In re MF Global Australia Ltd (in liq) [2012] NSWSC 994

RMF Management Services Pty Limited (First Defendant) GrainCorp Operations Limited (Second Defendant) The GFL Group Pty Limited (Third Defendant) Underdog Clothing Pty Limited (Fourth Defendant) Practical Human Resource Solutions Pty Limited (Fifth Defendant) Jilliby Pty Limited (Sixth Defendant) Transmarket Trading Pty Limited (Seventh Defendant) Deutsche Bank AG (Eighth Defendant) Three Crowns Investments Pty Limited (Ninth Defendant)

102788 of 2012 Christopher Robert Campbell, Vaughan Neil Strawbridge and David John Frank Lombe in their capacity as liquidators of MF Global Australia Limited (in liquidation) (First Plaintiff) MF Global Australia Limited (in liquidation) (Second Plaintiff)

MF Global Singapore Pte Limited (provisional liquidators appointed) (First Defendant) RMF Management Services Pty Limited (Second Defendant) Representation: Counsel: 411117 of 2011 F. Gleeson SC/ R. Foreman (First Plaintiff) F. Gleeson SC/ R. Foreman (Second Plaintiff)

J. C. Sheahan SC/D. Hogan-Doran/T. Glover (First Defendant) L. Gyles SC/T. W. Marskell (Second Defendant) S. D. Robb QC/N. J. Kidd (Third Defendant) J. Stoljar SC/ R. Scruby (Fourth Defendant) C. R. Newlinds SC/D. R. Sulan (Fifth Defendant) D. B. Studdy SC/C. Colquhoun (Sixth Defendant) P. Brereton SC (Seventh Defendant) F. Douglas QC/D. Healey/S. Clemmett (Eighth Defendant) D. B. Studdy SC/C. Colquhoun (Ninth Defendant)

102788 of 2012 F. Gleeson SC/ R. Foreman (First Plaintiff) F. Gleeson SC/ R. Foreman (Second Plaintiff)

M. J. Leeming SC/J. White (First Defendant) J. C. Sheahan SC/D. Hogan-Doran/T. Glover (Second Defendant) Solicitors: 411117 of 2011 Ashurst (First Plaintiff) Ashurst (Second Plaintiff)

Arnold Bloch Leibler (First Defendant) Gilbert & Tobin (Second Defendant) HWL Ebsworth (Third Defendant) Gadens (Fourth Defendant) Gillis Delaney (Fifth Defendant) Watson Mangioni (Sixth Defendant) Freehills (Seventh Defendant) King & Wood Mallesons (Eighth Defendant) Watson Mangioni (Ninth Defendant)

102788 of 2012 Ashurst (First Plaintiff) Ashurst (Second Plaintiff)

Kemp Strang (First Defendant) Arnold Bloch Leibler (Second Defendant) File Number(s): 11/411117 and 12/102788

Judgment 1The First Plaintiffs ("Liquidators") in these two proceedings are the liquidators of the Second Plaintiff, MF Global Australia Limited (in liquidation) ("MFGA"). The Liquidators were previously appointed as administrators of MFGA on 1 November 2011 ("Appointment Date") under s 436A of the Corporations Act 2001 (Cth) and were appointed as liquidators on 2 March 2012. MFGA was a company within the MF Global Group which was a financial services intermediary operating in several countries (Affidavit of Christopher Robert Campbell, 16 March 2012 ("Main Campbell Affidavit"), [19]). The majority of the companies in the MF Global Group were placed into some form of external administration in or around early November 2011 (Main Campbell Affidavit [22]-[30]). 2The Liquidators seek directions under ss 479(3) and 511 of the Corporations Act and s 63 of the Trustee Act 1925 (NSW) and declaratory and other relief. The Liquidators have properly taken a neutral approach in respect of controversial issues in the proceedings, while providing submissions to assist the Court, consistent with the proper approach in a "trust dispute" recognised in, for example, Sons of Gwalia Ltd v Margaretic [2006] FCAFC 92; (2006) 232 ALR 119 at [6]. 3Various defendants were joined in the first of these proceedings ("MFGA Proceedings") under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 7.6 to represent the interests of various groups of clients and creditors. In particular:

• The First Defendant, RMF Management Services Pty Limited ("RMF"), represented the interest of contracts for differences ("CFD") account clients.
• The Second Defendant, GrainCorp Operations Limited ("GrainCorp"), represented the interests of clients who traded in futures contracts and options over futures contracts ("Futures").
• The Third Defendant, The GFL Group Pty Limited ("GFL"), represented the interests of margin foreign exchange ("Margin FX") account clients.
• The Fourth Defendant, Underdog Clothing Pty Limited ("Underdog") represented the interests of online foreign exchange ("Online FX") account clients.
• The Fifth Defendant, Practical Human Resource Solutions Pty Limited ("PHRS"), represented the interest of creditors other than clients.
• The Sixth Defendant, Jilliby Pty Limited ("Jilliby"), represented the interests of "cash only" clients, who had no open positions at the Appointment Date.
• The Seventh Defendant, Transmarket Trading Pty Limited (which was joined in place of George Weston Foods Limited in the course of the hearing) ("Transmarket"), represented the interests of some clients who traded in Futures in respect of an issue as to valuation.
• The Ninth Defendant, Three Crowns Investments Pty Limited ("Three Crowns"), was joined to advance arguments in relation to funds recovered by MFGA from Futures brokers who placed and cleared Futures trades on markets outside Australia ("Futures Agents"). 4The Eighth Defendant, Deutsche Bank AG ("Deutsche Bank") was not a representative party but traded in Futures with MFGA and was a counterparty to MFGA in CFD trading and was joined as party to the proceedings in its own right. 5Separate proceedings ("MFGS Proceedings") were brought by the Plaintiffs in which MF Global Singapore Pte Limited (provisional liquidators appointed) ("MFGS") was named as a defendant. The relief sought in the Amended Originating Process in the MFGS Proceedings was substantially the same as the relief sought in the MGFA Proceedings and the two proceedings were heard together. The primary issue in controversy in the MFGS Proceedings was whether certain bank accounts maintained by MFGA with Standard Chartered Bank in Singapore ("Singapore-based accounts") should be pooled with client segregated accounts for CFD clients maintained by MFGA in Australia. RMF, which represented the interests of CFD clients in the MFGA Proceedings, also represented the interests of CFD clients in the MFGS Proceedings. I have had regard to the submissions made by MFGS in respect of issues of law in determining corresponding issues in the MFGA Proceedings, and I also deal in this judgment with issues which were specific to the dealings between MFGA and MFGS in the MFGS Proceedings. 6The Court was fortunate in receiving comprehensive written and oral submissions which addressed the relevant legal issues and I have drawn on those submissions in this judgment. The quality of the submissions made was of real assistance in dealing with the complex issues raised by this application. The basis of the Court's jurisdiction 7Section 479(3) of the Corporations Act allows a liquidator to apply to the Court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32]. A direction can be made under 479(3) in a voluntary liquidation, by reason of ss 506(1)(b) and 511: Warne v GDK Financial Solutions Pty Ltd [2006] NSWSC 464; (2006) 57 ACSR 525 at [63]-[64], [82]. 8Section 511 of the Corporations Act provides an alternative source of power to give such a direction and the Liquidators also rely on that section. The principles applicable to an application under that section were recently reviewed by Ward J in Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) [2011] NSWSC 91 and I gratefully adopt her Honour's summary of the relevant principles. Applications made under this section in a voluntary winding up are determined in a similar manner to applications in a Court ordered winding up under s 479(3) of the Corporations Act notwithstanding that section does not expressly require that it be "just and beneficial" to give the relevant direction. The Court may give such a direction where it will be "of advantage in the liquidation": Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg (in his capacity as liquidator of S&D International Pty Ltd) v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]. The effect of a determination under the section is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty: S&D International at [7]. 9The Liquidators' application is alternatively brought under s 63 of the Trustee Act which permits relief aimed at resolving legitimate doubts held by a trustee as to the proper course of action and protecting the trust and those entitled to it: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [70]-[71]; Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) at [39]. In this case, the Liquidators' application reflects at least a potential dispute between different claimants to the relevant client segregated accounts and the general rule is that opinion or advice will not be given under s 63 of the Trustee Act where a question concerns the respective rights of beneficiaries or their identity: J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, LexisNexis Butterworths, 2006 at [2134]; Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) above at [40]. I will therefore largely proceed under s 479(3) and s 511 of the Corporations Act rather than under s 63 of the Trustee Act. 10The Plaintiffs contend that declarations can be made in the proceedings where representative defendants have been joined and the Plaintiffs seek to utilise UCPR rr 7.6 and 7.7 to obtain a binding determination against all interested persons. The Plaintiffs contend that the questions concerning pooling or grouping of accounts and the date and basis for determining entitlements are properly the subject of a declaration, because the Court is being asked to construe the language of the statute, and the Plaintiffs are not seeking to address the individual determination of each client's entitlement (Plaintiffs SIC [36]-[38], [42]; Plaintiffs SIR [10]-[12). The Plaintiffs accept that the formulation of the terms of any declarations and directions should await the reasons for judgment (T221). 11On the other hand, PHRS contends that it is not clear what findings of fact the parties are contending for in respect of the various issues and that the Court should not bind parties given the manner in which the proceedings have been constituted and at best the Court may make certain directions, but not declarations (T3-T5; T153-T154). Deutsche Bank contends that no declarations are necessary in addition to directions given to the liquidator and in any event should not be made where there are contentious matters or alleged breaches of trust without proper proof or means of challenging such allegations (Deutsche Bank SIC [90]). Deutsche Bank also contends that the form of directions given (or declarations of right made) should take into account a right of set off asserted by Deutsche Bank, the validity of which is not a matter raised in these proceedings (Deutsche Bank SIC [56]-[57], [99]-[102]). 12I will indicate below where I consider that declarations can properly be made, either because the issues are primarily matters of law or the factual issues were fully addressed between appropriate parties, and will otherwise make directions under s 479(3) or s 511 of the Corporations Act as appropriate. Factual background 13MFGA was the holder of an Australian Financial Services Licence and provided financial products and services, primarily as a Futures broker and as the issuer of over-the-counter ("OTC") derivative products, to a large number of clients in Australia and overseas; it had approximately 16,124 separate client accounts, of which approximately 11,049 were active on the Appointment Date (Main Campbell Affidavit [21]). 14The Futures traded by MFGA were exchange-traded financial products. The client agreements between MFGA and its clients in relation to Futures provided that MFGA acted as a broker in Futures transactions. 15The OTC financial products traded by MFGA included CFDs. A CFD is an OTC derivative product which allows a person to take a position: ... on future changes in the market price of a share or commodity, or the value of an index or a currency exchange rate. With a long CFD, investors are looking to profit from increases in the market price of a particular asset. With a short CFD, they are seeking to profit from falls in the market price of the asset. As CFDs are derivatives, investors do not actually invest in the underlying asset, but rather in a contract whose value is determined by reference to the market price of the underlying asset (Australian Securities and Investments Commission, Report 205, Contracts for difference and retail investors, July 2010, p 12). MFGA also offered Margin FX products by telephone, facsimile or email, by which a client could profit or loss from fluctuations in the exchange rate between two currencies (the Reference Currency and the Settlement Currency) without exchanging those two currencies, by taking a forward position in a specified amount of the Reference Currency. A Margin FX contract could be "closed out" by the client entering into an equal and opposite transaction with MFGA. MFGA also offered Online FX products, which corresponded to Margin FX products, except that Online FX clients entered into such transactions through an online trading portal rather than placing orders through MFGA's Margin FX trading desk by telephone, facsimile or email. The client agreements between MFGA and its clients in relation to the OTC products, namely the CFDs, Margin FX and Online FX, provided that MFGA acted as principal in transactions relating to those products. The parties referred to Futures, CFDs, Margin FX and Online FX as "Product Lines" and I will use the same term. 16The Futures, CFDs, Margin FX and Online FX traded by MFGA were "financial products" for the purposes of the Corporations Act. A financial product is a facility through which, or through the acquisition of which, a person "makes a financial investment" (Corporations Act s 763B), "manages financial risk" (Corporations Act s 763C) or "makes a non-cash payment" (Corporations Act s 763D). The Futures, CFDs, Margin FX and Online FX were respectively "derivatives" or "foreign exchange contracts" within the meaning of ss 761A and 761D of the Corporations Act and "derivatives" and "foreign exchange contracts" are "financial products" under s 764A(1) of the Act. MFGA is taken to issue CFDs, Margin FX and Online FX contracts to its clients, because those contracts are derivatives not entered into on a financial market and MF Global is party to the contract: s 761E(5). If an Online FX Contract was properly characterised as a "foreign exchange contract", MFGA would be the issuer under s 761E(4) as the party responsible for the obligations owed to the client under the contract. MFGA provided financial services (as defined) to its clients in respect of those products. 17MFGA operated 51 bank accounts denominated in 11 different currencies which were referred to in the proceedings as "Client Segregated Accounts" ("CSAs") (Main Campbell Affidavit [168]). Each separate CSA was associated with one of the four Product Lines. 18MFGA maintained two AUD-denominated CSAs and nine foreign currency CSAs with Westpac Banking Corporation ("Westpac") for Futures and also maintained an NZD-denominated Futures CSA at Westpac, New Zealand. 19Nine CFD CSAs were maintained with Westpac comprising a single CSA denominated in each of seven foreign currencies and two AUD-denominated CSAs (Main Campbell Affidavit [169]). MFGA also maintained an AUD-denominated CSA with Australia and New Zealand Banking Group Limited ("ANZ") ("ETrade. Funds were in turn transferred by MFGA from the E*Trade CSA to its standard interest bearing AUD-denominated Westpac CSA (Main Campbell Affidavit [170]). MFGA also maintained the Singapore-based accounts at Standard Chartered Bank, Singapore comprising a further eleven CFD accounts comprising an AUD-denominated account and a single account denominated in each of 10 foreign currencies. MFGS in turn operated a "client omnibus" account with MFGA by which MFGS placed orders for CFDs with MFGA on behalf of its clients (Main Campbell Affidavit [171]). 20MFGA maintained two AUD-denominated CSAs and nine foreign currency CSAs with Westpac for Margin FX. 21MFGA maintained a single AUD-denominated CSA and four foreign currency CSAs with Westpac for Online FX. MFGA also maintained two foreign currency denominated CSAs with Standard Chartered Bank, Hong Kong for Online FX. 22The accounts established at Westpac (Australia) and ANZ for all products were designated "Client Segregated Accounts"; the Singapore-based accounts in respect of CFD products were designated as "trust accounts"; and accounts established at Standard Chartered Bank Hong Kong in respect of Online FX accounts and Westpac (New Zealand) in respect of Futures were not specifically designated as trust accounts or client segregated accounts. 23The balance in the CSAs was approximately AUD$150.4 million on the Appointment Date and interest has been earned in the CSAs since that date. The Liquidators have identified payments into the CSAs comprising client deposits, receipts from Futures Agents and OTC counterparties, transfers from MFGA's house accounts and transfers from other CSAs (Main Campbell Affidavit [176]) and payments out of the CSAs being client withdrawals, payment to counterparties, payments to house accounts by way of interest, commission and fees and transfers to other CSAs (Main Campbell Affidavit [177]). 24The Liquidators had also recovered, as at 23 April 2012, approximately AUD$86.646 million from third parties and approximately AUD$80.187 million remained outstanding from third parties (including other companies in the MF Global Group) as at that date (Affidavit of Christopher Robert Campbell, 4 May 2012 ("Second Campbell Affidavit"), Ex CC-8A; "Distribution Analysis Report", Ex CC-8A, [3.2]). The amounts recovered have been paid into separate accounts pending the outcome of these proceedings. The statutory regime 25The provisions in issue in these proceedings are contained in Pt 7.8 Div 2 Subdiv A (ss 981A-981H) of the Corporations Act and regs 7.8.01-7.8.05 of the Corporations Regulations 2001 (Cth), which broadly provide for both segregation and the imposition of a statutory trust over client monies, with significant qualifications. 26These provisions were introduced by the Financial Services Reform Act 2001 (Cth) and replaced ss 865-878 and ss 1209 and 1224-1227 of the Corporations Law which respectively required accounts operated by securities dealers to be designated as trust accounts and required accounts opened by futures brokers to be designated as clients' segregated accounts and provided (inter alia) that, subject to specified exceptions, none of the money deposited in a clients' segregated account was available for the payment of a debt or liability of the futures broker. The predecessors of the provisions in the Corporations Law were ss 73-74 and 83-86 of the Securities Industry Act 1980 (Cth), ss 86 and 101-104 of the Futures Industry Act 1986 (Cth) and ss 26 and 28 of the Insurance (Agents and Brokers) Act 1984 (Cth). 27ASIC RG 212 Client money relating to dealing in OTC derivatives notes that this Division is intended to protect the interests of clients of Australian financial services licensees by separating client money from money belonging to licensees; generally requiring that licensees hold client money on trust; limiting the use of client money; limiting the circumstances in which client money may be withdrawn from client money accounts; specifying how client money may be dealt with if a licensee ceases to be licensed or becomes insolvent; requiring auditors to verify a licensees' compliance with the client money provisions; and imposing sanctions on licensees who fail to comply with those provisions (ASIC RG [212.1]). The importance of segregation and the imposition of a statutory trust was noted in respect of corresponding English provisions in Re Lehman Brothers International (Europe) (in admin)) [2012] UKSC 6; [2012] 3 All ER 1, where Lord Hope observed at [3] that: "Under English law the mere segregation of money into separate bank accounts is not sufficient to establish a proprietary interest in those funds in anyone other than the account holder. A declaration of trust over the balances standing to the credit of the segregated accounts is needed to protect those funds in the event of the firm's insolvency. Segregation on its own is not enough to provide that protection. Nor is a declaration of trust, in a case where the client's money has been so mixed in with the firm's money that it cannot be traced. So segregation is a necessary part of the system. When both elements are present they work together to give the complete protection against the risk of the firm's insolvency that the client requires." 28Section 981A specifies the money to which Pt 7.8 Div 2 Subdiv A applies. Section 981A(1) provides that (subject to sub-sections (2), (3) and (4) of s 981A), the Subdivision applies to money paid to a financial services licensee (such as MFGA) where:
• the money is paid in connection with a financial service that has been provided or will/may be provided to the client or a financial product held by the client; and
