In brief: The High Court has held that the proceeds of a forestry investment scheme were not held on trust for the investors by the operators of the scheme. The decision emphasises that a trust will not arise unless the parties expressly declare their intention to create a trust, or if such an intention can be clearly inferred from the language of the parties and the commercial circumstances. Partner Matthew Whittle (view CV) and Lawyer Glyn Ayres report.


  • The High Court's decision provides comfort to secured creditors that their claims to the assets of insolvent companies are unlikely to be defeated by trusts inferred from the dealings of the companies, rather than expressly declared in contractual documents.
  • The decision also underlines that parties wishing to establish a managed investment scheme should actively consider whether they intend to create trusts and should clearly state any intention to do so.


On 25 September 2012, secured creditors of Gunns Limited and its subsidiaries appointed receivers and managers to each company in the Gunns Group. Before the appointment, the Group engaged in forestry, milling, and timber manufacturing.

This dispute concerned two companies in the Group, SEAS Sapfor Forests Pty Ltd (the Forest Company) and SEAS Sapfor Harvesting Pty Ltd (the Milling Company). On 6 March 1964, the Forest Company entered into a Trust Deed with Australian Executor Trustees (SA) Limited (AET) under which AET would act as trustee for investors who wished to participate in timber plantation schemes undertaken by the Companies. At the same time, AET and the Companies entered a Tripartite Deed which, together with the Trust Deed, provided that:

  • the Forest Company would promote the timber plantation schemes to investors;
  • the Milling Company would carry out various parts of the schemes, including marketing and selling the timber;
  • the Milling Company would pay to the Forest Company the proceeds of selling the timber after deducting the Milling Company's expenses;
  • the Forest Company would pay those proceeds, and also any proceeds from selling plantation land, to AET after deducting the Forest Company's expenses; and
  • AET would hold the proceeds on trust for the investors.

The issue in dispute was whether the Milling and Forest Companies also held the proceeds on trust for the investors before paying them to AET, or whether AET merely held a contractual right to the proceeds. If there was a trust, the investors' rights to the proceeds would take priority over the rights of the secured creditors of the Companies. If there was not a trust, AET would be an unsecured creditor of the Companies and the secured creditors would take priority.

Parties wishing to invest in the schemes signed 'Covenants' under which they agreed to be bound by the Trust Deed and the Tripartite Deed. Neither Deed expressly provided that the Companies were to be trustees of the investors. However, the Forest Company represented in prospectuses that investors would be entitled to an 'interest' in the scheme timber and in the 'value' of the land. The preamble to the Tripartite Deed also described scheme timber as the 'property' of investors.

The receivers argued at trial and before the Court of Appeal that these factors were insufficient to demonstrate an intention to create a trust between the Companies and the investors. If the parties had intended to create such a trust, they could have done so expressly — as they had done to create the trust between AET and the investors. However, both the trial judge and a majority of the Court of Appeal held that a trust had been created as a matter of 'commercial necessity' to protect the investors' interests from risks to the Companies that were extraneous to the schemes.1


The High Court unanimously allowed the receivers' appeal and held that the Companies did not hold the proceeds of the scheme on trust for the investors. The court emphasised that, for an express trust to arise, it is necessary for the parties to explicitly or impliedly demonstrate an intention to create a trust. Such an intention may be inferred from the commercial context and the dealings between the parties, but there must be certainty that the parties objectively intended to create a trust relationship.2 In this case, 'neither text nor context could elevate the propounded intention to the level of certainty'.3

Certain judicial comments from previous cases help to explain why the trial judge and the Court of Appeal majority concluded that a trust had been created. In Bahr v Nicolay (No 2),4 two judges of the High Court reasoned that an intention to create a trust may be inferred if a trust is 'the appropriate means of creating or protecting' a particular interest.5 Shortly thereafter, two judges commented in another case that the courts would look to 'the nature of the transaction and the circumstances, including commercial necessity' to infer the relevant intention.6 The Court of Appeal expanded on those statements in CSR v Snowy Hydro Limited,7 and relied on them in the present case to find that a trust was the appropriate means of protecting the investors' interests.

However, the High Court rejected this reasoning, emphasising that an express trust is an institution, not a remedy.8 Thus, it is necessary to determine that the parties actually demonstrated an intention to create a trust at the time they entered the relevant transaction. While an intention may be inferred from the commercial circumstances, a trust should not be inferred 'simply because a court thinks it is an appropriate means of protecting or creating an interest'.9

A number of factors reinforced the High Court's conclusion that there was no trust:10

  • The Trust Deed explicitly created a trust between AET and the investors, but not between the Companies and the investors.11
  • Despite AET's arguments to the contrary, the Companies were not required to keep the proceeds of the scheme in separate accounts.12
  • It was difficult to identify precisely what property was said to be subject to the trust.13
  • Under the legislative framework that regulated the scheme, an 'interest' was broadly defined and was not restricted to property rights.14
  • The Forest Company's prospectus stated that distributions of proceeds to investors would not be taxable income, which would be correct if their rights to the proceeds were 'simply contractual'15 but potentially incorrect if the investors had proprietary rights in the scheme.16
  • It may have been in the interests of the investors to create a trust, but that did not necessarily mean that the parties intended to do so or that a trust was a matter of commercial necessity.17


The High Court's decision is a reminder that express trusts are not to be retrospectively inferred by courts as a way of protecting the interests of particular parties. Instead, such trusts arise only if the parties demonstrated a clear intention to create them. Even where contractual documentation contains some indications of a trust, such as that a party is to be entitled to an 'interest' in 'property', it is unlikely that the courts will find that a trust exists without a clear statement of intention to create a trust of particular property.

Where some features of a contractual scheme and commercial context point to the existence of a trust while others point the other way, the courts are now more likely to find that there is no trust. Although 'commercial necessity' has survived as a potential basis for inferring an intention to create a trust, its force has been somewhat attenuated. The courts will look to the commercial context in which the parties operated when entering a transaction, as well as the language they used. However, absent a clear intention to create a trust, the courts will not devise one merely because they consider that a trust would be an appropriate means of protecting the interests of one or more of the parties.