Markopoulus v Marco
[2020] WASC 79
•12 MARCH 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MARKOPOULUS -v- MARCO [2020] WASC 79
CORAM: TOTTLE J
HEARD: 19 & 27 FEBRUARY 2020
DELIVERED : 12 MARCH 2020
FILE NO/S: CIV 1431 of 2019
BETWEEN: PATRICIA MAREE MARKOPOULUS
First Plaintiff
TONPOSE PTY LTD (ACN 008 850 057) as trustee for MARKS AUTO SUPERANNUATION FUND
Second Plaintiff
ANN-MAREE LOCKETT formerly known as ANN‑MAREE WILLIAMS
Third Plaintiff
BRADLEY DAVID RUNDIN WILLIAMS
Fourth Plaintiff
AND
CHRIS MARCO
Defendant
Catchwords:
Trusts - Creation of express trust - Intention to create trust - Where intention manifest on words of written agreement - Where trustee claims subjective misunderstanding of the word 'trust' - Whether trustee's subjective understanding relevant to question of intention - Where decision in Byrnes v Kendle applies
Trusts - Creation of express trust - Intention to create trust - Investment schemes - Where beneficiaries' moneys held on same terms as other members of investment scheme - Where beneficiaries did not enter into written agreement with trustee - Where intention to be inferred from entry into agreement to invest on 'same terms' - where other investors invested on terms of express trust manifested in written agreement - Express trust established
Trusts - Breach of trust - Taking of accounts - Where judgment given determining extent of trustee’s liability - Whether utility in ordering account - Where nature and extent of trustee’s dealing with trust funds remains unknown at time of judgment - Where wilful default on the part of trustee - Account ordered
Practice and procedure - Summary judgment - Where claim for debt admitted - Summary judgment granted
Practice and procedure - Summary judgment - Where defendant denies existence of trustee relationship - Whether defendant raises triable issues - Whether defendant raises arguable defences - Where existence of express trust disputed on basis of subjective understanding - Where defence raised contrary to established principles - Where issues raised incapable of affecting outcome even if tried
Legislation:
Rules of the Supreme Court 1971 (WA), O 14 r 1, O 14 r 2
Result:
Summary judgment ordered for the plaintiffs
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr P G Donovan |
| Second Plaintiff | : | Mr P G Donovan |
| Third Plaintiff | : | Mr P G Donovan |
| Fourth Plaintiff | : | Mr P G Donovan |
| Defendant | : | Ms K Sierakowski |
Solicitors:
| First Plaintiff | : | MDS Legal |
| Second Plaintiff | : | MDS Legal |
| Third Plaintiff | : | MDS Legal |
| Fourth Plaintiff | : | MDS Legal |
| Defendant | : | MGM O'Connor Lawyers |
Case(s) referred to in decision(s):
Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588
Australian Securities and Investments Commission v Idylic Solutions Ltd [2009] NSWSC 1306
Batistatos v Roads & Traffic Authority of NSW [2006] HCA 27; (2006) 226 CLR 256
Byrnes v Kendle [2009] SASC 385
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Freelance Global Ltd (in Liq) v Bensted [2016] VSC 181
Grocers of Wyong Pty Ltd v Retech Global Pty Ltd [2004] NSWSC 488
Hancock v Rinehart (2015) 10 ACSR 207
Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86
Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75
Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 404
Re Ellis; Ellis v Ellis [2015] WASC 77
Re Idylic Solutions Pty Ltd [2016] NSWSC 907
Re Kayford Ltd (in Liquidation) [1975] 1 All ER 604; [1975] 1 WLR 279
Rowe v National Australia Bank Ltd [2019] WASCA 140
Spellson v George (1987) 11 NSWLR 300
Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed) v Qantas Airways Ltd (1988) 13 NSWLR 331
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14
Thorn v Boyd [2014] NSWSC 1159
Thorn v Boyd [2015] NSWSC 199
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2005] HCA 52; (2004) 219 CLR 165
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107
Westpac Banking Corporation v Rodale Pty Ltd (in liq) [2004] VSC 226
TOTTLE J:
Summary
In this application for summary judgment the plaintiffs seek, among other relief, repayment of funds made available by them to the defendant, Mr Marco, for investment purposes and the payment of the agreed return on those investments.
The first plaintiff, Mrs Markopoulus, is the widow of the late Mr Peter Markopoulus. The third plaintiff, Ms Lockett, is their daughter. The fourth plaintiff, Mr Williams, and Ms Lockett were married to each other between 2001 and 2011. Mr and Mrs Markopoulus were the directors and sole shareholders of the second plaintiff, Tonpose, until Mr Markopoulus's death in 2013. Mrs Markopoulus and Ms Lockett are now the directors of Tonpose. Tonpose serves as the trustee of the Marks Autos Superannuation Fund (MASF), of which Mrs Markopoulus is the sole member, and Tonpose sues in its trustee capacity. Mr Markopoulus was Mr Marco's second cousin.
Arguments raised by Mr Marco in the early stages of this action about the adequacy of the plaintiffs' pleading obscured the reality that there was no dispute that funds were made available to Mr Marco in the amounts alleged by the plaintiffs, that those funds were not repaid on the agreed dates and that the agreed interest has not been paid.[1]
[1] Mr Marco's present solicitors did not act for him in the early stages of the action.
Mr Marco's explanation for not paying the plaintiffs, as he accepts he was obliged to do, is that his assets are the subject of a freezing order made by the Federal Court of Australia on the application of the Australian Securities & Investments Commission (ASIC).
No triable issue has been raised in respect of the plaintiffs' money claims and there will be summary judgment in their favour against Mr Marco as detailed later in these reasons.
