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[2013] VSC 7
Supreme Court of Victoria
2013-02-06
SIFRIS J
Original judgment source is linked above.
EQUITY - Trusts - Whether express trust should be inferred - Test for intention to create an express trust - Whether necessary intention established by relevant documents and surrounding circumstances.
EVIDENCE - Admission - Relevance of subsequent admissions as to the existence of a trust.
Ashurst for First, Second and Sixth to Eighth Defendants
1 The Forest Company Pty Ltd ("Forest Company") and the Milling Co Pty Ltd ("Milling Company") are in receivership. Mark Korda and Bryan Webster were appointed joint and several receivers and managers on 25 September 2012 ("the Receivers").
2 For many years the Forest Company acquired, developed and managed various tree plantations. It obtained funding directly from investors (called Covenantholders) through the issue of prospectuses from time to time.
3 The Milling Company, a related company was engaged to provide felling and milling services and also to market and sell the timber derived from the plantations. Each of the Forest Company and the Milling Company had a defined role. Any proceeds received by the Milling Company from the sale of timber was, subject to some deductions, to be paid to the Forest Company. After making its own deductions, the Forest Company was required to pay the net proceeds to the Plaintiff for the benefit of Covenantholders.
4 The Plaintiff ("AET" or "the Trustee") is and has at all times been trustee of the Covenantholders. AET is the trustee of the Southern Australia Perpetual Forests Trust (Trust). The Trust is governed by a trust deed entered into by AET and Forest Company on 6 March 1964 ("Trust Deed"). On the same day, AET entered into a Tripartite Agreement with the Forest Company and the Milling Company.
5 After the Forest Company and the Milling Company were effectively taken over by Gunns Limited, each company encumbered its assets (by way of a fixed and floating charge) to Lenders to the Gunns Group.[1] The Lenders appointed the Receivers and assert an interest in the assets and undertaking of each company.
6 AET contends that the interests of the Lenders does not extend to trust funds held - or that should be held - for the Covenantholders. It is alleged that Covenantholders are the beneficiaries of an express trust or a fund that does not fall within the assets available to the companies and hence subject to the fixed and floating charge.
7 The critical question therefore is whether the Covenantholders stand outside the receivership because of the express trust that they allege arises from and is evidenced by certain relevant documents, the nature of the transaction and the relationship between the parties. It will be necessary to consider these matters in some detail.
8 The trees and the land have been sold in complicated transactions that included the sale of trees and land owned by others. It is not necessary at this stage to determine the precise amount that may be subject to the Trust or fund or the derivation or source of such funds.[2]
9 The matter is of some complexity and is finely balanced. Each party pointed to various clauses in the relevant documents that supported its case.
10 The Trust Deed records that the Forest Company was formed for the purpose of inter alia:
"acquiring lands and planting the same with pine trees and preserving the forests so planted until such time as the same should become marketable and for the purpose of acquiring the funds necessary for carrying out of its purpose the Forest Company intends from time to time to issue prospectuses inviting the public to subscribe for and purchase the covenants referred to in such prospectuses on the terms and conditions set forth in any of such prospectuses and the covenants issued hereunder."
11 AET was appointed by the Forest Company as trustee for the Covenantholders subject to the terms of the Trust Deed.[3] The preamble to the Trust Deed records that the purpose of the Tripartite Agreement was to ensure the performance of the Forest Company's obligations under the Covenant, for the benefit of the Covenantholders.
12 The Forest Company raised funds by the issue of Covenants under Prospectuses issued from time to time, usually annually. The purchase of a "Covenant" from the Forest Company, entitled a "Covenantholder" to the net timber proceeds apportionable to their interest in the particular planting year for which they applied. In relation to certain planting years, the purchase of a Covenant also entitled a Covenantholder to a payment in relation to the value of land upon clear felling of the timber or cessation of the Covenant, in proportion to the Covernantholder's interest.
13 The following provisions of the Trust Deed are relevant:
(a) Clause 2 sets out some of the obligations of the Forest Company particularly in relation to the source of funds and the acquisition of land. Clause 2(b) requires the Forest Company to prepare plans showing land allocated under the covenants and the proposed annual planting allocations. Clause 2(c) requires the Forest Company to establish a reserve area of an additional 4% of land for the planting of trees "for the Covenantholder". Clause 2(d) sets out various escrow and restrictive provisions until the timber is cut, milled, disposed of and the proceeds are paid to AET. The obligations restrict the Forest Company from selling or encumbering the land and requiring it to deposit Certificates of Title and other documents in a bank in the joint names of the Forest Company and AET. Clause 2(e) makes provision for a maintenance fund.
(b) Clause 3 deals with further obligations on the part of the Forest Company until the sale of the timber. Clause 3(a) deals with the upkeep of the land and the trees. Clause 3(ca) requires the Forest Company to provide quarterly reports. In such reports the directors are required to state whether they have complied with the covenants and the Trust Deed and whether any breach has been committed. Clause 3(d) requires the annual provision of an audited balance sheet. Clause 3(e) requires details of Covenantholders to be provided if requested. Clause 3(h) requires the Forest Company to perform acts reasonably required by AET.
(d) Clause 5 deals with the power of AET in the event of default.
(e) Clause 10 provides that the Forest Company will not be liable for loss provided it uses its best endeavours.
(f) Clause 12 deals with further undertakings given by the Forest Company. Clause 12(a) requires the Forest Company to plant and supervise the trees for a period of 20-25 years. Clause 12(b) entitles a Covenantholder to receive his due proportion of the net proceeds of the timber after commission, remuneration and costs have been deducted. The net proceeds are paid to AET for distribution to Covenantholders. AET is required to hold the amount in a Distribution account.
(g) Clause 12(d) provides that the Forest Company shall be entitled to retain the amount of 5% of the balance of the proceeds from the sale of timber as provided by Clause 9(d) of the Tripartite Agreement, as amended, for its commission and remuneration for its services. After the Forest Company shall have received from the Milling Company the balance of moneys obtained from the sale of timber as provided by the Tripartite Agreement the Forest Company shall be entitled to deduct therefrom and retain the cost of labour and material involved in the spreading of super-phosphate or other fertilisers or any other treatment carried out and shall within thirty (30) days of the receipt of such moneys pay the balance to the Trustee for distribution among the Covenantholders entitled thereto.
(h) Clause 12(e) provides that, upon receipt of such net proceeds above described, AET must hold the same in the interest of the respective Covenantholders and shall open accounts in the Trustee's ledger which shall be called "Timber Proceeds Accounts", such accounts being kept separate for each planting. Details of such Timber Proceeds Accounts shall be shown on an audited statement which shall be attached to the Trustee's Balance Sheet at the end of the financial year.
(i) Clause 16 provides that if a Covenantholder defaults he ceases to be a 'cestui que trust hereunder'.
(j) Clause 20A provides that the Trustee holds the Maintenance Fund and the Distribution account in trust for Covenantholders.
(k) Clause 20E provides that the Forest Company is not liable to be removed from the management of the Trust (clause 20E(a)) and that the Trust will continue until all plantations have been planted, felled and benefits provided (clause 20E(c)).
(l) Clause 27 provides that Covenantholders are entitled to their proportion of the value of the land and the net proceeds of the sale of the timber.
(m) Other relevant provisions were referred to by the parties.
14 The terms of the Covenants, amended from time to time, accord with the rights and entitlements of Convenantholders referred to and recorded in the Trust Deed.
15 The following provisions of the Tripartite Agreement are relevant:
(a) The preamble records that the object is to fell the trees 'the property of the Covenantholder'.
(b) Clause 8 deals with record keeping and accounting matters in order to enable the correct allocation and apportionment to be made.
(c) Clause 9 deals with the distribution and application of monies received and retained by the Milling Company. Clause 9(e) provides that after all deductions the balance then remaining of such moneys is to be paid by the Milling Company to the Forest Company and then by the Forest Company after its deductions (clause 10A) to AET for distribution to Covenantholders.
(d) Clause 9 provides further that all moneys payable by the Milling Company to the Forest Company in respect of any year ending on the 30 September shall be payable by the Milling Company to the Forest Company by five instalments on the last days of the months of April, May, June, July and August in the following year.
(e) Clause 15 restricts the Milling Company to the felling of trees acquired by the Forest Company for the benefit of Covenantholders.
(f) Other relevant provisions were referred to by the parties.
16 The various prospectuses issued from time to time set out the rights of Covenantholders. Prospectus No 125 issued on 31 October 1984 stated, amongst other things that:
(a) A Covenant provides for you an interest in a Radiata pine plantation entitling you to the net timber proceeds apportionable to your interest in the particular planting year for which you apply.
(b) Covenantholders would get something at the maturity of the Covenants (page 23).
(c) From 1982 the Covenant provides a beneficial interest in the land value. The value so ascertained will be paid to the Trustee for distribution amongst the Covenantholders in proportion to their holding.
(d) Each Covenant entitles the holder thereof to 95% (subject to compliance with the terms hereof and to the deduction of any cost or expense which may be incurred by the [Forest] Company and chargeable to the Covenantholder) of the net proceeds of the timber apportionable.
(e) The Trust will continue until all plantations planted or to be planted have been clear felled and the benefits of the Covenantholders are distributed in manner hereinbefore provided. When the trees are completely felled the contract with the Covenantholder terminates. The trust is a continuing one.
(f) The Trustee declares that it holds various assets in trust for the Covenantholders.
17 By reference to a flow chart and the clauses in the Relevant Documents AET identified ten steps in the flow of funds derived from timber and land sales. They are as follows:
(a) Stage 1 - Forest Company issues prospectuses to the Covenantholder.
(b) Stage 2 - Covenantholder completes required form and pays money to the Forest Company for their investment (Tripartite Agreement clause 20D).
(c) Stage 3 - Forest Company uses the Covenantholder's money to purchase or lease land and plant trees (Trust Deed clauses 3(a), 12(a) and 24).
(d) Stage 4 - Forest Company maintains the tree plantation for between 20 and 25 years (Trust Deed clauses 3(a), 12(a) and 24).
(e) Stage 5 - Forest Company directs Milling Company to harvest the trees. Milling Company harvests the trees (Tripartite Agreement clauses 2,3,6).
(f) Stage 6 - Milling Company has the exclusive right to sell standing timber and pay the purchase price to the Forest Company (Tripartite Agreement clause 12).
(g) Stage 7 - Monies are received by the Milling Company from harvesting activities prior to September in any year. Milling Company then deducts 20% of the proceeds plus certain costs (Tripartite Agreement clause 9(a)).
(h) Stage 8 - Milling Company pays balance of proceeds to Forest Company in five tranches (April 15%, May 15%, June 15%, July 15%, August 40%) in the year following the 30 September date (Tripartite Agreement clause 9(e), 9(j)).
(i) Stage 9 - Forest Company pays monies received from Milling Company to AET within 30 days of receipt from Milling Company in the same five tranches and in the same proportions (Tripartite Agreement clause 10A, Trust Deed clause 12(d)).
(j) Stage 10 - AET distributes the monies to Covenantholders (Trust Deed clause 12(e)).
18 On 15 March 2012, the Forest Company, Milling Company and amongst others AET, entered into a Tree Sale Agreement for the sale of identified trees defined as the GT Trees (Tree Sale Agreement). Trees owned by the Forest Company formed part of the GT Trees. The Tree Sale Agreement provided for the payment of a total of $33,999,998 to the Milling Company in its capacity as the Milling Company under the "Trust Documents"[4] (Tree Sale Proceeds).[5]
19 Also on 15 March 2012, a number of entities including the Forest Company entered into separate contracts for the sale of identified land defined as the GT Land to Trust Company (Australia) Limited (Land Sale Contracts). The GT Land is situated in South Australia and Victoria. The Land Sale Contracts record that the total consideration payable to the Forest Company was $53,356,000 (Land Sale Proceeds).[6] The Land Sale Contracts do not reveal what proportion of the Forest Company land was previously subject to Covenantholder interests.
20 The Forest Company and Milling Company did not hold separate bank accounts. The Tree Sale Proceeds were paid into the Gunns Limited Overdraft Account (Overdraft Account) on 16 March 2012. The Overdraft Account remained in overdraft subsequent to the deposit, and was $36,579,949.24 in overdraft on the date that the Receivers were appointed.
21 The proceeds from the sale of certain of the assets the subject of the Tree Sale Agreement and Land Sale Contracts were directed to Trust Company (Australia) Limited as consideration for the subscription for units (Gunns Units).
22 The redemption of the Tranche 1 Gunns Units ultimately resulted in $8.7 million being placed in a suspense account pending Gunns Limited establishing to the satisfaction of the Lenders that the Covenantholders were entitled to those proceeds. Gunns Limited subsequently sought and received $4.8 million of those monies for "working capital purposes". Upon the subsequent appointment of the Receivers, the balance of those monies (i.e. $3.9 million) was paid into the receivership bank account.
23 The redemption of the Tranche 2 Gunns Units resulted in the sum of $24,654,742.19 being paid into the receivership bank account. The funds in the receivership bank account are being used to fund the day to day operations of the receivership of the Gunns Group.
24 The critical question for determination is whether the Tree Sale Proceeds and the Land Sale Proceeds or any part thereof are held on trust for the benefit of Covenantholders. A determination of this issue is critical notwithstanding the fact that the funds are no longer available. If indeed the Relevant Documents and surrounding circumstances evidence an express trust or fund consequences may follow whether or not the fund is intact.
25 AET alleges that the Trust was express having regard to the intention of the parties derived from the Relevant Documents, context and surrounding circumstances. The defendants contend that on a proper reading of the Relevant Document no such intention is evident so far as the Forest Company and the Milling Company are concerned but only so far as AET receives funds for distribution to Covenantholders. They contend that the obligations of the Forest Company and the Milling Company are exclusively contractual in nature.
26 In my opinion and although the matter is not free from difficulty, the Relevant Documents in context do evidence an intention to create and preserve a fund for the benefit of Covenantholders at all relevant stages.
27 It was submitted that Covenantholders' interests were held on trust at all times or stages. These interests were initially in the moneys paid by Covenantholders upon subscription for Covenants, then later in the forestry and timber assets and ultimately in the proceeds of the timber sales and the land sales. At all times the beneficial interest in the assets or proceeds was held by the Covenantholders although the legal interest was at various stages vested or held by different trustees: the Forest Company (upon subscription by the Covenantholders and during the planting and management phase); the Milling Company (upon the milling and sale); the Forest Company again (upon transfer of the sale proceeds from the Milling Company to the Forest Company); and then ultimately to AET (upon distribution of the proceeds by the Forest Company to AET).
28 The fund or trust, it was submitted, was express and was evidenced by, and was to be inferred from, the suite of contractual documents comprising the Trust Deed, the Tripartite Agreement and the various Prospectuses.
29 It was submitted that the three certainties required to establish an express trust were satisfied: certainty of intention; certainty of subject matter; and certainty of objects.
30 According to AET, there was plainly an intention to create a trust and the only real question is whether the intention was that the Covenantholders' interests would be trust property only in the hands of AET or whether the trust would be sufficiently broad to protect Covenantholders' interests also when in the hands of the Forest Company and the Milling Company.
31 It was submitted that having regard to the whole of the circumstances attending the relationship between the parties, including the full suite of contractual arrangements, that question should be resolved in favour of a trust protecting Covenantholders' interests at all relevant times throughout the entire process including when the trust property was vested in either of the Forest Company or the Milling Company.
32 AET submits that there are a number of other relevant circumstances which tell in favour of the construction and the scope of the trust for which it contends. They include: the express declaration of trust (which, insofar as it concerns AET as trustee, is common ground), the contractual language employed by the parties and the obligations at all relevant times throughout the entire process to keep Covenantholders' interests in separate funds and separately accounted for.
33 The language of the Trust Deed is, it was submitted, the language of trusts rather than mere debt under contract. In this regard, AET referred to the preamble and clauses 1, 4(a), 5,12, 20A(b) and 20B(a) of the Trust Deed. AET points further to a number of references throughout clause 12 of the Trust Deed and in particular to the Covenantholders having interests and distribution accounts as opposed to mere claims in debt. Reference was made to clause 12(b), 12(e) and 12(f) of the Trust Deed.
34 The language of the Tripartite Agreement, it was submitted, is even more strongly confirmatory of the trust for which AET contends.
35 The preamble to the Tripartite Agreement refers more directly to "the property of Covenantholders of the Forest Company". Clause 8 provides an obligation on the Milling Company and the Forest Company each to keep books and accounts and records to enable them at all times to ascertain and specify which moneys are "allocated and apportioned" to which Covenantholders' interests. Clause 9 provides that all moneys received by the Milling Company from the sale of logs or timber "shall be retained by the Milling Company and applied in" the manner specified in sub-clauses 9(a)-(f) of the Tripartite Agreement. Clause 10A provides that Covenantholders are "entitled" to distributions of the moneys so retained and applied. Clause 15 refers to trees and timber having been planted or acquired "for the benefit of Covenantholders".
36 Language such as "allocated and apportioned", "retained" and "applied", it was submitted, was entirely consistent with a trustee's obligation to keep a separate fund as opposed to a debtor's obligation merely to repay an equivalent sum when called upon. Further, language such as "property", "entitled" and "for the benefit of" is consistent with Covenantholders having beneficial proprietary interests in the trust property in question.
37 The language in the Prospectuses issued by the Forest Company for the subscription by Covenantholders for Covenants was likewise, it was submitted, consistent with the existence and scope of the trust for which AET contends.
38 AET submits further by reference to authority that it matters not whether the trustee is obliged to keep the funds in a separate bank account. What is significant, it was submitted, was the obligation of the trustee to keep a separate fund for the benefit of the person entitled to it, as distinct from a debtor who is entitled to deal with his money as he pleases and later hand over an equivalent sum of money when called upon.[8]
39 It was contended that the Trust Deed and the Tripartite Agreement make it clear that the Covenantholders' interests were to be kept in separate funds and were to be separately accounted for. None of the trustees was at any stage at liberty to deal with the funds as they pleased and then later merely hand over equivalent sums when called upon: (Clause 8, 9 and 10A of the Tripartite Agreement). As recently as August 2012, the Milling Company and the Forest Company by their Group General Counsel and Company Secretary confirmed to the plaintiff that the sale proceeds were being "quarantined" and "held separately" for Covenantholders.
40 It was submitted further that not only were the Covenantholders' interests to be held separately from the Trustees' own assets, but the groups of Covenantholders' interests from various planting years were themselves to be kept and accounted for separately. Reference was made to the Timber Proceeds Accounts in clause 12(e) of the Trust Deed and clause 8 of the Tripartite Agreement (which provides, inter alia that the "Milling Company and the Forest Company and each of them shall keep such books accounts vouchers and records as shall enable them at all times to ascertain and specify to which class of Covenantholders and in respect of which series of Covenants and in what proportions the balance of moneys referred to in Clause 10A shall be allocated and apportioned). Further, reference was made to the Maintenance Fund in clause 2(e) of the Trust Deed.
41 The subject matter of the trust, it was submitted, was the Covenantholders' interests. These interests were initially in the moneys paid by Covenantholders upon subscription for Covenants, then later in the forestry and timber assets and ultimately in the proceeds of the timber sales and the land sales.
42 Clauses 12(e) and 20A of the Trust Deed and clauses 8, 9 and 10A of the Tripartite Agreement make provision in relation to the subject matter of the trust insofar as it was constituted by proceeds of the timber sales. Clauses 27 to 33 of the Trust Deed make provision for the subject matter of the trust in relation to the land interests.
43 These interests were, it was submitted, capable of being disposed of inter vivos or by will. Accordingly, they could be the subject matter of a valid trust.[9]
44 No issue of uncertainty arises, it was submitted, from the fact that the trust property was transformed at various stages in the process (from moneys, into forestry and timber assets and then ultimately back into moneys being the sale proceeds).
45 Clause 16 of the Trust Deed defines the term "Covenantholder" in a manner sufficient to make certain the objects of the trust in question.
46 A trust is not uncertain, it was submitted, merely because the actual persons to whom the distribution will be made cannot be known in advance of the date of the distribution. It is sufficient that the provisions of the trust ensure that upon that date the beneficiaries can be ascertained with certainty.[10]
47 Nor can a trust be uncertain, it was submitted, merely because some difficulty may arise at a future date in determining whether or not a particular person is within the description of a class of trust objects.[11] It was submitted that what is required is for the Court to be satisfied that a complete list of the beneficiaries could probably be compiled.[12] This requirement, which is often referred to as "list certainty",[13] is satisfied, it was submitted, by the obligations to keep books, records and registers of Covenantholders and their interests imposed by clauses 3(e) and 20E(a) of the Trust Deed and clause 8 of the Tripartite Agreement.
48 The defendants submit that AET conflates the role and obligations it has as trustee under the Relevant Documents with the role and obligations of the Forest Company and Milling Company. A careful textual analysis of the Relevant Documents, it was submitted, reveals that there was no relevant intention that the Forest Company or the Milling Company would hold the Tree Sale Proceeds on trust for Covenantholders.
49 First, it was submitted that the absence of an obligation on the Forest Company and the Milling Company to keep the gross timber proceeds separate from general funds is a powerful indication that no trust was intended.[14] In particular, it was submitted that the Relevant Documents do not prohibit the Forest Company and the Milling Company from depositing and therefore inter-mixing the proceeds of the timber sales with "general" funds. Indeed, clauses 8 and 10 of the Tripartite Agreement appear to expressly contemplate that such an admixture could take place. Clause 8 provides that the Milling Company and Forest Company must keep books and records enabling them to identify the balance of monies to be allocated and apportioned to Covenantholders. Clause 10 provides that the Milling Company is precluded from declaring a dividend to shareholders unless all monies payable to the Forest Company have first been paid. It was submitted that this necessarily implies that the timber proceeds formed part of the general pool of funds from which a dividend might have been payable.
50 In contradistinction to the obligation of AET to place net timber proceeds into "Timber Proceeds Accounts" kept separately for each planting[15] and the obligation of the Forest Company to pay a small sum in respect of each planting into the "Maintenance Fund",[16] the Forest Company and Milling Company did not have to place the timber proceeds received by them into an account styled "trust account". This, it was submitted, is a clear factor militating against the existence of an obligation on the part of the Forest Company and Milling Company to hold monies as trustee. That is, a fortiori so, when as here, that absence seems to be the result of a deliberate choice.[17] This conclusion is fortified, it was submitted, by the fact that the Milling Company was only obliged to pay across timber proceeds to the Forest Company in the year following receipt and then by instalments- an arrangement more characteristic of debt rather than trust, particularly in circumstances where interest on that money accreted for the benefit of the Milling Company.
51 Second, it was submitted that AET cannot ignore the fact that in the lengthy and detailed provisions of the Tripartite Agreement and Trust Deed there is no mention of monies being held by the Forest Company and Milling Company on trust or as trustee.[18] That is in clear contrast to the express statement in clause 4(a) of the Trust Deed "[t]hat the Trustee will hold all moneys paid into the Maintenance Fund or received by the Trustee...upon and subject to the trusts." If the Forest Company, as appointor of the Trustee had intended to create a further trust in which it or the Milling Company was trustee, it would have been simple to have said so. Instead, the Forest Company is defined as the manager of "the Trust" in clause 20B of the Trust Deed. The use of the definite article "the" is telling. The Milling Company is not even a party to the Trust Deed. The correctness of the foregoing propositions is reinforced, it was submitted, by the relevant context: the Trust Deed which imposed express duties as trustee upon AET was executed on the same day as the Tripartite Agreement. If the intention of the parties was to repose the obligations of a trustee on the Forest Company and/or the Milling Company on that day, the Trust Deed would have so expressed.[19] Moreover, if that had been the relevant intention, there would have been no need to execute a separate agreement which did not use the language of trustee and beneficiary.
52 Third, it was submitted that if it was intended that the Forest and Milling Company hold timber proceeds on trust, the Trust Deed and Tripartite Agreement left unsaid some things which ought to have been said. By way of example, clause 6 confers upon the Trustee the power to invest the money held by the Trustee in the Maintenance Fund. Clause 7 regulates the distribution of the income referable to that investment. There are no equivalent provisions in the Relevant Documents governing the investment of and application of income derived from the timber proceeds held by the Forest Company and Milling Company. In addition, under the Trust Deed, interest earned on monies in the Timber Proceeds Accounts accretes to the benefit of Covenantholders, whereas there is no obligation on the Forest Company and Milling Company to pay interest on the gross timber proceeds when held by them.
53 The conclusion that the Forest Company and Milling Company do not hold the Tree Sale Proceeds on trust, it was submitted, is reinforced when consideration is given to the broader commercial context. The trees themselves were not owned by the Covenantholders, but rather were owned by the Forest Company.[20] The interest of the Covenantholders was to an income stream upon harvesting of the trees, defined as being the net timber proceeds.[21] The evident commercial purpose of the Trust Deed and Tripartite Agreement was, it was submitted, to provide a mechanism by which each Covenantholder's timber proceeds once received on their behalf could be collectively held by AET on trust and each Covenantholder's right to performance of the covenant could be collectively enforced. However, the Covenantholders' right to the net timber proceeds was enforceable against the Forest Company in covenant - i.e. in contract, "in full satisfaction and discharge of the obligations of the [Forest] Company".[22]
54 The decision of the parties not to use the language of trustee and beneficiary in describing the obligations of the Forest Company and Milling Company was also important, it was submitted, for tax reasons. The Prospectuses referred to the fact that the net timber proceeds were not assessable income by reason of High Court decisions in 1954 and 1975.[23] The absence of a trustee and beneficiary relationship no doubt reduced the prospect that the Commissioner would be able to argue, as it had endeavoured to do in 1954, that the Covenantholders' income stream was assessable on the basis that there was a common "profit-making undertaking or scheme"[24] between the Covenantholders and the Forest Company.
55 Finally, it was submitted that it was important to note that once received in the hands of the Forest Company and Milling Company, the timber proceeds were gross timber proceeds derived from assets owned by the Forest Company. The Relevant Documents do not contemplate the Covenantholders being able to make a claim in relation to the trees themselves or the gross timber proceeds. As the Covenantholders can only make a claim in respect of the net timber proceeds, the gross timber proceeds when received by the Milling Company cannot be trust property. AET's reliance on the introductory words of clause 9 of the Tripartite Agreement is therefore, it was submitted, misplaced. At no stage do the Covenantholders have an entitlement, proprietary or otherwise, to "all moneys received...[to] be retained". The subsequent use of the word "retained" in clause 9(d) of the Tripartite Agreement further exemplifies that no special significance can or ought be attached to its use.
56 In relation to Land Sale Proceeds, it was submitted that AET does not identify any specific grounds upon which it can be said that the Land Sale Proceeds were to be held on trust for Covenantholders. It was submitted that the Relevant Documents do not identify any relevant intention to impose the obligations of trustee upon the Forest Company.
57 Furthermore, the Relevant Documents and Land Sale Contracts do not, it was submitted, contain reference to an obligation on the part of the Forest Company to pay Covenantholders any part of the proceeds of the sale of land. The Trust Deed relevantly provides that:
[27] In respect of the 1982 and 1983 planting years each Covenant in respect of which a Fully Paid Certificate has been issued will entitle the holder thereof to the value as determined pursuant to clause 29 hereof (at the time when timber is clear felled or at such earlier time as the land ceases to be subject to the Covenant as a result of the timber being damaged by fire or for any other reason proportionate to the total land appropriated to the planting year) of the freehold land or land held under perpetual lease (thereinafter called "the land") planted in respect of the Covenant"
[28(a)]In respect of the 1982 and 1983 planting years the Forest Company shall prior to final distribution in accordance with clause 12 hereof or any interim distribution following land ceasing to be subject to the Covenant cause the said land to be valued as provided in clause 29 hereof and pay the value thereof as shown in such valuation to the Trustee for distribution amongst the said Covenantholders.
[28(b)]Payments made to the Trustee by the Forest Company for the said land as hereinbefore provided shall be distributed amongst the said Covenantholders with the distribution of timber proceeds in the same manner and proportion as such proceeds.
[29] In respect of the 1982 and 1983 planting years the value of the land at the time of appropriation to the Covenant and for the purpose of the final distribution or any interim distribution following the land ceasing to be subject to the Covenant to Covenantholder shall be respectively valued on a uniform basis each to the other and shall be the amount certified by an independent valuer directed or approved for such purpose by the Trustee and the costs of such valuations shall be paid by the Forest Company. (Emphasis added)
58 It was submitted that it is apparent from the foregoing clauses that the Forest Company's obligation to pay AET arises independently from the sale of land. The Forest Company is liable to make a payment based on the "value of land" upon the timber being clear felled or the land ceasing to be the subject of the Covenant. Those two conditions precedent can occur without the land being sold. Accordingly, the Trust Deed and Covenant cannot and do not express any intention that if the land is sold, the sale proceeds must be set aside and used to meet the Forest Company's contractual obligation.[25]
59 The question as to the existence of any express trust is answered by reference to intention.[26] It is well settled that intention in this context is to be discerned or inferred from the full range of circumstances attending the relationship between the parties in question, the nature of the transaction and the construction of the words used by the parties in the Relevant Documents.[27]
60 If the inference to be drawn is that the parties intended to create or protect an interest in a third party, and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then an intention to create an express trust may be inferred.[28] Australian courts are no longer reluctant to infer the existence of an express trust.[29]
"All such questions are, from their very nature, of difficulty, and sometimes of very great nicety. The difficulty is occasioned by the desire which the court must feel to give full effect to the intention of the party or parties to the transaction, and by the duty which the court is under of preserving unimpaired those rules which have been established and which form the law, even though they should frustrate the plain intention. The nicety often arises from the attending circumstances, because they require the closest consideration in order to arrive at a satisfactory conclusion as to what was the true intention, and as to the propriety of carrying that intention into effect".
62 To constitute himself a trustee it is not necessary that a person should use precise words. In Richards v Delbridge[32] Jessel MR pointed out: "It is true he need not use the words, 'I declare myself a trustee', but he must do something which is equivalent to it, and use expressions which have that meaning; for, however anxious the court may be to carry out a man's intentions, it is not at liberty to construe words otherwise than according to their proper meaning". The question is whether the language used in the context of the transaction is suggestive of the holding or dealing with funds in which others have a beneficial interest.
63 In Bahr & Anor v Nicolay and Ors [No 2][33] and after referring to the reluctance of the English Courts to hold that a trust exists in the absence of a clear intention to create a trust, Mason CJ and Dawson J endorsed what they regarded as a contrary view. At page 618-9 they said:
On the other hand Fullaghar J stated a contrary view in Wilson v Darling Island Stevedoring & Lighterage Co Ltd[34]: "It is difficult to understand the reluctance which courts have sometimes shown to infer a trust in such cases". His Honour was referring to contracts whereby a benefit is promised to a third party. We agree with his Honour's comment. If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. The present is just such a case. The trust is an express, not a constructive, trust. The effect of the trust is that the second respondents hold lot 340 subject to such rights as were created in favour of the appellants by the 1980 agreement.
64 In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd,[35] Mason CJ and Wilson J followed English authority and held that "commercial necessity" was relevant to the inferring of a trust. At page 121 their honours said:
This apparent uncertainty should be resolved by stating that the courts will recognise the existence of a trust when it appears from the language of the parties, construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trusts, the existence of which depends on intention. In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention: see Eslea Holdings Ltd v Butts.[36]
The question whether an agent for sale holds the proceeds of sale on trust for his principal, so that the relationship between them is that of trustee and cestui que trust, on the one hand, or he simply owes to his principal whatever sum of money is then due on account between them, so that the relationship between them is simply that of creditor and debtor, on the other hand, is one which is not easy to answer in many factual contexts. Basically, as Scott says, the answer must depend on the intention of the parties: Scott on Trusts, 4th ed (1987) at 133_._ This must be so because, except in the case of constructive trusts where a trust is thrust on the parties irrespective of their intentions and as a matter of policy, an intention to create a trust is an essential element of a trust. If the parties expressly spell out that their arrangements do or do not involve a trust, a trust comes into existence or does not come into existence accordingly. However, this consideration is of little assistance where, as in the present case, the parties to the transaction are silent as to their intentions.
When, as here, the parties have no expressed intention, it then becomes necessary to see, in all the circumstances of the case, what intention the law should impute to them: see Trident General Insurance Co Ltd v McNeice Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 at 120-121 per Mason CJ, Wilson J (at 146-147) per Deane J. In the case of a single transaction the position is clear enough. In the absence of any other factors, the law will take the view that he who beneficially owns the tree also beneficially owns the fruit: the agent will be a trustee of the proceeds of sale.
66 In Re Australian Elizabethan Theatre Trust: Lord v Commonwealth Bank of Australia & Ors[39] Gummow J said:
The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them: see Walker v Corboy (1990) 19 NSWLR 382; Scott, The Law of Trusts (4th ed, 1987), s25.2. There is no need for particular caution in drawing the inference that a trust was intended: see Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 at 618-619. However, it also is important to appreciate both the flexibility of the institution of the express trust and the range of equitable institutions which fall short of but have some of the characteristics of a trust.
67 In Jessup v Queensland Housing Commission,[40] McPherson JA after citing with approval the passage from the judgment of Gummow J referred to above, engaged in an extensive analysis of the relevant funding agreements and their context and concluded that no express trust could be inferred. I will deal with this case in more detail later.
68 In Mario Salvo & 2 Ors v New Tel Limited,[41] Spigelman CJ after referring (amongst other authorities) to the passages from Bahr v Nicolay and Re Australian Elizabethan Theatre Trust referred to above concluded with reference to the facts of the case as follows:
35. In the present case the relevant circumstances include the existence of an express trust; the nature, scope and purpose of the transaction by which funds were received by Acuiti and subsequently released from the Acuiti Trust Account to the HDY Trust Account, and the language of both the Authority to Transfer and the second letter of set-off. In my opinion, the combined effect of the circumstances indicates an intention to create an express trust.
36. In determining the intention of the parties in this case, the existence of the express trust under cl 4.2(b) of the Subscription Agreement is, of course, the starting point. It is most unlikely that the relevant parties, ie New Tel and the Appellants, would authorise the disposition of funds so held on any basis other than the retention of a beneficial interest on the part of the Appellants. There is nothing in the evidence to suggest that anyone intended that the Investors' beneficial interest in the funds had been transmogrified into a mere debt.
69 In Compass Resources Ltd v Sherman,[42] Beech J concluded after reference to Walker, Re Australian Elizabethan Theatre Trust, Jessup and Salvo that a facility agreement did not, in the relevant circumstances, establish a trust notwithstanding the fact that part of the funds advanced (70%) were required to be used for a particular purpose. At [88]-[89] his Honour said:
As I have explained, I consider that whether cl 6 creates a trust depends upon whether the mutual intention of HNC and Compass, as revealed by the language of the Facility Agreement and the surrounding circumstances, was that the loan funds not become part of the assets of Compass but be held by Compass only to be used for the purposes stated in cl 6.
For the reasons that follow, I am not satisfied that the parties had that intention. I conclude that the parties intended that the loan funds become Compass' property. In summary, I come to that conclusion taking into account the context and surrounding circumstances, the evident commercial purpose of the transaction, the absence of any stipulation that the funds be paid into a particular account and be kept separate from other funds of Compass, and other provisions of the Facility Agreement. Other relevant provisions include the default provisions in cl 8, the provisions for the issue of a convertible note and conversion of the debt to shares, and the recitals.
70 As the authorities demonstrate, each case must be considered in accordance with its own facts and circumstances in order to determine whether there was an intention to create a trust. Does the language in context include a desire to protect the interests of Covenantholders beyond a contractual obligation?
71 As the passage from the judgment of Meagher JA, cited above at [65] indicates (albeit in a slightly different context) whether there is a relationship that goes beyond debtor and creditor "is one which is not easy to answer in many factual contexts" particularly where the parties have "no expressed intention" and the law has to impute an intention from all of the circumstances. This is such a case.
72 The various and numerous obligations on the part of each of the Forest Company and the Milling Company pursuant to the Relevant Documents are clearly contractual obligations and the question is whether in context they rise above contractual obligations and evidence an intention to create a relationship of trustee and beneficiary. This is not an easy question to answer and minds may differ after considering the various indicia referred to by Senior Counsel on each side. On the one hand there is no specific obligation to set aside funds in a separate account, a position usually consistent with a trust, a point emphasised by the defendants. On the other hand there is not merely a simple obligation to pay an amount to AET a position consistent with a contractual obligation or a debt, a point emphasised by AET.
73 AET is specifically appointed and constituted as trustee under the Trust Deed. This is common ground. Clear and express words are used and funds in the hands of AET are trust funds. No express words are used in the case of the Forest Company and the Milling Company. Other than the final stage, Stage 10, all funds are from inception or subscription either in the hands of the Forest Company or the Milling Company. The critical question is the status or character of such funds in the hands of these companies. Do the obligations of each company rise above contractual obligations? Was a trust intended? What are the relevant indicia to determine this question?
74 Whether a party holding a legal interest in funds or proceeds also holds a beneficial interest is the critical question. It is immediately apparent from a review of the authorities that an obligation to deal with funds in a particular way does not necessarily mean that the obligor holds the funds on trust. A contractual obligation to deal with funds in a particular way does not necessarily determine their proprietary character. More is required for the funds to be regarded as trust funds. Normally, the obligation to deal with funds in a particular way is accompanied by an obligation to hold the funds in a separate account. It is this requirement that usually fixes the funds with the character of trust funds. Although the absence of this requirement is not necessarily fatal, its presence is usually compelling. Its absence requires the identification of other factors that indicate that despite there being no requirement to hold the funds in a separate account, the funds nevertheless cannot properly be regarded as the holders funds. Further, it appears that such factors must go beyond any obligation to deal with the funds in a particular way. In my opinion, this is such a case.
75 In my opinion, although the matter is not free from difficulty and the arguments are finely balanced, the preferable view is that the language used in the Relevant Documents, when assessed in the context and circumstances of the transaction, sufficiently indicates an intention to provide, at all stages, protection to the interests of the Covenantholders beyond a mere contractual obligation to account, despite the fact that the funds were not required to be placed in a separate account. The presumed intention of the parties was that the funds would not form part of the assets of either the Forest Company or the Milling Company. Rather, those companies were entrusted with looking after the funds of Covenantholders.
76 A proper reading of the Trust Deed, the Tripartite Agreement and the Prospectuses reveals and highlights the manner in which the investment was to be made and dealt with from the initial contribution to the contemplated return. The Relevant Documents are inter-connected and comprehensive. Each stage is dealt with in detail. The content of the various obligations in the context of a specific investment with identified and contemplated returns suggests that it is more probable than not that investors funds were to be protected at all stages. The steps through the investment process were integral and inter-related. To suggest that the trust was confined to AET so far as it received the funds at Stage 10 is to ignore the integral prior stages of the specific investment that had the objective of retaining and dealing with investors funds to produce, with such funds, an outcome for the benefit of investors. I do not accept that the ability by the Forest Company and the Milling Company to use the funds (and through the process that they were engaged in derive other funds) or proceeds deprived the proceeds so derived of the character of trust funds.
77 The proposition gains further traction when regard is had to the language used in the Relevant Documents in the context of the nature of the transaction and relationship between the parties. The language is that of trusts or funds rather than a contractual debtor and creditor relationship.
78 Language such as "allocated and apportioned", "retained" and "applied" is entirely consistent with a trustee's obligation to keep a separate fund as opposed to a debtor's obligation merely to repay an equivalent sum when called upon. Further, language such as "property", "entitled" and "for the benefit of" is consistent with Covenantholders having and retaining a beneficial proprietary interest in the trust property or fund at all stages.
79 From the above it is sufficiently clear that the interests of the various Covenantholders from time to time throughout the entire process was to be individually and specifically recorded and accounted for despite the fact that no separate trust account was as such required. The extensive provisions directed to the keeping of books, records and registers reflect an intention to accurately record the name of the beneficiary (Covenantholder) and the extent and nature of such beneficiaries interest. In such circumstances, the Forest Company and the Milling Company were not dealing with their own funds. Further, it is not pedantry or semantics to suggest that there is significance in the usage of and reference to the funds actually received by the Forest Company and the Milling Company as against the requirement to pay an equivalent sum. The actual funds received were required to be recorded and dealt with in a particular way. In context this is suggestive of a trust or fund.
80 I do not regard the decision I have reached as contrary to the decisions reached in Jessup and Sherman. These were different cases that turned on their particular facts despite some superficial similarities.
81 In Jessup, payments were made by the Queensland Housing Commission ("the Commission") to Cairns Career Training Inc ("CCT"), an incorporated association, pursuant to various funding agreements. The payments made by the Commission were pursuant to a Home Assist Home Secure program intended to relieve difficulties experienced by older or disabled people who wished to continue living in their own homes. Maintenance, repairs and other services were provided by CCT. The funding was used for these services as well as wages and other operating costs of CCT. As liquidator of CCT, Jessup made claim to the sum of $124,000 standing to the credit of CCH. The Commission claimed that the sum was held on trust and did not form part of the assets of CCT available to creditors. McPherson JA held that no trust relationship existed. Davies JA and Philippides J agreed.
82 Central to his Honour's reasoning was the fact that the funding agreements made no express reference to any trust, did not restrict the mixing of funds and did not require the funds to be held in a separate account. His Honour did not regard the detailed financial and accounting obligations as anything more than contractual obligations agreed by the parties and appropriate in the circumstances. Finally, there was nothing to suggest that the funds, once paid over by the Commission were not to be retained beneficially by CCT albeit subject to various identified obligations. Or, put the other way, there was nothing to suggest that the Commission retained any beneficial interest in the funds. Agreement as to how the funds should be used and other detailed obligations were not sufficient. In fact, according to his Honour, these detailed provisions were suggestive of the fact that no trust was intended.
83 In Sherman's case and in the peculiar circumstances of that case (para 69 above) Beech J arrived at a similar conclusion and held that (at [60]) it was never intended that the sum advanced should not become part of the assets of the borrower.
84 Although each case has its own peculiar indicators and context, it is useful to refer to and compare and contrast this case with Jessup and Sherman because notwithstanding some common indicators and features the differences compel a different result.
85 In all cases the agreed obligations on the part of the recipient - some more extensive than others - related to funds that were sourced from the other contracting party with no obligation to keep the funds separate. In Jessup and Sherman there were no factors indicating that a beneficial interest in the funds was retained by the provider of the funds, notwithstanding the extensive contractual obligations (particularly in Jessup). Further, the nature and characteristics of the relationship between the parties was (in Sherman) that of creditor and debtor. Although the debtor was required to repay the funds and pending such repayment had various reporting and other obligations, there was nothing to suggest that the debtor was looking after someone else's funds. In each case, that is Jessup and Sherman, the respective recipients were dealing with their own funds albeit in a certain way mandated by the respective agreements.
86 Finally, in relation to Jessup, although the detailed and prescriptive obligations militated against the conclusion that a trust was intended, the same cannot be said in this case because of the entirely different framework and context in which the extensive and co-existing contractual and trust obligations operate.
87 Despite the identified common features, this case is different. The matters previously identified and referred to cast a different light on the nature, content and characterisation of the relationship between the parties. It goes beyond debtor and creditor or in the case of Jessup the recipient of government subsidies. The funds are not the Forest Company or the Milling Companies and they are not dealing at the various respective stages with their own funds but those of others. Those other parties are not lenders (or providers of funds by way of government subsidies) but investors. At every stage their funds were being 'looked after' or managed and they retained a beneficial interest. The type, extent and nature of the obligations may be similar but the context and subject matter of the transaction make all the difference regarding the critical question of who holds and was intended to hold the beneficial interest in the funds. Neither the Forest Company nor the Milling Company held any beneficial interest in the land or the trees and it follows that they had and have, no beneficial interest in the fruits or proceeds of sale.
88 The reasons why the Forest Company and the Milling Company did not hold a beneficial interest in the funds derived from land sales and the sale of timber despite their extensive contractual obligations and the lack of any requirement to hold the funds in a separate account are, in summary and as previously identified, as follows:
(a) The nature of the transaction and relationship between the parties is highly suggestive of a relationship of trustee and beneficiary. It goes beyond that of contractual parties such as lender and borrower. The funds received from the sale of land or timber (Stages 7-9) cannot properly be regarded as beneficially held by the Milling Company or the Forest Company. In the context of such relationship and the nature of the transaction the detailed obligations contained in the Relevant Documents are not inconsistent with a relationship of trustee and beneficiary. In fact they reinforce it.
(b) The Relevant Documents were required pursuant to the Companies Act 1962 (SA) under the division dealing with interests other than shares and debentures. The division was directed towards the protection of investors.
(c) The language used in the Relevant Documents evidences an intention to protect funds derived from the sale of land and timber for the benefit of investors. Again, the detailed contractual provisions or lack of a requirement to hold the funds separately are not inconsistent with the existence of a trust. The entire function and purpose of the management company (the Forest Company) and by extension (the Tripartite Agreement) the Milling Company as indicated by the language, was to look after and manage a trust. The detailed provisions are directed to managing other people's funds. The structure and nature of the obligations is all about trusts. The main document is a Trust Deed and the detailed obligations are contained in this document and the related Tripartite Agreement. These obligations are covenants and undertakings to act in the interests of identified others at all stages. As pointed out, all of the prerequisites of a trust are present and it is unlikely that the parties intended a trust only to arise at Stage 10. The matrix of circumstances suggests otherwise.
89 AET submits that the Forest Company and the Milling Company have admitted the existence and scope of the trust. In an email dated 2 August 2012 from Tri Duc Nguyen, Group General Counsel of Gunns to Stuart Howard, Senior Relationship Manager of AET, Mr Nguyen responds to Mr Howard's concerns in relation to the proceeds of sales as follows:
Stuart,
Thank you for your letters of 18 July 2012 and 2 August 2012.
We understand the concerns raised and thank you for bringing it to our attention.
We confirm that the amount of the sale proceeds that are held by the Milling Company in relation to CH interests is approximately $27.6M. Please note that internal review is still ongoing (involving for example a review of our harvesting up to Completion and cross-referencing against CH planting years and reallocation where required) and we will let you know as soon as we have finalised this figure.
This amount will be held separately. That is, it will be quarantined.
As the proceeds are CH proceeds (the Trust documentations makes this very clear), we see no basis for any party to access this sum other than the Trustee for distribution to CHs in accordance with the Trust documentations.
90 Similarly, on 16 August 2012, Mr Nguyen again on behalf of the companies referred to the 2 August 2012 statements and stated to AET relevantly as follows:
I confirm that the amount of the sale proceeds that are held by the Milling Company in relation to CH interests is approximately $27.6M... As the proceeds are CH proceeds (the Trust documentations [sic] makes this very clear), we see no basis for any party to access this sum other than the Trustee for distribution to CHs in accordance with the Trust documentations... As has been the practice, all CH proceeds (from harvesting or otherwise) are held by the Milling Company as an accrual - Covenant holder distribution (either Current or Noncurrent, depending on when the distribution is due).
91 Memoranda of legal advice to the Gunns group of companies and its financiers and advisers from Mr Nguyen provide further details confirmatory of Gunns' understanding (against its own interests) of the existence and scope of the Trust. For example, on 31 July 2012, Mr Nguyen advised that:
(a) The Covenantholder schemes are governed by the Trust documents.
(b) Under the Trust documents the proceeds from the sale of the Covenantholder standing timber and land interest covenants are only held by the Milling Company in trust for the Covenantholders, pending final calculation, auditing and payment to the Forest Company and then to the trustee for distribution to Covenantholder.
(c) As the proceeds of sale were converted into Gunns Class G Units, the proceeds from the redemption of these Class G Units must first be applied to Covenantholders as per the Tree Sale Agreement and the Land Sale Agreements. The balance of the proceeds then belongs to Gunns in its own right.
(d) Due to increasing concerns raised by Covenantholders, the Trustee has been forced to enquire with us as to the status of the proceeds of sale and what safeguards have been put in place to ensure that Covenantholders' monies are quarantined and protected for the benefit of Covenantholders.
(e) It is vital that we ensure that we meet our obligations under the Trust Documents and the Tree Sale Agreement and the Land Sale Agreements by immediately segregating the Covenantholders' portion from the proceeds of the redemption.
92 These statements - and particularly the references therein to past practice - are relied upon by AET as evidence of acts by those companies subsequent to the creation of the Trust which tend to support the existence and scope of the Trust. The statements were made more than a month prior to the appointment of administrators and the Receivers. Accordingly, AET submits that at least at the time the statements were made, they were admissions against the interests of the Forest Company and the Milling Company.
93 The defendants submit that the question as to the existence of a trust must be resolved by reference to the Relevant Documents. They submit that subsequent communications in the form of admissions can only be taken into consideration in deciding whether there is a trust and not in relation to the construction of a trust. I did not understand AET to contend otherwise.
94 The defendants submitted further that properly construed none of the communications referred to above constitute an admission as to the existence of any trust. They submit that Mr Nguyen did not have the requisite intention of admitting or confirming the existence of the trust and in any event had no authority to do so as he was not a director of either company. The position taken by the defendants was that in negotiating with its lenders it wished to do the best for Covenantholders and put their case at its highest. Mr Nguyen gave evidence that the submission made reflected a contractual position or ambit claim on the issue. The managing director of the companies, Mr L'Estrange and Mr Frame, the Chief Financial Officer of the companies both held the view that the lenders took priority ahead of any liabilities owed to Covenantholders.
95 I have decided that it is neither appropriate nor desirable to determine this issue. If there is a trust, as I have found, there is no need to resolve this issue. If I am wrong and there is no trust it is unlikely that the admissions, such as they are, would be capable of creating an express trust. Despite the authority cited by AET, there may be difficulty in a trustee admitting that assets are held on trust when they are not. It is unlikely that an admission can create an express trust with retrospective operation with all its ramifications involving numerous proximate and remote parties (with vested interests) where none was intended or found to exist.
96 In view of the conclusion I have come to it is not necessary to deal with this aspect although so far as may be relevant I do not consider that there is such a trust.[43]
97 I will hear from the parties as to the precise form of any declaration and order and costs.
[1] ANZ Capel Court Limited as security trustee for the Gunns Financing Security Trust holds registered security interests over all or substantially all of the assets and undertaking of each of the Gunns Companies including the Forest Company and the Milling Company.
[2] Paragraphs 18-23 of this judgment sets out some of the figures.
[4] The "Trust Documents" were defined to include the Trust Deed, Tripartite Deed, Covenants and a Settlement Deed dated 14 October 1999: Clause 17, Tree Sale Agreement.
[5] Schedule 3 to the Tree Sale Agreement.
[6] Being the total of the $25,030,000 in Schedule 8 to the South Australia Land Sale Agreement and the $28,326,000 in Schedule 10 to the Victorian Land Sale Agreement.
[7] This heading is useful and reflects the different positions taken by the parties. Of course there is no dichotomy between the two. The contractual relationship is the most common basis for the establishment or implication of a trust Gosper v Sawyer [1985] HCA 19; (1985) 160 CLR 548 at 568-9 per Mason and Deane JJ.
[8] The following example was given. A solicitor obliged to keep separate funds on trust for various clients of course need not open separate bank accounts for each client. The solicitor may operate a single trust account with the bank, but keep his or her own records so as to account in separate funds to each of the various clients. A solicitor is of course not entitled to deal with clients' trust money as he pleases and later hand over an equivalent sum when called upon.
[9] Jacobs Law of Trusts in Australia, J D Heydon and M J Lemming (LexisNexus Butterworths 7th ed 2006) (Jacobs) at p 637.
[10] Kinsela v Caldwell [1975] HCA 10; (1975) 132 CLR 458 (Kinsela) at 461 per McTiernan, Stephen and Mason JJ.
[11] Kinsela at 462 per McTiernan, Stephen and Mason JJ.
[12] Jacobs at p 69, citing Re Saxone Shoe Co Ltd's Trust Deed [1962] All ER 904 at 913.
[14] Walker v Corboy (1990) 19 NSWLR 382 at 397-398; Compass Resources Ltd v Sherman [2010] WASC 41 per Sherman J at [70]-[71] and [90] together with the cases cited at [70]-[71].
[15] See clauses 12(e), 12(f) and 20A(b) of the Trust Deed.
[17] Walker v Corboy (1990) 19 NSWLR 382 at 397-398.
[18] See: Jessup v Queensland Housing Commission [2001] QCA 312; (2002) 2 Qd R 270 at 273 [8] (per McPherson JA, with whom Davies JA and Philippides JA agreed).
[19] Jessup v Queensland Housing Commission [2001] QCA 312; (2002) 2 Qd R 270 at 273 [9] (per McPherson JA, with whom Davies JA and Philippides JA agreed).
[20] See eg, clause 2(d)(iv) of the Trust Deed.
[22] Clause 14, 1980 Covenant. Reference was also made to clauses 10, 12(b) and 20D(c), of the Trust Deed and clauses 14 and 15 of the Covenant.
[24] Clowes v Federal Commissioner of Taxation [1954] HCA 10; (1954) 91 CLR 209 at 217-218 (per Dixon CJ) and 221-222 (per Kitto J). See also: Milne v Federal Commissioner of Taxation (1975) 8 ALR 264.
[25] Reference was made to clauses 16 and 17 of the 1982 and 1983 Covenant.
[26] Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia [1991] FCA 344; (1991) 30 FCR 491 at 502-503, 504-505. Walker v Corboy (1990) 19 NSWLR 382; Cox v IATA [1999] FCA 27; (1999) 161 ALR 105 at [37]; Salvo v New Tel Limited [2005] NSWCA 281 at [33].
[32] (1874) LR 18 Eq 11 at p 14.
[33] [1988] HCA 16; (1987-1988) 164 CLR 604 ("Bahr v Nicolay").
[34] [1956] HCA 8; (1956) 95 CLR 43, at p 67.
[35] [1988] HCA 44; (1988) 165 CLR 107 ("Trident").
[36] (1986) 6 NSWLR 175, at p 189.
[39] [1991] FCA 344; [1991] 30 FCR 491, 503 ("Re Australian Elizabethan Theatre Trust").
[40] [2001] QCA 312 ("Jessup").
[41] [2005] NSWCA 281 ("Salvo").
[42] [2010] WASC 41 ("Sherman").
[43] The possibility of this kind of trust was raised by the court in relation to the possible earmarking of funds when received at Stage 7 and not the initial flow of funds at Stage 2.
Australian Executor Trustees (SA) Ltd
Korda & Ors [2013] VSC 7
(1988) 165 CLR 107
(1990) 19 NSWLR 382
(1988) 164 CLR 604
(1985) 160 CLR 548
(1975) 132 CLR 458
(2002) 2 Qd R 270
(1954) 91 CLR 209
(1975) 8 ALR 264
(1991) 30 FCR 491
(1999) 161 ALR 105
(2011) 243 CLR 253
(1956) 95 CLR 43
(1986) 6 NSWLR 175