Paper presented to the Society of Trusts and Estates Practitioners, 17 October 2018, 5.30PM
Louise McBride1
INTRODUCTION
Legislatures have historically found numerous ways to temper the rigour of equity. Many of those methods have contemporary applications. The Supreme Court recently implemented a cy-près scheme on an unworkable charitable trust, excising a provision that the trust scholarship could only be awarded to Protestant and not Roman Catholic students.2 Trustees regularly apply for orders under s. 81 of the Trustee Act 1925 (NSW) so that they may be able to make expedient but unauthorised transactions which would benefit the trust.3 These statutory schemes have a congenial relationship with Equity. The first, to guarantee the paramount charitable intention of the testator; the second, to facilitate transactions for the benefit of the beneficiaries. That is not to say that Equity and Statute always harmonise. For instance, the High Court has acknowledged profound difficulties, in its recent decision of Pipikos v Trayans,4 to identify a coherent explanation for why the doctrine of part performance allows the enforcement of the “equities” of a parol land contract, in defiance of the Statute of Frauds 1677 and its modern statutory counterparts.
The subject of this speech is a statutory remedy which is said to aid trust structures and hold to account errant trustees. It is whether the statutory oppression remedies in ss 232 – 234 of the Corporations Act 2001 (Cth) (‘Corporations Act’) provide remedies to the unit-holders of trading trusts who are also members of the corporate trustee. That is, whether unit-holders are limited to equitable remedies against the trustee where the company’s assets are held on the terms of a trading trust, or whether they may hold the trustee to account for unfair conduct which has, or may, prejudice the value of their beneficial interests. I plan to also address the commercial policy implications of any amendment to the state trustee acts which would explicitly so extend these remedies.
In terms of structure, this speech will:
- First, consider the commercial context of increased uses of trading trusts as investment vehicles;
- Secondly, identify the general structure and history of the oppression remedy;
- Thirdly, describe the issue of construction of the Corporations Act provisions and explore their competing consideration by judges in New South Wales and Victoria;
- Finally, expose the policy issues with the proposed reform by the Victorian Law Reform
In my opinion, as currently enacted, the Corporations Act provisions do not extend to oppressive conduct which devalues equitable interests but not the nominal value of the shareholding in the corporate trustee. Parties who choose to impress a trust upon their property and hold a nominal shareholding should abide by the terms of the trust and be limited to equitable remedies available in trust law. Finally, in light of the marked divergence in approach between first-instance judges in New South Wales and Victoria, there should be no amendment to the Corporations Act or any Trustees Act before an intermediate appellate court considers the issue. This position will be explained by reference to the commercial and legal context, and relevant policy considerations.
TRADING TRUSTS AND COMMERCE: CONTEXT
The adjective “trading” in the commercial vernacular is often attached to the term “trust” to distinguish them from those used in the management of certain private and charitable estates.5 Unit trusts have recently become significantly more popular as vehicles for pooling investment funds from passive investors.6 The structure allows a corporate trustee to hold property under fixed trust whilst applying the property to the business venture.7 Investors purchase interests (“units”) in the trust which entitle them to a beneficial interest in the property administered by the trustee. Those unit-holders may, but need not, hold shares in a corporate trustee. As the working capital of the company (and therefore its profits) are held on trust for unit-holders, that shareholding will in most cases have a nominal value. Other trading trusts may be discretionary.
This structure creates incidental taxation advantages: because the trust is not a separate taxable entity, income and capital is distributed pre-tax.8 That is, receipts often retain their character as they “flow through” the trust, whereas a company is obviously a taxable entity and pays tax at the corporate rate. Trusts also provide the benefit of asset protection: trust property cannot be used to satisfy creditors claims in the event of insolvency. Further, because a suite of company law provisions do not apply to trading trusts, they are afforded greater operational flexibility. Sir Anthony Mason described it as an “ingenious response to the demands of commerce”.9 It has also been described as “somewhat of a chameleon”.10 However, as will become clear, there is a corresponding uncertainty about the scope of remedies available to unit-holders. As a matter of practical reality, business owners consider the operational concerns, but not the legal structure they have chosen to adopt.
As often occurs in business, expectations and viewpoints diverge, relationships break down and ventures fail. The popularity of the structure has increased the frequency with which unit-holders attempt to use the oppression provisions to remedy or prevent perceived injustice, and consequently, the frequency with which judges must grapple with the issue.
SCOPE AND OPERATION OF PART 2F.1 OF THE CORPORATIONS ACT 2001 (CTH)
As has been noted, legislatures may seek to modify the operation of Equity. The issue, therefore, is one of construction: Do the provisions of Part 2F.1 of the Corporations Act, considered in light of their history and context, provide a remedy to unit-holders where prejudicial conduct of trustees affect the value of their units, but may not devalue nominal shareholding?
