13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd

CASES CITED : Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd [1999] FCA 144; (1999) 30 ACSR 377; (1999) 17 ACLC 500

PARTIES : Applicant: John Frederick Lord

SOLICITORS : Applicant: Macpherson & Kelley Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2008/281338 Re Kismet Trading Pty Ltd (in liquidation); Australian Securities and Investments Commission v Kismet Trading Pty Ltd & Anor JUDGMENT 1 HIS HONOUR: This is an application for directions by the liquidators of Kismet Trading Pty Ltd (In Liq) ("Kismet"). 2 On 10 November 2008 on the application of the Australian Securities and Investments Commission ("ASIC") an order was made for the winding up of Kismet pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the just and equitable ground). The order was made following an investigation by ASIC into the affairs of the company in which its sole director and shareholder, a Mr Glenn Evans, confessed that the company had been engaged in trading equities and derivatives on behalf of private clients, although neither it nor Mr Evans held a financial services licence. 3 Mr Evans had worked as a stockbroker with various firms between 1 June 1988 and 15 October 2008, being most recently employed by Bell Potter Securities Limited ("Bell Potter") from about mid 2003. Mr Evans provided a statement to ASIC on 31 October 2008. He stated that he reported to Kismet's clients on a monthly basis on the performance of their investments, but many of the reports he provided were false. He stated that he personally had three trading accounts with Bell Potter described as a "shares/equities account", an "options account", and a "Bell Potter margin lending account". Mr Evans stated that Kismet held two separate trading accounts with Bell Potter for each of its individual clients, namely an options account and an equities account. He stated that Bell Potter issued a statement in relation to each Kismet account on a daily basis. In addition each client had a separate cash management trust account in the name of Kismet with Macquarie Investment Management Limited ("MIML"). 4 Kismet had its own bank account with Westpac. Mr Evans stated that Kismet generally dealt in two kinds of investments for its clients being pooled investment funds and individually managed funds. He said that pooled investment funds typically comprised moneys from multiple investors, although in some cases there was only a single investor in a pooled investment fund. The bank account used for such funds was Kismet's bank account with Westpac. No separate cash management trust account was established for investments in pooled investment funds. Each pooled investment fund had a reference based on a letter of the Greek alphabet. There were no traceable moneys from pooled investment funds . The directions sought relate to individually managed funds. 5 Mr Evans stated that he managed individually managed funds for individual investors. He said that each fund was held in a separate cash management trust account for that particular fund only. The investments were made at Mr Evans' discretion. Each individually managed fund had a code comprising the initials of the investor and a number. Each investor in the individually managed fund received a monthly statement from Macquarie Bank for the cash management trust for that fund. Each also received a report as to the performance of the fund from Mr Evans, but these reports were misleading. Mr Evans stated that he moved moneys from Kismet's bank account (comprising at least partly funds received for the purposes of pooled investment funds) to his personal accounts without authorisation of investors. He said: " The balances in the Kismet accounts fluctuated from time to time. I did not consistently appropriate money from a single account, but took money out of different accounts at different times. Some of Kismet's client accounts currently hold close to the correct amount of money, while others may have received funds above the level to which they were entitled. Many others have less money than they ought properly to have had and in a few cases all monies are now gone. " 6 It is clear from Mr Evans' statement of 31 October 2008 that he did not then have records of these accounts from Bell Potter. Mr Evans stated that he resigned from Bell Potter on 15 October 2008. He said that when he left Bell Potter he owed it a residual debt of about $440,000 on his personal options account with Bell Potter. He stated that he had lodged shares held by Kismet for various individual managed funds as security for his options account. He understood that all of the shares held by Kismet had been sold. 7 On 17 November 2008 one of the liquidators, Mr Lord, wrote to Macquarie Group Limited freezing all accounts in the name of Kismet and asking it to remit any balances standing to the credit of the company. He asked Macquarie Group to confirm the balance of all accounts and forward to his office any bank statements up to the date of finalising the accounts which had not previously been forwarded to the company. 8 On 5 December 2008 MIML wrote to Mr Lord confirming that cheques representing the closing balances of nine accounts had been forwarded to his office on 21 November 2008. It enclosed account statements detailing the final withdrawal amounts. Each account was styled a Bell Potter account but was also in the name of Kismet and had the letters and number attributed to a client's individually managed account. The account names and the closing balances for which cheques were provided to the liquidators are set out in Schedule A to the Interlocutory Process and are as follows: Schedule A Macquarie Investment Management Limited account Amount 1 Kismet Trading Pty Ltd PI1 Managed Account $1424.24 2 Kismet Trading Pty Ltd TAT1 A/C $602.61 3 Kismet Trading Pty Ltd BRO1 A/C $1,482.30 4 Kismet Trading Pty Ltd SPL1 A/C $24,715.37 5 Kismet Trading Pty Ltd CAN1 A/C $11,157.69 6 Kismet Trading Pty Ltd GDS 1 A/C $8,694.84 7 Kismet Trading Pty Ltd GSF1 A/C $3,081.12 8 Kismet Trading Pty Ltd DEB1 A/C $20,589.50 9 Kismet Trading Pty Ltd AAI1 Account $109.68 $71,857.35

