Receivers’ clawback claims against Ponzi scheme investors survive summary judgment bid

Receivers and liquidators pursuing recovery of “profits” paid to investors in a collapsed Ponzi scheme have defeated an attempt by recipients to shut down the claims at an early stage, with the Supreme Court of Western Australia holding that complex and unsettled questions surrounding statutory change of position defences must be determined at trial.

The proceeding forms part of broader recovery efforts following the collapse of a Ponzi scheme operated by Chris Marco, in which more than $261 million was pooled from investors, with approximately $205.9 million paid out, leaving a substantial shortfall.

Robert Kirman and Robert Brauer of McGrathNicol, appointed as receivers and later liquidators, seek to recover “excess” payments made to certain investors on the basis that those amounts were paid out of trust property in breach of trust. The claims do not seek repayment of investors’ principal, but instead target returns paid in excess of invested amounts. The receivers allege those payments were funded from pooled investor monies and therefore constituted misapplied trust property recoverable under section 65 of the Trustees Act 1962 (WA).

Several investors who received payments exceeding their original investment brought an application for summary judgment on the basis of the good faith statutory defence under section 65(8). The investors accepted, for the purposes of the application, that the payments were made from trust funds and that the statutory regime applied, but argued they should be relieved from repayment where they acted in good faith, changed their position in reliance on the receipt, and where recovery would be inequitable.

The Supreme Court of Western Australia reaffirmed the stringent threshold for summary dismissal, noting that such relief is reserved for cases that are “so clearly untenable” that they cannot succeed. That standard was not met. The Court held that the defendants had failed to demonstrate that their reliance on the statutory defence was so clear that the claims had no real prospect of success.

Central to that conclusion was the unsettled nature of the legal framework. The Court emphasized that section 65(8) has received little authoritative judicial consideration, and that key elements of the defence, including the meaning of “good faith,” the scope of “change of position,” and the balancing of equities, remain open to debate.

The defendants relied heavily on evidence that they believed the investments were legitimate and acted without knowledge of the fraud. However, the Court found that the evidence raised, rather than resolved, factual questions. The Court pointed to features such as unusually high returns, lack of due diligence, absence of independent verification, and reliance on trust in the promoter as matters that could bear on whether the defendants acted in good faith, including under an objective standard.

The defendants also argued they had altered their position by intermingling funds and using them in the ordinary course of business, and that repayment would now be difficult or impossible. The Court found this evidence insufficiently particularised. It did not clearly demonstrate how the defendants had changed their position in reliance on an assumed indefeasible entitlement to the funds, as required by the statute. Nor was it clear that current financial incapacity was relevant to the defence.

A further obstacle for the defendants was the statutory requirement that the Court assess whether it would be inequitable to grant relief, having regard to all affected parties. The Court highlighted that recovering excess payments could increase the pool available to investors who had not recovered their principal, raising competing equitable considerations that could not be resolved without a full evidentiary record.

As a result, the Court dismissed the application.

Read the decision here.

Professionals involved:

• Felicity Maher of Quayside Chambers, counsel, and Ashurst Australia, solicitors for Robert Kirman and Robert Brauer of McGrathNicol, the liquidators/receivers

• Nicholas Dillon of Francis Burt Chambers, counsel, and HHG Legal Group, solicitors, for various investors