• the money is paid (1) "by the client"; or (2) "by a person acting on behalf of the client"; or (3) "to the licensee in the licensee's capacity as a person acting on behalf of the client". Part 7.8 Div 2 Subdiv A does not apply to money paid as mentioned in s 981A(1) to the extent that the money is paid in the circumstances specified in s 981A(2). Money is not subject to the Subdivision where it is, inter alia, received as remuneration for the financial services licensee (s 981A(2)(a)); paid to reimburse a licensee for payments made to acquire a financial product or to discharge liabilities incurred by a licensee relating to the acquisition of a financial product (s 981A(2)(b)); or paid to acquire a financial product issued or sold by the licensee (s 981A(2)(c)). Section 981A(4) provides for regulations to be made exempting money from the Subdivision. 29Section 981B(1) requires a licensee to ensure that money to which the Subdivision applies is paid into an account that satisfies the requirements set out in that section and any additional requirements imposed by the Corporations Regulations. That section requires a licensee to ensure that the only money that is paid into an account is money to which the Subdivision applies (and associated amounts such as interest) and other money permitted to be paid into the account by the Corporations Regulations. The section requires segregation of money to which the Subdivision applies from other money of a licensee to which the licensee is beneficially entitled. Section 981B(2) permits a licensee, for the purposes of the section, to maintain a single account or two or more accounts. It follows that a licensee may mix monies as between clients, although not as between the licensee's and client funds. 30Regulation 7.8.01(5), made for s 981B(1)(c) of the Corporations Act, requires a licensee to operate a s 981B account as a trust account; designate the account to be a trust account; and hold all monies paid into the account on trust for the benefit of the person who is entitled to the monies, subject to an exception for: "...moneys paid to the financial services licensee under the financial services licensee's obligation to call margins from clients under the market integrity rules, the operating rules of a licensed market or the operating rules of a licensed CS facility". Regulation 7.8.01(8) in turn provides that, if a licensee is required to call margins from a client under the operating rules of a licensed market or the operating rules of a licensed CS facility, it may operate a s 981B account as a client segregated account or a trust account in accordance with the operating rules. 31The exception in reg 7.8.01(5) applied in respect of margins paid by MFGA's Futures clients, since MFGA was required to call margin from its clients under the ASIC ASX Market Integrity Rules and the ASIC ASX24 Market Integrity Rules. Regulation 7.8.01(8) also permitted s 981B accounts maintained by MFGA in respect of Futures clients to be operated as a client segregated account or a trust account for the same reason. Neither the exception in reg 7.8.01(5) nor the permission in reg 7.8.01(8) applied in respect of OTC products (CFDs, Margin FX and Online FX), where the obligation of clients to pay margin arose under client agreements rather than under the operating rules of a licensed market or licensed CS facility. 32Section 981C provides that the regulations may deal with specified matters in relation to accounts or a class of accounts maintained for the purposes of s 981B, including the circumstances in which payments may be made out of those accounts. 33Section 981D provides: "Despite anything in regulations made for the purposes of section 981C, if: (a) the financial service referred to in subparagraph 981A(1)(a)(i) is or relates to a dealing in a derivative; or (b) the financial product referred to in subparagraph 981A(1)(a)(ii)is a derivative; the money concerned may also be used for the purpose of meeting obligations incurred by the licensee in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client)." This section permits monies deposited by one client may be used in respect of the specified matters on behalf of other clients. ASIC RG 212 notes that this provision originated in respect of dealings in exchange-traded futures through futures brokers but now has broader application through the reference to derivatives, although it does not extend to obligations incurred by the licensee's proprietary trading in derivatives (ASIC RG [212.66]-[212.67]). 34Section 981E(2) provides that, except at the suit of a person who is otherwise entitled to the money or investment, money and investments to which it applies are not capable of being attached or otherwise taken in execution or being the subject of a set off, charge or charging or to any process of a similar nature. 35Section 981F provides that the Regulations may include provisions dealing with how money in an account maintained for the purposes of s 981B, or an investment of such money, is to be dealt with if (inter alia) the licensee becomes insolvent within the meaning of the Regulations. Regulation 7.8.03 has been made pursuant to that section and applies, inter alia, where a licensee ceases to be a financial services licensee; becomes insolvent or subject to a range of arrangements, including where an administrator is appointed to a licensee (as occurred here where administrators were appointed to MFGA on 1 November 2011); merges with another financial services licensee; or ceases to carry on some or all of the activities authorised by the licence. That regulation appears to have been modelled on s 28 of the Insurance (Agents and Brokers) Act, which applied on insolvency. The effect of that section was to impose a statutory trust over money in the insurance broking account on insolvency in favour of those persons who were relevantly entitled to receive payment from that account: Mercantile Mutual Insurance (Australia) Ltd v Farrington (1996) 44 NSWLR 634; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301. Where the regulation applies, the s 981B account is taken to be subject to a trust in favour of each person who is entitled to be paid money from that account (reg 7.8.03(4)); and, if money in a s 981B account has been invested, that investment is taken to be subject to a trust in favour of each person who is entitled to be paid money from that account (reg 7.8.03(5)). That regulation applies "despite anything to the contrary in the Bankruptcy Act 1966 or a law relating to companies": reg 7.8.03(7). 36Regulation 7.8.03(6) in turn provides: "Money in the account of the financial services licensee maintained for section 981B of the Act is to be paid as follows: (a) the first payment is of money that has been paid into the account in error; (b) if money has been received on behalf of insureds in accordance with a contract of insurance, the second payment is payment to each insured person who is entitled to be paid money from the account, in the following order: (i) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of claims that have been made; (ii) the amounts that the insured persons are entitled to receive from the moneys in the account in respect of other matters; (c) if: (i) paragraph (b) has been complied with; or (ii) paragraph (b) does not apply; the next payment is payment to each person who is entitled to be paid money from the account; (d) if the money in the account is not sufficient to be paid in accordance with paragraph (a), (b) or (c), the money in the account must be paid in proportion to the amount of each person's entitlement; (e) if there is money remaining in the account after payments made in accordance with paragraphs (a), (b) and (c), the remaining money is taken to be money payable to the financial services licensee." (emphasis added) 37In Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International (as trustee for the Seaborn Family Trust) [2012] FCA 75; (2012) 87 ACSR 442 ("Sonray"), Gordon J summarised the effect of reg 7.8.03(6) as follows: "So, for example, where moneys are paid into a segregated account and the balance in that account represents a particular client's payment or the proceeds of that payment, the client will be entitled to an equitable charge over the whole balance of the account: s 981H of the Corporations Act read with reg 7.8.03(4). Regulation 7.8.03(6)(c) provides for the realisation of that entitlement. Where a number of clients have an entitlement to be paid moneys in a segregated account but the balance is insufficient to meet each entitlement in full, then the money is paid in proportion to each client's entitlement: reg 7.8.03(6)(d)." The Act and the Regulations do not define what is meant by "the amount of each person's entitlement" or equivalent expressions. I will address that question in paragraphs 101-109 below. 38Section 981H(1) in turn provides that: "Subject to subsection (3), money to which this Subdivision applies that is paid to the licensee: (a) by the client; or (b) by a person acting on behalf of the client; or (c) in the licensee's capacity as a person acting on behalf of the client; is taken to be held in trust by the licensee for the benefit of the client." The trust arising under s 981H(1) is a "statutory" trust and the phrase "in connection with" in that section does not have a narrow meaning: Samuel Holdings Pty Ltd v Securities Exchange Guarantee Corporation Ltd [2010] QSC 450; (2010) 80 ACSR 706 at [60], [65], aff'd Securities Exchange Corporation Ltd v Samuel Holdings Pty Ltd [2011] QCA 228; [2012] 1 Qd R 377; (2011) 253 FLR 221. The effect of that section was also considered in Sonray, where Gordon J observed at [81] that all monies paid to a licensee: "by, or on behalf of, a person in connection with a financial service or a financial product are deemed to be held on trust for the client ..., whether or not those moneys are paid into a separate account in accordance with s 981B of the Act." That reading of the section, which I would accept, treats the trust imposed by s 981H as applying on the licensee's receipt of the relevant monies rather than on payment of those monies into an account maintained in accordance with s 981B. 39Section 981H(3) in turn provides that the regulations may provide that s 981H(1) does not apply in relation to money in specified circumstances and may: "... provide for matters relating to the taking of money to be held in trust (including, for example, terms on which the money is taken to be held in trust and circumstances in which it is no longer taken to be held in trust)." No regulations have been made for the purposes of s 981H(3)(a). Two regulations, which are not relevant for present purposes, have been made for the purposes of s 981H(3)(b). ASIC has also issued a class order, CO 03/1112, which relieves a licensee who is an Australian ADI from the obligation to hold a client's money on trust where the client is a wholesale client and the licensee and client agree in writing. That class order is also not presently relevant. 40The effect of these provisions was summarized in Sonray, where Gordon J noted (at [77]) that: "The effect of these provisions is to create one or more mixed trust funds with special characteristics: they are intended to be used specifically for the provision of financial services and for the holding of and dealing in financial products; they can be used to meet margin calls and to act as security for dealings in derivatives, including dealings on behalf of clients other than the depositing client; however, they cannot be used to satisfy the creditors of the licensee. Such money "is taken to be held on trust by the licensee for the benefit of the client"." 41The client agreements used by MFGA, which are in similar although not identical form across the Product Lines, in turn reflected the statutory regime. Relevant provisions include the following: Futures cl 16.1 The Client agrees and acknowledges that: ... all the money and property deposited with MFGA or received by MFGA on behalf of the Client will be segregated by MFGA in accordance with the Futures Law and the relevant Operating Rules. cl 16.2 The Client agrees and acknowledges that: ... the Client's monies and the monies of other client [sic] of MFGA will be combined and deposited by MFGA in a clients' segregated account. All monies credited to the clients' segregated account maintained by MFGA may be used by MFGA to meet the default of any client of MFGA. CFD cl 1.1 Client Segregated Account means a bank account established and maintained by MFGA with its bank into which money of MFGA's clients is paid in accordance with Chapter 7.8 of the Act and the purpose of which is to segregate MFGA's funds from those of its clients. cl 3(a) To the extent that MFGA is required to do so under Chapter 7.8 Division 2 of the Act, MFGA must pay all monies paid to MFGA by the Client or by a person acting on behalf of the Client into a Client Segregated Account. cl 3(c) The Client acknowledges that within the Client Segregated Account the balance of its CFD Account is pooled with the balance of other CFD accounts established by MFGA for its clients and other client money and that consequently, the Client's CFD Account balance may not be protected if there is a default in the overall Client Segregated Account balance. The Client also acknowledges that under s 981D of the Act, money held in the Client Segregated Account may be used by MFGA to meet obligations incurred by MFGA in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by MFGA (including dealings on behalf of persons other than the Client). cl 3(d) The Client authorises MFGA to deduct from the Client Segregated Account client money to which the Client is entitled, for the purposes of discharging obligations which MFGA incurs to a counterparty with whom MFGA enters into derivatives to hedge its exposure to the Client in connection with CFDs or to hedge its exposure to other clients who have entered into contracts for difference with MFGA under agreements similar to this Agreement. Margin FX cl 1.1 Client Segregated Account means a bank account established and maintained by MFGA with its bank into which money of MFGA's clients is paid in accordance with Chapter 7.8 of the Act and the purpose of which is to segregate MFGA's funds from those of its clients. cl 3(a) To the extent that MFGA is required to do so under Chapter 7.8 Division 2 of the Act, MFGA must pay all monies paid to MFGA by the Client or by a person acting on behalf of the Client into a Client Segregated Account. cl 3(c) The Client acknowledges that within the Client Segregated Account the balance of its Margin FX Account is pooled with the balance of other accounts established by MFGA for its clients and other client money and that consequently, the Client's Margin FX Account balance may not be protected if there is a default in the overall Client Segregated Account balance. The Client also acknowledges that under s 981D of the Act, money held in the Client Segregated Account may be used by MFGA to meet obligations incurred by MFGA in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by MFGA (including dealings on behalf of persons other than the Client). cl 3(d) The Client authorises MFGA to deduct from the Client Segregated Account client money to which the Client is entitled, for the purposes of discharging obligations which MFGA incurs to a counterparty with whom MFGA enters into derivatives to hedge its exposure to the Client in connection with Transaction or to hedge its exposure to other clients who have entered into Positions or Options with MFGA under agreements similar to this Agreement. Online FX cl 1.1 Client Segregated Account means a bank account established and maintained by MFGA with its bank into which money of MFGA's clients is paid in accordance with Chapter 7.8 of the Act and the purpose of which is to segregate MFGA's funds from those of its clients. cl 3(b) All monies deposited to the credit of the Online FX Account shall be paid into a Client Segregated Account. cl 3(e) The Client acknowledges that within the Client Segregated Account the balance of its Online FX Account is pooled with the balance of other Online FX accounts established by MFGA for its clients and other client money and that consequently, the Client's Online FX Account balance may not be protected if there is a default in the overall Client Segregated Account balance. The Client also acknowledges that under s 981D of the Act, money held in the Client Segregated Account may be used by MFGA to meet obligations incurred by MFGA in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by MFGA (including dealings on behalf of persons other than the Client). 42The Liquidators correctly note that the term "Client Segregated Account" was properly used by MFGA in respect of exchange-traded Futures but not in respect of OTC products since regs 7.8.01(5) and 7.8.01(8) distinguish between a "trust account" and a "client's segregated account" and provide for the latter term to be used in limited circumstances. Nothing turned on any misdescription of the accounts in respect of OTC products in these proceedings. Issues 1-2 - Pooling of CSAs 43The Plaintiffs seek a direction as to the manner in which funds in the CSAs should be distributed having regard to reg 7.8.03(6) of the Corporations Regulations (Further Amended Originating Process [1]). Further or alternatively, the Plaintiffs seek a declaration as to whether the Liquidators may pool all or some of the CSAs and apply reg 7.8.03(6) to such pool(s) or whether reg 7.8.03(6) has to be applied separately to each such CSA (Further Amended Originating Process [1A]). Availability of "pooling" 44The parties identified the first issue as whether the Liquidators can pool all or some of the CSAs and apply reg 7.8.03(6) to such pool(s) or does reg 7.8.03(6) have to be applied separately to each CSA. The reference to "pooling" in this context may not be entirely apt, but includes at least the application of reg 7.8.03(6) to several CSAs where the funds in those CSAs have already been mixed. 45This issue raises an initial question as to the proper construction of reg 7.8.03(6), namely whether "account" in that regulation refers to each CSA separately, all of the CSAs together or a group of CSAs together. One possible reading is that the expression "the account" in reg 7.8.03(6) refers to a single account, so that the balance of each of the 51 CSAs would in the ordinary course be distributed separately. A second reading of reg 7.8.03(6) is that the reference to "account" in that regulation should be understood as referring to the plural, having regard to s 23 of the Acts Interpretation Act 1901 (Cth) which provides that: In any Act: ... (b) words in the singular number include the plural and words in the plural number include the singular. That section is in turn subject to s 2(2) of the Acts Interpretation Act which provides that the application of a provision of that Act to another Act or a provision of another Act is subject to a contrary intention. The effect of this second reading is that reg 7.8.03(6) would be that the balance of the 51 CSAs would be combined and then distributed. RMF contended for a third reading of reg 7.8.03(6), that the expression "the account" in that regulation refers to each group of client money accounts maintained by MFGA for the purposes of s 981B for its dealings with the clients within the relevant Product Lines and that reg 7.8.03(6) does not have to be applied separately to each CSA, so that the Liquidators can group or pool the 51 CSAs within the Product Lines (RMF SIC [35]; RMF SIR [8], [22]). 46The decision in Sonray proceeds on the basis that each account constituted a separate trust and that (in the ordinary course) reg 7.8.03(6) involved an account by account distribution, although Gordon J there directed pooling of accounts based on the particular circumstances of that case (at [78]-[79]). However, it appears the potential application of s 23 of the Acts Interpretation Act was not specifically addressed in that case. The text of reg 7.8.03(6) is capable of being read as indicating a separate trust for each account. Regulation 7.8.03(6) refers to money in "the account" of a licensee and refers to each person who is "entitled to be paid money from the account". Regulation 7.8.03(4) similarly provides that "[f]or each person who is entitled to be paid money from an account of the financial services licensee maintained for section 981B of the Act, the account is taken to be subject to a trust in favour of the person". 47In my view, a contrary intention for the purposes of ss 2 and 23 of the Acts Interpretation Act arises from the structure of the Corporations Act and the Corporations Regulations, so that the singular in reg 7.8.03(6) should not be read as referring to the plural. Several of the associated provisions distinguish the singular and the plural - for example, s 981B(2) refers to a "single account or 2 or more accounts", s 981C to "class of accounts", "accounts" and "an account" and reg 7.8.01(2) refers to "accounts" and also to "account" in the same sub-regulation, the first reference being plural and the second singular. Regulation 7.8.03(4) also provides that for each person who is entitled to be paid money from "an account ... the account is taken to be subject to a trust in favour of the person" (emphasis added). This provision creates or imposes a statutory trust and identifies the property that is the subject of the trust and the beneficiaries of that trust, in a manner that does not seem to me to contemplate pooling of accounts in the ordinary course. 48There is also, in my view, no reason to read reg 7.8.03(6) in a manner which would require pooling where more than one account had been maintained as permitted by s 981B(2), but those accounts had in fact been maintained separately so that there was no mixing of funds between them. In particular, there would be no reason to require pooling where a licensee had maintained two separate accounts as permitted by s 981B(2) where it was required to have a client segregated account (not a trust account) for on-market futures trading under reg 7.8.01(8) and applicable ASIC Market Integrity Rules and was required to have a trust account (rather than a client segregated account) where it had also received money to which reg 7.8.01(5) applied. The expression "the account" in reg 7.8.03(6) is appropriately read to refer to each of those accounts separately, rather than to require a pooling of those accounts where they are conducted separately. 49This conclusion does not, however, prevent the Court directing the Liquidators that pooling is appropriate in a particular case, at least where there has been mixing of funds across the relevant accounts. In Sonray, Gordon J permitted the pooling of accounts maintained for the purpose of s 981B. Her Honour noted (at [78]) that "[w]here a licensee ceases to be licensed, or becomes insolvent, reg 7.8.03(6) of the regulations determines how money in 'the account' of the licensee maintained for the purposes of s 981B is to be paid". Her Honour also noted (at [84]-[85]) that: "Next, the Corporations Act and the regulations do not deal with the situation where it is not possible to work out precisely who is entitled to what moneys in particular segregated accounts. It was common ground that all the court can do in such circumstances is to permit the moneys in the segregated accounts to be pooled with a view to their proportionate distribution. ... Such a course of action is consistent with the purpose of the statutory regime, namely the achievement of a fair outcome between clients by a pragmatic and even-handed distribution amongst them: ..." 50The Liquidators pointed out that the books and records of MFGA do not permit distribution of each of the CSAs separately (Main Campbell Affidavit [180]-[200]; Plaintiffs SIC [87]-[100]). The Liquidators have not been able to identify records of MFGA that show the client or clients who are entitled to the balance of any particular CSA. For example, there is no document in the nature of a trust account, or a statement of trust account, for each client recording the contributions and withdrawals by that client into or from particular CSAs. MFGA did not record the individual cash balances of each client in each CSA. MFGA's books and records were organized by Product Line, and by currency within each Product Line, rather than by CSA, and the Liquidators have not identified any process or record of MFGA which sought to reconcile a client's contributions and withdrawals on an individual basis against the balance in each CSA. Mr Campbell's evidence is that, by reason of these matters and the volume of individual client transactions, it would not be possible, or at least would not be practicable in a cost-effective way, to calculate the portion of the balance of each CSA attributable to any individual client. 51The evidence also indicates that the way in which MFGA operated the 51 CSAs was such that distribution by account would be impractical or inappropriate. In particular, MFGA engaged in various transactions which had the effect of altering the balances of the 51 CSAs that were not referable to client instructions. By way of summary:
• MFGA engaged in currency exchanges between the CSAs associated with different Product lines, when a Product Line had insufficient funds of a foreign currency to satisfy a payment that was required to be made in that currency or a client requested that part or all of his client balance be 'converted' to another currency. The Liquidators have identified 233 such transactions over a 3 month period to 31 October 2011 which was the subject of a detailed examination ("Inspection Period") with a total value of approximately AUD $230 million, of which 109 do not appear to relate to a client request and were undertaken to accommodate MFGA's foreign currency requirements, with a total value of approximately AUD $107 million. The Liquidators have identified Inter-Product Currency Exchanges in 29 of the CSAs associated with CFDs, Futures and Margin FX during the Inspection Period and none in CSAs associated with Online FX. The Liquidators note that the combined AUD-equivalent amount standing to the credit of the CSAs for both of the Product Lines involved in the transfers were unaffected, as both Product Lines paid and received an equivalent amount of different currencies; however, the balances of the individual CSAs involved were either increased or reduced as a result of the transactions.
• MFGA was entitled to certain fees and commissions from its clients. MFGA's practice was not to withdraw funds in respect of these liabilities owed to MFGA by its clients as and when they accrued. Instead, MFGA withdrew funds from the CSAs in respect of these liabilities by undertaking a sweep of "excess cash" at least once a month. The Liquidators note that MFGA did not prepare an excess funds report for each CSA, but instead prepared excess funds reports by CFDs, Futures and FX and cash sweeps were only taken from some of the CSAs and that those CSAs from which cash sweeps were taken were, in effect, "subsidising" other CSAs in relation to the payment of fees, commissions and interest.
• During the Inspection Period six transactions where cash was transferred from Online FX CSAs to Margin FX CSAs have been identified. The amounts transferred were apparently equivalent to the interest earned on the Online FX CSAs.
• MFGA permitted its clients to undertake trades in a currency in respect of which they had not deposited funds but did not always make cash transfers between CSAs to reflect the currency conversions required for such trades to occur, so that cash held in each CSA may not have been used for the trading activities related solely to the clients who had deposited funds in that CSA.
• The Liquidators have identified "bulk transfers" aggregating multiple transactions between the E*Trade AUD CFD CSA and the Westpac AUD CFD CSA. MFGA also frequently transferred funds between the high interest and standard interest AUD-denominated Westpac CSAs for the CFD and Futures Product Lines to maximise the interest earned on funds in the CSAs.
