Marsden re Snowburn Pty Ltd [2009] NSWSC 710

CATCHWORDS : CORPORATIONS - receivers - directions - moneys received by company as agent for service providers - such moneys paid by customers into company bank account designated "trust account" - balance after commission paid out to services providers - whether trust moneys - whether direction should be given to receivers accordingly

Corporations Act 2001 (Cth), s 424 LEGISLATION CITED : Supreme Court (Corporations) Rules 1999, rule 2.13 Trustee Act 1925, s 63

CASES CITED : Sutherland re French Caledonia Travel Service Pty Ltd [2003] NSWSC 1008; (2003) 48 ACSR 97

Peter William Marsden and Andrew John Bowcher as receivers of Snowburn Pty Limited - First Plaintiffs PARTIES : Snowburn Pty Limited - Second Plaintiff Bidgee Finance Ltd - By Leave

COUNSEL : Ms N C Bearup - Plaintiffs Mr J A Arnott - Bidgee Finance Ltd

SOLICITORS : Henry Davis York - Plaintiffs Blake Dawson - Bidgee Finance Ltd

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

3695/09 PETER WILLIAM MARSDEN & ANOR AS RECEIVERS AND MANAGERS OF SNOWBURN PTY LIMITED

1 By their amended originating process filed in court today, Mr Marsden and Mr Bowcher seek directions from the court under s 424 of the Corporations Act 2001 (Cth). They do so in their capacity as receivers appointed by Commonwealth Bank of Australia as chargee under securities granted by Snowburn Pty Limited ("Snowburn"). There is also a subsidiary aspect arising under s 63 of the Trustee Act 1925 upon the application of Snowburn itself, should it be found that Snowburn is a trustee. 2 Mr Marsden and Mr Bowcher are the receivers of the whole of Snowburn's undertaking, property and assets whatsoever and wheresoever, both present and future including its uncalled capital.

3 The main question on which the receivers seek the guidance of the court concerns moneys standing to the credit of a particular bank account of Snowburn. The question is whether the moneys in that account fall outside the beneficial ownership of Snowburn because held upon trust by Snowburn. 4 Snowburn's business is that of arranging holidays, accommodation and other leisure services for visitors to the New South Wales snow fields. The activities are centred on Jindabyne.

5 The business is conducted in such a way that persons wishing to take snow fields holidays and to obtain services there contact Snowburn by e-mail or telephone to arrange the provision of services sourced from particular third party service providers such as resort operators and ski hire outlets. A customer typically makes a fifty per cent payment to Snowburn at the point of ordering services, with the balance paid closer to but before arrival for the holiday. The customer is given a document by Snowburn for production to the ultimate supplier and that supplier makes the required service available in return for surrender of the document. Thereafter, providers typically send to Snowburn a document by which they claim money for the provision of services to the customer introduced by Snowburn and by whom advance payment had been made to Snowburn. Moneys received by Snowburn from customers are deposited in the particular bank account. Payments to suppliers by Snowburn are made from that account. 6 Ms Bearup of counsel submits on behalf of the receivers that the moneys in the account are trust moneys - although Ms Bearup did make it clear that the receivers' principal concern is to ascertain the status of the moneys without having any real preference for one answer over the other. They need to know this in order to decide how to progress their receivership.

7 The central thesis in Ms Bearup's written submissions (which will be kept in the court file) is that the circumstances of this case are virtually indistinguishable from those considered by Campbell J in Sutherland re French Caledonia Travel Service Pty Ltd [2003] NSWSC 1008; (2003) 48 ACSR 97. 8 Mr Arnott of counsel has appeared for Bidgee Finance Limited ("Bidgee"), a subsequently ranking chargee of the assets of Snowburn. Bidgee has been granted leave under rule 2.13 of the Supreme Court (Corporations) Rules 1999 to be heard in these proceedings without becoming a party. Mr Arnott's written submissions will also be kept in the court file.

9 Bidgee has submitted on several grounds that the court should not give the receivers a direction that the moneys in the particular Snowburn bank account should be treated as trust moneys. Mr Arnott submitted that the circumstances in this case are distinguishable from those in Sutherland re French Caledonia Travel Service Pty Ltd (above). In that case, he points out, there was a provision in the agreement between the travel agent and IATA requiring that moneys be held in trust. There is no such provision here in the arrangement between Snowburn and any ultimate service provider; also, Snowburn's activities do not attract statutory requirements with respect to trust accounts binding on travel agents.

