ASIC v Karl Suleman Enterprizes

Reported Decision : (2003) 45 ACSR 401 (2003) 21 ACLC 1180

CITATION : ASIC v Karl Suleman Enterprizes [2003] NSWSC 400 HEARING DATE(S) : 21/02/03 and written submission 21/03/03 and 16/04/03 JUDGMENT DATE : 15 May 2003

JURISDICTION: Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Direction given to liquidators

CATCHWORDS : CORPORATIONS - unregistered managed investment scheme - moneys paid to operator of unregistered managed investment scheme still held as unpresented bank cheques when winding up of operator commenced - liquidators of operator also appointed liquidators to wind up scheme - whether bank cheques or quarantined proceeds should be restored to investors - where no contracts had been made with would-be investors - where contracts had been made with investors - contraventions of managed investment scheme provisions and of prohibition upon soliciting investment in debentures without disclosure document - whether liquidators justified in proceeding on basis of past fraudulent misrepresentation - statutory illegality - restitution LEGISLATION CITED : Corporations Act 2001 (Cth), ss.9, 92(3), 446A, 601ED, 601EE, 601MB, 706, 708, 727 Australian Breeders Co-operative Society Ltd v Jones (1997) 26 ACSR 26 Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 Australian Securities and Investments Commission v Landy DFK Securities Ltd (2002) 20 ACLC 1613 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 Baumgartner v Baumgartner (1987) 164 CLR 137 Cornelius v Phillips [1918] AC 199 Re Diplock [1948] Ch 465 Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463 Fitzgerald v Leonhardt Pty Ltd (1997) 189 CLR 215 CASES CITED : Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (unreported, NSWSC, Young J, 30 April 1998) Hewett v Court (1983) 149 CLR 639 Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 Ex parte James; re Condon (1874) LR 9 Ch App 609 Kiriri Cotton Co Ltd v Dewani [1960] AC 192 McCarthy Bros (Milk Vendors) Pty Ltd v The Dairy Farmers Co-operative Milk Co Ltd (1945) 45 SR (NSW) 266 Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 Nelson v Nelson (1995) 184 CLR 538 Permanent Trustee Co Ltd v FAI Insurances Ltd [2003] HCA 25 Re Tyler [1907] 1 KB 865 Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 411 Australian Securities and Investments Commission - Plaintiff Karl Suleman Enterprizes Pty Limited (In Liquidation) - First Defendant Suleman Investments Pty Limited (In Liquidation) - Second Defendant PARTIES : Karl Suleman - Third Defendant Vivian Suleman - Fourth Defendant Paul G Weston and Neil R Cussen (in their capacity as Liquidators of the First and Second Defendants) - Fifth Defendants/Applicants Pal Holdings Pty Ltd (In Liquidation) - Sixth Defendant AND 7 others named in Schedule A FILE NUMBER(S) : SC 5415/01 COUNSEL : Mr J E Thomson/Mr C D Wood - First and Fifth to Eleventh Defendants Mr T Bland - Intervenor - KSS Enterprises Pty Limited SOLICITORS : Coudert Brothers - First and Fifth to Eleventh Defendants F D Hammond & Associates - KSS Enterprises Pty Limited

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

5415/01 - AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v KARL SULEMAN ENTERPRISES PTY LTD (IN LIQUIDATION) AND 12 ORS JUDGMENT 1 The present applicants are the liquidators of the first defendant. In that capacity, they seek directions as to the appropriate treatment of certain bank cheques (or the quarantined proceeds thereof) received by the first defendant from persons intending to take advantage of investment opportunities made available by the first defendant. Those cheques had not been banked and mixed with the first defendant's general funds at the time the liquidators were appointed. All but two of the bank cheques have since been banked by the liquidators but into a separate bank account so that the proceeds are held separately from other moneys and remain segregated and identified. 2 The liquidators seek directions as to whether they would be justified in treating each such bank cheque (or the separately banked proceeds of it) as held subject to a lien or charge in favour of the person from whom the bank cheque was received, in circumstances where no investment contract was ever executed in respect of the funds concerned or the investor elects to rescind any executed investment contract. As an adjunct to this, the liquidators seek directions that they would be justified in returning the bank cheques (or refunding the proceeds) to the investors to the extent the liquidators are satisfied that the funds used by an investor to acquire the bank cheque in question do not represent funds sourced from the first defendant itself. In one particular case, where proceedings are on foot, the liquidators seek directions that they would be justified in paying the proceeds into court and seeking interpleader relief. 3 The application must be approached by reference to the background facts concerning the circumstances in which the bank cheques were received, in so far as those facts are uncontroversial. The first defendant was the promoter or operator of an investment scheme or a number of investment schemes. Its general approach to soliciting funds took various forms from time to time. In each of the cases to which the application relates, the contract or intended contract was entitled "Loan Agreement" and evidenced what, on its face, was (or was to be) a loan at interest, with the interest being at a rate so high that it should have provoked incredulity. As I have said, in some cases such a loan agreement was actually entered into; whereas, in others, no agreement was ever made. 4 The matters in relation to which the applicants seek directions involve an examination of provisions of the Corporations Act 2001 (Cth) as it applied at the time of relevant events. Those events occurred in the second half of 2001, that is, at a time when the Corporations Act had superseded the Corporations Law but before the commencement of the Financial Services Reform Act 2001 (Cth). References in the following discussion to provisions of the Corporations Act are references to provisions in force in the period July to December 2001. 5 It seems to me that the immediate subject matter (or intended subject matter) of each investment or proposed investment must be regarded as a "debenture" as defined by s.9 of the Corporations Act 2001 (Cth) so that the aspect of the activities of the first defendant that involved solicitation of the investment may, by operation of paragraph (j) of the definition of "managed investment scheme" in s.9, lie outside that defined concept. The solicitation of investment in debentures (being "securities" as defined, for relevant purposes by s.92(3)) was, at the relevant time, regulated by Chapter 6D which, by s.706, required that a document making disclosure in accordance with Part 6D.2 be in place in connection with any offer or invitation relating to debentures (unless an exception in s.708 applied) and, by s.727, made it an offence to make such an offer or invitation unless such a disclosure document had been lodged with ASIC (the maximum penalty provided by s.1311 and Schedule 3 being 200 penalty units or imprisonment for five years or both). 6 An additional characterisation of matters is that, although the investment product concerned was a "debenture", the relevant acts of the first defendant in relation to solicitation of investment occurred in the course of and within the scope of the operation by the first defendant of a "managed investment scheme". Such a scheme is not necessarily confined to the activities that give it the character of a "managed investment scheme": incidental activities irrelevant to that characterisation (such as the employment of staff and the leasing of premises) may form part of the operation of a scheme. On that footing, the acts of solicitation entailed contravention by the first defendant of s.601ED(5) which says that a person must not "operate" a managed investment scheme that s.601ED requires to be registered unless it is so registered. The maximum penalty under s.1311 and Schedule 3 for an offence of that type is also a pecuniary penalty of 200 penalty units or imprisonment for five years or both. 7 It is clear, on the material before me, that no disclosure document meeting the requirements of Part 6D.2 had been lodged in respect of the solicitations with which I am here concerned - indeed, that no attempt to lodge any disclosure document at all was made. It is also clear that any "managed investment scheme" in the course of operating which that solicitation was made had not been registered under s.601ED. As a result, the offer or invitation to which each relevant investor or would-be investor responded was made in contravention of statute. In addition, the course of conduct (or scheme) in which the offer or invitation was made to the investor or would-be investor was also pursued in contravention of statute. The conduct involving solicitation and receipt of moneys from investors and the operation of the scheme as part of which that was done were both forbidden by statute upon pain of fine or imprisonment or both. 8 It was submitted by Mr Thomson, who appeared for the liquidators, that the relevant activities of the first defendant should be found to have entailed fraudulent misrepresentation. It may be that such conduct was involved. Mr Weston, one of the liquidators, deposes to holding a view that the scheme operated by the first defendant was fraudulent and states reasons for holding that view. I do not think, however, that the evidence before me is sufficient to justify a finding that any particular contract entered into by any particular person was procured by fraud. That is something that would have to be pleaded and in relation to which evidence relevant to the particular case would be needed. As McHugh, Kirby and Callinan JJ recently observed in Permanent Trustee Co Ltd v FAI Insurances Ltd [2003] HCA 25: "An allegation of fraud should be clearly and distinctly pleaded and put."

At this stage, therefore, I proceed by reference to the statutory contraventions alone.

9 I was also invited by Mr Thomson to find that s.601MB is applicable to the present circumstances. That section is concerned with each of two situations: first, where "a managed investment scheme is being operated in contravention of sub-s.601ED(5)" and a person "offers an interest in the scheme for subscription, or issues an invitation to subscribe for an interest in the scheme"; second, where a person makes an offer or invitation in relation to an interest in a registered scheme in contravention of Chapter 6D. Since there was not, in the present case, any registered scheme, it is only the first of these alternatives that needs to be considered. Section 601MB enables a person entering into a subscription contract as a result of an offer or invitation with which the section is concerned to avoid that contract. 10 The term "interest", as it applies to a managed investment scheme, is defined by s.9 as meaning "a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not)". Paragraph (a)(i) of the definition of "managed investment scheme" seems to add a further dimension to the meaning of "interest" by contemplating that money or money's worth is contributed as consideration for the acquisition of the right that makes up the "interest". 11 The instruments or investments involved in this case were, as I have said, "debentures". In a sense, they conferred a right to benefits produced by any managed investment scheme in the course of operating which they were issued, since repayment of principal and payment of contracted interest in accordance with the terms of the debenture (or loan agreement) could be classified as a right to a benefit in the form of a payment of a stipulated amount out of moneys generated by the operation or pursuit of the scheme. It seems to me, however, that such a categorisation is at odds with paragraph (j) of the definition of "managed investment scheme". Under that definition, a particular "scheme" is a "managed investment scheme" if it has certain features described in paragraph (a)(i), (ii) and (iii) of the definition. Those features are defined in a way that might comprehend the borrowing of money at interest and the pooling of that money to generate financial returns permitting the principal and interest to be paid in due course. It is no doubt for that reason that paragraph (j) excludes from the definition of "managed investment scheme" the issue of debentures by a body corporate. I take this exclusion to mean that the issue of debentures by a body corporate cannot, of itself, be a "managed investment scheme", even though debentures might be issued in a way that, because of associated or surrounding activities, forms part of the operation a "managed investment scheme". But the inability of the issue of debentures as such to be a "managed investment scheme" seems to lead inevitably to the conclusion that the rights of repayment of principal and payment of interest inherent in the debenture cannot be an "interest" in any surrounding managed investment scheme since those rights, although rights to "benefits" (in the form of principal and interest), cannot be said to be rights to "benefits produced by the scheme", since the debentures which are the source of the right (or in which it is embodied) are, by definition, not part of the scheme. 12 I am therefore of the opinion that, although, as I have said, the solicitation of investment in relevant debentures occurred in the course of the operating of a managed investment scheme, the rights inherent in those debentures are not properly to be regarded as "interests" in that managed investment scheme. It follows that s.601MB can have no application. 13 It was submitted by Mr Thomson that each relevant investor or would-be investor is entitled to recover the money paid by him or her to the first defendant assuming, in a case where an agreement was entered into, that the investor elects to rescind. This leads to a consideration of the contractual consequences of non-compliance with ss.727 and 601ED(5) in the context where persons were solicited by the first defendant to pay money to it in return for a promise of repayment with interest contained in a loan agreement made (or to be made) by the first defendant. That entails an examination of the scope and purpose of the particular statutory provisions. 14 In the case of s.601ED(5), the statutory prohibition strikes at the operation of a scheme. It has regard to an ongoing course of conduct in which some coherent plan of action is put into effect. There is, clearly enough, a legislative purpose of protecting the public from the risks presumed to attach to involvement in a scheme conducted otherwise than in accordance with statutory norms of behaviour. But the section does not, in terms, (or, as it seems to me, by necessary implication), prohibit the making of such contracts as are made in the course of operating a relevant scheme in contravention of the legislation. I would apply to the present circumstances the observations of Gibbs ACJ in Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 411 in relation to a statutory provision prohibiting the carrying on of banking business by anyone not holding an authority or licence under banking legislation. Gibbs ACJ said at p.415: "The language of s. 8 indicates that it is directed, not at the making or performance of particular contracts, but at the carrying on of any banking business. In the course of carrying on such a business a body corporate may make and perform contracts, many, if not all, of which might be made equally by a bank or by a company which is not carrying on banking business. A contract to lend money on mortgage is one example; a contract of employment is another. Although all of the contracts made by a body corporate in the course of carrying on a banking business are ex hypothesi things which it does in carrying on the business, that is, in doing what is unlawful, it is impossible to accept that the legislature intended to invalidate all such contracts with the result that contracts to pay its employees, or those who provided it with services, would be void." 15 This approach was consistent with that taken by other members of the High Court. It may be that a prohibition upon a particular course of conduct will strike at contracts entered into as part of that course. But this will only be so if the statute shows an intention of forbidding contracts of the relevant kind as an element of the course of conduct: see for example Cornelius v Phillips [1918] AC 199 (money lending business) and McCarthy Bros (Milk Vendors) Pty Ltd v The Dairy Farmers Co-operative Milk Co Ltd (1945) 45 SR (NSW) 266 (milk vending business). Section 601ED(5) dos not have any particular subject matter or class of contract in contemplation and cannot, as I see it, be regarded as directed towards prohibiting contracts. This is particularly so in light of the existence of s.601MB which deals expressly with the contractual consequences of solicitation of investment in "interests" in a scheme operated in contravention of s.601ED(5). 