On or around 25 October 2018, the first plaintiff, Baxter Global Investments Pty Limited, and the second plaintiff, Batchelar Group Investments Pty Limited as trustee for Batchelar Group Super, invested the sums of $2,057,075 and $390,308 (principal sums) with the first defendant, Chris Marco, pursuant to an agreement between the parties recorded in a document headed "Declaration of Trust" (Agreement).
The plaintiffs invested the principal sums with Mr Marco for a set period of time to enable Mr Marco to have sufficient blocked funds to engage in private placement program arbitrage transactions and earn an agreed rate of return for the plaintiffs as investors.
Mr Marco has failed to repay to the plaintiffs the principal sums or pay the agreed rate of return as required by the Agreement.
[2]
Procedural history and absence of the defendants at the hearing
On 19 February 2020, the plaintiffs commenced these proceedings against Mr Marco and two other defendants, AMS Holdings (WA) Pty Ltd and AMS Holdings (WA) Pty Ltd as trustee for AMS Holdings Trust (corporate defendants). The corporate defendants are entities associated with Mr Marco.
By their summons and commercial list statement, the plaintiffs claim damages from Mr Marco for breaches of the Agreement and for loss caused by false and misleading representations alleged to have been made by Mr Marco and relied on by the plaintiffs before investing the principal sums with him. The plaintiffs also allege that Mr Marco holds the principal sums on trust for the plaintiffs, that the corporate defendants have received all or part of those sums, and that they now hold them as constructive trustees for the plaintiffs' benefit.
On 6 May 2020, Mr Marco and the corporate defendants filed their commercial list response. They admit that, in breach of the Agreement, Mr Marco has failed to pay the principal sums and agreed rate of return but deny making any false and/or misleading representations or that they hold any monies on trust for the benefit of the plaintiffs.
On 25 June 2020, these proceedings were set down for a two day hearing commencing on Monday, 21 September 2020.
On 11 September 2020, the parties were informed by my Associate that the hearing was allocated to me and that it would take place by video conference using the Microsoft Teams platform. In accordance with the usual order for hearing, the plaintiffs sent a court book, the plaintiffs' written submissions and copies of the affidavits relied on by the plaintiffs to my chambers in the week before the scheduled hearing.
At 8.04 pm on Friday, 18 September 2020, my Associate received an email from the defendants' legal representative advising that the defendants had been unable to secure fees, that they had instructed her not to appear at the hearing on their behalf and that Mr Marco did not intend to appear. The email also advised that the defendants did not consent to the orders sought by the plaintiffs and that they were unable to progress their defence in Court further.
On the morning of Monday, 21 September 2020, prior to the hearing, my Associate sent an email to the defendants' legal representative acknowledging her email. She was requested to appear at Court that morning to confirm that the defendants understood that the hearing would proceed in their absence.
The defendants' legal representative appeared in Court when the matter was called. She did not seek an adjournment of the hearing and confirmed that the defendants were aware that the hearing would proceed that day in their absence. She did not indicate that the defendants wished to play any further part in the hearing, although noted that they may wish to respond if the plaintiffs sought a special costs order against them, as was foreshadowed by plaintiffs' counsel at the start of the hearing.
Having regard to the above, I was satisfied it was appropriate for the Court to proceed to hear the plaintiffs' claims in the absence of Mr Marco and the corporate defendants: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r29.7(2)(a). The defendants' legal representative was excused from further attendance at Court and the hearing commenced.
[3]
Issues for determination
At the hearing, plaintiffs' counsel advised that, at this stage, the plaintiffs were only seeking declaratory relief that Mr Marco holds the principal sums on trust and judgment on their claim for damages by reason of Mr Marco's failure to pay the plaintiffs the agreed rates of return on the principal sums.
As Mr Marco was not available for cross-examination at the hearing, the plaintiffs were not in a position to pursue further orders against him or their claims that the corporate defendants had received the principal sums and held them as constructive trustees for the benefit of the plaintiffs. The plaintiffs also did not press their claim for relief based on the allegations of false and misleading representations.
The plaintiffs wish to make further enquiries, including by subpoenas, to determine where the principal sums are currently held. They have reserved, for future consideration, their claims against the corporate defendants, the making of further orders against Mr Marco and for tracing relief.
Thus, the issues for determination are:
1. whether the principal sums are held on trust by Mr Marco for the benefit of the plaintiffs and, if so, whether a declaration to that effect should be made; and
2. whether Mr Marco has breached the Agreement by failing to repay the agreed rates of return, such that he is liable to pay damages to the plaintiffs for those sums.