The other relief sought by the plaintiffs is more controversial. The plaintiffs seek a declaration that Mr Marco held the funds on trust. The plaintiffs also seek an order for an account.
As I explain below, the funds were made available to Mr Marco on the basis that he did not acquire a beneficial interest in them and the plaintiffs have established an entitlement to the declarations to the effect that Mr Marco held their funds on trust.
The amounts due by Mr Marco to the plaintiffs have been ascertained by the court and will be recorded in a judgment in their favour. The existence of a judicial determination as to the amounts due to the plaintiffs gave rise to a consideration of what purpose would be served by ordering an account, and whether as the amounts due to the plaintiffs had been ascertained, the court had jurisdiction to direct that an account be taken, alternatively, if the jurisdiction existed, whether it should be exercised, having regard to the principle that the discretion to order an account is not at large. The plaintiffs argued that an account was necessary to assist them in tracing their funds.
Leave was granted to the plaintiffs to file and serve further submissions in support of the application for an account and to file and serve a re-amended substituted statement of claim. The plaintiffs filed further submissions together with a re-amended substituted statement of claim alleging that there had been wilful defaults on Mr Marco's part when acting in his capacity as a trustee and seeking an account on that basis. Mr Marco filed an amended defence and responsive submissions.
I am persuaded that the taking of accounts should be ordered and explain why that is so later in these reasons.
The evidence
The plaintiffs relied on a number of affidavits sworn by Mrs Markopoulus, Ms Lockett and Mr Williams as well as on an affidavit sworn by one of their solicitors, Ms Helen Burnside.[2] The plaintiffs' affidavit evidence set out the history of their financial dealings with Mr Marco and, taken together, the affidavits satisfied the requirements of O 14 r 2(1) of the Rules of the Supreme Court 1971 (WA).
[2] Affidavits of Ann-Maree Lockett sworn 22 October 2019 and 25 November 2020; affidavits of Patricia Maree Markopoulus sworn 24 October 2019, 25 November 2020 and 24 January 2020; affidavits of David Rundin Williams sworn 28 October 2019 and 22 November 2019; affidavit of Helen Jennifer Burnside sworn 3 December 2019.
Mr Marco relied upon an affidavit sworn by him on 10 January 2020.
There are evidentiary conflicts about aspects of the relationship between the plaintiffs and Mr Marco, in particular about whether Mr Marco provided the plaintiffs with advice and guidance in relation to financial matters and about what he told the plaintiffs about the nature of his investment activities. It has, however, not been necessary to address any these conflicts for the purposes of determining the present application. The conflicts in the evidence concern matters that are peripheral to the critical issues and do not affect the determination of those issues.
The pleadings
The plaintiffs' claim is pleaded in the re-amended substituted statement of claim filed on 23 February 2020. The re-amended substituted statement of claims is a lengthy pleading in which a large number of claims were developed. The only claims pursued on this application for summary judgment are the 'core' claims which I have summarised. Mr Marco pleaded to the re-amended substituted statement of claim by an amended defence filed on 9 March 2020.
Mr Marco's account of his activities and the plaintiffs' investments
It is convenient to set out the background by reference to Mr Marco's evidence. Mr Marco described his business activities as engaging in 'bank instruments trading as a private investor'. He operated the business under the name 'Coastline Group'. Mr Marco explained that he engaged in bank instruments trading through what are known as 'private placement programmes'. For this purpose Mr Marco required capital to satisfy what he described as a 'proof of funds' condition. Mr Marco explained that for the last 18 months or so he had 'proof of funds' in the amount of approximately $5 million and that he was required to retain such funds in one of his bank accounts in Perth. He explained that his 'proof of funds' was aggregated with that of other traders as part of 'private placement platforms' that were used facilitate 'arbitrage' transactions involving bank instruments in Europe or the United States. In return for providing 'proof of funds' Mr Marco shared in the profits from the transactions.
Mr Marco deposed that he realised in the early 2000s that it would be difficult for him to increase his 'proof of funds' to the level required without outside investors. He explained that he sought advice from an accounting firm and that as a result of that advice a document entitled 'Declaration of Trust' was prepared on his behalf by a lawyer to record the terms of the agreements between him and those whom he described as his 'investors'. Mr Marco's evidence was to the effect that he did not understand the legal meaning of 'trust' used in the context of the 'Declaration of Trust' and he thought that it simply meant that his clients trusted him to invest their funds appropriately. He deposed:[3]
… I have always told my investors that any funds which they provide to me for investment will be pooled and the pooled funds will be invested in such manner as I deem most appropriate for generating a financial return to them on their investment. Even though the form says Declaration of Trust the intent of the form was to record the agreement as set out above.
[3] Mr Marco's affidavit of 10 January 2020 [7].
Mr Marco deposed that he explained to Mr Markopoulus that he was trying to build a large 'proof of funds' in order to attract a large private placement programme. He said that after he had received the advice from the accounting firm he agreed with Mr Markopoulus that Mr Markopoulus would invest in his business. Mr Marco's evidence about his agreement with Mr Markopoulus was as follows:[4]
I recall that when Peter first said he wanted to invest that he said words to the effect that he did not have need for the principal amount to be returned but he just wanted a high rate of return for himself, his wife and his daughter. At that time we did not discuss a specific rate of interest or return. I agreed with Peter that I would set the rate of return, but it would not be less than 9%. I told Peter that he could have the principal investment returned only at maturity if he asked for it. Peter said to me at the time that he would give me several weeks' notice should he require any of his principal funds as he understood it is always difficult for cash-flow and starting a business. I did not tell Peter that the investments were insured. The returns were generally paid quarterly but they did vary (the 'Peter Markopoulus Agreement').