16 Section 727 stands in a different light. It is a provision prohibiting the making of offers and invitations directed towards the formation of contracts. By clear implication, s.727 causes the party enjoined from issuing the offer or invitation to be forbidden to enter into any contract resulting from the offer or invitation so that, such a contract, if made, is itself illegal: see the discussion by Street CJ in Eq in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 241-243. It is to be noted, in this respect, that s.727 appears in Part 6D.3 which contains a number of provisions concerned with the effects of contravention of Chapter 6D. There is, for example, a provision permitting recovery of compensation where the content of a disclosure document does not conform to statutory standards. There is a provision allowing persons to return securities and have their money repaid where the securities are issued but certain conditions concerning minimum subscription or stock exchange listing have not been satisfied or a need for a supplementary prospectus has arisen but not been met. There is a like provision in relation to securities issued as a result of an unsolicited meeting or telephone call. Significantly, however, there is no provision specifying or even suggesting the contractual consequences where there is a breach of the prohibition upon solicitation of investment by offer or invitation in the absence of a disclosure document. 17 The prohibition imposed by s.727 exists to protect persons from being enticed by contravening behaviour into subscription contracts with respect to securities. Accordingly, persons who are drawn into such contracts by the initiators of illegal offers and invitations cannot be regarded as being in pari delicto unless they become knowing participants in the illegal design. Absent such fault, they may therefore obtain restitution according to equitable principles: see Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 445-446 per McHugh JA, Kirby P agreeing. This is a case in which a duty not to solicit investment without creation and lodgment of a disclosure document is imposed by statute for the protection of investors as a section of society. The only consequence the statute envisages in case of contravention is the criminal sanction of fine or imprisonment or both. In the absence of evidence to the contrary, the parties are not in pari delicto, so that the investor illegally enticed without knowing participation in this illegality is entitled by the law of restitution to recover the money he or she has paid: Kiriri Cotton Co Ltd v Dewani [1960] AC 192. The unjustness of the enrichment represented by the soliciting party's receipt comes directly from the statutory illegality which is a clear and uncontroversial type of unconscionability. There is no evident statutory indication that restitution may not be had: see Australian Breeders Co-operative Society Ltd v Jones (1997) 26 ACSR 26. The function of equity in striking an appropriate balance in such cases was referred to by McHugh and Gummow JJ in Fitzgerald v Leonhardt Pty Ltd (1997) 189 CLR 215 at 231: "[A]s was pointed out in Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 445-446, what may now be classified as restitutionary remedies may be available to assist in the striking of a balance. For example, it was held long ago that where a borrower had paid interest in excess of the rate permitted by statute, whilst the debtor could not recover the whole back, an action would lie to recover the surplus Smith v Bromley , reported as a note to Jones v Barkley (1781) 2 Dougl 684 at 697 [99 ER 434 at 444]; Stoljar, The Law of Quasi-Contract , 2nd ed (1989), pp 228-229; Palmer, The Law of Restitution (1978), vol 2, par 9.14.. The use of the quantum meruit in Pavey & Matthews Pty Ltd v Paul may be seen as another example." 18 The balance thus referred to may require adjustments on each side: see Nelson v Nelson (1995) 184 CLR 538 per Deane and Gummow JJ at 561-564. If, in a case such as the present, the investor receives something of value, he or she must bring that to account in any restitutionary claim based upon the illegality affecting the formation of the contract. But if the contract is rescinded so that the investor foregoes any right to future receipts, the situation becomes one in which he or she holds nothing in return for the investment made, so that the restitutionary claim must be regarded as extending to the whole of the invested sum. 19 In the present case, special circumstances exist in relation to the funds received by the first defendant from investors or would-be investors. Those funds are retained intact in the hands of the first defendant in the form of either an unpresented bank cheque received from the person concerned or a separately identified and segregated credit balance in the special bank account established by the liquidators as a safe custody receptacle for moneys comprised in bank cheques received from such persons. The important point is that, by action of the first defendant through its liquidators, all relevant moneys retain their identity and are held intact. This circumstance supplies one of the elements for a finding of some form of equitable proprietary right to the particular funds on the part of the investor or would-be investor, being the element referred to by the English Court of Appeal in Re Diplock [1948] Ch 465 (at p.521): "The equitable remedies presuppose the continued existence of the money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund. If, on the facts of any individual case, such continued existence is not established, equity is as helpless as the common law itself. If the fund, mixed or unmixed, is spent upon a dinner, equity, which dealt only in specific relief and not in damages, could do nothing. If the case was one which at common law involved breach of contract the common law could, of course, award damages but specific relief would be out of the question. It is, therefore, a necessary matter for consideration in each case where it is sought to trace money in equity, whether it has such a continued existence, actual or notional, as will enable equity to grant specific relief." 