The plaintiffs rely on the affidavit of Andrew Batchelar, the plaintiffs' sole director, sworn on 8 May 2020. Mr Batchelar also gave oral evidence in chief at the hearing to clarify aspects of his affidavit evidence and in response to matters raised by Mr Marco's affidavit evidence.
The plaintiffs also rely on parts of an affidavit of Mr Marco sworn on 24 June 2020, on the documents contained in the court book, and some emails between Mr Batchelar and Mr Marco in July 2012 that were tendered at the hearing.
[4]
Background
The following facts are based on the unchallenged evidence before the Court.
Mr Marco's business is described by his evidence as trading in bank instruments as a private investor. He operates his business through the registered business name "Coastline Group".
The bank instruments that Mr Marco trades through are known as private placement programs (PPP). To trade through a PPP, Mr Marco requires capital as "proof of funds" in order to trigger a line of credit enabling him to facilitate arbitrage transactions involving bank instruments in the US and Europe. The proof of funds capital are held and retained by Mr Marco in bank account in Australia when a PPP trade is in place.
In early 2000, Mr Marco realised that he needed to obtain money from outside investors to increase his proof of funds to the required levels for ongoing PPP trading. He sought advice from Ernst & Young. As a result of that advice, a document entitled "Declaration of Trust" was drafted by his lawyers. The Declaration of Trust records the terms of the agreements between Mr Marco and his outside investors pursuant to which they would invest funds with him.
Mr Marco met Mr Batchelar in mid-2011. Prior to their first meeting, they had a discussion on the phone during which Mr Marco explained to Mr Batchelar that he was a private investor involved in PPP; that he would not be investing in the PPP himself but would pay a good return to investors for use of their funds; that he had a 'Declaration of Trust' document which would have to be filled out by Mr Batchelar on behalf of his investing entities if he wished to invest in these opportunities; and that Mr Marco only traded in his own name.
During their first meeting in Leederville, Western Australia, Mr Marco told Mr Batchelar that:
1. once part of a PPP and trading platforms and contacts have been established, Mr Batchelar could get a fantastic return on capital with minimum capital investment;
2. Coastline Group provides a proof of funds through a bank statement that Mr Marco provides to the platform broker to allow him to go into a trade. At no time do the funds actually leave Mr Marco's bank accounts - all that is required is proof that the invested money is sitting in the bank account so that the trading platform can "ping" the bank account and make sure the money is there;
3. the funds are blocked in an Australian bank account that Mr Marco controls, and that Mr Marco could return funds to Mr Batchelar at any time Mr Batchelar wanted his invested funds returned;
4. ownership of Mr Batchelar's investment funds remained with him and blocked funds will never leave Mr Marco's account; and
5. the investment money was water-tight safe and Mr Marco personally guaranteed that investors' funds were "100% safe and secure for withdrawal at maturity date of investment/contract".
From around early 2012, Mr Batchelar invested money with Mr Marco. He did so on several occasions, sometimes personally but more often in the names of the first and second plaintiffs. His first investment was made in or around February 2012 for $200,000.
Sometime prior to 24 July 2012, Mr Marco started sending to Mr Batchelar "Declarations of Trust" documents to sign each time that he or his nominated entities invested money with Mr Marco.
The earliest Declaration of Trust document signed by Mr Batchelar that is in evidence is dated 24 July 2012. The first operative page of the Declaration of Trust provides for Mr Marco, as Principal, to hold the investment specified, of $500,000, in trust for Mr Batchelar (the identified beneficiary) for an investment term of 8 to 10 weeks, with a rate of return as set out in the attached addendum. Pursuant to cl 3 of the Declaration of Trust, Mr Marco guaranteed the repayment of the principal sum in the event of investment loss. Clauses 4 to 8 of the Declaration of Trust, which appear on page 2, concern the payment of stamp duty, fees, re-investment, early exit and serious illness and death.
On 29 January 2013, Mr Batchelar received an email from Mr Marco attaching a document referred to in the email as a "bank summary of Private Placement Programs (PPP) covering most commonly asked questions". Mr Marco's email also states that Mr Marco had worked out a methodology to give Mr Batchelar "100% guaranteed security on your invested funds". The document attached to Mr Marco's email includes the following statement:
There is no risk of losing the principal investments. The principal investment remains blocked for a specific period in the investors bank, ownership of the account remains with the investor, and the funds blocked will not be moved, transferred or withdrawn during the period of blocking as specified. There are no up-front fees, no lien and no mortgage on the client's asset. Client's asset remain free of any encumbrances at all times.
