Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq)
[2012] FCA 75
•10 February 2012
FEDERAL COURT OF AUSTRALIA
Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75
Citation: Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75 Parties: GEORGE GEORGES (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993), JOHN ROSS LINDHOLM (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993) and SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993) v SEABORN INTERNATIONAL (AS TRUSTEE FOR THE SEABORN FAMILY TRUST), MARYLAND PTY LTD (AS TRUSTEE FOR THE NORWEGIAN TRUST), ALISANTE PTY LTD, BON RIVER PTY LTD, ROLAND MARK WARD (AS TRUSTEE FOR THE AWARD SUPERANNUATION FUND (ABN 66 473 078 418)) and EFAX PTY LTD (ACN 001 886 120) File number: VID 562 of 2010 Judge: GORDON J Date of judgment: 10 February 2012 Corrigendum: 9 May 2012 Catchwords: CORPORATIONS – liquidation – pooling of segregated accounts – converting foreign currency for purposes of pooling – whether foreign currency is “money” for purposes of reg 7.8.03(6) of the Corporations Regulations 2001 (Cth) – defalcations on client accounts – deficient mixed trust fund – equitable charge or tenancy in common – tainted segregated accounts – calculation of rateable entitlements – set-off – tracing – assets purchased with tainted funds – liquidators’ remuneration and expenses Legislation: Acts Interpretation Act 1901 (Cth)
Corporations Act 2001 (Cth)
Corporations Regulations 2001 (Cth)
Federal Court (Corporations) Rules 2000 (Cth)
Financial Services Reform Bill 2001 (Cth)
Trustee Act 1958 (Vic)Cases cited: Amaca Pty Ltd v Ellis (2010) 240 CLR 111
Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662
Australian Securities and Investments Commission v Idylic Solutions Ltd (2009) 76 ACSR 129.
Australian Securities and Investments Commission v Letten (No 7) (2010) 80 ACSR 401
Australian Securities and Investments Commission v Edwards [2009] QSC 360
Berkeley Applegate (Investment Consultants) Ltd (in liq), Re [1989] Ch 32
Bonnington Castings Ltd v Wardlaw [1956] AC 613
Breskvar v Wall (1971) 126 CLR 376
Camdex International Ltd v Bank of Zambia (No 3) [1997] CLC 714
Cave v McKenzie (1877) 46 LJ Ch 564
CGU Insurance Limited v One.Tel Limited (in liq) (2010) 242 CLR 174
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384
Diplock v Wintle, Re [1948] Ch 465
Georges (Liquidator), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2010] FCA 1371
J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349
Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342
Lehman Brothers International (Europe) (In Administration), Re [2010] EWCA Civ 917
Lyell v Kennedy (1889) 14 App Cas 437
Marsh & McLennan Pty Ltd v Stanyers Transport Pty Ltd [1994] 2 VR 232
Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141
Miliangos v George Frank (Textiles) Ltd [1976] AC 443
NMFM Property Pty Ltd v Citibank Ltd(No 10) (2000) 107 FCR 270
Owners Strata Plan No 43551 v Walter Construction Group Ltd (2004) 62 NSWLR 169
Parbery (in their capacity as joint and several administrators of Trio Capital Ltd (Admin App)) v ACT Superannuation Management Pty Ltd (2010) 79 ACSR 425
Parker v McKenna (1874) LR 10 Ch App 96
Peake, in the matter of Australian Housewares Pty Ltd (in liq) [2003] FCA 170
Peninsular & Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189
Petersen v Moloney (1951) 84 CLR 91
Shipton Anderson & Co v Weil Bros & Co [1912] 1 KB 574
Suco Gold Pty Ltd (in liq), re (1983) 33 SASR 99
Sutherland Re; French Caledonia Travel Services Pty Ltd (in liq) (2003) 59 NSWLR 361
The Eastern Extension Australasia and China Telegraph Company Ltd v The Commonwealth (1908) 6 CLR 647
The Halcyon The Great [1975] 1 WLR 515
The National Mutual Life Association of Australasia Limited v The Commissioner of Taxation of the Commonwealth of Australia (1970) 122 CLR 13
13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377
Ward v Carttar (1865) LR 1 Eq 29
Williams v Booth (1910) 10 CLR 341
Williams v R (1978) 140 CLR 591
Zen Foundation One P/L & Ors v Sippy Downs Group P/L & Ors [2009] QSC 334Goode, Royston Miles, Goode on Legal Problems of Credit and Security (4th ed, 2008, Sweet & Maxwell/Thomson Reuters)
Proctor, Charles, Mann on the Legal Aspect of Money (6th ed, 2005, Oxford University PressDate of hearing: 24-27 October & 2 November 2011 Date of last submissions: 30 January 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 307 Counsel for the Plaintiffs: Mr I Martindale SC with Dr P Vout & Ms T Spencer Bruce Solicitor for the Plaintiffs: Norton Rose Counsel for the First Defendant: Mr AP Young Solicitor for the First Defendant: James Conomos Lawyers Counsel for the Second Defendant: Dr I Hardingham QC with Mr J Mereine Solicitor for the Second Defendant: Asian Pacific Group Pty Ltd Counsel for the Third and Fourth Defendants: Mr P Fary Solicitor for the Third and Fourth Defendants: Middletons Counsel for the Fifth Defendant: Mr P Crutchfield SC with Ms L Nichols Solicitor for the Fifth Defendant: Slater & Gordon Counsel for the Sixth Defendant: Mr N Cotman SC with Mr D Forbes Solicitor for the Sixth Defendant: Hall & Wilcox FEDERAL COURT OF AUSTRALIA
Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75
CORRIGENDUM
1It is accepted that the Orders as pronounced and entered do not accurately carry into effect the Reasons for Decision that were published on 10 February 2012. In particular, it is accepted that what is presently recorded as Order 2 which in its terms is said to relate to the pooling of assets requires alteration.
2The parties proffered a particular and elaborate form of alteration which I consider neither necessary nor appropriate to give effect to the Reasons for Decision. The simplest and clearest manner of expression of what was intended by the Orders is to tie the powers given by Order 2 (as was intended) to the disbursement of the Client Fund. That is achieved by:
(a)deleting the words “pooling under Order 1” and “are directed to” in the introductory sentence and substituting “Order 3” and “may” respectively; and
(b)deleting the words “to give effect to Order 1” in Order 2.4.
3I direct that Order 2 as entered be amended pursuant to Rule 39.05(e) of the Federal Court Rules 2011 by deleting the words “pooling under Order 1” and “are directed to” in the introductory sentence and substituting “Order 3” and “may” respectively, and deleting the words “to give effect to Order 1” in Order 2.4.
4Order 2 will now read:
(2) For the purpose of Order 3, the Liquidators may:
2.1give directions to Interactive Brokers to liquidate all financial products held under Sonray’s consolidated account at Interactive Brokers (excluding Transferred Shares and shares referred to in paragraph 5.3);
2.2give directions to Saxo to liquidate all Saxo Shares (excluding Transferred Shares and shares referred to in paragraph 5.3);
2.3convert into Australian dollars any foreign currency in their or Sonray’s control (but excluding the money referred to in Order 7); and
2.4give to Interactive Brokers, Saxo or any bank which maintains a Segregated Account any instructions necessary or desirable.
I certify that the preceding four (4) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Gordon. Associate:
Dated: 9 May 2012
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 562 of 2010
IN THE MATTER OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION)
BETWEEN: GEORGE GEORGES (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
First PlaintiffJOHN ROSS LINDHOLM (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
Second PlaintiffSONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
Third PlaintiffAND: SEABORN INTERNATIONAL (AS TRUSTEE FOR THE SEABORN FAMILY TRUST)
First DefendantMARYLAND PTY LTD (AS TRUSTEE FOR THE NORWEGIAN TRUST)
Second DefendantALISANTE PTY LTD
Third DefendantBON RIVER PTY LTD
Fourth DefendantROLAND MARK WARD (AS TRUSTEE FOR THE AWARD SUPERANNUATION FUND (ABN 66 473 078 418))
Fifth DefendantEFAX PTY LTD (ACN 001 886 120)
Sixth Defendant
JUDGE:
GORDON J
DATE OF ORDER:
10 FEBRUARY 2012
WHERE MADE:
MELBOURNE
THE COURT DIRECTS THAT:
1.The Liquidators are directed to pool the following assets into the Client Fund:
1.1The Segregated Accounts (but excluding the funds held in the HSBC USD Singapore Segregated Account, being account number 260-696760-178 held at the Singapore Branch of HSBC);
1.2The Saxo Shares (but excluding shares referred to in Order 5) to the extent they come within the Liquidators’ Control;
1.3The Interactive Broker Balances (but excluding shares referred to in Order 5); and
1.4The Recovered Money.
2.For the purpose of pooling under Order 1, the Liquidators are directed to:
2.1give directions to Interactive Brokers to liquidate all financial products held under Sonray’s consolidated account at Interactive Brokers (excluding Transferred Shares and shares referred to in paragraph 5.3);
2.2give directions to Saxo to liquidate all Saxo Shares (excluding Transferred Shares and shares referred to in paragraph 5.3);
2.3convert into Australian dollars any foreign currency in their or Sonray’s control (but excluding the money referred to in Order 7); and
2.4give to Interactive Brokers, Saxo or any bank which maintains a Segregated Account any instructions necessary or desirable to give effect to Order 1.
3.The Liquidators and Sonray are directed to disburse the Client Fund in the following order:
3.1in payment of the Remuneration and Expenses in accordance with Order 6;
3.2in payment of the indemnity for defendants in accordance with Order 4 made on 5 September 2011;
3.3in payment of $2,000 to Michael Hart in respect of his legal expenses of participating in this proceeding; and
3.4all Entitlements in full and, if the Client Fund is insufficient to meet the Entitlements in full, proportionately to each Sonray Client’s respective Entitlements.
4.For the purpose of calculating and paying disbursements under Order 3, the Liquidators are directed to treat Sonray Clients with an Entitlement of $50 or less as having no entitlement to participate in the Client Fund.
5.The Liquidators are directed to deliver to any Sonray Client any:
5.1Transferred Shares held by or on behalf of Saxo or Interactive Brokers at the date of these orders;
5.2the Proceeds of Transferred Shares but excluding Proceeds mixed with Tainted Money; and
5.3any other shares purchased with Proceeds of Transferred Shares but excluding shares purchased partly with Tainted Money.
