"It is really trust law 101 that you can't do that," Smith told Justice Jillian Mallon.
"These pleadings, in my submission, as they are alleged, are sufficient to show to a reasonable and honest banker that these funds are held on trust. We allege that the bank must have known - because of the length of time and the number of payments on a regular basis - that client funds were being disbursed for non-trust purposes."
The bank is seeking to have the case thrown out before a formal hearing. It has claimed the investors' case isn't specific enough.
In rebuttal, Smith read out many documents which he said showed the bank's knowledge and dishonesty. The judge has suppressed that evidence for now.
The lawyer said investors had to quickly form their claim after receiving the documents from the Financial Markets Authority last year. The regulator won a case against ANZ, which had wanted to keep the documents secret.
Smith said that some of the names of the ANZ employees involved were redacted from the material and it would take further discovery to work out who they were and what they did. However, he said the documents showed that ANZ knew what was going on.
Smith told BusinessDesk at the lunch break there would be little point for any of the employees to be join as defendants once they are identified.
The claim is against the bank rather than the individual employees. Smith told the court that the liability was similar to health and safety law, which makes companies liable for the actions of the individuals within.
Anyway, that's a matter for trial, Smith told the court.
Yesterday, ANZ lawyer Stephen Hunter told the court that the investors were out of time to make a claim.
Limitation rules generally say you can't bring a claim after six years, but in this case, the ANZ had agreed not to count the time it took fighting the FMA to keep the documents secret.
Hunter argued that the plaintiffs could have made a claim years ago but did not.
"There's a temptation to point to limitation law and say it's not fair. But the law of limitation is by definition to strike a balance of fairness to plaintiffs and fairness to defendants," he said.
The hearing concludes this afternoon, with ANZ being given time for rebuttal.