC proposed the possible use of statements made by witnesses during the course of examinations under section 19 of the Australian Securities and Investments Commission Act 2001 (ASIC Act). Under section 19 of the ASIC Act, ASIC has the power to examine persons in relation to an investigation. ASIC proposed to use where appropriate, the transcript of a statement made under section 19 rather than call a particular witness to appear at the trial.

His Honour also made orders in relation to costs for the application by Challenger Limited and Challenger Management Ltd (Challenger) where Challenger sought to prevent ASIC providing the defendant banks and the applicants in the Sherwood and Richards proceedings with unlimited access to their documents. His Honour found against Challenger in seeking ASIC to pay its costs for the December 2011 hearings. The Court ordered that there be no order for costs in relation to the hearings on 14 and 21 December 2011 and that Challenger's costs for the hearings on 1 March and 5 April 2012 be paid equally by Macquarie and the plaintiffs in the representative proceedings.

Various orders were made by the Court. The most significant orders were as follows:
  1. ASIC is to file a written outline of opening submissions by 27 August 2012.
  2. The banks are to file their written outline of opening submissions by 3 September 2012.
  3. ASIC's application to amend its Statement of Claim was stood over to be heard on 17 August 2012. The CBA and Macquarie advised they wish to have time to consider the application before responding to ASIC.
  4. Macquarie's application to amend its Defence was stood over to be heard on 17 August 2012.
  5. Argument regarding ASIC's reliance on section 19 transcripts was stood over to be heard on 17 August 2012.
All of the proceedings were adjourned to a further directions hearing to be held on 17 August 2012 in Brisbane. In addition, his Honour foreshadowed a further directions hearing on 30 August 2012 if necessary.

27 June 2012

The hearing on 27 June 2012 before His Honour Justice Reeves in the Federal Court in Brisbane related to both ASIC's proceedings and the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings).

His Honour noted the need to clarify the issues to be determined by the Court and if possible to limit the evidence to be presented, so as to ensure that the proceedings are conducted as efficiently and inexpensively as possible.

In relation to BOQ's application to strike out parts of ASIC's statement of claim, His Honour made certain orders directing ASIC to amend its Further Amended Statement of Claim. BOQ's application was adjourned for further consideration at the next directions hearing on 16 July 2012.

Various orders were made by the Court. The most significant orders were as follows:

  1. ASIC and the applicants in the Sherwood and Richards proceedings are to provide a proposed list of issues for determination at the trial by 6 July 2012.
  2. The defendant banks are to respond by 13 July 2012.
  3. If there are any outstanding issues upon which the parties have been unable to agree, they will be heard at the next directions hearing on 16 July 2012.
  4. ASIC is to prepare a document outlining the proposed list of agreed facts, proposed list of relevant legal issues and its outline of contentions in respect of each factual and legal issue in dispute by 13 July 2012. His Honour stated that Counsel for all the parties will need to interact to identify which facts are in contention and which are not.

All of the proceedings were adjourned to a further directions hearing to be held on 16 July 2012 in Brisbane. In addition, 17 July 2012 and 18 July 2012 have been reserved for further directions hearings if necessary.

24 May 2012

The hearing on 24 May 2012 before His Honour Justice Reeves in the Federal Court in Brisbane related to ASIC's proceedings and the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings).


The hearing essentially dealt with a request by the court that the parties seek to reach agreement on a number of matters relating to how the trial of all of the proceedings, commencing in September 2012, would proceed. This included matters such as the order in which the parties evidence would be called, what facts and legal issues would be common between the ASIC proceedings and the Sherwood and Richards proceedings, and whether there would be any facts agreed between the parties and therefore not in dispute.

The court noted that the parties were attending a conference in Sydney scheduled for 5 June 2012 with the purpose of discussing these issues and identifying areas of agreement and disagreement.

All of the proceedings were adjourned to a further directions hearing to be held on 27 June 2012 in Brisbane.


5 April 2012

The hearing on 5 April 2012 before His Honour Justice Reeves in the Federal Court in Brisbane related to ASIC's proceedings and the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings).

In ASIC's proceedings, the Court granted leave for various amendments to be made to ASIC's claim and made orders about the time for the banks to file defences to ASIC's amended claim, and extended the time for ASIC to file further evidence and for the banks to file their evidence.
In the Richards and Sherwood proceedings, the applicants obtained leave to amend amongst other things, the bases of certain of their claims relating to the unregistered managed investment scheme allegations.