6.To the extent that the Remuneration and Expenses of the Liquidators, whether as former Administrators or as Liquidators, exceed the assets of Sonray which it holds beneficially, the Liquidators and Administrators are entitled to have recourse to:
6.1the Client Fund; and
6.2the Transferred Shares (but only to extent that the Remuneration and Expenses relate to dealing with claims of Sonray Clients claiming an in specie entitlement the Transferred Shares).
7.The Liquidators are directed to sell sufficient Transferred Shares and/or shares referred to in paragraph 5.3 to pay amounts payable under Order 6.2.
8.The Liquidators are directed to have their Remuneration, whether as former Administrators or as Liquidators, determined by:
8.1a resolution of Sonray’s creditors as if ss 473(3)(b)(i), (4), (4A), (5), (6), (10) and (12) of the Corporations Act apply mutatis mutandis; or
8.2as if r 9 of the Federal Court (Corporations) Rules 2000 (Cth) applied mutatis mutandis.
9.In these Orders the following words have the following meaning:
Administration means the administration of Sonray by the Administrators pursuant to Pt 5.3A of the Corporations Act commencing on 22 June 2010 and ending on 27 October 2010;
Administrators means George Georges and John Ross Lindholm in their capacities as administrators of Sonray during the period of its Administration;
Client Fund means an account at an authorised deposit-taking institution under the control of the Liquidators established for the purposes of Order 1 to be disbursed according to these Orders;
Corporations Act means the Corporations Act 2001 (Cth);
Entitlement means the amount of a particular Sonray Client’s Proposed Adjusted Account Balance or Proposed Account Balance on the Client Fund determined in accordance with the adjudication process set out in Annexure A;
Expenses means expenses incurred by the Liquidators in the Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts, including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
8.identifying claims which may be brought to benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
9.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts;
10.instructing lawyers to:
10.1advise in relation to any of the matters referred to above; and
10.2commence this application.
11.the Liquidators’ costs in respect of the procedure referred to in paragraph 5 of the order made by Justice Finkelstein on 8 December 2010;
12.the Liquidators’ costs and expenses of this application on an indemnity basis.
HIN means Holder Identification Number;
Interactive Broker Balance means the Entitlement of a Sonray Client in respect of the trading platform provided to Sonray by Interactive Brokers;
Interactive Brokers means Interactive Brokers LLC (a company incorporated in Delaware in the United States);
Liquidation means the liquidation of Sonray by the Liquidators pursuant to Pt 5.5 of the Corporations Act commencing on 27 October 2010;
Liquidators means George Georges and John Ross Lindholm in their capacities as liquidators of Sonray during the period of its Liquidation;
Proceeds means the proceeds of sale, interest, dividends or other corporate actions paid or affecting shares;
Proposed Adjusted Account Balance has the definition given in Annexure A;
Proposed Account Balance has the definition given in Annexure A;
Recovered Money means the following money received by the Liquidators:
1.$725,000 received from Russell Johnson, Jill Murray, John Murray and Merrilee Murray;
2.$199,116.15 received from Scott Murray;
3.$400,000 from John Murray on behalf of Swann Global Pty Limited; and
4.$457,818.91 from RJ Capital Pty Ltd in respect of the Sorrento Property;
Remuneration means such remuneration of the Liquidators in respect of their Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.realising or attempting to realise funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
8.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
9.identifying claims which may be brought which may directly or indirectly benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
10.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts; and
11.instructing lawyers to:
11.1advise in relation to any of the matters referred to above; and
11.2commence and continue this application.
Segregated Accounts means:
1.Australia and New Zealand Banking Group account numbers 013006-1087-85428, 120824CAD00001, 120824USD00001, 120824NZD00001, 120824JPY00001, 120824GBP00001, 120824EUR00001, 120824CHF00001;
2.Hong Kong Shanghai Banking Corporation account numbers 001-225333-002, 001-225333-003, 001-225333-901, 001-225333-160, 001-225333-904, 001-225333-900, 001-225333-902, 001-225333-903, 001-225333-159 and 260-696760-178; and
3.Macquarie Cash Management Account number 961006129.
Saxo means Saxo Bank A/S ARBN 109 605 610 (a company incorporated in Denmark);
Saxo Shares means shares held by Saxo and acquired on the instructions of any Sonray Client and including dividends or other corporate actions paid or affecting those shares on and from 22 June 2010;
Sonray means Sonray Capital Markets Pty Limited (in liquidation) ACN 104 482 993;
Sonray Client means a client of Sonray, whether transacting on the SonrayTrader, Sonray Global and/or WebTrader trading platforms;
Sorrento Property means volume 08826 folio 535, known as 32 Boston Court, Sorrento;
Tainted Money means any money that has passed through Australia and New Zealand Banking Group Limited BSB 013-006 account number 1087-85428;
Transferred Shares means shares transferred direct from a Sonray Client’s HIN to Saxo or Interactive Brokers (or their respective custodians).
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
1Subject to paragraph 5, in respect of Sonray Clients whose accounts appear to the Liquidators to have unfunded transactions the Liquidators will reverse out:
(a)the unfunded deposits;
(b)the unfunded withdrawals;
(c)the trading or withdrawals attributable to the unfunded deposits and unfunded withdrawals (including GST, interest, commission and sundry items),
to arrive at the Proposed Adjusted Account Balance.
2.Subject to paragraph 5 and except for Sonray Clients with an Entitlement of $50 or less, in respect of Sonray Clients whose accounts do not appear to the Liquidators to have unfunded transactions, the Liquidators will write to each such Sonray Client indicating the Liquidators propose to adopt the account balance as it stood at 22 June 2010 according to the trading platform on which that particular investor traded with Sonray to calculate that investor’s entitlement (Proposed Account Balance).
3.The Liquidators will invite any Sonray Client who does not agree with the Proposed Account Balance or the Proposed Adjusted Account Balance (as the case may be) to provide, within 21 days, additional information and particulars about the adjustments that the Sonray Client contends ought be made to the Proposed Account Balance or the Proposed Adjusted Account Balance (as the case may be).
4.Within 28 days of receipt of any information provided pursuant to paragraph 3, the Liquidators will notify the Sonray Client whether or not the Liquidators propose to vary or alter the Proposed Account Balance or Proposed Adjusted Account Balance (as the case may be) and that determination shall be binding unless and until the Liquidators and the Sonray Client each agree to a different balance or a Court determines an appeal by that investor pursuant to s 1321 of the Corporations Act and directs or orders a different balance be adopted.
5.For the purposes of determining a Proposed Account Balance or a Proposed Adjusted Account Balance, the Liquidators shall set-off any positive account balances against any negative account balances in all accounts owned by the same Sonray Client on any trading platform (both positive and negative account balances to be determined as at 22 June 2010).
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 562 of 2010
IN THE MATTER OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION)
BETWEEN: GEORGE GEORGES (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
First PlaintiffJOHN ROSS LINDHOLM (IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF SONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
Second PlaintiffSONRAY CAPITAL MARKETS PTY LTD (IN LIQUIDATION) (ACN 104 482 993)
Third PlaintiffAND: SEABORN INTERNATIONAL (AS TRUSTEE FOR THE SEABORN FAMILY TRUST)
First DefendantMARYLAND PTY LTD (AS TRUSTEE FOR THE NORWEGIAN TRUST)
Second DefendantALISANTE PTY LTD
Third DefendantBON RIVER PTY LTD
Fourth DefendantROLAND MARK WARD (AS TRUSTEE FOR THE AWARD SUPERANNUATION FUND (ABN 66 473 078 418))
Fifth DefendantEFAX PTY LTD (ACN 001 886 120)
Sixth Defendant
JUDGE:
GORDON J
DATE:
10 FEBRUARY 2012
PLACE:
MELBOURNE
TABLE OF CONTENTS
A........ INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1] B........ FACTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [6] B.1..... Sonray and its Activities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [6] B.2..... Segregated Accounts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [7] B.3..... The Providers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [13] B.3a... Saxo........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [15] i) The Contractual Terms [15] ii) The Manner in which Sonray used the Saxo System [19] iii) Saxo’s Trading Account with UBS and the Funding of Share Purchases [27] B.3b... Interactive Brokers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [32] B.3c... MF Global........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [45] B.3d... Macquarie........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [46] B.3e... FXCM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [47] B.4..... Defalcations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [48] B.4a... Unfunded Commissions........ ........ ........ ........ ........ ........ ........ ........ ........ .... [49] B.4b... Net unfunded transactions........ ........ ........ ........ ........ ........ ........ ........ ....... [52] B.4c... Rebates........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [54] B.4d... Margin Manipulation........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [56] B.4e... Client funds diverted to General Account........ ........ ........ ........ ........ ....... [59] B.5..... Sorrento Property Proceeds........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [60] B.6..... Swann Global Recovery........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [65] B.7..... Scott Murray Payment........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [67] B.8..... Toorak Property Recovery........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [68] B.9..... Money Held by Sonray........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [72] C........ RELEVANT LEGAL PRINCIPLES........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [74] C.1..... Accounts – Corporations Act and Regulations........ ........ ........ ........ ........ ........ ... [74] C.2..... Applicability to deficient mixed fund?........ ........ ........ ........ ........ ........ ........ ........ . [82] D........ POOLING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [87] D.1..... Directions sought........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [87] D.2..... Amounts and Assets subject to the pooling application........ ........ ........ ........ ..... [90] D.2a... Balances in the Segregated Accounts........ ........ ........ ........ ........ ........ ..... [91] D.2b... Foreign Currency Balances........ ........ ........ ........ ........ ........ ........ ........ ..... [95] D.2c... Funds Which Are Not ‘Tainted’........ ........ ........ ........ ........ ........ ........ ....... [103] D.2d... The Recovered Money Account........ ........ ........ ........ ........ ........ ........ ...... [104] D.2e... Saxo Shares........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [110] D.2f.... IB balances........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [111] D.3..... Date to be used to calculate rateable entitlement?........ ........ ........ ........ ........ .... [112] D.4..... Set-Off?