Nikitins (Liquidator) v EncoreFX

Solicitor for the Fourth Defendant: Kalus Kenny Intelex Lawyers

ORDERS NSD 631 of 2020 IN THE MATTER OF IN ENCOREFX (AUSTRALIA) PTY LTD (IN LIQ) (ACN 607 244 879) BETWEEN: ADAM NIKITINS AND STEWART MCCALLUM AS JOINT AND SEVERAL LIQUIDATORS OF ENCOREFX (AUSTRALIA) PTY LTD (IN LIQ) (ACN 607 244 879) Plaintiff

AND: ENCOREFX (AUSTRALIA) PTY LTD (IN LIQ) (ACN 607 244 879) First Defendant

NEXT ATHLEISURE PTY LTD Third Defendant

VERBATIM (AUSTRALIA) PTY LTD Fourth Defendant

order made by: COLVIN J DATE OF ORDER: 28 JANUARY 2021

1. On or before 5 February 2021, the parties do bring in an agreed minute or competing minutes to give effect to these reasons.
2. In the event that competing minutes are filed the parties do each also file a short written outline of submissions of no more than three pages in support of the orders sought by that party. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 EncoreFX (Australia) Pty Ltd (in liq) (EFX) entered into voluntary administration on 30 March 2020 and went into liquidation in May 2020. Prior to its insolvent administration it was in the business of providing foreign exchange and global payment services. Its provision of those services was facilitated by arrangements between EFX and its Canadian parent EncoreFX Inc (EFX Canada). Under those arrangements, where EFX agreed to provide a service to a client it entered into a back-to-back transaction with EFX Canada to provide that service. It appears that the records relating to financial dealings between EFX and its clients were maintained by EFX Canada. 2 EFX maintained a number of accounts with the ANZ Bank in Australia. One account was styled 'Client Settlement Account'. It also maintained a separate account described as 'Client Trust Account'. 3 The services provided by EFX included arranging foreign exchange contracts and the making of wire payments to the bank accounts of nominated payees. Funds received from customers in relation to the provision of those services were paid into the Client Settlement Account. 4 The records maintained by EFX Canada included what was described by Mr Adam Nikitins, one of the liquidators of EFX, as 'a register of funds held in "Holding Accounts" attributed to individual Customers'. The register was recorded in the management information systems of EFX and EFX Canada. It was said that the amounts recorded in the register as being in the Holding Accounts did not represent funds on deposit in the bank accounts of EFX. 5 At the time that EFX was placed into administration, dealings by EFX (and EFX Canada on its behalf) were pending in respect of instructions received from two clients of EFX, namely Verbatim (Australia) Pty Ltd (Verbatim) and Next Athleisure Pty Ltd (Next), namely: (1) Verbatim had entered into a transaction with EFX to exchange AUD165,975.10 for USD100,000. Verbatim had paid the amount of $165,975.10 to EFX at 10.34 am on 27 March 2020, but had not received the US dollar amount (Verbatim Amount); and (2) Next had entered into a transaction with EFX to exchange AUD638,157.81 for USD389,914.42 and to then wire various USD amounts to the bank accounts of eight different parties. Next had paid $638,157.81 to EFX at 9.01 pm on 27 March 2020 (Next Amount). The funds had not been exchanged and consequently the USD amounts had not been wired. 6 Both the Verbatim Amount and the Next Amount were received into the Client Settlement Account of EFX. The Verbatim Amount was received first in time. After the Verbatim Amount was received but before the Next Amount was received, the Client Settlement Account was swept of funds by EFX Canada. As a result, the available balance in the account fell to $140,673.33. Therefore, at that time, the total available funds in the account were below the total of the Verbatim Account. However, from the time the Next Amount was received into the account until the commencement of the administration there were sufficient funds to cover both the Verbatim Amount and the Next Amount. 7 The commencement of the administration of EFX intervened before the transactions were completed. 8 Each of Verbatim and Next claims that the amount it paid to EFX for its uncompleted transaction is now held by the liquidators of EFX on trust. In each case, the claim is based upon the provisions of Chapter 7 of the Corporations Act 2001 (Cth) and, in the alternative, upon the application of principles that recognise a form of trust commonly termed a Quistclose trust. 9 The liquidators have approached the Court for directions as to whether they are justified in treating the contested funds as property of the liquidation. Orders were made to facilitate the early resolution of the proprietary claims by Verbatim and Next to monies that were in the Client Settlement Account so that the Court would be in a position to provide directions based upon the outcome of the determination of those claims: Nikitins (Liquidator) v EncoreFX (Australia) Pty Ltd (in liq), in the matter of EncoreFX (Australia) Pty Ltd (in liq) [2020] FCA 1189. Although, for convenience and efficiency those claims proceed without the need for the commencement of separate proceedings by Verbatim and Next, points of claim, defence and reply have been filed in accordance with orders made by the Court to facilitate the determination of those claims for the purpose of then providing advice to the liquidator about how to deal with funds held. 10 Although I raised an issue as to the precise nature of the proceedings pursuant to which the claims of Verbatim and Next are to be determined (Nikitins at [31]), I was not invited to consider the claims as if they involved the seeking of any relief by Verbatim or Next. Rather, the matter was put by the liquidators on the basis that the application continues as an application for directions and the only relief that is sought is advice to the liquidator. Neither Verbatim nor Next demurred from that characterisation of the proceedings. I am satisfied that the Court has jurisdiction to give relief of that kind if appropriate in all the circumstances. Therefore, the issue is whether advice should be given to the effect that the liquidators are justified in treating the funds as if they are not the subject of any valid proprietary claim by Verbatim or Next. The tacit understanding was that if the Court determined the claims in favour of Verbatim or Next then the liquidators would give effect to that conclusion in its ongoing conduct of the liquidation and would cause the relevant funds to be paid to those parties commensurate with any trust found to exist.

Summary of outcome 11 For the following reasons, I am satisfied that of the funds that were in the Client Settlement Account upon the commencement of the administration of EFX, the amount of $140,673.33 is held on trust for Verbatim and the amount of $638,157.81 is held on trust for Next. The trust arises according to Subdivision A of Division 2 of Part 7.8 of Chapter 7 of the Corporations Act. The parties should be invited to provide a minute of orders or competing minutes to give effect to the reasons of the Court and to deal with the question of costs.

