Korda & Ors v Australian Executor Trustees (SA)
Limited  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
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
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
rules which govern contractual interpretation have no
application in considering whether the parties intended to create a
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
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.
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.
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