• MFGA hedged transactions on a nett basis and made payments to OTC counterparties from CSAs based on administrative convenience rather than necessarily from CSAs referable to the clients in respect of whose transactions the hedges were entered into. 52I accept the Liquidators' submission that these matters have the result that distribution by account would be impractical or inappropriate, since the balance of all of the CSA accounts as at the Appointment Date has been affected by one or more of these transactions. This should not be taken as suggesting that any of these transactions were inappropriate, which is not in issue before me. Rather, they resulted in a mixing of the CSAs, at least within Product Lines, which does not now permit distribution by single account to fairly or sensibly occur. 53Several of the representative parties have also made submissions supportive of pooling (using that term in a broad sense to mean treating the CSAs within a Product Line as a group) in the relevant circumstances. GrainCorp pointed out that the contractual arrangements between MFGA and its clients allowed MFGA a contractual discretion to pool and mix trust funds as between clients within one Product Line or generally, and that contractual discretion had been exercised by MFGA with the result that the property of the individual trusts has been mixed between clients within the same Product Line. GFL contended that, where a number of persons each hold an equitable charge over a notional pool of CSAs, they also each hold an equitable charge over each of the CSAs in the pool, and pooling of the CSAs involves reg 7.8.03(6) being applied to each CSA that is included in the mixed fund. GFL contended that, in this context, "pooling" is merely a description of the process of identifying the CSAs that together comprise a mixed trust fund and the persons entitled to the monies in each CSA included in the mixed trust fund. Underdog, which represents the interests of Online FX clients, contended that the term "pooling" is not entirely apt and that the Court should make directions to the effect that the Liquidators are justified in paying to the Online FX clients the funds which they or MFGA hold on statutory trust for those clients, without the necessity for strict adherence to the requirements of reg 7.8.03(6) (Underdog SIC [39]-[58]). 54All parties accepted that, as a practical matter, a direction permitting "pooling" of accounts within particular Product Lines was appropriate in this case. In my view, that approach is, as Gordon J observed in Sonray at [85], consistent with the purpose of the statutory regime of achieving a fair outcome between clients by a pragmatic and even handed distribution amongst them. In the present case, it is also consistent with the acknowledgements given in writing by the clients in the client agreements, including the acknowledgement that the balance of the client's account is pooled with the balance of other client accounts and other client money. I consider that such a direction is justified. I address the somewhat more controversial question of which accounts should be pooled below. 55I note that the same result could be reached, as Underdog points out, by the Court making a direction under s 479 of the Corporations Act permitting the Liquidators to make a distribution in a manner which did not strictly comply with reg 7.8.03(6), so far as accounts were pooled on an appropriate basis and that course amounted to "a wise and commercial breach of trust": Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 213. It is not necessary for present purposes to express a view as to whether such a direction could be made under s 511 of the Corporations Act. While Young J held to the contrary in Dean-Willcocks v Soluble Solution Hydroponics above, that view was not followed by Warren CJ in Handberg (in his capacity as liquidator of S&D International Pty Ltd (in liq)) v MIG Property Services Pty Ltd above at [9]-[15]. Which accounts should be pooled 56The Plaintiffs seek a declaration as to whether the Liquidators should pool the CSAs (subject to any particular exclusions, and if so, what exclusions) by grouping the CSAs into a number of pools and, if so, comprising which CSAs, or alternatively a single pool (Further Amended Originating Process [1B]). This raised the question whether the Liquidators should pool the CSAs (subject to any particular exclusions) by grouping the CSAs into four pools representing the four business lines of MFGA, namely Futures; CFDs; Online FX and Margin FX; three pools comprising one pool for Futures, one pool for CFDs and one pool for Margin FX and Online FX; a single pool; or some other form of pooling and, if so, on what basis (Issue 2). 57The Plaintiffs treat whether there should be one pool, three pools, four pools or some other pooling as principally a matter for submission by representative parties (who have advocated for four or three pools) and identify matters which may be relevant to grouping or pooling in their written submissions (Plaintiffs SIC [146]-[159]). None of the representative parties contend that the money in the 51 CSAs should be distributed on an account-by-account basis or on the basis of a single pool comprised of all 51 CSAs. 58The Plaintiffs identify a number of matters which would support pooling on the basis of four pools corresponding to MFGA's four Product Lines. In at least some respects, MFGA operated the CSAs on the basis that they were four separate pools by Product Line, with each of the CSAs assigned to one of the four Product Lines (CSA Inspection Report, Ex CC-4A, [3.2(c)(i)]). There were no uncorrected deposits by clients for one Product Line into a CSA associated with another Product Line during the Inspection Period (CSA Inspection Report, Ex CC-4A, [3.21(a)], [3.30]). 59MFGA had a standard form client agreement for each Product Line and clients were required to sign a separate client agreement and open a separate trading account with MFGA for each Product Line that they wished to trade in (Main Campbell affidavit [45]-[46]). MFGA appears to have had a practice of requiring clients wishing to trade in different Products to either deposit funds into the respective CSA for that Product Line or request the transfer of sufficient funds from their client account associated with another Product Line, at which point MFGA would transfer funds between CSAs associated with the relevant Product Lines (CSA Inspection Report, Ex CC-4A, [3.87]-[3.92]). Apart from one apparent error, every Inter-Product Currency Exchange identified in the Inspection Period involved corresponding transfers of currencies such that the combined AUD-equivalent amount standing to the credit of the CSAs for both of the Product Lines involved in the transfers was not affected. All of the counterparty receipts and payments identified during the Inspection Period were also paid to or from a CSA associated with the correct Product (CSA Inspection Report, Ex CC-4A, [3.69(c)]; Affiliate Receipts and Payments Report, Ex CC-8F, [2.3]). 60The Plaintiffs note that arguments in favour of three pools, namely Futures, CFDs, and FX combining both Online FX and Margin FX, include that excess funds reports were prepared for each of the CFDs, Futures and FX (i.e. Margin FX and Online FX in combination) and cash sweeps were only taken out of Margin FX CSAs. However, the Plaintiffs also note that Online FX clients were not required to pay commission or transaction fees, although charges for certain administrative services, default interest and funding rates were applicable (Online FX Product Disclosure Statement, Ex CC-4, 2/603-604). Six transactions where cash was transferred from Online FX CSAs to Margin FX CSAs have been identified and the amounts transferred were apparently equivalent to the interest earned on the Online FX CSAs (Main Campbell Affidavit [178(a)]). MFGA prepared deposit posting slips to record details about client deposits for each of CFD CSAs; Futures CSAs; and Margin FX and Online FX CSAs together (CSA Inspection Report, Ex CC-4A, [3.23]) and payment posting sheets were prepared on the same basis (CSA Inspection Report, Ex CC-4A, [3.41]). 61GFL (which represents the interests of Margin FX clients) contended that there should be three pools, with a single pool for CSAs for Margin FX and Online FX clients. GFL contends that the justification for pooling is the mixing of property held on trust for a beneficiary with property held on trust for another beneficiary or beneficiaries, in a manner that makes it impossible, or impracticable, to identify what parts of the mixed trust property belong to each beneficiary. GFL contends that the mixing of trust property occurred within three Product Lines (Futures, CFDs and FX) but does not occur between those Product Lines, and the Liquidators should group the CSAs into three pools comprising one pool for each of those Product Lines. 62In particular, GFL refers to transactions that, it contends, result in Margin FX clients having an equitable interest in the Online FX CSAs. GFL points to evidence that all cash sweeps and top ups identified in the Inspection Period were paid to and from a Margin FX CSA (CSA#41) (CSA Inspection Report, Ex CC-4A, [3.53]-[3.54]). GFL contends that any excess funds in the Online FX CSAs necessarily contributed to the existence of excess funds in the Margin FX and Online FX CSAs collectively but did not contribute to the payment out of that excess to MFGA which was made exclusively from Margin FX CSAs. GFL points out that interest or fees payable to MFGA by an Online FX client would be paid by cash sweeps paid out of CSA #41 and points to various fees identified under the Online FX client agreement (Ex CC-4, Tab 18) and Product Disclosure Statement (Ex CC-4, Tab 19). On the other hand, Underdog (which represents the interests of Online FX Clients) responds that no commissions or fees were payable on Online FX unless the trading platform was not used so there were unlikely to be significant commission charges and that one would not expect there to be significant interest charges because the Online FX client agreement provided that the account would be automatically closed out if it went into debit. 63GFL also argues that: "The fact that the Online FX CSA cash as at 31 October 2011 exceeded 100% of Online FX client entitlement (even before adding the OTC [c]ounterparty recoveries that were subsequently received in respect of the Online FX clients) is likely explained by the fact that, and at the very least is consistent with the inference that, amounts payable by Online FX clients to MFGA for interest and fees were paid to MFGA out of cash held in a Margin FX CSA." Underdog responds that the percentage of claims covered in respect of Online FX varies from time to time and simply reflects the relevant currency positions, rather than being indicative of any subsidy of Online FX CSAs by Margin FX CSAs. 64GFL also notes that the CSA Inspection Report also identified six transactions in the Inspection Period where cash was transferred from Online FX CSAs to Margin FX CSAs (CSA Inspection Report, [3.93]-[3.94]) and contends that is evidence of further mixing of monies between the Margin FX CSAs and the Online FX CSAs. Mr Campbell's evidence is that these cash transfers were in amounts that were equivalent to the interest earned on the Online FX CSAs (Main Campbell Affidavit [178(a)]). GFL contends that the manner of mixing was such that, as between Online FX CSAs and Margin FX CSAs, it is not possible to identify particular funds in any CSA as belonging to a particular client. GFL contends that there should therefore be three pools, with one pool for Margin FX and Online FX. 65The contrary position is taken by Underdog which submits that pooling should be by four Product Lines and that Online FX CSAs should be pooled solely for the benefit of Online FX clients. Underdog submits that the contention that there should be three pools should be rejected because no Margin FX funds have been deposited into Online FX CSAs and there is no proper foundation in the evidence for a conclusion that Online FX liabilities have been discharged using Margin FX funds. (Underdog also submits that such a conclusion would not, in any event, be a proper basis for pooling Margin FX and Online FX CSAs (Underdog SIC [59-[77]; Underdog SIR [1]-[9]; Underdog Further Submissions 2.7.2012 [1]-[22]). I do not accept that second submission for the reasons noted in paragraph 79 below in respect of the question of pooling of the Singapore-based accounts and the Australian-based CFD CSAs). 66In my view, the balance of the evidence does not support pooling of the Margin FX and Online FX CSAs, with the result that pooling should take place on the basis of four Product Lines rather than three. In summary, the evidence indicates that funds in the Online FX CSAs were not mixed with the Margin FX CSAs or other Product Line CSAs, in that no monies from those other accounts flowed into the Online CSAs. There is force in Underdog's submission that it is unlikely that fees payable by Online FX clients were material and this is an answer to GFL's submission based on such fees; in any event, the fact that liabilities of any magnitude referable to Online FX clients were discharged from Margin FX accounts was not established by the evidence. 67I will therefore direct the Liquidators that they are justified in proceeding on the basis of four pools in the four Product Lines, subject to the issue of how Singapore-based accounts are to be treated, to which I will now turn. Pooling of Singapore-based accounts 68An issue arises in the MFGS Proceedings as to whether the Singapore-based accounts should be excluded from any pooling or grouping with other CFD CSAs. 69By way of background, MFGS acted on behalf of clients and, as between MFGS and its customers, CFD transactions were governed by a Master Trading Agreement (Ex YCG-1, Tab 1) which required MFGS to keep all funds on trust (and in a trust account) for its customers separate from the funds of MFGS, where they could be commingled with the "excess funds or assets of other Customers [of MFGS] in accordance with Applicable Laws" (cl A15.1). Those contractual stipulations were also subject to the provisions of the relevant provisions of the Singaporean statutory regime insofar as the right of commingling (pooling) is concerned: Securities & Futures Act, ss 103A-104A; Securities and Futures (Licensing and Conduct of Business) Regulations, regs 16-18. 70MFGA undertook Futures trading on behalf of MFGS under a Futures client agreement dated 24 October 2011 (Main Campbell Affidavit [47]; Ex CC-4, Tab 20). Under that agreement, MFGA acted as MFGS's agent for the purpose of dealing in Futures (cl 3.2). All money deposited or received by MFGA on behalf of the client was to be segregated in accordance with the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) (cl 16.1). MFGS acted as agent for and on behalf of its customers in respect of such Futures transactions. 71MFGA also undertook CFD trading for MFGS although MFGA and MFGS pointed to different versions of the CFD client agreement as the operative agreement. MFGA pointed to a CFD client agreement dated 30 June 2011 between MFGA and MFGS (Main Campbell Affidavit [47]; Ex CC-4, Tab 9) and also pointed to a CFD client agreement as at 23 June 2010 (Main Campbell Affidavit [48]; Ex CC-4, Tab 23). MFGS contends that CFD transactions were conducted under a CFD client agreement dated 7 December 2009 (Yap, 14.5.12, Ex YCG-2, p 154), which provided that MFGA would establish a CFD [ledger] account in MFGS's name to record all of MFGS's CFD dealings (cl 2(a)) and record each foreign currency balance in MFGS's account as a separate ledger, called a Foreign Currency Ledger (cl 2(c)). Nothing appears to turn on which version of the agreement applied for present purposes. 72The CFD client agreement provided that, to the extent required by Pt 7.8 Div 2 of the Corporations Act, all monies received by MFGA from MFGS would be placed into a client segregated account. By clause 3(c) of that agreement, MFGS acknowledged that there would be pooling with other CFD accounts, and that: "money held in the Client Segregated Account may be used by MFGA to meet its own obligations in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by MFGA (including dealings on behalf of persons other than MFGS)". Clause 3(d) in turn authorised deductions from money held in the CSA for specified purposes, in the same form as the corresponding clause in other CFD client agreements to which I have referred above. 73Significant findings of the CSA Inspection Report (Ex CC-4A) in relation to the Singapore-based accounts included that there were payments to Deutsche Bank and other counterparties within the MFG Group totalling $26,717,299 from the Singapore-based accounts denominated in SGD, CHF and CAD but, with the exceptions of three receipts totalling $421,468 from MFGHK, there were no other receipts from counterparties during the Extended Inspection Period (namely the 12 months ended 31 October 2011) in any of the Singapore-based accounts. It appears that receipts in relation to Deutsche Bank were received in the Westpac CFD CSA, regardless of whether the funds were in respect of amounts initially advanced to CFD counterparties from the Singapore accounts, and the amounts received would be based on net margins calculated by the counterparty for MFGA, not individual clients. The CSA Inspection Report also notes that SGD $17.9 million was transferred to Deutsche Bank in two transactions from the Singapore-based accounts during the 12 months ended 31 October 2011, in both instances, where Deutsche Bank required SGD to be remitted by MFGA. 74The CSA Inspection Report concludes that: "With the exception of those [Singapore-based accounts] into which receipts from MFGHK or an inter-product CSA Currency Exchange deposit was made ... it appears that the [Singapore-based accounts] may have exclusively held funds deposited by, or on behalf of, MFG[S]. However, it also appears (although we cannot conclusively determine) that transactions with Deutsche Bank may have occurred involving the [Singapore-based accounts] in respect of the trading activity of clients who deposited funds into the Westpac CFD CSAs, and vice a versa. We have identified that although MFG[S] deposited funds into the [Singapore-based accounts] it did not necessarily receive a withdrawal from a [Singapore-based account], rather withdrawals were made from a Westpac CSA associated with the same Product. We are able to determine that, in the one case of an Inter-Product Currency Exchange that took place involving a [Singapore-based account], the effect of which was that the balance of a [Singapore-based account] was increased and the balance of a Westpac CFD CSA was decreased by an equivalent amount. ... ... This transaction demonstrates that MFGA did not appear to regard the [Singapore-based accounts] as being isolated from the remainder of the CFD CSAs. This finding is consistent with statements made to us by [MFGA officers]. We also note that no cash sweeps or top-ups took place in relation to the [Singapore-based accounts] during the Inspection Period. Cash sweeps and top-ups were undertaken in respect of CFD CSAs on the basis of the [e]xcess [f]unds [r]eports for the aggregate of CFD client segregated assets, which included the [Singapore-based accounts]. In other words, the surpluses in the [Singapore-based accounts] would appear to have been swept out of other CSAs, leaving the [Singapore-based accounts] with an artificially high balance." I should note that, in their detailed submissions for MFGS, Mr Leeming SC and Mr White took issue with several of the conclusions reached in the CSA Inspection Report. I have had regard to those criticisms and the detail of the evidence on which MFGS relied for those criticisms. 75MFGS contends that an express trust was established over the Singapore-based accounts and points to the "consensual establishment of the Singapore Accounts as 'trust accounts'" (MFGS SIC [31], [34], [43(a)]). The question whether the Singapore-based accounts constituted a trust must be determined by reference to all relevant circumstances and by inference from the outward manifestations of intention: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) [2000] HCA 25; (2000) 202 CLR 588 at [605]; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [53]-[59], [102]-[115]; Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135 at [48]. I do not consider that an intent to establish a separate trust over those accounts has been established, for the reasons set out below. 76The correspondence concerning the opening of the Singapore-based accounts does not, in my view, indicate an intent to establish an express trust over those accounts, as distinct from an arrangement corresponding to that adopted for the Australian-based CFD CSAs with the relevant accounts having been established in Singapore for administrative convenience. An email dated 27 May 2010 from Mr Cullen of MFGA requested MFGS to: "double check that Standard Chartered Bank Singapore is an approved foreign bank to hold Client Segregated funds" (Yap 14.5.2012, Ex YCG-4, p 232). An email dated 1 June 2010 from Mr Cullen to Ms Paroni of MFGS indicated that MFGA could open a "Client Segregated account" with Standard Chartered Bank in Singapore. Also on that day, MF Global's Regional Treasurer, Asia Pacific, sought approval for "the SCB client segregated account opening in Singapore for MFGA" and Ms Paroni confirmed that the entity that required the new account was MFGA (Yap 14.5.2012, Ex YCG-4, pp 230-231). Information provided by MFGA staff to the Liquidators was also consistent with a finding that MFGA did not appear to regard the Singapore-based accounts as being isolated from the remainder of the CFD CSAs (CSA Inspection Report, Ex CC-4A, [3.117]). 77MFGS relies on the fact that the Singapore-based accounts are titled "CFD Client Trust Account" (MFGS SIC [31]). I am conscious of the observation of Campbell J in Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at [19] that establishing an account titled "trust account" and payment into that account of money received from customers in payment for services not received at the time of payment is a powerful indication that a trust is intended. However, it is notable that the heading of the accounts refers to "CFD Client", a generic term, rather than to MFGS specifically. In my view, the title "trust account" also has limited significance here where, as MFGS accepted in closing submissions, that title was required for such accounts under Singapore law so that it did not necessarily indicate any intention of the parties as to the nature of the accounts. The accounts were, of course, in any event the subject of the statutory trust under s 981H of the Corporations Act. 78I turn now to the question whether, absent a separate trust over the Singapore-based accounts, the order for pooling of CSAs within the CFD Product Line should extend to the Singapore-based accounts. I proceed, consistent with the approach that I have adopted in respect of the Australian-based CSAs generally, on the basis that the Singapore-based accounts should only be pooled with the Australian-based CSAs if mixing or another proper basis for pooling is established. The case law has recognised that, where there are relatively clear property interests in particular property, this cannot "be altered by reference to some notion of common misfortune": Russell-Cooke Trust Co v Prentis [2002] EWHC 2227; [2003] 2 All ER 478 at [44]; Australian Securities Commission v Buckley (1996) 7 BPR 15,024; Re Magarey Farlam Lawyers Trust Accounts (No 3) [2007] SASC 9; (2007) 96 SASR 337 at [123], [145]; S B Thomas, "Clayton's Case and the 'Common Pool' Exception (2004) 15 JBFLP 177 at 183. 79In Re Global Finance Group Pty Ltd (in liq) [2002] WASC 63; (2002) 26 WAR 385 at [97], McLure J observed that a "mixed fund" is "one which contains funds from more than one source". The cases in which pooling has been sanctioned typically involve the mixing of funds across accounts: Australian Securities and Investments Commission v Enterprise Solutions 2000 Pty Ltd [2001] QSC 082; Australian Securities and Investments Commission v Letten (No 7) [2010] FCA 1231; (2010) 190 FCR 59; (2010) 80 ACSR 401. However, mixing may also be established where funds in one trust have been applied to meet obligations of another trust. In Australian Securities and Investments Commission v Nelson [2003] NSWSC 129; (2003) 44 ACSR 719 at [21], Austin J referred to mixing in that sense, although also noting that there had also been a physical mixing in bank accounts in that case. That approach was also adopted by Gordon J in Sonray at [92], when her Honour observed that one segregated account in the case was "tainted" when it was, inter alia, used for trading by clients who had deposited money into another segregated account. The corresponding situation here is where the Australian-based CSAs are used for payment of commission and fees referable to trading by MFGS (and ultimately its clients) who had deposited monies to the Singapore-based accounts, as I will note below. 80It is common ground that, with several exceptions, only deposits by MFGS (or its clients) and withdrawals by MFGS occurred into the Singapore-based accounts (Main Campbell Affidavit [176]; CSA Inspection Report, Ex CC-4A, [3.105]-[3.106]). The Liquidators' staff did not identify any deposits into the Singapore-based accounts from clients other than MFGS (or its clients) in the 12 months ending on 31 October 2011 and, in contrast to the position of the other CSAs, it may therefore be possible to identify the source of the funds in the Singapore-based accounts (Main Campbell Affidavit [197]). The evidence of MFGS's liquidator is also that the monies used to make the deposits into the Singapore-based accounts originated from MFGS's accounts created to hold its clients' money (Yap 14.5.2012 [25]). 81There were, however, occasions on which funds from the Australian-based CSAs were transferred into Singapore-based accounts. The first credit posted to the Singapore-based SGD account of $1,000 on 8 December 2010 was from the Westpac SGD CFD CSA (CSA Inspection Report, Ex CC-4A, Exhibit B(ii)). On one occasion, a CAD $100,000 deposit not sourced from MFGS client funds was deposited into a CAD Singapore account (CSA Inspection Report, Ex cc-4A, [3.116]). Mr Yap's evidence is that this amount was subsequently paid out of the Singapore account, leaving the nett balance unchanged (Yap 11.5.2012 [32]) but the Plaintiffs point out that that payment was not made back to an Australian CFD CSA and did not return the Australian-based CSAs or the CAD Singapore account to the position prior to this transaction. 82There are several indicators that the Singapore-based accounts and Australian-based CSAs were operated together, in a wider sense. It appears that there was no separate reconciliation to determine the extent of MFGS's entitlements at the time the Singapore-based accounts were opened. The Liquidators have also identified four requests for withdrawals made by MFGS in September and October 2011, which resulted in funds totalling USD $6 million and AUD$2.5 million being withdrawn for the benefit of MFGS from Australian-based CSAs rather than the Singapore-based accounts (CSA Inspection Report, Ex CC-4A, [3.115]; Strawbridge Affidavit [8]). Further withdrawals were made from the Australian-based CSAs in December 2011 and January 2012 for the benefit of MFGS in the amount of SGD$7.7 million and AUD$1.1 million. It appears that MFGS's entitlements, by way of "free equity" were sufficient to justify such withdrawals. In my view, these withdrawals do not establish "mixing" of monies between the Singapore-based accounts and the Australian-based CFD CSAs, but indicate only that MFGS was treated as having an entitlement to monies held in the Australian-based CSAs in addition to monies held in the Singapore-based accounts. 