The evidence 12 There was no dispute between the parties as to the relevant facts. The liquidators took issue as to the weight to be afforded to certain matters deposed to by evidence given by Mr Johnson, a director of Verbatim. It will be necessary to deal with that evidence when dealing with the claim by Verbatim as to the existence of a Quistclose trust. Otherwise, the position of the parties depended upon the significance to be afforded to the statements made in certain documents and matters deposed to by Mr Nikitins.

The PDS 13 Relevantly for present purposes, EFX provided products as described in a Public Disclosure Statement concerned with spot contracts and forward exchange contracts (PDS). The PDS described a spot contract in the following terms (para 3.1): A spot contract is the most basic and popular foreign exchange contract. It is a binding obligation to buy or sell a certain amount of foreign currency at the current market rate, for settlement within two business days. 14 The PDS then described the risks of spot contracts (para 3.2): Although the spot market lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable and volatile, even during a single trading day. Relying on the spot market for future foreign exchange requirements is a high risk strategy. It can expose your company's cash flow to the risk of unfavourable changes in foreign currency values. 15 For present purposes it is to be noted that the risks as described do not include solvency risk of EFX. 16 The PDS then separately described forward exchange contracts in the following terms (para 4.1): A Forward Exchange Contract lets your company buy or sell one currency against another, for settlement at a future date. Unlike Spot Contracts, a Forward Exchange Contract almost eliminates the uncertainty of fluctuating exchange rates by locking in a price today. This hedging instrument is ideally used for protecting your future cash flow against negative currency fluctuations and also eliminates some of the uncertainty of doing business abroad. 17 It went on to describe the risks of such a contract. The insolvency of EFX was not identified as a risk. However, the potential for margin calls was identified. 18 Then, in a separate section under the heading 'Risks', the PDS said: Whenever you choose to purchase our products, you are moving your money out of your secure banking environment, and are subjecting that money to various risks, some of which are summarised below. It is important that you carefully consider whether trading our products is appropriate for you in light of your business objectives, financial situation and needs. In addition to the risks set out in the sections of this PDS dealing with specific products the following risks may also be applicable: (emphasis added) 19 In the list of risks that followed there was the heading 'Counterparty risk'. It included the following (para 5.2): You are dealing with us as a counterparty to every transaction, so you will have a credit-related exposure to us in relation to each transaction. In all cases, you are reliant on our ability to meet our obligations to you under the terms of each transaction. This risk is sometimes described as counterparty risk. … You are also subject to our credit risk. If our business becomes insolvent, we may be unable to meet our obligations to you. In addition, we must comply with the financial requirements imposed under our AFSL. In the event of our insolvency, you will be an unsecured creditor to the extent that you have a claim against us for amounts you have already paid under an existing contract that has not been settled. The extent to which you may recover your proportional entitlement will be determined by applicable insolvency laws subject to any contractual arrangements you have with us (e.g., the set-off and netting rights of us against client money, under our Master Terms and Conditions). However, we may agree at times for you to place money in our designated client money account, say, if you anticipate making trades in the future but have not nominated the funds for a particular trade or trades. In this situation, the funds are segregated from our own funds and property. This means that they are not available to pay general creditors in the event of our receivership or liquidation. However, in that situation, by paying us money in this way, you authorise us to retain any interest on that money, and to use that money (including to deduct reasonable fees) in any way agreed to as set out in this PDS, the Master Terms and Conditions, or as otherwise agreed with you. You may request a summary of our financial statements to help you manage this risk. (emphasis added) 20 It is to be noted that the insolvency risk was described in general terms as being applicable to all dealings. Then, there was a separate statement to the effect that funds may be segregated where there is an agreement to that effect. It is only in that event that the funds 'are not available to pay general creditors in the event of [insolvency]'. 21 The PDS also had a section headed 'Client Money'. It included the following (para 7.1): Any Australian dollar amounts you pay to EncoreFX in relation to your Spot Contracts or Forward Exchange Contracts required to be paid into a trust account under the Client Money Rules, such as Margin Deposits and Additional Margin Deposits, will be paid into EncoreFX's trust account (EncoreFX Trust Account). 22 Expressed in those terms, the PDS suggested that there may be some circumstances where such amounts would be required to be paid into a trust account by reason of the terms of the Client Money Rules. It gave examples related to margin deposits being funds placed with EFX to cover shortfalls that were the consequence of future exchange rate movements. The language used did not suggest that the usual course would be for funds received for the purposes of foreign exchange transactions to be placed in a trust account (unless the Client Money Rules required that to occur in the usual course). 23 The term 'Client Money Rules' was defined as the provisions in Part 7.8 of the Corporations Act (and the regulations and any ASIC policy) that 'specify the manner in which financial services licensees are to deal with client monies and property'. The term 'Client Money' was defined as 'money paid to EncoreFX pursuant to section 981A of the [Corporations Act]'. It will be necessary in due course to refer to the terms of s 981A and their effect. However at this point it need only be noted that the liquidators submitted that the application of the definitions to the Client Money section in the PDS meant that EFX agreed to comply with the Corporations Act and no more. Therefore, so it was submitted, it was only if those provisions imposed a trust that there could be a trust. Otherwise, it was said that the PDS made clear that any customer of EFX entering into a spot contract was exposed to the risk of insolvency of EFX and that upon such risk becoming manifest the customer would be a general creditor. The submission reflects the language of the PDS. 24 However, the PDS also provided that each spot contract would be subject to the Master Terms and Conditions (Master Terms). It was common ground that the Master Terms applied to all the different types of contracts that EFX might make with a customer.