Modern Australian oppression remedies originated in England. Section 210 of the Companies Act 1948 (UK) was the first cognate; it only empowered the court to make a winding up order. The Cohen Committee Report proposed powers for the court that would allow oppressed minority shareholders, where a winding up order would not do justice, to make orders including for the purchase by the majority of their shares, contemplating a “very broad power”.11 Section 75 of the Companies Act 1980 (UK) provided remedies against acts and omissions which were “unfairly prejudicial” to members. There was no reference to “oppressive” conduct, which was seen to be too restrictive. The UK legislation has never adopted the Australian iteration (from 1983) and the current New Zealand provision,12 which includes the “oppressive” ground.
The remedy was introduced in New South Wales by the Companies Act 1961 (NSW), s 186 and the 2001 Commonwealth Act. The Corporate Law Economic Reform Program Act 1999 (Cth) made clear that the court could make orders for conduct which had not yet occurred.
By applying the provisions as currently enacted, the Court may make an order under s. 233 of the Corporations Act if the conduct of the “company’s affairs” or “an actual or proposed act or omission by or on behalf of a company” or “a resolution, or a proposed resolution, of members or a class of members of a company” is either (by s 232 (d)) “contrary to the interests of the members as a whole” or, critically, (by s 232 (e)) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity. The remedy is therefore jurisdictionally limited. Irreconcilable differences may provide grounds for a winding up application but would not, alone, constitute oppression.13 It generally must be inequitable or unjust.14 The test involves “the weighing of the particular member’s interest against that of the company as a whole”.15
Section 233 empowers the court to make any order it considers appropriate, including an order:
- “that the company be wound up” (s 233 (1) (a));
- “regulating the conduct of the company’s affairs in the future” (s 233 (1) (c));
- for the purchase of any shares by another member (s 233 (1) (d));
- “authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company” (s 233 (1) (g);16
- requiring a person to do a specific act (s 233 (1) (j)).
Section 234 identifies the standing requirements for a person to make an application for an order. Members and persons removed as members by selective capital reduction each have standing.
The divergence between the New South Wales and Victorian courts hinges on the wording of s 53 of the Corporations Act. Section 53 includes for the purposes of these provision that the “affairs of a body corporate” include by paragraph (a) “business, trading, transactions and dealings” which includes “transactions and dealings as … trustee” and by paragraph (b), in the case of a corporate trustee, “matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust”.
THE PRESENT QUESTION OF STATUTORY CONSTRUCTION
There are a number of questions that must be answered in favour of the unit-holder for a court to have the jurisdiction, and then find it appropriate, to make an order under s. 233. That is, I will seek to draw distinctions where relevant between considerations which go to the jurisdiction of the court to make an oppression order under s. 233; and whether such an order could ever be appropriate.
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The first question of statutory construction is whether conduct prejudicial to beneficiaries can be considered “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or another capacity”.17 Two points should immediately be noted:
- The express clarification that the member may be prejudiced in “another capacity” has been understood to allow a member to be prejudiced in their capacity as a unit-holder or
- Non-member beneficiaries are clearly unable to access the remedy; for the remedy to so extend, the relevant Trustee Act would have to be
However, it is unclear whether administration of the trust according to its terms can ever be described as oppressive, unfairly prejudicial or unfairly discriminatory. Justice McLelland in Rapa v Patience described the grounds of review as follows:
They are, first, that the discretion was not exercised by the trustees in good faith, second, that the discretion was not exercised upon real and genuine consideration (which includes consideration of the wrong question…), third, that the discretion was not exercised in accordance with the purposes for which it was conferred and, fourth, where the trustees have disclosed…the reasons for the exercise of their discretion that those reasons are not sound.18
One can imagine object A of a discretionary trust being disappointed with trust distributions exclusively for the benefit of object B. Such disappointment should hardly amount to oppression, even if it is made with proper regard for the interests of the objects of the trust and not for an ulterior purpose, and beneficiaries should not be encouraged to claim that it is oppressive.
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The second and third questions of statutory construction is whether the oppressive conduct of the trustee is “conduct of a company’s affairs” within the terms of s 232 (a); and whether an order made under s 233 (1) on the application of a beneficiary would be “in relation to the company”, where the regulation is of the trust affairs as to the disposition of property and where, in relation to the shareholding, it could not be properly characterised as “oppressive” because it cannot affect the valuation of the shareholding. These questions admit of a common answer.
