Burdett-Baker, in the matter of AFS Group Limited (in liq) v National Australia Bank Limited

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 384 of 2013

BETWEEN: RACHEL ELIZABETH BURDETT-BAKER AND LUKE CHRISTOPHER TARGETT IN THEIR CAPACITY AS LIQUIDATORS OF AFS GROUP LIMITED (IN LIQUIDATION) (ACN 055 796 211) AND AUSTRALIAN FINANCIAL SERVICES LIMITED (IN LIQUIDATION) (ACN 116 900 362)

AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

KENNETH WALTER BAILEY, REPRESENTING THE CLASS OF AUSTRALIAN FINANCIAL SERVICES LTD'S AUTHORISED REPRESENTATIVES AND FORMER AUTHORISED REPRESENTATIVES

JUDGE: DODDS-STREETON J DATE OF ORDER: 9 AUGUST 2013 WHERE MADE: MELBOURNE

1. It is declared that the amounts received in the AFS Group Brokerage Account (account number 083-347 51-777-1801) in respect of commission and fees arising from the advice or other activity of the current or former authorised representatives of Australian Financial Services Limited (in liquidation) ("Services") are not held on trust for the authorised representatives or former authorised representatives of Services (as enumerated in Confidential Annexure REB-15 and Confidential Annexure REB-16 to the second affidavit of Rachel Elizabeth Burdett-Baker sworn 27 May 2013) in respect of whose advice or other activity those commissions or fees were generated, subject to Services' rights to deduct its own remuneration or expenses under the terms of the Principal Representative Agreements and Authorised Representative Agreements.
2. As soon as practicable, the plaintiffs give notice to the creditors of AFS Group Limited (in liquidation) ("AFS Group") and Services of the terms of these orders: (a) by email, if the plaintiffs have an email address for the creditors; and (b) by publishing a copy of this order on the liquidators' website at http://www.bdo.com.au/client-login, accessible by secure login details provided to the creditors.
3. The costs of and incidental to this application until 29 May 2013 be costs in the administration of AFS Group and Services, and the costs thereafter be costs in the liquidation of AFS Group and Services.
4. Any requirement for service of the originating process on the authorised representatives or former authorised representatives in respect of whose activity commissions or fees for service have been paid into the Brokerage Account be dispensed with. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 384 of 2013

BETWEEN: RACHEL ELIZABETH BURDETT-BAKER AND LUKE CHRISTOPHER TARGETT IN THEIR CAPACITY AS LIQUIDATORS OF AFS GROUP LIMITED (IN LIQUIDATION) (ACN 055 796 211) AND AUSTRALIAN FINANCIAL SERVICES LIMITED (IN LIQUIDATION) (ACN 116 900 362)

AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)

KENNETH WALTER BAILEY, REPRESENTING THE CLASS OF AUSTRALIAN FINANCIAL SERVICES LTD'S AUTHORISED REPRESENTATIVES AND FORMER AUTHORISED REPRESENTATIVES

JUDGE: DODDS-STREETON J DATE: 9 August 2013 PLACE: MELBOURNE

Introduction 1 By an amended originating process dated 9 July 2013, the plaintiffs, Rachel Burdett-Baker and Luke Targett, as the liquidators of AFS Group Ltd (liquidators appointed) ("AFS Group"), its subsidiary Australian Financial Services Limited (liquidators appointed) ("Services") and two other subsidiary companies (collectively "the AFS companies"), seek directions pursuant to s 511 of the Corporations Act 2010 (Cth) ("the Act") as to how they should treat moneys in a certain bank account held by AFS Group with the first defendant, the National Australia Bank Limited ("NAB"). Alternatively, the plaintiffs seek declarations as to whether a portion of the moneys are held on trust or rather are instead the beneficial property of AFS Group 2 The plaintiffs were appointed voluntary administrators of the AFS companies on 23 April 2013 and became the liquidators on 29 May 2013. 3 The bank account, known as the AFS Group Brokerage Account with account number 083-347 51-777-1801 ("Brokerage Account"), is held by AFS Group with the first defendant. It is currently in credit in the sum of about $1.9 million. 4 The moneys in the Brokerage Account represent principally, but not exclusively, fees, commissions and other moneys paid by the issuers of financial products which a number of financial advisers (in their capacity as authorised representatives of Services under an Australian Financial Services Licence held by Services) recommended to their clients. The second defendant, Kenneth Bailey, represents the class of authorised representatives and former authorised representatives who provided services in respect of which moneys were paid into the Brokerage Account, and who have actual or potential claims to it on that basis. 5 The first defendant is the banker and the major creditor of AFS Group. AFS Group owes the first defendant over $8 million secured, inter alia, by a debenture charge over the assets of its subsidiary, Services. Prior to these proceedings the first defendant had already set off against the debt the credit amounts in all of the AFS Group's accounts held with first defendant, save for the Brokerage Account. The first defendant contends that it is also entitled to set off the moneys in the Brokerage Account against the debt due to it. The second defendant contends that, to the contrary, AFS Group holds the money in the Brokerage Account on trust for the authorised representatives and accordingly, the first defendant is not entitled to set it off against the debt due to it. 6 The plaintiffs are accordingly faced with conflicting claims that the money in the Brokerage Account is an asset of AFS Group as asserted by the first defendant, or alternatively, that a proportion at least of the money is beneficially the property of, and held on trust for, the second defendant and the authorised representatives that he represents. The plaintiffs are unable to determine the competing claims to the moneys in the Brokerage Account and do not advocate any particular analysis of their status. 7 The plaintiffs, while voluntary administrators, sought the directions of the Court by an originating process dated 22 May 2013 pursuant to ss 447A and 447D(1) of the Act. As discussed in detail below, due to concern that the plaintiffs in substance sought a binding declaration of third party rights which would ordinarily be inappropriate in an application for directions, the originating process was, with the consent of all parties, amended to seek declaratory relief and to reflect the plaintiffs' appointment as liquidators on 9 July 2013. 8 On 28 June 2013, I ordered that NAB be joined to the proceeding as the first defendant and that Mr Bailey be joined as the second defendant representing the class of authorised representatives and former authorised representatives with actual or potential claims to moneys in the Brokerage Account. Prior to their joinder, the NAB and a number of current and former authorised representatives, including Mr Bailey, made submissions in the proceeding. In these reasons, references to the first defendant include NAB both before and after its joinder and references to the second defendant may include (where appropriate) the authorised representatives who made submissions prior to his joinder. 9 The plaintiffs relied on: (a) The first affidavit of Rachel Burdett-Baker sworn on 22 May 2013. (b) The affidavit of Manasi Mishra affirmed on 22 May 2013. (c) The affidavit of Anthony Grant sworn on 21 May 2013. (d) The affidavit of Alan Logan sworn on 21 May 2013. (e) The second affidavit of Rachel Burdett-Baker sworn on 27 May 2013. (f) The affidavit of Leonard Boucher sworn on 28 June 2013. (g) Written submissions dated 27 May 2013. (h) Written supplementary submissions in relation to the form of the proceeding dated 5 June 2013. 10 The first defendant relied on: (a) Written submissions dated 27 May 2013. (b) Written supplementary outline of submissions in relation to the form of the proceeding dated 5 June 2013. (c) Written further supplementary outline of submissions dated 5 July 2013. (d) Written submissions in reply dated 9 July 2013. 11 The second defendant relied on: (a) The affidavit of Jacob Aaslund sworn on 17 June 2013. (b) The affidavit of Ken Bailey sworn on 17 June 2013. (c) The affidavit of Nicholas Moschakis sworn on 18 June 2013. (d) The affidavit of Owen Cook sworn on 14 June 2013. (e) The affidavit of Paul Chalmers sworn on 20 June 2013. (f) The affidavit of Paul Ellenberg sworn on 19 June 2013. (g) The affidavit of Peter Daly sworn on 11 June 2013. (h) Written submissions dated 27 May 2013. (i) Written submissions in relation to the form of the proceeding dated 5 June 2013. (j) Further written submissions dated 3 July 2013. (k) Written submissions in reply 9 July 2013.

notice of application 12 Ms Burdett-Baker deposed that, after commencing the proceeding to seek directions, on 22 and 23 May 2013 the plaintiffs notified all financial advisers who were currently or recently authorised representatives of Services of the hearing and provided them with access to the originating process and supporting affidavits. 13 On the basis of her investigations and enquiries, Ms Burdett-Baker believed that all financial advisers who were likely to be affected by the application (numbering approximately 190 persons) had been notified. 14 On 21 May 2013, the plaintiffs also notified a number of former officers and employees of the AFS companies of the application. 15 The first meeting of creditors in respect of AFS Group and Services was held on 6 May 2013 and the second meeting of creditors was scheduled for 29 May 2013. 16 At the hearing of the application on 28 May 2013, approximately 34 authorised representatives associated with about 19 advisory practices were represented. 17 At the hearing of the application, counsel for the plaintiffs informed the Court that no committee of creditors had been appointed and that no steps had been taken to notify general creditors of the AFS companies of the application. 18 Counsel for the plaintiffs also informed the Court that the AFS companies had few general creditors, although a number of clients had foreshadowed claims for damages arising from the provision of financial advice by the financial advisers. The plaintiffs were not yet in a position to estimate the total liabilities of the AFS companies but a significant shortfall was anticipated. Further, a substantial proportion of the assets was subject to the first defendant's fixed and floating charge. 19 In the circumstances, the interests of unsecured creditors (including employees and priority creditors) aligned with those of the first defendant for the purposes of determining whether the funds (or part thereof) in the Brokerage Account were subject to a trust in favour of the authorised representatives. 20 The companies' unsecured creditors would have no entitlement to any funds in the Brokerage Account held on trust for the authorised representatives, even if the unsecured creditors and the first defendant had potentially conflicting claims to funds in the Brokerage Account which were held on trust. 21 Accordingly, it was unnecessary that the unsecured creditors be notified of the application, as their interests were, in the circumstances, sufficiently represented.

fORM OF THE PROCEEDING 22 The plaintiffs' originating process dated 22 May 2013 sought the directions of the Court pursuant to ss 447A and 447D(1) of the Act seeking an order: … directing how the [plaintiffs] ought to treat the fees and commissions and other monies held in an account operated with National Australia Bank in the name AFS Group Brokerage Account (Account Number 083-347 51-777-1801). 23 The plaintiffs advanced no position and, although the first defendant, Mr Bailey and some other authorised representatives were represented at the hearing, they were not at that stage parties to the proceeding. 24 I requested submissions on whether, if the plaintiffs in substance sought a binding determination of third party rights, and, such relief should be granted in an application for directions. 25 In Re GB Nathan and Co Pty Ltd (in liq) (1991) 24 NSWLR 674 ("GB Nathan") McLelland J analysed the antecedents and scope of the statutory provisions governing a liquidator's application for directions. In GB Nathan, a liquidator sought directions as to whether he should treat certain assets as held on trust for certain of the company's clients or as available for the company's unsecured creditors. McLelland J concluded (at 679-680) that: … the only binding effect of, or arising from, a direction given in pursuance of such an application … is that the liquidator, if he has made a full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction. Modern Australian authority confirms the view that s 479(3) [of the now repealed Corporations Law 1989 (Cth)] "does not enable the court to make binding orders in the nature of judgments" and that the function of a liquidator's application for directions "is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation" … 26 Although McLelland J (quoting the Canadian case of Re Ward (1987) 66 CBR (NSW) 165 at 171) considered that a court had "no authority to resolve substantive matters in dispute between a trustee and a third party" in an application for directions, he contemplated (at 680) that a proceeding commenced in that form could be amended to enable the court "to make orders declaratory of substantive rights, clearly intended to be of binding effect on the parties to the proceeding" and could make representative orders for that purpose. 27 His Honour stated (at 680): The procedures of the court are sufficiently flexible to enable proceedings commenced as an application for directions to be changed into proceedings for the determination of substantive rights, and this is sometimes a convenient course in order to avoid the need to commence further proceedings involving additional cost and delay: see, eg, Anmi Pty Ltd v Williams [1981] 2 NSWLR 138 at 156-157. However it is important that the distinction between the two kinds of proceedings be not lost sight of or blurred, and such a fundamental change should not be permitted unless the court is satisfied that those affected either consent to that course (see, eg, Re Standard Insurance Co Pty Ltd (1963) 5 FLR 292; 80 WN (NSW) 1355 and [Murdoch v Crawford [1986] VR 97] (at 100-101)), or will not suffer injustice in consequence of the alteration to the status of the proceedings. 28 In Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141; 148 ALR 146 ("Editions Tom Thompson"), Lindgren J applied McLelland J's analysis in Re GB Nathan to a voluntary administrator's application for directions under s 447D of the now repealed Corporations Law 1989 (Cth). 29 Lindgren J stated (at 149): In the present case, what is sought is a direction that the Administrators are "entitled" as against Mr Pilley to sell the goods "as these assets comprise the assets of [the company]". The terms of the direction import a conclusion as to ownership. The procedure of an application for directions is not one by which this question can be finally resolved. But even a modified form of direction, such as a direction that the Administrators are justified in selling, is apt to lead to a sale which would affect Mr Pilley's rights. 30 Lindgren J observed (at 149) that in so far as the application was brought by the company, it was incomplete because "[a]n application under s 447D is properly brought by the administrator alone." Further, the creditor was named as respondent, which was (at 150): … also strictly inappropriate, since the giving of directions to the Administrators is not the making of an order which could directly affect Mr Pilley's rights or liabilities … or determine the dispute between him and [the company]. … Conceptually, the application for directions is an ex parte one. 31 Lindgren J recognised (at 150) that a creditor could have leave to be heard without being made a party but stated that "directions given by the Court to a liquidator or administrator would not affect the creditor's rights and the creditor would not be 'estopped' by the directions." 32 Although the creditor in Editions Tom Thompson could have been joined as a respondent, his Honour considered such a course inappropriate (at least in the absence of consent) if the proceeding remained an application for directions (at 150). 33 Lindgren J distinguished Osborne Computer Corporation Pty Ltd v Riddell (1995) 17 ACSR 606 ("Osborne") (at 150-151), in which Cohen J gave an administrator directions under s 447D(1) of the Corporations Law 1989 (Cth) entitling him to sell certain goods subject to valid retention of title claims. In Osborne (in contrast to Editions Tom Thompson) there were no disputed facts and a supplier with a retention of title claim had filed a cross claim under s 440C of the Corporations Law 1989 (Cth) seeking possession of relevant goods. 34 Lindgren J accordingly concluded (at 152) that: Osborne is not persuasive on the question of the appropriate approach to be taken in the case of a conflict as to whether, on the application of general law principles to disputed facts, goods are the property of a company in administration or a third party. 35 Lindgren J did not, however, dismiss the application for directions as he contemplated an application to reconstitute it as a proceeding inter partes. 36 In Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd (2007) 25 ACLC 1433; [2007] FCA 1443 ("Meadow Springs"), French J recognised that there was a curial discretion to determine substantive competing claims in the context of an application for directions under s 511 of the Act. 37 French J approved Northrop J's statement in Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (Receiver and Manager Appointed) (1994) 49 FCR 334; 121 ALR 626 (at 352) that final orders binding on other persons could be made in a liquidator's application for directions under s 479(3) of the Corporations Law 1989 (Cth), if the affected parties had the opportunity to be heard. Northrop J also regarded McLelland J's reference in GB Nathan to the consent of the parties or an absence of injustice should the status of the proceeding be altered, as "the crucial matter". 38 In Meadow Springs, French J stated that s 511(1)(a) of the Act contemplated applications of a more substantive character than s 479(3) of the Corporations Law 1989 (Cth) and stated (at [51]): In my opinion it is open to the Court, in a suitable case, to entertain an application for the determination of questions under s 511 by joining affected parties with competing interests as defendants and permitting them to file cross-claims for declaratory relief as between themselves and any other interested parties and the liquidator so that there can be a res judicata between all of them. Such a course may be appropriate where the evidence necessary to determine the questions and the competing claims is largely documentary and amenable to expeditious hearing and determination. Otherwise the parties can simply commence their own substantive proceedings. 39 In Re Mento Developments (Aust) Pty Ltd (ACN 005 802 457) (in liq); Rambaldi (in his capacity as liquidator of MENTO Developments (Aust) Pty Ltd (ACN 005 802 457) (in liq)) v Wixart Pty Ltd (2009) 73 ACSR 622; [2009] VSC 343 ("Re Mento Developments"), Robson J considered that the court had power in an application under s 479(3) of the Act to determine substantive rights even without converting it into adversarial proceedings. His Honour relied, in that context, on the reasoning in St Petka Inc v Petar (2008) 237 CLR 66; 249 ALR 250 ("St Petka"), in which the High Court held that the power and discretion under trust legislation to give judicial advice to trustees were not subject to implied limitations restricting their exercise, inter alia, to non-adversarial proceedings. 40 Robson J concluded: [49] I have dealt with St Petka at some length as I believe it has particular relevance to the issues raised by Wixart. Applying a similar approach to that adopted by the High Court to s 63 of the Trustee Act, in my view: (1) The liquidator is entitled to seek directions on his administration of the winding up even though the issue about which he seeks a direction may be or become an adversarial issue in other proceedings. (2) The direction or advice is to be directed to advising the liquidator on whether or not he or she is justified in conducting the winding up in a certain way and not deciding disputes between competing parties. (3) The direction or advice should not seek to resolve an issue between competing parties but the fact that the advise [sic] may tend to foreclose an issue in other disputed proceedings is not of special significance in the court exercising its discretion to give private advice to the liquidator. (4) Where a liquidator seeks advice on an issue which may be contested between competing parties, the court should be alert to not going further than is necessary to give the advice sought. … 41 His Honour noted that the liquidator did not seek a resolution or determination of any issue between other parties as in Editions Tom Thompson, but simply sought the court's assistance with the winding up. 42 In the matter of Willmott Forests Limited (Receivers and Managers Appointed) (In liq) (No 2) (2012) 88 ACSR 18; [2012] VSC 125 ("Willmott"), the liquidators of Willmott Forests Limited, the responsible entity and manager of registered and unregistered managed investment schemes (comprising forestry operations conducted on land owned by or leased to Willmott Forests Limited) sought directions pursuant to s 511 of the Act, including approval of entry into sale agreements with purchasers who required clear title, unencumbered by the rights of scheme members who owned trees grown on the land. 43 Davies J rejected the contention of certain members of the affected schemes ("growers") that the declarations and orders sought were outside the scope of the court's power under s 511 of the Act. Her Honour acknowledged the authority of Re GB Nathan and Editions Tom Thompson but observed that they questioned whether it was appropriate to determine substantive rights in the context of a directions application but not the curial power to do so. 44 In Willmott, Davies J nevertheless considered it unnecessary to join the third parties (the termination of whose rights the proposed orders would sanction) as the only constraint on the court's jurisdiction under s 511(2) of the Act was the requirement that determination of the questions be just and beneficial. Her Honour stated that although the application was conceptually ex parte, the growers whose rights would be affected were represented by two groups of interveners who had had a full opportunity to present their opposition to the proposed orders (including the right to lead evidence and cross-examine) and the application was conducted as a proceeding which raised the relevant substantive rights. 45 Her Honour observed that it was in the interests of the winding up to determine the question, as the liquidators would then be able to complete the sale in a context of urgency. The Court was not being asked to approve a commercial decision about which the liquidator wanted reassurance. Accordingly, there was warrant to determine the application through the s 511(1) procedure without requiring a separate inter-parties proceeding. 46 In the matter of Sports Alive Pty Ltd (in liq) v ACT Gambling and Racing Commission [2013] VSC 69 ("Sports Alive"), Robson J also determined questions in a liquidation pursuant to s 511 of the Act, although substantive rights of the company's clients would be affected. In Sports Alive, the company in liquidation, had conducted online betting in which clients opened an account and deposited moneys to its credit with the company. The company was bound to hold the moneys and any winnings in a segregated account on trust for the client. The company also held three term deposits which the regulator of online betting alleged to be segregated accounts held on trust for betting clients. 47 The liquidators contended that the moneys in the term deposit accounts were not trust moneys but were available for the general body of the company's creditors, including employees. 48 Clients of the company were advised by a notice posted on the company's website of the hearing and the availability of copies of the filed application, the supporting affidavit and the annexures. While no betting client appeared, an account holder addressed the Court purportedly on behalf of a syndicate of account holders, asserting an understanding and expectation that the moneys would be held on trust. 49 Robson J adopted the reasoning of Davies J in Re Willmott. His Honour held that it was just and beneficial to determine the relevant question as the regulator mounted a "spirited case in favour of the term deposits being characterised as trust moneys for the benefit of betting clients" and resolution of the issue would enable the liquidators to complete their duties. 50 In Re Pasminco Ltd (subject to deed of company arrangement) and Oths; McCluskey and Anor v Pasminco Ltd (subject to deed of company arrangement) and Others (No 2) (2004) 49 ACSR 470; [2004] FCA 656 ("Re Pasminco Ltd"), Finkelstein J considered that the court's power to advise liquidators and administrators was comparable to, but possibly wider than, its power to advise trustees. Thus, in "an exceptional case" a court would "assist a liquidator or administrator in dealing with essentially commercial decisions" [at [9]]. 51 Finkelstein J noted that while the plaintiff administrators in Re Pasminco Ltd had added a large number of companies as defendants, they had not added various other parties who might be affected if the relief sought were granted. 52 While such potentially affected parties had notice of the proceeding and an opportunity to be heard (which they ultimately took up), Finkelstein J doubted whether the relevant companies would be bound by "this judgment or precluded in other litigation from re-agitating lost points" (at [18]). 53 Therefore, his Honour concluded (at [18]) that the relevant companies: …should be made parties to the application (which at my direction has been recast as an originating process) so that there can be no doubt about the binding effect of these reasons for judgment and of any orders made. 54 His Honour also considered that a representative order was appropriate in order to ensure that all creditors were bound. 55 More recently, in John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; [2010] HCA 19 ("John Alexander's Clubs"), the High Court allowed the appeal of the mortgagee of a landowner that was held, in a proceeding to which the mortgagee was not joined as a party, to hold its interest on a constructive trust. The High Court held that the mortgagee was directly affected by the declaration of a constructive trust and accepted (at [131]) that "where a court is invited to make or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined." 56 The High Court did not consider that a separate proceeding was the appropriate means of addressing a failure to join an affected person. It accepted (at [137]), as "correct" the general proposition that: … if a court makes an order affecting a person who should have been joined as a necessary party, while the order will not be a nullity, that person is entitled to have the order set aside, and is not limited merely to seeking the favourable exercise of a discretion, whether or not the person in question becomes a party. 57 Further, the High Court did not accept that the mortgagee was estopped from attacking the order made prior to its joinder because although aware of the first proceeding, it had delayed applying to be joined. 58 In the present case, the parties submitted, broadly speaking, on the basis of Willmott, that where: (a) all potentially affected persons had been notified and afforded the opportunity to put their case; (b) no objection was raised; (c) it would assist the liquidators to proceed with the winding up; and (d) there was an urgent need to deal with the assets of the company, neither joinder nor a separate inter partes proceeding was necessary. 59 While recent authority indicates that the Court is empowered under s 511 of the Act to give directions which may affect the substantive rights of third parties and should in some circumstances exercise that power without joining the affected parties, such action, while otherwise expedient particularly in urgent situations, may not accord with the principles stated in John Alexander's Clubs. Uncertainty may attend the binding effect of the relief granted. In the present case, for the avoidance of doubt, particularly as it involved no significant additional effort, delay or expense, the proceeding (which did not require pleadings or discovery) was reconstituted as an inter partes application, the competing claimants were joined as defendants and an appropriate representative order was made.

Evidence of Rachel Burdett-Baker 60 Ms Burdett-Baker, who is a registered liquidator and partner in the firm of BDO Australia with extensive experience in insolvency and business restructuring, deposed that on 23 April 2013, she and Luke Targett were appointed joint and several administrators of four related AFS companies comprising the parent, AFS Group, and three subsidiaries, Services, Strategy Portfolio Limited ("Portfolio") and MDA Private Pty Ltd ("MDA"). 61 Prior to the administrators' appointment, AFS Group and Services provided licensing and dealer group services to a number of financial advisory practices. Services held a Financial Services Licence No 297239 ("the Licence") under which, when the administration commenced, approximately 137 individual advisers operated as authorised representatives providing financial advice to clients. 62 The AFS Group held a number of accounts with the first defendant, including the Brokerage Account. Under a Business Letter of Offer dated 27 August 2007, the first defendant granted AFS Group a facility which was secured by a debenture dated 8 April 2006 creating a fixed and floating charge over the assets of Services. 63 On 15 April 2013, Services applied to the Australian Securities and Investment Commission to cancel the Licence. The Licence was cancelled on 2 May 2013. About 121 of the authorised representatives were then "released" or began operating under a different licence. 64 On 19 April 2013, the first defendant served a Notice of Default and Demand on AFS Group terminating the facility and rendering immediately due and payable the total debt of over $8 million. 65 Following the administrators' appointment, the first defendant set off credits in all accounts held by AFS Group with the first defendant save for the Brokerage Account. 66 A number of authorised representatives contacted the administrators asserting that the moneys in the Brokerage Account represented their fees and commissions which AFS Group held on trust for them. 67 The first defendant asserted that the AFS Group and the authorised representatives had only a creditor-debtor relationship and the moneys in the Brokerage Account were consequently AFS Group's assets against which the first defendant could set off its claims. 68 The plaintiff administrators were unable to determine the status of the money in the Brokerage Account. The plaintiffs and the first defendant agreed that the Brokerage Account should be frozen pending the outcome of an application to the court.

Evidence of Alan Logan, Peter Daly and Anthony Grant 69 Alan Logan, the Chief Executive Officer of AFS Group, deposed that Services, which held the Licence, was a wholly owned subsidiary of AFS Group. Services authorised the financial advisory practices in its network to act as authorised representatives to provide financial services under the Licence. 70 Mr Logan's understanding of the Brokerage Account was as follows: 8. I am aware that AFS Group had a bank account that was described as the Brokerage Account. Commissions paid by fund managers for business conducted by financial advisors operating as Australian Financial Services' Authorised Representatives would be paid into that account, from which we would deduct fees and expenses before paying the commission on to the relevant advisors. … 9.1 the Brokerage Account was not formally described as a trust account, but in practice it was a trust fund for the commissions that were received from the fund managers. 9.2. a formal trust account was not opened because, when Australian Financial Services originally obtained its AFS Licence, opening a trust account would have caused some problem under the AFS Licence. 10. I believed that the commissions and other amounts generated by advisor activity that were held in the Brokerage Account were held on trust because it is my understanding that the legislation applicable to financial planners requires a Licensee, rather than an individual advisor [sic], to receive upfront and trailing commissions from fund managers and insurance companies, so that fund managers and insurance companies are compelled to pay the Licensee and entrust them to pass the funds onto the advisor [sic] who has earned those funds in their capacity as authorised representatives of the Licensee. 71 Mr Logan deposed that AFS Group's financial documents identified as cash flow only the fee clip commission to which AFS Group was entitled, rather than the full amount in the Brokerage Account. 72 Mr Logan deposed that he assumed that the first defendant would treat the Brokerage Account as a trust fund which he believed was common practice in the industry. 73 Mr Logan deposed to his numerous discussions prior to the administration with the first defendant, in particular with Jarrod Masters, a senior manager in the first defendant's credit area, about AFS Group's financial difficulties. During that time, the first defendant and AFS Group agreed to appoint Ferrier Hodgson to conduct an independent review. In his discussions with the first defendant, Mr Logan did not describe the Brokerage Account as an asset of AFS Group. Nor, however, did he describe it as a trust account. He did not specifically discuss its status with Mr Masters. Mr Logan deposed that neither the first defendant nor Ferrier Hodgson suggested that the funds in the Brokerage Account were available to the first defendant. 74 Mr Logan deposed: 15. … On several occasions with Mr Masters when discussing the likelihood of an eventual wind down of the AFS Group prior to administrators being appointed, I said that if the account holding the commissions were frozen, even for a short time, the financial planning industry would react badly because it would be seen to be preventing advisors accessing what we viewed as essentially the advisors' money within that account. My recollection is that Mr Masters said the Bank would be seeking to avoid that outcome, but he did not concede that the funds belonged to the advisors. 75 Peter Daly, the former Group Managing Director employed by AFS Group from April 2004 until May 2012, deposed that Mr Logan's account accorded with his understanding of the Brokerage Account during his tenure. 76 Mr Daly further deposed: 4. The Brokerage Account was in place prior to my becoming the CEO. 5. During the years that I was CEO/MD and a member of the Board it was my understanding, and I believe the understanding of the Board, that the Brokerage account was a trust account which held money that was the property of the Representatives of AFS Group. 6. In terms of meeting the operational, cash flow payments of AFS Group, the Board did not consider that the money held in that account was available to it. 7. Money was paid into the account by Product Providers. … Although typically the agreements pursuant to which money is paid into the account by product providers provide that the Product provider will pay money to the Dealer Group, Intermediary or distributor for distribution services it was understood by AFS that that money represented income of the advisers and was not income of AFS. The income was payable to AFS pursuant to clause 8 of the standard representatives agreement and AFS therefore had discretion to enter into arrangements to have product providers pay money to it. However, this money was always dealt with in the way set out in the representative agreement. This is common industry practice. 77 Mr Grant, the Chief Financial Officer and Company Secretary of AFS Group, exhibited Services' AFS Licence under s 913B of the Act to carry on a financial services business to provide financial product advice about, and to deal in, specified financial products. The Licence was subject to conditions, including some which related to the skills and training of natural persons who provided financial product advice to retail clients on the licensee's behalf. 78 Mr Grant deposed that Services entered into a standard form agreement ("Principal's Agreement") with principal advisory practices who conducted financial planning businesses. The Principal's Agreement entitled the representative to represent Services in relation to authorised products, which the representative could recommend to clients (defined in the Principal Agreement as "any person seeking or utilising or considering utilising or who has utilised or engaged the services of [Services] or any of its representatives or Associates in connection with [Services'] Business"). The representative was also granted authority to deal in the specified financial products. 79 The standard form Principal's Agreement defined "Representative Fees" as "the fees payable by the Representative to [Services], the amount and terms of payment of which is to be agreed between [Services] and the Representative and is attached as schedule A ….". 80 Clause 2.4 of the Principal's Agreement provided: 2.4 Scope of Appointment The Representative is authorised, subject to any limitations contained in [Services]'s Australian Financial Services licence and to any limitations imposed on the Representative by [Services] to: (a) prepare financial plans for Clients, provide Financial Planning Services, Financial Product Advice and related services and advice to Clients and to seek and place investments in Authorised Products for Clients; (b) provide such other Financial Planning Services as [Services] may approve in writing from time to time. 81 Clause 3.1 of the Principal's Agreement provided that the relationship between Services and the representative was that of "independent business contractors". 82 Clause 1.1 of the Principal's Agreement defined "Income" as follows: "Income" means income received from or in respect of Financial Planning Services, including initial commission, trail commission and fees received for services provided pursuant to this Agreement. 83 Clause 8 of the Principal's Agreement provided for the treatment of Income payable to the representative as follows: 8. FEES AND REMUNERATION 8.1 All Income payable to the Representative in respect of the provision of Financial Planning Services prior to the date of this Agreement is payable to [Services]. 8.2 All Income payable in respect of any Financial Planning Services provided by the Representatives during the term of this Agreement is payable to [Services]. 8.3 Within 15 days of receipt by [Services], [Services] will pay the Representative's share of the Income (less the Representative's Fees and any agreed deductions, reversals or adjustments) identified as having been received for or in respect of the provision of Financial Planning Services by the Representative to the credit of such bank account as is nominated in writing by the Representative to [Services] from time to time. 8.4 [Services] will provide a commission statement to the Representative not less often than bi-monthly detailing Income received pursuant to clause 8.2, in respect of the period since the Commencement Date or the date of the previous commission statement, whichever is later and also detailing any deductions, reversals or adjustments made in respect of that Income. 8.5 If the Income payable to the Representative in any period described in clause 8.4 is insufficient to cover the Representative Fees for that period, the shortfall represents a debt due by the Representative to [Services]. 8.6 If [Services] is required, for any reason, to refund or repay any Income received in respect of Financial Planning Services provided by the Representative, the amount of any such Income repayable which amount has already been paid to the Representative in accordance with clause 8.3 represents a debt due by the Representative to [Services]. 8.7 Any advances or overpayments made by [Services] to the Representative represent a debt due by the Representative to [Services]. 8.8 [Services] may set off any amounts from time to time due by the Representative to [Services], whether under this Agreement or otherwise, against the Income identified in accordance with clause 8.2 as having been received for or in respect of the provision of Financial Planning Services by the Representative and the Representative hereby charges in favour of [Services], all sums payable by [Services] to the Representative from time to time hereunder with the payment of all monies from time to time owing by the Representative to [Services]. 8.9 In the event of there being any dispute as to the representative to whom any Income is payable in accordance with clause 8.3, [Services] must, in its absolute discretion, determine the amount or amounts payable to each such representative and such determination is final and conclusive. 8.10 In the event [Services] is unable to determine to which representative any Income is payable, it is the responsibility of the representative to provide evidence to [Services] of its right to any such Income, failing which any Income which remains unallocated after a period of six (6) months will be retained by [Services]. 8.11 All payments made by [Services] to the Representative are gross payments without deduction for any taxes, duties or other imposts of any kind due or payable by either [Services] or the Representative. 8.12 In the event that any statutory or regulatory authority or body makes a lawful claim upon [Services] for any taxes, duties or other imposts (and without limiting the generality of the foregoing including pay as you earn tax instalment deductions, prescribed payment system withholding amounts, payroll tax, fringe benefits tax, tax file number withholding tax), in satisfaction of any such lawful claim [Services] may pay such amount to the claimant without admission of any liability or obligation to do so; and (a) such amount paid will then be deducted against any amount otherwise due to the Representative and only the balance due will then be payable to the Representative; (b) the Representative indemnifies and keeps indemnified [Services] in respect of all such taxes, duties or other imposts: and (c) [Services] may, at the request of the Representative made in writing, defend or commence any proceedings, objection, appeal, compromise or otherwise against the claimant for the taxes, duties or other imposts claimed and the Representative must indemnify [Services] for the costs of such actions by [Services]. 84 Clause 13 of the Principal's Agreement provided that on termination of the Principal's Agreement, Services would require clients to elect whether to nominate a different adviser (who may or may not be a Services' authorised representative) or to remain a client of the terminated representative, in which case Services would, broadly speaking, make the client's records and data available to the representative. 85 In default of an election, the client would remain a client of the terminated representative. However, by cl 13.5, Services would be obliged to make relevant client information available to the representative, only if, inter alia, no money was owing to Services by the representative. By cl 13.6, any trail income or future commission in respect of the client accrued (on the fulfilment of specified conditions) to the new licensee, of which the representative became a representative. 86 Mr Grant also deposed to Services' standard agreement with individual employees of the principal advisory practices whom it "sub-authorised" to provide financial advice under the Licence. 87 The terms of the standard employee agreements largely replicated those of the Principal's Agreement but provided for "fees and remuneration" as follows: 7 FEES AND REMUNERATION 7.1 All remuneration payable to the Representatives arises from the Contract for Services with the Principal, and is to be paid by the Principal. [Services] will not be responsible for any payments of remuneration or otherwise to the Representative. 88 Mr Grant deposed that he believed that all advisers since about 2005 entered such standard agreements. 89 It was common ground that Services also entered into agreements with product issuers such as fund managers and insurance companies. The product issuer agreements provided, among other things, for the payment of commissions by the product issuers. 90 A number of the product issuer agreements were exhibited to Ms Burdett-Baker's second affidavit. There was no suggestion that the exhibited product issuer agreements were in any way unrepresentative. 91 An illustrative product issuers agreement dated 14 July 2009 between the responsible entity of the registered managed investment scheme ("L") and Services ("the L Product Issuers Agreement") recited that Services held an Australian Financial Services licence containing the authorisations necessary for Services to enter into and perform its obligations under the L Product Issuers Agreement. It further recited that the responsible entity of L authorised Services to distribute the scheme which Services agreed to distribute to its clients on the specified terms. 92 The L Product Issuers Agreement set out the following relevant definitions: Authorised Representative means a person authorised in accordance with sections 916A and 916B of the Corporations Act to provide financial services on behalf of [Services]. Client means a person who [Services] introduces to [L] under this agreement who subsequently becomes a Client of the Scheme. 93 The L Product Issuers Agreement provided for the payment of fees to Services as follows: 7. [SERVICES'] FEES (a) [L] will pay [Services] the applicable Adviser Service Fee to the bank account specified in item 3 of Schedule 1 of this Agreement within 10 Business Days of the last day of each month. (b) Except where an existing Client notifies [L] that they wish to be designated as a Client of [Services] (in which case the Client may advise [L] of the Adviser Service Fee), [Service's] entitlement to an Adviser Service Fee does not arise until: (i) [Services] sends to [L]in respect of a Client, a completed and signed Application Form, which specifies the agreed Adviser Service Fee between [Services] and Client and such Adviser Service Fee does not exceed the amount specified in item 2 of Schedule 1 of this Agreement; (ii) [Services] sends [L]in respect of a Client, any other form and/or documentation required to be completed and signed before interests will be issued under the PDS; and (iii) [L] has established an Account in respect of a Client. (c) [L] retains the right not to treat the Client Account of a Client if it has reasonable grounds to believe that the Client was not genuinely introduced to the Scheme by [Services]. (d) [Services] is responsible for paying any applicable fees to their advisers, employees and agents. (e) [Services] shall be entitled to continued to receive the ongoing portion of their Adviser Service Fee for so long as their Client remains a part of the Scheme and for so long as [Services] is the Financial Planner and authorised representative on record in the Scheme. 94 The additional exhibited product issuer agreements, while not in identical terms to the L Product Issuer Agreement, consistently provided that the product issuer would pay Services the relevant fee or commission for the recommendation or distribution of the product. No product issuer agreement stated or otherwise indicated that the product issuer or Services intended the funds paid to Services to be applied for the purpose of paying the authorised representatives. 95 Mr Grant deposed that AFS Group operated bank accounts with the first defendant, including: 1. the Brokerage Account; 2. the AFS Group Operating Accounts 1 and 2, which were used for day-to-day transactions; and 3. the AFS Investment Management Account, which was a high interest account holding funds over the long term. 96 Mr Grant deposed to the payment of funds into the Brokerage Account. Most payments were made by the product issuers (fund managers or insurance companies) who owed a commission because their "products" had been recommended to clients. 97 When product issuers paid commissions into the Brokerage Account, they also provided supporting documentation explaining how the commissions were calculated, including "the amount of the commission and the individual authorised representative to whom the commission was payable". 98 Mr Grant deposed that clients' fees for various services provided by the second defendant were also paid into the Brokerage Account. Such payments comprised about 10% of the total funds going through the Brokerage Account. It was not clear from Mr Grant's affidavit or any material in evidence whether the clients paid such fees directly to AFS Group (and into the Brokerage Account), whether the clients paid such fees directly to the authorised representatives, who then paid the fees into the Brokerage Account, whether payments were made by both clients and the authorised representatives or whether there was some other mechanism for the payment of fees for services. 99 Mr Grant deposed that sometimes the authorised representatives' fees for services were paid into an account with the Macquarie Bank in the name of Services. Each fund was for a single financial adviser who was the sole signatory. Although Services could "read" the relevant account, it could not access the funds. 100 Funds were also paid into the Brokerage Account by a fund administrator, Oasis Asset Management Ltd ("Oasis"), to which Portfolio (in which AFS Group has a 70% stake) provided services (representing both commissions for representative financial advisers and fees for Portfolio's marketing services to Oasis). Mr Grant deposed that the authorised representatives had no claim to the marketing fees. 101 Mr Grant deposed that AFS Group made deductions from the sums paid into the Brokerage Account, including for practice revenue fees, flat adviser fees and certain approved costs (such as software charges). 102 The payments to be made to the authorised representatives from the Brokerage Account were reconciled using "Dealer Management Software", which calculated what was due to each principal adviser practice and how the funds would be split between the individual advisers in the practice, with the necessary deductions for fees and expenses. Payments were made to the principal advisory practice rather than to individual advisers. 103 Mr Grant deposed that there was no mechanism to separate out the funds of particular authorised representatives within the Brokerage Account and no need to do so had ever arisen. 104 Mr Grant deposed that sometimes AFS Group advanced commission to an individual representative, but usually did so only if funds were owing to the person concerned. Exceptionally, even if there were no such funds, AFS Group made an advance (and charged an administration fee) if it anticipated that sufficient funds to cover the advance were likely to be paid in respect of the relevant representative. 105 Mr Grant deposed that AFS Group also claimed for itself the interest accruing from the Brokerage Account, as it would have been "impractical" to attribute the interest to authorised representatives. 106 Mr Grant deposed that in AFS Group's accounting treatment of the Brokerage Account, the cash was not treated as part of AFS Group's internal cash flow. The amounts received were not recorded as incoming receipts and the payments were not recorded as outgoing payments. On the other hand, in the balance sheet, the Brokerage Account was listed as an asset and the authorised representatives' commissions were treated as liabilities. 107 Mr Grant deposed that two administrators operated the Brokerage Account. While it was not designated a trust account, Mr Grant deposed that if he had been asked, he would have told authorised representatives that the funds in the Brokerage Account were "effectively" held on trust as payment for their work. It was, however, more efficient to pay fees and commissions into the Brokerage Account than for the authorised representatives directly to pay the fees they owed Services.

Evidence of Manasi Mishra 108 Manasi Mishra was employed by AFS Group as one of two administrators that operated the Brokerage Account, which she balanced daily, reconciling each payment of a commission from a product issuer with the particular authorised representative in respect of whom it had been made. 109 Ms Mishra deposed that she deducted from the commissions payable to each authorised representative practice, revenue fees, adviser fees and particular expenses relating to the authorised representative's practice. On occasion, she would give an authorised representative "a short term loan from the Brokerage Account, where AFS Group had confidence that the commission would soon be received". 110 Ms Mishra deposed that a colleague also deducted from the Brokerage Account income generated by Oasis and payable to Portfolio, and interest accruing on the Brokerage Account, which was transferred to AFS Group's other accounts. 111 Ms Mishra was responsible for explaining the commissions system to new authorised representatives. She stated: [24] When providing an induction to a new advisor [sic], I did not deal specifically with who the money in the Brokerage Account belonged to. My assumption was always that the Brokerage Account was simply a conduit for the advisors' money and that the money in that account belonged to the advisors. [25] My understanding of the Brokerage Account is that it is effectively the advisor's money, and that AFS Group was simply receiving that money for the advisors and charging them service fees and expenses. I believed this on the basis that the commissions were paid in reference to work that was being done by the advisers themselves, and that the administration of commission payments was part of the service that AFS Group offered to the advisers in its dealer network. I do not recall ever having explained this to an advisor as the question never arose. [26] I was never asked by any advisors whether AFS Group had a trust account in respect of their commissions.

Evidence of Leonard Boucher 112 Leonard Boucher is an accountant and a partner of TWB Chartered Accountants ("TWB"), which acted as the accountants and tax agents for the "AFS Group of companies" (which included AFS Group and Services) from 30 June 2006. In his affidavit, Mr Boucher did not consistently distinguish between the AFS companies, and AFS Group and Services. 113 Mr Boucher deposed that TWB was initially engaged as the auditors of the AFS companies. In 2006, it reviewed the AFS Group's goods and services tax ("GST") affairs after the AFS companies became aware that unremitted GST was accumulating in the Brokerage Account instead of being paid to the Australian Taxation Office. 114 Mr Boucher prepared the AFS companies' tax returns and his partner, John Wheller, was their auditor prior to the liquidation. 115 Mr Boucher deposed that product issuers paid money into the Brokerage Account as commission and fees after authorised representatives had recommended their products to clients and provided financial planning advice. "AFS Group Ltd" took an amount as service costs and a proportion of the commission, which it paid into its operational bank account. Mr Boucher deposed that typically, the "AFS Group" (which he defined as the "AFS group of companies") retained about 10% of the amount received as commission and deducted additional services costs from the authorised representatives' share of the full amount received. "AFS Group Ltd" then paid the remainder (that is, about 90% of the total commission received, less the service costs) to the relevant authorised representatives. 116 Mr Boucher deposed that the AFS group of companies paid its deductions in to the operational bank account and paid commissions to the authorised representatives twice a month. 117 The AFS group of companies typically received a "Recipient-Created Tax Invoice" for the full amount the product issuers paid into the Brokerage Account. Mr Boucher deposed that the authorised representatives provided recipient created tax invoices recording the payment to them of a net amount, after the deduction of the AFS group of companies' share of the commission. The authorised representatives were thus not obliged to prepare tax invoices as suppliers of services to the AFS group of companies. 118 Mr Boucher deposed: 10. The entire amount of commission that was received into the Brokerage Account was treated as income of AFS Group Ltd for the purposes of preparing income tax returns. The payment of commission by AFS Group Ltd to the authorised representatives was an expense for tax purposes. In other words, AFS Group's income for tax purposes included the gross commission income received from the product issuers, not just the amount retained by AFS Group. 11. For GST purposes, GST was included in the amount paid to AFS Group by the product issuers, and also the amount which AFS Group paid on to its authorised representatives. The payment of commission from AFS Group to its authorised representatives was treated as payment for an acquisition by AFS Group. 119 Mr Boucher further deposed: 12. When we commenced the assignment at AFS we considered the treatment of the Brokerage account transactions in the audited accounts of AFS Group. Based on our review, reference to the agreement authorised representatives were obliged to comply with and discussions with senior accounting staff at AFS we treated the gross amount as income in the audited published accounts. The treatment of the gross amount was continued into the income tax return. Income tax returns were approved by AFS Group staff prior to lodgement. 13. I was never specifically instructed by the AFS Group that the commission amounts were held on trust, or that they were not held on trust. However, nothing in the information provided to me by the AFS Group, including copies of the agreements between Australian Financial Services Ltd and its authorised representatives, indicated to me that the commission payments received were held on trust for the authorised representatives.

Evidence of Owen Cook 120 Owen Cook is a financial planner who is a managing partner of B. Williams Pty Ltd, which was a corporate authorised representative of Services from 2 May 2008 until 28 March 2013, and a director of Ifinancial Corporate Pty Ltd (or I Financial Pty Ltd), which was a corporate authorised representative of Services from 21 October 2009 until 28 March 2013. 121 Mr Cook deposed that in 2008, Mr Daly, then the Chief Executive Officer of AFS Group, told him that "as an authorised representative of [Services] we would retain client ownership and ownership of the commissions and brokerage". Mr Cook deposed that "[w]e were required by the Authorised Representatives Agreement to pay all income to [Services]". 122 Mr Cook deposed that it was nevertheless explained to him that "ownership of the income was retained by the authorised representatives" and that the Authorised Representative Compliance & Procedures Manual issued to authorised representatives stated at paragraph 1.4 that: [Services] receives its remuneration by way of regular fee paid by its Authorised Representatives for the provision of support services and brokerage administration. 100% of all income earned by each Authorised Representative whether their income is generated via brokerage or fee for services is retained by the Authorised Representative. This means that [Services] will administer and collect all brokerage and then forward these funds to the Authorised Representative, after deducting the agreed amount for support services… 123 Mr Cook deposed that the authorised representative had to provide Services with approval to enable it to issue a Recipient Created Tax Invoice form on its behalf. 124 Mr Cook also noted that both his businesses became corporate authorised representatives of a new licence holder. Under a New Dealer Deed between Services and the new licence holder, Services agreed to transfer to the new licence holder all the authorised representatives' commissions.

Evidence of Paul Ellenberg 125 Paul Ellenberg is a financial adviser and a director of Eclipse Network Pty Ltd ("Eclipse"), which was a corporate authorised representative of Services from 13 September 2007 until Services ceased to hold a licence. 126 Mr Ellenberg deposed that income earned by Eclipse was paid to Services pursuant to the terms of the Authorised Representative Agreement. 127 Mr Ellenberg deposed that Eclipse granted a fixed and floating charge over all its present and future assets and undertaking to secure a loan from Westpac Banking Corporation under a tripartite deed to which Services was party, which included a charge over all remuneration and servicing rights in the "Borrower's Client lists", as defined in the Representative Agreement. 128 Mr Ellenberg deposed that he always considered that money in the Brokerage Account was his income and an asset of his business, rather than an asset of Services.

Evidence of Paul Chalmers 129 Paul Chalmers is a financial adviser and a director of Chalmers Financial Pty Ltd. Wealth Management Solutions Pty Ltd, which was a corporate authorised representative of Services from September 2009 until 19 May 2013. 130 Mr Chalmers deposed that when he was introduced to Services in September 2009, Mr Grant told him that "our revenue was to pass through the [Services] account but that the money remained the property of the advisers". 131 Mr Grant informed Mr Chalmers that the money would be passed on to the authorised representatives who had earned it no later than 15 days after being received. Mr Grant also explained that the authorised representatives' revenue collection account was necessary in order for Services "to account for adviser transactional and fee revenue and for [Services] to transparently monitor adviser income to facilitate accurate percentage based fee collection for [Services] which was deducted before passing on the adviser income on [sic] twice a month". 132 Mr Chalmers deposed that he believed that the money was held in trust for authorised representatives.

Evidence of Jacob Aaslund 133 Jacob Aaslund, a financial adviser who was an authorised representative of Services from 20 February 2009 until 17 April 2013, deposed on behalf of himself and Cameron Smith (another former authorised representative of Services) that they always received "the full amount of any fees and/or brokerage, less our Adviser fees charged by [Services]." He deposed that "[t]hese commissions were received twice a month". 134 Mr Aaslund deposed that "[t]he income stream … belonged and belongs to us and not to [Services]" and was now being paid into a different account with a new licensee. 135 Mr Aaslund deposed that the authorised representatives took comfort from the confirmation during meetings on 31 January 2013 and 13 and 14 February 2013 with members of Services' management, including Mr Logan, that creditors of Services did not have security over the money in the Brokerage Account.

Evidence of Nicholas Moschakis 136 Nicholas Moschakis is a financial planner and director of Wealth Management Solutions Pty Ltd, who was an authorised representative of Services from 1 July 2008 until 23 April 2013. 137 Mr Moschakis deposed that upon the cancellation of Services' Licence he became an authorised representative of another organisation. The revenue that he previously received from clients for investment, insurance, investment platform brokerage and commissions was now paid to him "via [his] new dealer group". When he had changed dealers in the past, the revenue stream had moved with him. 138 Mr Moschakis stated that "[w]e do not consider ourselves as being unsecured creditors of [Services] as we did not provide services to [Services]. On the contrary, [Services] provided services to us", those services being the provision of the dealer's licence, software assistance, compliance advice, business development assistance, coordination of professional development training and revenue collection and distribution.