83The Singapore-based accounts (other than the Singapore HKD CSA) were included within the calculation of CFD positions for the excess funds reports for CFDs for cash sweeps (Main Campbell Affidavit [198(c)]) by which MFGA recovered interest, commission and fees payable under the CFD client agreements. MFGS was liable, under the relevant client agreement, to pay, inter alia, commission in respect of each CFD trade, electronic trading platform charges and transaction charges and fees and specified additional charges in respect of Equity and FX CFDs (CFD client agreement, cl 22, Schs 1 and 2). However, no cash sweeps from the Singapore-based accounts were identified during the Inspection Period (CSA Inspection Report, Ex CC-4A, [3.104], [4.25]) and it is likely that any commission, fees and (potentially) interest payable by MFGS was discharged from cash sweeps from the Australian-based CSAs. Although this does not involve monies from the Australian-based CSAs being deposited into the Singapore-based accounts, the fact that these amounts were withdrawn from the Australian-based CSAs suggests that monies subject to the statutory trust over the Australian-based CSAs were applied to meet obligations which should properly have been met from the Singapore-based accounts. MFGS responds that the fact that no fees or charges have been taken from the Singapore-based accounts is not to the point since there is no evidence as to their likely quantum (although, I interpolate, there is no reason to think it is small) and, to the extent that fees or charges are owed, MFGS accepts that MFGA is entitled to them. 84MFGA also undertook hedging on a nett basis of CFD transactions with Deutsche Bank including transactions for MFGS (and its clients) (Main Campbell Affidavit [198(a)]). Margin required by Deutsche Bank was not calculated separately by reference to the CFD trades between MFGA and MFGS (CSA Inspection Report, Ex CC-4A, [3.110]). It appears that in the order of $26 million was withdrawn by MFGA from three of the Singapore-based accounts for margin payments. Receipts from hedging with Deutsche Bank were largely paid into the Australian-based CSAs (CSA Inspection Report, Ex CC-4A, [3.109]) and there were only relatively small deposits from hedging transactions ($421,000) into the Singapore-based SGD, CHF and CAD accounts (MFI1 p 8, CSA Inspection Report, Ex CC-4A, Appendix 9). These transactions do not involve the deposit of funds from the Australian-based CSAs to the Singapore-based accounts. However, if too much was withdrawn from the Singapore-based accounts by way of margin, then monies subject to the statutory trust over the Singapore-based accounts were applied to meet obligations which should properly have been met from the Australian-based CSAs; and, if too little was withdrawn, monies subject to the statutory trust over the Australian-based CSAs were applied to meet obligations which should properly have been met from the Singapore-based accounts. The deposit of receipts from hedging to the Australian-based CSAs in turn gives rise to a potential diminution of the Singapore-based accounts. 85RMF submits that the result of these matters is that the Singapore-based accounts and the Australian-based CSAs have been so mixed that it is now practically impossible to ascertain entitlements to each of Singapore-based accounts and the Australian-based CSAs and: "the only way to achieve a fair outcome as between MFGA CFD Clients, including MFGS and its clients, in a pragmatic and even-handed way is to group the Singapore based CSAs and the Australian based CSAs into a single pool." On the other hand, MFGS submits that MFGA's CFD clients do not have equal claims with MFGS to the funds in the Singapore-based accounts and those funds should not be pooled. MFGS contends that, prima facie, there is no reason for clients other than MFGS who did not deposit funds into the Singapore-based accounts to receive any entitlement from those Singapore-based accounts, and that a direction for pooling of the Singapore-based accounts and the Australian-based CFD CSAs would mix what is presently unmixed. 86On balance, I have concluded that the case for pooling the Singapore-based accounts has been established. I would not have considered that the small number and size of money transfers from the Australian-based CSAs into the Singapore-based accounts were sufficient, without more, to warrant a direction for pooling. However, it seems to me that direction is justified by the fact that commission and fees for MFGS (and its clients) who had deposited monies to the Singapore-based accounts was paid, by excess funds transfers, from the Australian-based CSAs. I do not think it is answer to that fact that, as MFGS contends, the position of the trust over the Australian-based CSAs could at least partly (where MFGS is in liquidation) be restored by a claim by MFGA against MFGS for liabilities of the Singapore-based accounts which were in fact met out of the Australian-based CFD CSAs. 87I am reinforced in that view by the fact that payment of margins and recoveries appear to have proceeded on the basis that the Australian-based CFD CSAs and the Singapore-based accounts were treated as integrated accounts, consistent with the fact that margins were paid on a nett basis across the CFD Product Lines rather than separately by reference to trading by MFGS and other CFD clients of MFGA. The amount of any overpayment or underpayment of margins from the trust over the Singapore-based accounts is unknown and probably unknowable (because margins were paid on a nett basis rather than a client basis) and the amount of any overpayment of recoveries to the Australian-based CSAs is also unknown. In the absence of pooling, it is very likely, and possibly inevitable, that the trust over one of those accounts will benefit at the expense of the other, although it is not known from the evidence which will be the winner and which the loser. This also seems to me to be a strong reason to order pooling of the Singapore-based accounts with the Australian-based CFD CSAs. 88Accordingly, I will direct the Liquidators in the MFGS Proceedings that they may properly proceed on the basis that the Singapore-based accounts and the Australian-based CFD CSAs may be pooled. I consider that it also proper to make a declaration to that effect, where the issues has been fully contested on the basis of evidence led in the MFGS Proceedings. Issue 3 - Whether foreign currencies are "money" for the purposes of reg 7.8.03(6) 89The Plaintiffs also seek a direction as to whether the Liquidators are justified in proceeding on the basis that foreign currency is "money" for the purposes of Pt 7.8 Div 2 of the Corporations Act and the Corporations Regulations (Further Amended Originating Process [2]). 90In my view, foreign currency should be treated as "money" for the purposes of reg 7.8.03(6) for the reasons noted by Gordon J in Sonray above at [95]ff. In particular, the purpose of reg 7.8.03(6), namely to ensure a pro-rata distribution of money in client segregated accounts in the event of a deficiency, would be undermined if those accounts denominated in foreign currencies were outside the scope of that regulation. As her Honour noted, that approach is also consistent with English case law and academic commentary which prefers the view that foreign currency should be regarded as money: The Halcyon the Great [1975] 1 WLR 515 at 520; [1975] 1 All ER 882; Sonray above at [99]. 91Accordingly, I will make a direction, and a corresponding declaration, that the Liquidators are justified in proceeding on the basis that foreign currency is "money" for the purposes of Pt 7.8 Div 2 of the Corporations Act and the Corporations Regulations. Issue 4 - Conversion to Australian dollars 92The Plaintiffs also seek a direction as to whether funds in foreign currency in CSAs (subject to any particular exclusions, and if so, which) should be converted to Australian dollars for the purpose of being distributed (Further Amended Originating Process [3]). Further or alternatively, the Plaintiffs seek a declaration that the Liquidators may convert any balances in CSAs held in foreign currency into Australian dollars (subject to any particular exclusions, and if so, which) prior to distribution to the persons found to be entitled thereto (Further Amended Originating Process [3A]). The Court has jurisdiction to make such a direction at least pursuant to its powers under the Trustee Act. 93The Plaintiffs contend that, in order to distribute the funds, foreign currency balances in the CSAs and amounts recovered by MFGA from its counterparties ("Recoveries") should be physically converted to Australian dollars prior to distribution (subject to the possible exclusion of the Singapore-based accounts containing foreign currency claimed by MFGS) (Plaintiffs SIC [163] - [174]; Plaintiffs SIR [16] - [20]). The Plaintiffs contend that an orderly distribution could not occur with some clients receiving money in foreign currency, particularly because there is a mismatch between client's claims in foreign currencies and the foreign currency actually held by MFGA, owing to the manner in which MFGA operated the CSAs (Distribution Report, Ex CC-8A, [3.5]). 94RMF submits that, so far as there is pooling, there must be at least a notional conversion of all pooled balances to a common currency on the same date and machinery directions may be made (RMF SIC [51]-[53]). GFL submits that, if it is accepted that the CSAs can be pooled, the funds in foreign currency CSAs within the pools should be converted into Australian dollars prior to being distributed to clients, so that only one cheque is required to be written and distributed to each client in the pool. GrainCorp took no position in respect of this issue due to potential conflicts within the class represented, but drew to the Court's attention that it had been asked by some Futures clients to argue that foreign currency held in the CSAs be distributed in specie to avoid exchange rate losses if these currencies are to be converted into Australian dollars (GrainCorp SIC [63]-[64[). Underdog noted that it was not clear whether this issue had uniform consequences for Online FX clients and it also took no position on this issue (Underdog SIC [79] as corrected orally, T 87). MFGS submits, in the MFGS Proceedings, that foreign currency balances in the CSAs relating to Futures Clients may be appropriately converted to Australian dollars and no occasion arises for conversion of the foreign currency balances of the Singapore-based accounts (MFGS SIC [48]-[49]). 95The evidence which supports a pooling of the accounts within Product Lines also indicates that the amount of funds by currency in each of the 51 CSAs as at the Appointment Date was not determined solely, or perhaps even primarily, by reference to clients' instructions and activities, but by practices such as Inter-Product Currency Exchanges which altered the currency profile of the Product Lines. As I noted above, clients were also able to trade in currencies in respect of which they had not deposited (Distribution Analysis Report, Ex CC-8A, [3.25]) and MFGA does not appear to have matched or managed its foreign currency assets as against its foreign currency liabilities (Distribution Analysis Report, Ex CC-8A, [11.3]). 96The client agreements were not consistent in their treatment of currency conversion. Clause 24(b)-(c) of the CFD client agreement permitted MFGA to determine the currency in which amounts payable by MFGA to the client were paid; the Futures client agreement did not contain a corresponding provision. Clauses 24(b)-(c) of the Margin FX client agreement provided for MFGA to decide whether to accede to a client's request as to the currency in which it made payments. Clause 23(b) of the Online FX client agreement provided for payment in the Base Currency, as defined, but subject to MFGA determining otherwise. The Plaintiffs note that approximately 56% of Online FX clients had AUD as their "Base Currency"; approximately 40% selected USD; and remaining clients had a Base Currency in NZD, GBP or SGD (Ex CC-4, 2/554). 97I am satisfied that a direction should be made that confirms the entitlement of the Liquidators to convert the funds, including the funds held in the Singapore-accounts into Australian dollars. In Sonray above at [95], Gordon J held that the liquidators in that case had power to convert the balances in client segregated accounts in foreign currency into Australian dollars, by analogy with the situation that exists for insolvent companies provided for by s 554C of the Corporations Act. I take the same view. The matters to which I have referred above, and most significantly the lack of underlying logic to which currencies are in which CSAs, support the conversion of foreign currency balances to Australian dollars. This direction would extend to the Singapore-based accounts given that I have found that there is sufficient justification for them to be pooled with the relevant Australian-based accounts. 98The Plaintiffs note that an additional question arises as to when the Liquidators should convert foreign currency balances physically held in CSAs or Recoveries to Australian dollars. The Plaintiffs submit that, as a practical matter, the physical conversion of foreign currency balances in the CSAs and Recoveries must occur prior to the date of payment, because it is necessary to know the Australian dollar value of the fund to be distributed to clients which will form the denominator for the purpose of permitting "the money in the account must be paid in proportion to the amount of each person's entitlement" in reg 7.8.03(6)(d). In principle, I accept this submission but it is a matter that should be addressed in respect of the form of orders in the proceedings. Issue 5 - Questions as to entitlements 99The proceedings involve several questions as to the entitlements of clients of MFGA. The Plaintiffs seek a direction or alternatively a declaration as to the manner in which a client's entitlement to be paid out of the CSA(s) for the purposes of the Corporations Regulations should be calculated and as at what date (Further Amended Originating Process [6]). Several interrelated questions arise under this head, including the nature of an "entitlement" under reg 7.8.03(6) of the Corporations Regulations; how it is to be calculated and the date at which it is to be calculated. It will also be necessary to determine a specific issue raised by Jilliby, whether clients with cash held in the CSAs or an entitlement to the exercise of a contractual discretion by MFGA to pay the amount of "free equity" as at the Appointment Date are entitled to the amounts in the CSAs to the exclusion of persons with open positions as at 31 October or 1 November 2009. The nature of "entitlement" under regs 7.8.03(4) and 7.8.03(6) 100As I noted above, reg 7.8.03 applied, inter alia, once administrators were appointed to MFGA on the Appointment Date. When that regulation applied, the account(s) maintained by MFGA under s 981B of the Corporations Act were taken to be subject to a trust in favour of each person who was "entitled" to be paid money from the account (reg 7.8.03(4)) and the money in that account was to be paid, inter alia, to persons "entitled" to be paid money from the account (reg 7.8.03(6)(c)-(d)). Neither the Corporations Act nor the Corporations Regulations define what is meant by "entitled to be paid money from the account" or "the amount of each person's entitlement" or equivalent expressions in Pt 7.8 Div 2 Subdiv A and the Corporations Regulations and particularly regs 7.8.03(4) and 7.8.03(6). Dictionary definitions of the terms are of limited assistance. The Collins Dictionary (1987 ed) defines the term 'entitle' as:

1. 'to give (a person) the right to do or have something; qualify; allow.' The Shorter Oxford Dictionary (1973 ed) defines that term as:
2. 'To furnish with a title to an estate. Hence gen. to give a rightful claim to anything.' 2. 'To regard as having a title to something, or as being the agent, cause, or subject of anything'. 101The discussion of that term by Kirby J in Chang v Laidley Shire Council [2007] HCA 37; (2007) 234 CLR 1 is of greater assistance. His Honour observed at [40]: "... I have preferred in these reasons to use the word "entitlement" rather than "right". It indicates that what is involved may fall short of an immediately enforceable legal right in the strict sense." This statement was noted by Steytler P in Western Australia v Richards [2008] WASCA 134; (2008) 37 WAR 229 at [37]-[40] and Hall J in Santos v Western Australia [2011] WASCA 216 at [157] in the context of accrued rights. Other cases consider the terms "entitle" and "entitlement" in specific contexts; for example Hill v Hasler [1921] 3 KB 643 (which considered the phrase "entitled to obtain possession"); Little v Registrar of the High Court of Australia (1991) 29 FCR 544 (which referred to the definition in the Shorter Oxford Dictionary in considering the meaning of "entitled to practise" as used in the Judiciary Act 1903 (Cth)); Council of the Law Society of New South Wales v Australian Injury Helpline Ltd [2008] NSWCA 627; (2008) 71 NSWLR 715 (where Adams J considered the phrase "an entitlement to recover money" and noted that "entitlement" must mean a legal entitlement). 102The case law indicates, and I accept, that, where client funds have been mixed in an account maintained under s 981B of the Corporations Act and that account is deficient, principles of trust law relevant to determining that question will be applicable, subject to the statutory regime. The relevance of trust law principles to the corresponding provisions in the United Kingdom was recognised by the Court of Appeal in Re Lehman Brothers International (Europe) (in admin) [2010] EWCA Civ 917, where Arden LJ noted at [65] that, where statutory rules established a trust with little elaboration, the Court would turn to general principles of trust law to determine the applicable rules and principles. In Sonray, Gordon J observed at [82]-[86] that, given the statutory trust imposed by section 981H(1), the words "entitled" and "entitlement" import "the principles applicable to trusts and, in particular, to deficient mixed trust accounts" such that "all contributors to a deficient mixed fund hold an equitable charge over the entire fund and its traceable proceeds to the value of their contributions." Her Honour referred to the principles applicable to deficient mixed trust accounts in cases such as Re French Caledonia Travel Service Pty Ltd (in liq) above and Australian Securities and investments Commission v Letten (No 7) above which involve a rateable distribution (at [84]) subject to equality of claims (at [86]) and also noted that one way in which differential treatment may be justified is the establishment of a remedy founded on tracing (at [86]). I note, however, that there may be limited occasion for such differential treatment once a relevant entitlement has been established, since reg 7.8.03(6)(d) expressly requires a deficient account to be paid in proportion to the amount of each person's entitlement and to that extent mandates a pari passu distribution. 103One possible approach to determine a client's "entitlement" under reg 7.8.03(6) is a "contributions" based approach, in the sense referred to by the Supreme Court of the United Kingdom in considering the corresponding (but by no means identical) English provisions in Re Lehman Brothers International (Europe) above, where Lord Dyson (at [139]) distinguished between: "(i) the amount of client money which has actually been segregated at the date of the primary pooling event ("PPE") (the so-called "contributions basis" for participation) or (ii) the amount which ought to have been segregated at that date (the so-called "claims basis" for participation)". 104The Plaintiffs point to several matters which may support a "contributions" based method of determining a client's entitlement although, as will emerge below, that approach is not practicable in this case. Part 7.8 Div 2 Subdiv A of the Corporations Act and the associated Regulations apply to money paid to a licensee in connection with a financial service or product by or on behalf of a client or in the licensee's capacity as a person acting on the client's behalf (s 981A(1)) and protect money so paid in the event of a licensee becoming insolvent or ceasing to be licensed, by imposing an obligation to segregate those funds and a statutory trust. That Plaintiffs note that protection arguably does not extend further to provide a client with security in respect of contractual promises made by a licensee. 105The Plaintiffs also point out that the persons who have the benefit of a trust under reg 7.8.03(4) are those "entitled" to be paid money from the account, and not persons entitled to be paid money by MFGA generally, for example pursuant to a contract. Regulation 7.8.03(6) specifies the order in which payments are to be made and regs 7.8.03(6)(b)-(c) each refer to payments of monies "from the account" rather than to persons otherwise entitled to be paid money by a licensee. Regulation 7.8.03(6)(d) provides that "if the money in the account is not sufficient to be paid in accordance with paragraph (a), (b) or (c), the money in the account must be paid in proportion to the amount of each person's entitlement" (emphasis added). It is plain that what is to be distributed is the monies in the account, and it is to be distributed by reference to "entitlements", but that provides limited assistance in determining who has an "entitlement" against the account and, importantly, whether on "entitlement" is limited to a presently enforceable entitlement or extends to contingent entitlements. I will address the latter issue in paragraphs 135-145 below. 106In any event, I do not consider that a "contributions" based approach is the only means by which clients' "entitlements" under reg 7.8.03(6) can be determined. The Plaintiffs point out that MFGA does not have books and records recording the nett contributions made by clients to any particular CSA or Product Line and that its records of client accounts are not adequate to establish the nett contributions made to the CSAs by each client even if one were to look to contributions by Product Line rather than by CSA. It cannot have been the legislative intent that, if the information held by a licensee is insufficient for a contributions-based analysis to be performed, the regime for distribution of client monies under that regulation would fail, if another means could fairly be adopted to undertake that distribution. 107A second possible approach to determine a client's "entitlement" under reg 7.8.03(6) is the "claims" based approach, which was preferred by the Court of Appeal in Re Lehman Brothers International (Europe) (in admin) above and by the majority of the Supreme Court of the United Kingdom in Lehman Brothers International (Europe) (in admin) above at [127] per Lord Clarke, at [159] per Lord Dyson, and at [196] per Lord Collins. Although it is ultimately not necessary to decide the question on the facts of this case, I can see considerable attraction in that approach, which would have the result that a client's "entitlement" would be determined by reference to the position if the licensee had properly performed its obligations by, for example, depositing monies received on behalf of the client into the relevant account, rather than disregarding any monies which should have been, but were not, so deposited. The Plaintiffs point out that such an approach would, in the context of the Corporations Act and Regulations potentially include any amount paid to MFGA by a Futures Agent in respect of a particular client, under s 981A(1)(a) and s 981A(1)(b)(iii), which ought to have been deposited into that account. It would also have regard to any OTC Recoveries which should have been deposited in a CSA whether or not those monies had been deposited. 108A third possible approach is determination of such entitlements on a contractual basis, having regard to gross liquidation value ("GLV") of clients' positions as determined under the relevant client agreements. The Plaintiffs note that arguments in favour of a contract-based method of determining a client's entitlement include that the determination of the amount to which a client is entitled should have regard to the contractual terms agreed between the parties as to the basis on which that money was paid and the circumstances in which it (and profits made from trading) is to be repaid. The Plaintiffs also point out that the practical difficulties in adopting a contributions-based approach to entitlements do not arise if a contract-based approach is adopted and there is pooling of accounts within Product Lines (Plaintiffs SIC [215]-[218]; T41-T42). It appears that the only practical method of determining the clients' entitlement in the circumstances of this case is contract-based. Date for valuation of entitlements 109I now address the issue as to the date which should be used to determine a client's rateable entitlement for the payment of money from the CSAs. I should note that this issue is different to the question of the methodology to determine the relevant entitlement and the consequential question who has such an entitlement, which I will address in paragraphs 118-146 below. 110A single date must be adopted to value entitlements for the purposes of reg 7.8.03(6). As Briggs J noted in In re Lehman Brothers International (Europe) (in admin) [2009] EWHC 3228 (Ch) at [290]: "The starting point must I think be that any pari passu distribution to the beneficiaries of a trust fund which is or may be in shortfall must proceed by way of a single date for calculation and, if necessary, valuation of competing entitlements. Otherwise those competing entitlements cannot fairly be rated as against each other. For a cogent explanation why that must be so: see Re Dynamics Corporation of America [1976] 1 WLR 757 at 764 d to f. This much was, or became, common ground." In Sonray, Gordon J also observed at [112] that: "Whichever date is used to calculate a Sonray Client's rateable entitlement to money from the Pool will possess a degree of arbitrariness and will be more beneficial or detrimental to some Sonray Clients. Fairness requires only that the same date be applied to all Sonray Clients and all accounts. The Liquidators submitted, and I accept, that 22 June 2010, being the date of their appointment as administrators, is the logical date because active trading by Sonray Clients ceased as at that date. No party expressed a different view." 111In this case, there is no such consensus as to the date to be adopted. The majority of representative parties contended for calculations undertaken either at close of business on 31 October 2011, the day prior to the Appointment Date, or the Appointment Date, either undertaken with or without reference to the amounts for which positions were subsequently closed. RMF made no submission in chief as to which date should be used to determine a client's entitlement, but in reply adopted the submission of Transmarket that 31 October 2011 is the relevant valuation date. GFL submits that, if (as it contends) Margin FX and Online FX are pooled, clients' entitlements should be determined as at 31 October 2011. Jilliby submits that a client's entitlement should be determined as at the Appointment Date. Transmarket submits that the entitlement of Futures clients should be determined as at 31 October 2011. 112Underdog did not adopt a position as to this issue since the class of clients which it represented had different interests, but appropriately drew attention to several aspects of the statutory scheme which supported the adoption of a later date than 31 October 2011 and the Appointment Date, namely that: Regulation 7.8.03(6)(a) provides that the first priority of payment is to money that "has been paid" into the account in error. That would appear to include payments made in error after the appointment of an administrator (or any of the other events referred to in subsections (1) or (2)). It is not clear what reason there is to give the other paragraphs of subsection (6) an operation confined to the date of the appointment of the administrator if paragraph (a) is not so confined. Subsection (6) of regulation 7.8.03 speaks to the time of payment and not to the time of appointment of administrators or other events referred to in subsections (1) and (2): it deals with the treatment of money that "is to be paid". That is an indication that the "entitle[ments]" referred to in that subsection are to be determined on the date of payment. Regulation 7.8.03 is made pursuant to s 981F. That section, similarly, speaks of the making of regulations dealing with how money in CSA "is to be dealt with". Had it been intended to confine the date of determination of "entitle[ment]" to the date of the appointment of administrators, it would have been easy to use words to achieve that. There was an obvious available precedent in s 554(1), which provides: The amount of a debt or claim of a company (including a debt or claim that is for or includes interest) is to be computed for the purposes of the winding up as at the relevant date. 113Deutsche Bank submits that the proper date on which to measure entitlements is the date on which monies are to be paid out of the relevant CSAs. Deutsche Bank contends there is no basis for arbitrarily applying the law of insolvency to determine the date of measuring or the value of an entitlement to funds held in trust and there is no basis for selecting any other arbitrary date. Deutsche Bank contends that reg 7.8.03(6) has an ambulatory application, reflecting the fact that receipts will come in after the Appointment Date and that the actual value of those receipts must be taken into account (Deutsche Bank SIC [6]-[13]). 