In the Sherwood proceedings, most significantly the applicants also obtained leave to include linked credit provider claims against the CBA. Such linked credit provider claims have already been brought by the applicant in the Richards proceedings.

These proceedings otherwise are adjourned to a further directions hearing to be held at 10:15am on 24 May 2012 in Sydney. His Honour also fixed the following further directions hearings leading up to the trial in September 2012:
1. 10:15am on 27 June 2012 in Brisbane;
2. 16 July 2012 (and 17 and 18 July tentatively fixed depending on the length of the hearings).

1 March 2012

The hearing on 1 March 2012 before His Honour Justice Reeves in the Federal Court in Brisbane related primarily to ASIC's application to amend its Statement of Claim; and with the application by Challenger Limited and Challenger Management Ltd (Challenger) where Challenger sought to prevent the defendant banks and the applicants in the Sherwood and Richards proceedings from having unlimited access to their documents.


Also, the applicants in the Sherwood and Richards proceedings sought to obtain an extension of time to file the list of documents on which they will rely. His Honour did not make a decision on this issue and stood the decision over to the next directions hearing to be held on 5 April 2012.

His Honour also asked Counsel in the Sherwood and Richards proceedings if they were still intending to file a claim against the BOQ, and if so he indicated they should consider doing it promptly.

The outcome of the hearing was that various orders were made by the Court. The most significant orders were as follows:
  1. ASIC is to provide the defendant banks with an amended version of its proposed amendments to its Statement of Claim.
  2. ASIC's application to amend its Statement of Claim is adjourned to a date to be fixed.
  3. In relation to Challenger's application to prevent ASIC from disclosing its documents (unless those documents are identified as being relevant to the proceedings), Challenger is to review its documents at its own expense and identify those documents which fall within categories agreed upon between Challenger, the defendant banks and the class action applicants. ASIC is to then produce those documents in accordance with the discovery plan ordered by the Court on 23 September 2011. His Honour reserved his judgement on whether the defendant banks and the class action applicants are to be given access to two categories of Challenger's documents that Challenger has objected to.
All of the proceedings were adjourned to a further directions hearing to be held on 5 April 2012.

14 December, 21 December and 22 December 2011

The hearings on 14 December, 21 December and 22 December 2011 before His Honour Justice Reeves in the Federal Court in Brisbane related to ASIC's proceedings and the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings).


14 December 2011

At the hearing on 14 December 2011 the Court made orders which finalised and approved the content of the Opt Out notices to be sent in the Sherwood and Richards proceedings. His honour also made orders relating to advertising of those notices in newspapers.

21 and 22 December 2011

At the hearings on 21 and 22 December 2011 his Honour made orders about the defendant banks providing discovery to ASIC, and in relation to the parties obtaining access to certain documents held by ASIC.

His Honour also dealt with the application by Challenger Limited and Challenger Management Ltd (Challenger). Challenger sought to prevent the defendant banks and the applicants in the Sherwood and Richards proceedings from having unlimited access to their documents. His Honour ordered the defendant banks, the applicants in the Sherwood and Richards proceedings and Challenger, to discuss and attempt to agree on a process whereby the relevance of those documents can be established and disputed.

The proceedings were adjourned to a further directions hearing to be held on 1 March 2012.

16 November and 22 November 2011

The hearings on 16 and 22 November 2011 before His Honour Justice Reeves in the Federal Court in Brisbane and Sydney related to the representative proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings) and applications made in those proceedings to amend the statements of claim and for the Court to approve the form and content of the opt-out notices.


Various orders were made by the Court. The most significant orders were as follows:
  1. In the Richards proceeding:
    1. the applicant's application to amend her statement of claim is adjourned, with liberty to restore it on short notice; and
    2. the applicant is to provide the respondents her proposed amended originating application and statement of claim including any proposed new representative claims by 24 November 2011;
  2. In the Sherwood proceeding:
    1. the applicants are granted leave to file their amended originating application and amended statement of claim by 24 November 2011; and
    2. the applicants are to provide to the respondents the details of any proposed new representative claims being made on behalf of group members by 24 November 2011;
  3. In the Richards proceeding and Sherwood proceeding, the applicants' application to approve the form and content of the opt-out notices is adjourned, with liberty to restore it on short notice.