[4] Mr Marco's affidavit of 10 January 2020 [12].
Between about 2002 and 2012 Mr Markopoulus invested considerable funds with Mr Marco and caused Tonpose to invest funds on behalf of the MASF. Ms Lockett and Mr Williams also invested funds with Mr Marco. Mr Marco said that his relationship with Mr Markopoulus was such that there was minimal correspondence and record keeping in respect of his investments. I interpolate that Mrs Markopoulus kept records of the amounts invested with Mr Marco from time to time.
In 2012 Mr Markopoulus suffered a catastrophic brain injury. From that point on Mr Marco dealt with Mrs Markopoulus. Mr Marco deposed that whilst Mr Markopoulus had said that he, Mr Markopoulus, did not need documentation in relation to the investments, he, Mr Marco, wanted to document the agreement with Mrs Markopoulus as he was documenting 'most other investment matters as the business was growing'. Mr Marco deposed that he met Mrs Markopoulus and provided her with a copy of a document entitled Declaration of Trust being a document in the form prepared on his behalf by his solicitor. The document related to an investment by Tonpose and its material parts were as follows:
DECLARATION OF TRUST
I, CHRIS MARCO (Principal) of Suite 30, Broadway Fair, 88 Broadway, Nedlands, Western Australia HEREBY DECLARE that I hold the investment specified in item 1 of the Schedule in trust for the party specified in item 2 of the Schedule AND DECLARE that the beneficiary is entitled to their proportion of the capital and interest or income therefrom as single investment holder.
The investor has agreed to advance to the Principal the sum specified in item 1 of the Schedule upon the terms and conditions herein contained.
Schedule
1.Description of Investment
a) Investment Amount: AUD$3,519,991
b) Investment Return: AUD$422,398
c) Investment Term: Twelve (12) months
d) Investment Type: Interest-Bearing
e) Payment Schedule: Refer Addendum A
2.Name of Beneficiary and Relevant Proportion
Marks Autos Superannuation Fund 100 per centum
3.Guarantee
By the execution of this declaration, the Principal hereby guarantees to the Investor the repayment of the principal sum in the event of investment loss in accordance with the provisions of this declaration.
Clauses 4 - 8 of the Declaration of Trust concerned the payment of stamp duty and costs, fees, re-investment, early exit and 'the serious illness and death of the Principal'. It is unnecessary to reproduce the text of these provisions: in summary: the 'Investor' was responsible for the costs of preparing the Declaration of Trust and any stamp duty; the Principal agreed 'to annul' any fees; the Principal agreed to offer the opportunity to re-invest should the opportunity to do so arise; there was no provision for 'early exit'; and if the Principal died or became seriously ill, the Investor should contact the Principal's office whereupon 'the specified terms of this declaration will be carried out in full'. The declaration was dated 20 August 2012 and was signed by Mr Marco and by Mrs Markopoulus. Addendum 'A' comprised two typewritten lines recording that $211,199 would be paid on 11 March 2013 and 23 September 2013. Under each typewritten line there appears in handwriting a list of payments, in each case receipted by a signature, made over the periods between August 2012 and March 2013 and between March 2013 and September 2013. The aggregate of the payments in each list was $211,199.
Mr Marco's evidence was to the effect that in 2013 Mrs Markopoulus spoke to him and told him that she wanted to reinvest MASF's funds with him on the same terms as those set out in the Declaration of Trust executed by Mr Marco and Mrs Markopoulus in 2012. Mr Marco deposed that he made notations on the 2012 Declaration of Trust and asked Mrs Markopoulus to sign the annotated version of the 2012 Declaration of Trust.
In 2014 Mr Marco provided Mrs Markopoulus with a Declaration of Trust for investments made in her name. The operative clause in this Declaration of Trust was identical to that contained in the earlier document. The schedule was, however, in a slightly different format as follows:
Schedule
1.Description of Investment
a) Investment Amount: AUD$1,000,000
b) Rate of Return: 10% at maturity
c) Commencement Date: 16 January 2014
d) Maturity Date: Week Commencing 14 April 2014
e) Investment Type: Private Placement
2.Name of Beneficiary and Relevant Proportion
Marks Autos Superannuation Fund 100 per centum
3.Guarantee
By the execution of this declaration, the Principal hereby guarantees to the Investor the repayment of the principal sum in the event of investment loss in accordance with the provisions of this declaration.
The collateral for this guarantee is by way of cash blocked at HSBC Jersey Branch, HSBC House, St Helier, Jersey JE1 1HS, Channel Islands.
Account Name: Chris Marco Premier account
Account Number: [number]
Account Type: Foreign Currency Account (United States Dollar)
Amount Blocked: USD$2,988,174.00
Should distribution of investment proceeds not be met at the appropriate designated time, within a 30 day period the equivalent proceeds will be withdrawn from the above account and deposited into the investor's nominated account.
This guarantee is full and final with each investor and each invested amount.
As can be seen, even though the Declaration of Trust was for an investment to be made by Mrs Markopoulus, the document recorded the MASF as the beneficiary. I infer this was an error.
Mr Marco deposed that the terms set out in the 2014 Declaration of Trust were the terms used for all future investments in Mrs Markopoulus's name.
Mr Marco gave the following explanation about record keeping:[5]
The process when using the Declaration of Trusts is that once an investment has matured the investor is contacted by my office and the investor decides if they want to reinvest the principal amount on the same terms. If they do so then the matured schedule page is shredded and the new schedule page is attached to the original signed declaration of trust. I tell the relevant investors at the initial discussion to retain their own records as we do not keep historical investor schedules.