This point was taken up by the foundational New South Wales case of Kizquari Pty Ltd v Prestoo Pty Ltd19 (‘Kizquari’), a decision of Young J. His Honour held, “[t]his company is a trustee company. It has no assets of its own. It operates a business as a trustee on the basis of loan capital. The only oppression is in relation to the operation of the trust. That oppression has not affected the value of the shares one whit. The shares […] either have no value or alternatively a value of $1 being the amount paid for each share and they continue to have that value.” 20 He said it would be a “very bold step”21 to expropriate $1 shares on the basis that the plaintiffs relinquish their interest in the trust, disapproving of the decision of Vincent J of the Victorian Supreme Court in Re Bodaibo Pty Ltd22, which made an order under s. 260 which valued shares in the corporate trustee by reference to the value of units in the trust. Instead Young J said plaintiffs should normally be left to set in motion procedures in the trust deed for the release of property.
Kizquari was approved of by Chesterman CJ in obiter dicta23 in the first instance decision of Re Polyresins.24 The relevant statements were obiter dicta because it was unclear whether the property was actually held on trust.25 His Honour held that “the shares in the company are worth no more than their face value and it is inappropriate for the court to direct a compulsory purchase. I accept the submissions that in an application under s 260 the court cannot deal with equitable interests conferred on a trust of which a company is trustee. Nor can it value the shares in the company by reference to the assets held on trust”.26 It appears that the decision was both that it is inappropriate for the court to expropriate technically worthless shares; and also that the remedy itself does not extend to dealing with property held on trust by the company. This foundational logic re-appeared in Young CJ in Eq’s judgment in McEwen v Combined Coast Cranes Pty Ltd27 (‘McEwan’). His Honour now considered it “well established” that “there is no diminution in value of the plaintiff’s share in the company despite the oppressions”.28 He went on to say:
There is probably no reason in principle why the ‘legitimate expectation’ learning in connection with oppression in companies should not apply in the case of trusts because equity is flexible enough to deal with unconscionable conduct in any appropriate way. If conduct is unconscionable by the standards of a statute in the Corporations Act, there is a lot to be said for the proposition that it would be unconscionable as a matter of general equity; see eg the remarks of Spigelman CJ in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 679.29
Einstein J in Surf Road Nominees v James30 approved the foregoing cases, emphasising that the principles of equitable relief must be given primacy where the parties bound themselves by the unit trust structure.
The critical basis upon which Victorian judges diverge from the decisions of the News South Wales court is the consideration of s. 53 of the Corporations Act. It is said that the express inclusion of “rights under a trust” brings trading trusts within the terms of the oppression remedies, and as a matter of precedent the courts are not bound by the New South Wales decisions because of the absence of the New South Wales courts considering that provision.
The decision of Davies J in Vigliaroni v CPS Investment Holdings Pty Ltd31 (‘Vigliaroni’) is foundational. It concerned a family owned business comprising of unit trusts and companies. The family filed proceedings against their manager and financial advisor, seeking a winding up order under
- 233 and further relief under 467(1). Davies J ordered a buy-out of the shares and units. Her Honour noted that s. 53 did not seem to have been brought to the attention of the New South Wales judges, holding that that provision “puts beyond any doubt that the court’s jurisdiction and powers under the statutory oppression provisions are not circumscribed in respect of a trustee company”.32 The order under s. 233 only needed to be “in relation to the company”. The phrase “in relation to” requires a “rational and discernible link between the remedy and the company in which the oppression has occurred”, and therefore in “appropriate cases, the remedy may include orders dealing with the equitable interests in the trust”.33 Her Honour referred to the statement of French CJ in Campbell v Backoffice Investments Pty Limited that judge-made limitations on the oppression provisions should “be approached with caution”.34
There was then opportunity for a New South Wales judge to re-consider anterior precedent in light of the Victorian decisions. Windeyer AJ in Trust Company Ltd v Noosa Venture Pty Ltd35 (‘Noosa Venture’) considered s. 53, and reasoned as follows:
- Cases preceding the decision of Davies J36 held that 232 and 233 do not empower, and in some cases should not be used, to deal with oppression in a company which holds its assets in trust;37
- Accepting the need for coherence in corporations law, an order “in relation to the company” does not include an order in relation to the affairs of the trust; if that had been the legislative intention it would have been easy enough to insert the words “or the affairs of the company” after the words “the company” in the commencement part of s 233(1).
- It is a question of power not It would not be within power to compel one beneficiary to buy out another, because it would be “in relation to the trust not to the company.”
