40 In my opinion, the relationship between Dexter and the investor who placed money with him under the new form of "Agreement for the Loan of Money" was that of creditor and debtor only. Accordingly, once an investor's funds were placed with Dexter under this new form of agreement, they became Dexter's own moneys and the investor thereafter had only contractual rights against Dexter in respect of payment of interest and repayment of the loan that are set out in the agreement.
41 I do not, however, accept the applicant's submission that the effect of the authority given to Dexter by each investor under the REC3 form of agreement when the investor at Dexter's request through an administrator such as Anscor switched to the new form of "Agreement for the Loan of Money" operated to destroy any trust that may have been imposed on Dexter upon receipt of investors' moneys under the REC3 agreement retrospectively, ie, to the date when moneys were first advanced by the investor to Dexter under the REC3 form of agreement. The authority signed by investors on switching from the REC3 form of agreement to the new "Agreement for the Loan of Money", in so far as it refers to the investor's existing contract becoming null and void upon Dexter's acceptance of the new contract, is capable of being read as operating to discharge the original REC3 form of agreement retrospectively from the outset. But the authority is also capable of being read as operating only prospectively, ie, to discharge the pre-existing REC3 form of agreement only on and from Dexter's acceptance of the new contract proffered by the investor. Entry by an existing investor into the new agreement results in the investor losing accrued rights he or she had under the REC3-type agreement at the date of the switch. These may well have included, in the case of a particular investor who switched agreements, rights to payment of interest that had accrued under the older agreement but had not been received by the investor at the date of the switch. There is no transitional provision in the new form of agreement that covers such matters. It cannot be accepted that the objective intention of Dexter and the particular investor who switched contracts, as recorded in the switching agreement, was that the investor would abandon accrued rights. I consider this is good reason for holding that the arrangement involving substitution of the new form of agreement for the REC3-type of agreement accompanied by the authority from the investor, to which I have referred, operated so that the old REC3-type agreement was only discharged for the future upon entry by the investor at Dexter's request into the new form of agreement. Investors who followed that course therefore retained, in respect of events occurring up to the substitution, the rights given them under the REC3 form of agreement that had accrued to those investors by the date of the switch to the new agreement that were not necessarily extinguished by the coming into existence of the new agreement, such as the rights they may then have had to the moneys they had placed with Dexter.
42 The trustee developed a more substantial argument for the proposition that, even if moneys invested under REC3 agreements were impressed with a trust for the particular investors Dexter, in the events which have happened, so dealt with investors' moneys including moneys received by him under REC3 agreements, that, though investors may have equitable claims against him, those moneys nevertheless became his property for the purposes of s 120 and, in so far as he transferred those moneys to Anscor, it is accordingly recoverable by the trustee.
43 The trustee submitted that, even if Dexter received moneys from investors under the REC3 forms of agreement as trust moneys, he mixed the funds of many investors together and mixed them, moreover, with funds of his own. It was then submitted that, thereafter, and certainly by the start of the two year period here in question, from the time he paid newly received investors' moneys into his "Wattle" account, any trusts on which he may have received those moneys were destroyed because of the impossibility of identifying which moneys were held by Dexter for any particular investor. The trustee further submitted that, in these circumstances, the investors would be entitled to equitable charges upon such moneys as remained in Dexter's hands in proportion to the respective claims of the investors. The trustee finally submitted that the existence of equitable charges in favour of investors to the moneys paid over by Dexter to Anscor does not, however, mean that Dexter held those moneys in trust for the various investors within the meaning of s 116(2)(a) the Bankruptcy Act: despite the existence of those equitable charges, the moneys comprising the mixed fund remain Dexter's own moneys. It was finally submitted that, this being so, all the payments by Dexter to Anscor over the two years here in question were transfers by Dexter to Anscor of his own moneys, with none of those moneys being held in trust by Dexter for any investors.
44 Specific property which a bankrupt holds for the benefit of others is property held by the bankrupt on trust. The trustee in bankruptcy has no claim to such property. But I accept that property of a bankrupt which, by force of s 116 the Bankruptcy Act, vests in the trustee in bankruptcy, includes property in respect of which third parties have only equitable charges. That property vests in the trustee as property of the bankrupt, but subject to the equitable interests of the chargees. See Re Hodby (Federal Court of Australia, 16 April 1987, unreported) at pars [19] and [20] where Fisher J expressed agreement with the views of White J in Re Goode; Ex parte Mount (1974) 4 ALR 579 at 595 and following. I also accept that, if property of a bankrupt does not cease to be such and accordingly vests in the trustee in bankruptcy pursuant to s 116, where the property is equitably charged in favour of a third party, a transfer of property by a person who later becomes bankrupt, which transfer his trustee in bankruptcy seeks to avoid under s 120, will include property of the bankrupt though equitably charged to third parties. Whether such a charge survives the transfer will depend on general equitable principles as to notice and whether the transferee gave value for the transferred property.