9 The liquidators seek directions that they are justified in dealing with the amounts in Schedule A as being held on trust by Kismet for the persons identified in the schedule. No persons are identified in the schedule, but there is other evidence as to the persons or the names of the superannuation funds to which each account is referable. 10 The liquidators called on Bell Potter to remit to the company the proceeds arising from the liquidation of the securities held in Kismet's various equities accounts with Bell Potter on or around 15 October 2008. It sought a reconciliation of all accounts maintained in the name of the company showing details of the source and application of funds. On 18 November 2008 Bell Potter provided a cheque to the liquidators made out to Kismet for $209,081.95. Bell Potter stated that this represented the total amount of funds held by it in the name of Kismet. It enclosed statements of transactions for various equities accounts and options accounts. From the documents it provided it appears that there were six "equities accounts" in the name of Kismet followed by an account reference containing the letters and a number referable to an individual investor which had credit balances. These accounts recorded purchases and sales of listed securities and transfers of funds between the equities account and the corresponding options account, between the equities account and the corresponding cash management trust account with MIML, and between the options account and the corresponding cash management trust account with MIML. The securities had been sold on shortly before 15 October 2008. The credit balances for the six equities accounts totalled $656,817.14. 11 Bell Potter opened a holding account in the name of Kismet to which the credit balance of $656,817.14 was transferred. From that account the sum of $447,735.19 was debited by journal transfer to an option trading account in the name of Kismet or Mr Evans. This left a closing balance of $209,081.95. 12 The liquidators queried the deduction and demanded payment of $447,735.19. In response Bell Potter said: " As you are aware Kismet was a company owned and operated by Mr Glenn Evans, an ex-Adviser of Bell Potter Securities and as such he used it for his personal trading in equities and derivatives. Mr Evans also traded in his own name. As part of his trading, Mr Evans, as sole Director and Shareholder of Kismet entered into a contractual agreement to provide shares in the name of Kismet as collateral for options trading on his own account. In line with the agreement entered into with Mr Evans it was necessary to liquidate some of that collateral to cover outstanding amounts on the Glenn Evans options account. The excess funds from the sale of the collateral lodged have already been forwarded to you. There are no further funds held. " 13 Presumably Bell Potter contends either that Kismet did not hold the securities on trust for its clients, or, if Kismet did, that Bell Potter is entitled to priority on the basis that it acquired legal title to the securities without actual or constructive notice of the trusts. Whether or not Bell Potter was entitled to appropriate $447,735.19 from the sale of securities apparently held by Kismet for its clients is not an issue on the present application. The present application concerns the balance of $209,081.95 received by the liquidators. 14 The liquidators prepared a schedule (Schedule B to the interlocutory process) apportioning the receipt of $209,081.95 on a pro rata basis between each of the equities accounts which had a credit balance transferred to the holding account. That schedule is set out below: Schedule B Bell Potter Securities Limited account Balance transferred to holding account Pro-rata amount calculated on the basis of a total of $209,081.95 remitted to liquidator (31.83%) 1 Kismet Trading Pty Ltd DEB1 $117,962.53 $37,550.54 2 Kismet Trading Pty Ltd TAT1 $91,833.27 $29,232.91 3 Kismet Trading Pty Ltd SPL1 $162,689.28 $51,788.22 4 Kismet Trading Pty Ltd CAN1 $99,799.73 $31,768.85 5 Kismet Trading Pty Ltd GDS1 $44,767.88 $14,250.78 6 Kismet Trading Pty Ltd GSF1 $139,764.45 $44,490.65 $209,081.95

