In Korda v Australian Executor Trustees (SA) Ltd, the VSCA may have assisted the investors in a radiata pine managed investment scheme at the expense of trusts law orthodoxy.
S.E.A. S Sapfor Forests Pty Ltd (“Forest Co”) managed Australian radiata pine plantations and promoted investment schemes pursuant to a 1964 trust deed entered by Forest Co and Australian Executor Trustees (SA) Ltd (“AET”). Together with a Milling Co, the parties also entered a 1964 Tripartite Agreement which regulated obligations arising from the forestry business. Forest Co purchased or leased the land on which timber grew. The Milling Co harvested, milled and sold the timber, subtracted commissions and accounted to AET for the net sale proceeds. The business was funded by public subscription. Forest Co issued yearly prospectuses, in which investors were offered equitable interests in net timber proceeds.
Gunns Ltd took over the Forest Co and a related Milling Co in 2008. At that time, the companies gave group lenders fixed and floating charges over their assets. Forest Co sold and received payment for part of the plantation land. In 2012, the lenders appointed receivers to the businesses of Forest Co and the Milling Co.
A dispute arose between the receivers and AET representing the investors about who was entitled to the undistributed timber and land sale proceeds.
At first instance, the Supreme Court of Victoria upheld the investors’ claim to Forest Co’s assets. In a judgement reported at (2013) 8 ASTLR 454;  VSC 7, Justice Sifiris at  found that AET was trustee of the timber and land sale proceeds for the investors. An intention to create this trust, his Honour said, was to be inferred from the parties’ relationship and the terms of relevant documents, including the Tripartite Agreement and prospectuses incorporating the 1964 trust. The consequence was uncontentious. The lenders’ equitably enforceable fixed and floating charges were subordinated to a trust effective at an earlier time.
The judgement of Sifris J resolved some matters and left others unexplained. Only AET was found to have declared a trust in favour of the investors.
How could AET become trustee of the timber and land sale proceeds when that property was at all material times legally vested in Forest Co? Also, the 1964 trust was plainly an executory instrument which performed no “umbrella” function for other transactions. Was there only one trust or did each prospectus amount to a separate trust?
By a majority, the Victorian Court of Appeal (Maxwell P and Osborne JA) at - agreed with the analysis of Sifiris J. Their Honours stated at  that whether the timber and land sale proceeds were held on trust for the investors depended on the intention of the parties to a typical investment contract, that being the contract made when an investor applied for — and Forest Company issued — a ‘covenant’ pursuant to a prospectus.
The majority judgement at - confirmed the analysis of Sifris J that only one trust existed over the many years that Forest Co had marketed the investment schemes. Their Honours downplayed the significance of the 1964 trust and the Tripartite Agreement and found that the relevant trust-creating intention existed at the dates of the prospectuses.
Surely it followed that a separate trust arose at the time of each prospectus?
At paragraphs - the majority examined what the prospectuses told investors about the “covenants” and “beneficial interests in land value” which the Forest Co offered them. At  their Honours reasoned that
[T]he prospectus — and the terms of the investment — were doubtless designed to maximise investor protection.
At  this led to the conclusion that “the parties intended” the risk limitation that a trust for the investors would provide. Nothing in the 1964 trust deed or the Tripartite Agreement “stands in the way of the conclusion reached by the primary judge”, their Honours said at . Other inconsistencies in the documentation noted at  were only minor. At  the majority said that adverse implications did not arise from the Forest Co’s need to make the investments tax-compliant.
The only authority cited for this analysis at  was an extract from the Victorian Court of Appeal’s earlier decision in Commissioner of State Revenue (Vic) v Snowy Hydro Ltd  VSCA 145 at . That passage quoted in turn quoted the words of Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 121. The Trident extract was an obiter dictum on the ability of the court to “infer or impute” the existence of a trust from “the nature of the transaction”, “the language which the parties have used” and “commercial necessity”.
It is questionable whether this Trident dicta has the wider significance with which it was attributed. In Trident there was an argued trust of a contractual promise. On behalf of one of its third party subcontractors, a building contractor was said to be a trustee of the benefit of a promise in a public liability policy. Of course, the trust was defined by the contract and part of the same transaction. A few lines after their statement, Mason CJ and Wilson J added “[L]est it be overlooked, we should mention that the creation of a third party trust rests on ascertaining the intention of the promisee, rather than the intention of the contracting parties.”
The other, more serious, and potentially unanswerable problem with the first instance analysis affirmed by the majority on appeal is that the timber and land sale proceeds were at material times vested in the Forest Co. AET could scarcely declare a trust of property owned by another company.
Robson AJA (in dissent) at - noted the receiver’s submission on this point. On evidence accepted by the majority, the Forest Co and the Milling Co did not become trustees by terms of the 1964 trust or the Tripartite Agreement. Nor was Forest Co was alleged to declare any trust.
Robson AJA decided at - that “the presumed intention of the parties” did not establish a trust. In his analysis between  and , his Honour departed from the first instance finding (confirmed by the majority) that AET was the relevant trustee. Throughout his judgement, Robson JA assumed that Forest Co was the appropriate party to hold the sale proceeds on trust for the investors.
At the end of an analysis at -, Robson AJA said that there were too many contrary indications to find that Forest Co held any of the proceeds on express trust for the investors.
Perhaps the putative trust property in this case was choses in action representing the benefit of Forest Co’s undertakings to AET. “Trust of a promise” analysis is peculiarly suited to multilateral commercial transactions. The tables then turn. Specific relief abates. The investors entitlement is only to enforce Forest Co’s obligations without priority over the lenders’ rights.