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [113] D.5..... Methodology to be used to calculate rateable entitlement?........ ........ ........ ...... [116] D.5a... Clients who traded through Saxo........ ........ ........ ........ ........ ........ ........ ..... [122] D.5b... Sonray Clients who traded through Interactive Brokers........ ........ ....... [128] E........ INDIVIDUAL CLAIMANTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [129] E.1...... SONRAY CLIENTS WITH $50 OR LESS........ ........ ........ ........ ........ ........ ........ [129] E.2...... SEABORN INTERNATIONAL PTY LTD AS TRUSTEE FOR THE SEABORN FAMILY TRUST........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [137] E.2a... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [137] E.2b... Analysis........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [144] i) Foreign currency converted to AUD for pooling [146] ii) Foreign currency “money” under r 7.8.03(6) of the Corporations Rules? [147] iii) Sonray Client beneficially entitled to funds deposited directly into a foreign currency segregated account where funds used for trading [148] iv) Sonray Client beneficially entitled to funds deposited directly into a foreign currency segregated account where funds not for trading [150] v) Sonray Client beneficially entitled to funds deposited directly into a foreign currency segregated account where, on the day those funds were transferred to that account from the ANZ AUD Segregated Account was subject to Defalcations? [151] E.3...... MARYLAND PTY LTD AS TRUSTEE FOR THE NORWEGIAN TRUST.. [152] E.3a... Entities and accounts associated with Maryland........ ........ ........ ........ .... [152] E.3b... The HSBC USD Singapore Segregated Account........ ........ ........ ........ ... [156] E.3c.... Sonray Client accounts in name of APBC........ ........ ........ ........ ........ ....... [161] i) Accounts [161] ii) Analysis [166] E.4...... BON RIVER PTY LTD AND ALISANTE PTY LTD ........ ........ ........ ........ ....... [179] E.4a... Facts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [179] i) Transferred Cash [182] ii) Transferred Shares [183] iii) Bon River B Account [185] iv) Bon River A Account and Alisante Super Account [186] v) Remaining Transferred Shares [190] (A) AUY Shares........ ........ ........ ........ ........ ........ ........ ........ ........ . [190] (B) CDE Shares........ ........ ........ ........ ........ ........ ........ ........ ........ . [191] (C) STL Shares........ ........ ........ ........ ........ ........ ........ ........ ........ .. [196] (D) DYE Shares........ ........ ........ ........ ........ ........ ........ ........ ........ [197] (E) LTBR Shares........ ........ ........ ........ ........ ........ ........ ........ ...... [198] vi) Cash Position of the IB Brand Account [204] vii) HIN and Saxo [208] E.2b... Analysis........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [209] i) Transferred Shares [209] ii) Bon River B Account [211] iii) Brand Trust Account [212] iv) Shares on Platform not purchased with Tainted Funds (whether Australian or Non-Australian) [214] v) Australian Shares on IB Platforms purchased with Tainted Funds [215] vi) Non-Australian Shares [219] vii) STP Shares [221] viii) Australian Shares on IB Platform purchased with a combination of proceeds of Transferred Shares and Tainted Funds [222] E.5...... WARD AS TRUSTEE FOR THE AWARD SUPERANNUATION FUND..... [226] E.2a... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [226] E.5b... Application of reg 7.8.03(6) to IB platform and/or the unallocated deposits? [230] E.5c.... Ward........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [232] E.5d... Analysis of the accounts on the IB platform........ ........ ........ ........ ........ ... [236] i) IB Investor funds never deposited into Segregated Accounts [237] ii) IB Investors who transmitted funds through ANZ AUD or HSBC Segregated Accounts [241] E.5e... Pooling and Proof of debts?........ ........ ........ ........ ........ ........ ........ ........ ..... [244] E.6...... EFAX PTY LTD AND LIKE SONRAY CLIENT ACCOUNTS........ ........ ....... [249] E.2a... Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [249] E.2b... Analysis........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [261] E.7...... TRAVEL ARCADE PTY LTD AND ROBERT JOSEPH SCOLARO........ .... [286] F........ . REMUNERATION AND EXPENSES........ ........ ........ ........ ........ ........ ........ ........ ........ .. [291] F.a...... Client Fund........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [294] F.b...... Transferred Shares........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [295] F.c...... Funds in the HSBC USD Singapore Segregated Account........ ........ ...... [302] G........ ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [307] REASONS FOR JUDGMENT
A. INTRODUCTION
This application is made under s 511 of the Corporations Act 2001 (Cth) (the Corporations Act) and s 63 of the Trustee Act 1958 (Vic) (the Trustee Act) for directions by the First and Second Plaintiffs (the Liquidators) in their capacity as liquidators of Sonray Capital Markets Pty Ltd (in liquidation) (ACN 104 482 993) (Sonray) and by Sonray, the Third Plaintiff (the Application). The Liquidators were appointed administrators of Sonray on 22 June 2010 and became the liquidators on 27 October 2010.
A principal issue for determination is the whether the Liquidators should be granted a direction that they are justified:
1.in pooling the balance of the Segregated Accounts, as listed at [8] below, into a single bank account and then applying reg 7.8.03(6) of the Corporations Regulations 2001 (Cth) (the Regulations) to that single bank account;
2.subject to the rights of identified clients of Sonray, in converting any balances in foreign currency in the Segregated Accounts into Australian dollars for the purpose of such pooling;
3.in treating foreign currency as money for the purposes of reg 7.8.03(6) of the Regulations; and
4.subject to the Liquidators being satisfied of the account balance recorded in Sonray’s books and records, setting off positive account balances against negative account balances in all accounts owned by the same client of Sonray.
The Application is not straightforward. Approximately 4,000 investors in Sonray are affected. Those investors, which transacted on the SonrayTrader, Sonray Global and/or WebTrader trading platforms (see [4(3)] below) are defined in these reasons for judgment as Sonray Clients. The funds and assets, most of which are or have been the subject of a statutory trust or trusts (s 981B of the Corporations Act) of which Sonray is trustee, are spread over a number of Segregated Accounts, denominated in various currencies, with numerous shareholdings and open trading positions held by or with a range of third party institutions and custodians. The trust funds and assets (save for the Distinguishable Accounts) (collectively the Property) also have been, from the outset, mixed and the subject of thousands of authorised deposits, withdrawals, transfers and other dealings. The phrase Distinguishable Accounts means the accounts belonging to Holder Identification Number (HIN) Investors (see [4(3)] below) and what is described as the ANZ CAD Segregated Account (see [8] below). Next, the Property also has been subjected to substantial unauthorised withdrawals, dealings and trading (see [48]-[59] below) resulting in some $45.6 million in losses. To make matters worse Sonray’s records are incomplete.
It is therefore unsurprising that there are conflicting claims on, and views about entitlement to, the Property or parts of it. As a result, on 5 September 2011, the Court joined the following parties as defendants to the Application to provide the necessary contradictors to the course proposed by the Liquidators:
1.Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) (Seaborn) to represent itself and all Sonray Clients claiming an entitlement to any foreign currency in any of the Segregated Accounts held by Sonray, excluding any investors claiming an entitlement to the sum of USD 778,630.49 in the HSBC USD Singapore Segregated Account, being account number 260-696760-178 held at the Singapore Branch of HSBC;
2.Maryland Pty Ltd (as trustee for the Norwegian Trust) (Maryland) to represent itself and all Sonray Clients to ascertain the basis upon which a Sonray Client was entitled to be paid money from the Segregated Accounts. Maryland was also granted leave to be heard in relation to the question of its entitlement to the sum of USD 778,630.49 in the HSBC USD Singapore Segregated Account;
3.Bon River Pty Ltd and Alisante Pty Ltd (Bon River and Alisante) to represent all Sonray Clients that transferred shares from that Sonray Client’s HIN to the HIN of a Trading Platform (HIN Investors). The phrase Trading Platform means any of the following:
3.1Sonray Global (or the IB Platform), the internet based trading system owned by Interactive Brokers LLC (Interactive Brokers) and used by Sonray Clients to direct the execution of trades in financial instruments by Interactive Brokers;
3.2SonrayTrader (or the Saxo Platform), the internet based trading system owned by Saxo Bank A/S (Saxo) and used by Sonray Clients to direct the execution of trades in financial instruments by Saxo;
3.3WebTrader, the internet based trading system owned by Sonray and used by Sonray Clients to direct the execution of trades in financial instruments by third parties (including Saxo and Interactive Brokers) contracted with Sonray to provide such services;
4.Roland Mark Ward (as trustee for the Award Superannuation Fund (ABN 66 473 078 418)) (Ward) to represent himself and all Sonray Clients claiming an entitlement to financial instruments and/or money held by Interactive Brokers (excluding those Sonray Clients represented by Bon River and Alisante pursuant to [4(3)] above);
5.Efax Pty Ltd (ACN 001 886 120) (Efax) to represent itself and all Sonray Clients claiming an entitlement to shares acquired on the instructions of Sonray where the Sonray Clients instructed the acquisition of shares and paid or released money to Sonray for the purchase of those shares, and dividends paid or declared on the relevant shares, where the shares and the dividends are held by or on behalf of Saxo, excluding:
5.1those Sonray Clients represented by Bon River and Alisante pursuant to [4(3)] above; and
5.2Sonray Clients that instructed the acquisition of shares and paid or released money to Sonray for the purchase of those shares, which shares are presently held by or on behalf of Saxo, but who used a form of “Client Agreement and Disclosure Document” different to that used by Efax.
6.Travel Arcade Pty Ltd (Travel Arcade) and Robert Joseph Scolaro to be heard by way of written submission.
These persons and entities (collectively the Contradictors) were joined as defendants to represent those Sonray Clients who assert an entitlement to trace or claim directly against a particular fund or asset which they contend should not be included in any pool. As is readily apparent, the issues (whether the assets should be pooled and whether particular Sonray Clients should be treated separately from the general class of Sonray Client) are interrelated.
B. FACTS
1 Sonray and its Activities
From 4 May 2005, Sonray was the holder of Australian Financial Services Licence Number 231151. Prior to 22 June 2010 (the date the Liquidators were appointed administrators of Sonray), Sonray provided financial product advice and services to its clients about trading in financial products and provided access to trading platforms to enable clients to trade in financial products. Sonray’s sole director (according to the Australian Securities and Investments Commission database), was Russell Johnson. Its Chief Executive Officer was Scott Murray. Before entering into commercial relations with Sonray, clients were required to sign a client application form containing a set of terms and conditions. The form was entitled “Client Agreement and Disclosure Document”. The requirement for the form to be signed was not always observed. From time to time, Sonray revised the terms and conditions of the “Client Agreement and Disclosure Document”. Ultimately, there were 29 different versions.