Evidence of Kenneth Bailey 139 Kenneth Bailey, the second defendant, is a financial planner with RI Advice and was an authorised representative of Services from around 1998 until 30 April 2013. He was also a director of Services from about 2002 until the board appointed administrators on 23 April 2013. 140 Mr Bailey deposed that on being informed by Mr Logan that the administrators were unsure of how to treat the money in the Brokerage Account he, as an affected authorised representative, contacted a number of former authorised representatives of Services to obtain their consent to obtaining legal advice. Mr Bailey played a co-ordinating role in retaining legal representation for the authorised representatives. 141 Mr Bailey deposed that he informed all advisers on his list that the court might determine the substantive rights to money in the Brokerage Account and advised them that they could file affidavits in the proceeding. 142 Mr Bailey deposed that when Services restructured in 2006 it required all existing and new advisers to enter new agreements. According to his understanding, the income payable to Services under cl 8 of the Agreement was not the income of Services. Rather, it was money from which Services could deduct a fee for its services, but must then forward to the authorised representatives. 143 Mr Bailey deposed that it was a common practice in the industry to pay the income of authorised representatives to the licensee and the income stream would follow them if they acquired a new licensee. 144 Mr Bailey deposed that based on his communications with "the company" and Services' officers and senior management, and as a former board member, both the board of Services and the authorised representatives considered that the money in the Brokerage Account belonged to the authorised representatives and "at no time did it belong to [Services], except for the contractual right to withhold the Representative Fee". 145 Mr Bailey recalled that the chairman of Services' board, Barry Stephen, made comments to that effect, including most recently at a meeting on 13 and 14 October 2012.

the plaintiffs' submissions 146 The plaintiffs did not advance a position in relation to the status of the funds in the Brokerage Account.

the second defendant's submissions 147 The submissions of the second defendant shifted somewhat. Initially, he principally asserted a Quistclose (or resulting) trust on the ground that the money in the Brokerage Account was the authorised representatives' "Income" derived from the conduct of their business, which they merely directed to be paid to Services pursuant to cl 8 of the Principal's Agreement. 148 The second defendant also alleged a Quistclose trust on the ground that the purpose of paying Services was to pay the authorised representatives their share of the Income (less the fees and any other agreed deductions, reversals or adjustments) which purpose wholly failed when Services' Licence was cancelled and administrators were appointed. 149 The second defendant submitted, in that context, that the direct payment of funds to the licensee was apparently dictated by administrative problems associated with opening a trust account under the Licence. 150 The second defendant further submitted that the charging in cl 8.8 of the Principal's Agreement of all sums payable thereunder by Services to the authorised representatives (with the payment of all moneys the authorised representatives owed to Services in any capacity) necessarily recognised their beneficial interest in moneys in the Brokerage Account. 151 The second defendant submitted that an objective intention that the money should not become an asset of Services was evidenced by the following circumstances: a. it is anticipated that the relevant fund managers and other product issuers will cease paying commission, including any trailing commissions from advice transacted under the AFSL Licence, to [Services] or otherwise into the Brokerage Account and will most likely commence paying those future trailing commissions to the advisor's new licensee. b. The evidence of the company's former officers and accounts staff is that the money was held in trust, or in quasi trust for the Representatives. This [sic] is no evidence of any other intention of the parties. c. The money was not treated by [Services] as money which it was entitled to spend. Amounts payable to [Services] from the account was [sic] transferred from the brokerage account into [Services]'s operating account. [citations omitted] 152 The second defendant submitted that the subject matter of the trust was easily identifiable "because the Brokerage account was set up specifically to hold only income from the representatives' activities. The means exists whereby each Representatives [sic] entitlement can be calculated". Further, the trust was "for the benefit [of] identifiable persons, namely, the authorised representatives of [Services]" so its object was also certain. 153 Following the amendment of the originating process the second defendant filed a number of affidavits and further written submissions which (alternatively to a Quistclose trust based on payments to Services for purposes that had wholly failed) asserted an express trust by declaration or transfer. 154 The second defendant alleged that the evidence established that Services made a declaration of trust in favour of the authorised representatives constituted by the words and conduct of its directors and officers. 155 Further or alternatively, the second defendant alleged that a trust by transfer arose when Services transferred the money or the right to receive it to AFS Group on trust to deal with it as set out in the Principal's Agreement. Alternatively, Services arranged for payment of the moneys into the Brokerage Account, to be held on trust for the authorised representatives. 156 The second defendant principally relied, in that context, on evidence that the companies' officers explained to the authorised representatives that the money would remain their property and believed that Services was merely a conduit for the funds. 157 The second defendant also submitted that a trust was evidenced because the money in the Brokerage Account: a. … was considered an asset of the representatives' businesses that came with them when they joined [Services] and followed them when they departed; b. … was paid into the brokerage account even when the representative had bought the income from another business; c. … was charged as security by [Services] in respect of moneys that might be owing from time to time by the representatives to [Services]; d. … was charged as security by the representatives, with the consent of [Services], in circumstances where the representatives borrowed from a third party; e. … [was derived from] the representatives['] provision of advice and dealing; f. … was not considered to be 'available' to [Services] in the conduct of its business. [footnotes omitted] 158 The second defendant submitted that irrespective of the terms of the product issuers agreements, a trust arrangement between Services and the authorised advisers was not excluded. Ultimately, formal characterisation of the trust was irrelevant because the evidence established a common intention that the beneficial interest in the funds remained with the authorised representatives rather than Services. The second defendant submitted that while Services paid income tax on the revenue and treated the payments to authorised representatives as a tax deduction, the accounting treatment was a distraction from the direct evidence of intention to create a trust.

THE FIRST DEFENDANT'S SUBMISSIONS 159 The first defendant submitted that the weight of the facts and circumstances (including the documentation, contractual transaction and the treatment of the funds in the Brokerage Account) excluded any intention to hold funds in the Brokerage Account on trust for the authorised representatives. 160 The first defendant submitted that the intention to create a trust must be based on the available evidence of acts and declarations which were broadly contemporaneous with the creation of the alleged trust. Subsequent declarations were admissible only as admissions against interest. 161 The first defendant submitted that in this case, the subsequent evidence of the relevant officers and authorised representatives about their belief or understanding was, in any event, subordinate to the documents governing the relationship between Services and the authorised representatives and the way in which the commissions and fees were treated in practice.

CONSIDERATION 162 In my opinion, the evidence before the Court does not establish that the funds in the Brokerage Account are wholly or in part the beneficial property of the authorised representatives of Services or held by AFS Group on a resulting, Quistclose, conventional express or other species of trust in their favour. 163 A Quistclose or resulting trust was not established. 164 It was undisputed that the authorised representatives and Services were in a debtor-creditor relationship pursuant to their contractual arrangements, but as recognised in the seminal case of Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 ("Quistclose"), the relationships of debtor-creditor and trustee-beneficiary can co-exist. 165 In Quistclose, a financier, Quistclose Investments Ltd, advanced a loan to a financially unstable company on condition that the funds were to be used only for the agreed purpose of paying a dividend the company had already declared. The money was paid into a special bank account opened, to the bank's knowledge, for that express purpose, to which the bank agreed. The company went into liquidation prior to the payment of the dividends. 166 The House of Lords held that Quistclose Investments Ltd was not merely an unsecured creditor and the moneys it had advanced did not form part of the general assets of the insolvent company. Accordingly, the bank was not entitled to set off the moneys in the designated account. 167 Lord Wilberforce (with whom Lords Morris of Broyth-y-Gest, Guest and Pearce agreed) relevantly stated (at 580-581): That arrangements of this character for the payment of a person's creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in series of cases over some 150 years. … There is surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose … when the purpose has been carried out (i.e., the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (i.e., repayment to the lender) has been agreed, expressly or by implication … 168 The reasoning in Quistclose has been applied in many subsequent cases. While Lord Wilberforce's reference to a primary and secondary trust perhaps suggested a novel species exempt from the usual preconditions of an express trust, Australian courts have analysed the Quistclose trust according to conventional principles as a single express trust in which the beneficial interest may be held subject to a power or mandate. Orthodox trust principles, albeit flexibly applicable to a great variety of facts, accordingly remain relevant: Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491; 102 ALR 681 ("Re Australian Elizabethan Theatre Trust"). 169 In Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liquidation) and Oths (1978) 141 CLR 335 at 353, Gibbs ACJ identified the ratio of Quistclose as follows: That case is authority for the proposition that where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust. 170 Quistclose trusts typically involve, but are not limited to, an advance of loan funds for a specific purpose, on the failure of which the lender retains a beneficial interest. The analysis has been applied to payments made in other capacities, such as that of purchaser, and the trust may, depending on the intention, be in favour of third parties rather than the payer. In Re Kayford Ltd (In Liquidation) [1975] 1 W.L.R. 279; 1 All E.R. 604 ("Re Kayford"), Megarry J held that customers' prepayments for goods they had ordered were held by the vendor on a Quistclose trust for the customers. The vendor company, which was of questionable solvency, had established a separate customers' trust deposit account into which it paid the customers' prepayments for ordered goods prior to delivery, with the object of refunding the prepayments if the company were wound up. 171 Megarry J held that, given the intention before its receipt to hold the prepayment money on trust for the prepaying customers at the time of its receipt, it was not the company's beneficially owned asset available for distribution to its unsecured creditors. 172 Megarry J acknowledged that there were "loose ends", as the company merely reactivated a dormant account instead of opening a new one (which it did not initially designate a trust account) and at first gave the bank only oral instructions. Megarry J nevertheless found the necessary intention to create a trust. As the moneys were personalty, writing was not essential and the three requisite certainties (subject matter, beneficiaries and words) were established. It was unnecessary for customers to advance their money on the faith of a promise to keep it in a separate account, where ([1975] 1 W.L.R. 279 at 282): … [t]he whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is an obvious means of achieving this. 173 Megarry J noted that although persons advancing moneys to a company to purchase goods not yet delivered were normally merely creditors, a trust could be created by the sender's use of appropriate words when advancing the money or by the company taking suitable steps on or before receiving the money. In either case, the obligations would be "transformed from contract to property, from debt to trust" ([1975] 1 W.L.R. 279 at 282). Megarry J observed that payment into a separate bank account was a useful but by no means conclusive indication of an intention to create a trust, although a company could bind itself by a trust even in the absence of effective banking arrangements ([1975] 1 W.L.R. 279 at 282). 174 In Compass Resources Ltd v Sherman (2010) 42 WAR 1; [2010] WASC 41 ("Compass"), Beech J conveniently summarised the relevant principles and case law on Quistclose trusts as follows (at (2010) 42 WAR 1, 10-11): …. In my opinion, the test of the necessary intention is the composite test stated in the cases to which I have referred. Is it intended that the monies not become part of the general assets of the company and be used only for the particular purpose? It is not sufficient, in order to establish a trust, to show that the parties intended that the moneys be used only for a particular purpose. Not every contractual obligation to use loan funds for a specified purpose gives rise to a trust of the moneys lent. That seems to me to be supported by the authorities to which I have referred. See also Re Global Finance Group Pty Ltd (in liq); Ex parte Read [2002] WASC 63; (2002) 26 WAR 385 at [167]. Further, as a matter of principle, an express or inferred trust is founded upon an intention that the beneficial interest not lie in the legal owner of the trust property. In determining the question of intention the court will have regard to the language employed by the parties, including in the particular clause in question, the nature of the transaction, and the circumstances surrounding the relationship: Walker v Corboy (at 397); Re Australian Elizabethan Theatre Trust (at 502-503); Peter Cox [Investments Pty Ltd (In liq) v International Air Transport Association (1999) 161 ALR 105 ("Peter Cox")] (at [35]-[39]); Re Global [Finance Group Pty Ltd (In liq); Ex parte Read (2002) 26 WAR 385 ("Re Global")] (at [167]); Jessup [v Queensland Housing Commission [2002] 2 Qd R 270 ("Jessup")] (at [6]); Salvo [v New Tel Ltd [2005] NSWCA 281 ("Salvo")] (at [33]-[34]). Whether there is expressed a requirement that the funds be kept separate from other moneys of the borrower is a significant consideration in determining the question of intention: Walker v Corboy [(1990) 19 NSWLR 382] (at 397-398) the "most powerful indicium"; Re Australian Elizabethan Theatre Trust (at 505-506) "of considerable significance"; Jessup (at [12]); Salvo (at [38]) "indicative but not conclusive" (at [65]); McManus RE Pty Ltd v Ward (2009) 74 NSWLR 662 at [25] "often decisive". The search is for an intention (or not) that monies paid to the borrower not become part of the borrower's assets. In that light, it seems to me to make sense that an intention (or not) that the funds be kept separate and not mixed with the borrower's general funds is of considerable significance. It is clear that, notwithstanding the references in some of the cases to "purpose", a Quistclose trust is not a distinct species of trust. It must satisfy the ordinary requirements for any private trust: Re Australian Elizabethan Theatre Trust (at 502); Re Global (at [166]); Twinsectra [Ltd v Yardley [2002] 2 AC 164] (at [89]); Salvo [37]; Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed, 2006) at [215]-[216]. Moneys lent under a Quistclose trust may be held on trust for the lender, or on trust for third parties who benefit from the specified purpose for which the loan funds are to be used. That will depend upon the intention revealed, in the light of all the facts: Heydon JD and Leeming MJ, Jacobs' Laws of Trusts in Australia (7th ed, 2006) at [215]-[216]. In Re Australian Elizabethan Theatre Trust (at 503) Gummow J stated that if the facts disclosed no contractual obligation by the borrower to the lender to pay the creditors there cannot be an intention to create a trust in favour of the borrower's creditors. Instead, the borrower would hold the monies borrowed as trustee of an express trust for the lender, subject to a mandate for the lender to use the funds to pay the creditors. On that footing, there is one trust created to give the lender security for its rescue operation of the financially unhealthy borrower, but not to render the creditor's beneficiaries under any trust. That passage was applied by the Queensland Court of Appeal in Quince v Varga (at [39]-[40]). In Re Australian Elizabethan Theatre Trust (at 503) Gummow J also referred with apparent approval to the suggestions by Mr P J Millett QC (as his Lordship then was) in "The Quistclose Trust: Who Can Enforce It" (1985) 101 Law Quarterly Review 268 at 290-291, and to the adoption of those suggestions by the New Zealand Court of Appeal in General Communications Ltd v Development Finance Corporation of New Zealand Ltd [1990] 3 NZLR 406 at 430-433. In Twinsectra, Lord Millett analysed the nature of a Quistclose trust, and the location of the beneficial interest, in some detail (at [77]-[100]). On Lord Millett's analysis, the beneficial interest remains with the lender, subject only to the borrower's power or duty to apply the money in accordance with the lender's instructions (at [100]). There is no general reluctance to infer an intention to create a trust, including in favour of third parties: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618; Commonwealth v Booker International Pty Ltd [2002] NSWSC 292 [34]-[45]; Salvo (at [33]). A court will recognise the existence of a trust whenever it appears from the language of the (relevant) party or parties, construed in its context in the surrounding circumstances, that the parties so intended. 175 A Quistclose or resulting trust depends on the intentions of the parties involved, which are to be ascertained objectively from all the facts and circumstances, including the documents, the language used, the nature of the transaction and the parties' relationship. The trust need not be expressly designated as such, and its existence can be inferred. 176 In the present case, the funds in the Brokerage Account could be held on a Quistclose (or resulting) trust if the payers advanced them to Services (or AFS Group) with the mutual intention that they should not become part of the general assets of Services (or AFS Group) but were instead to be applied exclusively for the specific purpose of paying the authorised representatives' commissions. 177 It is first necessary to identify the payers of the relevant funds into the Brokerage Account. The second defendant initially contended prior to payment in to the Brokerage Account that the funds were the property of the authorised representatives, who directed their payment into the Brokerage Account so that fees could be deducted and the balance paid to them. 178 The evidence established, however, that approximately 90% of the relevant funds were commissions which were not advanced by the authorised representatives or at their direction. Rather, product issuers advanced their beneficially owned funds to (or at the direction) of Services pursuant to product issuer's agreements, in satisfaction of their contractual liability to Services. The authorised representatives were not party to the product issuers agreements and there is no basis on which to conclude that the authorised representatives had, thereunder, a beneficial interest in the relevant funds at the time of payment. 179 Further, the product issuers' agreements recognised no liability on the part of the product issuers to Services' authorised representatives. (The majority of the product issuers' agreements in evidence did not refer to the payment of Services' employees, agents or representatives, although one expressly provided that Services was solely responsible). The product issuers' agreements expressed no intention on the part of either the product issuers or Services that the funds advanced by the product issuers should not form part of Services' general assets, should be applied exclusively for the purpose of paying the authorised representatives' commissions or were subject to any other restriction or condition on use. 180 The balance of approximately 10% of the funds in the Brokerage Account were not paid as commissions but in respect of fees for services the authorised representatives provided to clients. The evidence did not, however, disclose the identity of the persons who paid such moneys, or the terms, accompanying intentions or purposes on which they did so. 181 In summary, the authorised representatives did not establish that they paid or directed the payment of funds in which they had an interest into the Brokerage Account nor that any party paid in funds (intending mutually with Services or AFS Group) that they be held for, or on-paid to, the authorised representatives, rather than constitute general assets of Services. 182 Accordingly, as counsel for the second defendant seemed ultimately to concede, the case for a Quistclose (or resulting) trust failed at the first hurdle. 183 The failure to establish a Quistclose trust did not, however, exclude the existence of a trust on some other basis. The second defendant alternatively alleged an express or inferred trust by declaration or transfer based on the words and conduct of the officers of the AFS companies or a trust of undesignated character based on the mutual intentions of the companies and the authorised representatives. 184 It is necessary, in that context, to consider all of the evidence, including the language used by the parties, the relevant contractual documents and the particular clauses, the nature of the transactions between the parties, the circumstances surrounding the relationship and the treatment of the funds in the Brokerage Account in practice. 185 There was no trust deed and no express declaration of trust by Services, AFS Group or any other party. It was, as the first defendant submitted, somewhat uncertain whether the alleged trustee was Services (as the party contracting with the authorised representatives), AFS Group (as the holder of the Brokerage Account) or both companies. The relevant funds were not paid into or held in an account designated a trust account or into a separate account. Rather, they were held in an account mixed with other funds to which the authorised representatives had, on any view, no claim. Such other funds included amounts due to Services and/or AFS Group and another entity, Portfolio. 