10 It is clear, as Ms Bearup submitted, that these factors were by no means decisive in the case before Campbell J. I refer in particular to paragraph [19] of his Honour's judgment: "That the trust account and the CD account were each called a "trust account" does not as a matter of law necessitate a conclusion that moneys paid into them were held on trust. All relevant circumstances must be examined in order to determine whether the company really intended to create a trust: Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178; Kauter v Hilton (1953) 90 CLR 86 at 100; b (2000) 202 CLR 588 ; 171 ALR 568 at [33]. But opening an account entitled "trust account", and paying into that account money received from customers in payment for services which they have not received at the time of payment, is a powerful indication that a trust is intended: Re Kayford Ltd (in liq) [1975] 1 WLR 279 ; [1975] 1 All ER 604. There are no countervailing factors of any significance. The liquidator is justified in proceeding on the basis that money standing to the credit of the trust account and the CD account are moneys which are held on trust. So far as moneys collected for airlines are concerned, which also found their way into the trust account or the CD account, cl 7.2 of the IATA agreement would provide a separate basis for the existence of a trust of those moneys. In circumstances where payment for airline services found its way into the trust account or the CD account, and those services were actually provided, the trust would probably be in favour of the airline; if the services were not provided the trust would probably be a resulting trust in favour of the person who paid the money. It is not, however, necessary to make a final decision about this - what matters for present purposes is that the moneys paid into the trust account were each held on trust, that money held on trust for many different beneficiaries has become mixed in the trust account and the CD account, and that there is now not enough money in those accounts to pay all the beneficiaries." 11 Bidgee contends that there is not sufficient evidence of an intention by Snowburn to hold the moneys in the bank account upon any trust. The contrary submission, which I accept, is that the designation by Snowburn of the account as a "trust account" is a powerful indication of such an intention, particularly when viewed in the context in which the moneys were received, that is, to procure from various service providers, to whom payments were to be made out of the account, accommodation and other services for the persons paying moneys into the account. The circumstances are consistent with a simple flowthrough of funds; and this is so despite some anomalies to which I shall come. 12 It is very significant that there is clear evidence that the only moneys ever paid into the account were moneys received from customers for the provision of services by providers represented by Snowburn; and that, subject to one exception (and the anomalies I have mentioned) the only payments out of the account were to service providers for services rendered to persons introduced by Snowburn from whom Snowburn had received moneys.

13 The exception to this simple flowthrough proposition founds Bidgee's next ground for submitting that the moneys in the bank account are not trust moneys. It is pointed out that Snowburn was entitled to commissions from the service providers, whose agent it was, for introducing customers to those providers and that the commissions were taken by Snowburn from the moneys in the account. It is said that this means that there is some part of the moneys in the account that cannot be trust moneys. I do not accept that submission. A trustee may be one of the beneficiaries for whom that trustee holds property on trust. The trustee cannot be the sole beneficiary, since then there would be no trust, but that is not the case here. The fact that Snowburn is entitled to resort to the account to recoup its commissions, as earned, out of the larger balance does not detract from the status of the whole of the funds as trust moneys. 14 Submissions made on behalf of Bidgee analyse the contractual relationships created when a customer orders services through Snowburn and pays money to Snowburn. Mr Arnott referred to the form of booking confirmation issued by Snowburn to a customer. This states in clear terms that Snowburn acts only as agent for the suppliers or persons providing or offering the means of accommodation, travel conveyance or transport. 15 It must therefore be accepted that Snowburn contracted as agent of the several suppliers. Its status as agent is significant. It might well mean that moneys received by Snowburn were held in trust for the several customers on terms that they were to be passed on to the suppliers, as Snowburn's principals (after deduction of Snowburn's commission), so that, at a certain point, the moneys came to be held on trust by Snowburn as agent for its several principals net of commissions, of course. It makes no difference, in my view, that the agreements between Snowburn and the suppliers for whom it is agent say nothing about moneys being held in trust. The fact that the moneys are in Snowburn's hands, segregated and kept in an account designated "trust account", is a very weighty consideration.

16 It is pointed out on behalf of Bidgee that a $100,000 payment was made by Snowburn to one supplier out of the bank account by way of some form of guarantee or bond for Snowburn's commitments for the 2009 season. This, it is submitted, is inconsistent with any trust.