2 Segregated Accounts
In the majority of cases, Sonray Clients deposited funds into one or more of the Segregated Accounts where they were comingled with funds of other Sonray Clients. Segregated Accounts were used by Sonray to receive deposits from Sonray Clients in respect of margin calls and proposed trades and to return funds to Sonray Clients upon receipt of a withdrawal request. Each Segregated Account was an account within the meaning of ss 981A and 981B of the Corporations Act.
The balances in AUD of the Segregated Accounts, as at 3 July 2011, were as follows:
Bank
Account Name
Account Number
Currency
Definition
Balance as at 3 July 2011 (AUD)
ANZ
Client Segregated Account
1087-85428
AUD
ANZ AUD Segregated Account
3,230,339.14
ANZ
FX account – Canadian Dollars
120824CAD00001
CAD
ANZ CAD Segregated Account
23,977.54
ANZ
FX account – US Dollars
120824USD00001
USD
ANZ USD Segregated Account
1,651,779.00
ANZ
FX account – New Zealand Dollars
120824NZD00001
NZD
63.79
ANZ
FX account – Japanese Yen
120824JPY00001
JPY
87.88
ANZ
FX account – Sterling Pounds
120824GBP00001
GBP
ANZ GBP Segregated Account
309,202.45
ANZ
FX account – Euro
120824EUR00001
EUR
ANZ Euro Segregated Account
39,348.17
ANZ
FX account – Swiss Franc
120824CHF00001
CHF
84.18
HSBC (Australia)
Client Segregated Account
001-225333-002
AUD
HSBC AUD Segregated Accounts
348,770.48
HSBC (Australia)
Client Segregated Account
001-225333-003
AUD
456.42
HSBC (Singapore)
FX account – US Dollars
260-696760-178
USD
HSBC USD Singapore Segregated Account
722,369.40
HSBC (Australia)
FX account – Sterling Pounds
001-225333-901
GBP
HSBC GBP Segregated Account
23,831.84
HSBC (Australia)
FX account – Canadian Dollars
001-225333-160
CAD
0.00
HSBC (Australia)
FX account – Swiss Franc
001-225333-904
CHF
0.00
HSBC (Australia)
FX account – Euro
001-225333-900
EUR
0.00
HSBC (Australia)
FX account – Japanese Yen
001-225333-902
JPY
0.00
HSBC (Australia)
FX account – New Zealand Dollars
001-225333-903
NZD
0.00
HSBC (Australia)
FX account – US Dollars
001-225333-159
USD
0.00
Total
6,350,310.29
The balance of the Macquarie Cash Management Account (account number 961006129 held with Macquarie Bank Limited), as at 29 July 2011, was AUD 3,507,006.94.
The ANZ AUD Segregated Account, ANZ USD Segregated Account and ANZ Euro Segregated Account (collectively the Deficient Segregated Accounts) are deficient. That is, there are insufficient funds in those accounts to meet all Sonray Clients’ entitlements as represented by their account balances on the Trading Platforms. The remaining foreign currency accounts are not deficient.
The ANZ AUD Segregated Account has been deficient since February 2005. As at 22 June 2010, no Sonray Client held shares that were purchased, or transferred in, prior to 16 February 2005. From 17 March 2009 to 22 June 2010, there were unauthorised withdrawals from the ANZ AUD Segregated Account. However, there was no transfer from the ANZ AUD Segregated Account to Saxo of an amount of money appropriated to a Sonray Client’s account on the Trading Platform. From time to time, Sonray transferred money to Saxo solely in response to margin calls calculated on the global position of Sonray’s Omnibus Account (see [19] below) with Saxo.
As will be explained later in these reasons for decision (see [91]-[94] below), as a result of the deficiencies, transactions between Segregated Accounts and other transactions, the funds in the Deficient Segregated Accounts and at least three other accounts (the HSBC AUD Segregated Accounts and the Macquarie Cash Management Account) (collectively, the Tainted Segregated Accounts) have been so thoroughly mixed that it is now practically impossible to ascertain entitlements to each of the Segregated Accounts. For the sake of completeness it should be stated that the Macquarie Cash Management Account was a Tainted Segregated Account because funds were transferred to it from the ANZ AUD Segregated Account.
3 The Providers
Because Sonray was not a market participant on the Australian Stock Exchange or any other exchange, it could not execute, clear or settle trades directly on exchanges. It therefore contracted with the Providers to do so, or arrange to do so, at the direction of Sonray or a Sonray Client. Each Provider entered into an arrangement with Sonray to provide those services to Sonray. Consolidated holding, or ‘omnibus’ trading, accounts were established with Providers and funds in those consolidated accounts were used by the Providers to execute, clear and settle transactions for Sonray Clients. Saxo would transfer funds from one of its Segregated Accounts to the consolidated (or omnibus) account of one of the Providers as required to fund client trading or to meet client margin calls. It will be necessary to consider each arrangement separately.
There were five Providers – Saxo, Interactive Brokers, MF Global Australia Limited (MF Global), Macquarie Equities Limited (Macquarie) and Forex Capital Markets LLC (FXCM). Each will be considered in turn.
aSaxo
iThe Contractual Terms
Saxo’s contractual relationship with Sonray was contained in three agreements – The White Label Trading System Agreement dated 23 December 2003 (as amended by 13 addenda and amendments dated from 30 June 2005 up to and including 14 September 2009) (the White Label Agreement), the Margin Trading Agreement with Institutional Client dated 23 December 2003 (Margin Trading Agreement) and the ISDA Master Agreement and Schedule to the ISDA Master Agreement both dated 23 December 2003 (the ISDA Master Agreement).
The White Label Agreement regulated the provision by Saxo of a white label “SONRAY-online multi product trading platform” to Sonray which enabled Sonray to trade with Saxo via the platform and for Sonray Clients to download a “SONRAY Client Station” directly from the Sonray website and trade with Sonray using that station: cl 1. Under the White Label Agreement, Saxo agreed to:
1.configure a Sonray branded version of the SaxoTrader Platform for use by Sonray and its clients (cl 3(a)) which, when developed, became known as the “SonrayTrader”;
2.provide the facility to support any number of subaccounts: cl 2(f); and
3.provide technical and customer relations support to Sonray dealers: cl 2(g).
As at 17 October 2011, Saxo had white label agreements with eight other Australian clients similar to the White Label Agreement. The White Label Agreement provided that “Saxo’s … market-makers [would] operate trading facilities for SONRAY’s clients”: cl 2(c).
Under the Margin Trading Agreement, Saxo agreed to grant Sonray margin trading facilities including futures transactions, options transactions, contracts for difference transactions, spot and outright forward foreign exchange transactions and over the counter foreign exchange options: cl 3.1. Sonray was responsible for any balances that arose from time to time in the accounts it held: cl 3.7.
Individual transactions between Saxo and Sonray were governed by the ISDA Master Agreement which they signed on 23 December 2003. Under the ISDA Master Agreement, Saxo and Sonray acknowledged that they had entered and/or anticipated entering into one or more transactions (each defined as a “Transaction”) that would be governed by the agreement. All Transactions entered into in reliance on the ISDA Master Agreement formed a single agreement between Sonray and Saxo and the parties would not otherwise enter into any Transactions: cl 1(c).
iiThe Manner in which Sonray used the Saxo System
Saxo did not require Sonray to transfer funds to Saxo on trade-by-trade basis. Instead, Sonray was required at all times to maintain a balance in an account (known as the Omnibus Account) which was sufficient to satisfy the overall requirement for coverage of Sonray’s open margin positions. The balance in the Omnibus Account was tracked on a real time basis and included:
1.Sonray’s overall cash balance with Saxo including the balance in Saxo’s bank account maintained in respect of Sonray at Australia and New Zealand Banking Group Ltd (Saxo ANZ Sonray Account) and amounts received into Saxo’s bank accounts with Deutsche Bank in London (including its general USD bank account (Saxo Float Account)) or other Saxo bank accounts which were acknowledged by Saxo as being a credit to the Omnibus Account;
2.any unrealised profit and loss; and
3.the value of interests in equities, bonds and other financial assets held by Saxo in respect of Sonray.
Saxo would make a margin call on Sonray when the aggregate value in the Omnibus Account fell below a certain preset percentage of Sonray’s total exposure to Saxo. The margin calls were sent automatically by email to Sonray, to one of two nominated email addresses. On some occasions, the margin call would be followed up by a telephone call or further email to an officer of Sonray.
To bring itself back within margin, Sonray would reduce its exposure to Saxo in relation to open derivative positions and further or alternatively increase the value of the assets in the Omnibus Account.
Saxo permitted Sonray’s Cash Management Staff to log onto its accounting systems using Saxo’s proprietary software called “Client Configuration Manager” (CCM). CCM enabled Sonray staff to establish and manage subaccounts with Saxo on its accounting systems. Sonray’s staff could record deposits and withdrawals with respect to individual Sonray Clients into the subaccounts maintained on the Saxo accounting systems. These subaccounts were also used by Sonray as its client accounts to report to Sonray Clients about their account balance and the history and composition of the transactions constituting that balance.
Each morning, Sonray’s Cash Management Staff conducted a Deposits Identification Process and entered deposits into the “Internal Saxo Transfer Spreadsheet”. Deposits in the ANZ AUD Segregated Account referenced with “SXH999999” and deposits in the HSBC Segregated Accounts referenced with “263160” were deposits, by or in relation to, Sonray Clients who used or intended to use the Saxo Platform (the Saxo Deposits).
Particulars of the Saxo Deposits were uploaded by the Cash Management Staff to the relevant client specific subaccount using CCM. Section 9.1 of the Cash Management Manual provided:
Each client deposit and withdrawal is not sent individually to and from Saxo. Rather, the total amounts are netted off each day to determine if overall Saxo must provide funds to Sonray, or if Sonray is to provide funds to Saxo.
From 22 January 2007 to March 2009, the netting arrangement (or sweep) between Sonray and Saxo referred to in section 9.1 of the Cash Management Manual was employed so that total amounts at the end of each day were netted off to determine if Saxo had to provide funds to Sonray or if Sonray was to provide funds to Saxo.
