Australia: TGIF: Bondi ponzi : investor funds rescued and found to be held on trust

Last Updated: 25 September 2019
Article by Cameron Cheetham, Mark Wilks and Craig Ensor

This week's TGIF examines a recent decision of the NSW Supreme Court which considered whether funds held in certain bank accounts of a failed Ponzi scheme should be returned to investors or paid to creditors of the companies.

What happened?

Since freezing orders were obtained by ASIC in 2017, details surrounding the infamous Courtenay House 'Ponzi' scheme operated from a small office at Westfield in Bondi have slowly emerged.

The latest chapter in the saga is a recent decision of the NSW Supreme Court which provided the liquidators with guidance as to how investor funds held in accounts of the purported "foreign exchange trading business" should be dealt with.

Prior to considering the judgment, it is helpful to outline the key background facts to provide some context to the issues before the court.


From 2010, two companies, operating a single enterprise, accepted funds from investors for the apparent purpose of general foreign exchange trading. The companies, in fact, operated a Ponzi scheme and used capital invested by new investors to pay purported returns to earlier investors. Between $213 million and $248 million was deposited by investors over the life of the scheme.

In 2016, the companies began to offer "special products" linked to significant world events (such as the US Election and Brexit) for the stated purpose of exploiting foreign exchange movements. On 21 April 2017, during the investment window for the 'Brexit Special', ASIC obtained a freezing order over the company's bank accounts and were subsequently successful in an application to have the companies wound up.

At the time of the liquidators' appointment, the companies held six separate bank accounts, which contained $51.3 million in investor funds. Claims to those monies totalled $193.2 million leaving a deficiency of $141.9 million.

In September 2017, the liquidators filed an originating process seeking directions as to the manner in which they should distribute the funds in those accounts. Following an interlocutory application for determination of a separate question, Justice Brereton concluded that monies invested in a NAB account for the 'Brexit Special' were held on trust for the Brexit investors alone and there was no basis for pooling or a set-off in favour of the non-Brexit investors.1

The primary question for determination in this instance concerned the beneficial ownership of funds invested by non-Brexit investors in two accounts held with Westpac and whether those funds should be returned to investors or paid to creditors of the companies. The two accounts in issue were those used by the companies to pay returns to investors and receive capital deposits.

The Decision

This dispute was principally contested between the first, third and fourth defendants as against the second defendant – each joined in their own right and as representatives of classes of creditors - and turned on whether the funds deposited in the Westpac accounts were held on trust. The second defendant, potentially, stood to gain from a finding a trust was not imposed by way of an increased return in the liquidation.

The second defendant argued no express trust arose as the language used in the available evidence (being the investment application forms), together with the relationship itself, suggested no more than a debtor - creditor arrangement in a commercial context.

His Honour agreed that, given the various iterations of application forms before him did not consistently refer to funds being "held in trust", a finding of an objective intention to create a trust could not be made for each particular investor.

However, the monies were found by his Honour to be subject to both a Quistclose trust and a trust established by the principles in Black v S Freedman & Co2. In reaching these conclusions, it was noted that:

  1. the funds advanced by investors, supposedly for foreign exchange trading by the companies, had not, and could not, be used for that exclusive purpose thus creating a trust over the monies under the principles espoused in Barclays Bank Ltd v Quistclose Investments Ltd3; and
  2. the deposits had been procured by fraud, having been used to return capital and investment returns to earlier investors, meaning the monies were held on trust under the principle in Black & Freedman.

For these reasons, the Court concluded that the beneficial owners of the funds deposited in the relevant accounts were the investors themselves and the monies were not available to other creditors of the companies.

As a consequence, each investor was held to have the benefit of a separate trust in respect of their monies over the funds in the accounts which, unfortunately, were insufficient to meet their claims in full. However, a final determination as to each investor's entitlement has been deferred until a subsequent hearing to assess whether "hotchpot" principles apply so as to ensure equal treatment of investors of the same class given several were also investors in the scheme at earlier times.


In addition to the comprehensive analysis of trust law principles, this decision serves as a helpful reminder to insolvency practitioners of the utility of s 90-15 of Schedule 2 to the Corporations Act and the nature of advice & direction which can be sought from the court.

Furthermore, in this case, and consistently with the approach adopted in a trust dispute, the liquidators adopted a 'neutral' position with their evidence limited to the background of the liquidation, the various possible scenarios for investors and material relevant to remuneration. The merits of the competing contentions were left to be presented by the beneficiaries.


1 Our TGIF article on Justice Brereton's decision is accessible here:

2 [1910] HCA 58; (1910) 12 CLR 105 (Black & Freedman).

3 [1970] AC 567.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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