23 September 2011

The directions hearing on 23 September before His Honour Justice Reeves in the Federal Court in Brisbane related primarily to the case management of ASIC’s UMIS proceedings and other related proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings). The hearing resulted in the court fixing a date for the trial of all of the proceedings to commence on 10 September 2012 for 12 weeks. The actual form of the trial and the issues to be determined will be settled at a later point, before the trial commences. In the meantime all of the three proceedings will be case managed together.


A timetable to trial has also been ordered, with key events and dates being:
  1. on 16 November 2011, the court will determine the form and content of the opt-out notices to be issued in the Sherwood proceedings and Richards proceedings
  2. the parties are to give each other access to certain documents in their control (ie. make discovery) in accordance with an agreed protocol
  3. on or before 28 February 2012, all parties are to attend a joint mediation before a mediator to be agreed or appointed by the court
  4. the parties are to exchange certain evidence and further information between 13 April and 1 August 2012
  5. following the exchange of that evidence and information, and by 6 August 2012, the parties are to meet and attempt to agree upon the form of the trial and the issues to be determined at the trial.
All of the proceedings are listed for a further directions hearing on 1 March 2012.


2 August 2011

At the hearing on 2 August 2011 before His Honour Justice Reeves in the Federal Court in Brisbane, His Honour delivered his judgement in relation to the applications by the CBA, BOQ and Macquarie to have ASIC's proceedings either dismissed or put on hold (the strike out applications). His Honour stated that ASIC has made a valid and justiciable claim for relief under the Corporations Act 2001. Accordingly, His Honour ordered that the strike out applications be dismissed.


The hearing also related to other matters such as costs and how ASIC's case should continue to be managed, particularly given the other related proceedings commenced by Levitt Robinson (that is, the Sherwood proceedings and the Richards proceedings). The outcome of the hearing was that various orders were made. The most significant orders were that:
  1. BOQ and Macquarie to file and serve defences to ASIC's further amended statement of claim by 5 August 2011.
  2. ASIC to file and serve any replies to the defences of the three banks by 26 August 2011.
  3. The lawyers for the parties in the ASIC, Sherwood and Richards proceedings to meet in Sydney on 14 September 2011 to discuss and, if possible, to agree how all three proceedings should continue to be case managed by the court.
  4. The proceedings be listed for a further directions hearing to be held by video conference on 23 September 2011.
In relation to costs, His Honour ordered that:
  1. There be no order for costs on the banks' strike out applications; and
  2. ASIC pay the banks' costs of and incidental to ASIC's application to amend the statement of claim, including the cost of the hearing on 8 June 2011.

8 and 9 June 2011

The hearing on the 8th and 9th June 2011 before His Honour Justice Reeves in the Federal Court in Brisbane related primarily to two things, being:

  1. An application by ASIC to further amend its Statement of Claim; and
  2. Applications by each of the CBA, BOQ and Macquarie to have the proceedings ASIC has brought either dismissed or put on hold.
In response to concerns raised by each of the banks during the hearing ASIC reiterated its position that the proceedings had been brought for both compensatory and regulatory reasons and that it was appropriate for ASIC as a regulator and as required by law for ASIC to adopt a two staged approach to the proceedings.

In these proceedings, ASIC is seeking declarations that Storm contravened the Corporations Act by operating a managed investment scheme that the law required be registered and that the CBA, BOQ and Macquarie were each knowingly concerned in that contravention by Storm, as well as injunctions. A successful outcome in these proceedings lays a foundation for subsequent claims for compensation against those banks on behalf of those who have suffered loss.

The outcome of the hearing was that various orders were made by the Court. The most significant orders were that:
  1. ASIC was granted leave to file and serve an amended originating application and Statement of Claim by 4pm on Friday, 17 June 2011 and for the CBA, BOQ and Macquarie to file any submissions in reply by 4pm on Friday 1 July 2011;
  2. ASIC and the banks are to each bear their own costs in relation to ASIC's application for leave to proceed against Storm (which was granted on 21 April 2011).
His Honour also reserved judgement on the banks' application to dismiss or put on hold the ASIC proceedings.

The proceedings were adjourned to a further directions hearing to be held at 9.30am on 2 August 2011.