The Master Terms 25 The Master Terms applied where an account application form was completed. It applied to services that included 'Foreign Exchange Spot Transactions' and 'Wire Transfers'. It also applied to foreign exchange forward contracts and option contracts. 26 The Master Terms provided for the terms of each transaction to be outlined in a confirmation to be provided by EFX to the customer (cl 5.2(b)). The confirmation was to be provided 'upon the completion of each Transaction' (cl 5.2(b)). 27 'Transaction' was defined to mean 'the specific Services(s) contracted for by the Customer with EncoreFX'. The term 'Spot Transaction' was defined to mean an over the counter based transaction whereby EFX agreed to deliver a specific currency to the customer, 'or as directed by the Customer' within two business days 'of the order being placed by the customer with EncoreFX'. 28 For the liquidators it was contended that these provisions were consistent with the transaction being the completion of the agreement to perform the order placed by the customer with EFX to buy foreign currency. In the case of a spot contract, the customer would be required to provide funds to EFX and then EFX would be required to deliver the specified currency within two days. Therefore, when payment was made to EFX it was in performance of the agreement. Therefore, so it was submitted, monies became part of the funds generally available to EFX and it had a contractual obligation to deliver the foreign currency. The monies delivered by the customer did not remain earmarked for that purpose. 29 Verbatim and Next relied upon other provisions of the Master Terms that applied 'with respect to the processing of Transactions'. They allowed the Customer to 'cancel, amend or reverse a Transaction for any reason whatsoever' (cl 5.4(b)). In those circumstances, there was an obligation to use commercially reasonable efforts to do so. The customer was required to meet any costs incurred by EFX to cancel, amend or reverse a transaction. Although, it was submitted that these matters support a claim that the character of the dealing was such that EFX was required to hold on to the monies paid as earmarked funds so that they could be repaid, the terms of the relevant clause are not to that effect. The terms recognise that there is no unqualified obligation to return the money. Rather there is only an obligation to use commercially reasonable efforts to cancel or unwind. If indeed, the funds paid to EFX in the case of a spot contract were intended to remain the property of the customer until the foreign exchange occurred then it may be expected that in the context of a cancellation the Master Terms would provide expressly for the unconditional refund of monies. However, they did not do so. 30 By a separate clause of the Master Terms headed 'No Interest Paid' (cl 9.1) it was agreed that: EncoreFX may hold monies of the Customer in the course of providing Services under this Agreement. The Customer acknowledges and agrees that such monies will not accrue interest while held by EncoreFX. If such funds are not required as a Margin Deposit or for the purpose of settling a contract with EncoreFX based upon a Transaction or a Service, the Customer may direct EncoreFX as to the payment or the application of the funds held by EncoreFX. 31 This provision is dealing with a circumstance in which funds are not required in order to settle a contract based upon a transaction. In the present case there was a spot contract. The obligation of EFX to perform that contract was an executory obligation at the time that EFX was placed into administration. At that point the monies were still required to settle the spot contract which EFX was still obliged to perform. 32 The Master Terms have a set off clause (cl 10.1) that provides that if a customer fails to make a payment then EFX 'may, without prior notice, apply any monies held by it on behalf of the Customer against any amount owed by the Customer to EncoreFX for any Services or Transaction'. The liquidators placed some reliance upon this provision. However, it appears to be equivocal. It applies to monies held 'on behalf of' a customer. Some transactions will require funds to be held for a customer, such as where there is a margin call on a futures contract. The issue here is whether monies paid under a spot contract have that character. It is an issue the resolution of which is not aided by the terms of the set off clause which could apply on either of the competing cases advanced. What it does show perhaps is that the parties contemplated that EFX would be entering into some transactions where monies paid to EFX by the customer would be held 'on behalf of' the customer and not for the benefit of EFX. But it goes no further than that.

Confirmation notices 33 The dealings by EFX with its clients in relation to spot contracts for foreign exchange involved the issue of confirmation notices. 34 In the case of the relevant dealing with Verbatim, a 'deal confirmation' notice was issued which said 'You Purchase' an amount of USD100,000, an applicable exchange rate and 'You Pay to Encore FX' an amount in Australian dollars being the Verbatim Amount. It showed that payment was to be made by Verbatim to EFX from a nominated bank account and that a wire payment was to be 'initiated' by EFX to Verbatim as payee into a nominated payee account. A separate 'wire confirmation' was issued with further details of the beneficiary of the payment and the banking details. 35 Similar documents were issued in the case of Next, save that the confirmations each provided for payment of specified USD amounts to each of eight specified payees. 36 However, these confirmation notices did not establish the terms of the contractual arrangements between Verbatim and Next on the one hand and EFX on the other. In order to be able to provide an instruction to EFX a client was required to complete and sign a new account application. The form of application signed on behalf of Verbatim was in evidence. It recorded the following (below which the signature of a person authorised to enter into 'this agreement with EncoreFX' was affixed): The undersigned confirms receipt, understanding and acceptance of the EncoreFX Master Terms and Conditions agreement and agrees to be bound thereby and further agrees that all dealing between the Applicant and EncoreFX remain subject to the Master Terms and Conditions as updated from time to time. The undersigned certifies that it has the authority and legal capacity to bind the Applicant into the Agreement with EncoreFX and further certifies that the Authorized Representatives named on this Application Form have the authority to bind the Applicant into Transactions and Services with EncoreFX and carry out all obligations thereunder. Services offered to the Applicant include: i) Foreign Exchange Transactions; ii) International Wire Transfers and global automated clearing house (ACH) transfers; iii) foreign exchange Forward contracts and Options contracts; and iv) Foreign currency drafts and cheques. The undersigned confirms having received the Product Disclosure Statement (PDS) issued by EncoreFX relating to the products and services offered by EncoreFX and the undersigned further confirms having read and understood the PDS in full. The undersigned confirms having received and accepted the offer in the PDS in Australia; and the undersigned acknowledges that by submitting a New Account Application the Applicant agrees and consents to all arrangements between EncoreFX and related entities of EncoreFX as disclosed in the PDS … 37 The Master Terms included the following provision in cl 2.1: This Agreement applies to all transactions entered into between the Customer and EncoreFX ('Transactions'). Such Transactions and all related contracts or agreements between the Customer and EncoreFX will at all times be subject to the provisions of this Agreement, except to the extent modified expressly and clearly by the specific provisions of a Transaction. 38 Therefore, it appears that the Master Terms were agreed between the parties and then on the basis of those agreed arrangements various 'Transactions' were entered into and in each case a confirmation was issued to record the transaction. 39 In those circumstances, the overarching agreement established by the new account application form created the framework by which the parties might thereafter enter into transactions some of which would be foreign exchange contracts in the sense that they would provide for EFX to provide funds in foreign currencies to payees as nominated with those funds to be purchased under the Master Terms.

The financial records 40 Records were produced by the liquidators in response to a call by Next that showed that EFX Canada maintained records that showed 'Client Funds Held by EFX' and those amounts were in a 'Holding Account', being a term applied to various bank accounts in which funds were held in different currencies. The Holding Accounts included the Client Settlement Account. Those records showed a total amount that included the Next Amount was in 'Client Holding' and formed part of an 'Available Balance'. 41 Given the evidence of Mr Nikitins and matters conveyed by counsel for the liquidators in the course of the hearing, I conclude that as to Next the records show funds held by EFX and that the descriptions used in the records pertain to amounts held in the Client Settlement Account as at the time that an administrator was appointed to EFX. They show that the Next Amount was recorded as forming part of the funds making up the balance in the Client Settlement Account at the time that EFX went into administration. They show that the Verbatim Amount was paid into the Client Settlement Account which was then swept leaving only $140,673.33. After that, the balance was increased again by further deposits.