Due to the above I do not have signed copies of all the previous investments which have matured as they have been shredded, although I do have copies from our computer system. I do have unsigned copies of the Declaration of Trust documents as they are prepared in word by my offices before they are signed.
[5] Mr Marco's affidavit of 10 January 2020 [38] - [39].
Mr Marco gave evidence to the effect that:
(a) Mrs Markopoulus's most recent investment with him was made in July 2018. This was a 'reinvestment' of $1,400,000. Mr Marco told Mrs Markopoulus that the rate of return would be 10% per annum and the interest would be paid by annually in January 2019 in July 2019 and that the term of the investment would expire on 2 July 2019.
(b)Tonpose's most recent investment with him was made in October 2018. This was a 'reinvestment' of $3,619,991. Interest was to be paid at 15% per annum on a biannual basis and the term of the investment would expire on 10 October 2019.
Mr Marco's evidence was to the effect that he was unable to make the payments due to Mrs Markopoulus or Tonpose because of the freezing order. In his defence Mr Marco pleaded that the funds required to make the payments were in his bank account.
Mr Marco's evidence in relation to Ms Lockett's investments was to the effect that he invested Ms Lockett's funds on the same basis as he had invested the funds of Mr Markopoulus. Mr Marco said that he met Mrs Lockett in 2014 and said that if she wished to continue investing with him he 'would continue the agreement I had with [Mr Markopoulus]'.[6] He said that in 2015 Ms Lockett had invested $200,000 with him on the basis that this sum would be paid into what he described as 'the Pooled Funds' account, that the funds would receive interest at a rate of between 7 - 9% every three months and the investment would mature when the interest payment fell due, at which point Ms Lockett could either reinvest for a further period of three months or have the principal sum paid to her. The most recent reinvestment of Ms Lockett's funds occurred on 10 September 2018 and that investment was due to mature on 21 January 2019. Mr Marco also deposed that Ms Lockett and Mr Williams each 'own' one half of a $100,000 investment they made with him on behalf of their children. No Declaration of Trust was executed by Mr Marco in respect of Ms Lockett's investments.
[6] Mr Marco's affidavit of 10 January 2020 [65].
Mr Marco's evidence in relation to Mr Williams's investments was to the effect of that Mr Williams had two investments with him, one was in the sum of $246,659 that was to receive a 10% interest return and was due to mature on 3 December 2018 and the other was in the sum of $398,061 and was to receive a 10% interest return was to mature on 17 December 2018. No Declaration of Trust was executed by Mr Marco in respect of Mr Williams's investments.
Mr Marco's evidence was to the effect that he was unable to make the payments due to Ms Lockett and Mr Williams because of the freezing order. In his defence Mr Marco pleaded that the funds required to make the payments were in his bank account.
The plaintiffs' evidence
It is unnecessary to refer to the plaintiffs' evidence in any detail. Although Mrs Markopoulus had no recollection of signing the Declarations of Trust identified by Mr Marco in his evidence, she recognised her signature on the documents and accepts that she did so. Most importantly there is no dispute on the evidence about the amounts received by Mr Marco from the plaintiffs or the dates on which the funds were due to be repaid or the interest to be paid.
The plaintiffs' money claims
The principles governing applications for summary judgment are well‑known and there is no need to repeat them in these reasons.[7] It will only be in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial, that summary judgment ought to be given.[8] In an affidavit sworn in the Federal Court proceedings Mr Marco had admitted his indebtedness to the plaintiffs.[9] As was quite properly accepted by Mr Marco's counsel at the hearing there is no triable issue in relation to the plaintiffs' money claims.[10] Nor is there any other reason why there should be a trial of those claims. I mention, parenthetically, at an early stage of this application, there was an indication that the existence of the freezing order might be relied upon as giving rise to a triable issue but that was not an argument pressed on Mr Marco's behalf.
[7] See Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24] (Newnes, Murphy & Mitchell JJA); Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75 [34] - [35] (Beech J).
[8] Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads & Traffic Authority of NSW [2006] HCA 27; (2006) 226 CLR 256 [46].
[9] Affidavit of Helen Jennifer Burnside sworn 3 December 2019, 63 - 69.
[10] ts 107.
The plaintiffs require leave to proceed with the summary judgment application as the application was not brought within the time prescribed by O 14 r 1(1), that is, within 21 days after Mr Marco filed his appearance. Having regard to what I have said in the preceding paragraph, there is no reason why leave should be refused and every reason why it should be granted.
Judgment should be entered for each plaintiff as follows:
(a)Mrs Markopoulus: In the sum of $1,400,000 together with interest at the rate of 10% per annum from 2 July 2018 until the date of payment.
(b)Tonpose: In the sum of $3,619,991 together with interest at the rate of 15% per annum from 10 October 2018 until the date of payment.
(c)Ms Lockett: In the sum of $200,000 together with interest at the rate of 28% per annum from 10 September 2018 until the date of payment and in the sum of $50,000 together with interest at the rate of 9% per annum from 16 August 2018 until the date of payment.
(d)Mr Williams: In the sum of $644,630 together with interest at the rate of 30% per annum from 16 August 2018 until the date of payment and in the sum of $50,000 together with interest at the rate of 9% per annum from 16 August 2018 until the date of payment.
