When parties to commercial transactions wish to create a trust they usually do so by very clear language. But what if the parties have not been so clear or have in fact been silent on this point? A recent Supreme Court decision serves as a timely reminder of the way in which trusts can be inferred from the wider circumstances. What may seem like plain contractual obligations can in fact be trust obligations. The distinction can have a very significant impact on the rights of the parties, especially if the “trustee” party enters receivership or administration.


The case of Australian Executor Trustees (SA) Ltd v Korda & Ors [2013] VSC 7 involved a forestry investment scheme which dated from the mid 1960s. In very high level terms, the “Forest Company” was the manager of the scheme. The “Milling Company” was a related entity of the Forest Company. It provided the harvesting services and also handled the sales and marketing side of the venture.

One of the key documents establishing the scheme was a trust deed between the Forest Company and Australian Executor Trustees (AET) (an independent professional trustee company). Under the trust deed, AET held the benefit of various undertakings from the Forest Company on trust for the investors. One of the key undertakings was to pay the timber proceeds to AET who would in turn distribute the proceeds to the investors.

The Milling Company was not party to the trust deed. However, it was party to a separate tripartite agreement between the Milling Company, the Forest Company and AET. Under this agreement, the Milling Company was required to pay the timber proceeds (net of various costs) to the Forest Company who would in turn make its own deductions and then pay the balance of the proceeds to AET.

It is critical to note that whilst the trust deed and the tripartite agreement each made it very clear that AET was acting as trustee for the investors, none of the documents expressly stated that the Forest Company and the Milling Company were also acting as trustees for the investors. The trust deed and the tripartite agreement certainly imposed many contractual obligations on the Forest Company and the Milling Company, but they did not (at least on their face) contain any declarations or acknowledgements by the Forest Company or the Milling Company that they held the land, trees or proceeds on trust for the investors.

What happened to the trees … and the money?

As it eventuated, the Forest Company and the Milling Company were taken over by Gunns Limited. Contrary to a restriction in the trust deed, each granted fixed and floating charges over their assets in favour of Gunns’ financiers. The plantation trees and land were then sold. Some of the proceeds were used by Gunns for working capital purposes, including paying down Gunns’ overdraft.

Shortly afterwards, receivers were appointed to the Forest Company, the Milling Company and Gunns. The remaining proceeds were then transferred into a receivership account which was being used to fund the day to day operations of the receivership of Gunns.

The issue was whether the sale proceeds beneficially belonged to the investors. Whilst neither the Forest Company nor the Milling Company ever received the proceeds, the answer to this question had consequences in terms of the equitable remedies available against others (including Gunns, its receivers and financiers) who had been involved in the sale or received some of the funds.

Inferred Express Trust

The receivers argued that the Forest Company and the Milling Company were only subject to contractual obligations to manage the trees and pay amounts equal to the sale proceeds to AET. They highlighted that the tripartite agreement only obliged the Milling Company to pay the proceeds on an instalment basis, and that this was more characteristic of contract or debt, rather than trust.

The receivers also highlighted that none of the documents obliged the Forest Company or the Milling Company to maintain separate bank accounts, whereas this requirement was expressly imposed on AET under the trust deed. Further, they highlighted how the more traditional trust type terminology used by the documents in relation to AET’s handling of funds was quite different from the terminology used when referring to how the Forest Company and the Milling Company were to handle the funds. They argued that these differences evidenced a deliberate choice because, in their submissions, no trust was ever intended.

AET argued that whilst express words had not been used, it was the parties’ intention that a trust be created. It focused on the broader circumstances and pointed out that:

  • various prospectuses stated that each investment “provides for you an interest in a radiata pine plantation” and “a beneficial interest in the land value”;
  • the tripartite agreement recited that “the trees are the property of the [investors]”;
  • the tripartite agreement also referred to the trees as having been planted or acquired “for the benefit of the [investors]”; and
  • the tripartite agreement required the Forest Company and the Milling Company to keep books and accounts so it could be ascertained which moneys were allocated and apportioned to which investors.


The court concluded that there was an inferred trust for the benefit of the investors.

The court stated that an obligation to deal with funds in a particular way does not of itself mean that the obligor holds the funds on trust (see Compass Resources Ltd v Sherman and Jessup v Queensland Housing Commission). It also stated that an obligation to hold funds in a separate account is usually a compelling factor, but the absence of this requirement is not necessarily fatal. If there is no requirement for a separate bank account, then “other factors” are required to show that the funds are held on trust.

In this case, the other factors included:

  • the nature of the scheme went well beyond that of contractual parties such as lender and borrower;
  • there was nothing in the documents inconsistent with a relationship of trustee and beneficiary;
  • the trust deed and prospectuses were required by the investor protection provisions of the then applicable corporations law; and
  • it was unlikely that the parties intended a trust to only arise once the monies were received by AET i.e. at the very final stage just before AET paid the monies to the investors.

Ultimately, the court declared that “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 the [investors]”.


The decision serves as a timely reminder of the way in which trusts can be inferred from the circumstances. If it looks like a trust and smells like a trust, then there is a very good chance that it is a trust. The words in the documents are of course critical, but the wider surrounding circumstances (including the purpose and beneficiaries of the arrangement) should not be overlooked.

The decision has implications for commercial transactions beyond investment schemes. Similar to the ways in which resulting and Quistclose trusts can arise, inferred express trusts could conceivably arise in many commercial contexts. For example, arrangements involving escrows, retirement villages, pooling, group purchasing, joint ventures and distribution/agencies could all conceivably contain aspects which cross the line from contractual to trust based obligations. To avoid uncertainty, the prudent approach is to include express wording as to whether or not a trust is intended.

In the insolvency context, the possibility of inferred trusts means that extra care needs to be taken by receivers, administrators and liquidators when dealing with what may in fact be trust assets, rather than just assets the subject of unsecured contractual rights. Even outside of the insolvency context, care needs to be given about what warranties and other assurances can be given by a vendor of what may be trust assets. Purchasers of such assets (and more especially, purchasers of entities that hold such assets) also need to be conscious of the issue.

Finally, consideration should be given to whether the beneficial interest under an inferred trust is a security interest to which the Personal Property Securities Act 2009 (Cth) applies. Since an inferred trust is a type of express trust based on the presumed (inferred) intention of the parties, it arguably does not arise by operation of law and therefore may not be exempt from the PPSA.