Alleged statutory trusts based upon s 1017E of the Corporations Act 42 It is common ground that the activities of EFX were regulated by the provisions of Chapter 7 of the Corporations Act which were concerned with promoting the following, described as the main object of the Chapter by s 760A: (a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and (b) fairness, honesty and professionalism by those who provide financial services; and (c) fair, orderly and transparent markets for financial products; and (d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities. 43 Under the terms of s 1017E, where money is paid to an issuer or a specified type of seller of financial products (described as a product provider) to acquire a financial product and the product provider does not for whatever reason issue or transfer the financial product immediately after receiving the money then (save for instances excluded by regulation) 'the money must be paid into' an account with a designated institution and the money 'is taken to be held in trust by the product provider for the benefit of the person who paid the money': see s 1017E(1), (2), (2A) and (2C). 44 It can be seen that the protection afforded by s 1017E relates to instances where the money is paid to acquire a financial product. 45 There is a general definition of financial product in s 763A which is expressed in the following terms: a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment …; (b) manages financial risk …; (c) makes non-cash payments … 46 The terminology 'non-cash payment' applies to payment made otherwise than by delivery of currency in the form of notes and coins; that is, payment by means other than physical cash payment: s 763D. 47 In addition to the general definition, there is a list of products that are financial products set out in s 764A. The list includes: A foreign exchange contract that is not: (i) a derivative …; or (ii) a contract to exchange one currency (whether Australian or not) for another that is to be settled immediately. 48 The parties' contentions were advanced on the common basis that the dealings with each of Verbatim and Next pursuant to which the Verbatim Amount and the Next Amount were paid to EFX involved the making of a foreign exchange contract in each case. No party claimed that the foreign exchange contracts in this case were to be 'settled immediately'. No party claimed that the agreement made was a derivative (a term defined in some detail in the Corporations Act). No party relied upon the language of the general definition. 49 Therefore, the arrangements made by each of Verbatim and Next with EFX involved the making of a foreign exchange contract that was, for that reason, a financial product. 50 Next also claimed that the making of an agreement to effect a wire transfer of funds would meet the requirements of a non-cash payment. So much may be accepted (and was not disputed by the liquidators of EFX). But Next took the further step of claiming that its dealing with EFX involved two financial products, a foreign exchange contract and an agreement to wire the funds to the eight nominated payees (described as a non-cash payment facility). This distinction assumed significance for its argument as to why s 1017E applies to establish a statutory trust in respect of the monies that it had paid to EFX. It involved a contention that an agreement to provide such a wire payment service would be a facility through which a non-cash payment was made. An arrangement or a term of an arrangement is a facility: s 762C. So, the issue raised by Next's contention was whether it was appropriate to view the arrangement to wire the funds as itself being a separate financial product to the foreign exchange contract for which money had been paid by Next.