The trust claims
The relief sought
Each of the plaintiffs argues that all funds advanced by the plaintiffs for investment were held by Mr Marco on trust for their benefit by way of an express trusts. In the case of Mrs Markopoulus and Tonpose, express trusts are contended to arise by reason of the 'Declaration of Trust' documents to which I have referred. In the case of Ms Lockett and Mr Williams, express trusts are contended to arise from the nature, purpose and context of the transactions.
Mrs Markopoulus seeks a declaration that:
There be a declaration that the monies the first plaintiff has deposited with the defendant since about late 2013, the first plaintiff (first plaintiff monies) were at all times held on trust by the defendant, such that although those monies were to be held in the defendant's name, the beneficial ownership of those monies and any returns earned on the first plaintiff monies were wholly beneficially owned by the first plaintiff (First Plaintiff Trust).
An identical declaration is sought by Tonpose in relation to the funds invested by it. Declarations in similar terms are sought by Ms Lockett and by Mr Williams in relation to their funds.
Relevant legal principles
An express trust requires certainty of intention, subject matter and object.[11] What is in issue in this case is whether the parties intended to create a trust. Mr Marco's position was, in effect, that there was no intention to create a trust relationship and all that existed between him and plaintiffs were contractual arrangements that gave rise to a debtor‑creditor relationship.
[11] Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86, 97.
In Byrnes v Kendle,[12] the High Court made it clear that where it is contended that a trust is created by a document, the intentions of the parties are to be determined by an objective analysis of the words used in the document - the court is not concerned with subjective intentions.[13] This is so even if the alleged trust is not wholly in writing in which case the need to draw inferences in construing the terms of conversations may widen the inquiry but it does not alter its nature.[14]
[12] Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253.
[13] Byrnes v Kendle [13]-[18], [46]-[66], [98]-[118].
[14] Byrnes v Kendle [54] - [55] (Gummow & Hayne JJ); Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352 (Mason J).
In Byrnes v Kendle, Mrs Byrnes and Mr Kendle had entered into an agreement titled 'Acknowledgement of Trust' which acknowledged that Mr Kendle held an undivided half interest in a property as tenant in common on trust for the benefit of Mrs Byrnes. At trial it had been submitted, and accepted, that the Acknowledgment of Trust did not create an express trust because Mr Kendle did not subjectively intend to create the legal relationship of a trust. An appeal from the trial judge was dismissed, however, the Full Court of the Supreme Court of South Australia overturned the trial judge's conclusion that there was no trust because Mr Kendle did not subjectively intend to create a trust, stating:[15]
The terms of the Acknowledgment are clear. So are the terms of the earlier Acknowledgment. Mr Kendle might not have fully understood what he was doing, but that is neither here nor there.
[15] Byrnes v Kendle [2009] SASC 385 [28] (Doyle CJ, Nyland & Vanstone JJ agreeing).
On appeal to the High Court all members of the Court upheld the Full Court's conclusion about the irrelevance of Mr Kendle's subjective intentions. Heydon and Crennan JJ stated the approach as follows:[16]
The authorities establish that in relation to trusts, as in relation to contracts, the search for 'intention' is only a search for the intention as revealed in the words the parties used, amplified by facts known to both parties. Thus in 1881 Sir George Jessel MR said:
'The settlement is one which I cannot help thinking was never intended by the framer of it to have the effect I am going to attribute to it; but, of course, as I very often say, one must consider the meaning of the words used, not what one may guess to be the intention of the parties.'
…
That truth tends to be obscured by constant repetition of the need to search for an 'intention to create a trust' ...
[T]he intention' referred to is an intention to be extracted from the words used, not a subjective intention which may have existed but which cannot be extracted from those words. This is as true of unilateral declarations of alleged trust as it is of bilateral covenants to create an alleged trust. It is as true of alleged trusts which are not wholly in writing as it is of alleged trusts which are wholly in writing. In relation to alleged trusts which are not wholly in writing, the need to draw inferences from circumstances in construing the terms of conversations may in practice widen the extent of the inquiry, but it does not alter its nature.
As with contracts, subjective intention is only relevant in relation to trusts when the transaction is open to some challenge or some application for modification - an equitable challenge for mistake or misrepresentation or undue influence or unconscionable dealing or other fraud in equity, a challenge based on the non est factum or duress defences, an application for modification by reason of some estoppel, an allegation of illegality, an allegation of 'sham', a claim that some condition has not been satisfied, or a claim for rectification. But subjective intention is irrelevant both to the question of whether a trust exists and to the question of what its terms are. (emphasis supplied)
[16] Byrnes v Kendle [105], [114] - [115] (citations omitted).
The principles stated in Byrnes v Kendle were applied by Brereton J in Re Courtenay House Capital Trading Group Pty Ltd (in liq),[17] a case with some similarities to the present case. Courtenay House had accepted funds from investors for the ostensible purpose of investment in foreign exchange trading. The investors executed a trading agreement which governed the investment. A question arose as to whether funds deposited in the company's bank accounts on the basis of the terms of the trading agreement were held in trust for the investors. The wording of the trading agreement critical to the determination of this question was referred to by Brereton J in the passage from his Honour's judgment quoted in the next paragraph. ASIC obtained a freezing order over the bank accounts and the company went into liquidation. The liquidators applied for directions as to how the funds in the bank accounts should be distributed.
[17] Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 404.
Brereton J held that the funds in the bank accounts were held on trust for investors on the basis that there was an express trust. His Honour's reasoning was as follows:[18]
[18] Re Courtenay House Capital Trading Group [23] - [26] (emphasis in original).