To continue the to-and-fro, Ferguson J then disapproved the decision in Noosa Venture in Wain v Drapac38, and approved and developed Vigliaroni.39 Her Honour held that it was necessary to first consider whether the parties were beneficially entitled to the units before considering whether a buy- out order should be made. The director, unit-holder, shareholder applicants alleged that the defendant was planning to dilute their interests. Her Honour made the orders, holding that Windeyer AJ’s construction of “in respect of” was too narrow because, “where there is a complex corporate structure that is a mixture of companies and trusts but in a real sense only one business is conducted by the corporate group, the legislation would be rendered virtually useless to remedy the real harm that has been caused by the oppressive conduct”.40 Her Honour affirmed that the “company’s affairs includes its business, transactions and dealings with others”41 and that there is power to grant relief provided there is a “‘rational and discernible link between the remedy and the company in which the oppression has occurred’”42 and that in a complex corporate structure, there is such a link between company and trust.
An intermediate approach may have emerged in the strike-out decision of Justice Mandie in the Supreme Court of Victoria in Vanmarc Holdings v PW Jess & Associates.43 The decision preceded
McEwen and Surf Road Nominees v James and was not directly inconsistent with Kizquari. This was:
- A combination of trust remedies and trust deed buy-out provisions will provide adequate relief to the plaintiffs “if any is required”;44
- As it “is probably also the case that the shares in the trustee companies will be found as is usual to have no value, so that an order of the kind made in Re Bodaibo Pty Ltd should not be made (even assuming that such an order is ever appropriate)…”45
The position of Justice Mandie was essentially that, even if orders under s. 233 were available to the Court to use, it was not (and may never be) appropriate to use them in this context.
Federal Court cases have provided little distillation of principle. In Mavromatis v Haspaz,46 a former manager of the corporate trustee sought orders that it be wound up and its assets distributed to the companies holding units as tenants in common. He sought to restrain the trustee from using trust funds to defend the proceedings. Davies J decided that applying trust funds to defend the principal proceedings was not oppressive, because the unit trustee had a duty to maintain the trust and defend its assets; and the oppression provisions cannot prevent the trustee from doing what it was obliged to do. The question of construction was not decided. Gordon J (when her Honour was sitting at first instance in the Federal Court) declined to extend the Kizquari line of authority to the appointment of a provisional liquidator in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No. 2).47
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There may be separate consideration of the scope of s. 233. A powerful argument against the availability of the oppression remedy notwithstanding the apparent breadth of its terms, is the coherence of any remedy ordered under s. 233 with the equitable disposition of property. This was raised by Bathurst CJ, in his Honour’s public extra-curial memorandum in respect of submissions to the New South Wales Law Reform Commission, in the following terms: “one of the oppression remedies available to a shareholder is an order for winding up of a company … a court does not ‘wind up’ a trust like it does a company. The court is required to adhere to and fulfil the terms of a trust. A trust is terminated only when the trust property is distributed to the beneficiaries.” 48
I have already noted that a perceived advantage of the trust structure is the opportunity to protect the assets from creditors upon liquidation. Despite the references to trustees in s. 53 of the Corporations Act, it would create a significant incoherence with Equity should s. 232 be deployed to be able to over- write equitable interests (when liquidators cannot do the same unless they can be authorised by the trust terms). French CJ has extra-curially expressed that there is a need to maintain coherence between statute and the trust, and “[t]he language of some Australian statutes raises a question about legislative perceptions of the trust relationship” and that it “is not unusual to hear people speak loosely of trusts as though they are a species of legal person. That loose conception is reflected in some legislation.”49 On one view, that would apply to the drafting of s. 53. I would add that there is no evidence and no reason to assume that equity cannot travel alongside statute. Equity has proven to be a very flexible companion.
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As has been noted, there has been no appellate decision deciding whether oppression remedies are available to unit-holders. Campbell JA in Tomanovic v Global Mortgage Equity50 noted the controversy but did not decide the point. The Court traced the competing decisions and arguments, and invited further submissions on the point from the parties. The respondent successfully objected that the point had not been considered below or raised on appeal. However, this is difficult to square with the draft orders. Those orders seem to have valued units in the trust as part of the process of valuing the shares.
THE WINDS OF CHANGE: LEGISLATIVE REFORM
The concern of those in favour of amending the respective Trustee Acts to explicitly extend the oppression remedy is that trusts operate similarly to closely-held companies, in similar markets, and face a common problem with an administrative figure potentially unfairly diluting or de-valuing its capital. It is said that a structure as popular as the trading trust should be regulated by flexible remedies; and that traditional trust remedies insufficiently protect unit-holders in the event of the breakdown of the commercial relationship or the failure of the underlying venture. A unit-holder without shareholding is seen to be even more vulnerable.