114I have referred to the structure of the relevant provisions above. Regulation 7.8.03(4) imposes a trust in favour of a person entitled to be paid money from an account maintained for s 981B at the point that, relevantly, an administrator is appointed to a financial services licensee under ss 436A-436C of the Corporations Act. Regulation 7.8.03(6) specifies how money in the account is to be paid. In my view, the adoption of the Appointment Date as the date for the quantification of entitlements finds strong support in the approach adopted in trust law generally and in insolvency. 115The proposition that the date when a fund is first constituted should be adopted for the purposes of a pari passu distribution of a trust was recognised in Re Lines Brothers Ltd (in liq) [1983] 1 Ch 1 at 14, 17-18; [1982] 2 All ER 183 at 190, 192-194 per Lawton LJ and Brightman LJ, with whom Oliver LJ agreed. Lawton LJ there noted that: "Creditors contractual rights to be paid by the Company become under the statutory scheme a statutory right to share in the Trust Fund. The size of this fund has to be ascertained as soon as possible because until it is ascertained it cannot be applied in satisfaction of the Company's liabilities ... ." Brightman LJ also referred to the observations of Lord Westbury in Re European Assurance Society Arbitration (Wallberg's Case) (1872) 17 SJ 69 at 70 to the effect that property of a debtor company is subject to equal distribution among creditors at the date of the winding up order because: "Then, and not until then, is the company divested of its property. In effect, the property is handed over to the official liquidator to be broken up and distributed in proportionate parts among the creditor claimants who are entitled. Well, then, it follows immediately that the valuation must be made when the necessity for a valuation arises. The necessity arises, as I have said, when the order to wind up is made; and that, therefore, becomes necessarily the date of the valuation." 116That approach was followed by Briggs J in Re Lehman Brothers International (Europe) (in admin) [2009] EWHC 3228 (Ch) at [291]-[294]. Briggs J was there considering the application of the rules dealing with client money under the Client Assets Source Book published by the Financial Services Authority, and those rules, as a matter of interpretation, supported a distribution based on entitlements at the time of the primary pooling event. His Honour observed (at [291]) that: "... the concept of a pari passu distribution of a trust or other fund in shortfall is as old as the hills, and the issue as to the correct date for calculation or valuation of the claims of all those entitled has been worked out by the courts, and subsequently adopted in relation to the insolvency code by Parliament, over many years. A consensus that the date when the fund is first constituted for the purposes of pari passu distribution is the correct date is easy to discern." His Honour noted that that reasoning was applicable notwithstanding that monies were previously held on trust, on the basis that the valuation had to take place as soon as it becomes necessary, as a precondition to the pari passu distribution of the fund (at [295]). 117In the present case, the trust under reg 7.8.03(4) is imposed on the Appointment Date and that supports a quantification of entitlements under that trust for the purposes of distribution under reg 7.8.03(6) as at that date. The arguments for calculation as at the date of payment, which Underdog helpfully identified, are weakened by the fact that it will always be necessary to determine entitlements prior to the date of payment so as to allow the amounts to be paid to be calculated. In that case, a determination at the Appointment Date has a principled basis which an arbitrary later date closer to the date of payment would lack. The difference between a determination of entitlements at the Appointment Date and at the later date of payment under reg 7.8.03(6) may be reduced, at least where clients' positions are closed on a licensee's insolvency, if the concept of "entitlement" includes (as I hold in paragraphs 135-145 below) at least contingent entitlements which will be realised on closing clients' open positions. Methodology for determination of entitlements 118The representative parties also put submissions as to the methodology to be used in applying the contract method to determine client entitlements and, in particular, as to whether the value of such entitlements should take account of the price at which open positions were closed out after the Appointment Date. I have concluded that I should give a direction to the Liquidators in respect of this question which involves legal issues and given the potential for dispute between parties with different economic interests in the outcome. 119The Plaintiffs identify possible approaches to the methodology for valuing client entitlements as GLV calculated on the basis of mark-to-market prices on 31 October 2011 (being the day before the Appointment Date and the last date on which clients were permitted to trade) or realised close-out prices (Plaintiffs SIC [185]-[203]; Plaintiffs SIR [23]-[24], [28]). Under the first of those approaches, GLV is calculated under the relevant client agreements as the balance of a client's account (in respect of a particular product) if the client were to close out all open positions at the then current market price on 31 October 2011 (less any transaction charges and adjustments). The second of those approaches involves calculation of the clients' contractual entitlement using realised close out information provided by counterparties when open positions were closed out after the Appointment Date (to the extent that such information is available) as opposed to utilising mark-to-market prices as at 31 October 2011 (Main Campbell Affidavit [201]-[206], [260]-[267]). 120The Plaintiffs point out that the client agreements in relation to OTC Products granted MFGA the discretion to determine the closing date and price; a Futures client would ordinarily receive the price at which their position was closed out under the rules of the relevant exchange and/or clearing house, not a price based on what would have happened had their position been closed out at some other time (such as 31 October 2011); and the calculations which utilised the close-out information were otherwise generally conducted in the same manner as they would have been in the ordinary course of business prior to the Appointment Date. The Plaintiffs also note that the Liquidators' approach seeks to value clients' claims in respect of open contracts utilising the prices actually received in respect of contracts that were closed out and submit that, as a general proposition, it is appropriate to have regard to events after the Appointment Date when valuing contingent or future claims, such as open contracts as at the Appointment Date: Re Opes Prime Stockbroking [2008] FCA 1425; (2008) 171 FCR 473; 68 ACSR 88 at [71]-[72]. 121In its written submissions, RMF submitted that a client's entitlement should be calculated by reference to GLV based on 31 October 2011 mark-to-market prices or, alternatively, the value of a client's entitlement may be assessed on a realised value using close-out information or as estimated by the Liquidators and, in oral submissions, RMF contended that GLV was the appropriate measure of the value of the clients' entitlement being a contemporaneous assessment of the present value of the clients' contracts, nett of costs (T185-T186). Underdog assumes the adoption of a "contract" methodology for determining a client's entitlement and, having regard to the different interests within the class it represents, puts various submissions in order to put relevant matters before the Court. 122Transmarket contends that entitlements of Futures clients should be calculated by reference to GLV based on 31 October 2011 mark-to-market prices and should not be adjusted for subsequent close out transactions (Transmarket SIC [36]). Transmarket contends that GLV as at that date best reflects the actual value of the open positions at that date because the prices used to calculate it were derived from actual transactions in the marketplace as between market participants in a market functioning in the ordinary way (Transmarket SIC [36]). Transmarket submits that subsequent realised prices do not provide a good guide as to the actual value as at that date because they were the product of transactions instigated by the relevant exchanges up to 10 days after the Appointment Date, driven by the unusual circumstances pertaining to MFGA and not reflecting the ordinary workings of the marketplace (Transmarket SIC [15]-[17], [22]). Transmarket also contends that reference to subsequent events is unnecessary because the GLV as at the Appointment Date can be easily identified for each Futures client (T75). Transmarket also contends that adoption of the GLV as at 31 October 2011 is consistent with the approach taken by Briggs J in Re Lehman Brothers International (Europe) (in admin) above and by Gordon J in Sonray above (Transmarket SIC [38]-[39]). 123GrainCorp and Deutsche Bank contend that entitlements should be calculated on the basis of actual close out values, either because the appropriate date for calculating entitlements is the date of close out of the contracts, or because it is appropriate to have regard to actual close out values even if the appropriate date is 31 October 2011 (GrainCorp [67]-[75]; Deutsche Bank [6]-[19]). In particular, GrainCorp contends that, on its proper construction, reg 7.8.03(6) is concerned with money actually held or received by MFGA rather than "notional" entitlement and this includes money received after an event described in reg 7.8.03(2). GrainCorp also contends that the calculation of GLV based on the actual close-out value of transactions is consistent with the Court tending towards an assessment of loss or value where uncertainties have been made certain. MFGS submits, in the MFGS Proceedings, that a contract-based approach to entitlements should be adopted on an "actual close-out basis," but subject to the resulting calculation of close-out prices being reasonable and in accordance with market practice. MFGS notes that there is a dispute between MFGA and MFGS as to how close out prices ought to have been arrived at, and whether MFGA is entitled to the profits on the forced close-out of transactions resulting from MFGA's insolvency and that those matters are appropriately the subject of the 'proving' process that will follow the determination of this proceeding (MFGS SIC [50]-[53]; MFGS SIR [25]). 124This question is not a simple one since there are factors supporting each of the two possible approaches. The factors which I have referred in paragraph 109-117 above, as supporting a valuation of entitlements as at the Appointment Date, arguably also support the approach of adopting GLV based on mark-to-market prices as at 31 October 2011 as the contractual measure of a client's entitlements as at the Appointment Date, as contemplated by the client agreements. I note that Briggs J adopted a corresponding approach in Re Lehman Brothers above at [310], albeit in a context where the Client Assets Source Book published by the Financial Services Authority provided clearer guidance as to the date of assessment of a client's entitlement. Briggs J made the powerful observations (at [310]-[311] that, when client positions were pooled by the operation of those provisions: "... the previously separate fortunes and entitlements of clients, whether in relation to separate currencies or separate open positions, are pooled into a common fund, in the subsequent fortunes and misfortunes of which they all share rateably. True it is that, in form, the open positions are not themselves pooled, but where they relate to exchange traded cash settled margin transactions linked to client transaction accounts, the economic consequences of changes in their value are reflected in those accounts which, as from the [pooling date], form part of the common pool. It is therefore to my mind entirely appropriate and just that gains and losses following the [pooling date], whether in currency or open positions, the economic effects of which are reflected in changes in value ... are shared rateably among the clients in accordance with their respective entitlements calculated as at the [pooling date]. Indeed, calculation as at that date is the precisely appropriate moment, because it is also the point in time at which their interest change from being separate to being interests in a common pool." Briggs J also rejected an argument that the valuation of positions at that date should be carried out with the benefit of hindsight, and observed (at [314]) that, where positions are constantly marked to a changing market, it would be artificial "to pretend by reference to much later closing prices, that the open positions were in truth worth the amount for which they later closed". A corresponding approach seems to have been adopted by Gordon J in Sonray above at [112], although there no party contended for a different position. 125There is some similarity between the "pooling" of client interests under the Client Assets Source Book published by the Financial Services Authority, considered in Re Lehman Brothers above, and the "pooling" which occurs here within the four Product Lines from the Appointment Date, arising from matters including regs 7.8.03(4) and 7.8.03(6); the fact that CSAs are to be pooled across the four Product Lines (see paragraphs 44-67 above); and my findings below that "entitlements" extend to contingent entitlements including on closing open positions, at least where those entitlements are determined on a contractual basis (see paragraphs 135 - 145) and that Recoveries are received by MFGA "on behalf of" clients within the relevant Product Lines for the purposes of s 981A (see paragraphs 184-241). 126There are also numerous cases, which were reviewed in Re Griffiths [2004] FCAFC 102; (2004) 139 FCR 185, that have held that foreign currency debts should be proved according to their conversion value as at the date of bankruptcy, on the basis that those debts were neither contingent nor difficult to value. 127On the other hand, the authorities indicate that a valuation of open positions could appropriately have regard to subsequent close out prices, at least where open positions are contingent or difficult to value as at the Appointment Date. In Re Lines Brothers Ltd (in liq) above, the Court of Appeal referred to cases including Re Northern Counties of England Fire Insurance Co (1880) 17 Ch D 337 as: "... examples of a claim which was difficult or impossible to value at the date of the winding up. So it was necessary to resort to subsequent events in order to enable a valuation to be made as at the date of the winding up. " In Opes Prime Stockbroking Ltd above at [72], Finkelstein J held that regard should be had to subsequent events in determining the position of counterparties whose delivery obligations had not yet fallen due. As GrainCorp points out, a calculation of GLV based on the actual close-out value of transactions would, on one view, be consistent with the court tending towards an assessment of loss or value where uncertainties have been made certain. As GrainCorp also points out, a calculation on that basis avoids the risk that client entitlements are calculated on the basis of assumptions made as to the values realised on close-out of positions (which are necessarily made in assessing GLV) that could be inconsistent with the ultimate outcome. 128On balance, I am persuaded that the better approach is to value client entitlements by reference to GLV as at the Appointment Date calculated on the basis of 31 October 2011 mark-to-market prices. The reasoning of Briggs J in Re Lehman Brothers above emphasises that there is consistency in, on the one hand, pooling CSAs across Product Lines and adopting a contractual basis for assessment of entitlements as at the Appointment Date and, on the other, treating clients whose entitlements form part of the relevant pools as sharing proportionately in the performance of those pools (including open positions which, when realised, will contribute to those pools) from that date. 129Here, GLV as calculated under the client agreements provides a contractual basis for assessment of the value of a client's position at the Appointment Date, which is objective in character and adopted by both MFGA and the clients for important contractual steps such as calculation of clients' "free equity" potentially available for withdrawal. There is not, in my view, uncertainty in that calculation in the sense contemplated in Re Northern Counties of England Fire Insurance Co above or Re Lines Brothers Ltd (in liq) above. The close-out price for positions at later dates is not more certain, but simply different by reason of market changes analogous to the effect of exchange rate variations after the date of conversion of a foreign currency debt. I am reinforced in that view by the fact that it is at least possible that, as Transmarket contends, market prices later achieved in closing out positions were distorted by the failure of MFGA, although the extent of any such distortion would depend on the depth of the market in the relevant products and there was no evidence before me to establish that such a distortion in fact occurred. 130Transmarket contends that, if, contrary to its preferred approach and the approach which I have accepted, account is to be taken of subsequent realised values, then the calculations should be performed on a "nett basis" to reflect the actual transactions that were entered into rather than the gross basis advanced by the Liquidators. I should address that contention in case an appellate court takes a different view as to the proper application of GLV calculated on the basis of 31 October 2011 mark-to-market prices to determine client entitlements. 131The approach for which Transmarket contends involves applying the closing price on 31 October 2011 to matched long and short positions for which no close-out transactions occurred and applying the realised prices to the nett long or short positions that were actually closed-out (Transmarket SIC [29]-[30). The Plaintiffs submit that this approach relies on notional prices when actual prices are known in many instances and ignores that the actual prices reflect the supply and demand in closing out unmatched contracts, and therefore would appear to provide a better proxy for the valuation of matched contracts. The Plaintiffs submit that, if Transmarket's submissions are accepted, those with long positions will receive a windfall at the expense of those with short positions. 132Conversely, Transmarket contends that a calculation based on a gross basis does not take into account the fact that the close out of the open positions was performed on a nett basis and creates notional profits and losses and does not reflect the economic consequences of the close out transactions and matching process undertaken by exchanges (Transmarket [23]-[32]). Transmarket contends that its approach is consistent with the approach adopted by the liquidator where the MFGA gross long position equalled the gross short position, where the value applied by the liquidators was the closing market price on 31 October 2011 (Transmarket SIC [25]). The Plaintiffs respond that the reference to the valuation methodology adopted by the Liquidators in respect of the Futures positions held by MFGA which were entirely matched does not assist Transmarket, since there was no available price in respect of the close out of those positions and no alternative other than for the Liquidators to adopt the values as at 31 October 2011 when valuing those positions. 133No expert evidence was led to assist the Court with these matters. In the absence of such evidence, each approach seems to me to have advantages and disadvantages. I am not satisfied that Transmarket has established that the approach for which it contends is preferable to that which the Liquidators propose if, contrary to the view that I have expressed above, the value of client entitlements was to be determined by reference to realised close-out prices rather than GLV calculated on the basis of 31 October 2011 mark-to-market prices. I should add that Transmarket (and Deutsche Bank) also denied MFGA's entitlement to close a commission in closing out positions. That issue was not squarely raised by the issues identified for determination in the proceedings; interested parties may not have addressed it in submissions; and it is not appropriate for the Court to determine it. 134Accordingly, I will direct the Liquidators that they would be justified in determining entitlements on a contractual basis as at the Appointment Date, by reference to GLV calculated under the client agreements on the basis of 31 October 2011 mark-to-market prices. The precise form of that direction will need to be addressed in submissions as to orders. Whether "entitlements" to monies in CSAs are limited to cash clients or clients with "free equity" 135Jilliby contends that only clients who had closed all of their positions as at the Appointment Date ("cash only clients") and "free equity clients" (in the sense described below) are entitled to be paid the money in the CSAs as at the Appointment Date since only clients with such claims had a present contractual entitlement to be paid money from the CSAs as at that date (Jilliby SIC [5(b)(ii)(A)], [147(b)]; Jilliby SIR [3(c)], [32], [33], [37(a)]). Alternatively, Jilliby contends that only "cash only" clients are entitled to be paid money from the CSAs. Jilliby contends that clients with open positions as at the Appointment Date are not entitled to paid money from the CSAs and may only prove for such claims against Recoveries. 136The term "free equity clients" refers to clients who had "free equity" in their client ledger accounts at the Appointment Date, which MFGA had a discretion whether to pay to them on request. For example, the term "free equity" is defined in the CFD client agreement as: "the GLV of the Client's CFD Account less the Initial Margin, any Additional Margin and any brokerage/commission, fees and interest amounts payable by the Client to MFGA in connection with a CFD not already taken into account in the GLV, calculated by MFGA in AUD on an aggregate basis across all the Client's open CFD positions". A client could, at MFGA's sole discretion, withdraw that amount under clause 5(k) of the CFD client agreement, or post that amount as Initial Margin in respect of any new CFD positions that the client wished to enter. Similar provisions are contained in clause 5(k) of the CFD (ETrade) client agreement (cll 10(d), 19) (Ex CC-4, 2/242, 248) and the CFD (Prime Services) client agreement (cll 9(d), 18) (Ex CC-4, 272, 276). 156The Plaintiffs also note that set off of positive and negative client account balances might also be justified by the contractual right of combination in the client agreements, which when exercised results in only one balance owing between the client and MFGA in respect of the combined (ledger) accounts. They point out that the Family Account arrangements by which clients could margin and nett interest across accounts were apparently predicated upon MFGA's right of combination or set off. 157In Sonray, the liquidators sought a direction as to whether they were entitled to set off positive cash balances against negative cash balances in all accounts owned by the same client. Gordon J held (at [115]) that the contractual terms between Sonray and each client entitled the liquidators to set off or nett off positive cash balances with negative cash balances. I do not consider that s 981E of the Corporations Act requires a different result. That section relevantly provides that money to which the Subdivision applies is not capable: "(a) of being attached or otherwise taken in execution; or (b) of being made subject to a set off, security interest or charging order, or to any process of a similar nature; except at the suit of a person who is otherwise entitled to the money or investment." In my view, that section is directed to protecting clients' interests in CSAs against third parties exercising rights of set off against or taking security from the licensee over the CSAs and does not prevent an agreement between a client and a financial services licensee to set off positive and negative balances on different accounts in determining the client's nett position. 158The Plaintiffs submit that set off as described above is permissible in the current circumstances, at least in relation to accounts within the same Product Line, and is in the interests of the majority of clients and the efficient distribution of client money. The Plaintiffs note that, if there is no set off (taking 31 October 2011 values by way of example), MFGA would distribute funds to certain clients on the basis of their positive GLV of approximately AUD$16 million but would have to pursue those same clients for debts owed to MFGA of approximately AUD$16 million. The Plaintiffs acknowledge that set off would result in the positive GLVs of clients being set off at 100 cents in the dollar. As noted above, PHRS contends that the relief sought by the Liquidators does not permit a direction to be made regarding the exercise of their discretion and that the Liquidators' evidence would not justify such a direction (T141, T246-247). 159I am satisfied that MFGA is entitled to exercise a right of set off and I am satisfied that, on balance, it is appropriate for the Liquidators to do so although this will give the affected clients the benefit of 100 cents in the dollar in their positive balances, in the interests of the efficient distribution of the relevant client monies. I will make a direction to that effect. Issue 7 - Accounts with small balances 160The Plaintiffs seek a direction that the Liquidators are justified in treating clients, in respect of each client account with a balance of $1 (or some other amount) or less, as having no entitlement to participate in CSAs, Futures Recoveries or OTC Recoveries, in respect of each such account (Further Amended Originating Process [6B]). No party opposed the proposed direction. 161There are 980 client accounts with a GLV of $1 or less, totalling AUD $337.95 (Third Campbell Affidavit [18]). The Plaintiffs point out that it is self-evident that the administration costs which would be incurred in processing the claims in respect of client accounts with a gross liquidation value of less than $1 will far exceed their total value. It is therefore expedient to permit the Liquidators to ignore these claims. I would make a direction to that effect. Issue 8 - Deposits to CSAs after 1 November 2011 162The Plaintiffs seek a direction or alternatively a declaration as to whether the Liquidators should return all client deposits which were paid into the CSAs after the Appointment Date on the basis that they were paid into such accounts in error within reg 7.8.03(6)(a) or otherwise (Further Amended Originating Process [6C]). 163Eleven client deposits were paid into the CSAs after the Appointment Date, with a total value of AUD$129,706 (Main Campbell Affidavit [275]). Some of these amounts were deposited shortly before 1 November 2011 but were only received in the CSAs on or after 1 November 2011. Other amounts were deposited on 1 November 2011 and the Administrators were appointed at approximately 7:45am on that date. RMF submits that a distinction ought not be drawn between funds deposited on 1 November 2011 and funds "in transit" i.e. funds deposited shortly before 1 November 2011 but only credited in the CSAs on or after 1 November 2011. 164The Plaintiffs note that the question is whether deposits received into the CSAs on or after the date of the Administrators' appointment may be characterised as having been "paid into the account in error" within reg 7.8.03(6)(a) on the basis that, although the client deposited the funds intentionally, they would not have done so if they knew that administrators had been appointed. They contend that the conception of error ought not be read narrowly as referring to subjective state of mind, but embraces a broader concept: Kimberly-Clark Ltd v Commissioner of Patents (No 3) (1988) 84 ALR 685 at 694 (SIC [239]; SIR [43] -[51]; T45/16 - 44). 165In my view, error is established in respect of payments into the CSAs after the Administrators' appointment irrespective of the subjective intention of those making the relevant payments, because those payments were plainly made on the assumption that MFGA was undertaking an ongoing financial services business, in connection with which those payments were made. That assumption was falsified from the Appointment Date, because from that date MFGA was practically unable to conduct such a business, and in any event the Administrators properly ceased to conduct such a business. 166I will accordingly make a direction, and a corresponding declaration, that the Liquidators should return all client deposits which were paid into the CSAs after the Appointment Date on the basis that they were paid into such accounts in error within reg 7.8.03(6)(a) of the Corporations Regulations. Issue 9 - GST on commissions 167The Plaintiffs initially sought a direction or alternatively a declaration as to whether the Liquidators are entitled to deduct from the CSAs (before any payment to clients) all amounts of GST which they are liable to remit to the Commissioner of Taxation on behalf of MFGA in respect of commissions charged by MFGA to clients (in accordance with the terms of the relevant client agreements) in relation to the closing out of clients' positions after the Liquidators' appointment on 1 November 2011 (Further Amended Originating Process [6D]). In their written submissions in chief, the Plaintiffs noted that GST would only be payable so far as any commissions charged were actually received by MFGA and that, in view of the deficiency in the CSAs, it was not anticipated that any amount of commission will be received by MFGA from the CSAs and this issue was moot. Several parties expressly did not make submissions as to this issue on this basis and I therefore should not determine it. Issue 10 - Interest on CSAs (including Recoveries) 168The Plaintiffs seek a direction or alternatively a declaration as to whether interest earned on the CSAs, Futures Recoveries and OTC Recoveries are beneficially owned by MFGA or held on trust for clients of MFGA (Further Amended Originating Process [6E]). 169RMF contends that interest earned on the CFD CSAs and the CFD related OTC Recoveries is client money that should be treated as funds received for the benefit of the CFD Clients with an entitlement to be paid from the CFD CSAs (RMF SIC [87]; T186). RMF submits that: "... reg 7.8.02(7) requires a disclosure that the licensee "is keeping" the interest earned on the CSA. Here, the terms of the disclosures in the CFD PDSs are only to the effect that MFGA "may" keep interest earned on the CSAs, and not (using the language of reg 7.8.02(7)) that MFGA "is keeping" interest earned on the CSAs. The PDSs seem therefore to disclose no more than a possibility that MFGA might keep the interest, which is ambiguous at best, and plainly inconsistent with a subsequent statement, being the express terms of the CFD client agreement." 170MFGS similarly submits that it is entitled to interest on the Singapore-based CFD Accounts and that the statements in the PDS purporting to entitle MFGA to retain interest on the accounts do not satisfy the statutory requirement (reg 7.8.02(7)) that an entitlement to do so requires notice that the licensee "is keeping interest" accruing on the accounts (MFGS SIC [59]). 171GrainCorp contends that interest earned on money held in the Futures CSAs should remain in those accounts for distribution to Futures clients until any entitlements were paid in full with reversion then to any contractual entitlements (T54-T56). GFL contends that interest earned on the CSAs of Margin FX clients should be treated as monies to which the Margin FX clients are entitled. Underdog submits that, in relation to Online FX, the statements in the PDS do not disclose that MFGA is keeping the interest and that interest prior to the Appointment Date had been deducted from the CSAs in any event. Underdog submits that, Online FX clients will not be entitled to any additional interest if they are paid in full and, if Online FX clients are not to be paid in full, any interest earned should go to make up the deficiency. 172Conversely, PHRS submits that the disclosure in the Product Disclosure Statement and Financial Services Guide satisfied the disclosure requirement of reg 7.8.02(7). PHRS contends that the payment of interest to either MFGA or the clients ought to abide by the contractual provisions of the various client agreements so that, where the contract provides that interest is payable to MFGA not the client, no different outcome should occur because of the insolvency of MFGA (PHRS SIC [21]-[24] and attachment). 173Regulation 7.8.02(7) provides: "For paragraph 981C (c) of the Act, if money is held in an account maintained for section 981B of the Act: (a) the financial services licensee is entitled to the interest on the account; and (b) the interest on the account is not required to be paid into the account, only if the financial services licensee discloses to the client that the financial services licensee is keeping the interest (if any) earned on the account." 174The Product Disclosure Statements issued by MFGA for each product state that: "MFGA is entitled to retain any interest it earns on client money held by MFGA in the segregated accounts it maintains with a bank, approved deposit-taking institution and/or exchange clearing house. The rate of interest is determined by the organisations at which the client funds are held." MFGA's Financial Services Guide contained a similar statement, although the Plaintiffs acknowledge it was not established by evidence that every client received a copy of that document: "MFGA is also entitled to retain any interest it earns on client money held by MFGA in the segregated account it maintains with its bank pursuant to the Corporations Act. The rate of interest is determined by the bank." In my view, and subject to the terms of the client agreements to which I refer below, the relevant Product Disclosure Statements and Financial Services Guides constituted sufficient disclosure to satisfy the requirements in reg 7.8.02(7) and the statement in the Financial Services Guide would reinforce that conclusion. I consider that the statement that MFGA is "entitled to retain any interest" indicates, in substance, an assertion of both a right and an intention to do so and therefore discloses that MFGA was keeping that interest for the purposes of reg 7.8.02(7). 175Clause 3(d) of the Online FX client agreement (Ex CC-4, 2/556) in turn provides: "The Client will not be entitled to interest on client segregated funds held by MFGA." Clause 11 of that Agreement also states that clients will not receive interest from MFGA on any balance in the Online FX Account but that interest is debited from the Online FX Account in accordance with its terms. Those provisions reinforce the conclusion that I have reached above so far as Online FX clients are concerned. 176Clause 16.3 of the Futures client agreement provides that: "The Client agrees and acknowledges that: ... ... the Client will not be entitled to interest on client segregated funds held by MF Global (although the client will separately receive interest on funds in the Client's account other than Initial Margin and Variation Margin at a rate agreed between MF Global and the client from time to time (and, in the absence of such agreement, the rate determined by MF Global and last notified to the Client); ..." In my view, this clause is also consistent with the conclusion I have reached above so far as Futures clients are concerned. It plainly excludes a right to the interest paid on monies in the CSAs and confers a "separate" contractual right to interest on funds in the client's ledger account balance (other than margin) at a contractual rate rather than the interest rate that was in fact received on the monies in the CSAs. 177On the other hand, clause 3(b) of the CFD client agreement (Ex CC-4, 1/197) provides: "The Client will be entitled to interest on monies held for the Client in the Client Segregated Account at a rate agreed between MFGA and the Client from time to time (and, in the absence of such agreement, the rate determined by MFGA and last notified to the Client)." Clause 11 of the CFD client agreement in turn provides that interest is payable to or by the client (as the case may be) in respect of each AUD and foreign currency ledger in the client's CFD account. There are similar provisions in the CFD (E*Trade) client agreement (Ex CC-4, 1/235), CFD (Prime Services) client agreement (Ex CC-4, 1/268) and Margin FX client agreement (Ex CC-4, 2/502). In my view, these provisions qualify the disclosure excluding interest on CSAs in respect of these Product Lines since they in terms confer an entitlement to such interest at the agreed rate. However, I consider that these provisions are effective to exclude any right to actual interest received by MFGA on the CSAs for these Product Lines to the extent that it exceeds that agreed rate. 178The Plaintiffs note that if (as I have held) MFGA is otherwise entitled to interest on the CSAs (albeit with the qualification noted above in respect of CFDs), a further question arises as to whether and in what circumstances MFGA is entitled to be paid that interest having regard to reg 7.8.03. The Plaintiffs note that reg 7.8.02(1)(c) provides that (prior to insolvency) a licensee can pay out of a CSA "to the financial services licensee money to which the financial licensee is entitled", suggesting that a licensee can be "entitled" to money in a CSA; reg 7.8.03(4) refers to each "person entitled" to be paid money from a s 981B account, rather than only to each "client entitled" to be paid such money; and, if a licensee is a "person entitled" for the purposes of reg 7.8.03, then arguably MFGA would receive a proportionate payment pursuant to reg 7.8.03(6)(d). The Plaintiffs note that if, on the other hand, a licensee is not a "person entitled" for the purposes of reg 7.8.03, then MFGA would only receive interest if the distribution under reg 7.8.03(6) was sufficient to provide for a payment to the licensee under sub-paragraph (e). 179In my view, reg 7.8.03(6) has to be understood by reference to the structure of Pt 7.8 Div 2 Subdiv A, which I have set out above and, in particular, that reg 7.8.03(6) applies in respect of specified events including insolvency events affecting a licensee. In that situation, the concept of "entitlement" in reg 7.8.03(6)(d) seems to me to be directed to clients' claims against the CSAs, as distinct from the licensee's claims which are satisfied under reg 7.8.03(6)(e) and are, to that extent, deferred to clients' claims. MFGA will therefore be entitled to recover interest on the accounts only to the extent that monies remain in those accounts after making prior-ranking payments under reg 7.8.03(6). In the present case, it appears unlikely that right to interest will be satisfied. 180This questions involves the construction of the Corporation Regulations and the terms of the client agreements and Product Disclosure Statements and does not depend on contested facts. I consider that I can properly make a declaration in respect of this question. Issues 11-12 - Recoveries A preliminary issue 181I should first address a preliminary issue in respect of the question of Recoveries. PHRS submits that the Court should not deal with issues relating to Recoveries and that: "The unsecured creditors do not consider that the matters described as 'Recoveries' are capable of sensible resolution in the context of an application for directions let alone by the liquidators seeking declarations. The matters require detailed factual and legal questions which ought not be determined upon a hypothetical basis or on the basis of assumed facts." In particular, PHRS argues that it is not the appropriate contradictor to argue that the Futures Recoveries should be held for MFGA in its own right rather than on trust; that the appropriate contradictor would need to have a proper appreciation of the various dealings which take place with the exchanges and with counterparties when MFGA undertakes Futures transactions; that the evidence of the Liquidators is insufficient to address these issues; and the Court should not make any declarations which bind parties in respect of this issue (PHRS SIC [29]-[30]). 182The Plaintiffs respond that the evidence establishes the nature and circumstances of MFGA's business and the contractual arrangements by which MFGA operated its business, including (for example) the manner in which it hedged OTC Products and the money it used to pay for that hedging (Main Campbell Affidavit [115]-[118]; Ex CC-4 Tabs 37-42); the evidence also establishes what Recoveries have been received by MFGA, including the amount, source and Product Line to which the Recoveries related (Main Campbell Affidavit [209]-[259]); and the character of the actual Recoveries can be determined by the Court having regard to this evidence referred to above, the relevant client agreements and the relevant statutory provisions. The Plaintiffs submit that a declaration should be made in respect of this question, including in respect of Recoveries which are still to be received: Commonwealth v Sterling Nicholas Duty Free Pty Ltd [1972] HCA 19; (1972) 126 CLR 297 at 305; Rich v Lennox Palms Estate Pty Ltd [2010] NSWCA 242 at [49]-[50]; Edwards v Santos Ltd [2011] HCA 8; (2011) 242 CLR 421 at [37]. The Plaintiffs also submit that, if the Court is not minded to make a declaration in relation to prospective Recoveries, it should give a direction that the Liquidators are justified in distributing any Recoveries received in the future in accordance with the declarations made in relation to the similar Recoveries already received in respect of the same Product Line (or some other appropriate direction). 183I consider that I should not make declarations in respect of these matters, where there is an open question as to the character of particular relationships, such as between MFGA and Deutsche Bank. However, I consider that I should give directions to the Liquidators as noted below.

Futures Recoveries 184The Plaintiffs seek a direction or alternatively a declaration as to whether payments received or to be received by the Liquidators under arrangements with clearing houses and Futures Agents in respect of Futures contracts executed on behalf of MFGA's clients ("Futures Recoveries") are beneficially owned by MFGA or held on trust for clients of MFGA (Further Amended Originating Process [4]). The Plaintiffs also seek a direction as to whether Futures Recoveries should be deposited by the Liquidators into MFGA's general account or into an existing CSA or a new segregated account established by the Liquidators, and if so, which account (Further Amended Originating Process [4A], Issue 11). 185By way of background, MFGA was a trading participant of ASX Futures and ASX 24 and a clearing participant of ASX Clear Pty Limited and ASX Clear (Futures) Pty Limited (Main Campbell Affidavit [138]-[139]). MFGA also had arrangements with Futures Agents in respect of futures exchanges outside of Australia including, in relation to US exchanges, arrangements for MF Global Inc to execute and clear positions and, in relation to some US exchanges, for BNY Mellon to clear positions. In relation to European exchanges, MFGA executed and cleared positions with MF Global UK Limited and, in relation to Asian exchanges, MFGA executed and cleared positions with MFGS and MF Global Hong Kong Limited. Futures Recoveries have been received by the Liquidators from BNY Mellon in the amount of approximately AUD $37.9 million and ASX Clear Pty Limited in the amount of approximately AUD $0.7 million and may be received by the Liquidators in the future from ASX Clear (Futures) Pty Limited in the amount of approximately AUD $33.7 million (as to which a dispute exists between MFGA and MF Global UK Limited in respect of ASX 24 positions cleared by that entity) and offshore affiliates of MFGA in the amount of approximately AUD $32.5 million (Ex CC-4, 1/62). 186The Futures client agreement (Ex CC-4, 2/630) provided, in summary: cl 3.2: The client appoints MFGA as its agent for the purpose of dealing in Contracts in accordance with the terms of the client agreement. cl 3.3: MFGA may transfer from the client's other accounts (if any) such funds as are required to meet obligations as a result of transactions between the client and MFGA or to satisfy any amount owing by the client under the agreement. cl 3.4: MFGA will deal or will instruct third persons to deal on behalf of the client. cl 3.11: In respect of contracts traded by MFGA on the client's behalf, MFGA has assumed liability as principal. cl 3.12: Notwithstanding that MFGA may act in accordance with the instructions of, or for the benefit of, the client, any contract arising from any order submitted by MFGA with a Futures Exchange (ASX or ASX24) is entered into by MFGA as principal. Upon registration of a contract traded on ASX with ASX Clear in the name of MFGA, MFGA incurs obligations to ASX Clear as principal even though the contract may have been entered into on the client's instructions. cl 3.13-3.14: Any benefit or right obtained by MFGA upon registration of a contract with ASX Clear (Futures) or ASX Clear is personal to MFGA and the benefit of such benefit or right or other legal right does not pass to the Client. The client has no rights whether by subrogation or otherwise against any person or corporation other than MFGA. cl 3.19: MFGA will incur a personal obligation when dealing in contracts on behalf of the client. cl 10.1: Contracts entered into by MFGA on instructions of the client (or allocated to MFGA by another Clearing Participant) will be registered in MFGA's name with the relevant Clearing House. cl 10.3: MFGA may at any time call for payment of Initial Margin or Variation Margin [as defined], such money or property acceptable to MFGA (or call for the lodgment of the Approved Securities in lieu thereof) or the provision to MFGA of such other security as MFGA, in its absolute discretion, considers is necessary or appropriate to protect itself from the personal obligation incurred by Dealing in Contracts on behalf of the Client. 187Payments of margin to Futures Agents were made by MFGA on a nett basis so that, if several clients opened "short" and "long" positions in respect of the same Futures contract, MFGA would only pay a nett amount to the Futures Agent in respect of those positions, which could be zero, and the amount of margin recorded in an individual client's Futures ledger account that may have actually been remitted from a CSA to the Futures Agent is unknown (Main Campbell Affidavit [160], [187A]). 188GrainCorp contends that funds initially paid by Futures clients to MFGA and retained by MFGA were payments by a client within the meaning of s 981A(1)(b)(i) and, as such, subject to the trust imposed by s 981H(1) and that funds paid to Futures counterparties by MFGA and then recovered from those counterparties are also subject to the trust imposed by s 981H(1) as they meet the description in s 981A(b)(iii) as MFGA was acting as agent of the Futures clients (GrainCorp SIC [89]-[93]). Deutsche Bank argues that MFGA was acting as its "sub-clearer" and dealing with Deutsche Bank as a principal (rather than agent) and, in the alternative, that if MFGA was acting as Deutsche Bank's futures broker, then it acted as Deutsche Bank's agent and any Futures Recoveries received from MFGA's counterparties were received by MFGA "on behalf of" Deutsche Bank for the purposes of s 981A (Deutsche Bank SIC [29]-[30], [51]-[55]). MFGS also submits that Futures Recoveries are monies paid to MFGA in its capacity as a person acting on behalf of the Futures clients and, on return, such monies should be deposited into a separate account for Futures clients (MFGS SIC [67). 189In my view, the Futures Recoveries are money to which Pt 7.8 Div 2 Subdiv A applies by reason that such monies are paid in connection with a financial service that has been provided to Futures clients (s 981A(1)(a)(i)) and are paid to MFGA in its capacity as a person acting on behalf of the Futures clients (s 981A(1)(b)(iii)). Those monies are paid to MFGA in its "capacity as a person acting on behalf of the client" on the basis that it acts as broker or agent for the Futures clients, rather than as principal under a contract with the client. The nature of that relationship is evident from clause 3.2 of the Futures client agreement which, as I noted above, provides that the Client appoints MF Global as its agent for the purpose of dealing in Futures contracts in accordance with the terms of the client agreement. To which Futures clients should Futures Recoveries be distributed? 190The Plaintiffs also seek a direction, or alternatively a declaration, as to the manner in which Futures Recoveries should be distributed having regard to the Regulations, so far as such recovered funds are found to be held on trust for clients of MFGA (Further Amended Originating Process [5]). In particular, the parties identified an issue as to whether Futures Recoveries should be treated as funds of the particular clients in respect of whom MFGA acted as a broker in dealing with the particular counterparty and, if so, deposited into a segregated account for those clients as distinct from Futures clients generally (Issue 12(a)). 191GrainCorp submits that Futures Recoveries should be returned to the Futures CSAs which represent a pool of mixed trust funds held for Futures clients by reason of s 981A(1)(b)(iii) and s 981H(1). GrainCorp contends that funds initially paid by clients to MFGA were mixed by Product Line and payments by MFGA to counterparties were made from this mixed fund and monies then repaid by counterparties to MFGA were also of a mixed nature and not money to which a particular Futures client was entitled (GrainCorp SIR [50]-[74]). GrainCorp also contends that reg 7.8.06(3) is a legislative intervention to simplify the distribution of mixed trust funds where any shortfall arises and enshrines the common law "pari passu" approach with an equality of sacrifice amongst those entitled. GrainCorp contends that reg 7.8.03(6) does not have regard to the particular counterparty with whom a client was dealing through MFGA and that any distribution by way of counterparty could not, in any event, be practically achieved (GrainCorp SIC [85]-[94]). 192On the other hand, Three Crowns submits that the only persons entitled to s 981A monies recovered from each Futures Agent are those Futures clients who had entered into the Futures contracts which were cleared by the relevant Futures Agent or counterparty and not Futures clients generally (Three Crowns SIC [13], [15], [18]-[20]). Three Crowns contends that it is of no significance that the monies of Futures clients was mixed at the time that it was deposited into the CSAs and used by MFGA thereafter and the Futures Recoveries constitute money that is received for and on behalf of a particular client by MFGA (Three Crowns SIR [6], [7], T136). This argument benefits those Futures clients whose contracts had been cleared by BNY Mellon, where recoveries have been received in full, and disadvantages those Futures clients whose contracts had been cleared by, for example, MF Global UK Limited or MFGS where recoveries have not yet been received and may not be received or received only in part. 193Three Crowns submits that there is no practical impediment to the pooling of Futures recoveries by counterparty (Three Crowns SIC [24] - [25], Three Crowns SIR [9], [13]-[14]) and that funds recovered by the Liquidators from third parties in respect of Futures should be deposited into new CSAs established by the Liquidators and pooled by counterparty (Three Crowns SIC [14], [26]). The Plaintiffs respond that it is not possible to identify which client's money was used to pay margin to counterparties for Futures (and also OTC products) and it is unsafe to proceed on the basis that when money is received from a counterparty, it is a particular client's money (T243-T244). 194Three Crowns' submission depends on the proposition that the trust imposed by s 981H(1) on Futures Recoveries applies for the benefit of individual Futures clients on the basis of the contracts they had instructed MFGA to enter in particular markets where MFGA dealt with particular Futures Agents. In effect, Three Crowns submits that, because MFGA acted as the agent of particular Futures clients in entering into particular contracts, any recovery from the relevant counterparty amounts to money received by MFGA on behalf of those Futures clients in respect of that contract and the only persons entitled to those monies is those Futures clients. Thus, when MFGA received the Recoveries from BNY Mellon, it was acting "on behalf" of the particular Futures clients whose positions were cleared by BNY Mellon, notwithstanding that the fact that margining was undertaken on a nett basis and the manner in which MFGA conducted the Futures CSAs meant that the margin may have been paid from Futures CSAs holding other clients' funds. 195Three Crowns' submission depends on reading "on behalf of" in s 981B and s 981H as meaning "as agent for" and I have accepted above that that is one meaning of that term. However, s 9 of the Corporations Act also defines "on behalf of" in an inclusive manner, to include "on the instructions of", and the term "on behalf of" in s 981B and s 981H also has a wider meaning as a matter of its ordinary usage. That term can be used in conjunction with a range of relationships which relate to "the standing of one person as auxiliary to or representative of another person or thing" and can also extend to a transaction undertaken by one person "for the benefit of and in the interest" of another: R v Portus; Ex parte Federated Clerks Union of Australia [1949] HCA 53; (1949) 79 CLR 428 per Latham CJ at 435, per Dixon J at 438; R v Toohey; Ex parte Attorney-General (NT) [1980] HCA 2; (1980) 145 CLR 374 at 386; Securities Exchange Guarantee Corporation v Samuel Holdings above at [65]. In Securities Exchange Guarantee Corporation v Samuel Holdings above at [67], Chesterman JA observed that property is received "on behalf" of another if it is received "on the instructions" of that other; in circumstances where the dealer may apply the money only at the direction of the other person; or in circumstances where the dealer has an obligation to account to the other person for the money. 196The terms of Pt 7.8 Div 2 Subdiv A also indicate that the concept of "on behalf of" extends beyond agency, since s 981D refers to dealings "on behalf of" people other than the client, although that section deals with derivative transactions which are generally, if not invariably, undertaken between parties trading as principal rather than on an agency basis. The reference to "on behalf of" there cannot be limited to an agency relationship since otherwise it would have no or very limited application in the very kind of transaction to which the section is directed. 