15 In contrast to the direction sought in relation to the cash balances in Schedule A the liquidators initially sought a direction that they are justified in dealing with the amounts in Schedule B as not being held on trust by Kismet for the persons identified in the schedule. Again no persons are identified in the schedule, but other evidence establishes the persons or the names of the superannuation funds to which each of the accounts refers. 16 Seven of the 14 investors were advised that their moneys had been invested in pooled funds. There was no recovery from the pooled funds. Another investor, Lausanne Pty Ltd, had an individually managed fund under the reference LPF1. There was extensive misapplication of the moneys of that fund by Mr Evans. At liquidation there was no credit balance in the securities trading account, or the cash management trust account, or the options trading account. Another investor, a Mr Pang, was advised that his investment had been invested in a fund "BW1". However, no such fund existed. There were other investors with individually managed funds for which there were no recoveries, although in three cases there were small credit balances (very small in relation to the amounts invested) in cash management trust accounts. 17 The liquidators accept that Kismet held the moneys it received from its client investors on trust for them. That concession is correct. Such documents as the liquidators have in relation to the opening of the accounts do not contain any terms that would arguably entitle Kismet to assert beneficial ownership of the moneys received from its client investors with only a personal obligation to account. It follows, as the liquidators accept, that securities purchased with a client's money were held on trust for the client. But the liquidators initially said that there was such a mingling of clients' funds that they would be justified in treating the securities held in individually managed funds prior to their sale by Bell Potter as being held on trust for all of Kismet's clients. Notwithstanding the terms of the direction sought set out above, the liquidators did not contend that Kismet was beneficially entitled to the sum of $209,081.95. It is clearly correct that the moneys are not beneficially held by Kismet. 18 Mr Lord deposed: " Based on the material and information I have to date, the best opinion I have formed in relation to the funds currently held in the liquidation of the Company is that the assets referred to in Schedule A of the Interlocutory Process appear to be held on trust by the Company for the persons identified in Schedule A and the assets referred to in Schedule B do not appear to be held in trust for the persons identified in Schedule B. The reason I say this in relation to Schedule B is that before Bell Potter remitted funds to me, as referred to between paragraphs 11 and 19 above, Bell Potter liquidated some shares, purportedly on the basis of its agreement with Glenn Evans, transferred funds to a holding account, then transferred funds from that account to an options account to satisfy Glenn Evans' obligations to Bell Potter, then remitted the balance to me as liquidator. I acknowledge that the issue of whether various funds are held on trust is not entirely free from doubt, however, and on that basis I seek the directions and guidance of this Honourable Court. " 19 Counsel for the liquidators initially submitted that there is sufficient uncertainty associated with the initial intermingling of funds in the Kismet general account (that is, Kismet's account with Westpac) and in relation to options trading generally, that the process of realising the shares from the individual managed funds, the mixing of those funds, and their transfer to another account to be set off against Mr Evans' personal obligations to Bell Potter before remission of the balance to the liquidators, made it impossible to identify with sufficient confidence whether any specific amount ought to be regarded as being held on trust for a specific creditor. Counsel referred to Re Sutherland; French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at [186] and at [191] to support the proposition that there should be a pro rata distribution of the Schedule B assets to all of the investors with Kismet because the funds of investors had become blended and it was not reasonably practicable accurately to identify the sources of the funds used to acquire securities that were sold which produced the funds remitted by Bell Potter. 20 Kismet had 14 clients. Notice of the present application was given to them. The judicial advice to be given will not bind any of the investors. Its effect will be to protect the liquidators from personal liability provided full disclosure of material facts has being given. Nonetheless, the advice may in a practical sense determine the investors' positions because the liquidators can be expected to act on the advice and any party adversely affected would need to institute proceedings if that party contends that the true position is otherwise than I advise. 21 The difficulties with the present application are not primarily difficulties of law, but of fact. 22 The first question is whether, as the liquidators accept, the moneys totalling $71,857.35 in nine accounts in the name of Kismet with MIML were held on trust for the individual investors for which each separate account was opened. An employee of the liquidators who has been responsible for the investigation conducted by them, Mr Vicknesh Sukumaran, swore in his affidavit of 28 July 2010 that he had formed the view that the money held by MIML was a fund of each named investor because the money deposited into each account was not intermingled with other investors' money. 23 When the matter was first argued it appeared to me that if that were correct, then at least in respect of some of the individually managed accounts, there was no evidence of any intermingling of funds in relation to the securities traded by Kismet in those individually managed accounts through Bell Potter. If so, there should not be any real doubt that the securities held in respect of the individually managed accounts prior to their sale on 15 October 2008 were held for the individual investor in respect of whom the account was opened. There was evidence of intermingling of investors' funds in Kismet's bank account with Westpac, but that would not affect the beneficial ownership of the securities traded through clients' individually managed funds unless moneys from Kismet's bank account were mixed with the clients' moneys, and then only to the extent of such mixing. Mr Sukumaran deposed that there was no such mixing in the clients' cash management trust accounts with MIML. 24 However it emerged in the course of submissions that the liquidators had not obtained complete statements of those cash management trust accounts with MIML. The liquidators had only received the statements of closing balance. There was no explanation as to how Mr Sukumaran could have deposed to the absence of intermingling without the statements from MIML or why the liquidators sought the direction that the Schedule A moneys were held on trust for each investor if they had not obtained those statements. I ordered that a subpoena be issued to MIML for the statements, and stood the application over until those statements were produced. 25 With the statements of the MIML cash management trust accounts and the Bell Potter statements of the equities accounts and options trading accounts, it is possible to give directions in relation to the nine credit balances in the MIML accounts (Schedule A) and the six credit balances in the Bell Potter securities accounts (Schedule B). I will deal with each investor's accounts individually in the order set out in Schedule B.