20 The unpresented bank cheques and the money in the specially established bank account are the property of the first defendant - or, more precisely, it was submitted by Mr Thomson that this is the case and there is nothing in the facts before me to suggest otherwise. It follows that if restitution based on illegality is to cause the particular funds to be returned to the persons by whom they were paid, it will have to be seen that those persons have an equitable claim in respect of the specific property. It is here that the position of persons with whom the first defendant actually entered into the contracts differs from that of persons who, although they had paid money, never became the recipients of a contractual promise of the first defendant. 21 I have referred earlier to the possibility of an investor's electing to rescind the contract based in or proceeding from the illegal offer or invitation. Mr Thomson's suggestion that an investor who has become party to such a contract may rescind was founded on the proposition that the first defendant was guilty of fraudulent misrepresentation but, as I have said, I do not think that the evidence allows me to come to such a conclusion in relation to any particular contract. I therefore need to consider whether the unlawful conduct of the first defendant to which I have referred (that is, solicitation of investment in circumstances of illegality attracting the s.727 sanction) is of itself sufficient to justify rescission by an investor. That will depend on the circumstances of each case. At most, it seems to me, an investor will have a right to have the court set the contract aside on the basis that he or she was induced by unlawful conduct of the first defendant to enter into it ignorant of the illegality and that equitable intervention is justified on the basis of unconscionability. But the availability of that equitable relief may depend in part on the quality of the investor's own conduct. In seeking to assert and enforce an equity to rescind a contract (or, more correctly, to have the court set it aside), an investor would have to present a case that was not successfully met by a defence based on some factor constituting a disentitlement to equitable relief or a barrier to the grant of that relief. 22 A person who is party to one of the already concluded contracts under discussion therefore cannot, in my view, be presumed to be entitled to an order setting aside the contract. Such a right will depend on the circumstances of the particular case. Each instance will have to be separately examined and adjudicated upon. This is not a "one size fits all" situation. And since, in the case of investors with concluded contracts, rescission of the contract would be an essential prerequisite to any grant of restitutionary relief of the kind I have outlined, it is not appropriate that the court give to the liquidators any direction with respect to those cases. 23 The persons I have called "would-be investors" - that is, those who delivered bank cheques but never received any contractual promise - stand in a different position. They are not parties to any contract and there is no question of contracts being rescinded as part of machinery causing the funds handed over by them to be restored. The situation is one in which there is simply no pretext at all for retention of the funds by the first defendant. Even if the moneys have passed into the ownership of the first defendant, that has occurred in circumstances where it cannot conceivably assert any right to retain them, the payment having been made and received for a purpose that must be taken to have been abandoned by both parties. Following the collapse of the first defendant and assumption by its liquidators of responsibility for corporate decision making, it must be accepted that the would-be investor no longer intends to become party to a loan agreement with the first defendant and that the first defendant no longer intends to become party to a loan agreement with the would-be investor. Whichever theory of the doctrine of total failure of consideration one adopts, there has been a total failure of consideration in relation to the would-be investors. 24 This, coupled with the fact that the money received from the relevant would-be investors retains its identity in the hands of the first defendant under the control of its liquidators, leads to the conclusion that the moneys in question should be restored to the persons from whom they were received. Mr Thomson submitted that the circumstances of the case warrant the recognition of an equitable lien in accordance with principles enunciated in Hewett v Court (1983) 149 CLR 639. In my opinion, however, several factors combine to indicate that the situation is, rather, one of constructive trust. In the first place and as I have said, the very moneys contributed or paid over by each would-be investor exist in a readily identified and segregated form so that there is no question of property of greater value being something to which resort may be had in respect of some smaller claim. In Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566, Gaudron, McHugh, Gummow, Hayne and Callinan JJ said: "In any event, before the court imposes a constructive trust as a remedy, it should first decide whether, having regard to the issues in the litigation, there are other means available to quell the controversy. An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant …. This appears to have been the cause of division between Gibbs CJ on the one hand and Mason J and Deane J on the other hand in Muschinski v Dodds (1985) 160 CLR 588. The Chief Justice saw as an adequate equitable remedy an entitlement of the appellant to a contribution from the respondent to the extent to which she had paid more than one-half of the purchase moneys, coupled with an equitable charge for that amount upon the half interest of the respondent in the land."