From March 2009, the netting arrangement and the daily flow of funds between Saxo and Sonray ceased. From March 2009, cash flows between Sonray and Saxo were irregular and generally represented moneys being sent to Saxo by Sonray in response to, or in anticipation of, margin calls on Sonray by Saxo.
iiiSaxo’s Trading Account with UBS and the Funding of Share Purchases
Saxo used UBS AG, London Branch (UBS) to purchase shares to fulfil orders placed by Sonray. For Sonray, other Australian clients of Saxo, and non-Australian clients of Saxo trading in Australian financial products, Saxo maintained a separate account with UBS (account number I0003200 (UBS Omnibus Account)). Under the UBS Omnibus Account were subaccounts for each of Saxo’s Australian White Label Clients (being Australian clients of Saxo which entered into agreements similar to the White Label Agreement). Sonray’s subaccount number was I0003202.
The purpose of the subaccounts was to record trades relating to the specific Australian White Label Clients. The subaccounts were not funded separately. All funding by Saxo took place at the UBS Omnibus Account level. However, individual trades (purchase and sale of shares) by Saxo’s Australian White Label Clients were individually recorded on the appropriate subaccounts. Instructions about trades to be executed by UBS were sent by Sonray to Saxo through the SaxoTrader and generally automatically routed to UBS for execution.
A cash management team at Saxo monitored the balance in the UBS Omnibus Account. If at the end of the day there were insufficient funds in the UBS Omnibus Account to cover the next day’s trade settlements, Saxo would deposit funds into the account from one of more than 400 different bank accounts held with more than 20 different banks. Conversely, if there was excess liquidity, Saxo might have withdrawn the funds to be used in another part of Saxo’s business. Thus, at any given time, the UBS Omnibus Account could have contained funds:
1.transferred from any of the bank accounts Saxo maintained in respect of its Australian White Label Clients;
2.originating from proceeds of sale of shares or instruments at the direction of any of the Saxo’s Australian White Label Clients;
3.originating from proceeds of sale of Australian financial products by Saxo’s non-Australian clients;
4.transferred from other UBS accounts maintained by Saxo; and
5.transferred from any of Saxo’s 400 plus bank accounts with other banks.
Two other important matters about the UBS Omnibus Account should be noted. First, funds from one or more of the sources listed in [29] above could be and were used for trading to purchase new shares and products. Secondly, the UBS Omnibus Account did not record all stock trades conducted on the subaccounts. It recorded stock trades by Saxo or by Saxo’s non-Australian clients trading in Australian securities. Trading by Saxo’s Australian White Label Clients were recorded on the relevant subaccount and would only be recorded on the UBS Omnibus Account when the trades could not be reconciled to a single subaccount.
Saxo also held, in the name of a custodian, the Saxo Shares. Those shares appear to have been lodged as margin cover for the total amount owed by Sonray to Saxo from time to time. The value of the Saxo Shares, as at 29 June 2010, was USD 16,135,896. As at 30 August 2011, the value of the shares was AUD 18,433,805. It is unclear whether the stated value of the Saxo Shares included dividends or other corporate actions paid or affecting those shares on and from 22 June 2010.
bInteractive Brokers
Sonray and Interactive Brokers executed an agreement entitled “Interactive Brokers Consolidated Account Clearing Agreement” on 6 February 2006 (the Interactive Brokers Agreement). Clause 3 of the Interactive Brokers Agreement required that:
1.Sonray introduce its clients to Interactive Brokers on an undisclosed basis;
2.the Consolidated Account held with Interactive Brokers be in Sonray’s name; and
3.all transactions be effected through the Consolidated Account.
Clause 13B(2) of the Interactive Brokers Agreement provided that:
As an administrative service to [Sonray], Interactive [Brokers] will establish Sub-Accounts of [Sonray’s] Consolidated Account, with each Sub-Account to be used for trading of [a Sonray] Customer Account…
Clause 13F(8) of the Interactive Brokers Agreement entitled Interactive Brokers to liquidate any account upon, inter alia, Sonray’s “insolvency or filing a petition in bankruptcy or for protection from creditors”.
Clause 13K(8) of the Interactive Brokers Agreement provided that:
…
(ii)Close-Out Netting. In the event [Sonray]: (a) incurs a margin deficit in any Account or a Risk Management Requirement deficit in any Sub-Account, (b) defaults in the payment or performance of any obligation to Interactive under any agreement with Interactive, (c) becomes the subject of a bankruptcy, insolvency or other similar proceeding, or (d) fails to pay its debts generally as they become due, Interactive shall be entitled in its discretion at any time or from time to time liquidate all or some of [Sonray’s] collateral in Interactive’s possession or control on any commercially reasonable basis and apply the proceeds of such collateral to any amounts owing by [Sonray] to Interactive resulting from the close-out of such foreign currency transactions.
…
(Emphasis added.)
Clause 19B of the Interactive Brokers Agreement required Sonray to indemnify Interactive Brokers for, inter alia, all costs and expenses in connection with “the care of the collateral”.
Interactive Brokers maintained two Master Trading Accounts in the name of Sonray: Interactive Brokers account no. I266951 (Sonray General I-Account) and Interactive Brokers account no. I472655 (for Sonray Clients referred by one of Sonray’s “Introducing Brokers”, CK Locke & Partners) (Sonray CK Locke I-Account) (together the Sonray Interactive Brokers Master Accounts).
The Sonray Interactive Brokers Master Accounts were each linked with client specific subaccounts, which were recorded in the names of Sonray Clients and allocated account numbers using the format U#### (U-Accounts). This account structure was referred to by Interactive Brokers as a “non-disclosed broker” account.
According to Interactive Brokers, a non-disclosed broker account had the following features:
1.Sonray brokers provided their clients with customer service, marketing, a registration process and cashiering functions;
2.Clients of Sonray brokers could electronically trade or the broker could input trades for the client; and
3.Sonray brokers configured client accounts based on information provided during the application process.
Interactive Brokers permitted Sonray’s Cash Management Staff to log onto its website and record deposits and withdrawals with respect to client specific subaccounts. Each morning Sonray’s Cash Management Staff conducted the Deposit Identification Process. Deposits by Sonray Clients to the ANZ AUD Segregated Account referenced with “U99999” related to Interactive Brokers (IB Deposits). IB Deposits identified by Sonray staff were entered into the “Interactive Brokers Transfers” section of the “Internal Saxo Transfer Spreadsheet”. The IB Deposits were then transferred by electronic funds transfer from the ANZ AUD Segregated Account to an Interactive Broker’s bank account, which was then allocated to either the Sonray General I-Account or the Sonray CK Locke I-Account. Transfers of funds could be effected by a bulk transfer of all IB Deposits for a given day or by separate transfers of each IB Deposit.
As soon as the transfer(s) was effected, Sonray was required to send a “deposit notification” to Interactive Brokers to advise Interactive Brokers of the deposit. If Sonray did not send a “deposit notification” then Interactive Brokers would not allocate the deposit to I266951 or I472655.
Sonray Clients could request withdrawals of cash from their account held with Interactive Brokers. Sonray staff would act on such a request by entering details for each Sonray Client withdrawal in the “Cash Transfers” section of the Interactive Brokers website. As a consequence of those instructions, Interactive Brokers would effect the transfer of the recorded Sonray Client withdrawal from the Consolidated Account maintained with Interactive Brokers (see [32] above) into the ANZ AUD Segregated Account. However, receipt of the requested funds from Interactive Brokers into the ANZ AUD Segregated Account was not required before transferring funds into the Sonray Client’s nominated bank account. Rather, Sonray’s Cash Management Staff were required to confirm that the Sonray Client had sufficient available funds to withdraw the requested funds from their subaccount and, once that step was satisfactorily completed, the funds in the amount requested to be withdrawn by the Sonray Client, less a withdrawal fee of $15, was transferred from the ANZ AUD Segregated Account to the Sonray Client’s nominated bank account.
Clauses 13F(8), 13K(8) and 19B of the Interactive Brokers Agreement (see [34]-[36] above) refer to Interactive Brokers’ entitlement to close out and liquidate any or all of the open positions in Sonray’s Interactive Brokers Master Accounts in the event of Sonray becoming insolvent.
The Interactive Broker client accounts have been in ‘closing only’ mode since the date of the Liquidators’ appointment. As at 5 July 2011, there was approximately $11.1 million held by Interactive Brokers in Sonray’s Consolidated Account (which sum includes money recorded in individual subaccounts) (IB Balances).
cMF Global
MF Global dealt with Sonray as principal and without an omnibus account. M Global had no contractual relationship with Sonray Clients. MF Global did not provide credit to Sonray. Sonray was required by MF Global to have sufficient funds to cover the initial margin to commence a trade before a trade position would be opened by MF Global. On 2 August 2010, MF Global closed Sonray’s account and transferred $3,165,468.79 into the ANZ AUD Segregated Account, being all the money held by MF Global on Sonray’s account as at 22 June 2010 after the closing out of positions and conversion to cash.
dMacquarie
Macquarie dealt with Sonray as principal and without an omnibus account. Macquarie had no contractual relationship with Sonray Clients. Sonray Clients were required by Sonray to have sufficient funds to cover the initial margin to commence a trade before a trade position would be opened by Macquarie. By 3 July 2010, all financial positions that were open as at 22 June 2010 had been closed by Macquarie and the balance of the cash management account in the name of Sonray was $3,334,149.02. As at 22 June 2010, Macquarie held no equities for or on behalf of Sonray.
eFXCM
FXCM provided Sonray with an omnibus account that did not provide for subaccounts referrable to Sonray Clients. FXCM had no contractual relationship with Sonray Clients. On 26 August 2010, $484,982.48 was transferred by FXCM into the ANZ AUD Segregated Account. On 3 May 2011, $57,059.00 was transferred into the ANZ AUD Segregated Account. Those payments represent the total funds held by FXCM on behalf of Sonray or Sonray Clients.
4 Defalcations
Between 16 February 2005 and 22 June 2010, there were at least 1049 unauthorised dealings and other breaches of trust by officers of Sonray (Defalcations) which directly or indirectly affected the funds held in the ANZ AUD Segregated Account.
aUnfunded Commissions
Saxo paid a total of $25,058,799 in commission to Sonray between 2007 and 2010. That commission was paid as follows:
1.$18,170,980.07 by cash deposit into Sonray’s general business account (the General Account);
2.$4,515,410.25 by cash deposit into the ANZ AUD Segregated Account; and
3.$2,372,408.79 by “inter-account transfer” from Saxo to Sonray’s Omnibus Account.