Mr Batchelar gives evidence that he relied on the documents sent to him by Mr Marco on 29 January 2013 to confirm Mr Batchelar's understanding that the funds that he and the plaintiffs invested with Mr Marco would remain blocked in Mr Marco's Westpac bank accounts and that they would retain ownership of the funds.
Between mid-2012 and early 2014, Mr Batchelar invested money with Mr Marco for set periods of time. He signed new Declarations of Trust documents each time he invested, either in his name or that of the plaintiffs. The Declaration of Trust documents that Mr Batchelar signed were in the same format and terms; the first page contained the key terms and a schedule setting out the investment amount, the rate of return, the investment term and/or maturity dates and the identified beneficiary(s). The remaining pages included clauses 4 to 8 which deal with the matters referred to at [27] above. Throughout this period, Mr Marco also told Mr Batchelar that the funds he and the plaintiffs invested with Mr Marco were held in two Westpac bank accounts in his name at all times.
From around May 2014, Mr Marco and Mr Batchelar adopted a different practice for recording the terms on which investments were made. Rather than executing a new Declaration of Trust each time, Mr Marco sent to Mr Batchelar a one page document headed "Declaration of Trust" and asked Mr Batchelar to dispose of his existing "Schedule" in his Declaration of Trust and to replace it with the one page document. The one page document included a schedule containing details of the new investment and was in the same format and contained the same general terms as the previous Declaration of Trust documents.
On 25 October 2018, Mr Marco's executive assistant sent Mr Batchelar an email attaching the first page of a Declaration of Trust in relation to the plaintiff's investment of the principal sums with instructions to "please dispose of [the] existing schedule in [his] Declaration of Trust" and to "replace it with the attached".
The page of the Declaration of Trust sent to Mr Batchelar by Mr Marco's executive assistant on 25 October 2018 is in the following terms:
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 in the proportions set out against their name 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$2,447,383.00
b) Rate of Return 9% at maturity
c) Commencement Date 29 October 2018
d) Maturity Date Week Commencing 11 February 2019
e) Investment Type Private Placement
2. Name of Beneficiary and Relevant Proportion
Baxter Global Investments Pty Ltd AUD$2,057,075
Batchelar Group Investments ATF
Batchelar Group Super Fund (ABN 44 165 859 985) AUD$390,308
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.
Mr Batchelar's evidence is that the sums the plaintiffs invested with Mr Marco on 25 October 2018 comprised funds that had been "rolled over" from previous investments with Mr Marco and new funds, including the $390,308 principal sum which were from a superannuation fund.
Mr Marco gives evidence that the plaintiffs' most recent investment with him commenced on 29 October 2018 with a rate of return of 9% due to be paid at the maturity date, being the week commencing 11 February 2019. He also gives evidence that the first plaintiff invested $2,057,075 and the second plaintiff invested $390,308.
Mr Marco's evidence reflects the terms of the 25 October 2018 Declaration of Trust and Mr Batchelar's evidence. There is, therefore, no dispute on the evidence about the amounts received by Mr Marco from the plaintiffs, the dates on which the principal sums were to be repaid or the agreed rate of return to be paid.
Mr Marco also gives evidence to the effect that he was unable to make the payments of the principal sums or pay the agreed rate of return due to freezing orders over his assets, which were made on 1 November 2018 in proceedings brought against him and the corporate defendants by the Australian Securities and Investment Commission (ASIC).
On 27 May 2020, orders were made in the ASIC proceedings appointing interim receivers over the defendants' assets. When making the receivership orders against Mr Marco, McKerracher J observed that Mr Marco had operated an investment scheme whereby he applied the contributions of investors in order to generate a financial return, and that the net result of Mr Marco's activities to date is that he might be indebted to as many as 132 investors, possibly in an amount exceeding $240 million. McKerracher J went on to observe that investment contributions were made to Mr Marco, in most cases, by the execution of a Trust Document which purported to specify a rate of financial return on each investment: Australian Securities and Investment Commission v Marco (No 3) [2020] FCA 719 at [113].
[5]
The plaintiffs' trust claim
The plaintiffs' claim that the principal sums are held by Mr Marco on trust. They contend that an express trust arises from the terms of the 25 October 2018 Declaration of Trust and that the surrounding circumstances also point to that conclusion as well.
The legal principles as to the creation of an express trust are set out by Tottle J in Markopoulus v Marco [2020] WASC 79 (Markopoulus), a recent case involving claims against Mr Marco by other investors who advanced sums pursuant to Declarations of Trusts in terms similar to those in issue in this case. Those trust principles can be summarised as:
1. An express trust requires certainty of intention, subject matter and object: Markopoulus at [36] citing Kauter v Hilton (1953) 90 CLR 86; [1953] HCA 93 at 97.
