Georges v Seaborn International Pty Ltd (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCAFC 140 (5 October 2012): section 511 Corporations Act, whether shares to included in pooling of assets.

November 1, 2012 |

The Full Bench of the Federal Court in Georges v Seaborn International Pty Ltd (Trustee), in the matter of Sonray Capital Markets Pty Ltd (in liq) [2012] FCAFC 140 considered the right of the liquidator to recover proceeds of shares the purposes of pooling and distribution to creditors.


Sonray was the holder of the Australian financial services licence from 4 May 2005 until it went into administration on 22 June 2010 [87]. It provided access to trading platforms made available by third parties. Clients deposited money with Sonray, which was held in accounts and subject to statutory trust under the Corporations Act [88]. It had 18 segregated accounts which were used to receive deposits in respect of margin calls, proposed trades and the return of funds. In these accounts clients’ funds were co-mingled with funds from other clients [90] to the point where the trial judge found that the funds were so thoroughly mixed as to be almost impossible to ascertain entitlements to each of the segregated accounts [93]. Efax, the trustee of a family trust, entered into a written agreement in 2009 with Sonray regarding its trading activities.  In April 2010 Efax instructed Sonray to purchase 78,000 shares in BHP Billiton Ltd (“BHP”) [5] for $3 million [6], which it did through Saxo Bank (“Saxo”), one of its trading platforms. Efax’s funding for the purchase was deposited into a Sonray accounted which was subject to numerous defalcations.  The purchase price for the shares however was not paid out of a tainted account but rather by Saxo using its own money or by way of credit arrangements.  Sonray debited Efax’s ledger account with the purchase price of the BHP shares.

The Liquidators seek a direction to allow them to pool shares purchased on instructions by Efax with proceeds attributable to all other Sonray clients which would then be distributed amongst all of the clients [8].

 The trial judge held that Efax is entitled to resist the claim for pooling on the ground that it is entitled to the BHP shares in specie [9].


The Majority upheld the appeal by a 2-1 majority.


Jacobsen J

His Honour commenced his analysis by determining the relationship between Efax and Sonray; whether it was contractual or that of a fiduciary relationship [16]. His Honour stated, at [40], that it is necessary to look at the nature of the transaction, the provisions of the agreement between the parties and the whole of the circumstances (see also [45] – [46]).

His Honour found the relationship to be fiduciary because:

  1. the agreement between the parties makes clear that Sonray was an agent for Efax [49].
  2. the transaction was one in which the $3 million, or accretions to it from other dealings, provided the source of funds to pay for the shares [52]

The difficulty for Efax was that the funds it provided were paid into a tainted account [56].  The right of appropriation has at its source the money originally paid into the tainted account [59].

The money paid by Efax into the segregated account ceased to exist in its original form as soon as Sonray dealt with it and ceased to be subject to the original statutory trust [68].  His Honour rejected Efax’s submission that payment was not made from the segregated account and that Efax settled with Sonray for the purchase by relinquishing its rights to have Sonray account for the funds.  He stated that the fundamental proposition was that Sonray was a defaulting trustee [70]. A court is not invariably bound by a defaulting trustee’s intentional allocation of losses to specific beneficiaries.

Jagot J 

His Honour found the realtionship was not merely contractual.  At [199] his Honour found:

  1. the moneys paid into the  segregated account were not used to pay for the BHP shares
  2.  the payment was made by Sonray debiting Efax’s ledger account with payment of the purchase price for the BHP shares pursuant to the agreement
  3. what lay behind the book entry, and the only thing that supported the entry, was the initial deposit of funds by Efax into the segregated account;
  4. Sonray dealt with those funds as a defaulting trustee both before and after that deposit.
  5. in the circumstances Sonray as a defaulting trustee could not by its book entry act to the detriment of some investors and the benefit of others (of which Efax was one) when the sole source of Efax’s rights was payment into the tainted segregated account.


Besanko J

His Honour stated that the liquidators appeal was based on two arguments (see [152][154]), which were:

  1. the relationship between Efax and Sonray was purely contractual and not what might be considered the ordinary relationship between a client and his or her broker.The critical matter from Efax’s point of view was the account balance from time to time, rather than the ownership of particular property. Efax and other clients in a similar position were “running account clients” rather than clients with special rights.  As such Sonray was the owner of the BHP Shares.
  2. the primary judge erred in concluding that Efax had paid for the BHP shares because  either there was no power to appropriate monies from the Segregated Account, or if it had occurred, the result was no different from the result which followed when an asset was acquired by payment from a Tainted Segregated Account where all of the contributors to the Segregated Account could trace their monies into the asset acquired. The liquidators also argued that where the parties agree, then entries in books of account can affect legal relations between them in the sense that they can have the same effect as monies passing between them (see [175]).

Besanko J did not accept the liquidators first argument because the client agreement created an agency agreement relationship between Efax and Sonray [161]. That agreement provides that when a client instructed Sonray to purchase shares on his or her behalf on the transaction was effected in property and shares vested in the clients [165].

His Honour did not accept liquidator second argument stating, at [177]:

Efax had, among other things, a chose in action in debt against Sonray for that amount. That chose in action was enforceable against Sonray and it was not restricted to any particular account held by Sonray. Upon placing the orders for the purchase of the BHP Shares, Efax became liable to pay the purchase price to Sonray. In other words, Sonray had its own chose in action in debt against Efax. Sonray “appropriated” Efax’s chose in action against it in satisfaction of its chose in action against Efax. Although Efax thus paid Sonray for the purchase of the BHP Shares it was not a payment from the ANZ AUD Segregated Account or indeed any other Tainted Segregated Account. The word “monies” in clause 9 (b) includes, in my opinion, choses in action. In the alternative, the same result is reached by an application of clause 9 (c). The application of “netting principles” means that Efax’s debt to Sonray in relation to the BHP Shares has been discharged.

The application of “netting principles” in the agreement meant that Efax’s debt to Sonray in relation to the BHP Shares has been discharged.


While this decision is based on particular fact situations the underlying principles were dealt with in different ways by the majority  as opposed to the minority (and trial judge). It is far from settled. Jacobsen J, whose decision in majority is the lead decision, agreed with the Besanko on the first issue but  didn’t agree with his conclusions on the second. He also found it a difficult case. There are significant issues as to how to characterise the payments which are handled by traders and brokers, particularly as they relate to specific agreements with clients. What is clear is that the court will consider the totality of the arrangements as well as the specific agreements as between trader and client.

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