The Victorian Law Reform Commission,51 after a public consultation process, has made the following recommendations:
- The Trustee Act 1958 (Vic) should empower trading trust beneficiaries to apply to the Supreme Court for a remedy in respect of any trading trust other than a managed investment scheme, a regulated or statutory superannuation trust or a charitable trust, even where there has been no breach of the trust deed by the
- The Supreme Court should be able to make any order it considers appropriate, by a provision similar to Corporations Act, s 233. The court would be required to have regard to the terms of the trust deed and the interests of third parties including directors, trustees, shareholders, employees and
- Beneficiaries, persons who have received a beneficial interest by operation of law, and persons to whom the court grants leave, will have standing to
- The Supreme Court’s existing powers will not be limited by that
- Current Corporations Act provisions should be expressly
The final recommendation of the New South Wales Law Reform Commission, which undertook the same process, was diametrically opposed. Its conclusion was based on the following propositions:
- There are fundamental differences between trusts and A clear example is the power afforded to a trustee of a discretionary trust to discriminate between beneficiaries.52
- The oppression remedy would be directed to different For a company, the remedy is against other shareholders. For a trust, it would be against the trustee.53
- Considerations upon review are also Reviewing discretionary trustee decisions may depend on a consideration of whether good faith is absent; or the decision was made with a real consideration of the beneficiaries’ interest; or for an ultierior purpose outside those for which the discretion was conferred.54
- The law has been reluctant to intrude upon the operation and amendment of55
- Existing trust remedies are adequate and Companies remedies may not be appropriate in any case. For example, a compulsory purchase order would only be deployable for unit trusts. It would be “undesirable to introduce a radical new remedy into trust law” that would only have practical use to a discrete category of trusts.56
The ultimate recommendation was unequivocal: “Oppression remedies should not be extended to beneficiaries of trading or other trusts under the law of trusts.”57
Reform proponents want remedial flexibility and consistency. The Federal Court of Australia58 submitted to the Victorian Law Reform Commission that “the manner in which trading trusts and unit trusts are now part of complicated commercial arrangements necessitates clear identification of the availability of these remedies for all participants in trading trusts and unit trusts.” Professor Matthew Conaglen59 submitted that governments should take a “functional approach” rather than one grounded in the formal business structures. He said, “If, as a matter of legislative policy, it is important for the courts to be able to rectify oppression between equity owners, it is arguable from a functional perspective that it should not matter which legal structure has been adopted.”60
It is my position that there are insurmountable difficulties with the proposed reform. First, there are a suite of definitional complications. The first is to define “trading trusts” and “trading”. Bathurst CJ noted in his Memorandum that the term “trading” is “a term which would itself require definition”.61 The Victorian Law Reform Commission would adopt a “functional definition” of trading trust, which includes “all trusts where ‘some property held by the trustee is employed under the terms of the trust in the conduct of the business’”.62
An issue identified as attracting divergent views by the Victorian Law Reform Commission was whether the approach would have to be different as between fixed and discretionary trusts. The issues identified included:
- The beneficiary has no clear proprietary interest to be valued;
- Their structure is dissimilar to companies (unlike unit trusts);
- There may be practical issues where courts have a limited discretion to supervise discretionary 63
The valuation issue is still significant for fixed trusts; and in particular unit trusts. The beneficiary may not hold units in the same proportion as their shareholding. The reforms proposed by the Victorian Law Reform Commission would go further and extend the remedy to non-member beneficiaries. Any valuation process would involve both a conflation of shareholding and unit-holding, and a re-writing of equitable interests. This would be to alter fundamental rules of property law. Justice White in Meng v Pan,64 a case where the plaintiff sought a caveatable interest in a company which owned certain land, stated that “it is trite that a shareholder does not have an equitable interest in the property of the company”.
Further, a court cannot “wind up” a trust, which is terminated when the property is distributed. It is questionable whether the remedy can, or should, be applied to trading trusts. It is illuminating to consider the position of a liquidator of a corporate trustee. There are two situations which may arise:
- The trustee may not be automatically removed by the insolvency If the deed contains an express power of sale, the trustee may deal with the assets according to the trust deed.