197MFGA relied on the authority conferred under the client agreements to pay the margins on the relevant transactions to Futures Agents from the mixed Futures CSAs. In my view, MFGA therefore acted on the instructions of, or as auxiliary to and for the benefit of, Futures clients collectively in paying those margins from the mixed Futures CSAs and, by extension, in receiving the Futures Recoveries from Futures Agents. It can therefore properly be said that MFGA received Futures Recoveries from Futures Agents "on behalf of" Futures clients collectively, within that wider meaning of that term. For that reason, the Futures Recoveries would properly be deposited to the mixed Futures CSAs from which the margins had been paid, and they would then be subject to the trust imposed under s 981H and reg 7.8.03(4) and would be distributed in accordance with reg 7.8.03(6) following the appointment of administrators to MFGA. 198In my view, the terms of reg 7.8.03(6) in turn require a proportionate distribution of the Futures Recoveries, without weighing the strength of different forms of entitlement to those recoveries. Even if I were wrong in that view, and regard is to be had to the relative strengths of claims to those proceeds in determining the entitlement to the Futures Recoveries for the purposes of reg 7.8.03(6), I consider that all Futures clients have equal claims to all Futures Recoveries where the payments of margin to Futures Agents from which they were derived were funded from the mixed Futures CSAs to which all Futures clients had contributed. The fact that a particular position was opened as agent for a particular client with a particular Futures Agent does not, in my view, change that result. OTC Recoveries 199The Plaintiffs also seek a direction or alternatively a declaration as to whether payments received, or to be received, by the Liquidators under agreements between MFGA and its hedge counterparties for the purpose of hedging MFGA's exposure to its OTC clients ("OTC Recoveries") are beneficially owned by MFGA or held on trust for clients of MFGA. The Plaintiffs also seek a direction as to whether OTC Recoveries should be deposited by the Liquidators into MFGA's general account or into an existing CSA or a new segregated account established by the Liquidators, and if so, which account (Further Amended Originating Process [4A], Issue 11). The Plaintiffs also seek a direction or alternatively a declaration as to the manner in which OTC Recoveries should be distributed having regard to the Regulations, so far as such recovered funds are found to be held on trust for clients of MFGA (Further Amended Originating Process [5]). The parties in turn identified the relevant issues as whether OTC Recoveries should be treated as funds recovered for the benefit of MFGA and, if so, be deposited into the general account of MFGA; or as funds recovered for the benefit of OTC clients within the Product Lines in respect of whom MFGA (as principal) entered into hedge transactions with third parties and, if so, be deposited into a segregated account for CFD, Online FX or Margin FX clients (Issue 12(b)). 200The client agreements between MFGA and its clients in relation to the OTC financial products, namely CFDs, Margin FX and Online FX, provided that MFGA acted as principal in transactions with its clients relating to those products. MFGA in turn hedged its exposure to those clients by entering into separate contracts (on a principal to principal basis) with OTC counterparties. MFGA used money from the OTC CSAs to fund the payments required by OTC counterparties (for example, payments of margin). For example, MFGA hedged its exposure in respect of CFDs in relation to Australian or Asian entries by entering into hedge transactions with Deutsche Bank (Main Campbell Affidavit [117]). The trading system operated by MFGA would only confirm to the client or MFGA's trading desk that a CFD position between MFGA and the client had been opened once it received confirmation of the relevant hedge position for most types of CFDs. MFGA generally maintained its hedge positions on a nett basis, so that it would close a hedge position if it held offsetting client positions in respect of the same CFD product. (By way of exception, MFGA did not hedge its exposure to Hong Kong and Singapore Equity CFDs on a nett basis, but by entering into hedging positions with Deutsche Bank in respect of clients' gross long and gross short positions). Whether the monies were within the scope of Pt 7.8 Div 2 201Deutsche Bank contends that s 981A(2)(c) of the Corporations Act applies to monies used by MFGA to acquire equity swaps for hedging purposes and pay margins called upon them so that those monies were either never, or ceased to be, money to which Pt 7.8 Div 2 Subdiv A applied and cannot thereafter be client money, trust money or its traceable proceeds (Deutsche Bank SIC [87]). 202One element of the exception in s 981A(2)(c) is satisfied, in that OTC clients acquired the relevant financial products from MFGA by the "issue" of those products to those clients, since a derivative is treated as issued to a client when it enters into the legal relationship that constitutes that product under s 761E of the Corporations Act. However, it seems to me that the reference to money "paid to acquire" a financial product in that subsection is to money paid by the client to the licensee on a final basis, in the nature of the purchase price for that product. The payments made by clients to MFGA in respect of margin cannot be treated as the purchase price for the relevant products since they were paid "as collateral to secure Client's obligations" under clauses 5(j) of the CFD client agreement and Margin FX client agreement and clause 5(g) of the Online FX client agreement. The construction of s 981A(2)(c) for which Deutsche Bank contends would also have the unlikely consequences that, first, Pt 7.8 Div 2 Subdiv A would have no application to derivatives trading and clients engaged in such trading would not have the benefit of client money segregation or the statutory trust and, second, s 981D of the Corporations Act would be otiose since the licensee which received monies in respect of the acquisition of derivatives, even by way of margin, would be entitled to apply those monies for any purpose. I therefore do not accept Deutsche Bank's submissions in this regard. Whether application of monies was authorised by s 981D of the Corporations Act or client agreements 203A second question is whether the application of monies from the OTC CSAs to margining was authorised by s 981D of the Corporations Act or under the relevant client agreements, or whether those monies were applied by MFGA to hedging transactions with OTC counterparties in breach of trust. 204As I have noted above, s 981D of the Corporations Act provides that: "Despite anything in regulations made for the purposes of section 981C, if: (a) the financial service referred to in subparagraph 981A(1)(a)(i) is or relates to a dealing in a derivative; or (b) the financial product referred to in subparagraph 981A(1)(a)(ii) is a derivative; the money concerned may also be used for the purpose of meeting obligations incurred by the licensee in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client)." 205That section had its origin in s 1209(5)(b) of the Corporations Law which applied to futures brokers and provided that money in a clients' segregated account could be withdrawn by a futures broker for the purpose of: "making a payment for, or in connection with, the entering into, margining, guaranteeing, securing, transferring, adjusting or settling of dealings in futures contracts effected by the broker on behalf of clients only". A futures broker could withdraw client money to make a payment in connection with a futures contract that the broker had effected as agent on behalf of its client. That section now extends to dealings in derivatives and is not limited to dealings "on behalf of" a particular client or to margins required by, for example, market operators as distinct from counterparties to trades with MFGA. 206The Product Disclosure Statement issued by MFGA in respect of CFDs under s 1012D of the Corporations Act (Ex CC-4, 1/301) in turn stated that: "MFGA is entitled to withdraw client funds from the segregated account in the circumstances and for the purposes set out in the Corporations Act. ... Also, under the CFD client agreement you authorise MFGA to deduct from the segregated account money to which you are entitled, for the purpose of discharging obligations which MFGA incurs to MFGA's Hedge Counterparty to hedge its exposure to the Client in connection with CFDs or to hedge its exposure to other clients who have entered into CFDs with MFGA ..." The Product Disclosure Statement also stated, under the heading "Hedging arrangements", that: "[w]hen MFGA entered into CFDs with its clients, MFGA may, in turn, hedge its exposure to those clients with a third party selected by MFGA (Hedge Counterparty). ... MFGA may use funds from the segregated account to meet its obligations to a Hedge Counterparty." 207A separate clause in each of the CFD client agreement and the Margin FX client agreement authorised MFGA to use monies in the CSAs to enter into hedge transactions with counterparties. For example, clause 3(d) of the CFD client agreement (Ex CC-4, 1/197) provides: "The Client authorises MFGA to deduct from the Client Segregated Account client money to which the Client is entitled, for the purposes of discharging obligations which MFGA incurs to a counterparty with whom MFGA enters into derivatives to hedge its exposure to the Client in connection with CFDs or to hedge its exposure to other clients who have entered into contracts for difference with MFGA under agreements similar to this Agreement." Similar provisions are contained in clause 3(d) of the CFD (Prime Services) client agreement and clause 3(d) of the Margin FX client agreement (Ex CC-4, 1/268, 2/502). There does not appear to be a similar provision in the Online FX client agreement. These provisions do not, in my view, extend the application of monies from the CSAs which is permitted under s 981D of the Corporations Act but expressly acknowledge the application of monies already permitted under that section in respect of dealings in derivatives by the licensee for persons other than the client. 208The Plaintiffs identify a possible construction (which they characterise as a "liberal construction") of s 981D of the Corporations Act that, provided a licensee such as MFGA has incurred an obligation in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee, then it can use money to which Pt 7.8 Div 2 Subdiv A applies for the purpose of meeting that obligation even where the dealing is on behalf of people other than the client. The Plaintiffs note that MFGA has here incurred obligations in connection with (for example) margining or settling dealings in derivatives by MFGA, being the hedging transactions entered into between MFGA and its OTC counterparties, so that, on this construction of s 981D, MFGA could use money in the CSAs to meet those obligations. 209I accept that, on this construction of s 981D, MFGA could potentially have (although it did not) used money to which Pt 7.8 Div 2 Subdiv A applies where it had incurred obligations in connection with (for example) margining or settling dealings in derivatives by MFGA unrelated to the clients of MFGA which paid the relevant monies to MFGA. Even if the section had this wider construction, it exists within a statutory regime which imposes obligations on licensees, including obligations to do all things necessary to ensure that the financial services covered by the license are provided efficiently, honestly and fairly (Corporations Act s 912A(1)(a)) and the obligation to have in place adequate arrangements for the management of conflicts of interest (Corporations Act s 912A(1)(aa)). Conduct by a licensee which relied on a wider reading of the section, for example, to use client monies to trade for profit on its own account may breach those other provisions. 210The Plaintiffs identify a second possible construction of s 981D that a licensee can only use money to which Pt 7.8 Div 2 Subdiv A applies for the purpose of meeting obligations incurred by the licensee where those obligations are incurred in connection with derivatives of the kind referred to in s 981D(a) and (b), that is, derivatives in respect of which a client paid money to the licensee. The Plaintiffs note that that construction would permit a licensee to use money to which the Subdivision applies to meet an obligation to pay margin to a counterparty incurred in relation to a transaction which has the necessary connection with derivatives of the kind in respect of which clients paid money to the licensee. That connection would be supplied on the facts of this case by the client agreements and Product Disclosure Statements to which I have referred above. On that construction, the transactions undertaken by MFGA to hedge its transactions with clients in the relevant Product Lines would be authorised by the section. I would be inclined to that reading of the section, in order to give practical effect to the provisions, although it is not necessary to reach a concluded view as to that issue on the facts of this case. On either the first, wider, or the second constructions of s 981D, payment of margins by MFGA from CSAs in respect of a Product Line in respect of hedging of client transactions within that Product Line would be authorised by the section. 211The Plaintiffs identify a third, narrower, potential construction of s 981D as directed only at ensuring (for example) that a licensee can take money from a CSA in relation to a particular client without having to establish that the particular money it is withdrawing is the particular client's money. I do not consider the terms of the section support that narrower construction of its operation, which could also give rise to significant practical difficulty since it may well not be practicable to hedge numerous client positions of varying sizes on an individual basis rather than hedging clients' collective positions in a particular product on a nett basis. MFGA's payment of margins in this case would not be authorised on this reading of this section, since it was undertaken on a nett basis rather than on a client-by-client basis. 212A further question is whether the application of monies from the OTC CSAs to margining was authorised by the provisions in the CFD and Margin FX client agreements (but not the Online FX client agreements) to which I have referred above, operating contractually and/or as a standing written direction under reg 7.8.02(1)(a) of the Corporations Regulations. That regulation provides: "For paragraph 981C (a) of the Act, payments may be made out of an account maintained for section 981B of the Act in any of the following circumstances: (a) making a payment to, or in accordance with the written direction of, a person entitled to the money; ..." 213In my view, reg 7.8.02(1)(a) is satisfied by a contractual direction that a licensee may apply monies held in the CSA for a particular purpose, provided that direction is sufficiently clear and subject to the licensee's statutory and general law obligations in respect of obtaining that authority. No doubt, some directions could amount to a breach of the efficiently, honestly and fairly duty or give rise to issues of unconscionability, but there is no basis for that suggestion here, where MFGA's hedging of client positions was at least indirectly for the benefit of those clients in supporting its ability to meet its obligations in respect of those positions. The relevant clauses in the CFD and Margin FX client agreements also authorise the application of monies in the CFDs to payments of margins with OTC counterparties on that basis. 214Various representative parties argued that MFGA's entry into hedging transactions with OTC counterparties was not authorised by s 981D of the Corporations Act and by the client agreements and was otherwise in breach of trust, and that OTC Recoveries were held on constructive trust for OTC clients as the product of that breach of trust. GFL contends that MFGA's use of money from the Margin FX CSAs for payment of margins in connection with hedge transactions with OTC counterparties was not authorised by s 981D of the Corporations Act because client money from one CSA was used to margin hedge transactions in connection with clients who had paid money into other CSAs within the same Product Line and client money was used to fund margin payments under hedge transactions with MFGS that appear to have given MFGS the right to set off debts owed to MFGS by MFGA (in MFGA's capacity as licensee rather than client) against that margin. GFL also submits that the traceable proceeds of breach of trust should be returned to the beneficiaries. Underdog similarly contends that, if margin payments made to MF Mauritius were in breach of s 981D, then Online FX recoveries are held on trust for Online FX clients as the traceable proceeds of a breach of trust (Underdog SIC [121], [124]-130]). MFGS also submits, in the MFGS Proceedings, that OTC Recoveries should, generally, be treated as funds recovered for the benefit of the clients in the respective Product Lines to which they relate because, inter alia, a narrow construction of s 981D and reg 7.8.02(1)(a) should be preferred and MFGA was not entitled to fund hedging transactions from client money and withdrawals to pay OTC counterparties occurred in breach of trust. MFGS contends that withdrawals that are attributable to the Singapore-based accounts should be returned to those accounts, on the basis that MFGS' position is separate from CFD customers generally (MFGS SIC [61]-[64]). I have dealt with the latter submission above. 215On the other hand, Deutsche Bank contends that money withdrawn from CSAs in response to margin calls made by MFGA on its clients was money that MFGA was entitled to withdraw and was reflected in client ledgers; MFGA was entitled to use those funds to pay for equity swaps and margins called by Deutsche Bank or other OTC counterparties (Deutsche Bank SIC [92]-[98] and Deutsche Bank SIR Schedule); and withdrawal of those funds was therefore not a breach of trust. Deutsche Bank contends that the proceeds of equity swaps paid by Deutsche Bank to MFGA were not monies in which MFGA's clients held a proprietary interest and, at least at that point of payment, were not trust money or its traceable proceeds (Deutsche Bank SIC [82]-[86], [88]-[91], Deutsche Bank SIR [7]-[9], [26]-[50]). 216As I have noted above, the payments to OTC counterparties were authorised by s 981D of the Corporations Act and client directions for the purposes of reg 7.8.02 and were therefore not in breach of the statutory trust. The terms of those provisions do not preclude an otherwise authorised use of funds within CSAs to hedge other client positions or on terms which may permit set off by a counterparty. I therefore cannot accept the submission that a constructive trust arose from a breach of s 981B of the Corporations Act. If, contrary to my view, the withdrawals from the OTC CSAs to pay OTC counterparties were a breach of trust, then the traceable proceeds of that breach would have been trust property which should be returned to the trust when received by MFGA: Scott v Scott (1963) 109 CLR 649; Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440; Allianz Australia Insurance Ltd and Anor v Lo-Giudice [2012] NSWSC 145 at [32]. Whether a statutory trust attached when monies were paid to or received from OTC counterparties 217The Plaintiffs identify a further issue if (as I have found) the payment of money in the CSAs to OTC counterparties was permitted by the Corporations Act or Corporations Regulations, whether the money so used, and the proceeds of the money so used, remained subject to a statutory trust arising under s 981H of the Corporations Act. 218RMF contends that OTC Recoveries should be paid into the particular Product Line CSAs from which MFGA withdrew money used to enter into the hedge transactions with third parties because, when client money (being trust money) is used to acquire property, the clients have an interest in that property and, when the property is realised, the margin and any proceeds returned to MFGA was impressed with the s 981H statutory trust. GFL contends that, even if the use by MFGA of money from the Margin FX CSAs for payment of margins in connection with the counterparty hedge transactions was authorised by s 981D, when the money was returned to MFGA it remained subject to a trust under s 981H, because, when trust property is permitted by a trust instrument to be used by the trustee for stated purposes, use in accordance with that permission should not be construed as amounting to an assignment of the beneficiaries' interest in the trust property to the trustee (absent clear words to that effect) and, when the authorised use comes to an end, and the money (or so much of it as remains) is returned to the licensee, the money received by the licensee remains subject to the s 981H trust. Underdog also contends that margin payments made to MF Mauritius acquired choses in action held on trust for Online FX clients. MFGS also contends, in the MFGS Proceedings, for the imposition of a trust over the money upon its return to MFGA by a counterparty and, in the alternative, over the chose in action created upon the release of such monies, and then over the money upon its return by the counterparty. 219The legislative intent is, of course, to be determined primarily from the words of the statute. The relevant provisions must be construed having regard to the context in which they appear: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [69]; Caterpillar of Australia Pty Ltd v Industrial Court of New South Wales [2009] NSWCA 83; (2009) 78 NSWLR 43 per Spigelman CJ at [86] (with whom Allsop P and Tobias JA agreed); Wilson v State Rail Authority of New South Wales [2010] NSWCA 198; (2010) 78 NSWLR 704 per Allsop P at [12] (with whom Tobias and Macfarlan JJA agreed). The plurality of the High Court observed in Alcan (NT) Alumina v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47] that: "This court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy" (footnotes omitted). The parties' intentions must be ascertained by ordinary principles of statutory interpretation, and the Court should prefer an interpretation of the provisions that would best achieve the purpose or object of the Corporations Act: Acts Interpretation Act s 15AA; Project Blue Sky Inc v Australian Broadcasting Authority above at [69]. The relevant purpose and object includes, under s 760A(a), not only the promotion of "confident and informed decision making by consumers of financial products" but also "facilitating efficiency, flexibility and innovation in the provision of those products and services." 220As I have noted above, s 981H of the Corporations Act applied a statutory trust to money to which Pt 7.8 Div 2 Subdiv A applied at the time it was received by MFGA, including the monies held in the OTC CSAs. The statutory scheme plainly protected client monies received by the licensee pending their application to an authorised purpose, including the purpose specified in s 981D. Section 981D and reg 7.8.02 of the Corporations Regulations (and the directions contained in the relevant client agreements) in turn permitted monies to be paid out for use for the limited purpose of meeting obligations incurred by MFGA in connection with margining and settling dealings in derivatives by MFGA. I do not understand the terms of the statutory trust created under s 981H, read together with s 981D and reg 7.8.02 of the Corporations Regulations, and in the context of the statutory purpose, to require the extension of that statutory trust to monies paid by a licensee to third parties in accordance with an authorised purpose, or to choses in action acquired by MFGA while using monies for the authorised purpose of meeting obligations incurred by MFGA in connection with margining or settling dealings in derivatives by MFGA. 221The provisions do not, in their terms, indicate such an extension. They do not, for example, impose any requirement for monies withdrawn for margins paid or to be paid to OTC counterparties to be deposited to a separate account, either by the licensee or by the counterparty to whom they are paid, or for any treatment of or designation of those monies or the relevant hedge positions or their product as held in trust. As Deutsche Bank points out: "The protections of Part 7.8 function in defined circumstances. They have been articulated in the statute. It does not set up a trust relationship generally, making a party (who may not wish to carry fiduciary burdens) a trustee of an investment trust in the same style as a trustee of a private express trust who must invest trust funds, the beneficiaries of which have, at all times, an equitable proprietary interest in the entirety of the funds held or invested. It does not say that some further trust must exist at any point after moneys leave the segregated account with authority. If that were the intention, it could have been accomplished more completely and properly by unambiguous language." Nor would the statutory purposes of facilitating efficiency in the provision of such products and services be served by seeking to extend the statutory trust to commercial dealings conducted on a principal-principal basis between licensees and their counterparties. Such a trust should not lightly be found by implication where it would, for example, be inconsistent with the documentation commonly used in derivative transactions which contemplates that collateral will be transferred to counterparties free of any third party interest (see, for example, Ex L1, 4/1219). 222In this case, the monies held in the OTC CSAs were in fact applied for the purpose authorised by s 981D and the client agreements, of meeting obligations incurred by MFGA in connection with margining or settling dealings in derivatives by MFGA, and that application has in turn given rise to the OTC Recoveries. I do not accept the contention that a statutory trust arising under s 981H of the Corporations Act subsisted over the monies at all times and in particular at the time they had been paid to OTC counterparties and were being used for that authorised purpose. Whether a non-statutory trust attached when monies were received from OTC counterparties 223The analysis set out above depends on the terms of the statutory trust created by s 981H of the Corporations Act, although it seems to me that the same result would be reached under the equitable principles applicable to payments made for an express purpose, on which several of the representative parties relied. 224These principles have long been recognised. In Toovey v Milne (1819) 2 B & A 683; 106 ER 514, cited with apparent approval in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 580 ("Quistclose") and Raulfs v Fishy Bite Pty Ltd above at [36]-[37], a bankrupt had borrowed money from the defendant for the purpose of paying his creditors and returned the unspent portion to the lender when not all of the money was used in payment of creditors before the bankruptcy. Abbott CJ observed at 684: "I thought at the trial, and still think, that the fair inference from the facts proved was that this money was advanced for a special purpose, and that being so clothed with a specific trust, no property in it passed to the assignee of the bankrupt. Then the purpose having failed, there is an implied stipulation, that the money shall be repaid." In referring to this case in Raulfs v Fishy Bite Pty Ltd above at [37], Campbell JA noted that, even if the bankrupt had acted in breach of trust in mixing the notes he received with his other money, an equitable charge would exist over the mixed fund, entitling the lender to receive back from the mixed fund the amount that had not been expended in paying creditors. Similarly, in Gibert v Gonard (1884) 54 LJ Ch 439 at 440, cited with approval by Lord Millett in Twinsectra Ltd v Yardley [2002] UKHL12; [2002] 2 AC 164 at [76], North J observed that "if one person makes a payment to another for a certain purpose, and that person takes the money knowing that it is for that purpose, he must apply it to the purpose for which it was given". 