26 The first trading account with Bell Potter in question is the Kismet Trading Pty Ltd DEB1 account. The reference "DEB1" is to the Debek Superannuation Fund. Mr Evans through Kismet operated two accounts with Bell Potter in the name "Kismet Trading Pty Ltd ". One account was for the trading of securities, the other for trading options. As at 15 October 2008 the options trading account had a credit balance of $4,555.64. This was paid to the Kismet DEB1 cash management trust account with MIML. 27 The securities trading account (equities account) with Bell Potter recorded opening debits totalling $26,756.36 for the purchase of two parcels of listed securities. The debit balance was then reduced to $0 by transfers of funds from the DEB1 account with MIML. There were further purchases all funded by the withdrawal of funds from the DEB1 account with MIML. Other credits to the Bell Potter trading account came from the sale of shares previously purchased for that account. On a number of occasions moneys representing the proceeds of sale of shares were repaid to the DEB1 account with MIML. On one occasion there was a journal credit to the DEB1 options trading account. There was nothing in the Bell Potter statement of transactions for the equities account to indicate that any of the securities sold on 15 October 2008 had been acquired with funds from any investor other than the Debek Superannuation Fund. 28 The sale of securities on 15 October 2008 resulted in a credit balance for the account of $117,962.53. This represented a debt owed by Bell Potter to Kismet on behalf of the Debek Superannuation Fund. There was a journal transfer of that amount to a holding account. The holding account was a mixed account. After deducting the $447,735.19 appropriated by Bell Potter, I see no reason that the Debek Superannuation Fund should not share pro rata in the balance remitted to the liquidators with the other accounts whose balances were transferred to the holding account. 29 The matters stated by Mr Lord quoted at para [18] above suggests that in his view it is not possible to trace the proceeds remitted to the liquidators to individual accounts. His prima facie view that the moneys remitted to the liquidators should not be held in trust for the persons referred to in Schedule B could only be justified if it were not possible to say that the securities described in the Bell Potter securities trading statements were not held beneficially for the individual clients for whom each account was opened. In the case of the DEB1 account, no doubt is cast on the beneficial ownership of those securities on the premise, verified by the liquidators' office, that the moneys in the Kismet DEB1 account with MIML which funded the share purchases belonged to the Debek Superannuation Fund and there was no intermingling with other investors' moneys in that account. 30 Mr Sukumaran deposed that when a client commenced investing, the client's money was initially paid into Kismet's general account. The statements for the Kismet DEB1 account with MIML record an initial deposit of $165,000 from Kismet on 21 February 2007. The liquidators' application in relation to the beneficial ownership of the moneys in the MIML account assumes that the moneys initially deposited were beneficially owned by the client, in this case the Debek Superannuation Fund. 31 Provided the liquidators are satisfied that the trustee of the Debek Superannuation Fund, or someone on behalf of the trustee, did at that time pay $165,000 or more to Kismet, this assumption is justified. Such moneys ought to have been paid directly into a separate trust account. The fact that there was an initial payment into Kismet's general account into which other investors' moneys were also paid does not mean that other investors could assert beneficial ownership to the moneys initially credited to the Kismet DEB1 account with MIML. The presumption would be that the moneys drawn out of the Kismet general account to the Kismet DEB1 account with MIML were the moneys paid in by the trustee of the Debek Superannuation Fund (Sutherland; Re French Caledonia Travel Service Pty Ltd at [172]). 32 The MIML statements for the cash management trust account record the purchase and sale of shares, options trading, and cash movements between the account and the equities account and options account. Those transactions appear to reconcile. There are periodic credits to the MIML account described as "cheque deposit". The payer is not identified. There are also credits described as receipts of dividends, and one credit on 7 September 2007 of $10,000 as a transfer from "CMT (xxxxxxxxx)". Mr Sukumaran advised that that was not an account of any other investor. Nor was it an account of Kismet's. There is nothing on the face of the statements to suggest that the moneys credited to the account by deposits of cheques, payment of dividends, or transfer from a cash management trust account, were not properly credited. 33 Therefore I conclude that if the liquidators are satisfied that the trustee of the Debek Superannuation Fund, or someone on the trustee's behalf, paid $165,000 to Kismet or Mr Evans on or about 21 February 2007, and if they have no reason to consider that the periodic credits denoted as "cheque deposits" and the transfer of $10,000 on 7 September 2007 referred to in the previous paragraph were made otherwise than by or for the trustee of the Debek Superannuation Fund, then they would be justified in treating the credit balance of $20,589.50 in the MIML account in the name of "Kismet Trading Pty Ltd " and the amount of $37,550.54, being the pro rata proportion of the receipt of $209,081.95 from Bell Potter, as held on trust for the trustee of the Debek Superannuation Fund. Tate Superannuation Fund ("TAT1" accounts) 34 The same analysis holds true for the accounts with the reference "TAT1" (which refers to the Tate Superannuation fund). 35 When these matters were considered in the course of counsel's oral submissions on the first occasion, I invited Mr Sukumaran, who was instructing, whether he could cast further light on these questions. Mr Sukumaran said that the difficulty with relying on the Bell Potter statements was that in respect of some of the individually managed funds the liquidators had been able to identify that moneys to purchase certain securities had come from the Kismet general account, or had come from moneys that did not belong to the particular investors, whereas this would not be apparent from the Bell Potter statement of transactions. He referred in particular to statements for the accounts CAN1, GDS1, GSF1, SPL1 and LPF1. I deal with those below. The statements for those funds do not suggest any inaccuracy in the records kept by Bell Potter and MIML. Any intermingling of funds from Kismet's account with Westpac in relation to those accounts does not justify an inference of intermingling in the case of the Debek Superannuation Fund or the Tate Superannuation Fund. 36 If the