- If the deed does not empower the liquidator to deal with the assets of the trust, then the corporate trustee becomes the bare trustee and it would follow that the beneficiaries may call for the property to be transferred to them.65
In either case, the trust is allowed to operate according to its terms, not by overriding equity to maximise the assets available to creditors. The issue is complex. In Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contracts Pty Ltd (in liq)66 each judge of the Full Federal Court said that liquidators have to approach the courts for authority to sell the trust assets, stating variously that this is “required” or “needed”.67
Any reform would “permit a radically different approach whereby a judge is empowered to modify the terms of a trust, and order a transfer of one beneficiary’s property to another, or otherwise alter, rather than enforce, property interests”.68 The New South Wales Law Reform Commission69 noted that “the law has generally avoided the notion that courts should have a general power to amend or rewrite trusts. A general discretionary power to amend trusts on account of ‘oppression’ would invite an expansive new field of trust litigation”. There is a valid concern that amendment will give rise to an increased amount of litigation, should courts be “given a discretionary power to alter proprietary rights”.70
It is open to doubt that there is any injustice in the current model. It has been noted by Bathurst CJ that the Victorian Law Reform Commission did not squarely address the rights of beneficiaries against errant trustees.71 Trust deeds may be equipped with buy-out provisions. It is incumbent on the parties to turn their minds to how their relationship may be terminated should disagreements arise or their investment vehicle prove unsuccessful. It is of course open to unit-holders and shareholders to supplement their arrangements.72 It would even be open to unit-holders to rely on representations to found an equitable estoppel against conduct which is said to be unconscionable.73 Most “oppressive” conduct would also constitute a breach of trust. Beneficiaries may seek equitable compensation for those breaches.
It is to be remembered that there is an array of remedies and doctrines available to beneficiaries where it is settled law that unit-holders are in a significantly better position in respect to access to trust information; when compared against members’ rights to access company documents and information. That information is treated as trust property; therefore, each beneficiary has a proprietary interest in it.74 The trustee must make a “full rather than reluctant response”75 to a request for information under s. 51 of the Trustee Act 1925 (NSW)76 (‘Trustee Act’). This entails disclosure of evidence of payments, trust accounts, the amount of the trust property and information pertaining to the trustee’s management of the trust funds.77 This can be contrasted to
- 247A of the Corporations Act which empowers members to apply for an order to inspect the ‘books of a company or registered management investment scheme’.78 That application must be made in good faith and for a proper purpose.79 Traditionally, a beneficiary can gain access to information regarding the financial affairs of the trust.80 The court will consider the width of the material requested under s. 247A to determine whether to make an order.81 A beneficiary is not similarly constrained.
In accordance with the statutory requirements of s 247A(5) an order may only be given when an application has been made “in good faith and for a proper purpose”.82 An application will satisfy this criterion when it can be objectively determined that there is a basis for intervention83 that extends beyond mere dissatisfaction with the management of the corporation84 to substantive concerns.85 Whilst it has been seen that these concerns need not stem from an interest of the applicant which is “separate and distinct from that of the general body of members” 86, the extent and value of that interest is nonetheless a relevant consideration for the court’s exercise of discretion.87 Trust documents must be made available regardless of whether or not breach of trust is alleged.88 It should be noted that Schmidt v Rosewood Trust Ltd,89 which stands for the proposition that the decision to allow the beneficiary access is discretionary, is not clearly law in Australia.90 Justices Heydon and Leeming have suggested that the decision has had an “unsatisfactory unsettling”91 impact upon the principles of fixed trusts. It was followed in Avanes v Marshall92 but not in McDonald v Ellis93 nor Murray v Schreuder.94
Arguably, reform would be providing certainty as to whether there is jurisdiction to provide an oppression remedy but create uncertainty about when conduct which is compliant with the terms of the trust deed would be found to be oppressive. Such a remedy does set trading trusts conspicuously apart from other equitable relationships. As Justice Barrett95 eloquently observed in his submission to the New South Wales Law Reform Commission, ‘[a]nd why should trust beneficiaries have a statutory remedy in relation to the affairs of the trust that is not also given to partners in relation to the affairs of a partnership or joint venturers in relation to the affairs of a joint venture?’.
The central issue of construction may end up being cleanly and clearly settled by an appellate decision, which would be binding on first instance judges and other intermediate appellate courts unless they consider it to be plainly wrong.96 Even if such a decision is not a cure to the disagreement, it would provide the legislature with a clearer idea of how to legislate change.
CONCLUSION
To draw these threads together, I have sought to argue that:
- The terms of the Corporations Act simply do not contemplate an order under 233 which alters the proprietary interest of objects of trading trusts;
- So extending the remedy will undermine the commercial utility of that investment business structure;
- There are insurmountable policy issues proposed by the Victorian Law Reform 97
- These conclusions have been borne out in my experience in
At the very least, there should be no amendment to the Corporations Act or Trustee Act before an intermediate appellate court considers the issue. If there is to be any legislative amendment, I would propose a clarification to the Corporations Act that the oppression provisions do not encroach onto the territory of the Trustee Act. As Leeming JA said in Kelly v Mina,98 a “trust is not a legal person; a private trust is a relationship comprising various rights and obligations, personal and proprietary, between trustee, beneficiaries and trust property.”