In the present case, the formal document by which the parties agreed to the terms of the investment described it as being held in trust. Other aspects of the document were less explicit, but favour the same view:
(1)Courtenay House were to place and manage trades on behalf of the investor;
(2)it was said that the initial capital plus returns will be returned to the clients, and that your full amount plus any profit will be returned to your account;
(3)the investment was described as your capital; and
(4)it was explained that we do not mix up funds with your other account, and that if a client has multiple accounts they are treated separately.
Absent the express reference to 'in trust' there may arguably have been insufficient certainty, but the presence of those unambiguous and explicit words is decisive.
The possibility that there were also oral communications between investors and the companies does not detract from the force of the documentation. First, there is no evidence of any particular communication inconsistent with an intention that the funds invested be held on trust for the client. Secondly, the terms of an express trust are decisive, in the absence of any fraud, undue influence or duress; what needs to be ascertained is the intention as revealed by the words used by the parties, and further inquiry into the subjective or real intention of the settlor is unnecessary.
Nor is the reference to a 'trading account', or the notion that funds deposited would be pooled with those of other investors to 'live trade', inconsistent with an intention to create a trust. Receipt of funds from multiple beneficiaries into a single account is not inconsistent with a trust; the paradigm case is a solicitor's trust account. Segregation of funds, while an indicium of a trust, is not essential, and a trustee is not always obliged to keep the trust funds separate. An agreement that money be paid into a general account does not defeat a trust that would otherwise exist. Particularly in the context of managed investment schemes, the idea of trust money being 'pooled' for the purposes of trading, and even being used to meet certain obligations of the trustee, even in connection with other clients, is established. Moreover, a trust may be recognised over the funds when first received, and over any returns from trading in them.
In my judgment, funds deposited by Brexit Investors were plainly to be held on trust by Courtenay House for the relevant Brexit Investor, who remained beneficially entitled to the funds. (citations omitted)
It is also appropriate to record that a debtor-creditor relationship does not preclude the existence of a trust relationship.[19]
The trust claims of Mrs Markopoulus and Tonpose
Analysis
[19] Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (2016, 8th ed) [2-14].
The title 'Declaration of Trust' is a powerful indication of an objective intention on the part of the parties executing a document so entitled that they intended to create a trust relationship. Apart from the title there are a number of other aspects of the document which indicate that the creation of a trust relationship was intended. They are:
(a)The declaration that Mr Marco was to 'hold the investment specified in item 1 of the Schedule in trust for the party specified in item 2 of the Schedule'. Significant weight must be attached to the choice of the words 'held in trust'.
(b)The declaration that the beneficiary is entitled to 'their' proportion of the capital and interest or income therefrom indicate that Mr Marco was not to have a beneficial interest in the funds. The beneficiary remained entitled at all times to their capital and any interest or income therefrom. Mr Marco was not entitled to any income gained from the investment. This is indicative of a trustee relationship.
(c)At Item 2 of the Schedule Mrs Markopoulus and Tonpose are described under the heading 'Name of Beneficiary and relevant proportion'.
The features of the Declarations of Trust to which I have referred in the preceding paragraph can only be described as strong indications of an intention to create a trust. That said, some of the language used in the Declarations of Trust points to an intention to create a debtor-creditor relationship, for example, the words 'The investor has agreed to advance to the Principal the sum specified ... ' is language more commonly associated with a loan than a trust. Additionally, the agreement to pay interest has been held to be indicative to a debtor‑creditor relationship rather than a trust.[20]
[20] Ascher ML, Fratcher WF and Wakeman AW, Scott & Ascher on Trusts (2006, 5th ed) [2.3.8.1].
Mr Marco's submission in relation to the express terms of the Declaration of Trust was that '... regardless of the wording used, the intention was not to create a trust.'[21] In effect, it was submitted on Mr Marco's behalf that there was a lack of subjective intention to create a trust. This submission was put on two bases. First, that intention could be drawn not only from words used but by the conduct of the parties and, secondly,[22] that matters of understanding are triable issues that cannot be determined summarily, and were issues that needed to be explored at trial.[23]
[21] ts 110.
[22] Citing Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2005] HCA 52; (2004) 219 CLR 165 [35], [40].
[23] Citing Westpac Banking Corporation v Rodale Pty Ltd (in liq) [2004] VSC 226.
The fact that matters of understanding may give rise to triable issues does not mean that the assertion of a lack of understanding as to an agreements terms will always be a triable issue.
In the course of an exchange with counsel for Mr Marco at the hearing it was apparent that the only 'conduct' identified by Mr Marco as evidencing an objective intention not to create a trust was, in fact, his subjective understanding about the nature of the agreement, that is, he did not understand the meaning of the word 'trust' as it appeared in the Declarations of Trust.[24]
[24] ts 110 - 111.
Without more, Mr Marco's subjective understanding does not give rise to a triable issue and for the reasons given in Byrnes v Kendle any subjective understanding of the Declarations of Trust is irrelevant.
Conclusion in relation to trust claims of Mrs Markopoulus and Tonpose
I am satisfied that the language the parties used in the Declarations of Trust manifested a clear intention to create an express trust. Central to this conclusion is that the parties chose to execute a document titled 'Declaration of Trust' which provided that the moneys would be held 'in trust' for the 'beneficiaries'. Such language was, to adopt Brereton J's words in Re Courtenay House Capital Trading Group, 'unambiguous and explicit' and is decisive.
The fact that the parties agreed a minimum guaranteed rate of interest does not displace the intention to create a trust. This is particularly so in circumstances where the named beneficiary was entitled to all interest or income earned on the investment beyond the agreed minimum rate.