225In Barclays Bank Ltd v Quistclose Investments Ltd above, a dividend was declared and the company sent a cheque to the appellant bank under the cover of a letter requesting, among other things, that it be banked into a new account and confirming that the sum will only be used to meet the dividend due on a specified date. The company went into liquidation and the bank wished to apply the fund by way of set off against other indebtedness of the company to it. In the House of Lords, Lord Wilberforce (Lord Reid, Lord Morris of Borth-y-Gest, Lord Guest and Lord Pearce agreeing) said (at 580) that the "mutual intention" of the company and the bank and "the essence of the bargain" between them was that the money advanced would not become part of the assets of the company but that it should have been applied exclusively to the payment of the dividend, disbursing the money to the particular class of creditors so entitled, namely the shareholders. 226His Lordship distinguished cases where payments were made on the unqualified basis that they should be included in a company's assets and observed (at 581-582) that: "... when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose (see Re Rogers [(1891) 8 Morr 243] where both Lindley and Kay LJJ explicitly recognised this): when the purpose has been carried out (ie, 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 (ie, repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor's assets) then there is the appropriate remedy for recovery of a loan. I can appreciate no reason why the flexible interplay of law and equity cannot let in these practical arrangements, and other variations if desired: it would be to the discredit of both systems if they could not. [T]he intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it." In the result, the money was to be held on trust by the company as trustee for the shareholders as beneficiaries until such a time that the dividend was paid. It was impossible to pay the dividend when the company went into liquidation so the money was held on trust for the lender. 227In Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) [1978] HCA 45; (1978) 141 CLR 335, Gibbs ACJ (Jacobs and Murphy JJ agreeing) held that a Quistclose trust would not arise where the intention of the parties was that "the money was to form part of the general assets of the appellant, to be used as it wished" (at 353). His Honour noted that the Quistclose decision (at 353): "... 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." 228In Re EVTR Ltd [1987] BCLC 646, which was applied in Salvo v New Tel Ltd [2005] NSWCA 281 at [45]-[46], funds were advanced for the sole purpose of purchasing equipment. The money was used to pay a deposit for the equipment but the company was placed into receivership before the equipment arrived. Most of the deposit was returned to the company and the Court held that the receiver could not retain the returned deposit money, which had to be returned to the lender. Dillon LJ (with whom Woolf LJ agreed) observed (at 650) that: "On Quistclose principles, a resulting trust in favour of the provider of the money arises when money is provided for a particular purpose only, and that purpose fails." Dillon LJ observed (at 651) that it is a long established principle of equity that, if a person who is a trustee receives money or property because of, or in respect of, trust property, he will hold what he receives as a constructive trustee on the trusts of the original trust property and that, by reason of that principle, the same trust must have attached to the repayment as attached to the original sum. However, his Lordship also observed that, if the equipment which was intended to be acquired had in fact been acquired, then "any trust attaching to that money because of that purpose, would indeed have been satisfied" and "the company's interest in that equipment would have been a general asset of the company held by the company free from any proprietary or equitable interest of the appellant by way of trust or otherwise". 229Bingham LJ observed (at 652) that: "Until the sums were paid out, the company plainly held them on trust to apply them for the stipulated purpose and no other. Had the purpose failed before payment, the case would have been indistinguishable from Quistclose. But that did not happen. The sums were applied for the stipulated purpose. ... It would, I think, strike most people as very hard if the appellant were in this situation to be confined to a claim as an unsecured creditor of the company. While it is literally true that the fund which he provided was applied to the stipulated purpose, the object of the payment was not achieved and that was why the balance was repaid to the respondents. My doubt has been whether the law as it stands enables effect to be given to what I can see as the common fairness of the situation. Our attention has not, I think, been drawn to any case closely analogous to the present. But the company certainly held the fund on trust in the first instance. The purpose for which the fund was paid out partially failed. The repayment to the respondents was a direct result of the company's original holding of the fund as trustee. The balance which was recovered may reasonably regarded as not having been paid out at all. I am happy to be persuaded that the sums repaid are to be treated as held on the same trusts as the original £60,000 and, in the present circumstances, on a resulting trust for the appellant." 230In Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 500, Gummow J observed that it would be an error to treat the references to "purpose" by Lord Wilberforce in Quistclose (and by Gibbs ACJ in Australasian Conference Association at 353) as characterising an express trust which did not have to satisfy the ordinary requirements for any private (as distinct from public) trust, namely the three certainties of intention, subject matter and object. His Honour described the trust arising in Quistclose as an express trust with two limbs, as distinct from treating the secondary trust as a resulting trust in favour of the company. In Raulfs v Fishy Bite Pty Ltd above at [44], Campbell JA (Meagher and Barrett JJA agreeing) observed that: "That remark concerns the analysis of the particular fact situation revealed in Quistclose. It does not purport to be, and should not be taken as, a statement about whether a "Quistclose trust" is "really" an express trust or a resulting trust, nor about whether there is any such legal institution as a "Quistclose trust"." These principles were also recognised, although not found to be applicable in the particular cases, in Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 per Gibbs CJ at 379-380 and Commonwealth of Australia v Booker International Pty Ltd [2002] NSWSC 292. 231In Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; (1999) 161 ALR 105 at [49]ff, O'Loughlin J noted that factual circumstances which were relevant to whether such a trust existed included whether the relationship between each client and the company was a routine commercial transaction epitomising the business that the company conducted (noting that the courts are reluctant to introduce trusts into such commercial transactions); the existence of discrete evidence pointing to the existence of a mutual intention of the parties to create a trust; evidence as to an agreement or directions or instructions having been given as to how and in what manner the monies were to be held or applied; other objective indicators, such as how the recipient and alleged trustee have dealt with the funds in question (for example, whether those funds are deposited in a general bank account, which would tend against the finding of a trust); and whether there exists any obligation (statutory or contractual) requiring the recipient separately to account for the paid monies. 232ln Twinsectra v Yardley above at 185, Lord Millett emphasised the importance of the parties' intention, determined by the terms of the arrangement and the circumstances of the case, in determining the existence or otherwise of the trust. His Lordship noted that, in effect, a trust does not arise if the relevant purpose is carried out and distinguished between, on the one hand, the failure of purpose of the trust and, on the other, the disappointment of the settlor's motivations in providing the monies which will not necessarily give rise to such a failure. 233In Salvo v New Tel Ltd above, a trust was found in respect of monies applied by investors to a deposit for the acquisition of a company. Spigelman CJ referred to the passages in EVTR to which I have referred above and noted that: "It is not necessary to determine whether the analysis in English cases of a resulting trust applies in Australia. (See also Twinsectra Ltd v Yardley [2002] 2 AC 164 at [100].) The circumstances in which a trust should be classified as presumed, resulting or constructive are not the subject of any authoritative determination. (See the references set out in Rob Evans v European Bank Ltd (2004) 61 NSWLR 75 at [112]-[116].) The reasoning in EVTR, where a deposit was returned by a third party, applies in the present case to support the conclusion that the original supplier of funds retained a beneficial interest in the funds. In this case, as in EVTR, it was the intention of the supplier of funds, relevantly the Appellants, that the money was to be applied and applied only for a specific purpose (ie the purchase of the equipment in EVTR or the Digiplus acquisition in the present case). The money was applied towards a deposit in partial fulfilment of the purpose which was not fulfilled (ie the failure of the equipment purchase in EVTR or the Digiplus acquisition in the present case). The return of the deposit in each case meant that the beneficial interest in the funds of the supplier became an express trust of the deposit in the hands of the recipient." Handley JA observed (at [78]) "a decision that there was a resulting trust seems to accord more closely with the realities" of the facts of that case and Young CJ in Eq noted (at [84]-[88]) that nothing turned on whether the relevant trust was an express trust or a resulting trust, although holding that the trust was express (at [96]). 234In Raulfs v Fishy Bite Pty Ltd above, where Campbell JA (Meagher and Barrett JJA agreeing) also observed that (at [48]): "[I]t is now clear that in deciding whether there is an intention to create a trust, the court ascertains that intention by inference from the outward manifestations of intention: Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [53]-[59], [102]-[115]. Thus, the task of ascertaining whether there is an intention to create a trust and, if so, on what terms is a similar one to ascertaining the intention of parties to a contract for the purpose of deciding whether there is an intention to enter contractual relations and the terms of any contract that has been entered." His Honour also noted at [51]: "Quistclose recognises that sometimes there can be a trust whose terms are that the trust property is to be paid to particular people, and if it is not paid to those people, it is to be held for someone else. That is a matter arising from analysis of the facts of the particular case in accordance with well established principles for identifying when there is a trust, not because there is any separate legal institution known as a "Quistclose trust"." 235In George v Webb [2011] NSWSC 1608 at [199], Ward J observed that: "The decision in Barclays Bank Ltd v Quistclose Investments Ltd [above] is authority for the proposition that where money has been paid to another for a specific purpose, such that there can be said that there is a trust for that purpose, then where that purpose has not been fulfilled and the funds have not been applied to that specific purpose a trust may be impressed upon those funds in favour of the payer." Her Honour also noted (at [199]) that: "The Quistclose principle is not limited in its application to money paid for the purpose of discharging debts but can apply where the funds are to be applied for other purposes. In Re EVTR [1987] BCLC 646, for example, money was lent to buy equipment and in Re Associated Securities Ltd and the Companies Act [1981] 1 NSWLR 742, the money was lent to subscribe for shares. Nor does it seem necessarily to be limited to cases where the money was lent to the recipient as opposed to money paid to the recipient for particular purposes (say, as is the case on my view of the evidence in this case, in anticipation of a proposed acquisition)." Her Honour also observed (at [282]) that the weight of authority in this jurisdiction is that the Quistclose trust is an express trust. 236There is no need for particular caution in drawing the inference that a trust was intended: Australian Elizabethan Theatre Trust above at 503; Salvo above per Spigelman CJ at [34]. In the present case, the parties' intention in respect of funds paid to OTC counterparties for hedging purposes must be taken to conform to the limits of the statutory authority given under s 981D and the terms of the direction in the client agreements, which permitted the application of trust monies by MFGA for a limited purpose. The effect of the statutory scheme and the client agreements was that monies were paid by OTC clients to MFGA, on the basis they would be deposited in accounts subject to the statutory trust, and some of those monies may in turn be paid to OTC counterparties in accordance with s 981D of the Corporations Act and the authority granted under the client agreements. 237However, a fundamental obstacle to finding a trust over the OTC Recoveries, by reference to the principles to which I have referred above, is that, as I noted above, the purpose authorised by s 981D of the Corporations Act and the client agreements was performed when monies from the OTC CSAs were applied by MFGA to paying margins to OTC counterparties in respect of hedge transactions, or at least when the OTC Recoveries were received. There has been no relevant failure of that purpose, and, to the contrary, the receipt of OTC Recoveries would assist MFGA in meeting its obligations to clients under the relevant client agreements, even if (subject to the matters which I address in paragraphs 238 - 241 below) they were received by MFGA on its own account rather than held on behalf of OTC clients. By contrast with, for example, Quistclose or EVTR, this was not a case where the contemplated hedging transactions could not be carried out, but one where those transactions were carried out and gave rise to the OTC Recoveries. That result is not altered by the fact that the appointment of administrators to MFGA may have brought about an earlier closing of the hedge positions and the earlier receipt of the OTC Recoveries than would otherwise be the case. A further obstacle to finding such a trust is the absence of any indication that the relevant monies, once applied by MFGA to paying margins to OTC counterparties in respect of hedge transactions, would be kept separate from other monies of MFGA or, indeed, the OTC counterparties, a matter which has often been recognised as relevant to whether such a trust is established: Walker v Corboy (1990) 19 NSWLR 382 at 385 per Priestley JA; McManus RE Pty Ltd v Ward [2009] NSWSC 440; (2009) 74 NSWLR 662 at [25]; George v Webb above at [212]. I do not consider that such a trust is established. 238 Whether OTC Recoveries are received "on behalf of" OTC clients 239A further question is whether OTC Recoveries, once received by MFGA, are monies to which Pt 7.8 Div 2 Subdiv A applies by reason of s 981A of the Corporations Act. That money is neither money paid by the client nor by a person acting on behalf of the client. However, a question arises as to whether such OTC Recoveries are received by MFGA as a person acting "on behalf of" the relevant OTC clients within the meaning of s 981A(b)(iii). 240RMF contends that "on behalf of" has a wider meaning than simply principal and agent. RMF contends that it is not to the point that MFGA entered into counterparty transactions as principal since the actual margining had the closest and most direct connection with clients' trading in CFDs and was for the benefit of clients in that it improved the prospects of recovery by the clients from MFGA (RMF SIC [89], [95], [96]; RMF SIR [12], [28]). RMF contends that OTC Recoveries relating to CFDs (including funds that were not required to meet an obligation incurred by MFGA with counterparties) should be treated as funds received for the benefit of the CFD clients with an entitlement to be paid from the CFD CSAs. MFGS also contends, in the MFGS Proceedings, that monies received by MFGA from OTC counterparties are payments made to MFGA in its capacity as person acting on behalf of OTC clients and therefore fall within s 981A of the Corporations Act (MFGS SIC [65]). On the other hand, PHRS contends MFGA does not receive funds repaid by OTC counterparties in its "capacity as a person acting on behalf of its client" for the purposes of s 981A(b)(iii) and receives such funds as a principal in accordance with its transaction with the counterparty. PHRS argues that, in the alternative, there would need to be an accounting for the funds that are excluded from the statutory trust by reason of s 981A(2). 241As I noted in paragraphs 195-196 above, s 9 of the Corporations Act defines "on behalf of" in an inclusive manner, to include "on the instructions of" the relevant provisions (and particularly s 981D in its application to derivative transactions) indicate that the concept of "on behalf of" extends beyond transactions undertaken on an agency basis; and the term "on behalf of" in s 981B and s 981H has a wider meaning as a matter of its ordinary usage, extending to "the standing of one person as auxiliary to or representative of another person or thing" and to a transaction undertaken by one person "for the benefit of and in the interest" of another. 242MFGA relied on the authority conferred under the relevant client agreements to pay margins to OTC counterparties in respect of hedge transactions and those agreements also provided the mechanism for closing out positions, including providing for MFGA to credit the amount payable to the relevant CFD ledger accounts (CFD client agreements, Ex L1, Tab 9, cl 8-9). Those transactions were also undertaken for the benefit of OTC clients, so far as they supported MFGA's capacity to discharge its obligations to OTC clients under the relevant client agreements. For these reasons, it seems to me that it can properly be said that MFGA undertook hedging transactions with OTC counterparties and received the proceeds of closing those transactions "on the instructions of" OTC clients, or at least that it acted as auxiliary to and for the benefit of OTC clients in undertaking those transactions and receiving those proceeds. In my view, funds returned by OTC counterparties to MFGA in respect of hedging were therefore received by MFGA in its capacity as a person "acting on behalf of the [OTC] client[s]" for the purposes of s 981A(1)(b)(iii) and were therefore monies which were required to be paid into the relevant CSAs maintained under s 981B. This position is not changed by the fact that the Liquidators have paid those monies into separate accounts pending the outcome of these proceedings. "Investment" under reg 7.8.03(5) 243GFL submits that the hedging positions taken out by MFGA are an investment of money for the purposes of reg 7.8.03(5) and accordingly are the subject of the trust created by that regulation on the appointment of administrators to MFGA. Pursuant to reg 7.8.02(2), specified investments may be made in relation to a 981B account. Regulation 7.8.02(3) provides that (except where reg 7.8.01(4) applies), a financial services licensee must not invest an amount in a way permitted by reg 7.8.02(2) unless the financial services licensee has obtained the client's written agreement as to the specified matters and the money is money to which the client is entitled. Pursuant to reg 7.8.03(5), if money in a s 981B account of the financial services licensee has been invested, the investment is taken to be subject to a trust in favour of each person who is entitled to be paid money from the s 981B account. 244In my view, the term "investment" in reg 7.8.03(5) refers to an investment of funds in accordance with reg 7.8.02(2) and does not include a transaction in accordance with a client's specific direction of a client, such as would occur when a traded product is acquired on a client's instructions. As Deutsche Bank points out, reg 7.8.03(5) is directed to the situation where, for example, there are surplus funds which are invested in another type of investment to which reg 7.8.02(2) applies. I note that ASIC takes the same view in RG 212 Client money relating to dealing in OTC derivatives, [RG 212.45]-[RG212.49]. I therefore do not accept GFL's submissions in this regard. Surplus Funds 245The Plaintiffs also note that MFGA had a practice of maintaining funds that were not requiring to meet margin obligations incurred by MFGA ("surplus funds") with OTC counterparties, because of the higher interest rate offered by the counterparties and to provide a "buffer" to facilitate MFGA paying margin calls to counterparties in a short timeframe (Main Campbell Affidavit [128]). For example, the Liquidator's evidence is that total funds held by Deutsche Bank on 31 October 2011 was $52,718,000 whereas the margin required by Deutsche Bank on that date was $30,113,000 (Second Campbell Affidavit, Ex CC-8A, App F). 246The Plaintiffs note the possibility that, to the extent that surplus funds were not required to meet a relevant obligation incurred by MFGA and had been withdrawn from the CSAs, they should have been returned to the CSAs. RMF submits that surplus funds left with Deutsche Bank in respect of OTC Recoveries are held on trust for the relevant clients. RMF contends that Surplus Funds were either client money used by MFGA in purported exercise of the power conferred by s 981D for a purpose which was not authorised by that section; or an investment which was not a permissible investment within the meaning of reg 7.8.02. MFGS also submits that "surplus funds" maintained by MFGA with the OTC counterparties ought to be returned to the respective CSAs (MFGS SIC [66]). 247In my view, the payments which gave rise to any Surplus Funds were initially authorised by s 981D of the Corporations Act and the client directions and, when repaid to MFGA, those funds would be received by it "on behalf of" the OTC clients for the reasons noted above in respect of OTC Recoveries. Issue 13 - Treatment of new CSAs for Recoveries 248The parties also identified an issue whether any new CSAs established by the Liquidators, in which they have deposited (or will deposit) Recoveries, should be pooled with any existing CSAs, and if so, on what basis, and if not, how are the funds in any new CSAs to be distributed having regard to the Corporations Regulations or otherwise (Issue 13). 249The Plaintiffs contend that the outcome of this issue should abide the outcome of Issues 11 and 12; Futures Recoveries should also be dealt with according to the pooling regime for CSAs otherwise determined by the Court; if OTC Recoveries are MFGA's money, they should be paid into MFGA's house account; and, if OTC Recoveries are trust monies, they should be dealt with according to the pooling regime for CSAs (Plaintiffs SIC [317]-[318]). RMF also submits that this issue should await the outcome of those issues. Several other parties made submissions as to this issue consistent with their submissions as to the treatment of the existing CSAs. 250On the other hand, Deutsche Bank contends that the proper date for measuring entitlements is the date of payment out of the segregated accounts and that entitlements must be determined separately on the original and recoveries segregated accounts, and it follows that the old and new segregated accounts should not be pooled. MFGS submits, in the MFGS Proceedings, that the pooling of new CSAs in relation to Futures Recoveries and OTC Recoveries respectively should abide the determination of Issues 11 and 12. MFGS submits that any pooling of OTC Recoveries will (so far as Recoveries otherwise earmarked for CFD customers are concerned) require adjustment if the Court determines that the Singapore-based accounts are not to be pooled with other CSAs (MFGS SIC [68]) 251The findings which I have reached above suggest that, consistent with the treatment of existing CSAs, the new CSAs opened by the Liquidators should be pooled with the existing CSAs across the four Product Lines, with the Singapore-based accounts to be pooled with the Australian-based CSAs. However, the parties should have the opportunity to address this issue in submissions as to the form of orders. Issues 14-15 - Liquidators' remuneration and expenses and costs of the proceedings 252The Plaintiffs also seek an order or direction as to the appropriate source of payment and/or recoupment of the Liquidators' remuneration and expenses and MFGA's expenses in connection with administering property held by MFGA as trustee, including the CSAs, and the procedure to be adopted in connection with the payment of such remuneration and expenses, including the costs and expenses of these proceedings (Further Amended Originating Process [7]). In particular, the parties identified issues as to whether:

• the remuneration of and expenses incurred by the Liquidators in respect of their administration of MFGA relating to the CSAs and MFGA's costs during the liquidation and administration in connection with administering the property it holds as trustee, including the CSAs, should be paid solely out of MFGA's assets held beneficially, or should some part of the Liquidators' remuneration and expenses be paid out of the CSAs and Recoveries; and
• the Liquidators' costs and expenses in relation to these proceedings should be paid solely out of MFGA's assets held beneficially, or whether some part of those costs and expenses should be paid out of the CSAs and the Recoveries. 253The Plaintiffs submit that the practical course is to defer these issues until after the reasons for judgment (Plaintiffs SIR [85]-[92]). They note that the representative defendants' costs are already the subject of a costs regime ordered by the Court, albeit there is an avenue for that regime to be revisited, and any such revisiting should occur after the reasons for judgment. Several other parties accepted that it was appropriate to take that course. PHRS contends that the issue of the costs, expenses and remuneration ought to be dealt with at the level of principle now rather than being deferred, but it also accepted that the result will abide by the outcome of the various issues. 254There is, in my view, good reason to defer the determination of these issues where the orders which are necessary or desirable may depend on the extent of funds to which MFGA is beneficially entitled, which will in turn be affected by the matters which I have determined above. The parties should have the opportunity to address this issue in submissions as to the form of orders. Summary 255In summary:
• I will direct the Liquidators that they are justified in proceeding on the basis of four pools in the four Product Lines.
• I will direct the Liquidators in the MFGS Proceedings that they may properly proceed on the basis that the Singapore-based accounts and the Australian-based CFD CSAs may be pooled. I consider that it is also proper to make a declaration to that effect, where the issues have been fully contested on the basis of evidence led in the MFGS Proceedings.
• I will make a direction, and a corresponding declaration, that the Liquidators are justified in proceeding on the basis that foreign currency is "money" for the purposes of Pt 7.8 Div 2 of the Corporations Act and the Corporations Regulations.
• I will direct that the Liquidators are entitled to convert the funds, including funds held in the Singapore-based accounts, to Australian dollars.
• I will direct that the Liquidators would be justified in determining clients' entitlements on a contractual basis as at the Appointment Date, by reference to GLV calculated under the client agreements on the basis of 31 October 2011 mark-to-market prices. I have not accepted Jilliby's submission as to the persons who have such entitlements or PHRS's submission as to a prior-ranking claim by unsecured creditors arising by subrogation to any claim for indemnity by MFGA. The precise form of that direction will need to be addressed in submissions as to orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 August 2012