We often speak of trading trusts in a way that reduces them to natural persons or mere companies; but I would argue that this area of law is one in which we should maintain the distinction between the distinct equitable, corporate and contractual rights chosen by the parties, and apply remedies accordingly.
1 Barrister-at-law, New South Wales. The author thanks Andrew Bell, Mikaela Davis, Anika James and Isabella Valentina Pocock for assistance with the research and drafting of this paper. All errors remain the author’s own.
2 Perpetual Trustee Company Ltd v Attorney-General of New South Wales (The Will of the Hon. George Nesbitt) [2018] NSWSC 1456 (Leeming JA).
3 Westfield QLD No. 1 Pty Limited and Anor v Lend Lease Real Estate Investments Limited and Ors [2008] NSWSC 516 [56], [58] (Einstein J).
4 [2018] HCA 39.
5 Nicholas Mirzai, ‘The commercial trust in insolvency – A persistent concern for insolvency practitioners and their advisors’ Australian Bar Review 193, 193.
6 The Hon. Arthur Emmett AO QC and Hope Williams, ‘Equity’s childbearing years: the proposed extension of shareholder oppression remedies to the beneficiaries of trading trusts’ (July 2018) Butterworths Corporation Law Bulletin [2].
7 Ibid.
8 See: Kevin Lindgren, ‘The birth of the trading trust’ (2011) 5 Journal of Equity 1, 2.
9 Sir Anthony Mason, ‘Foreword’ in Kam Fan Sin, The Legal Nature of the Unit Trust (Clarendon Press, 1997), vii.
10 Emmett AO QC and Williams, above n 6, [1].
11 Campbell v Backoffice [2009] HCA 25; 238 CLR 304, 330 [61] (French CJ).
12 Companies Act 1993 (NZ) s 174.
13 See: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 687 [89] (Spigelman CJ).
14 ASC v Multiple Sclerosis Society of Tasmania (1993) 10 ASCR 489 (Zeeman J).
15 Richard Brockett, ‘The Valuation of Minority Shareholdings in an Oppression Context—A Contemporary Review’ (2012) 24.2 Bond Law Review 101, 106, citing Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; Victorian Law Reform Commission (‘VLRC’), Trading Trusts – Oppression Remedies: Report (2015) p. 38, fn. 55.
16 This gives “statutory force to the exception to the rule in Foss v Harbottle”: Re Overton Holdings Pty Ltd [1985] WAR 224; (1984) 9 ACLR 225 at 231; 2 ACLC 777 at 782 (Rowland J).
17 Corporations Act 2001 (Cth) s 232(d) (emphasis added).
18 Rapa v Patience (Unreported, NSWSC, McLelland J, 4 April 1965) 11.
19 (1993) 10 ACSR 606.
20 Ibid 612-613 (Young J).
21 Ibid 612 (Young J).
22 (1992) 6 ACSR 509.
23 Re Polyresins [1999] 1 Qd 599, 613 (Chesterman J).
24 [1999] 1 Qd 599.
25 See: Trust Company Ltd v Noosa Venture Pty Ltd (2010) 89 ACSR 485; [2010] NSWSC 1334 at [104] (Windeyer AJ).
26 Re Polyresins [1999] 1 Qd 599, 614 (Chesterman J).
27 [2002] NSWSC 122.
28 Ibid [46] (Young CJ in eq).
29 Ibid [60] (Young CJ in eq).
30 [2004] NSWSC 61, [220] (Einstein J).
31 [2009] VSC 428.
32 Ibid 306 (Davies J).
33 Ibid.
34 Campbell v Backoffice Investments Pty Limited (2009) 238 CLR 304, 334 [72] (French CJ).
35 (2010) 89 ACSR 485; [2010] NSWSC 1334 [104]-[105].
36 Vigliaroni v CPS Investment (2009) 74 ACSR 281.
37 Referring to Kizquari Pty Limited v Prestoo Pty Limited (1993) 10 ACSR 606; McEwen v Combined Coast Cranes Pty Limited (2002) 44 ACSR 244, [46] (Young CJ in eq); Re Polyresins Pty Limited [1999] 1 QdR 599 at 614 (Chesterman J).
38 [2012] VSC 156.
39 VLRC, above n 15, p. 44 [3.76].
40 Wain v Drapac [2012] VSC 156, [287] (Ferguson J).
41 Ibid.
42 Ibid quoting Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428, 306 (Davies J).
43 (2000) 34 ACSR 222.
44 Vanmarc Holdings v PW Jess & Associates (2000) ACSR 222, 229 [36] (Mandie J).
45 Ibid.
46 (1993) 10 ACSR 473 (Sydney Registry).
47 [2013] FCA 234, [51] (Gordon J).