Assuming in Mr Marco's favour that the Declarations of Trust could be construed as contemplating that the plaintiffs' funds would be pooled with Mr Marco's own funds and the funds of other investors such pooling would not be sufficient to displace the existence of a trust relationship.[25] As Brereton J noted at [26], 'particularly in the context of managed investment schemes, the idea of trust money being 'pooled' for the purposes of trading, and even being used to meet certain obligations of the trustee, even in connection with other clients, is established.'
[25] Re Courtenay House Capital Trading Group [26]. Citing Freelance Global Ltd (in Liq) v Bensted [2016] VSC 181 [32] (Riordan J); Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588, 605-6 [34] (Gaudron, McHugh, Gummow and Hayne JJ); Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed) v Qantas Airways Ltd (1988) 13 NSWLR 331, 349 (Hope JA); Re Kayford Ltd (in Liquidation) [1975] 1 All ER 604; [1975] 1 WLR 279, 282 (Megarry J); Grocers of Wyong Pty Ltd v Retech Global Pty Ltd [2004] NSWSC 488 [27] (Campbell J).
The submissions made on Mr Marco's behalf concerning his subjective intentions do not raise triable issues or an arguable defence. The outcome of the arguments based on Mr Marco's subjective intention is certain and summary judgment should be given for Mrs Markopoulus and Tonpose.
The trust claims of Ms Lockett and Mr Williams
Absence of documents
It is common ground that no 'Declaration of Trust' or other document was prepared to record the investments made by Ms Lockett and Mr Williams.
Some further legal principles
An express trust does not need to be reduced to writing so long as the requisite intention can be inferred from all of the circumstances of the case. Ms Lockett and Mr Williams rely on the statements of Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,[26] where their Honours said:
[T]he courts will recognise the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175, at 189.
[26] Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 121.
In Jacobs' Law of Trusts the relevant question is described in this way:[27]
The question will be whether there is language or conduct which shows a sufficiently clear intention to create such a trust. No formal or technical words are required; any apt expression of intention will do. The conclusion that the intention existed may be drawn as an inference from the available evidence. In order to infer intention, the court may look to the nature of the transaction and the whole of the circumstances attending the relationship between the parties and known to them, including commercial necessity …
The overall question is whether the circumstances of the case, and on the true construction of what was said and written, a sufficient intention to create a trust has been manifested. It is not necessary that the creator of the trust should know that the particular relationship intended to be created is in law a trust. A trust will be created, whether or not the creator is aware of it, provided that in substance the creator's actions have the legal effect of creating the relationship which is known in law as a trust.
[27] Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (2016, 8th ed) [5-02].
Two decisions concerning failed managed investment schemes illustrate the application of these principles. In Australian Securities and Investments Commission v Idylic Solutions Ltd,[28] ASIC had sought and obtained orders to wind up two unregistered managed investment schemes, known as the 'Super Save scheme' and the 'Integrity scheme'. Investors had signed a 'contract of administrator of private placement investment' which contained an acknowledgment that the funds subscribed would be pooled with those of other investors. The liquidator applied for directions as to how to distribute investors' funds retained in the company's bank account. The liquidator submitted that the company held the funds on trust for the investors. A contradictor submitted that the relationship between investor and the company was merely contractual relationship so that the beneficial entitlement of the investor was in reality a contractual right to be paid. Barrett J concluded that there was a trust, stating:
In the present case, the solicitation documents made it clear that contributed money was to be 'pooled' with other money and deployed to the advantage of the particular contributor in common with all other contributors. In the one case, there was reference to 'unit trust' and 'trustee'; in the other to 'trustee'. The notion was that the contributor became a participant in a pooled venture or fund along with other persons and made the contributor's money available to be deployed in company with the money of others. This last point is important. Each contributor knew that there were (or were to be) other contributors and must be presumed to have sought the advantage of aggregation for more advantageous deployment. The contributor's intention - and that of the promoter or administrator - must be taken to have been that the contributor should, by making the contribution that was to be pooled with those of others, obtain an interest in the whole fund made up of the totality of contributions together with accretions arising from the funds deployment - and, of course, diminished by any losses.
I am content, therefore, to proceed on the footing that the situation is, in each case, one of trust. A common or collective investment pool was created to be held upon trust for the several contributors.
[28] Australian Securities and Investments Commission v Idylic Solutions Ltd [2009] NSWSC 1306.
In a later decision arising out of the failure of the same company, Re Idylic Solutions Pty Ltd,[29] Black J was concerned with a number of unregistered managed investment schemes, including one known as the 'Good Value Scheme'. Unlike the position in relation to other schemes administered by the company, in respect of which directions had been sought, there was no documentation manifesting the intention of the investors in relation to the 'Good Value Scheme'. Black J accepted, following Barrett J's earlier approach in Australian Securities and Investments Commission v Idylic Solutions Ltd, that each of the documented investment schemes gave rise to an express trust. In relation to the undocumented Good Value Scheme Black J's approach was as follows:[30]
Turning now specifically to the Good Value Scheme, Mr Taylor's evidence is that there is no evidence of any express terms on which investors invested funds in the scheme ... although the evidence suggests that the administrator of the scheme pooled the investment funds for deployment in the North Wave Cadent Account ... On that basis, and despite the absence of documents evidencing an express trust, Mr Oakes submits that the Court should infer that the relationship between the investors in the Good Value Scheme and the administrator of that scheme was, as with the other schemes, one of trust. It seems to me that inference is properly drawn given the similarity of the relevant arrangements.
Conclusion in relation to trust claim advanced by Ms Lockett and Mr Williams
[29] Re Idylic Solutions Pty Ltd [2016] NSWSC 907.