liquidators are satisfied that the trustee of the Tate Superannuation Fund, or someone on the trustee's behalf, paid $220,000 to Kismet or Mr Evans on or about 21 May 2007, they are justified in treating the credit balance of $602.61 in the MIML account in the name of "Kismet Trading Pty Ltd " and the amount of $29,232.91, being the pro rata proportion of the receipt of $209,081.95 received from Bell Potter, as held on trust for the trustee of the Tate Superannuation Fund. Styletron Pty Ltd ("SPL1" accounts) 37 One of the accounts Mr Sukumaran identified as involving a mixing of money from the Kismet general account was account "SPL1". This was an account held for Styletron Pty Ltd whom I assume is the trustee of the Styletron Superannuation Fund. In this case the mixing related to the options trading account. That account with Bell Potter showed two credits on 22 and 23 January 2008 totalling $11,500: one from "BPAY A/A 22/1/08", the other "cheque received". They were both payments from the Kismet general account. On 25 January 2008 there was a repayment of $11,500. This was funded by a credit transferred from the equities trading account of $12,456 which in turn was sourced by a withdrawal from the MIML cash management trust account on 22 January 2008 following the sale of securities. In other words the borrowing of $11,500 from Kismet was immediately repaid. No securities on the equities account were purchased with the funds borrowed. 38 On 8 February 2008 $1,000 was received from the Kismet general account to the credit of the options trading account. There were no subsequent transfers from the options trading account to the credit of the equities trading account. The ultimate credit balance of $6,187.03 was transferred from the options trading account to the MIML cash management trust account on 16 October 2008 and formed part of the final credit balance of $24,715.37 in the Kismet SPL1 cash management trust account. Whilst this evidence suggests that $1,000 of the moneys in the SPL1 cash management trust account should be accounted for to the investors in Kismet generally (contrary to the directions sought), it does not raise doubts as to the beneficial ownership of the securities purchased for the SPL1 account which were ultimately sold by Bell Potter. I do not accept Mr Sukumaran's opinion that the movement of funds between the Kismet account and the SPL1 options trading account relate to the Schedule B recoveries. There is no evidence that moneys from Kismet were used to acquire those securities. To the contrary, the $1,000 advance from Kismet to the SPL1 options trading account is traceable to the final credit balance of the Kismet SPL1 account with MIML. 39 In this case, the initial deposit to the Kismet SPL1 MIML account was not made by Kismet, but came directly from the Styletron Superannuation Fund. 40 The liquidators would be justified in treating $23,715.37 of the credit balance of $24,715.37 in the MIML account in the name of "Kismet Trading Pty Ltd as being held on trust for Styletron Pty Ltd. They would be justified in treating the amount of $51,788.22, being the pro rata proportion of the receipt of $209,081.95 from Bell Potter, as held on trust for Styletron Pty Ltd. They would be justified in treating $1,000 in the Kismet SPL1 MIML account as held on trust for investors generally. Cannone Pty Ltd ("CAN1" accounts) 41 In the case of the CAN1 accounts, Mr Evans stated that a dividend payment of $240 belonging to GSF1 (see para [54] and following below) was incorrectly received by CAN1. The dividend payment was made on 31 March 2008 and appears on the CAN1 MIML account statement. 42 If the liquidators are satisfied that the dividend related to shares held by Kismet for the Guardian Superannuation Fund (which they could be unless they have specific material to contradict Mr Evans' statement) they would be justified in accounting for that amount to the beneficial owner of the Kismet GSF1 MIML account. 43 Mr Evans has stated that on 31 January 2008 a payment was made to the options trading account of CAN1 to cover a margin call from the Kismet general bank account because the CAN1 cash management trust account had insufficient funds. The Bell Potter options trading statement includes a credit of $1,500 on 31 January 2008 from "BPAY A/A 31/1/08". The options trading account was closed on 25 September 2008 when the credit balance of $4,363.22 was credited to the CAN1 cash management trust account with MIML. Subsequently interest of $18.67 on the options account was credited to the CAN1 MIML account. 44 I reject Mr Sukumaran's opinion that the payment of $1,500 from Kismet affects the Schedule B realisations, but not the Schedule A recovery from the MIML account. To the contrary, the payment can be traced to the ultimate cash balance in the MIML account, but did not affect the trading in the securities through the equities account. On the basis of this material the liquidators would not be justified in treating the whole credit balance of $11,157.69 from the cash management trust account of MIML for CAN1 as being held on trust for the CAN1 investor, Cannone Pty Limited. But there is no basis for saying that any part of the $1,500 paid to meet the margin call on the options trading account was used to acquire securities on the CAN1 equities account. 45 The dividend payment of $240 on 31 March 2008 to the CAN1 MIML account cannot be traced to the purchase of securities. Cannone Pty Ltd was not responsible for the misapplication of the dividend. The appropriate remedy would be for the liquidators to apply $240 of the credit balance of $11,157.69 in the CAN1 account to the GSF1 cash management trust account with MIML if the liquidators are satisfied that the dividend was misapplied as Mr Evans stated. Similarly, the liquidators would be justified in treating $1,500 of the final credit balance of the Kismet CAN1 account with MIML as being held on trust for investors generally. 46 The MIML statements for this account show that it was opened on 13 November 2006 with a payment of $100,000, not by Cannone Pty Ltd or Kismet, but by Styletron Pty Ltd. Other credits to the account included $31,499 on 15 February 2007, and $60,000 on 18 June 2007 against the descriptions "deposit cheque" and "cheque deposit" respectively. The liquidators have made no comment about the initial credit. The initial credit was not by way of transfer from Styletron Pty Ltd's SPL1 MIML account. It appears that Styletron Pty Ltd and Cannone Pty Ltd may be related. They have the same address and contact details. Therefore the deposit by Styletron Pty Ltd to the account of Cannone Pty Ltd may well have been at the direction of Styletron Pty Ltd without any impermissible mixing. 47 If, but only if, the liquidators are satisfied that the credits to the Kismet CAN1 account with MIML of $100,000 on 13 November 2006, $31,499 on 15 February 2007 and $60,000 on 18 June 2007 were moneys to which Cannone Pty Ltd was entitled then:

(a) the liquidators would be justified in treating the amount of $31,768.85, being the pro rata proportion of the sum $209,081.95 received from Bell Potter, as being held on trust for Cannone Pty Ltd; and

(b) they would be justified in treating the balance of $9,417.69 in the MIML account in the name of "Kismet Trading Pty Ltd account" as being held on trust for Cannone Pty Ltd. Mr Gary Schliebs ("GDS1" accounts) 48 The investor for the GDS1 accounts was a Mr Gary Schliebs. Mr Evans stated that a dividend of $241.44 was incorrectly paid into the GDS1 account on 8 October 2007 when the correct payee was GSF1. The payment was made to the GDS1 cash management trust account with MIML on 8 October 2007. The final credit balance on the cash management account for GDS1 was $8,694.84. The same comments apply in relation to this alleged erroneous payment as apply to the $240 dividend said to have been incorrectly paid to the CAN1 account (para [42] above). 49 Subject to two qualifications, all of the trading in securities shown on the Bell Potter statement of transactions for the GDS1 equities account was of the same kind as described above in relation to the DEB1 account. That is to say, with two qualifications, all of the shares were paid for either from moneys drawn from the Kismet GDS1 cash management trust account with MIML or from the proceeds of shares purchased on the GDS1 account. There were some transfers of credit balances to and from the GDS1 options account. The receipts into the GDS1 options account included receipts from the GDS1 MIML cash management trust account. The options account was closed with payments into it from the MIML cash management trust account, the last of which was made on 24 July 2008. There is nothing in the options trading account to suggest intermingling of other investors' funds unless such an intermingling occurred in the GDS1 MIML cash management trust account. There is no evidence of intermingling in that account. 50 So far as the securities trading statement is concerned, the two qualifications relate to a credit shown on the Bell Potter statement of $9,559.14 on 24 July 2008. This is shown as the receipt of a cheque numbered 300089. This was not a withdrawal from the MIML GDS1 account. Four days later the statement of transactions shows a debit of $19,227.14. Mr Evans stated that the cheque for $9,559.14 was paid from the Kismet general bank account and was paid in order to settle a purchase of 3,193 OZL shares which had to be purchased as the result of an assignment of put options in the GDS1 options account. Mr Evans stated that at the time of the assignment of the options, the GDS1 cash management account had insufficient funds to settle on the purchase and he was forced to transfer sufficient funds from the Kismet general account for a short term to avoid default. He stated that the subsequent payment of $19,227.14 from the GDS1 account was paid to the Kismet trading general bank account. He stated that part of the funds was to repay the loan of 24 July 2008 and so far as he was aware, the balance of $9,668 was not repaid to GDS1 by Kismet. 51 The Kismet GDS1 account with MIML was opened on 13 November 2006 with a deposit of $100,000 from the "Schliebs Superannuation Fund". $10,000 was credited to the account on 4 October 2007 against the notation "G and D Schliebs Acct GDS1". All other credits to the account appear to be the result of trading in securities or options. 52 The liquidators presented no material to cast doubt on Mr Evans' statement that the $9,559.14 payment to acquire shares was repaid (and more than repaid). The material presented by the liquidators does not suggest that any of the shares purchased for Mr Schliebs was acquired with money of other investors. 53 The liquidators would be justified in treating the amount of $14,250.78 representing the pro rata proportion of the receipt of $209,081.95 received from Bell Potter as held on trust for the trustee of the Schliebs Superannuation Fund, whom I assume is Mr Gary Schliebs. They would be justified in treating $8,450.43 of the credit balance of $8,694.84 in the MIML account in the name of "Kismet Trading Pty Ltd " as being held on trust for Mr Schliebs. If they are satisfied that the dividend payment of $244.41 was wrongly credited to the Kismet GDS1 account with MIML and that the payment should have been credited to the GSF1 account, they would be justified in accounting for the sum of $241.44 to the beneficial owner of the Kismet GSF1 MIML account. Guardian Superannuation Fund ("GSF1" accounts) 54 The GSF1 accounts were for a superannuation fund known as the Guardian Superannuation Fund. In this case there was some mixing of funds by Mr Evans from the Kismet general bank account. 55 The GSF1 MIML account was opened on 23 November 2006 with a deposit of $173,000 from Brigor Pty Ltd. I assume this company is the trustee of the Guardian Superannuation Fund. The statements show other deposits from a Mr Spicer described as "for Guardian SMSF". Subject to the qualification below the other credits to the account appear to be the result of trading in securities or options. 56 The Bell Potter statement of transactions on the trading of securities showed that from 20 November 2006 to 4 January 2008 the trading in securities was funded by withdrawals from the GSF1 cash management trust account with MIML or the sales of securities previously purchased. On 4 January 2008 the statement shows the purchase of 1,000 ZFX shares and 1,000 NWS shares, putting the equities account with Bell Potter in debit to the extent of $42,115.50. 57 On 7 January 2008 $30,000 was transferred from the Kismet general account to the GSF1 MIML account. This put that account in credit to the extent of $44,813.46. $42,115.50 was paid from the GSF1 MIML account to purchase 1000 ZFX and 1000 NWS securities. Those securities were sold the following day. $39,505.61 was credited to the GSF1 MIML account from the proceeds of sale. In other words, the shares purchased with money transferred from the Kismet general account were immediately sold at a loss. 58 Thereafter there was trading in securities and options and transfers of funds between accounts which make it impossible to identify any particular assets as having been acquired with the $30,000 received from Kismet. 59 On 9 January 2008 $2,500 was paid to the GSF1 options account from the Kismet general account. This was done to pay for a margin call on the options account. There were insufficient funds in the options account to meet the call, although funds could have been transferred from the GSF1 MIML account. On 25 January 2008 $15,000 was repaid to Kismet from the options account. There is no record of the balance of $17,500 (being what remains of the $30,000 received from Kismet after deducting the $15,000 repayment and adding the $2,500 payment) having been repaid. 60 There was no credit balance in the GSF1 options account to be transferred to the GSF1 MIML account on the closing out of the options trading. The final credit balance of the GSF1 MIML account was $3,081.12. The moneys paid into the holding account by Bell Potter in respect of the GSF1 securities totalled $139,764.45. The pro rata amount received from the sale by Bell Potter of the GSF1 securities was $44,490.65. The particular sales making up the sale price of $139,764.45 were shown on the securities trading statement as follows: Trx Date Code Transaction Details Credit Balance 15/10/2008 4066500 Sold 2744 AMP @ 6.1895 16,937.29Cr 16,937.29Cr 15/10/2008 4066512 Sold 9386 OZL @ 1.3466 12,595.17Cr 29,532.46Cr 15/10/2008 4066507 Sold 3044 AWC @ 2.3300 7,048.52Cr 36,580.98Cr 15/10/2008 4066515 Sold 3058 BXB @ 7.9784 24,330.83Cr 60,911.81Cr 15/10/2008 4066521 Sold 4000 PBG @ 1.9333 7,689.05Cr 68,600.86Cr 15/10/2008 4066523 Sold 5028 OSH @ 3.8203 19,155.82Cr 87,756.68Cr 15/10/2008 4066519 Sold 4240 LGL @ 2.3004 9,709.50Cr 97,466.18Cr 15/10/2008 4066514 Sold 3000 MAP @ 2.4000 7,156.00Cr 104,622.18Cr 15/10/2008 4066527 Sold 3000 FGL @ 5.3924 16,132.72Cr 120,754.90Cr 15/10/2008 4066539 Sold 2070 TCL @ 5.3037 10,934.74Cr 131,689.64Cr 15/10/2008 4066582 Sold 3087 QAN @ 2.6300 8,074.81Cr 139,764.45Cr