2. 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. Markopoulus at [37]-[39] citing Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 (Byrnes v Kendle) at [13]-[18], [46]-66], [98]-[118].
3. If the alleged trust is not wholly in writing, inferences from the terms of conversations may widen the enquiry but do not alter the nature of the enquiry: Markopoulus at [37]-[39] citing Byrnes v Kendle at [54]-[55] (Gummow and Hayne JJ), Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 at 352 (Mason J).
The plaintiffs' submit, and I accept, that the subject matter of the alleged trust is certain; the subject matter are the principal sums advanced to and invested with Mr Marco. I also accept the plaintiffs' submission that there is certainty to the object of the alleged trust. The object was to invest sums with Mr Marco, which sums were to be held and maintained in a blocked account in Mr Marco's name for a set period of time, thereby enabling Mr Marco to engage in a PPP arbitrage transaction and earn a rate of return for the plaintiffs.
The question in this case is whether the parties intended to create a trust over the principal sums.
The Courts have recognised that references in a document to "trust" or that property or money is held on "trust" for or on behalf of another are powerful indicators that the parties objectively intended to create a trust over that property or money: Byrnes v Kendle at [13]-[18], [34] and [36]; In Re Courtney House Capital Trading Group Pty Limited (in Liq) [2018] NSWSC 404 (In Re Courtney) at [23] - [26] (Brereton J). In Byrnes v Kendle and In Re Courtney, the Courts accepted that the references in documents to an "Acknowledgement of Trust" and an investment being "held in trust" were unambiguous and explicit words that indicated there had been an objective intention on the part of the parties to create a trust.
In Re Courtney, Brereton J also concluded that the pooling of funds in a single bank account was not inconsistent with an intention to create an express trust over funds in favour of particular investors, stating at [26]:
"Nor is … 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."
An intention to create a trust may also be imputed from the conduct of the parties or by inference from the available evidence, by looking at the nature of the transaction as a whole and the circumstances attending the relationship between the parties and known to them: Byrnes v Kendle at [98], [102]-[114]; JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [3.06] and [5.02].
Applying the above principles to this case, I am satisfied that the evidence demonstrates there was a clear intention to create an express trust in relation to the principal sums advanced to Mr Marco by the plaintiffs. This is for the following reasons.
First, the 25 October 2018 Declaration of Trust document is described as a "Declaration of Trust". It also states that Mr Marco would hold the investment "in trust", and that the plaintiffs were "beneficiaries" entitled to "their" proportion of capital and interest or income. In my view, that language evinces a clear intention that a trust was to be created in respect of the invested funds.
Second, I consider it open to infer that the word "trust" in the Declaration of Trust was used purposefully and should be construed as reflecting an intention to create a trust as the document was prepared for Mr Marco's business following receipt of accounting advice and was drafted by his lawyers.
Third, in my view, the surrounding circumstances known to the parties, as evidenced by their discussions and the terms of the PPP material sent by Mr Marco to Mr Batchelar, support the conclusion that ownership of the principal sums was to be retained by the plaintiffs and that they were to remain in Mr Marco's bank account for a specific and limited purpose, consistent with the creation of a trust relationship: Byrnes v Kendle at [117]-[118] (Hayden and Crennan JJ). During his discussions with Mr Batchelar, Mr Marco referred to sums advanced by investors "as their funds"; to the funds that Mr Batchelar or his related entities would invest as "Mr Batchelar's funds"; and "your funds" which were to be held and remain in "my bank account" in Perth. The PPP document attached to Mr Marco's 29 January 2013 email also refers to "the client's asset" and that funds blocked in a bank account "would not be moved, transferred or withdrawn".
Fourth, to the extent that the language in the Declaration of Trust could be construed as suggesting some form of debtor and creditor relationship between Mr Marco and the plaintiffs, such a relationship is not inconsistent with obligations of trust also arising in relation to the principal sums advanced: JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [12.06]. In my view, the pooling of the principal sums with other investor funds also does not negate obligations of trust arising given Mr Marco's assurances that the funds invested by Mr Batchelar and his associated entities would remain owned by them and that they would form part of a pool of funds in a blocked account: Australian Securities and Investments Commission v Idylic Solutions Limited [2009] NSWSC 1306 at [45]-[46]; In Re Courtney House at [26].