186 While several deponents suggested that administrative or statutory problems precluded the establishment of a "formal" trust account, no statutory obstacle to the maintenance of a designated trust account in favour of the authorised representatives was identified. Nor did administrative difficulties uniformly or absolutely preclude the establishment of separate accounts. AFS Group maintained separate "cash management accounts", previously designated trust accounts, with the Macquarie Bank, into which fees for service were sometimes paid. Such accounts, to which AFS Group had "read only" access, were set up for individual advisers. 187 There was, as Mr Grant deposed, no means of "segregat[ing] particular funds within the Brokerage Account as belonging to one adviser or another". 188 While Ms Misra deposed that she could (depending on the receipt of documentation and variables) calculate the amount due to an authorised representative at a particular time, any amount so ascertained was, under the Principal's Agreement, subject to retrospective adjustment for various contingencies, including the authorised representative's liability for any amounts Services was obliged to refund to other parties and the set off of liabilities owed to Services in other capacities. 189 There was no evidence of the circumstances of the creation of the Brokerage Account, although it was apparently long standing. Relevant authorities recognise that a separate account is a significant indicator that funds are not intended to form part of the account holder's general assets, the absence of which, while not conclusive, weighs against the existence of a trust in this case. 190 AFS Group retained all interest earned on the funds in the Brokerage Account for itself, which, while it accords with the terms of the Principal's Agreement, is inconsistent with the existence of a beneficial interest in the authorised representatives and (irrespective of the practical difficulties of any alternative course) with the duties of a trustee. 191 Further, although the board of AFS Group did not consider that the funds in the Brokerage Account were available for operational purposes, overall, the taxation and accounting treatment of the funds was inconsistent with a trust in favour of the authorised representatives. 192 The entire amount of the funds in the Brokerage Account was treated for tax purposes as income of AFS Group, which paid tax on it. The payments of commissions to authorised representatives was treated as an expense of AFS Group for tax purposes. The entire Brokerage Account was recorded as an asset of AFS Group in the balance sheet and the obligation to pay the authorised representatives was recorded as a liability. 193 Neither AFS Group nor Services instructed Mr Boucher, a principal of their accountants and tax agents, that the moneys were held on trust. After having discussed the accounts with relevant company officers and reviewing the documentation, Mr Boucher saw nothing to indicate that the moneys in the Brokerage Account were trust moneys. 194 Neither AFS Group nor Services at any stage instructed or informed its banker, the first defendant, that the moneys in the Brokerage Account were trust moneys, even when their status became a matter of significance. 195 There is no evidence that AFS Group, Services or any company officer at any time informed any authorised representative that the moneys (or part thereof) in the Brokerage Account would be held on trust for the authorised representatives, even when the treatment of their commissions was explained during induction. 196 The Principal's Agreement which (as was common ground) governed the relationship of Services and the authorised representatives, did not, when construed in context and as a whole, support the existence of a trust or fiduciary obligations in relation to the commissions paid to Services. The Principal's Agreement permits the authorised representatives to provide advice, to deal in products under Services' licence and to receive various forms of support from Services. While "Income" as defined is generated by the authorised representatives' activities pursuant to the Principal's Agreement, it is dependent on a licence and services provided by Services, which is entitled to a proportion of the income generated. 197 The Principal Agreement contemplates that both Services and the authorised representatives make contributions essential to the generation of the "Income", the disposition, treatment and allocation of which it deals with in detail. 198 The Principal's Agreement contemplates an arms length, albeit fair and ethical, commercial relationship between the parties. 199 The provisions in cl 8 of the Principal's Agreement for treatment of income generated by the activities of authorised representatives under Services' licence and with its support, read as a whole, do not indicate that the parties intended that funds paid by third party product issuers or clients to Services should not form part of Services' general assets but would constitute beneficial property of the authorised representatives which they directed to be paid to Services. 200 The authorised representatives were not, on any view, entitled to the entirety of such payments under the Principal's Agreement. Commissions, fees and payments were payable to Services and other costs and taxes were payable to third parties. The individual and total quantum of such deductions (and thus the balance (if any) due to the authorised representatives) could not be ascertained until a reconciliation by AFS Group or Services. 201 Contrary to the second defendant's submission, the reference in sub-cls 8.1 and 8.2 to "Income payable to the Representative" does not establish that the "Income" was beneficially that of the authorised representative, as cl 8.1 states that such "Income" is also "payable to" Services. The phrase "payable to" standing alone is ambiguous, as it is used twice in relation to different entities and hence does not unequivocally connote the existence of the alleged beneficial interest. 202 The balance of cl 8 makes clear that the "Income" is in fact to be paid to and received by Services, which must then pay the authorised representative a share after the payment of fees due to Services and other agreed deductions, reversals or adjustments. 203 Clause 8 uses the language of debt. It provides that any shortfall in the amount an authorised representative owes Services (after calculation of the commission Services owes the representative) constitutes a debt due to Services. Should Services be required to refund to a third party any amount it has already paid to the authorised representative, the amount constitutes a debt of the authorised representative to Services. 204 Clause 8 does not specify that any funds are to be held on trust. It does not provide a mechanism for determining the precise proportion of the Income beneficially payable to the beneficiaries, place any restrictions or conditions on Services' treatment of the "Income" upon its receipt, specify that the funds must be kept in a separate bank account, subject to any particular safeguards or applied only for specific purposes. Nor does cl 8 provide that the "Income" will not form part of the general assets of Services. 205 Sub-clause 8.10 expressly provides that Services is entitled to any amounts that remain unallocated, which is inconsistent with the authorised representatives' alleged beneficial ownership of the funds. 206 While the second defendant submitted that sub-clause 8.8 in charging "Income" which is due to an authorised representative implicitly acknowledges the authorised representatives' beneficial interest in the funds in the Brokerage Account, sub-clause 8.8 states that "all sums payable by [Services] to the Representative from time to time hereunder" are charged, which is consistent with a charge on debts that were due to them under the Principal's Agreement. Moreover, Services' entitlement to a charge and its right to set off against other indebtedness are not consistent with holding the "Income" on trust. 207 While the drafting of cl 8 lacks clarity and contains potential ambiguities, when read as a whole and in the context of the Principal's Agreement, it contemplates a dynamic relationship of mutual debts and credits between the authorised representatives and Services, in which advances or overpayments made to the authorised representatives sound in debt. There is, in my opinion, no indication that "Income" as defined is, on receipt by Services (or its nominees), to be held subject to any trust or obligation in favour of the authorised representative or otherwise than in the character of Services' general assets. 208 That conclusion is fortified by the treatment of the "Income" in practice. The funds in the Brokerage Account were mixed with other funds. While there is evidence that the board did not regard the funds as cash flow available for operational matters, the entire amount was included in the balance sheet as an asset of AFS Group, while the amounts due to the authorised representatives were classed as liabilities. (There was no evidence of the terms on which Services directed payment of moneys to which it was entitled into the Brokerage Account (which was held by AFS Group) although the first defendant has a charge over Services' assets.) Advances were made, albeit rarely, to authorised representatives who had no current entitlement to be paid funds in the Brokerage Account. AFS Group retained the interest on the total amount in the account and any unallocated funds. 209 Mr Grant acknowledged that the Brokerage Account was never called a trust account and that there was no formal trust as it was apparently precluded by administrative or statutory obstacles. While Mr Grant deposed he always believed that the moneys in the Brokerage Account belonged to the authorised representatives (subject to the fees and other payments for which they were liable) and that if asked he "would have told them that the money was, in effect, held on trust", it is clear that Mr Grant never at any stage informed the authorised representatives, or indeed any other party, that the moneys in the Brokerage Account were held on trust for them. 210 Mr Logan never ascertained whether or not the Brokerage Account was a trust fund although he deposed that he believed that it was a trust fund "in practice". Mr Logan deposed that "nobody from the [first defendant] ever specifically suggested to me that the commissions held in the Brokerage Account were available to them". Mr Logan warned an officer of the first defendant that a freeze on the account would be resented in the industry but did not elicit an acknowledgement that the money belonged to the authorised representatives. Although the status of the funds was at that point clearly in controversy, Mr Logon "never specifically discussed" with the officer whether the Brokerage Account was a trust account. 211 Mr Daly, who was the Group's Managing Director for eight years, deposed that he understood the Brokerage Account to be a trust account holding money that was the property of the authorised representatives, which the board did not consider available to it. 212 Mr Daly deposed that when each of the four provider agreements in evidence were negotiated, Services understood that the money paid by the product issuers was not Services' income but that of the authorised representatives, although Services had a discretion to have the money paid to it and dealt with it as set out in the Principal's Agreement, as was common industry practice. 213 Ms Mishra deposed that she always assumed that the Brokerage Account was simply a conduit for money belonging to the authorised representatives, essentially because it was referable to their work. Nevertheless, while Ms Mishra conducted a two day induction of new authorised representatives to explain the system and commissions, she did not discuss the ownership of the money in the Brokerage Account, and never indicated that, or was asked whether, the commissions were held on trust. 214 Mr Bailey, who was both a director of Services and an authorised representative, deposed that based on all the communications from the company, the board considered that the money in the Brokerage Account belonged to the authorised representatives and not to Services (save for the contractual right to withhold fees). 215 The authorised representatives considered that the money in the Brokerage Account represented their income, belonged to them and could be charged as their property. 216 The relevant deponents thus largely asserted a belief that the moneys belonged to the authorised representatives rather than to Services and/or that the Brokerage Account was a mere conduit. Only Mr Daly's evidence was more precise, as he deposed that he and the Board believed that the Brokerage Account was a trust account and the moneys were not available for operational cash flow. Neither Mr Daly nor any other relevant deponent claimed legal expertise, however, and their generally expressed belief that the moneys belonged to the authorised representatives or were held on trust could not significantly illuminate the legal status of the moneys or outweigh the mutual legal rights and obligations created by the relevant documents and the treatment in practice of the funds in the Brokerage Account in accordance with those legal entitlements. 217 The evidence established that prior to the administration, the authorised representatives and relevant company officers viewed the former as entitled to the balance of the moneys in the Brokerage Account generated from a product issuer by their activities (after deduction of Services' fees, costs and perhaps set-off of other indebtedness). Such beliefs are, however, equally consistent with a merely contractual entitlement to be paid and beg the question whether the money was held on trust. The fact that the moneys were generated, at least in part, by a claimant's personal exertion does not ipso facto found a trust. 218 Despite the belief of relevant company officers and authorised representatives that the moneys belonged to the authorised representatives (and Mr Daly's belief that the board believed that the Brokerage Account was a trust account) there was no evidence that any party considered that the contractual entitlements of Services under the Principal Agreement were invalidated, were not exercised in practice, or that the treatment of the funds in accordance with the Principal's Agreement constituted a breach of trust or fiduciary duty. To the contrary, Mr Daly deposed that the money payable to Services under cl 8 of the Agreement "was always dealt with in the way set out in the [Principal's Agreement]", which was common practice. There was no evidence that any party believed that AFS Group did not, or was not entitled to: (a) deal with the funds in the Brokerage Account according to the contractual provisions; (b) maintain the funds in a mixed account, which was not designated a trust account; (c) include the funds and commissions received into the Brokerage Account as an asset of AFS Group in its balance sheet; (d) include the commissions owed to the authorised representatives as liabilities of AFS Group in its balance sheet; (e) take the interest on the total funds and unallocated amounts for itself; or (f) make unsecured advances from the fund. 219 In my opinion, on the totality of the evidence (including the contemporaneous documentation read in context, the treatment of the funds in the Brokerage Account in practice and the nature of the transaction and commercial relationship between the parties), the moneys in the Brokerage Account are not held on trust for the second defendant or any other authorised representatives or former authorised representatives whom he represents. I certify that the preceding two hundred and nineteen (219) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dodds-Streeton.