61 Some of these shares were purchased before moneys from Kismet were paid to the GSF1 account on 7 January 2008. Some were purchased later. For example, the 2,744 AMP shares were bought on 3 January 2007, (1,000), 16 March 2007 (1,214), and 3 August 2007 (530). The 3,044 AWC shares were bought on 16 November 2007 (2,000) and 9 October 2008 (1,044). The 3,058 BXB shares were bought on 23 January 2007 (1,000), 16 March 2007 (1,058) and 29 May 2008 (1,000). 62 The statement records that the following shares sold by Bell Potter on 15 October 2008 had been purchased after 7 January 2008: Trx Date Code Transaction Details Credit 03/06/2008 3867362 Bght 3000 OXR @ 3.0500 9,194.00 09/10/2008 4055140 Bght 1044 AWC @ 4.3100 4,543.64 29/05/2008 3860592 Bght 1000 BXB @ 11.5000 11,544.00 11/03/2008 3745053 Bght 4000 PBG @ 2.0000 8,044.00 05/06/2008 3872568 Bght 1000 OSH @ 5.9500 5,994.00

63 The proceeds totalling $139,764.45 include proceeds of $105,296.52 from the sale of shares purchased before 7 January 2008 (on the inference I draw that the 9,368 OZL shares sold were the result of the purchase of the 3,000 OXR shares purchased on 3 June 2008 - there are no other purchases of OZL shares or sale of OXR shares - and the 4,240 LGL shares sold were the result of the purchase of 4,000 LHG shares purchased on 9 March 2007 and 240 LHG shares purchased on 3 May 2007). $34,467.93 represents the proceeds of sale of shares purchased after 7 January 2008. This is shown below:

Sold 9,386 OZL shares = $12,595.17 Sold 1,044 out of 3,044 AWC shares = (1,044 ÷ 3,044) x $7,048.52 = $2,417.43 Sold 1,000 out of 3,058 BXB shares = (1,000 ÷ 3,058) x $24,330.83 = $7,956.45 Sold 4,000 PBG shares = $7,689.05 64 The ultimate proceeds received from Bell Potter are 31.38 percent of these amounts, or $33,042.05 in respect of shares purchased before 7 January 2008 and $10,816.04 in respect of shares purchased after that date. 65 The trustee of the Guardian Superannuation Fund is entitled to such part of the proceeds of $44,490.65 as is attributable to the sale of shares purchased for the GSF1 account before 7 January 2008. 66 The moneys used to acquire the shares purchased after 7 January 2008 can be attributed to various sources: the moneys obtained from Kismet; transfers from proceeds of options trading; sale of shares purchased before or after 7 January 2008; and payment of dividends and interest. There are frequent transfers between the options account and the other two accounts and multiple trades. It appears impossible to trace the proportions of cash balances in the options account and the MIML account from time to time between moneys obtained from Kismet (being other investors' money) and moneys belonging to the trustee of the Guardian Superannuation Fund. It appears impossible to calculate the proportions in which moneys from each source were applied in the purchase of securities after 7 January 2008. 67 Where trust property is mixed by a trustee with other trust property the remaining fund will usually be divided between beneficiaries rateably according to the amounts contributed. Here the relevant fund consists of $3,081.12 held in the GSF1 MIML account and $10,81604 being proceeds from the sale of shares acquired after 7 January 2008. It may be possible, after a detailed accounting, to calculate the respective contributions from moneys beneficially owned by the Guardian Superannuation Fund and the moneys obtained from Kismet, but the cost of the exercise could well consume the funds available. 68 In any event, that exercise is not called for. This is not simply a case of mixing of funds belonging to two or more beneficiaries. Rather, Mr Evans caused money to be borrowed from Kismet to allow him to continue trading on the GSF1 options and securities accounts for the benefit of the Guardian Superannuation Fund. The loan was only partially repaid. It may be assumed that the trustee of the Guardian Superannuation Fund has no personal liability to repay the debt as there is no reason to think that it authorised the borrowing. But having obtained the money as a loan, the assets to whose acquisition the loan indirectly contributed should be charged to secure repayment of the debt. In my view, Kismet, and through it the other investors whose money was used, are entitled to the first claim on the fund referred to in para [67]. 69 The liquidators would be justified in paying to the trustee of the Guardian Superannuation Fund so much of the proceeds of $44,490.65 received from Bell Potter referable to the sale of securities in the GSF1 account as is attributable to the sale of shares purchased on the GSF1 account before 7 January 2008. They would be justified in treating the balance of those proceeds, the credit balance of $3,081.12 in the Kismet GSF1 account with MIML, and any dividends to be accounted for from the CAN1 and GDS1 MIML accounts to the GSF1 MIML account, as being charged in favour of investors generally to the extent of $17,500. Other Schedule A Balances 70 There remain three credit balances in accounts with MIML set out as numbers 1, 3 and 9 of Schedule A at para [8] above. No issue has been raised that there had been a mixing of investors' funds in those accounts. The liquidators are justified in paying those moneys to the investors for whom the accounts were opened. Interest and Costs 71 The moneys received by the liquidators from MIML and Bell Potter would have accrued interest. Interest should be apportioned rateably between the persons entitled to those moneys in accordance with these reasons. 72 The liquidators' tasks have been the collection of assets for investors, the investigation of the trusts on which the assets are held, the investigation of Mr Evans' dealings, and the institution and conduct of these proceedings for judicial advice. In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd [1999] FCA 144; (1999) 30 ACSR 377; (1999) 17 ACLC 500, Finkelstein J said (at [34]): " … provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them. "