45 The evidence of Clout and his assistant, Egan, shows that from at least 1994 to the end of March 1998, Dexter maintained only one bank account in respect of the Wattle investment scheme. A total of $197,011,634 was deposited into this account between 1 July 1994 and 1 April 1998. Clout has been able to identify a little over $129,000,000 or 65% of the total deposits as moneys given to Dexter by investors in the Wattle scheme and a little over $32,000,000 or 16% of the total as deposits made into the account by various members of the Foundation Group. He has not been able to identify the source of the remaining deposits of a little over $35,000,000 or 19% of the total. The examination of the Wattle account conducted by Clout and his assistants shows that, in respect of the two years the subject of the trustee's claim, a total of nearly $56,000,000 was deposited to the Wattle account in the year ending 30 June 1997 and 70% of this, or a little over $39,000,000, came from investors' deposits, 16%, or about $8,800,000, comprised payments into the account from members of the Foundation Group and $71,580 comprised interest paid by the bank on funds in the Wattle account during the year. Clout was unable to identify the source of the remaining 14%, or $7,800,000, of deposits into the account in that period. For the nine months, 1 July 1997 to 31 March 1998, a total of a little over $116,000,000 was deposited to the Wattle account with nearly $73,000,000, or 63%, being identified as coming from investors' deposit moneys and about $23,500,000, or 20%, being identified as deposits by members of the Foundation Group. The trustee's evidence does not reveal what was the position in relation to the remaining 17%, but it is likely that the trustee has not been able to identify the source of most, if not all, of these moneys.
46 Foundation Group members paid in total, very substantial sums into the Wattle account during the two years in question. The fourteen member companies of the Foundation Group carried on a number of businesses in their own right. The evidence indicates that at least a number of these companies operated substantial businesses ranging from software retailing, computer manufacturing, a retail travel agency with a number of stores, security services, catering services, two night clubs, property investment. Though the members of the Group are all now in liquidation, there is nothing to suggest that the very substantial sums of moneys paid into the Wattle Group account by Foundation Group members, particularly over the two years to March 1998, were other than moneys belonging in law and equity to the particular Foundation Group member who made the payment. Deposits into the account from members of the Foundation Group were by way of repayment of interest-free loans made from the Wattle account by Dexter to those Foundation Group members. These moneys, on payment into the account, I think became Dexter's own moneys.
47 Although Dexter has claimed that moneys were deposited into the Wattle account by way of "transaction settlements", "joint venturee funds" and "profits", ie, moneys not coming from investors, Clout and those assisting him could not identify in the deposits to the Wattle Group account any amounts that might have come from such activities, other than the repayment with interest of two fairly small loans made by Dexter from the account to two of the Wattle Group administrators.
48 Though Mr Corbett says that Anscor, as trustee of the Anzcorp Discretionary Trust, carried on, in addition to its business as a Wattle administrator, other businesses said to comprise investing in its own right "in several other companies such as the Australian Pearl Farms Group of companies, Lawngrove Pty Ltd as the developer of units in Cleveland and the Marlin Mushrooms project in Cairns", the Anscor respondents did not put any evidence before the Court to suggest that Anscor derived income from any such activities in the two years in question that could have been mixed with receipts from Dexter. Mr Corbett gave evidence, which I accept, that Anscor was also a direct investor in the Wattle scheme itself on the same basis as other investors. Mr Corbett also said that Anscor received what he described as "accumulated interest" from these investments in the Wattle scheme of $151,638 over an unspecified period. That is only partially correct. In that part of his affidavit where he sets out details of Anscor's investments in and interest earnings from the Wattle scheme, Mr Corbett refers to his Exh REC5 as containing relevant details. This exhibit consists of statements issued by Anscor itself to Mrs Corbett, as the director of Anscor, that show the amount of Anscor's total investment in the Wattle scheme as at 30 March 1998 was $818,388. It is apparent from these statements that Anscor never received any payment into its own account of the interest recorded in these statements as having been earned on Anscor's deposits in the Wattle scheme: all interest recorded as earned on Anscor's deposits in the scheme was compounded, ie, added to and became part of the principal amount that remained on deposit with Dexter.
49 There is thus no evidence that, in the two years in question, Anscor had any moneys available for disbursement by it apart from the commission moneys it received from Dexter. That is, there is nothing to contradict what I think is the position, viz, that the moneys which Anscor and the other Anscor respondents used to acquire the properties the subject of the tracing claims were comprised entirely of moneys received by Anscor from Dexter.
50 On 30 June 1997, the Corbetts, with McAuley's assistance, established the Anscor Superannuation Fund with the thirteenth respondent as its trustee. That same day Anscor paid $2,805,000 purportedly as a contribution to this fund and immediately borrowed all save $5,000 of those moneys back from the fund. Anscor got this $2,805,000 from Dexter's commission moneys. As will appear, I do not consider that any trust was established by the actions taken on 30 June 1997: PIAM merely held the moneys it received, including this $2,805,000, purportedly as trust contributions by Anscor for the Corbetts. These events of 30 June 1997 therefore do not operate to bar Clout's entitlement to pursue Dexter's moneys into Anscor's hands. These, for the reasons given, were all Dexter's own moneys unfettered with any trusts.