Verbatim's claim under s 1017E 51 It is convenient to deal first with the claim by Verbatim as to s 1017E. It contends that it paid the Verbatim Amount to 'acquire' the foreign exchange contract which was not 'issued' immediately after receiving the Verbatim Amount. 52 Section 1017E forms part of Part 7.9 of the Corporations Act. Part 7.9 does not apply in relation to a financial product that is not or was not issued (or that will not be issued) in the course of a business of issuing financial products: s 1010B. Therefore, in order to assess the validity of the claim made by Verbatim it is necessary to consider whether EFX was in the business of 'issuing' financial products. The determination of the meaning of the terms 'issue' and 'acquire' as applied to a financial product requires the consideration of a hierarchy of definitional provisions. They begin with the definition of the word 'issue' in s 9 which applies for the purposes of the Corporation Act as a whole. It says: issue includes: (a) in relation to interests in a managed investment scheme - make available; and (b) otherwise - circulate, distribute and disseminate. 53 This does no more than expand the usual meaning of the term, which itself is one of considerable semantic breadth and therefore, to a considerable degree, is a term that must derive its meaning from an understanding of the particular context. One particular usage of the term 'issue' in ordinary parlance is associated with instances where a company itself offers shares, securities or other financial products to those interested in acquiring those products. However, the ordinary meaning does not indicate with any precision the circumstances that may amount to the issue of a financial product. 54 For the purposes of Chapter 7, s 761E defines when a financial product is issued to a person (that is the point in time of issue) and who the issuer of a financial product is: s 761E(1). It also states: If a financial product is issued to a person: (a) the person acquires the product from the issuer; and (b) the issuer provides the product to a person. 55 Although these provisions are not directed to defining what is meant by 'issue', they do provide some indication as to what is meant by that term when used in Chapter 7. They focus upon an activity in which there is a financial product, an identifiable issuer, an identifiable acquirer and a dealing by which the product itself is issued to the acquirer by the issuer. As the Corporations Act rather unhelpfully states in s 761A, the term 'issue' when used in Chapter 7 in relation to a financial product 'has a meaning affected by section 761E'. 56 Section 761E(2) then provides that 'a financial product is issued to a person when it is first issued, granted or otherwise made available to a person'. Section 761E(3) then specifies in a table when particular financial products are issued. In the case of a 'derivative', it is issued 'when the person enters into the legal relationship that constitutes the financial product'. 57 The term derivative is itself defined in some detail for the purposes of Chapter 7 by s 761D. Relevantly for present purposes, it appears that a derivative is an arrangement under which a party must or may provide consideration in an amount (or value) that is ultimately derived from an exchange rate. As has been noted, no party claimed that the financial product in the present case was a derivative. However, the language used to describe a derivative indicates that there may be financial products that are 'issued' by the parties entering into the legal relationship that constitutes the financial product. 58 It also appears from the terms of s 761E(4) that there will be a facility 'that is the product'. It provides that the issuer in relation to a financial product is the person responsible for the obligations owed 'under the terms of the facility that is the product'. 59 For present purposes, the term 'facility' includes 'an arrangement or a term of an arrangement': s 762C. 60 Therefore, it appears that a foreign exchange contract is a facility that may be issued by the party who is to be obliged to undertake the foreign exchange, in this case EFX. EFX was in the business of issuing such products. Therefore, the exclusion in s 1010B does not apply. 61 However, consideration of the above provisions indicates that in regulating the activity of issuing financial products, the Corporations Act is focussing upon actions by which an identifiable product is dealt with as between an issuer and the person to whom the product is 'issued'. It is concerned not with the subsequent steps by which the bundle of rights comprising the product may be performed, but with the actions by which the product comes into the hands of a party who is then the holder of the product (there are many provisions in Part 7.9 that refer to a person as being the holder of a financial product). 62 Part 7.9 then regulates the giving of advice that recommends the acquisition of a financial product and requires a product disclosure statement to be provided to the person to whom the recommendation is made: s 1012A. Those provisions are set out in considerable detail in Division 2 of Part 7.9. Those provisions include the creation of a statutory right to return the product and to have the money paid to acquire the product repaid: s 1016F. Then Division 3 of Part 7.9 specifies other obligations that apply where a product disclosure statement has been or should have been issued to a person: s 1017A to s 1017D. 63 It is in the above context that s 1017E appears. As has been noted, it is focussed upon money that is paid to acquire a financial product in respect of which the issuer or seller of the product has prepared a product disclosure statement. It is concerned with instances where the product was not issued or transferred immediately after receiving the money. It is not concerned with whether the rights that form part of the financial product are properly respected or performed after the product has been acquired. It is concerned with the provision of advice about the financial product, the provision of a product disclosure statement in respect of the financial product and dealing with the money that is paid to acquire the financial product where there is a process that involves the issue or transfer of the product. 64 As was determined by Austin J in Basis Capital Funds Management Ltd v BT Portfolio Services Ltd [2008] NSWSC 766 at [114]-[115], s 1017E requires the Court to determine whether an amount was paid to acquire one or more of the financial products issued. In order to do so, the Court must ascertain the purpose of the investor in paying money to the provider of the financial product. The relevant inquiry is as to whether the party who is to become the holder is paying the money to secure the issue or transfer of a financial product or as part of the performance of the arrangements that constitute the financial product. In my view, for the following reasons, it is the latter characterisation that is appropriate in the circumstances of the present case. 65 It is well, at this point, to set out in full the terms of s 1017E (bearing in mind the context that has been explained): (1) This section applies to money paid to: (a) an issuer (the product provider) of financial products; or (b) a seller (the product provider) of financial products in relation to which the seller has prepared a Product Disclosure Statement; if (c) the money is paid to acquire, or acquire an increased interest in, one or more of those financial products from the product provider (whether or not the acquisition would be by a person as a retail client); and (d) the product provider does not, for whatever reason, issue or transfer the product or products, or the increased interest, immediately after receiving the money; and (e) either: (i) the financial product or increased interest was offered in this jurisdiction; or (ii) the application for the financial product or increased interest was made in this jurisdiction; or (iii) the money was received in this jurisdiction. (1A) However, this section does not apply in relation to money paid to an issuer (the product provider) of foreign passport fund products if the money is paid to acquire, or acquire an increased interest in, one or more of those foreign passport fund products from the product provider (whether or not the acquisition would be by a person as a retail client). (2) The product provider must ensure that the money is paid into an account that satisfies these requirements: (a) the account is: (i) with an Australian ADI; or (ii) of a kind prescribed by regulations made for the purposes of this paragraph; and is designated as an account for the purposes of this section of this Act; and (b) the only money paid into the account is: (i) money to which this section applies; or (ii) interest on the amount from time to time standing to the credit of the account; and (c) if regulations made for the purposes of this paragraph impose additional requirements - the requirements so imposed by the regulations. The money must be paid into the account on the day it is received by the product provider, or on the next business day. (2A) Subject to subsection (2C), the money is taken to be held in trust by the product provider for the benefit of the person who paid the money. (2C) The regulations may: (a) provide that subsection (2A) does not apply in relation to money in specified circumstances; and (b) 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). (3) The money must only be taken out of the account if: (a) it is taken out for the purpose of return to the person by whom it was paid; or (b) the product is issued or transferred to, or in accordance with the instructions of, that person; or (c) it is taken out for a purpose specified by regulations made for the purposes of this paragraph; or (d) it is taken out in a situation specified by regulations made for the purposes of this paragraph. (4) The product provider must: (a) return the money; or (b) issue or transfer the product to, or in accordance with the instructions of, the person who paid the money; or (c) if the money is taken out: (i) for a purpose specified by regulations made for the purposes of paragraph (3)(c); or (ii) in a situation specified by regulations made for the purposes of paragraph (3)(d); do any action required, by regulations made for the purposes of this paragraph, after taking out that money; either: (d) before the end of one month starting on the day on which the money was received; or (e) if it is not reasonably practicable to do so before the end of that month - by the end of such longer period as is reasonable in the circumstances. (5) The product provider may, for the purposes of this section, maintain a single account or 2 or more accounts. (6) Nothing in this section, or in regulations made for the purposes of this section, makes the body (not being the product provider) that the account is with under paragraph (2)(a) subject to any liability merely because of a failure by the product provider to comply with any of the provisions of this section or those regulations. 66 Significantly, the financial product in respect of the claim by Verbatim was the foreign exchange contract being the thing that is of the genus described in the list of specific things that are financial products (see s 764A(1)(k)) . The foreign exchange contract was the bundle of rights by which EFX agreed to exchange Australian dollars for US dollars at an agreed rate. It was brought into existence by the particular dealings between the parties that resulted in them reaching agreement. It was the mutual assent to the particular dealing that created the foreign exchange contract. The confirmation that was issued by EFX identified the amount that Verbatim was required to pay and the amount that it would receive when Verbatim performed the contract. However, no payment was made by Verbatim to acquire the foreign exchange contract that it entered into with EFX. Once the confirmation was issued, the foreign exchange contract came into existence. There was no process of issuance or transfer for which an amount was paid by Verbatim to EFX. Nor was the payment of the agreed amount of US dollars the foreign exchange contract. Rather, the Verbatim Amount was paid under the terms of the contract. Therefore, the Verbatim Amount was paid in performance of the arrangement. It was not made to secure the bundle of rights set out in the Master Terms and described in the PDS that applied to the particular contract that was concluded between EFX and Verbatim. 67 Both the terms of s 1017E and the protection that it affords are dealing with payments made upon the issue of or to acquire a financial product. Where, as here, the financial product is not an ownership interest but takes the form only of creating by agreement an arrangement pursuant to which there are ongoing obligations, payments made in performance of those obligations are not governed by the statutory protection. The legislation is concerned with the issuing or acquisition process. It ensures that the party knows what it is getting (by regulating the advice given concerning the financial product and requiring that there be a PDS) and also ensures that any money it pays to get the product by a process of issue or transfer is properly set aside and then only applied to the benefit of the party issuing the product once the issue or transfer is complete. In the case of a foreign exchange contract there is no payment made for a step or dealing of that kind. 68 To take a different example, a party who acquires shares with an agreed rate of dividend whose funds are taken by the issuer who then issues shares cannot rely upon s 1017E as a basis to complain if the company subsequently fails to pay the required dividend. That is not a complaint about whether the financial product (the shares) have been issued or transferred. Chapter 7 is concerned with the process by which the product comes into the hands of the recipient. Thereafter, the performance of the product (relevantly here by paying the agreed dividend) is not a matter that is regulated. The focus is upon ensuring people know the nature of the product and its risks and that they receive the product. The regulation is not a general protection in respect of the performance of financial products. 69 The nature of a foreign exchange contract is that the amounts paid to effect the exchange are not paid to acquire the contract and the contract is issued or transferred when the contract is made (in this case when the confirmations were issued to Verbatim). 70 Therefore, the claim by Verbatim based upon s 1017E must be rejected.