Saxo would transfer commission into the ANZ AUD Segregated Account only on instruction from Scott Murray. The impetus for such an instruction was Sonray being close to margin or Scott Murray seeking to reduce the deficiency in the ANZ AUD Segregated Account.
The Liquidators’ investigations revealed that when the balance of the General Account was nearing the overdraft facility limit of $90,000, round value deposits (for example, $75,000 or $250,000) would be made into the General Account with the narration “From Sonray Commission”.The Liquidators were able to match these commission deposits in the General Account with withdrawals from the ANZ Segregated Account. In some instances, however, there were no corresponding deposits of commission into the ANZ AUD Segregated Account. Sonray withdrew a total of $2,986,884.92 in unfunded commissions from the ANZ AUD Segregated Account.
bNet unfunded transactions
The Liquidators identified over 300 unfunded transactions (that is, transactions in which there is no corresponding deposit or withdrawal of cash in the ANZ AUD Segregated Account) affecting 168 Sonray Client accounts and comprising:
1.240 unfunded deposits totalling $48.7 million; and
2.78 unfunded withdrawals totalling $13.1 million.
Accordingly, the unfunded transactions account for approximately $35.6 million of the $45.6 million deficiency in the ANZ AUD Segregated Account.
The analysis undertaken by the Liquidators in relation to unfunded transactions including unfunded deposits and rebates was based, in part, on the end of day (EOD) file database. The Liquidators cannot be certain that the EOD file database was complete and accurate, and that all unfunded client transactions, including all client rebates, have been identified. Indeed, it is possible that the Liquidators have not identified every client account impacted by unfunded transactions.
cRebates
Sonray paid rebates to clients totalling approximately $1.5 million. These rebates relate to Sonray Client accounts managed by an alleged “rogue trader” who failed in a number of circumstances to put adequate “stop losses” in place which caused Sonray Clients to lose money when the market turned. The majority of complaints to Sonray by Sonray Clients about this practice were resolved by Sonray agreeing to compensate (or “rebate”) those Sonray Clients for their losses.
The payment of rebates involved Sonray using CCM to record a deposit in a Sonray Client’s account on SonrayTrader notwithstanding that no corresponding amount of money was deposited into the ANZ AUD Segregated Account. A number of these clients then withdrew funds from their accounts which included these unfunded rebates.
dMargin Manipulation
Scott Murray processed unfunded deposits in various Sonray Client accounts in order for him to execute trades for the purpose of “hedging” Sonray’s entire client portfolio held with Saxo. That “hedging” is more appropriately described as “margin manipulation” as it did not involve the reduction of risk but rather the entering into trades on behalf of Sonray for the sole purpose of avoiding or responding to margin calls made by Saxo on the Omnibus Account.
The Liquidators’ investigations have revealed that the margin manipulation activity began in response to Sonray receiving margin calls from Saxo in relation to the entire Sonray portfolio in circumstances where Sonray did not have sufficient money in the Segregated Accounts to respond to the margin call. These margin manipulation trades involved Sonray entering into a proprietary trade that would either counteract a trade that had been conducted by a Sonray Client, or generate cash in order to meet Saxo’s requirements for cash collateral. A failure by Sonray to address margin calls in respect of its Omnibus Account could have resulted in Sonray’s entire client portfolio with Saxo being closed out: see cl 3.10 of the Margin Trading Agreement and cl 8 of the White Label Agreement.
Sonray would use “house accounts” (being accounts held by Russell Johnson or Scott Murray) and in some circumstances Sonray Client accounts, to take opposite positions, and thereby create opposite exposures, to the positions taken by Sonray Clients. For this purpose, funds would be “virtually” uploaded to those accounts using CCM but there would be no corresponding actual deposit of funds. In other words, unfunded deposits were used for the purpose of margin manipulation.
eClient funds diverted to General Account
In addition to the above Defalcations, there is one instance of Sonray Client funds of nearly $2 million being diverted into the General Account rather than a Segregated Account. On 4 May 2009, Asian Pacific Building Corporation Pty Ltd (APBC) deposited $1,990,000 into Sonray’s General Account and intended that money be used for trading purposes. The funds were used by Sonray to pay business expenses.
5 Sorrento Property Proceeds
On 27 October 2010, Sonray and RJ Capital Pty Ltd entered into a deed of settlement (Sorrento Deed) in relation to a dispute concerning the entitlement to the proceeds of sale of the land described in certificate of title volume 08826 folio 535 or otherwise known as 32 Boston Court Sorrento (the Sorrento Property).
The recitals to the Sorrento Deed recorded the allegations of each party in relation to the dispute. In Recital F it stated that from about August 2003 to about June 2010, Sonray made payments to ANZ totalling $349,239.56 in reduction of the debt owing from RJ Capital to ANZ secured by the mortgage over the Sorrento Property (Mortgage). The payments from Sonray to ANZ were made from Sonray’s General Account.
Of the total $389,747.50 which Sonray paid in relation to the Sorrento Property, $213,775.75 or 55% was paid before 13 April 2007. The remaining 45% was paid after 13 April 2007. The Liquidators’ investigations have revealed that the first of a number of unauthorised withdrawals of funds from the ANZ AUD Segregated Account, paid into the General Account, took place on 13 April 2007.
All the parties (other than Seaborn which did not make submissions on this point) agreed that it is impractical to attempt to determine the proportion of funds in the General Account that was available as a direct result of payments made into the General Account from the ANZ AUD Segregated Account due to the mixing of moneys in the General Account and because the General Account was in overdraft from to time.
On 1 November 2010, RJ Capital Pty Ltd paid to Sonray $457,818.91 in discharge of its obligations under the Sorrento Deed.
6 Swann Global Recovery
On 14 October 2009, Sonray advanced $100,000 to Swann Global Pty Ltd which sum was paid from funds in the General Account. On 20 November 2009, Scott Murray withdrew $325,000 from the ANZ AUD Segregated Account into his personal bank account. He then advanced $300,000 to Swann Global Pty Ltd from his personal bank account.
On 15 November 2010, Scott Murray assigned to Sonray his right and interest in the repayment of the loan to Swann Global Pty Ltd of $300,000. On or about 15 November 2010, Swann Global Pty Ltd paid $400,000 to Sonray.
7 Scott Murray Payment
On 21 June 2011, Scott Murray paid $199,116.15 to the Liquidators representing Mr Murray’s half share of the available equity in the property located at 37 Richardson Street Albert Park. The $199,116.15 was applied to reduce the quantum of any claim by Sonray against Scott Murray arising from the fraudulent withdrawal of funds from Sonray’s Segregated Accounts in breach of fiduciary and other obligations by Scott Murray.
8 Toorak Property Recovery
Between April 2009 and June 2010, a total of $238,741.19 was taken without authority by Russell Johnson from the ANZ AUD Segregated Account and paid into an ANZ account in the joint names of Russell Johnson and Jill Merrilee Murray (Joint Account). The relevant deposits into the Joint Account, all referred to as “Deposit – from Sonray account” were as follows:
DATE
$
20/04/2009
12,341.19
05/05/2009
30,000.00
28/05/2009
10,000.00
26/06/2009
15,000.00
12/06/2009
20,000.00
10/07/2009
5,000.00
06/08/2009
20,000.00
08/10/2009
35,000.00
26/11/2009
20,000.00
23/12/2009
25,000.00
05/01/2010
5,000.00
04/02/2010
31,000.00
15/02/2010
4,500.00
05/03/2010
3,800.00
01/04/2010
900.00
07/05/2010
1,200.00
TOTAL
238,741.19
On 14 April 2009, a further $12,341.19 was withdrawn from the ANZ AUD Segregated Account and paid into an ANZ mortgage account (ANZ Mortgage 1) to reduce the debt owed by Jill Merrilee Murray to the ANZ secured by the Toorak Property.
Amounts totalling $105,987.88 (see Sch 1 below) were withdrawn from the Joint Account and paid into ANZ Mortgage 1 and amounts totalling $26,153.60 (see Sch 2 below) were withdrawn from the Joint Account and paid into another ANZ mortgage account (ANZ Mortgage 2) to reduce the debt owed by Jill Merrilee Murray to the ANZ secured by a mortgage over 1073 Malvern Road, Toorak (Toorak Property) (of which Ms Murray was the sole registered proprietor).
Schedule 1
DATE
REFERENCE
$
20/04/2009
Deposit
7,009.72
20/05/2009
Deposit
6,620.82
22/06/2009
Deposit
6,840.15
11/08/2009
Deposit
6,618.41
14/09/2009
Deposit
6,858.61
20/10/2009
Deposit
6,736.34
23/12/2009
Deposit
7,561.75
8/02/2010
Deposit
7,818.00
3/06/2010
Deposit
40,756.96
20/08/2010
Deposit
9,167.12
TOTAL
105,987.88
Schedule 2
DATE
REFERENCE
$
20/04/2009
Deposit
1,870.22
20/05/2009
Deposit
1,749.18
22/06/2009
Deposit
1,816.47
11/08/2009
Deposit
1,762.79
20/08/2009
Deposit
1,819.21
20/10/2009
Deposit
1,771.84
21/12/2009
Deposit
2,005.89
8/02/2010
Deposit
1,068.00
3/06/2010
Deposit
9,853.83
20/08/2010
Deposit
2,436.17
TOTAL
26,153.60
On or about 15 July 2011, the Liquidators, John Kenneth Murray, Merrilee Colleen Murray and Jill Merrilee Murray entered into a deed of settlement in relation to a dispute concerning the entitlement to the proceeds of sale Toorak Property and a payment of $441,000 to Merrilee Colleen Murray and John Kenneth Murray (the Murrays) alleged to have constituted an unreasonable director related transaction. On 15 July 2011, Jill Murray paid $284,000 to the Liquidators and the Murrays paid $441,000 to the Liquidators.
9 Money Held by Sonray
1,328 Sonray Clients have an overall net balance of less than $50, the average balance being $6.76, with a total balance for those Sonray Clients of $8,980.89.