17 It may be accepted that that is so, at least to the extent that the $100,000 did not obviously relate to the supply of services by that provider to any particular person or persons from whom Snowburn had received moneys in respect of the prospective rendering of services by that particular supplier. The payment was really in the nature of a security given by Snowburn personally for its faithful performance as agent; something in the nature of a performance bond, if you like. 18 Resort to the bank account for this $100,000 can, in the circumstances, be categorised, at least provisionally, as involving a payment made in breach of trust, rather than any lack of intention as to the creation of the trust upon receipt of the moneys in question. 19 In similar vein, there was reference in the course of evidence to a payment of $52,000 out of the bank account, with which I am concerned, to relieve the accrual of interest on an overdrawn separate bank account of Snowburn. There was evidence that a director of Snowburn had made attempts to transfer the funds back into the account from which it had come. This bespeaks an awareness that that account should have been held intact and should not have been used to offset a negative balance in another company bank account. That is consistent with recognition of breach of trust and of the need to hold moneys in the bank account designated "trust account" as trust moneys.

20 There were also some payments out of that bank account appearing on bank statements that it was suggested were not satisfactorily explained, but the strong likelihood, in light of the document to which Ms Bearup took me towards the end of her submissions, is that the payments in question were in fact payments of the commissions to which Snowburn was entitled.

21 As to all of these matters that I have just mentioned, the fact that there are anomalies and possible irregular withdrawals does not undermine the conclusion that a trust subsists. It is an unfortunate fact of life that when financial stress emerges, so often do financial irregularities including with respect to trust moneys. 22 Mr Arnott pointed out on behalf of Bidgee that the account opening form completed by Snowburn in respect of the bank account in question classified the account as "business cheque account" and that an option to designate it "statutory trust account" was not exercised. This really shows nothing. The account is not on any view a "statutory trust account" and it would have been wrong to characterise it in that way in the account opening form. 23 Finally, I should mention that there has been tendered a balance sheet of Snowburn as at 30 June 2008 in which there is no reference to any moneys in the particular bank account among the assets of Snowburn. This indicates that the company did not regard those moneys as its own beneficial property.

24 Having regard to the whole of the evidence, I am of the opinion that the moneys held by Snowburn at the time of appointment of the receivers in the bank account designated "trust account" were trust moneys and that a direction to that effect will appropriately be made. 25 The receivers next seek the guidance of the court in respect of a second and separate bank account established by them after their appointment. They established this account to serve the same purposes as had been served by the company's own account with which I have just dealt. The moneys in the separate account established by the receivers must be characterised in the same way as the moneys in the company's pre-receivership account.

26 There should also be a direction that the receivers are justified in repaying the amount of $32,456.39 borrowed by them from the Commonwealth Bank by way of overdraft account with the repayment being from the pre-receivership trust account. This takes account of the relationship between the company's trust account and the trust account established for the same purposes by the receivers after their appointment. 27 The next matter on which a direction is sought concerns a proposed sale of the Snowburn business by the receivers. The receivers seek a direction that they are justified in entering into the contract for the sale of the business on terms that there is a transfer to the purchaser of the balance of the moneys in the company trust account.

28 This aspect of the application requires further consideration and further submissions. I consider the terms of the direction now sought too vague and too abstract. The application needs to be made on a more concrete basis making it clear that the direction relates only to the treatment of the trust moneys in the company's trust bank account and also with the court having the benefit of a full explanation of the contractual treatment proposed in respect of the matter. Indeed, it would be preferable if the court had before it the precise terms of the contract. 29 Furthermore, any form of direction on this subject would need to make it clear that the direction did not bless the adequacy of the price or the other commercial terms that the receivers had negotiated.

30 Finally, to the extent that as has now been found that Snowburn is a trustee, it will be appropriate that that company itself (which has been added as a plaintiff) should have a direction under s 63 of the Trustee Act in conformity with the court's eventual decision with respect to any transfer to the purchaser of the balance in the trust account. There may also be a need for an order under s 61 to constitute the purchaser as a new trustee in place of Snowburn. 31 These too are matters that should be addressed when the matter comes back before the court for the formulation of the directions to be given to the receivers. At this point, the proceedings are to stand over to 9.30am on Monday 27 July 2009 before me for the settling of an appropriate form of direction in respect of the company's trust bank account and further submissions on the remainder of the matters pending. **********

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.