Next's claim under s 1017E 71 As has already been indicated, Next made a different argument. It claimed that there were two financial products involved in the arrangement that it made: the foreign exchange contract and the non-cash payment facility. It claimed that the purpose of the payment of the Next Amount to EFX was to acquire what it described as the financial product constituted by the non-cash payment facility. 72 Even assuming that the dealing between EFX and Next involved the issue or acquisition of two financial products as claimed by Next, there are at least two insurmountable difficulties for its claim. 73 First and foremost, the Next Amount was not paid to acquire either of the financial products in the sense that it was a payment made to obtain the product by way of issue or transfer. Both products were arrangements that were concluded without the issue or acquisition of a financial product. Their dealings brought into existence financial products, but the Next Amount was paid pursuant to the arrangements that formed part of the financial products, not in order to obtain them. It is only payments made in order to become the holder of the financial product that are regulated by s 1017E (and Part 7.9 more generally). It is the receipt of amounts that are exchanged for the issue or acquisition of the financial product that must be held in trust until that financial product is issued or transferred. In the case of the financial products that Next relies upon, they were not issued or acquired in return for the Next Amount. 74 Second, the Next Amount was not paid in relation to the non-cash facility. Before the non-cash facility could be carried into effect there first needed to be the performance of the foreign exchange contract. It was the completion of the foreign exchange contract that provided the US dollar funds that were to be wired. On the evidence the foreign exchange contract was not performed. No amount was paid in respect of the non-cash facility. 75 Therefore, the claim by Next based upon s 1017E must also be rejected.