48 Supreme Court of New South Wales, Submission to New South Wales Law Reform Commission (‘NSWLRC’), Laws Relating to Beneficiaries of Trusts, 29 January 2018, [25]; Cf. Ebrahimi v Westbourne Galleries [1973] AC 360 (quasi-partnership between members).
49 Robert French AC, ‘Trusts and Statutes’ (2015) 39 Melbourne University Law Review 629, 645.
51 VLRC, above n 15, xiv.
52 NSWLRC, Laws Relating To Beneficiaries Of Trusts, Report No 144 (2018), 22 [3.21].
53 Ibid 22 [3.22].
54 Ibid 22 [3.23]-[3.24].
55 Ibid 22 [3.25].
56 Ibid 23 [3.27].
57 Ibid p. viii (Recommendation 3.1).
58 Submission to the VLRC, Trading Trusts – Oppression Remedies, 21 July 2014, 1.
59 Submission to the VLRC, Trading Trusts – Oppression Remedies, 27 June 2014.
60 Ibid 2 [7].
61 Supreme Court of New South Wales, above n 48, [29].
62 VLRC, above n 15, xi.
63 Karger v Paul [1984] VR 162.
64 [2006] NSWSC 774, [5] (White J) (as his Honour then was).
65 Mirzai, above n 5, pp 195-6.
66 [2018] FCAFC 40 at [44], [91] (Allsop CJ) and [139] (Siopis J).
67 A helpful summary of this decision can be found at Carrie Rome-Sievers, Commercial Law Update – The Decision in Killarnee – Trading Trusts, Statutory Priorities on the Liquidation of Trustee Companies, Lack of Power to sell Trust Assets (26 March 2018) List G Barristers < https://www.listgbarristers.com.au/publications/commercial-law-update-the-decision-in-killarnee-trading-trusts- statutory-priorities-on-the-liquidation-of-trustee-companies-lack-of-power-to-sell-trust-assets>.
68 Supreme Court of New South Wales, above n 48, [27].
69 NSWLRC, above n 52, 22 [3.25].
70 Supreme Court of New South Wales, above n 48, [29].
71 Ibid [22].
72 See VLRC, above n 15, 12 [2.16]; 51 [4.21].
73 See: Accurate Financial Consultants Pty Ltd v Koko Black (2008) 66 ACSR 325, 352.
74 Kelly v Bruce [1907] SALR 174; Morris v Morris (1993) 9 WAR 150, 152-3; Waterhouse v Waterhouse (1998) 46 NSWLR 449, 494 (Windeyer J).
75 Re Whitehouse [1982] Qd R 196, 201 (Macrossan J).
76 Trustee Act 1925 (NSW) s 51.
77 J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 7th edn, 2006) 381- 384.
78 Corporations Act 2001, s 247A(1).
79 Ibid s 247A(5); Mesa Minerals Limited v Mighty River International Limited [2016] FCAFC 16, [22] (Katzmann J).
80 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405.
81 Anil Hargovan, ‘Has the court power to limit the scope of inspection of company books? The construction of s 247A of the Corporations Act’ (2005) 23(4) Company and Securities Law Journal 270, 272.
82 Mesa Minerals Limited v Mighty River International Limited [2016] FCAFC 16, [22] (Katzmann J).
83 Ibid [26] (Katzmann J).
84 Coates v Classic Minerals Ltd [2016] WASC 371, [55].
85 Re Style Ltd; Merim Pty Ltd v Style Ltd [2009] FCA 314; (2009) 255 ALR 63 [66] - [67] cited with approval in
Ibid [54].
86 Rowland v Meudon Pty Ltd [2008] NSWSC 381, [35] (Bryson AJ).
87 Ibid.
88 Hartigan Nominees Pty Ltd v Ridge (1992) 29 NSWLR 405 at 426-427, cited in Heydon and Leeming, above n 77, 384.
89 [2003] 2 AC 709.
90 Heydon and Leeming, above n 77, 385
91 Ibid 385.
92 (2006) 68 NSWLR 595.
93 [2007] NSWSC 1068.
94 [2009] WASC 51.
95 Hon R I Barrett, Submission to the NSWLRC, Laws Relating to Beneficiaries of Trusts, 27 February 2018, 2.
96 See: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492 (Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ); [1993] HCA 15; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 151-152 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); [2007] HCA 22; CAL No 14 Pty Ltd v Motor Accidents Insurance Board (2009) 239 CLR 390 at 411-412 [49] (Gummow, Heydon and Crennan JJ); [2009] HCA 47; Hili v The Queen (2010) 242 CLR 520 at 538 [57] per (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); [2010] HCA 45.
97 VLRC, above n 15.
98 [2014] NSWCA 9, [103].