The segregation that exists in this case means that a constructive trust will not entail any unfair priority. 25 The second point indicating the appropriateness of a constructive trust in relation to the specific moneys received from would-be investors is that the present intentions of each would-be investor and the first defendant (under the control of its liquidators) must be taken to be that the money is no longer to be retained as a price paid for a promise to repay with interest. A constructive trust may arise or be imposed regardless of intention: Baumgartner v Baumgartner (1987) 164 CLR 137 at 148, 152, 157. But to the extent that common intention is a factor that can contribute to a finding or imposition of constructive trust, that factor exists in this case. 26 Third and as Mr Thomson pointed out, the fact that the first defendant's affairs are in the hands of liquidators may bring into play what has been described as the "elusive and difficult principle" known as the rule in Ex parte James: see A. Keay, "McPherson The Law of Company Liquidators", 4th edition (1999) at p.374. The rule in question (derived from Ex parte James; re Condon (1874) LR 9 Ch App 609), as it applies to a trustee in bankruptcy, was stated by James LJ as follows: "'I am of opinion that a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to some one else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people'. The rule in Ex parte James has been invoked in many subsequent cases on some occasions with, but more often without, success."

27 In referring to money which in equity belonged to someone else, James LJ was, according to Buckley LJ in Re Tyler [1907] 1 KB 865, referring to money:

"which in point of moral justice and honest dealing belongs to some one else. He was using the words in a popular sense, and not in the sense of money which in a Court of Equity would belong to some one else ... assuming that he (the officer) has a right enforceable in a Court of Justice, the Court of Bankruptcy or the Court for the administration of estates in Chancery will not take advantage of that right if to do so would be inconsistent with natural justice and that which an honest man would do".

28 Perhaps all that needs to be said in the present case is that the rule in Ex parte James, if in truth it applies to the present liquidators, serves to reinforce an independently reached conclusion that, in the circumstances of this case, the liquidators of the first defendant should return bank cheques and segregated moneys to persons who delivered funds to the first defendant in respect of proposed loan agreements that were never concluded and which neither proposed party any longer intends to make. 29 I must, at this point, say something about the nature of the winding up and the status of the liquidators. They in fact hold dual appointments, one as liquidators of the first defendant in a creditors voluntary winding up of the kind that follows on pursuant to s.446A from Part 5.3A voluntary administration and the other as liquidators of the relevant unregistered managed investment scheme appointed as such by order of the court under s.601EE. The fact that the first appointment is under a creditors voluntary winding up has significance in two respects: first, there is some doubt whether the rule in Ex parte James applies to a liquidator in a voluntary winding up since such a liquidator is not an officer of the court (although the decision of the High Court in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (1948) 76 CLR 463 proceeds on the basis that it does apply); and, second, such a liquidator cannot apply for directions under s.479(3). 30 In the present case, these factors are beside the point because of the second appointment. I am satisfied that that appointment caused the liquidators to become officers of the court: Australian Securities and Investments Commission v Landy DFK Securities Ltd (2002) 20 ACLC 1613. They are therefore persons contemplated by the rule in Ex parte James and are entitled to invoke the court's inherent equitable jurisdiction to provide guidance to its officers: Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (unreported, NSWSC, Young J, 30 April 1998), Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240. Moreover, the relevant subject matter, which raises legal questions without any need to determine matters of fact, is, so far as the would-be investors are concerned, suitable to be the subject of directions. 31 The appropriate disposition of the liquidators' application is that the court give to the liquidators, in respect of bank cheques received by the first defendant in connection with the unregistered managed investment scheme operated by it from the thirteen persons who are named in annexures D, E and F to the affidavit of Paul Gerard Weston sworn 24 October 2002 and filed herein on 25 October 2002 but not also named in sub-paragraphs (i) to (ix) of paragraph 21 of that affidavit (each of those thirteen persons being referred to, for the purposes of the direction, as a "would-be investor"), a direction that the liquidators would be justified in (a) treating as held upon a constructive trust for the would-be investor (i) the bank cheque so received from the would-be investor; or (ii) if the bank cheque so received from the would-be investor was presented and paid and the proceeds are held by the liquidators in account No 012003 351600219 with Australia and New Zealand Banking Group Limited - those proceeds unless, in the opinion of the liquidators, the bank cheque in question was obtained with funds sourced from the first defendant; (b) subject to (c), returning to the would-be investor the bank cheque so received from the would-be investor or, if the bank cheque was presented and paid and the proceeds are held by the liquidators in account No. 012003 351600219 with Australia and New Zealand Banking Group Limited, paying to that would-be investor out of that bank account a sum equal to those proceeds; and (c) in the case of the bank cheque for $100,000 received from B, N S and F Hirmiz, paying the proceedings of the bank cheque into court and seeking interpleader relief. 32 I make a direction accordingly.

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