Alleged statutory trust based upon s 981H of the Corporations Act 76 Verbatim (but not Next) makes an alternate statutory claim based upon s 981H of the Corporations Act. It provides that money paid to a financial services licensee to which Subdivision A of Division 2 of Part 7.8 of Chapter 7 of the Corporations Act applies is taken to be held on trust for the benefit of the client. 77 Section 981A(1) provides that the subdivision applies (subject to certain subsequent provisions) to money paid by a licensee in the following circumstances: (a) the money is paid in connection with: (i) a financial service that has been provided, or that will or may be provided, to a person (the client); or (ii) a financial product held by a person (the client); and (b) the money is paid: (i) by the client; or (ii) by a person acting on behalf of the client; or (iii) to the licensee in the licensee's capacity as a person acting on behalf of the client. 78 Section 981B requires such money to be paid into an account with an Australian deposit taking institution (as defined) or of a kind prescribed by regulations in either case that is designated as a s 981B account. The monies in the account must not be mixed with other monies. 79 Section 981E protects such monies from being attached or taken in execution or of being made subject to a set-off, security interest or charging order except by the person 'otherwise entitled to the money'. 80 There are exceptions and qualifications. In particular, without being exhaustive, s 981A(2) provides as follows: This Subdivision does not apply to money paid as mentioned in subsection (1) to the extent that: (a) the money is paid by way of remuneration payable to the licensee, or the licensee is entitled to deduct such remuneration from the money; or (b) the money is paid: (i) to reimburse the licensee for payments made to acquire, or acquire an increased interest in, a financial product; or (ii) to discharge a liability incurred by the licensee in respect of the acquisition of a financial product or an increased interest in a financial product, or to indemnify the licensee in respect of such a liability; or (c) the money is paid to acquire, or acquire an increased interest in, a financial product from the licensee, whether by way of issue or sale by the licensee; or (ca) the licensee is a licensed trustee company, and the money is paid to the licensee in connection with traditional trustee company services provided by the licensee; or (d) Subdivision B (loan money) applies to the money. 81 The content of these exceptions is instructive. First, there was thought to be a need to provide expressly that money paid by way of remuneration may be deducted. No doubt this provision was included because of the potential for the language 'in connection with' to apply to such monies. Second, there is provision for instances where the monies are to be applied as part of the price of acquiring a financial product. Again this reflects the fact that such monies were caught by the general provision and enables funds to be applied for the purpose of such acquisition. Third, in the case of loan monies they are to be dealt with under provisions that deal expressly with funds of that character. 82 There is also an express provision in s 981D to the effect that monies relating to dealings in derivatives may be used for the purpose of meeting obligations incurred 'in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives'. Again the need for such an exception reflects the general nature of the terminology 'in connection with'. 83 Finally, by reason of the terms of s 981H, irrespective of whether the funds described in s 981A were paid into a separate trust account (as required by s 981B), those funds are impressed with a statutory trust and the trust entitlement arises at the time of payment of the monies: Georges v Seaborn International (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCA 75 at [81] (Gordon J). Therefore, the fact that the Verbatim Amount was paid into a settlement account that was not operated as a trust account is no barrier to the claim advanced by Verbatim. 84 The term 'financial service' is defined in some detail in s 766A to s 766F. However, the definition does not focus upon the activity of giving effect to the terms of a financial product. Rather, speaking generally, it is concerned with the advice given about financial products and dealings in financial products. The submissions for Verbatim did not engage with the detail of the provisions which define financial service. The submission was no more than an assertion that as EFX was a financial services licensee and the funds were 'paid in' to EFX, there was an obligation to pay the money into an account as described in s 981B. I am not satisfied that the Verbatim Amount was paid in connection with the provision of a financial service. 85 However, for reasons I have given, the particular dealing by which Verbatim provided the Verbatim Amount did give rise to a foreign exchange contract which was a financial product. 86 Plainly, the Verbatim Amount was not paid to EFX by way of remuneration. Rather, the remuneration of EFX came from the differential between the rate of exchange that it agreed with Verbatim in the confirmation and the actual rate of exchange at which it was able to purchase the required US dollar amount. For reasons I have already given, it was not an amount that was paid to acquire a financial product. No amount was paid by Verbatim for that purpose. There was no suggestion that the amount fell within the derivative exception expressed in s 981D. 87 However, in my view, the Verbatim Amount was paid 'in connection with' a financial product, being the foreign exchange contract. Although the terminology 'in connection with' must take its meaning from the particular context, it is a phrase that is of considerable generality the contextual meaning of which will be indicated by the purpose for which the ambulatory language is used: Hoy v Coffs Harbour City Council [2016] NSWCA 257 at [60] (Bathurst CJ, Simpson and Payne JJA agreeing); R v Khazaal [2012] HCA 26; (2012) 246 CLR 601 at [31] (French CJ); Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [170]-[174] (McColl JA, Beazley P agreeing); and Minister for Immigration and Multicultural Affairs v Singh [2000] FCA 845; (2000) 98 FCR 469 at [28]-[29] (Black CJ, Sundberg, Katz and Hely JJ). 88 In the present context, the words manifest a requirement that there be a meaningful connection between the payment of the money and the financial product measured by reference to the subject matter being addressed. In this case, the provision forms part of detailed provisions that regulate the behaviour of the holders of a financial services license. Those provisions are to be construed by reference to the main object described in s 760A (quoted above). That object seeks to promote confident decision making by consumers of financial products and services as well as 'fairness, honesty and professionalism by those who provide financial services'. 89 Where, as here, funds are received by the holder of a financial services license on the basis that those funds will be applied for a particular purpose, namely that they be used to effect an exchange into foreign currency, confidence in the integrity of foreign exchange contracts as financial products would be substantially undermined if those funds could be applied by the licensee for its own purposes (or for the purposes of its general creditors). The Verbatim Amount was paid to EFX in respect of a specific foreign exchange contract that was the subject of a confirmation that dealt precisely with the amount to be paid to EFX and the amount of foreign currency to be paid by EFX to Verbatim. In those circumstances, the Verbatim Amount was paid in connection with the foreign exchange contract and was not otherwise within the limitations of exceptions provided for as to when the monies would not be impressed with a statutory trust. Most importantly in that regard, it was not paid as remuneration to EFX. 90 For the liquidators it was submitted that the limitation expressed in s 981A(2)(c) applied. It provided that the relevant provisions concerning payment of money into a separate account did not apply to the extent that: the money is paid to acquire, or to acquire an increased interest in, a financial product from the licensee, whether by way of issue or sale by the licensee … 91 The submission was developed on the basis that the Verbatim Amount was paid to acquire the foreign exchange contract. It was said that the payment was not made to acquire the payment of USD100,000 as required by the confirmation issued by EFX. Rather, it was paid for the issue of the foreign exchange contract and, so it was submitted, it did not matter that the contract did not 'issue'. Funds received for that purpose were said to fall within the limitation. 92 Putting to one side the evident inconsistency between that position and the contentions advanced by the liquidators of EFX as to why s 1017E did not apply, for reasons I have given in that context it is a submission based upon a misunderstanding of the nature of the dealing between the parties. As was submitted by the liquidators, ultimately whether or not the relevant funds were held pursuant to a statutory trust turns on the answer to the question: what is the financial product? For reasons I have given, the answer to that question is that the financial product is the foreign exchange contract brought into existence by agreement between the parties and recorded by the terms of the confirmation (incorporating the Master Terms). No payment was made to 'acquire' that interest or for its issue. It was an interest that was brought about by the actions of the parties in reaching agreement. The payment of the Verbatim Amount was made pursuant to the terms of the foreign exchange contract and in performance of the obligations under the contract. Therefore, the Verbatim Amount was money that was paid in connection with that contract being a financial product. 93 The Verbatim Amount (and similar amounts received by EFX in connection with foreign exchange contracts) ought to have been placed into a separate account that satisfied the requirements of s 981B. I note that this appears to have been the course that was followed in the events that were considered in Warner, in the matter of GTL Tradeup Pty Ltd (in liq) [2015] FCA 323. 94 The liquidators placed reliance on the analysis by Black J in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994, a case concerned with monies received by a financial service licensee in respect of derivatives (which as I have noted are themselves the subject of a particular exception to the obligation to place monies in a separate account in accordance with s 981B). In that instance, client monies had been used to acquire equity swaps for hedging purposes and pay margins. In addition to a claim that the particular exception in s 981D in relation to derivatives applied, a claim was made that the limitation in s 981A(2)(c) applied. After concluding that the clients acquired the relevant financial products from the licensee, his Honour then reasoned as follows (at [202]): 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 [the licensee] 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. 95 It seems to me that this reasoning supports the analysis which I have already stated. It is focussing upon a proper understanding of the nature of the payment. In the circumstances considered in MF Global the observation is being made that the exception stated in s 981A(2)(c) applies to monies paid 'on a final basis, in the nature of the purchase price for that product', namely the financial product. For reasons I have given, the payment of the Verbatim Amount was not made to purchase the financial product. It was paid as part of the performance of the obligations that formed part of that financial product. 96 It follows that the claim by Verbatim based upon s 981H should be upheld. Those monies where received by EFX in connection with the foreign exchange contracts (being financial products) and therefore were, in the language of the statute, 'taken to be held in trust by the licensee for the benefit of the client'. It follows that when the settlement account was swept of funds and the balance in that account fell below the Verbatim Amount that there was a breach of trust. There may be consequences in respect of the parties who received those funds. However, the present proceeding concerns the position of the liquidators and the funds which they hold. As to those funds, only $140,673.33 (being the balance left after the settlement account was swept) can be identified as trust funds held by the liquidators for the benefit of Verbatim. 97 Having regard to the nature of the application, the above conclusions have consequences for the relief that the liquidators seek in respect of the Next Amount. Even though Next did not advance an argument based upon s 981H, the Court having concluded that the claim is valid and it being a claim that applies equally to the circumstances of Next, I do not see how the Court could conclude by way of advice to the liquidators that they were now justified in treating those funds as if they formed part of the funds available to creditors generally.

