Appeal court in Australia dismisses appeal by Gunns receivers, upholds Victorian Supreme Court's decision that investors' funds used to acquire land, plant and harvest timber, were held on trust for investors in forestry plantation schemes

, May 28, 2014 () – Korda & Ors v Australian Executor Trustees (SA) Limited [2014] VSCA 65

In a landmark case, the Victorian Supreme Court of Appeal has upheld the Supreme Court's decision that assets held by certain companies in the Gunns Group were held on trust for investors in forestry plantation schemes.

By a majority of two to one, the Court dismissed an appeal brought by the receivers (acting on behalf of the secured creditors) of the Gunns Group of companies. Sparke Helmore represented the respondent, Australian Executor Trustees (AET), in the matter.

AET is the trustee of investors' funds raised by companies that are now part of the Gunns group. The funds were raised through the issue of a number of prospectuses and used for the purpose of acquiring land and planting and harvesting timber. Following the sale of the land and timber, a dispute arose as to whether the sale proceeds were held on trust for the benefit of the investors, or the return of the proceeds amounted to a debt owed to investors as unsecured creditors.

What did the court decide?

The Court of Appeal decided that looking at all of the circumstances of the matter, including the relevant trust documents and investment prospectuses, a trust existed in favour of investors at all times with respect to the assets managed by the Gunns companies, including any proceeds of the sale of those assets.

Maxwell P and Osborn JA, in the majority held that:

the Court's enquiry should not be limited to the formal trust documents executed in March 1964 in determining whether there was an intention to create a trust, but should also be directed at the commercial setting in which the interests were acquired in the 1980's
rules which govern contractual interpretation have no application in considering whether the parties intended to create a trust
commercial necessity and the outward indications of that intention are factors to be should be considered in deciding whether the parties intended to create a trust, even if the intention to create a trust is not expressly stated, and
statements in the relevant prospectuses, which were intended to provide investors with comfort as to the security of their long-term investment when read with the terms of the formal documents, gave rise to a trust in their favour to protect that investment.

Accordingly, the receivers' appeal was dismissed with costs in favour of AET.

What does this mean?

A trust may exist in a commercial setting even if there is not an express statement to that effect. When determining whether a trust exists, all the surrounding circumstances must be considered, and the enquiry is not limited by the rules governing contractual interpretation of the specific trust documents.

What next?

The matter will now return to the Supreme Court of Victoria to determine the remainder of the issues in dispute. This includes the entitlement of investors to recoup proceeds of sale of the trust assets that were paid to the secured creditors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Ben Burney
Sparke Helmore Lawyers
Level 16
321 Kent Street
Tel: 293733555
Fax: 293733599

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