51 As to out flows from the Wattle account, Dexter paid all commissions to administrators from the Wattle account and also the substantial personal expenses and the expenses, additional to commissions to administrators, he incurred in running the scheme. Clout agreed that he had been unable to find "any evidence of any systematic on-lending by Dexter of investors' funds", ie, in short term loans of the kind he informed investors were intended to be made. Clout said that such moneys as Dexter lent out were confined (except for the two isolated loans to two of the administrators) to loans to members of the Foundation Group of companies who engaged in a range of business activities. There is no suggestion in the evidence, however, that any of the Foundation Group of companies carried on the kind of lending Dexter lead investors to believe he intended to engage in with their moneys.
52 In addition to the non-interest bearing loans made by Dexter from investors' moneys in the Wattle account to Foundation Group members outstanding when the Group went into liquidation, Dexter also maintained what was called a "sweep" facility between the Wattle Group and the Foundation Group. Under this facility, Dexter's bank was authorised to transfer funds from the Wattle account to the bank accounts of the various members of the Foundation Group at the end of each day, to the extent necessary to ensure that Foundation Group members own separate accounts that would have been short of funds were thus able to meet payments due by those members. As at March 1998, when the Wattle scheme collapsed, Foundation Group members owed Dexter, in respect of loans made by him to them, a total of approximately $40,000,000. Clout said that this $40,000,000 included the total of the amounts originally lent interest-free by Dexter to Foundation Group members, which were transmuted from loans to Foundation Group members by Dexter into equity held by Dexter in the Group.
53 Clout concluded that at no point had Dexter made any money out of his other business activities or short term lending. In relation specifically to the $10,316,948 of what purported to be interest payments paid to investors by Anscor from moneys received from Dexter and an equal amount of $10,316,948 received by Anscor from Dexter in the same period as commissions, Clout's conclusion was that this $21,000,000 came from the funds placed in Dexter's hands by investors. He does not here refer to payments into the Wattle account by Foundation Group members. So far as Clout's investigations revealed, the entirety of the moneys paid by Dexter to particular investors by way of interest and repayment of principal where that was done and to administrators, including Anscor, by way of commissions came from capital moneys paid over to Dexter by investors. It was for this reason that Clout, by May 1988, was of the opinion that Dexter had been operating the Wattle scheme as a "Ponzi" scheme. That Dexter was conducting a fraudulent scheme by using incoming investors' deposits to make payments purportedly by way of interest and repayment of capital to existing investors and to meet all other expenses he incurred, including commissions paid to administrators, is confirmed by Clout, who agreed that Dexter fabricated summary sheets purporting to record interest earnings from long term loans. Clout said these were "basically the main form of marketing which the administrators used to attract new investors", but that these sheets generated by Dexter were "just a fabrication because the moneys weren't being lent out on a short term basis and therefore the calculations of interest on those sheets were not correct". Clout says that Dexter used to prepare, on a periodic basis, summary sheets for individual clients which were forwarded to the relevant administrator electronically to pass on to the investor. He says that: "Although the client summary sheets seemed to record a series of on-lending transactions of the investors' funds by Dexter, I have been unable to identify any systematic on-lending of funds by Dexter to third parties that replicates the entries on the clients' summary sheets".
54 I find that throughout the two years to March 1998, the Wattle account was, at any point in time, a mixed fund made up, firstly, of a large amount, in total, of moneys deposited by many individual investors with Dexter under either one of the two forms of agreement used by Dexter for on-lending by him. In so far as they consisted of deposits by investors under the new form of agreement, the moneys in the Wattle account were Dexter's own moneys. Secondly, the account also comprised moneys paid in by various Foundation Group members from their own funds, which became Dexter's own moneys on receipt by him. At any other point of time within the same two year period, the Wattle account would comprise a mix of the same kinds of moneys, though it is highly likely that they would have been sourced from a differently constituted group of investors and Foundation Group members than were the funds in the account at a different time.
55 I accept the trustee's submission that where (as here) it is not possible to identify what part of a mixed fund should be regarded as belonging to or should be appropriated to a particular payee, any trust that might hitherto have existed in respect of the moneys of a particular payee paid into the mixed fund will be destroyed by that impossibility. Brady v Stapleton (1952) 88 CLR 322 is a decision concerned with how the principles of tracing should apply to a mixed corpus of shares, none of which were able to be identified as those of individual owners. Dixon and Fullagar J rejected the argument that the impossibility of precisely identifying which shares in the remaining mixed corpus of shares had belonged to particular owners precluded the making of a tracing order for the transfer of shares to the claimant. Their Honours, in reviewing the law, said at 338 - 339: