“Let justice be done, though the heavens fall.” - (Fiat justitia, ruat coelum.) (Part 4)
Linked credit provider
Anyone who believes that the charges we and ASIC have brought against the CBA, the Macquarie Bank and the Bank of Queensland are frivolous and lightweight should think again. Certainly, the banks involved are taking these charges seriously because they fully realize that their past dealings with Storm could well be construed as unlawful in both statute and commercial law.
For those Storm investors that were caught up in this financial disaster, (and I am really writing these postings for them) they should take heart from the fact that ASIC has deemed that the Banks have indeed broken the law in a number of ways. The very fact that ASIC is pursuing the banks should be proof enough to even the biggest skeptics that these banks have not always acted in good faith where we are concerned. The body of evidence that ASIC has gathered over the last four years (which has been made freely available to our legal team as well) combined with that our lawyers have accumulated will provide more than enough proof to substantiate all of these charges.
We should be mindful however that ASIC and our lawyers are coming at this from different perspectives. ASIC is concerned with breaches of Corporate Law whereas our lawyers will focus on the whole which encompasses breaches in commercial law. This dual approach does however provide us with a two-pronged attack much like a snake’s tongue. We hope the affect is just as lethal!
Despite what some have suggested on this Forum in the past, the charges against the three banks in question are solid and real. The banks therefore have good reason to be worried. Personally, I believe that the Banks may be able to deflect a few boulders if their lawyers are up to the job but some rocks will definitely get through. Just how damaging the impact of these will be for the banks concerned depends upon what is upheld by the Court. ‘UMIS’ and ‘Linked Credit Provider’ if proven will impact very heavily whereas some other charges will not be as damaging if upheld in terms of overall compensation.
The charge of “linked credit provider” if proven is one such charge that could do some real damage to these banks. This particular aspect has not got a real mention by me until now but that doesn’t mean that I do not consider it a serious threat as far as the banks go.
The relationship between these Banks and Storm is the key to establishing “linked credit provider”. Some on this Forum (for reasons I have not really been able to work out) have long argued that the actions of Storm should not reflect on the banks that Storm dealt with! The Law deems otherwise and so it should because the Storm debacle arose because ALL the parties involved did the wrong thing; not just Storm on its own! Storm did not operate in a vacuum but rather enticed investors with deals that the Banks endorsed and supported both by their extending loans and promoting the Storm brands.
If we examine the relationship between the CBA and Storm for instance, it reeks of mutual interest and collusion. For one Colonial First State (CBA) was a fund manager for the index funds (Storm Badged Funds) so the CBA could hardly be called a disinterested party. At June 30, 2008, the Storm-Colonial (CBA) margin lending book totalled $1.1 billion and the "traditional bank lending book" totalled just over $1 billion. Storm-badged funds with Colonial totalled $1 billion.
Then you have the CBA/Storm formulated agreement dated 18th May 2005 which dictated how they would jointly operate and administer their mutual CBA customers/clients. Macquarie Bank had a similar arrangement in place.
No, I would say that the CBA and Storm were up close and personal rather than on nodding terms, and had been for some years!
The Banks in the dock, namely the CBA, the Macquarie Bank and the Bank of Queensland continue to maintain that their relationship with Storm was an “arm’s length” one and the business they received from Storm was treated no differently than that received from other quarters. Funny, that, when the known facts tell us otherwise.
The definition of an “arm's length” relationship in law is a commercial arrangement between two parties free and independent of each other, and without some special relationship (such as being a relative for instance), having another deal on the side or one party having complete control of the other” In other words, no “undue influence” exists!
The relationship between the three banks in questions and Storm was such that they all became closely linked in their dealings with Storm and this could have serious ramifications for these Banks if it can be shown that they qualified as “linked credit providers” under the Act.
The TRADE PRACTICES REVISION ACT 1986 No. 17 of 1986 - SECT 37 States among other things that:
“a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the 'supplier') for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer, and the consumer suffers 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 section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.
(3) A linked credit provider of a particular supplier is not liable to a consumer by virtue of sub-section (1) in proceedings arising under that sub-section if the credit provider establishes-
(a) that the credit provided by the credit provider to the consumer was the result of an approach made to the credit provider by the consumer that was not induced by the supplier…”
I won’t bore you with the rest but you will get the general drift.
Incidentally, it should be understood that any sections of the law quoted by me here or previously relates to the Law as it stood then. Some laws have been amended since 2008, no doubt, to plug up the “loopholes” that the collapse of Storm highlighted. For one, "The ACL has replaced consumer protection provisions in 17 pieces of State and Territory legislation and in the Trade Practices Act 1974 (TPA). Related to these reforms, as of 1 January 2011, the TPA has been renamed the Competition and Consumer Act 2010 (CCA). Several provisions that were previously in the TPA have been repealed and replaced with new provisions in the ACL."
These amendments will not affect what happened in 2008 or before because the Laws that existed then will be the only consideration as far as these matter are concerned.
So what does all this all mean for the banks if “linked credit provider” is established? For one it means that if the Court decides that the CBA or any other bank involved with Storm can be classified as a linked credit provider, that Bank will become liable for the actions of Storm as well as there own. Any losses that resulted from such actions should then fall back on those banks – “the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction”. Just how much that will mean in the way of damages is anyone’s guess but it will be substantial. Indeed, the compensation that may be forthcoming if the charge of “unlinked credit provider” is upheld by the Court may be as good as or exceed that if UMIS is proven. Therefore, it remains an important part of our case and one, I feel, that the Banks will have to defend vigorously.