All of the liquidators' tasks have been of this kind. The liquidators are entitled to be paid from trust assets their reasonable remuneration and expenses for this work. 73 Although I have not agreed with the position initially taken by the liquidators on this application, nor with opinions expressed by the liquidators' employee on particular matters, the present application was properly brought. The liquidators are entitled to be paid their costs of the application out of trust assets. The liquidators' costs and expenses should be apportioned rateably between the assets distributable to investors in accordance with these reasons. Conclusion 74 For these reasons, I will not give the directions sought by the liquidators. I propose to give directions in accordance with these reasons. However, the liquidators should not distribute the funds under their control to investors in accordance with those directions before the expiry of 42 days after service on all investors of the orders and these reasons. This will allow time for any investors who contend that they are entitled to a more favourable distribution than indicated in these reasons to institute proceedings and seek orders restraining such distributions. 75 I make the following orders and directions: 1. I direct the liquidators of Kismet Trading Pty Ltd (In Liq) ("Kismet") that they would be justified: (a) in treating the credit balance of $20,589.50 in the cash management trust account with Macquarie Investment Management Limited ("MIML") in the name of "Kismet Trading Pty Ltd " and the amount of $37,550.54, being the pro rata proportion of the receipt of $209,081.95 from Bell Potter Securities Limited ("Bell Potter"), as held on trust for the trustee of the Debek Superannuation Fund if: (i) the liquidators are satisfied that the trustee of the Debek Superannuation Fund, or someone on behalf of the trustee, paid $165,000 to Kismet or Mr Glenn Evans on or about 21 February 2007; and (ii) the liquidators have no reason to consider that the periodic credits denoted as "cheque deposits" and the transfer of $10,000 on 7 September 2007 from "CMT [xxxxxxxxx]" were made otherwise than by or for the trustee of the Debek Superannuation Fund. (b) in treating the credit balance of $602.61 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " and the amount of $29,232.91, being the pro rata proportion of the receipt of $209,081.95 received from Bell Potter, as held on trust for the trustee of the Tate Superannuation Fund if the liquidators are satisfied that the trustee of the Tate Superannuation Fund, or someone on behalf of the trustee, paid $220,000 to Kismet or Mr Glenn Evans on or about 21 May 2007. (c) in treating: (i) $23,715.37 of the credit balance of $24,715.37 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " as being held on trust for Styletron Pty Ltd; (ii) the amount of $51,788.22, being the pro rata proportion of the receipt of $209,081.95 from Bell Potter, as held on trust for Styletron Pty Ltd; (iii) $1,000 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " as held on trust for investors generally. (d) in accounting for the dividend payment of $240 that was made on 31 March 2008 to the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " to investors generally if the liquidators are satisfied that the dividend related to shares held by Kismet for the trustee of the Guardian Superannuation Fund. (e) in treating $1,500 of the final credit balance of the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " as being held on trust for investors generally. (f) if satisfied that the credits to the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " of $100,000 on 13 November 2006, $31,499 on 15 February 2007 and $60,000 on 18 June 2007 were moneys to which Cannone Pty Ltd was entitled, in treating: (i) the amount of $31,768.85, being the pro rata proportion of the receipt of $209,081.95 from Bell Potter, as being held on trust for Cannone Pty Ltd; and (ii) the balance of $9,417.69 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " as being held on trust for Cannone Pty Ltd.

(g) in: (i) treating the amount of $14,250.87, representing the pro rata proportion of the receipt of $209,081.95 received from Bell Potter, as held on trust for Mr Gary Schliebs; (ii) treating $8,448.40 of the credit balance of $8,694.84 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " account as being held on trust for Mr Gary Schliebs; (iii) accounting for the dividend payment of $241.44 that was made on 8 October 2007 to the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd " to investors generally if the liquidators are satisfied that the dividend related to shares held by Kismet for the Guardian Superannuation Fund.

(h) in: (i) paying to the trustee of the Guardian Superannuation Fund the amount of $33,042.05, being the part of the proceeds of $44,490.65 received from Bell Potter referable to the sale of securities in the equities account held by Kismet with Bell Potter for the trustee of the Guardian Superannuation Fund ("GSF1 account") attributable to the sale of shares purchased for the GSF1 account before 7 January 2008; (ii) treating: A the balance of the proceeds referred to in paragraph (i); B the credit balance of $3,081.12 in the cash management trust account with MIML in the name of "Kismet Trading Pty Ltd "; and C any dividends to be accounted for from the cash management trust accounts with MIML in the names of "Kismet Trading Pty Ltd " and "Kismet Trading Pty Ltd " to the cash management trust accounts with MIML in the names of "Kismet Trading Pty Ltd ", as being charged in favour of investors generally to the extent of $17,500. (i) in paying the three credit balances in cash management trust accounts with MIML set out as numbers 1, 3 and 9 of Schedule A to the Interlocutory Process to the relevant investor for whom each account was opened.

Order that the costs of this application may be paid from the funds referred to in Schedules A and B to the Interlocutory Process.

Direct that the liquidators would be justified in apportioning interest on moneys held by them and their remuneration and expenses rateably between the persons to whom distributions are made in accordance with these directions.

In these directions, in the references to moneys being held on trust for investors generally, or to be accounted for to investors generally, or being charged in favour of investors generally, the expression "investors generally" means all persons who invested moneys with or through Kismet to the extent of their investments less any returns received (including any returns to be received by individual investors in accordance with these directions).

Order that if the liquidators decide to distribute the funds under their control for investors in accordance with these directions, they not make such distributions until 42 days after they have given notice of their decision to all investors and served on all investors a copy of these orders and reasons.

Direct that the liquidators are justified in not carrying out further investigations into whether or not funds are held on trust for individual investors otherwise than in compliance with these directions.

Order that the liquidators' interlocutory process be otherwise dismissed.

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