It follows that Mr Marco holds the principal sum of $2,057,075 on trust for the first plaintiff and the sum of $390,308 on trust for the second plaintiff.
In my view, the plaintiffs are entitled to declaratory relief to that effect, notwithstanding that Mr Marco did not appear at the hearing. Mr Marco was a proper contradictor who had a true interest in opposing the relief sought, filed a commercial list response and affidavit evidence, some of which was read at the hearing. While Mr Marco chose not to appear at the hearing, I am satisfied that the material before the Court provides a proper basis for making the declarations sought by the plaintiffs: Church of the Foursquare Gospel (Australia) Limited v New Hope Church Swansea Inc [2019] NSWSC 519 at [16]-[18]; Zetting v Muller [2017] NSWSC 659 at [13].
[6]
Contract claim
The plaintiffs also seek judgment for the sums claimed by way of damages for breach of the Agreement, limited to the amounts payable by way of the agreed rate of return, namely 9% on the principal sums for the period from 29 October 2018 to 11 February 2019. The plaintiffs have calculated those amounts as $185,136.75 on the first plaintiff's principal sum, and $35,127.72 on the second plaintiff's principal sum,
The evidence satisfies me that the Agreement was entered into by the plaintiffs and Mr Marco, that Mr Marco owes the plaintiffs the sums claimed and that judgment should be entered against Mr Marco for those sums. The Agreement comprises the 25 October 2018 Declaration of Trust and clauses 4-8 and set out in the other Declarations of Trust executed by Mr Batchelar as found at CB004, CB056-CB057. It provides for an agreed rate of return at 9% from the commencement date of 29 October 2018 to the maturity date in the week commencing 11 February 2019.
Mr Marco, by his commercial list response, also admits that he has failed to pay the accrued interest due on the principal sums calculated at 9% between 29 October 2018 and 11 February 2019 in breach of the Agreement.
[7]
Costs and orders
As to costs, I see no reason not to make the order sought by the plaintiffs for Mr Marco to pay their costs of the proceedings on a party-party basis. The plaintiffs have had success on those parts of their claims which were pressed at the hearing and in respect of which Mr Marco denied liability in part.
The party-party costs order will be subject to any application the plaintiffs wish to make for a special costs order, the submissions and other materials in respect of which must be filed and served by the plaintiffs by no later than 28 September 2020. Mr Marco will be provided with an opportunity to file and serve submissions in reply, with the plaintiffs' application (if made) to be dealt with by the Court on the papers.
I will also re-list the proceedings at 9.45 am on Friday, 23 October 2020. At that time, the plaintiffs may seek directions in aid of any further orders and claims they wish to pursue in the proceedings, including tracing relief in respect of the principal sums and the orders against the corporate defendants.
For these reasons, I make the following directions and orders:
1. Declare the First Defendant holds the sum of $2,057,075.00 on trust for the First Plaintiff, being the sum received by the First Defendant from the First Plaintiff pursuant to a Declaration of Trust dated 25 October 2018 (the Declaration of Trust).
2. Declare that the First Defendant holds the sum of $390,308.00 on trust for the Second Plaintiff, being the sum received by the First Defendant from the Second Plaintiff pursuant to the Declaration of Trust.
3. Judgment for the First Plaintiff as against the First Defendant in the amount of $185,136.75, being the amount payable by way of return on the First Plaintiff's principal sum provided under the terms of the Declaration of Trust for the period 29 October 2018 to 11 February 2019.
4. Judgment for the Second Plaintiff as against the First Defendant in the amount of $35,127.72, being the amount payable by way of return on the Second Plaintiff's principal sum provided under the terms of the Declaration of Trust for the period 29 October 2018 to 11 February 2019.
5. Reserve for further consideration the questions of making any further orders or tracing the sums identified in Orders 1 and 2 above.
6. Subject to Order 7 below, the First Defendant pay the First and Second Plaintiffs' costs of the proceedings on a party-party basis.
7. Direct that any application by the Plaintiffs for a special costs order in these proceedings be dealt with on the papers and in accordance with the following timetable:
1. the Plaintiffs to file and serve any application, including submissions and any materials in support of a special costs order by Monday, 28 September 2020;
2. the First Defendant to file and serve any submissions in reply together with any materials in support by Monday, 5 October 2020; and
3. the Plaintiffs to file and serve any submissions in response together with any materials in support by Monday, 12 October 2020.
1. The matter be listed for further directions at 9.45am on 23 October 2020.
[8]
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Decision last updated: 22 September 2020
Parties
Applicant/Plaintiff:
Baxter Global Investments Pty Ltd (ACN 159 246 670)