As at 10 August 2011, the balance of the Recovered Money Account was $1,915,749.59 and comprised the following amounts:
Source
Amount – AUD
ANZ AUD Segregated Account Interest Income
$112,967.92
Debtors collection (negative account balances)
$9,941.51
Sorrento Property Proceeds: see [56] above
$457,818.91
Swann Global Recovery: see [58] above
$400,000.00
Scott Murray Payment: see [59] above
$199,116.15
Toorak Property Settlement: see [63] above.
$725,000.00
Interest Income (until 10 August 2011)
$10,905.10
TOTAL as at 10 August 2011
$1,915,749.59
C. RELEVANT LEGAL PRINCIPLES
1 Accounts – Corporations Act and Regulations
Section 981B(1) of the Corporations Act, read with s 981A(1), requires a financial services licensee to ensure that money paid by a client, or by a person acting for a client, in connection with a financial service provided, or to be provided, to a client, or a financial product held by a client, into “an account” of a prescribed kind. That is, client money is to be paid into an account which is separate from the licensee’s own accounts.
Section 981B provides:
(1)The licensee must ensure that money to which this Subdivision applies is paid into an account that satisfies these requirements:
(a) the account is:
(i)with an Australian ADI; or
(ii)of a kind prescribed by regulations made for the purposes of this paragraph;
and is designated as an account for the purposes of this section of this Act; and
(b) the only money paid into the account is:
(i)money to which this Subdivision applies (which may be money paid by, on behalf of, or for the benefit of, several different clients); or
(ii)interest on the amount from time to time standing to the credit of the account; or
(iii)interest, or other similar payments, on an investment made in accordance with regulations referred to in section 981C, or the proceeds of the realisation of such an investment; or
(iv)other money permitted to be paid into the account by the regulations; and
(c)if regulations made for the purposes of this paragraph impose additional requirements--the requirements so imposed by the regulations; and
(d)if the licence conditions of the licensee's licence impose additional requirements--the requirements so imposed by the licence conditions.
The money must be paid into such an account on the day it is received by the licensee, or on the next business day.
(2)The licensee may, for the purposes of this section, maintain a single account or 2 or more accounts.
(Emphasis added.)
Where a financial service or a financial product referred to in s 981A(1) relates to dealing in a derivative or is a derivative, the money paid by a client may be used by the licensee for the purpose of meeting obligations incurred by the licensee in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee, including dealings on behalf of other people: s 981D of the Corporations Act. However, money paid by a client and the investments made with it are incapable of being attached or otherwise taken in execution, or being made the subject of a set-off, charge or charging order or any process of a similar nature except at the suit of a person who is otherwise entitled to the money or investment: s 981E of the Corporations Act.
The Liquidators submitted, and I accept, that the effect of these provisions is to create one or more mixed trust funds with special characteristics: they are intended to be used specifically for the provision of financial services and for the holding of and dealing in financial products; they can be used to meet margin calls and to act as security for dealings in derivatives, including dealings on behalf of clients other than the depositing client; however, they cannot be used to satisfy the creditors of the licensee. Such money “is taken to be held on trust by the licensee for the benefit of the client”: s 981H(1) and cf re Lehman Brothers International (Europe) (In Administration) [2010] EWCA Civ 917 at [67]-[72] and [181].
Where a licensee ceases to be licensed, or becomes insolvent, reg 7.8.03(6) of the Regulations determines how money in “the account” of the licensee maintained for the purposes of s 981B is to be paid. Regulation 7.8.03 provides:
(1)For paragraph 981F(a) of the Act, this regulation applies if a financial services licensee ceases to be licensed (including a cessation because the financial services licensee's licence has been suspended or cancelled).
(2)For paragraph 981F(b) of the Act, this regulation applies if a financial services licensee:
(a) becomes insolvent under an administration; or
(b) is the subject of any of the following arrangements:
(i)the appointment of an administrator under section 436A, 436B or 436C of the Act;
(ii)the commencement of winding up;
(iii)the appointment of a receiver of property of the financial services licensee, whether by a court or otherwise;
(iv)the appointment of a receiver and manager of property of the financial services licensee, whether by a court or otherwise;
(v)entry into a compromise or arrangement with creditors of the financial services licensee, or a class of creditors;
…
(4)For each person who is entitled to be paid money from an account of the financial services licensee maintained for section 981B of the Act, the account is taken to be subject to a trust in favour of the person.
(5)If money in an account of the financial services licensee maintained for section 981B of the Act has been invested, for each person who is entitled to be paid money from the account, the investment is taken to be subject to a trust in favour of the person.
(6)Money in the account of the financial services licensee maintained for section 981B of the Act is to be paid as follows:
(a)the first payment is of money that has been paid into the account in error;
(b)if money has been received on behalf of insureds in accordance with a contract of insurance, the second payment is payment to each insured person who is entitled to be paid money from the account, in the following order:
…
(c) if:
(i) paragraph (b) has been complied with; or
(ii) paragraph (b) does not apply;
the next payment is payment to each person who is entitled to be paid money from the account;
(d)if the money in the account is not sufficient to be paid in accordance with paragraph (a), (b) or (c), the money in the account must be paid in proportion to the amount of each person’s entitlement;
(e)if there is money remaining in the account after payments made in accordance with paragraphs (a), (b) and (c), the remaining money is taken to be money payable to the financial services licensee.
(7)This regulation applies despite anything to the contrary in the Bankruptcy Act 1966 or a law relating to companies.
(Emphasis added.)
Alternatively, if the Transferred Shares are characterised as being held by or on Sonray’s behalf as a bare trustee, those shares are still chargeable provided that what the Liquidators do is by way of vindication of the rights associated with the trust property: CGU Insurance Limited v One.Tel Limited (in liq) (2010) 242 CLR 174.
The Liquidators do not have an immediately enforceable right of recoupment for fees and expenses out of the trust property: Parbery (in their capacity as joint and several administrators of Trio Capital Ltd (Admin App)) v ACT Superannuation Management Pty Ltd (2010) 79 ACSR 425 at 431-432. The Liquidators are required to appeal to the Court’s inherent equitable jurisdiction in the administration of trusts to seek allowance “where it appears clear that the remuneration and expenses are for work done for the benefit of the trust”: Trio Capital at 431. Whether such allowance is granted is a matter for the Court’s discretion, having regard to all of the circumstances of the case. Recourse to trust assets for remuneration and expenses is sparingly exercised: Trio Capital at 433.
In the circumstances, the Liquidators should be entitled to have recourse to the Transferred Shares for payment of their Remuneration and Expenses, but only to the extent that their Remuneration and Expenses relates to dealing with claims of an in specie entitlement to those shares.
The Liquidators submitted, and I accept, that they acted in the capacity of a trustee “to significant extent”. The Liquidators acted reasonably in “identifying or attempting to identify trust assets” in the form of the Transferred Shares, as distinct from shares purchased with funds from a Tainted Segregated Account, or a mixture of the proceeds of the sale of Transferred Shares and money from a Tainted Segregated Account, and in arriving at a lawful basis for “distributing trust assets to the persons beneficially entitled to them”.
Irrespective of whether the Transferred Shares were held by or for Sonray as a bare or other trustee, the work of the Liquidators and the expenses incurred by them in order to identify, ascertain and ultimately deliver the entitlements of Sonray Clients, including this application, should be met in part from those assets to ensure equality and fairness of treatment of all Sonray Clients: see French Caledonia at 428 discussing Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32. The Transferred Shares should be charged with a fair share of the Liquidators’ Remuneration and Expenses to the extent that they relate to dealing with claims of an in specie entitlement to those shares. That recourse should extend to the power to sell a sufficient number of the shares to cover the relevant portion of the Liquidators’ Remuneration and Expenses.
cFunds in the HSBC USD Singapore Segregated Account
As discussed earlier (see [160]), subject to set-off, Maryland is entitled to a refund of the moneys deposited in the HSBC USD Singapore Segregated Account. Maryland submitted that no deduction should be made for the Liquidators’ Remuneration and Expenses in relation to this application or any work associated with other Segregated Accounts or the liquidation generally, including work undertaken to ascertain, get in, protect and preserve the assets of Sonray.
The Liquidators were not faced with a complex set of facts in relation to the moneys in the HSBC USD Singapore Segregated Account: see [156]-[160] above. Save for a deposit fee, following the initial deposit of funds into the HSBC USD Singapore Segregated Account, there were no further deposits into, or withdrawals from, that account. There was no comingling of moneys. There was no deficiency. There was no Defalcation in relation to that account. There was no payment of moneys from the ANZ AUD Segregated Account into the HSBC USD Singapore Segregated Account and therefore no issue of tainted moneys. The identity of the depositing Sonray Client was clear.
Furthermore, the moneys were already in the Singapore Segregated Account on 22 June 2010. There is no evidence of any compensable effort being made or expenses being incurred to protect or preserve the trust moneys in the Singapore Segregated Account or to facilitate distribution of those moneys to Maryland.
The liquidators’ application was not made to protect or preserve the trust moneys in the Singapore Segregated Account. It was made to protect the liquidators from subsequent claims that they acted unreasonably or inappropriately. Applying the regulatory regime, the only possible beneficiary of the moneys in the HSBC USD Singapore Segregated Account was Maryland on behalf of the Norwegian Trust. In circumstances where Maryland was requiring payment of the moneys in the HSBC USD Singapore Segregated Account, the Liquidators did not require protection from subsequent suit. The Liquidators (in their capacity as trustees) were under no duty to take advice in relation to payment of the trust moneys in the Singapore Segregated Account. There was already a clear regulatory regime which could have, and should have, been applied without the need for advice from the Court or otherwise.
Having regard to all the circumstances in relation to the HSBC USD Singapore Segregated Account, the Court should refuse to exercise its discretion (see [298] above) in favour of the Liquidators. No deduction for the Liquidators’ Remuneration and Expenses should be made to the funds in the HSBC USD Singapore Segregated Account.
G. ORDERS
The Liquidators provided draft orders. The Contradictors each commented on the draft orders. In all the circumstances, the appropriate declaration and directions are as follows:
1.The Liquidators are directed to pool the following assets into the Client Fund:
1.1The Segregated Accounts (but excluding the funds held in the HSBC USD Singapore Segregated Account, being account number 260-696760-178 held at the Singapore Branch of HSBC);
1.2The Saxo Shares (but excluding shares referred to in Order 6) to the extent they come within the Liquidators’ Control;
1.3The Interactive Broker Balances (but excluding shares referred to in Order 6);
1.4The Recovered Money.