21 April 2011

The hearing on 21 April 2011 before His Honour Justice Reeves in the Federal Court in Brisbane concerned ASIC’s application for leave to proceed against Storm (the Corporations Act requires ASIC or anyone else seeking to take action against a company in liquidation to obtain in the first instance the Court's permission) and applications by each of the CBA, BOQ and Macquarie to have the proceedings ASIC has brought either dismissed or put on hold.


The outcome of the hearing was that various orders were made by the Court. The most significant orders were that:
  1. The Court granted ASIC's application for leave to proceed against Storm. The Court is to hear arguments on who should pay the costs of the leave application on 8 June 2011.

  2. A timetable was set for the CBA, BOQ and Macquarie to file and serve any further submissions on their applications to dismiss ASIC's proceedings and for ASIC to file any submissions in reply. The hearing of these applications has been listed for 2.15pm on 8 June 2011.

  3. These proceedings otherwise are adjourned to a further directions hearing to be held at 2.15pm on 9 June 2011.
There was also lengthy legal discussion about what ASIC is seeking in these proceedings. ASIC has adopted a staged approach. In the first instance, ASIC is seeking declarations that Storm contravened the Corporations Act and that CBA, BOQ and Macquarie were knowingly concerned in that contravention by Storm. A successful outcome in this proceeding may lay the foundation for subsequent claims for compensation against those banks, being either the CBA, BOQ and or Macquarie.

The Federal Court also made other orders in relation to the proceedings brought by Levitt Robinson in Richards v Macquarie Bank (QUD 590 of 2010) and in Sherwood v Commonwealth Bank of Australia (NSD 811 of 2010) and listed both of these proceedings for further direction on 9 June 2011.


28 March 2011

The hearing on 28 March 2011 before His Honour Justice Reeves in the Federal Court in Brisbane concerned ASIC’s application for leave to proceed against Storm (the Corporations Act requires ASIC or anyone else seeking to take action against a company in liquidation to obtain in the first instance the Court's permission) and applications by each of the CBA, BOQ and Macquarie to have the proceedings ASIC has brought either dismissed or put on hold.

The outcome of the hearing was that various orders were made by the Court. The most significant orders were that:
  1. The CBA, BOQ and Macquarie are to notify ASIC before 11 April 2011 if they wish to continue to object to the Court granting permission to ASIC to proceed against Storm and if that is the case, to file with the Court and serve on ASIC evidence to support their position by that time. ASIC's application for permission to sue Storm was adjourned for mention at 10:15am on 21 April 2011.

  2. The banks' applications to have ASIC's proceedings dismissed or put on hold were all adjourned.

  3. The banks are to provide ASIC with information about which of their customers were involved with Storm.

  4. The banks and ASIC are to confer and co-operate to provide the Court with estimates of the number of investors who may seek to have ASIC represent them in ASIC's proceedings and of the numbers of investors who may form part of the groups of members in the proceedings brought by Levitt Robinson in Richards v Macquarie Bank (QUD 590 of 2010) and in Sherwood v Commonwealth Bank of Australia (NSD 811 of 2010) and those who are not.

  5. ASIC's proceedings were adjourned to a further directions hearing to be held at 10.15am on 21 April 2011.

3 February 2011

This proceeding was before the Court for the first time on 3 February 2011.


At this hearing various orders were made by the Court including:
  1. ASIC was ordered to file its Statement of Claim on 4 February 2011;

  2. a hearing date of 28 March 2011 was set for the Court to consider ASIC’s application for leave to proceed against Storm – a necessary requirement where a respondent company is in liquidation;

  3. ASIC was ordered to discuss options with Levitt Robinson Lawyers for the efficient management of ASIC’s proceedings and the two actions that Levitt Robinson Lawyers have commenced against the CBA and against Macquarie (which similarly involve allegations of the operation of an unregistered managed investment scheme). ASIC is to notify the Respondents of what steps it says should be taken so that all these concurrent proceedings are conducted as efficiently as possible;

  4. CBA, BoQ and Macquarie were ordered to file their defences by 10 March 2011; and

  5. any application CBA, BoQ or Macquarie may wish to make to stop ASIC’s proceedings must be filed by 10 March 2011 and will be heard by the Court on 28 March 2011.
A timetable for parties to file evidence and submissions prior to 28 March 2011 was also made.