[30] Re Idylic Solutions Pty Ltd [26]
The effect of Mr Marco's evidence as to the way in which he operated his business is that 'most' other investors had executed a Declaration of Trust and that he pooled the funds of those who invested with him. Mr Marco's counsel accepted that the terms on which he invested funds for Ms Lockett and Mr Williams were the same as the terms on which he invested funds for Mr Markopoulus.[31] Despite the absence of documentation, it is a reasonable inference that the relationship between Mr Marco and Ms Lockett and Mr Williams was the same as that between Mr Marco and Mrs Markopoulus and Tonpose: that is, it was a relationship of trust. This inference was accepted by Mr Marco's counsel as being a necessary consequence of a finding that the funds of Mrs Markopoulus and Tonpose were held on trust.[32] In effect, Mr Marco relied on the 'same position' that was taken in relation to the Mrs Markopoulus and Tonpose express trusts.[33] For the reasons already stated, Mr Marco is unable to establish a triable issue on the basis of the contentions about his subjective intention and summary judgment should be given for Ms Lockett and Mr Williams.
[31] ts 113.
[32] ts 113.
[33] ts 113.
The claim for an account
General principles
The history of the remedy of an account and the principles that guide the availability of the remedy were recently discussed by the Court of Appeal in Rowe v National Australia Bank Ltd.[34]
[34] Rowe v National Australia Bank Ltd [2019] WASCA 140.
Before a party can be ordered to account, liability to account must be established - that is, there must be a relationship or circumstances established by which it is alleged that the defendant is an accounting party. A plaintiff must establish facts that would justify the making of an order for an account at the relevant time. [35]
[35] Associated Alloys Pty Ltd v ACN 001452106 Pty Ltd [56]; Rowe v National Australia Bank Ltd [2019] WASCA 140 [87]; Re Ellis; Ellis v Ellis [2015] WASC 77 [80].
An order for an account is most commonly sought where it is necessary to ascertain the amount due by an accounting party to the person seeking the account. Indeed, this has been described as the purpose of the remedy.[36]
[36] Re Ellis; Ellis v Ellis [80].
The remedy of an account, however, also serves a related informative purpose described in Snell's Equity in the following terms:[37]
The accounting procedure serves the informative purpose of allowing the beneficiaries to know the status of the fund and what transformations it has undergone. The accounting may identify specific assets in respect of which the beneficiaries may be entitled to proprietary relief. The procedure also has a substantive purpose. It is through the accounting procedure, and in accordance with the principles that govern it, that any personal liability a custodial fiduciary may have arising out of maladministration is ascertained and determined. For instance, when the fiduciary no longer has an asset which they should have, the accounting serves to convert the obligation to make it over into a personal obligation to pay an equivalent sum as 'an equitable debt or liability in the nature of the debt'. Even where a full and formal accounting is not necessary, the same principles apply. Third parties who receive misdirected trust assets with sufficient knowledge of their wrongful prominence are accountable in the same sense. (Footnotes omitted)
[37] McGhee J, Snell's Equity (2015, 33rd ed) [20-013].
The informative purpose described above is a corollary of a trustee's obligation to keep and render proper accounts and to give full information.
A beneficiary's right to an account does not depend on alleging or establishing any default or breach of trust unless an account on the basis of wilful default is sought.[38]
The basis of the plaintiffs' application for orders for accounts
[38] Spellson v George (1987) 11 NSWLR 300, 315 - 316; Hancock v Rinehart [2015] NSWSC 646; (2015) 106 ACSR 207 [340].
In their re-amended substituted statement of claim, in the alternative to the claim for an account in common form, the plaintiffs alleged that Mr Marco had committed wilful defaults by reasons of his failure to account for, or repay to the plaintiffs' trust monies when called upon to do so. The plaintiffs alleged other breaches of trust allegedly committed by omissions by Mr Marco. On the basis so described the plaintiffs sought an account on the basis of wilful default.
In support of their application for an account as an aid to tracing, the plaintiffs relied on the decision of Robb J in Thorn v Boyd.[39]. In Thorn v Boyd, Mrs Thorn sued in her capacity of the executrix of her stepmother's estate to set aside a transfer made by the deceased of $260,000 to the defendant, Mr Boyd, which was alleged to have been brought about Mr Boyd's unconscionable conduct. Mrs Thorn's claim was upheld. Mr Boyd had used some of the funds transferred to him to reduce his mortgage debt. Robb J held that Mrs Thorn was entitled to follow the money into any property owned by Mr Boyd, where property was either acquired with the money, or where any mortgage over the property was reduced using the money and, if necessary, Mrs Thorn was entitled to an accounting. Robb J made orders for an account verified by an affidavit to be provided by Mr Boyd.[40]
Conclusion on the account claims
[39] Thorn v Boyd [2014] NSWSC 1159.
[40] Thorn v Boyd [2014] NSWSC 1159 [161] - [165]; Thorn v Boyd [2015] NSWSC 199 [8].
I find that Mr Marco's failure to account for, and his failure to repay, the plaintiffs' trust monies, as he was required to do as trustee were wilful defaults of his obligation as trustee. There is no dispute between the parties as to the underlying facts of these defaults. It is unnecessary to consider the other breaches alleged by the plaintiffs.
The plaintiffs have not been repaid their trust monies. They do not know what has become of those monies. As beneficiaries they are entitled to a full and proper accounting from Mr Marco and as there have been wilful defaults on his part, the plaintiffs are entitled to accounts on the basis of wilful default.
Orders and costs
I will hear the parties as to the precise form of orders required to give effect to these reasons and as to costs. I will also hear the parties as to what orders are required to dispose of the balance of the plaintiffs' claims.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle13 MARCH 2020
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