Alleged Quistclose trusts 98 Each of Verbatim and Next claimed separately that the Court should find that the amounts in dispute were held by the liquidators on trust for them according to the principles stated in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, since recognised to form part of the Australian law. The principles were summarised in Australian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353 (Gibbs ACJ, Jacobs and Murphy JJ agreeing) as follows: That case is authority for the proposition that where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust. Their correctness have been widely accepted: Rambaldi (Trustee) v Commissioner of Taxation, in the matter of Alex (Bankrupt) [2017] FCAFC 217 at [27] (Allsop CJ, Dowsett and Burley JJ). 99 Given the conclusions I have reached it is not necessary to consider the merits of those claims. However, in view of the arguments advanced I will briefly consider the merits of the claims dealing with the aspect of the evidence that was said to bear upon the claim by Verbatim. 100 The question whether a Quistclose trust has been created will be answered by reference to the intention of the parties and 'the essence' of their bargain: Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502-503 (Gummow J). The relevant intention is to be inferred from the language used by the parties in question, having regard to the nature of the transaction and the relevant circumstances of the relationship between them: at 503. It is ascertained by reference to the objective intention of the parties: Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [53]-[59] (Gummow and Hayne JJ). 101 A Quistclose trust does not arise simply because money is paid for a particular purpose. 'An expectation or general understanding falls short of the necessary mutual intention that funds have been provided on the express condition that they will be earmarked for use exclusively in accordance with an agreed purpose': Legal Services Commissioner v Brereton [2011] VSCA 241; (2011) 33 VR 126 at [96] (Tate JA, Nettle and Ashley JJA agreeing). The parties must intend that the money not be used at the free disposal of the recipient: George v Webb [2011] NSWSC 1608 at [211] (Ward J); and Twinsectra Ltd v Yardley [2002] 2 AC 164 at 185. 102 Payment of the money into a separate account may be indicative, but not determinative of the existence of a Quistclose trust: Walker v Corboy (1990) 19 NSWLR 382 at 397-398 (Meagher JA). 103 The onus of proof lies on those who assert that a trust was created: Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27 at [49] (O'Loughlin J). 104 As has been noted, Verbatim relied upon evidence in support of its claim that there was a trust based upon Quistclose principles and the liquidators submitted that little weight was to be given to that evidence. The evidence was given by Mr Paul Johnson, a director and chief operating officer of Verbatim. He explained his dealings with a Mr Murphy who, in the words of Mr Johnson, encouraged him to engage EFX to conduct foreign exchange transactions. Mr Johnson deposed to communications with Mr Murphy in which he said that he needed to be convinced that the transactions would be safe in the sense that Verbatim's money would be safe and that the margin on the transactions would be less than its bank was charging. 105 Mr Johnson deposed to a conversation in which Mr Murphy said to him words to the effect that money paid to EFX would be held by EFX in a trust bank account pending completion of the transactions. He then completed an application form with EFX. He received product disclosure documents from Mr Murphy and a copy of the Master Terms. Mr Johnson also deposed to certain aspects of the product disclosure documents that he relied upon where there is reference to the establishment of trust accounts. For reasons I have already given, in my view those provisions said no more than that EFX would abide by the requirements of the Corporations Act when it came to dealing with client monies. 106 One difficulty with this evidence is that the role and responsibility of Mr Murphy is not identified in this evidence. There is no indication of any basis upon which he had authority to speak for EFX as to such matters. In any event, the correct approach is to focus upon the nature of the transaction and the objective intention as to whether the funds would be earmarked for a particular purpose and therefore could not be treated as forming part of the general funds of the recipient, in this case EFX. The objective intention is revealed by considering the terms of the PDS and the Master Terms and the form of the confirmations issued by EFX as well as the nature of the transaction as agreed. 107 Given the conclusion that I have reached as to the statutory trust, it is appropriate to deal with the Quistclose claim on the basis that I am wrong as to the view that I have reached as to the statutory trust. On that assumption, there is no aspect of the regulatory structure that requires the funds paid by Verbatim and Next to be treated as funds held for the purpose of the foreign exchange transaction and not to be mixed with other funds of EFX. 108 In my view, the confirmation documents are equivocal as to whether the money to be paid is to be held by EFX and, in effect, used to carry out the currency exchange required by the particular transaction. It is consistent with the language of those documents for the transaction as confirmed to be carried into effect by EFX receiving funds that are pooled within a clearing account which is then used to carry out the various foreign exchange transactions being conducted by EFX. The parties must be taken to have known that the business of EFX involved carrying out many such transactions. 109 There is nothing inherent in the nature of the transaction that might be said to give rise to the objective intention that the money paid would not be at the free disposal of EFX in the sense that it could be used for its general business of conducting currency exchange. For reasons that have been given, the Master Terms do not require the funds to be kept separately unless that is a requirement imposed by the applicable regulation. It is assumed for present purposes that there is no such requirement. The payments were not made as part of a purchase price for the foreign exchange contract. There is no analogy with instances where purchase monies are involved. Importantly, as has been explained, the PDS provided to each of Verbatim and Next disclosed the risk that insolvency would pose for funds held by EFX where there was no requirement under the relevant statutory regulation for those monies to be held separately as client monies. 110 The claim made was of a trust that required the funds paid, being the Verbatim Amount and the Next Amount, to be used for the purpose of completing the particular currency exchange the subject of the confirmations in each case. In my view, a common purpose of that kind cannot be discerned or inferred objectively from the evidence of the dealings between the parties. 111 Therefore, I would not uphold the claims based upon Quistclose principles.

Costs and final orders 112 It follows that the funds in dispute should not be treated as funds available to creditors of EFX and the relief sought by the liquidators should not be granted. Some more limited relief may be appropriate to make clear the position in relation to the extent to which the Verbatim Amount is the subject of a trust. It will also be necessary to make orders as to costs. In relation to costs I observe that these proceedings had a mixed character. They were in part an adjudication of a claim by each of Verbatim and Next to monies held by the liquidators of EFX on the basis that they were trust monies, a claim that was disputed by the liquidators. In part they were an application by the liquidators for directions. Without expressing a final view, it seems to me at least provisionally that appropriate cost orders will need to reflect the mixed character of the proceedings. I will direct that the parties bring in minutes to give effect to these reasons that also deal with the question of costs. I certify that the preceding one hundred and twelve (112) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.