2.For the purpose of pooling under order 1, the Liquidators are directed to:
2.1give directions to Interactive Brokers to liquidate all financial products held under Sonray’s consolidated account at Interactive Brokers (excluding Transferred Shares and shares referred to in paragraph 6(c));
2.2give directions to Saxo to liquidate all Saxo Shares (excluding Transferred Shares and shares referred to in paragraph 6(c));
2.3convert into Australian dollars any foreign currency in their or Sonray’s control (but excluding the money referred to in order 8);
2.4give to Interactive Brokers, Saxo or any bank which maintains a Segregated Account any instructions necessary or desirable to give effect to order 2.
3.The Liquidators and Sonray are directed to disburse the Client Fund in the following order:
3.1in payment of the Remuneration and Expenses in accordance with Order 6;
3.2in payment of the indemnity for defendants in accordance with Order 4 made on 5 September 2011;
3.3in payment of $2,000 to Michael Hart in respect of his legal expenses of participating in this proceeding; and
3.4all Entitlements in full and, if the Client Fund is insufficient to meet the Entitlements in full, proportionately to each Sonray Client’s respective Entitlements.
4.For the purpose of calculating and paying disbursements under order 4, the Liquidators are directed to treat Sonray Clients with an Entitlement of $50 or less as having no entitlement to participate in the Client Fund.
5.The Liquidators are directed to deliver to any Sonray Client any:
5.1Transferred Shares held by or on behalf of Saxo or Interactive Brokers at the date of these orders;
5.2the Proceeds of Transferred Shares but excluding Proceeds mixed with Tainted Money; and
5.3any other shares purchased with Proceeds of Transferred Shares but excluding shares purchased partly with Tainted Money.
6.To the extent that the Remuneration and Expenses of the Liquidators, whether as former Administrators or as Liquidators, exceed the assets of Sonray which it holds beneficially, the Liquidators and Administrators are entitled to have recourse to:
6.1the Client Fund; and
6.2the Transferred Shares (but only to extent that the Remuneration and Expenses relate to dealing with claims of Sonray Clients claiming an in specie entitlement the Transferred Shares).
7.The Liquidators are directed to sell sufficient Transferred Shares and/or shares referred to in 5.3 to pay amounts payable under order 6.2.
8.The Liquidators are directed to have their Remuneration, whether as former Administrators or as Liquidators, determined by:
8.1a resolution of Sonray’s creditors as if ss 473(3)(b)(i), (4), (4A), (5), (6), (10) and (12) of the Corporations Act apply mutatis mutandis; or
8.2as if r 9 of the Federal Court (Corporations) Rules 2000 (Cth) applied mutatis mutandis.
9.In these Orders the following words have the following meaning:
Administration means the administration of Sonray by the Administrators pursuant to Pt 5.3A of the Corporations Act commencing on 22 June 2010 and ending on 27 October 2010;
Administrators means George Georges and John Ross Lindholm in their capacities as administrators of Sonray during the period of its Administration;
Client Fund means an account at an authorised deposit-taking institution under the control of the Liquidators established for the purposes of order 2 to be disbursed according to these Orders;
Corporations Act means the Corporations Act 2001 (Cth);
Entitlement means the amount of a particular Sonray Client’s Proposed Adjusted Account Balance or Proposed Account Balance on the Client Fund determined in accordance with the adjudication process set out in Annexure A;
Expenses means expenses incurred by the Liquidators in the Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts, including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
8.identifying claims which may be brought to benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
9.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts;
10.instructing lawyers to:
10.1advise in relation to any of the matters referred to above; and
10.2commence this application.
11.the Liquidators’ costs in respect of the procedure referred to in paragraph 5 of the order made by Justice Finkelstein on 8 December 2010;
12.the Liquidators’ costs and expenses of this application on an indemnity basis.
Interactive Broker Balance means the Entitlement of a Sonray Client in respect of the trading platform provided to Sonray by Interactive Brokers;
Interactive Brokers means Interactive Brokers LLC (a company incorporated in Delaware in the United States);
Liquidation means the liquidation of Sonray by the Liquidators pursuant to Pt 5.5 of the Corporations Act commencing on 27 October 2010;
Liquidators means George Georges and John Ross Lindholm in their capacities as liquidators of Sonray during the period of its Liquidation;
Proceeds means the proceeds of sale, interest, dividends or other corporate actions paid or affecting shares;
Proposed Adjusted Account Balance has the definition given in Annexure A;
Proposed Account Balance has the definition given in Annexure A;
Recovered Money means the following money received by the Liquidators:
1.$725,000 received from Russell Johnson, Jill Murray, John Murray and Merrilee Murray;
2.$199,116.15 received from Scott Murray;
3.$400,000 from John Murray on behalf of Swann Global Pty Limited; and
4.$457,818.91 from RJ Capital Pty Ltd in respect of the Sorrento Property;
Remuneration means such remuneration of the Liquidators in respect of their Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.realising or attempting to realise funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
8.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
9.identifying claims which may be brought which may directly or indirectly benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
10.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts; and
11.instructing lawyers to:
11.1advise in relation to any of the matters referred to above; and
11.2commence and continue this application.
Segregated Accounts means:
1.Australia and New Zealand Banking Group account numbers 013006-1087-85428, 120824CAD00001, 120824USD00001, 120824NZD00001, 120824JPY00001, 120824GBP00001, 120824EUR00001, 120824CHF00001;
2.Hong Kong Shanghai Banking Corporation account numbers 001-225333-002, 001-225333-003, 001-225333-901, 001-225333-160, 001-225333-904, 001-225333-900, 001-225333-902, 001-225333-903, 001-225333-159 and 260-696760-178; and
3.Macquarie Cash Management Account number 961006129.
Saxo means Saxo Bank A/S ARBN 109 605 610 (a company incorporated in Denmark);
Saxo Shares means shares held by Saxo and acquired on the instructions of any Sonray Client and including dividends or other corporate actions paid or affecting those shares on and from 22 June 2010;
Sonray means Sonray Capital Markets Pty Limited (in liquidation) ACN 104 482 993;
Sonray Client means a client of Sonray, whether transacting on the SonrayTrader, Sonray Global and/or WebTrader trading platforms;
Sorrento Property means volume 08826 folio 535, known as 32 Boston Court, Sorrento;
Tainted Money means any money that has passed through a Australia and New Zealand Banking Group Limited BSB 013-006 account number 1087-85428;
Transferred Shares means shares transferred direct from a Sonray Client’s HIN to Saxo or Interactive Brokers (or their respective custodians).
I certify that the preceding three hundred and seven (307) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate:
Dated: 10 February 2012
ANNEXURE A
1Subject to paragraph 5, in respect of Sonray Clients whose accounts appear to the Liquidators to have unfunded transactions the Liquidators will reverse out:
(a)the unfunded deposits;
(b)the unfunded withdrawals;
(c)the trading or withdrawals attributable to the unfunded deposits and unfunded withdrawals (including GST, interest, commission and sundry items),
to arrive at the Proposed Adjusted Account Balance.
2.Subject to paragraph 5 and except for Sonray Clients with an Entitlement of $50 or less, in respect of Sonray Clients whose accounts do not appear to the Liquidators to have unfunded transactions, the Liquidators will write to each such Sonray Client indicating the Liquidators propose to adopt the account balance as it stood at 22 June 2010 according to the trading platform on which that particular investor traded with Sonray to calculate that investors entitlement (Proposed Account Balance).
3.The Liquidators will invite any Sonray Client who does not agree with the Proposed Account Balance or the Proposed Adjusted Account Balance (as the case may be) to provide, within 21 days, additional information and particulars about the adjustments that the Sonray Client contends ought be made to the Proposed Account Balance or the Proposed Adjusted Account Balance (as the case may be).
4.Within 28 days of receipt of any information provided pursuant to paragraph 3, the Liquidators will notify the Sonray Client whether or not the Liquidators propose to vary or alter the Proposed Account Balance or Proposed Adjusted Account Balance (as the case may be) and that determination shall be binding unless and until the Liquidators and the Sonray Client each agree to a different balance or a Court determines an appeal by that investor pursuant to s 1321 of the Corporations Act and directs or orders a different balance be adopted.
5.For the purposes of determining a Proposed Account Balance or a Proposed Adjusted Account Balance, the Liquidators shall set-off any positive account balances against any negative account balances in all accounts owned by the same Sonray Client on any trading platform (both positive and negative account balances to be determined as at 22 June 2010).
ANNEXURE B
Expenses means expenses incurred by the Liquidators in the Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts, including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
8.identifying claims which may be brought to benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
9.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts;
10.instructing lawyers to:
10.1advise in relation to any of the matters referred to above; and
10.2commence this application.
11.the Liquidators’ costs in respect of the procedure referred to in paragraph 5 of the order made by Justice Finkelstein on 8 December 2010;
12.the Liquidators’ costs and expenses of this application on an indemnity basis.
Remuneration means such remuneration of the Liquidators in respect of their Administration of Sonray and Liquidation of Sonray relating to the Segregated Accounts including:
1.the ascertainment of the nature and value of the position of the assets and liabilities relevant to the Segregated Accounts;
2.the investigation of the financial relationship between Sonray and the Segregated Accounts;
3.the identification of the creditors who may claim in respect of the Segregated Accounts and any matters necessary to determine appropriate action to be taken in relation to the Segregated Accounts on behalf of Sonray including action to preserve and protect the Segregated Accounts;
4.identifying or attempting to identify the source of money held in the Segregated Accounts;
5.recovering or attempting to recover funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
6.realising or attempting to realise funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
7.protecting or attempting to protect funds or other assets the proceeds of which should have been held in the Segregated Accounts on or before 22 June 2010;
8.distributing funds held in the Segregated Accounts to the persons beneficially entitled to them;
9.identifying claims which may be brought which may directly or indirectly benefit the Segregated Accounts or reduce other claims against it, being in either case claims relating to funds or other assets which should have been held in the Segregated Accounts on or before 22 June 2010;
10.reviewing and dealing with claims by any person to any entitlements in respect of the Segregated Accounts; and
11.instructing lawyers to:
11.1advise in relation to any of the matters referred to above; and
11.2commence and continue this application.
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