SMSF trustee takes private investor to court over unpaid returns

The plaintiffs, Baxter Global Investments Pty Limited and Batchelar Group Investments Pty Limited as trustee for an SMSF called Batchelar Group Super, invested the sums of $2,057,075 and $390,308 with the defendant, Chris Marco, pursuant to an agreement between the parties recorded in a document titled “Declaration of Trust”.

Mr Macro traded in bank instruments as a private investor. He invested in private placement programs (PPP) which required capital as proof of funds in order to trigger a line of credit enabling him to facilitate arbitrage transactions involving bank instruments in the US and Europe.

The proof of funds capital was held and retained by Mr Marco in a bank account in Australia when PPP trades were in place.

In early 2000, Mr Marco realised that he needed to obtain money from outside investors to increase his proof of funds to the required levels for ongoing PPP trading. He sought advice from Ernst & Young. As a result of that advice, a document entitled “Declaration of Trust” was drafted by his lawyers. The Declaration of Trust records the terms of the agreements between Mr Marco and his outside investors pursuant to which they would invest funds with him.

Mr Marco met Mr Batchelar in mid-2011. Prior to their first meeting, they had a discussion on the phone during which Mr Marco explained to Mr Batchelar that he was a private investor involved in PPP and that he would not be investing in the PPP himself but would pay a good return to investors for use of their funds.

He also explained that he had a Declaration of Trust document which would have to be filled out by Mr Batchelar on behalf of his investing entities if he wished to invest in these opportunities and that Mr Marco only traded in his own name.

He also told Mr Batchelor that the funds would not actually leave his bank accounts as he only needed proof that the invested money was sitting in the bank account so that the trading platform could check to see the money was there.

He also personally guaranteed that investors’ funds were 100 per cent safe and secure from withdrawal at the maturity date of the investment or contract.

From around early 2012, Mr Batchelar invested money with Mr Marco. He did so on several occasions, sometimes personally but more often through Batchelar Group Investments Pty Limited and his SMSF. His first investment was made in or around February 2012 for $200,000.

In his evidence, Mr Batchelor said he invested sums with Mr Macro on 25 October 2018 which comprised funds that had been rolled over from previous investments with Mr Marco and new funds which included a $390,308 principal sum from his super fund.

Mr Marco gave evidence that the plaintiffs’ most recent investment with him commenced on 29 October 2018 with a rate of return of 9 per cent due to be paid at the maturity date, being the week commencing 11 February 2019. His evidence also stated that the first plaintiff invested $2,057,075 and the second plaintiff invested $390,308.

Mr Marco also gave evidence to the effect that he was unable to make the payments of the principal sums or pay the agreed rate of return due to freezing orders over his assets, which were made on 1 November 2018 in proceedings brought against him by ASIC.

On 27 May 2020, orders were made in the ASIC proceedings appointing interim receivers over his assets. When making the receivership orders against Mr Marco, Justice McKerracher observed that Mr Marco had operated an investment scheme whereby he applied the contributions of investors in order to generate a financial return, and that the net result of Mr Marco’s activities to date is that he might be indebted to as many as 132 investors, possibly in an amount exceeding $240 million.

The plaintiffs claimed that the principal sums are held by Mr Marco on trust. They contended that an express trust arises from the terms of the 25 October 2018 Declaration of Trust and that the surrounding circumstances point to that conclusion as well.

In her decision, Justice Patricia Henry was satisfied that the evidence demonstrated there was a clear intention to create an express trust in relation to the principal sums advanced to Mr Marco by the plaintiffs.

Justice Henry noted that the Declaration of Trust document was described as a “Declaration of Trust” and that it also stated that Mr Marco would hold the investment “in trust”, and that the plaintiffs were beneficiaries entitled to their proportion of capital and interest or income.

“In my view, that language evinces a clear intention that a trust was to be created in respect of the invested funds,” she said.

“Second, I consider it open to infer that the word ‘trust’ in the Declaration of Trust was used purposefully and should be construed as reflecting an intention to create a trust as the document was prepared for Mr Marco’s business following receipt of accounting advice and was drafted by his lawyers.”

Justice Henry stated that the surrounding circumstances known to the parties, as evidenced by their discussions and the terms of the PPP material sent by Mr Marco to Mr Batchelar, support the conclusion that ownership of the principal sums were to be retained by the plaintiffs and that they were to remain in Mr Marco’s bank account for a specific and limited purpose, consistent with the creation of a trust relationship.

“To the extent that the language in the Declaration of Trust could be construed as suggesting some form of debtor and creditor relationship between Mr Marco and the plaintiffs, such a relationship is not inconsistent with obligations of trust also arising in relation to the principal sums advanced,” she explained.

“In my view, the pooling of the principal sums with other investor funds also does not negate obligations of trust arising, given Mr Marco’s assurances that the funds invested by Mr Batchelar and his associated entities would remain owned by them and that they would form part of a pool of funds in a blocked account.

“It follows that Mr Marco holds the principal sum of $2,057,075 on trust for the first plaintiff and the sum of $390,308 on trust for the second plaintiff.”

Justice Henry made a declaration stating that Mr Macro holds the sum of $2,057,075.00 on trust for the first plaintiff, Baxter Global Investments Pty Ltd, and a declaration stating that he holds the sum of $390,308.00 on trust for the trustee of the SMSF.

She also made orders against Mr Macro in the amount of $185,136.75, being the amount payable by way of return on the first plaintiff’s principal sum provided under the terms of the Declaration of Trust for the period 29 October 2018 to 11 February 2019.

Mr Macro was also ordered to pay $35,127.72 to the second plaintiff, being the amount payable by way of return on the second plaintiff’s principal sum provided under the terms of the Declaration of Trust for the period 29 October 2018 to 11 February 2019.