The High Court has recently clarified what is required for the creation of an express trust (Korda & Ors v Australian Executor Trustees (SA) Ltd [2015] HCA 6 (Korda)).

To be effective, express trusts must satisfy the three certainties of intention, subject matter and object. That is:

  • It must be clear that the creator intended to create a trust;
  • The trust property must be reasonably ascertainable; and
  • The beneficiaries must be identifiable.

The issue in Korda was whether there was a clear intention by the purported creator to create a trust.


The Forest Company (Forest) and the Milling Company (Milling) (the third and fourth appellants in the High Court) were engaged in a forestry scheme involving the planting, felling and sale of pine trees. To finance its operations, Forest sought investment in the scheme.

Forest entered into covenants with scheme investors, which entitled investors to a proportion of the tree sales proceeds. As required by legislation, Forest also entered into a deed with the respondent, Australian Executor Trustees (the Trustee), by which Forest would pay the balance of the proceeds after expenses and allowances to the Trustee, for distribution to investors.

Forest and Milling (the Companies) subsequently went into receivership. Any proceeds that had been paid to the Trustee would not be available to the receivers and managers. However, the issue was whether the proceeds that had not been paid to the Trustee and were in the hands of the Companies were also held on trust for the investors. If the proceeds were not held on trust, the investors would have to prove their debts in the insolvency and get in line with other unsecured creditors.

The Trustee applied to the Supreme Court of Victoria for declarations that it was entitled to the proceeds in the hands of the Companies as trustee for the investors. At first instance, Sifris J held that the parties intended that the proceeds would be held on trust for the investors.

The receivers and managers appealed. The Court of Appeal of the Supreme Court of Victoria dismissed the appeal, finding that the primary judge was correct, and that the proceeds in the hands of the Companies were subject to an express trust in favour of the investors.

In reaching its decision, the Court of Appeal considered what a representative of investors' commercial interests would have done to protect the interests of the investors in the drawing up of the scheme. The Court of Appeal found that "it was a matter of commercial necessity that the investments made by [investors] not be at risk by reason of extraneous activities" outside the scope of the forestry scheme. On this basis, the Court inferred the existence of a trustee and beneficiary relationship in respect of the proceeds of the forestry scheme.

The receivers and managers appealed to the High Court.


The High Court disagreed with the lower courts and found in favour of the receivers and managers. Although differing as to reasoning, the High Court unanimously found that in the circumstances of the case, there was no clear intention to create a trust. The High Court pointed to the following factors in determining that the parties did not intend to create a trust:

  • The words of the scheme documentation did not evince an intention to create a trust (French CJ).
  • There was no contractual obligation on the Companies to keep the proceeds of sale separate from their own monies (Hayne and Kiefel JJ, Gageler J, Keane J).
  • The Companies were entitled to retain amounts of the proceeds as return on investment (Hayne and Kiefel JJ).
  • The scheme documentation made no express provision for a trust over the funds alleged to be due to the Trustee, but did so over other funds (Keane J).

Importantly, the High Court disagreed with the commercial necessity approach adopted by the Court of Appeal. Indeed, French CJ stated that "a trust is not to be inferred simply because a court thinks it is an appropriate means of protecting or creating an interest."


The High Court's decision highlights that any intention to create an express trust should be made clear in the terms of the agreement.

It is a lesson to those seeking to rely on the existence of an express trust to ensure that their intention to do so is expressed clearly in any relevant documentation. In this regard, it is useful to note that courts have held that intention will rarely be an issue where a trust is evidenced by a deed.

Michele Izzo.