This case illustrates the importance of ensuring that that any intention to create a trust is clearly and expressly provided for in writing as courts will not readily infer such intention.  Specifically, a duty not to mix alleged trust funds with other funds is a “hallmark” duty of a trustee and, in the absence of an express trust, an intention to create a trust will not be inferred without an express or implied prohibition against such mixing of funds.

Sino Iron Pty Ltd and Korean Steel Pty Ltd (Companies) entered into facilities deeds with Mineralogy Pty Ltd (Mineralogy) relating to the approval, development, administration and maintenance of facilities by Mineralogy for the Companies (Facilities Deeds).  The Facilities Deeds provided for Mineralogy to open a bank account and establish an Administrative Fund for the carrying on of its business, specifically payment and reimbursement of its administration costs and expenses of operating, maintaining and repairing the facilities.  Contributions were made on behalf of the Companies into the Administrative Fund.

Mr Palmer, who was a director of Mineralogy, drew 2 cheques on the bank account of Mineralogy payable to Cosmo Developments Pty Ltd (Cosmo) in the sum of $10 million and payable to Media Circus Network Pty Ltd in the sum of $2.167 million (Payments).  The question before the Queensland Supreme Court was whether the parties had shown a clear intention to create an implied trust over the contributions made on behalf of the Companies into the Administrative Fund such that the Payments were made by Mineralogy in breach of such trust.

Jackson J found that the contributions were not held on trust by Mineralogy on the following basis:

  • the answer turned on an analysis of the structure of the parties’ relationship and the contractual rights and obligations that the Facilities Deeds created;
  • the answer turned on an analysis of the structure of the parties’ relationship and the contractual rights and obligations that the Facilities Deeds created;
  • to support an inference that a trust is intended, an obligation not to mix trust funds must be found within the express or implied contractual terms as this is considered a ‘hallmark’  duty of a trustee;
  • a term prohibiting the mixing by Mineralogy of contributions could not be implied into the Facilities Deeds because they worked perfectly well without it;
  • the absence of an express or implied term in the Facilities Deeds prohibiting the mixing of funds in the accounts of Mineralogy was therefore determinative in the conclusion that no trust was intended; and
  • “commercial necessity” is not made out merely because it is considered necessary to find an intention to create a trust to commercially protect the putative beneficiary.